As filed with the Securities and Exchange Commission on July 2, 1999.
Registration No's. 333- and 333-
----- -----
=======================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
-----------------------
TXU EASTERN FUNDING COMPANY TXU EASTERN HOLDINGS LIMITED
(EXACT NAME OF REGISTRANT AS (EXACT NAME OF REGISTRANT AS
SPECIFIED IN ITS CHARTER) SPECIFIED IN ITS CHARTER)
ENGLAND AND WALES ENGLAND AND WALES
(STATE OR OTHER JURISDICTION OF (STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) INCORPORATION OR ORGANIZATION)
7389 6719
(Primary Standard Industrial (Primary Standard Industrial
Classification Code Number) Classification Code Number)
98-0203668 98-0188080
(I.R.S. Employer (I.R.S. Employer
Identification No.) Identification No.)
Crown House Crown House
51 Aldwych 51 Aldwych
London, England WC2B 4AX London, England WC2B 4AX
011-44-171-420-4000 011-44-171-420-4000
(ADDRESS, INCLUDING ZIP CODE, (ADDRESS, INCLUDING ZIP CODE,
AND TELEPHONE NUMBER, INCLUDING AND TELEPHONE NUMBER,INCLUDING
AREA CODE, OF REGISTRANT'S AREA CODE, OF REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICES) PRINCIPAL EXECUTIVE OFFICES)
ROBERT A. WOOLDRIDGE, PETER B. TINKHAM, ROBERT J. REGER, JR.,
Esq. Esq. Esq.
Worsham, Forsythe & Secretary Thelen Reid & Priest LLP
Wooldridge, L.L.P. TXU Corp 40 West 57th Street
1601 Bryan Street 1601 Bryan Street New York, New York 10019
Dallas, Texas 75201 Dallas, Texas 75201 (212) 603-2000
(214) 979-3000 (214) 812-4600
(NAMES AND ADDRESSES, INCLUDING ZIP CODES, AND TELEPHONE NUMBERS,
INCLUDING AREA CODES, OF AGENTS FOR SERVICE)
-----------------------
It is respectfully requested that the Commission send copies of
all notices, orders and communications to:
RICHARD L. HARDEN, Esq. JOHN BUCHANAN PHILIP ELLIS
Winthrop, Stimson, Secretary, TXU Secretary, TXU Eastern
Putnam & Roberts Eastern Funding Holdings Limited
One Battery Company c/o Eastern Group plc
Park Plaza c/o Eastern Group plc Wherstead Park
New York, New York Wherstead Park Ipswich, Suffolk,
10004-1490 Ipswich, Suffolk, England IP9 2AQ
(212) 858-1000 England IP9 2AQ 011-44-1473-55-3102
011-44-1473-55-3102
Approximate date of commencement of proposed sale of the
securities to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES
EFFECTIVE.
If the securities being registered on this Form are being
offered in connection with the formation of a holding company and
there is compliance with General Instruction G, check the
following box. [ ]
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
number of the earlier effective registration statement for the
same offering. [ ]
---------
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
[ ]
---------
CALCULATION OF REGISTRATION FEE
=======================================================================
Proposed
maximum Proposed
Title of each offering maximum
class of price aggregate Amount of
securities to Amount to be per offering registration
be registered registered unit(1) price(1) fee(1)
-----------------------------------------------------------------------
6.15% Exchange
Senior Notes $350,000,000 100% $350,000,000 $ 95,480
-----------------------------------------------------------------------
6.45% Exchange
Senior Notes $650,000,000 100% $650,000,000 $173,355
-----------------------------------------------------------------------
6.75% Exchange
Senior Notes $500,000,000 100% $500,000,000 $130,151
-----------------------------------------------------------------------
Guarantees by
TXU Eastern
Holdings
Limited with
respect to
the Exchange
Senior Notes(2)
-----------------------------------------------------------------------
Total $1,500,000,000 100% $1,500,000,000 $398,986
=======================================================================
(1) The filing fee has been calculated pursuant to Rule
457(f)(1) promulgated under the Securities Act of 1933 using
June 25, 1999 as the specified date. Pursuant to Rule
457(n) under the Securities Act of 1933, no separate fee
is payable with respect to the Guarantees by TXU Eastern
Holdings Limited with respect to the Exchange Senior Notes.
(2) No separate consideration will be received for the
Guarantees of the Exchange Senior Notes.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON
SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE
DATE UNTIL THE REGISTRANTS SHALL FILE A FURTHER AMENDMENT WHICH
SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL
THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND
EXCHANGE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
===================================================================
<PAGE>
The information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell or the
solicitation of an offer to buy these securities in any
jurisdiction in which an offer, solicitation or sale is not
permitted.
Subject to Completion, dated , 1999
--------
PROSPECTUS
TXU EASTERN FUNDING COMPANY
OFFER TO EXCHANGE ANY OR ALL OF ITS
$350,000,000 $650,000,000 $500,000,000
6.15% SENIOR NOTES 6.45% SENIOR NOTES 6.75% SENIOR NOTES
DUE MAY 15, 2002 DUE MAY 15, 2005 DUE MAY 15, 2009
FOR FOR FOR
6.15% EXCHANGE 6.45% EXCHANGE 6.75% EXCHANGE
SENIOR NOTES SENIOR NOTES SENIOR NOTES
DUE MAY 15, 2002 DUE MAY 15, 2005 DUE MAY 15, 2009
All of the senior notes and the exchange senior notes are
guaranteed by
TXU EASTERN HOLDINGS LIMITED
. The exchange offer and your right to withdraw your
tender of senior notes will expire at 5:00 p.m., New
York City time, on (), 1999 unless extended by Funding
and Holdings.
. The exchange offer is subject to customary conditions.
Funding and Holdings may decide not to accept tenders
that do not comply with those conditions or may waive
them.
. The terms of each series of the exchange senior notes
are substantially identical to the corresponding series
of senior notes, except for certain transfer
restrictions and registration rights relating to the
senior notes.
. Funding and Holdings will not receive any proceeds from
the exchange offer.
. Funding and Holdings are not using an underwriter in
connection with the exchange offer.
. Funding and Holdings have applied to list the exchange
senior notes on the Luxembourg Stock Exchange.
INVESTING IN THE EXCHANGE SENIOR NOTES INVOLVES RISKS.
RISK FACTORS BEGINS ON PAGE ().
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE
SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Prospectus is (), 1999.
<PAGE>
TABLE OF CONTENTS
ENFORCEABILITY OF CIVIL LIABILITIES . . . . . . . . . . . . . 4
PRESENTATION OF CURRENCY, FINANCIAL AND OTHER INFORMATION . . 4
UK SELLING RESTRICTIONS . . . . . . . . . . . . . . . . . . . 4
FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . 4
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . 17
TXU EASTERN HOLDINGS LIMITED . . . . . . . . . . . . . . . . 21
EASTERN GROUP plc . . . . . . . . . . . . . . . . . . . . . . 21
TXU EASTERN FUNDING COMPANY . . . . . . . . . . . . . . . . . 21
OWNERSHIP STRUCTURE . . . . . . . . . . . . . . . . . . . . . 22
CAPITALIZATION OF TXU EASTERN HOLDINGS LIMITED . . . . . . . 23
EXCHANGE RATES . . . . . . . . . . . . . . . . . . . . . . . 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . 25
INDUSTRY BACKGROUND . . . . . . . . . . . . . . . . . . . . . 38
EASTERN BUSINESS OVERVIEW . . . . . . . . . . . . . . . . . . 45
SECURITY OWNERSHIP . . . . . . . . . . . . . . . . . . . . . 62
MANAGEMENT OF TXU EASTERN FUNDING COMPANY . . . . . . . . . . 62
MANAGEMENT OF TXU EASTERN HOLDINGS LIMITED . . . . . . . . . 63
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . 65
MANAGEMENT OF EASTERN GROUP plc . . . . . . . . . . . . . . . 65
EXCHANGE OFFER . . . . . . . . . . . . . . . . . . . . . . . 67
DESCRIPTION OF THE EXCHANGE SENIOR NOTES . . . . . . . . . . 75
CERTAIN INCOME TAX CONSIDERATIONS . . . . . . . . . . . . . . 93
PLAN OF DISTRIBUTION . . . . . . . . . . . . . . . . . . . . 99
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . 100
LEGAL REVIEW . . . . . . . . . . . . . . . . . . . . . . . . 100
LEGALITY . . . . . . . . . . . . . . . . . . . . . . . . . . 100
NATURE OF FINANCIAL INFORMATION . . . . . . . . . . . . . . . 100
WHERE YOU CAN FIND MORE INFORMATION . . . . . . . . . . . . . 101
LUXEMBOURG STOCK EXCHANGE AND OTHER INFORMATION . . . . . . . 102
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . F-1
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. TXU EASTERN FUNDING COMPANY (FUNDING) AND TXU
EASTERN HOLDINGS LIMITED (HOLDINGS) HAVE NOT AUTHORIZED ANYONE TO
PROVIDE YOU WITH DIFFERENT INFORMATION. IF ANYONE PROVIDES YOU
WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT RELY
ON IT. FUNDING AND HOLDINGS ARE NOT MAKING AN OFFER OF THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER IS NOT PERMITTED.
YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN THIS
PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE
FRONT COVER OF THIS PROSPECTUS. THE BUSINESS PROFILE, FINANCIAL
CONDITION, RESULTS OF OPERATIONS AND PROSPECTS OF FUNDING AND
HOLDINGS MAY HAVE CHANGED SINCE THAT DATE.
This prospectus incorporates important information about the
exchange senior notes that is not included in or delivered with
this prospectus. See WHERE YOU CAN FIND MORE INFORMATION. You
may obtain copies of documents containing that information from
Holdings, without charge, by either calling or writing to:
2
<PAGE>
TXU Eastern Holdings TXU Eastern Holdings
Limited Limited
Crown House c/o TXU Corp
51 Aldwych or Secretary's Office
London WC2B 4AX 1601 Bryan Street
England Dallas, TX 75201
Telephone: USA
011-44-171-420-4000. Telephone: 214-812-4600
In order to obtain timely delivery, you must request
documents from Holdings no later than (), which is five business
days before the expiration date of the exchange offer on ().
3
<PAGE>
ENFORCEABILITY OF CIVIL LIABILITIES
Funding is a private unlimited company and Holdings is a
private limited company. Each is incorporated under the laws of
England and Wales. Substantially all the assets of Funding and
Holdings are located outside the US. As a result, it may not be
possible for investors to effect service of process within the US
upon Funding or Holdings or to enforce against either of them, in
original actions or in actions for enforcement of judgments of US
courts, civil liabilities based upon US securities laws.
Funding and Holdings have appointed Thelen Reid & Priest
LLP, New York, New York, as their authorized agent upon which
process may be served in any action arising out of or based upon
the indenture, the exchange senior notes, the guarantee, the
deposit agreement or the registration rights agreement that may
be instituted in any US Federal or state court having subject
matter jurisdiction in the Borough of Manhattan, The City of New
York, New York, and have consented to the jurisdiction of those
courts in any such action or proceeding.
PRESENTATION OF CURRENCY, FINANCIAL AND OTHER INFORMATION
Holdings publishes its consolidated financial statements in
pounds sterling. In this prospectus, references to "pounds
sterling," "GBP," "pence" or "(pounds sterling)" are to currency
of the United Kingdom (UK) and references to "US dollars," "US$"
or "$" are to US currency. References to "NLG" are to currency
of The Netherlands. As used in this prospectus, "US GAAP" means
US generally accepted accounting principles and "UK GAAP" means
UK generally accepted accounting principles. References to "MW"
are to megawatts, "MWh" are to megawatt hours, "kW" are to
kilowatts, "kWh" are to kilowatt hours, "TWh" are to terawatt
hours, "GW" are to gigawatts, "GWh" are to gigawatt hours, "kV"
are to kilovolts and "LV" are to low volts.
For the convenience of the reader, this prospectus contains
translations of certain pounds sterling amounts into US dollars
at specified rates, or, if the rate has not been specified, at
the noon buying rate in New York City for cable transfers in
pounds sterling as certified for customs purposes by the Federal
Reserve Bank of New York (Noon Buying Rate) on March 31, 1999 of
$1.61 = (pounds sterling)1.00. Funding and Holdings do not make
any representation that the pounds sterling amounts have been,
could have been or could be converted into US dollars at the
rates indicated or at any other rates. See EXCHANGE RATES for
historical information regarding Noon Buying Rates.
UK SELLING RESTRICTIONS
There are restrictions on the offer and sale of beneficial
interests in the exchange senior notes in the UK. Anything done
by any person in relation to the exchange senior notes involving
the UK must comply with all applicable provisions of the UK
Financial Services Act 1986 and the UK Public Offers of
Securities Regulations 1995. See PLAN OF DISTRIBUTION.
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements within
the meaning of Section 27A of the Securities Act. Funding and
Holdings have based these forward-looking statements on their
current expectations and projections about future events and
assumptions they believe to be reasonable. These forward-looking
statements are subject to risks, uncertainties and assumptions
about Funding, Holdings and Holdings' subsidiaries that could
cause the actual results of Funding or Holdings to differ
materially from those projected in any forward-looking statement,
including, among other things:
4
<PAGE>
. general economic and business conditions in the UK and
in the service area for Eastern Electricity plc
(Eastern Electricity), formerly Eastern Electricity's
authorized area, which has been opened to competition;
. unanticipated changes in interest rates, in rates of
inflation, or in foreign exchange rates;
. prevailing governmental, statutory, regulatory or
administrative policies and initiatives affecting
Holdings, its subsidiaries or the UK or European
electric and gas utility industries;
. general industry trends;
. competition;
. power costs and availability;
. changes in business strategy, development plans or
vendor relationships;
. availability, terms and deployment of capital and
capital market conditions;
. availability of qualified personnel;
. changes in, or the failure or inability to comply with,
governmental regulations, including, among other
things, environmental regulations;
. changes in tax laws;
. weather conditions and other natural phenomena;
. unanticipated population growth or decline, and changes
in market demand and demographic patterns;
. access to adequate transmission facilities to meet
changing demand;
. pricing and transportation of oil, coal, natural gas
and other commodities;
. unanticipated changes in operating expenses and capital
expenditures;
. inability of various counterparties to meet their
obligations with respect to financial instruments;
. changes in technology used and services offered by
Eastern Group plc (Eastern), which is an indirect
subsidiary of Holdings;
. unanticipated problems related to Eastern's internal
Year 2000 (Y2K) initiative and potential adverse
consequences related to Y2K non-compliance of third
parties; and
. other factors described in this prospectus.
Any forward-looking statements speak only as of the date of
this prospectus. Funding and Holdings undertake no obligation to
publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise. In
light of these risks, uncertainties and assumptions, the forward-
looking events discussed in this prospectus might not occur.
5
<PAGE>
SUMMARY
This summary may not contain all the information that may be
important to you. You should read the entire prospectus,
including the financial data and related notes, before making an
investment decision.
SUMMARY CORPORATE STRUCTURE
[Chart of Corporate Structure appears here.]
TXU EASTERN HOLDINGS LIMITED AND TXU EASTERN FUNDING COMPANY
Holdings is a private limited company (Company No. 3505836)
incorporated under the laws of England and Wales on February 5,
1998. It is an indirect wholly-owned subsidiary of Texas
Utilities Company, doing business as TXU Corp, and is a holding
company for TXU Corp's UK operations.
Funding is a private unlimited company (Company No. 3710529)
incorporated on February 4, 1999 under the laws of England and
Wales. It is a wholly-owned indirect subsidiary of Holdings.
Funding was organized solely to provide financing for the
operations of Holdings and its subsidiaries.
Holdings' and Funding's principal offices are located at
Crown House, 51 Aldwych, London WC2B 4AX, England, and the
telephone number is (011) 44 171 420 4000.
6
<PAGE>
EASTERN GROUP PLC
Eastern, which is an indirect subsidiary of Holdings, is the
holding company for a leading integrated energy business in the
UK. Its principal business operations are electricity networks
and energy businesses in the UK. As used in this prospectus,
"Eastern" refers to Eastern Group plc and its consolidated
subsidiaries, except as the context otherwise requires.
The networks business of Eastern is the largest distributor
of electricity in England and Wales, with over 3 million
customers in an authorized service area covering approximately
20,300 square kilometers in the east of England and parts of
north London.
The energy businesses incorporate retailing of electricity
and gas as well as electric power generation, gas production and
energy portfolio management operations. Eastern is the fourth
largest generator of electricity in the UK. It currently owns,
operates or has an interest in approximately 9.4% of the total UK
generating capacity. Eastern's energy business is also one of
the largest retailers of electricity and natural gas in England
and Wales, with approximately 4.0 million electric and natural
gas customers. Eastern is also forming business alliances with
European power companies in order to position itself to implement
its integrated energy business strategy across the rest of
Europe, as these markets open to competition.
THE PRIVATE OFFERING OF THE SENIOR NOTES
Senior Notes . . . . . . . On May 13, 1999, Funding issued and
sold beneficial interests in
$350,000,000 aggregate principal
amount of its 6.15% senior notes,
$650,000,000 aggregate principal
amount of its 6.45% senior notes and
$500,000,000 aggregate principal
amount of its 6.75% senior notes.
The offering of the senior notes was
exempt from registration under the
Securities Act. The initial
purchasers of the senior notes sold
beneficial interests in the senior
notes to qualified institutional
buyers under Rule 144A and to non-US
persons under Regulation S. All the
senior notes originally issued are
outstanding.
THE EXCHANGE OFFER
Funding and Holdings have agreed to use their best efforts
to complete the exchange offer for the senior notes by (), 1999.
The terms of the exchange offer, which are specified in greater
detail in EXCHANGE OFFER and in the accompanying Letter of
Transmittal, include the following:
The Exchange Offer . . . . Funding and Holdings are offering to
exchange Funding's 6.15% exchange
senior notes, Funding's 6.45%
exchange senior notes and Funding's
6.75% exchange senior notes, in
principal amounts of $10,000 and
integral multiples of $1,000 for
amounts in excess of $10,000, for
equal principal amounts of Funding's
6.15% senior notes, Funding's 6.45%
senior notes and Funding's 6.75%
senior notes, respectively, that are
properly tendered and accepted.
Funding will issue the exchange
senior notes on or promptly after
the expiration date. See EXCHANGE
OFFER.
7
<PAGE>
Resale of the Exchange
Senior Notes . . . . . . . Funding and Holdings believe that
beneficial interests in the exchange
senior notes may be offered for
resale, resold and otherwise
transferred by most owners thereof
without further compliance with the
registration and prospectus delivery
requirements of the Securities Act.
This belief is based upon existing
interpretations of the staff of the
SEC's Division of Corporation
Finance set forth in several no-
action letters and subject to
important restrictions described in
EXCHANGE OFFER --"Purpose and Effect
of the Exchange Offer." Funding and
Holdings do not intend to seek their
own no-action letter. There can be
no assurance that the staff of the
SEC's Division of Corporation
Finance would make a similar
determination about the exchange
senior notes as it has in no-action
letters about exchanges of the
securities of other companies.
Senior notes that are not tendered
for exchange will continue to be
subject to transfer restrictions and
will not have registration rights.
Therefore, the market for secondary
resales of any senior notes that are
not tendered for exchange is likely
to be minimal.
Expiration Date . . . . . . The exchange offer will expire at
5:00 p.m., New York City time, on
(), 1999, or a later time as to
which it is extended. Funding and
Holdings will accept for exchange
any and all beneficial interests in
the senior notes which are properly
tendered in the exchange offer prior
to that time. The beneficial
interests in the exchange senior
notes issued pursuant to the
exchange offer will be delivered on
or promptly after that date.
Conditions of the
Exchange Offer . . . . . . Funding and Holdings will be
required to complete the exchange
offer only if specific conditions
are satisfied. If any of the
conditions to the exchange offer are
not satisfied, however, Funding and
Holdings may nevertheless waive them
and complete the exchange offer.
See EXCHANGE OFFER --"Conditions."
Funding and Holdings may terminate
or amend the exchange offer at any
time prior to the expiration date.
Procedures for
Beneficial Owners . . . . If you are an owner of a beneficial
interest in the senior notes and if
you want to tender your interest in
the senior notes in the exchange
offer, you must contact your
securities intermediary and instruct
it to tender on your behalf.
Withdrawal Rights . . . . . You may withdraw your tender of
beneficial interests in the senior
notes through your securities
intermediary at any time prior to
5:00 p.m., New York City time, on
the expiration date.
8
<PAGE>
Special Procedures
for Holders of
Registered
Certificates for
Senior Notes . . . . . . . In the event there are certificated
registered senior notes, an
appropriate Letter of Transmittal
and specific instructions will be
delivered to registered holders.
When a holder executes a Letter of
Transmittal, it is making
representations to Funding and
Holdings.
Exchange Agent . . . . . . The Bank of New York, New York.
THE EXCHANGE SENIOR NOTES
The Exchange Senior Notes . $350,000,000 principal amount of
Funding's 6.15% exchange senior
notes due May 15, 2002.
$650,000,000 principal amount of
Funding's 6.45% exchange senior
notes due May 15, 2005.
$500,000,000 principal amount of
Funding's 6.75% exchange senior
notes due May 15, 2009.
Interest Accrual . . . . . Interest on each exchange senior
note will accrue from the date of
the last interest payment on the
senior note tendered. If no
interest has been paid on the senior
notes, interest will accrue from the
date of issuance of the senior
notes.
Interest Payment Dates . . Interest will be paid on May 15 and
November 15 of each year, beginning
November 15, 1999.
Guarantee . . . . . . . . . Payments on the exchange senior notes
will be fully, unconditionally and
irrevocably guaranteed by Holdings.
Ratings . . . . . . . . . . The exchange senior notes are expected
to be assigned ratings of BBB+ by
Standard & Poor's Ratings Services
and Baa1 by Moody's Investors Service,
Inc., the same ratings as those
currently assigned to the senior
notes. These ratings will have
been obtained with the understanding
that the rating agencies will
continue to monitor the credit
ratings of Funding and Holdings,
and will make future adjustments
when they feel it is necessary.
A rating reflects only the view of
a rating agency. It is not a
recommendation to buy, sell or hold
the exchange senior notes. Any
rating can be revised upward or
downward or withdrawn at any
time by a rating agency, if it
decides the circumstances warrant
that change.
Ranking . . . . . . . . . . The exchange senior notes will be
unsecured and unsubordinated
obligations of Funding and will
rank equally with all other
existing and future unsecured and
unsubordinated indebtedness of
Funding.
9
<PAGE>
The guarantee will be an unsecured
and unsubordinated obligation
of Holdings. The guarantee will
rank equally with all other existing
and future unsecured and
unsubordinated indebtedness of
Holdings. Because Holdings is a
holding company, the guarantee
will be effectively subordinated
to existing and future liabilities
and preference share capital of
Holdings' subsidiaries, with some
exceptions.
The indenture does not limit the
amount of unsecured debt Funding
or Holdings or any of their
respective subsidiaries may incur.
The indenture contains restrictions
on the ability of Funding, Holdings
and significant subsidiaries of
Holdings to incur secured
indebtedness unless the same
security is also provided for the
benefit of holders of the senior
notes. See RISK FACTORS and
DESCRIPTION OF THE EXCHANGE
SENIOR NOTES.
Funding has no operations or assets.
Holdings derives substantially all
of its income from its operating
subsidiaries. Therefore, the ability
of Funding and Holdings to make
payments on the exchange senior
notes or the guarantee is dependent
upon the cash flows of Holdings'
operating subsidiaries. See
DESCRIPTION OF THE EXCHANGE SENIOR
NOTES -- "Guarantee of Holdings;
Effective Priority of Subsidiary
Obligations."
Optional Redemption . . . . Funding may redeem the 6.45% exchange
senior notes and the 6.75% exchange
senior notes in whole at any time or
in part from time to time prior to
maturity, at a redemption price which
includes a make-whole premium. See
DESCRIPTION OF THE EXCHANGE SENIOR
NOTES -- "Redemption" for additional
information regarding redemption
prices.
The 6.15% exchange senior notes may
not be redeemed prior to maturity
except as described in "Additional
Amounts; Tax Redemption" below.
Additional Amounts;
Tax Redemption . . . . . . Any payments made by Funding or
Holdings under the exchange
senior notes or the guarantee
generally will be made without
withholding or deduction for
taxes unless required by law. If
required to withhold or deduct
taxes from payments due under the
exchange senior notes or the
guarantee, then, subject to
exceptions specified in the
indenture, at their option, either:
. Funding or Holdings will pay
any Additional Amounts necessary
so that the net amount you
receive after that withholding
or deduction will not be less
10
<PAGE>
than the amount that you would
have received in the absence of
the withholding or deduction; or
. Funding will redeem all but not
part of the exchange senior notes
at par plus accrued interest.
See DESCRIPTION OF THE EXCHANGE SENIOR
NOTES --"Additional Amounts" and
"Optional Redemption to Avoid Additional
Amounts" for additional information.
References in this prospectus to
payments made on the exchange senior
notes or under the guarantee include
any Additional Amounts that are required
to be paid.
Listing . . . . . . . . . . Funding has applied to list the
exchange senior notes on the
Luxembourg Stock Exchange.
Form and Denomination . . . Each series of the exchange senior
notes will be represented by one or
more global exchange senior notes in
bearer form. Certificates for these
global exchange senior notes will be
deposited with The Bank of New York,
as book-entry depositary, for the
benefit of DTC and its participants.
You will not receive exchange senior
notes in certificated form unless one
of the events described under the
heading DESCRIPTION OF THE EXCHANGE
SENIOR NOTES --"Form, Book-Entry
Procedures and Transfer" occurs.
Instead, the book-entry depositary
will issue to DTC one or more
certificateless book-entry interests
representing each global exchange
senior note. DTC will operate a system
of dealing in the book-entry interests
by maintaining records of interests
of DTC participants in book-entry
interests.
Beneficial interests in the exchange
senior notes will be shown on, and
transfers of these interests will
be effected only through, records
maintained in book-entry form by
DTC and its direct and indirect
participants, including, in the case
of global exchange senior notes sold
under Regulation S, depositaries for
The Euroclear System and Cedelbank,
societ anonyme.
Beneficial interests in exchange
senior notes will be in minimum
principal amounts of $10,000 and
multiples of $1,000 for amounts
over $10,000.
Same Day Settlement . . . . Beneficial interests in the exchange
senior notes will trade in DTC's
Same-Day Funds Settlement System
until maturity or redemption.
Therefore, secondary market trading
activity in those interests will be
settled in immediately available
funds. See DESCRIPTION OF THE
EXCHANGE SENIOR NOTES --"Form,
Book-Entry Procedures and Transfer;
Transfers and Settlement."
11
<PAGE>
Trustee and Transfer
Agent . . . . . . . . . . The Bank of New York, New York.
Paying Agents . . . . . . . The Bank of New York, New York and
Kredietbank SA Luxembourgeoise.
Listing Agent . . . . . . . Kredietbank SA Luxembourgeoise.
Book-Entry Depositary
under Deposit Agreement . The Bank of New York, New York.
Governing Law . . . . . . . The exchange senior notes, the
guarantee, the indenture and the
deposit agreement relating to the
exchange senior notes will be
governed by, and construed in
accordance with, the laws of the
State of New York.
12
<PAGE>
SELECTED FINANCIAL INFORMATION
For financial reporting purposes, Eastern is considered to
be the "Predecessor Company" to Holdings. The selected financial
data of Eastern set forth below for, and as of, each of the four
years in the period ended March 31, 1998 and for the period from
April 1, 1998 through May 18, 1998, have been derived from
financial statements of Eastern, which have been audited by
PricewaterhouseCoopers, independent auditors. The financial
statements of Eastern for each of the four years in the period
ended March 31, 1998 have been prepared in accordance with UK
GAAP. The financial statements of Eastern for the years ended
March 31, 1997 and 1998 also have been prepared in accordance
with US GAAP. Eastern's financial statements for the period from
April 1, 1998 through May 18, 1998 have been prepared in
accordance with US GAAP.
The selected financial data of Holdings set forth below for
the period from formation (February 5, 1998) through December 31,
1998, for the period from formation through March 31, 1999 and as
of December 31, 1998 and March 31, 1999, have been derived from
financial statements of Holdings, which have been audited by
PricewaterhouseCoopers, independent auditors. The financial
statements of Holdings have been prepared in accordance with US
GAAP. Results of Holdings for the period from formation through
December 31, 1998 and for the period from formation through March
31, 1999 are not indicative of results for an annual period.
Because Holdings obtained control of The Energy Group PLC (TEG)
(now known as Energy Holdings (No. 3) Limited), the former
holding company of Eastern, on May 19, 1998, earnings of Eastern
are not reflected in Holdings' results prior to May 19, 1998,
other than as a result of Holdings' 22% equity interest in the
net income of TEG for the period from March through May 18, 1998.
In addition, Holdings' operations are affected by seasonal
weather patterns.
For more information, see MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS and the
consolidated financial statements and related notes of Eastern as
of March 31, 1998 and for the two years in the period then ended,
and for the period from April 1, 1998 through May 18, 1998 and of
Holdings for the period from formation through December 31, 1998
and for the period from formation through March 31, 1999 included
elsewhere in this prospectus.
Holdings' unaudited pro forma condensed consolidated income
statement and other consolidated data presented below for the
year ended December 31, 1998 reflect the acquisition by Holdings
of TEG as if it had occurred as of January 1, 1998. That
unaudited pro forma condensed consolidated income statement and
other consolidated data have been prepared by Holdings from US
GAAP historical information and assumptions deemed proper by it
and include the effects of an allocation of the purchase price
paid. The unaudited pro forma condensed consolidated income
statement and other data presented in this prospectus are shown
for illustrative purposes only and are not necessarily indicative
of the future results of operations of Holdings or of the results
of operations of Holdings that would have actually occurred had
the transaction occurred as of January 1, 1998. This information
should be read in conjunction with the unaudited pro forma
condensed consolidated statement of income and notes thereto of
Holdings included elsewhere in this prospectus.
13
<PAGE>
EASTERN GROUP PLC
(PREDECESSOR COMPANY)
UK GAAP US GAAP
--------------------------- ------------------------
PERIOD
FROM
YEAR ENDED MARCH 31, APRIL 1,
------------------------------------------ 1998
THROUGH
MAY 18,
1995 1996 1997 1998(1) 1997 1998(1) 1998(2)
---- ---- ---- ------ ---- ------ -------
((POUNDS STERLING) MILLION)
CONSOLIDATED INCOME
STATEMENT DATA:
Operating
revenues . . . . 2,061 2,119 2,984 3,475 2,984 3,475 425
Operating
income/(loss) . . 244 43 346 337 298 267 (11)
Net income/(loss) 141 221 265 49 (90) (38) (21)
UK GAAP US GAAP
----------------------------- -------------
AS OF MARCH 31,
---------------------------------------------
1995 1996 1997 1998(1) 1997 1998(1)
---- ---- ---- ------- ---- -------
((POUNDS STERLING) MILLION)
CONSOLIDATED BALANCE
SHEET DATA:
Total assets . . 2,053 2,364 3,709 3,888 5,422 5,826
Common stock
equity . . . . . 832 1,189 1,314 1,167 2,025 1,802
Minority interest (1) (2) 19 6 19 6
Long-term debt and
other obligations,
less amounts
due currently. . 484 682 1,466 1,499 1,837 1,976
PERIOD
FROM
APRIL 1,
YEAR ENDED 1998
MARCH 31, THROUGH
------------- MAY 18,
1997 1998 1992(2)
---- ---- --------
((POUNDS STERLING)MILLION)
CONSOLIDATED CASH
FLOW DATA:
Operating
activities . . . 292 341 74
Investing
activities . . . (229) (234) (78)
Financing
activities . . . (316) 121 16
UK GAAP(1) US GAAP(1)
-------------------------- -----------------------
PERIOD
FROM
YEAR ENDED MARCH 31, APRIL 1,
------------------------------------------ 1998
THROUGH
MAY 18,
1995 1996 1997 1998(1) 1997 1998(1) 1998(2)
---- ---- ---- ------- ---- ------- -------
((POUNDS STERLING) MILLION, EXCEPT RATIOS)
OTHER CONSOLIDATED
DATA:
EBIT
(unaudited)(3) . 217 280 364 347 303 277 (10)
EBITDA
(unaudited)(3) . 273 345 436 436 464 462 16
Ratio of earnings
to fixed charges
(unaudited)(4) . 5.8 4.9 4.2 2.6 2.5 1.7 0.1
Net interest
expense . . . . 14 22 46 85 88 126 16
14
<PAGE>
TXU EASTERN HOLDINGS LIMITED
(SUCCESSOR COMPANY)
US GAAP
PERIOD FROM
FORMATION
(FEBRUARY 5, PERIOD FROM PRO FORMA
1998) FORMATION YEAR ENDED
THROUGH DECEMBER THROUGH MARCH DECEMBER 31,
31, 1998(2) 31, 1999(2) 1998(5)
---------------- -------------- ---------
((POUNDS STERLING) MILLION) (UNAUDITED)
CONSOLIDATED INCOME
STATEMENT DATA:
Operating revenues 2,165 3,338 3,690
Operating income . 314 484 508
Net income . . . . 77 126 94
AS OF DECEMBER AS OF MARCH 31,
31, 1998 1999(2)
-------------- ---------------
((POUNDS STERLING) MILLION)
CONSOLIDATED BALANCE
SHEET DATA:
Total assets . . . 8,529 8,583
Total common stock
equity . . . . . . 1,535 1,581
Minority interest . 190 200
Note payable to TXU
Corp. . . . . . . 682 682
Long-term debt, less
amounts due
currently . . . . 3,629 3,754
PERIOD FROM PERIOD FROM
FORMATION FORMATION
THROUGH DECEMBER THROUGH
31, 1998 MARCH 31, 1999
---------------- ---------------
((POUNDS STERLING) MILLION)
CONSOLIDATED CASH FLOW
DATA:
Operating activities 37 44
Investing activities (1,767) (1,858)
Financing activities 2,197 2,228
PERIOD FROM
PERIOD FROM FORMATION PRO FORMA
FORMATION THROUGH YEAR ENDED
THROUGH DECEMBER MARCH 31, DECEMBER 31,
31, 1998(2) 1999(2) 1998(5)
---------------- ---------------- ------------
(UNAUDITED)
((POUNDS STERLING) MILLION, EXCEPT RATIOS)
OTHER CONSOLIDATED
DATA:
EBIT (unaudited)(3) 360 531 539
EBITDA
(unaudited)(3) . . . 504 733 771
Ratio of earnings to
fixed charges
(unaudited)(4) . . 1.5 1.7 1.4
Net interest expense 205 278 341
15
<PAGE>
(1) In October 1997, Energy Group Overseas B.V. (Overseas), a
financing subsidiary of TEG, issued $500 million aggregate
principal amount of guaranteed debt securities. Overseas is
now a subsidiary of Holdings, and certain of its financial
statements are included in this prospectus. If interest
expense of Overseas had been included in Eastern's financial
statements (1) UK GAAP net income/(loss), ratio of earnings
to fixed charges and net interest expense would have been
(pounds sterling)42 million, 2.5 and (pounds sterling)95
million, respectively, for the year ended March 31, 1998, (2)
US GAAP net income/(loss), ratio of earnings to fixed charges
and net interest expense would have been (pounds
sterling)(45) million, 1.7 and (pounds sterling)136 million,
respectively, for the year ended March 31, 1998 and (pounds
sterling)(23) million, 0.1 and (pounds sterling)19 million,
respectively, for the period from April 1, 1998 through May
18, 1998, (3) UK GAAP long-term debt and other obligations,
less amounts due currently, would have been (pounds
sterling)1.8 billion as of March 31, 1998 and (4) US GAAP
long-term debt and other obligations, less amounts due
currently, would have been (pounds sterling)2.3 billion as of
March 31, 1998.
(2) On May 19, 1998, Holdings obtained effective control of
Eastern pursuant to TU Acquisitions Limited's (TU
Acquisitions) offer to acquire TEG. Holdings recorded its
approximately 22% equity interest in the net income of TEG
for the period from March through May 18, 1998 and has
accounted for TEG and Eastern as consolidated subsidiaries
since May 19, 1998.
(3) EBIT equals earnings before interest income, interest expense,
income taxes and minority interest. EBITDA equals earnings
before interest income, interest expense, income taxes, minority
interest, depreciation and amortization. This information is
provided for informational purposes only. EBIT and EBITDA are
not measures defined under US GAAP and have not been presented
in accordance with US GAAP. Neither EBIT nor EBITDA should be
construed as an alternative to operating income under US GAAP
as an indicator of operating performance, or as an alternative
to cash flows from operating activities under US GAAP as a
measure of liquidity. EBIT and EBITDA are widely accepted
financial indicators of a company's ability to incur and
service debt. However, these measures of EBIT and EBITDA
may not be comparable to similar measures presented by other
companies.
(4) The ratio of earnings to fixed charges is computed as the sum
of earnings plus fixed charges divided by fixed charges.
Earnings consist of the aggregate of net income (loss) before
minority interests, income taxes and fixed charges excluding
interest capitalized. Fixed charges consist of interest
expensed and capitalized and the estimated interest portion
of rent expense.
(5) Pro forma financial information for the year ended December
31, 1998 gives effect to the acquisition of Eastern and
Overseas by Holdings as if it had occurred on January 1,
1998. See Holdings' UNAUDITED CONDENSED CONSOLIDATED PRO
FORMA STATEMENT OF INCOME included elsewhere in this
prospectus.
16
<PAGE>
RISK FACTORS
In addition to the other information in this prospectus, the
following factors pertain to an investment in the beneficial
interests in both the exchange senior notes offered by this
prospectus and the senior notes for which they will be exchanged.
HOLDING COMPANY STRUCTURE MAKES THE GUARANTEE SUBORDINATE TO
SUBSIDIARY DEBT.
Holdings is a holding company. Almost all of its operating
income comes from Eastern and Eastern's subsidiaries. Almost all
of Holdings' consolidated assets are held by Eastern and
Eastern's subsidiaries. Accordingly, the ability of Holdings to
service its debt, including its obligations under the guarantee,
is largely dependent on the earnings of Eastern and its
subsidiaries and the payment of those earnings to Holdings in the
form of dividends, loans or advances and through repayment of
loans or advances from Holdings. The subsidiaries of Holdings,
except for Funding and any subsidiaries of Holdings to which
proceeds of the senior notes were loaned, have no obligation to
pay any amounts due on the exchange senior notes or to make any
funds available for those payments.
The guarantee, therefore, will be effectively subordinated
to debt and preference share capital at the subsidiary level.
The financial statements of Holdings and Eastern included in this
prospectus show the aggregate amount of subsidiary debt and
preference share capital as of the date of those statements.
This includes trade payables, guarantees and leases, letters of
credit and other obligations of Holdings' subsidiaries. Upon
liquidation or reorganization of a subsidiary of Holdings, other
than a subsidiary to which proceeds of the senior notes are
loaned, the claims of that subsidiary's creditors will be senior
to the claims of the holders of exchange senior notes or other
creditors of Holdings. Although some debt instruments limit the
amount of debt Holdings and its subsidiaries may incur, both
Holdings and its subsidiaries retain the ability to incur
substantial additional indebtedness and other obligations such as
those under leases, letters of credit and other instruments. See
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS--"Liquidity and Capital Resources;
Financing Arrangements."
Guarantees of other series of debt securities issued under
the indenture and any other unsecured and unsubordinated debt
obligations of Holdings will rank equally in right of payment to
the guarantee of the exchange senior notes. See DESCRIPTION OF
THE EXCHANGE SENIOR NOTES --"Limitation on Liens."
HOLDINGS HAS ALREADY INCURRED SUBSTANTIAL INDEBTEDNESS IT MUST
SERVICE.
At March 31, 1999, after giving effect to the issuance of
the senior notes and the application of the proceeds from their
sale, the ratio of Holdings' consolidated net debt to
consolidated net debt plus equity as determined in accordance
with US GAAP was approximately 70.8%. See the consolidated
financial statements of Holdings and the notes that accompany
each of them. The degree to which Holdings and its consolidated
subsidiaries may be leveraged in the future could affect their
ability to service their indebtedness, to make capital
investments, to take advantage of certain business opportunities,
to respond to competitive pressures or to obtain additional
financing.
FUNDING HAS NO OPERATIONS OR ASSETS.
Funding is a special purpose entity formed solely as a
financing vehicle for Holdings and its affiliates. Therefore,
Funding's ability to make interest and other payments on the
exchange senior notes is entirely dependent upon Holdings making
payments on its obligations to Funding as and when required. If
Holdings were not to make those payments for any reason, Funding
would not have sufficient funds to make payments on the exchange
senior notes.
17
<PAGE>
Unexpected declines in Eastern's future business, which may
result from the increasingly competitive environment in the UK
electric and gas utility industries, increases in operating or
capital costs, changes in regulatory policies or the inability to
borrow additional funds, could impair Eastern's ability to meet
its debt service obligations, or to make distributions to its
parent. This could adversely affect (a) Holdings' ability to
make payments on its obligations to Funding as well as Funding's
ability to make payments on the exchange senior notes and (b)
Holdings' ability to make any payments pursuant to the guarantee.
No assurance can be given that additional financing will be
available when needed, or, if available, will be obtainable on
terms that are favorable to Holdings or Funding.
CHANGES IN CURRENCY EXCHANGE RATES MAY AFFECT PAYMENT OF SENIOR
NOTES.
Holdings' revenues generated by Eastern will be primarily
received in pounds sterling while the price which was paid to
Funding for the senior notes was paid in US dollars, and the
interest and principal payment obligations on the exchange senior
notes will be payable in US dollars. As a result, any change in
the currency exchange rate that reduces the amount in pounds
sterling obtained upon conversion of the US dollar-based net
proceeds of the senior notes or that increases the effective
principal and interest payment obligations represented by the
exchange senior notes upon conversion of pounds sterling-based
revenues into US dollars may, if not appropriately hedged, have a
material adverse effect on Holdings and Funding or on their
ability to make payments on the exchange senior notes or the
guarantee. See EXCHANGE RATES for information concerning the
Noon Buying Rate for pounds sterling expressed in US dollars.
Although Holdings has entered into transactions to hedge risks
associated with exchange rate fluctuations, there can be no
assurance that the transactions will be successful in reducing
those risks.
THERE ARE A NUMBER OF REGULATORY RISKS ASSOCIATED WITH EASTERN'S
BUSINESSES.
PRICE REGULATION OF THE NETWORKS BUSINESS
Eastern's networks business, which involves the distribution
of electricity in its UK service territory, accounted for
approximately 44% of Holdings' profits before interest, taxes and
exceptional items for the 12 month period ended March 31, 1998.
This business is regulated under a governmental license, and the
pricing is determined by a formula established by the regulator.
Application of this formula may or may not allow Eastern to
recoup all of its costs with respect to this business. The
various elements of the formula and the terms of Eastern's
license are subject to amendment from time to time. A review of
the formula is scheduled to be completed by the regulator in
April 2000. No assurance can be given regarding the impact, if
any, that any future adjustments to the pricing formula or the
terms of the license will have on Holdings. For further
information, see EASTERN BUSINESS OVERVIEW -- "UK Regulatory
Matters--Networks Regulation; Distribution Price Regulation."
PRICE REGULATION OF THE ELECTRIC SUPPLY BUSINESS
Supply charges to residential and small business customers
in Eastern's electricity distribution area account for a
substantial portion of Eastern's supply businesses. They are
currently regulated by maximum price restraints. When the
regulator determines that an adequate level of competition has
been established, these supply price restraints are expected to
no longer apply. A determination is not expected for at least
two years. Until then, these maximum price restraints could
adversely affect Holdings' revenues from these markets. For
further information, see EASTERN BUSINESS OVERVIEW -- "UK
Regulatory Matters--Energy Regulation; Electricity Supply Price
Regulation."
UK REGULATION ENCOURAGING COMPETITION
Governmental agencies in the UK are reviewing various
elements of the electricity generation, supply and distribution
industry, with a view to increasing competition. Changes in
price regulation, possibly substantial, are expected in the year
2000. Meanwhile, the phasing in of competition to all service
18
<PAGE>
areas, each of which had previously limited supply service to a
single authorized regional electric company (REC), was completed
in May 1999. With the introduction of full retail competition,
it is expected that supply price restraints will no longer apply
to current supply customers after April 1, 2000, except for a
control on prices charged to residential and small business
customers until an adequate level of competition is established.
The generation market and electricity trading arrangements will
also be affected by the outcome of the current regulatory reviews
of energy sources and pool arrangements by governmental agencies.
No assurance can be given that Eastern will maintain or increase
its current market share and margins in each of these markets as
they become more competitive.
OTHER REGULATORY RISKS
Subsidiaries of Holdings hold various licenses that subject
their operations to comprehensive regulation. As a result of
recent UK government reviews of the regulation of electric and
gas industries, various reforms are anticipated, which may result
in:
. Divestiture of generating plant by large generators
like Eastern;
. Replacement of the wholesale trading market for
electricity in England and Wales (the Pool), into which
all electric generation is now sold by generators, with
a set of voluntary markets;
. Separation of the management of the distribution and
supply businesses and/or the legal entities in which
those businesses are held;
. Continuation of the restrictions which limit the
construction of new gas-fired generating plants; and
. Changes encouraging increased competition.
No assurance can be given as to what regulatory reforms may be
implemented, if any, when they might be implemented and how they
might affect Eastern and Holdings. For further information, see
INDUSTRY BACKGROUND and EASTERN BUSINESS OVERVIEW--"UK Regulatory
Matters."
PROPOSED EUROPEAN UNION (EU) DIRECTIVE ON THE TAXATION OF SAVINGS
INCOME COULD RESULT IN WITHHOLDING TAXES.
In May 1998, the European Commission presented to the
Council of Ministers of the European Union a proposal to oblige
member states to adopt either a "withholding tax system" or an
"information reporting system" in relation to interest, discounts
and premiums. It is unclear whether this proposal will be
adopted, and, if it is adopted, whether it will be adopted in its
current form. The "withholding tax system" would require a
paying agent established in a member state to withhold tax at a
minimum rate of 20 percent, from any interest, discount or
premium paid to an individual resident in another member state
unless such an individual presents a certificate obtained from
the tax authorities of the member state in which he or she is
resident confirming that those authorities are aware of the
payment due to that individual. The "information reporting
system" would require a member state to supply to other member
states details of any payment of interest, discount or premium
made by paying agents within its jurisdiction to individuals
resident in those member states. For these purposes, the term
"paying agent" is widely defined and includes an agent who
collects interest, discounts or premiums on behalf of an
individual beneficially entitled thereto. If this proposal were
to be adopted, it would not apply to payments of interest,
discounts and premiums made before January 1, 2001. If this
proposal were to be adopted, tax might be required to be withheld
from some or all payments on and after January 1, 2001. If that
happened, Funding would be required to pay Additional Amounts to
the holders of exchange senior notes. In the alternative,
19
<PAGE>
Funding could redeem the exchange senior notes at the principal
amount thereof plus accrued interest. While the proposal
presently applies only to payments made to individuals, there can
be no assurance that it will not be extended to other persons.
EASTERN FACES YEAR 2000 ISSUES.
Many existing computer programs use only the last two digits
to identify a year in the date field. Thus, they would not
recognize a year that begins with 20 instead of 19. If not
corrected, many computer applications could fail or produce
erroneous data on or about the year 2000.
As Eastern's Y2K program proceeds, Eastern will continue to
assess its internal and external risks, not all of which are
within its control. There can be no assurance that all material
Y2K risks within Eastern's control will have been adequately
identified and corrected before the end of 1999. In addition,
Eastern's operations are connected with the Pool, along with
those of all UK energy companies that use the Pool, and depend on
the reliability of National Grid and the operations of the Pool.
Eastern can make no assurances regarding the Y2K readiness of
systems and parties outside its control, nor can it currently
assess the effect of any non-readiness by those systems or
parties. For further information, see MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS--
"Year 2000 Issues."
20
<PAGE>
TXU EASTERN HOLDINGS LIMITED
Almost all of Holdings' operating income is derived from
Eastern and Eastern's subsidiaries and almost all of Holdings'
consolidated assets are held by Eastern and Eastern's
subsidiaries. Holdings is a private limited company incorporated
in England and Wales in February 1998 and is an indirect wholly-
owned subsidiary of TXU Corp. Holdings owns 90% of the
outstanding ordinary shares of TU Finance. The remaining 10% of
TU Finance's outstanding ordinary shares are owned by a wholly-
owned US subsidiary of TXU Corp. In May 1998, the offer by TU
Acquisitions (Company No. 3455523), a wholly-owned subsidiary of
TU Finance, for all the ordinary shares of TEG, the former
holding company of Eastern, was declared unconditional. In
August 1998, TU Acquisitions completed the acquisition of TEG.
In October 1998 TU Acquisitions restructured Holdings so that
Eastern is now owned by another subsidiary of TU Acquisitions.
EASTERN GROUP PLC
Holdings' major business operations are conducted through
the following subsidiaries of Eastern:
. Eastern Power and Energy Trading Limited (Company No.
3116221) (Eastern Trading), which coordinates and
manages for Eastern the price and volume risks
associated with Eastern's generation, electricity and
gas retail businesses and those of third parties;
. Eastern Electricity, one of the largest retailers of
electricity in the UK, and Eastern Energy Limited
(Company No. 3181389), which supplies electricity
outside the authorized area served by Eastern
Electricity;
. Eastern Generation Limited (Company No. 2353756)
(Eastern Generation), the fourth largest generator of
electricity in the UK; and
. Eastern Natural Gas Limited (Company No. 2907433)
(Eastern Natural Gas), one of the largest retail
suppliers of natural gas in the UK.
Eastern sells electricity and natural gas under the brand
name of Eastern Energy. The operations of Eastern Trading and
Eastern Generation are treated by Eastern and Holdings as one
segment for reporting purposes. The electric and gas supply
business is treated as the Energy Retail segment and the
distribution business is treated as the Networks segment for
reporting purposes.
TXU EASTERN FUNDING COMPANY
Funding is a private unlimited company incorporated under
the laws of England and Wales and a wholly-owned indirect
subsidiary of Holdings. Funding was organized solely to provide
financing for the operations of Holdings and its subsidiaries.
Funding's authorized and issued share capital consists of 200
ordinary shares with a nominal value of (pounds sterling)1 per
share. Funding currently does not have any outstanding debt
other than the senior notes.
21
<PAGE>
OWNERSHIP STRUCTURE
The following organizational chart illustrates the
relationship of Holdings to TXU Corp and the ownership structure
of the part of Holdings consisting of Funding, Holdings and
Eastern (all ownership interests are 100% unless otherwise
indicated).
[Chart of Ownership Structure appears here.]
22
<PAGE>
CAPITALIZATION OF TXU EASTERN HOLDINGS LIMITED
The following table sets forth, at March 31, 1999, (1) the
actual consolidated capitalization of Holdings in accordance with
US GAAP, and (2) the consolidated capitalization of Holdings
adjusted to reflect the issuance of the senior notes previously
issued and the application of the net proceeds of that issuance.
This table should be read in conjunction with SUMMARY--"Selected
Financial Information," MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS and the
consolidated financial statements and notes thereto of Holdings
included elsewhere in this prospectus. Except as disclosed in
the capitalization table, there have been no material changes in
the capitalization of Holdings since March 31, 1999.
March 31, 1999
---------------------------------------------------
Actual As Adjusted
------------------------ ------------------------
(pounds (pounds
sterling) $(1) % sterling) $(1) %
--------- ---- --- --------- ---- ---
(millions, except %)
Long-term debt and
other obligations,
less amounts due
currently:
Notes and bonds:
Guaranteed
notes . . . . 310 499 5.0 310 499 4.8
Sterling bonds 828 1,333 13.3 828 1,333 12.9
Senior notes
previously
issued -- -- -- 932 1,500 14.5
Other:
Credit
Facilities
Agreement . . 983 1,583 15.8 925 1,490 14.5
Rent factoring
loans . . . . 370 596 6.0 370 596 5.8
Other
unsecured
loans . . . . 164 264 2.6 164 264 2.6
Capital leases 782 1,259 12.6 782 1,259 12.2
Note payable
to TXU Corp . 682 1,098 11.0 -- -- --
Cross border
leases . . . . 317 510 5.1 317 510 4.9
------ ------ ---- ----- ----- -----
Total long-term debt
and other
obligations,
less amounts
due currently . 4,436 7,142 71.4 4,628 7,451 72.2
due currently . ------ ----- ---- ----- ----- -----
Minority interest . 200 322 3.2 200 322 3.1
------ ----- ---- ----- ---- -----
Common stock equity 1,581 2,545 25.4 1,581 2,545 24.7
------ ----- ---- ----- ----- -----
Total
capitalization L6,217 $10,009 100% L6,409 $10,318 100.0%
====== ======= ==== ====== ======= ======
------------------------
(1) Solely for the convenience of the reader, UK pounds sterling amounts
have been translated into US dollars at the Noon Buying Rate on March
31, 1999 of $1.61 = (pounds sterling)1. See EXCHANGE RATES.
23
<PAGE>
EXCHANGE RATES
The following table sets out, for the periods indicated,
information concerning the exchange rates between UK pounds
sterling and US dollars based on the Noon Buying Rate in New York
City for cable transfers in pounds sterling as certified for
customs purposes by the Federal Reserve Bank of New York.
PERIOD
FISCAL YEAR ENDED END AVERAGE(*) HIGH LOW
----------------- ------ ---------- ---- ---
($ PER (POUNDS STERLING)1.00)
March 31, 1994 . . . . . . . 1.49 1.50 1.59 1.46
March 31, 1995 . . . . . . . 1.62 1.56 1.64 1.46
March 31, 1996 . . . . . . . 1.53 1.56 1.62 1.50
March 31, 1997 . . . . . . . 1.64 1.60 1.71 1.49
March 31, 1998 . . . . . . . 1.68 1.65 1.70 1.58
December 31, 1998 . . . . . . 1.66 1.66 1.72 1.61
Five months ended May 31,
1999 . . . . . . . . . . . . 1.60 1.61 1.66 1.59
_____________________________
* The average of the Noon Buying Rates in effect on the last
business day of each month during the relevant period.
On March 31, 1999, the Noon Buying Rate was $1.61 = (pounds
sterling)1.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The consolidated financial statements of Eastern as of March
31, 1998 and for the two years in the period ended March 31, 1998
and for the period from April 1, 1998 through May 18, 1998 have
been prepared in accordance with US GAAP. For financial
reporting purposes, Eastern is considered the predecessor company
to Holdings. The consolidated financial statements of Holdings
as of, and for the period from formation through, December 31,
1998 and for the period from formation through March 31, 1999
have been prepared in accordance with US GAAP. The financial
statements of Overseas, a financing subsidiary of Holdings, as
of, and for the period from formation through, March 31, 1998 and
for the period from April 1, 1998 through May 18, 1998 have been
prepared in accordance with US GAAP.
The discussion below should be read in conjunction with the
consolidated financial statements and the notes thereto of
Holdings, Eastern and Overseas appearing elsewhere in this
prospectus.
ACQUISITION OF THE ENERGY GROUP PLC BY TXU CORP
On May 19, 1998, the offer by TU Acquisitions, an indirect,
wholly-owned subsidiary of Texas Utilities Company, now doing
business as TXU Corp, for all of the ordinary shares of TEG, the
former holding company of Eastern, was declared wholly
unconditional. On August 7, 1998, TU Acquisitions completed its
acquisition of TEG.
In connection with the offer and immediately prior to the
offer being declared unconditional, subsidiaries of TEG completed
the sale of TEG's former coal and power trading interests in the
US and Australia, referred to as the Peabody Sale. The adjusted
gross consideration for the sale of these interests was $2.1
billion ((pounds sterling)1.3 billion).
ACCOUNTING IMPACTS OF THE ACQUISITION
Purchase accounting adjustments
-------------------------------
Holdings' acquisition of TEG became effective May 19, 1998
and was accounted for as a purchase in accordance with US GAAP.
Accordingly, the results of operations of Eastern and other
subsidiaries of TEG acquired by Holdings have been consolidated
into the results of operations of Holdings beginning on that
date. The total purchase consideration for the TEG businesses
acquired, which refers to TEG exclusive of the operations sold in
the Peabody Sale, was approximately (pounds sterling)4.4 billion.
At the date of the acquisition, TEG had assets of (pounds
sterling)6.0 billion, including cash of (pounds sterling)2.0
billion, and liabilities of (pounds sterling)4.5 billion,
including debt of (pounds sterling)2.9 billion. The excess of
the purchase consideration plus acquisition costs over the net
fair value of tangible and identifiable intangible assets
acquired and liabilities assumed resulted in goodwill of (pounds
sterling)3.5 billion, which is being amortized over 40 years.
See Note 1 to Holdings' consolidated financial statements.
Accounting for coal-fired power stations
----------------------------------------
Eastern entered into leases for five power stations in June
and July 1996 for terms of 99 years. Under US GAAP, leases for
two of the stations are accounted for as operating leases, and
leases for three of the stations are accounted for as capital
leases. Prior to the acquisition, the capital assets were being
depreciated over 12 years and depreciation expense totalled
(pounds sterling)49 million, (pounds sterling)59 million and
(pounds sterling)8 million for the years ended March 31, 1997 and
1998 and for the period from April 1, 1998 through May 18, 1998,
respectively. The fixed operating lease payments were being
expensed on a straight-line basis over 12 years, resulting in
expense of (pounds sterling)32 million for the year ended March
25
<PAGE>
31, 1997, (pounds sterling)42 million for the year ended March
31, 1998 and (pounds sterling)6 million for the period from April
1, 1998 through May 18, 1998. Twelve years represented
management's best estimate of the remaining useful lives of the
power plants. Contingent payments of approximately (pounds
sterling)6 per megawatt hour, indexed to inflation, linked to
output from these power stations are payable for up to the first
seven years of operation. No such output-linked payments are
required thereafter. Prior to the acquisition by TXU Corp, under
US GAAP, these output-linked payments were charged to expense by
Eastern in the period in which they were accruable. Output-
linked payments charged to expense by Eastern totalled (pounds
sterling)99 million for the year ended March 31, 1997, (pounds
sterling)152 million for the year ended March 31, 1998 and
(pounds sterling)13 million for the period from April 1, 1998
through May 18, 1998.
At the time of the acquisition, Holdings established the
fair value of the capital leased assets and associated debt.
Additionally, as a result of alternative operating methodologies
to be employed by TXU Corp, the estimated useful lives of these
five power stations was extended to a range of 18 to 22 years
from original lease inception.
Subsequent to the acquisition, total lease expense for the
period from formation through March 31, 1999 was (pounds
sterling)94 million.
Accounting for unfavorable gas and electricity purchase contracts
-----------------------------------------------------------------
In addition, Holdings recorded a liability for unfavorable
gas and electricity purchase contracts. This liability, which is
being amortized over the terms of the unfavorable contracts, is
based on the estimated fair market value of these contracts over
the present value of the future cash flows under the contracts at
the applicable discount rates and prices. Although amortization
of the liability for unfavorable contracts will reduce the
reported expense related to this item, it will not impact
Holdings' actual payments or cash flow obligations.
RESULTS OF OPERATIONS
For purposes of the discussion of operating results in this
prospectus, the financial information of Eastern for the period
from April 1, 1998 through May 18, 1998 has been combined with
the post-acquisition financial information of Holdings. The
business operations of Eastern and the other acquired businesses
were not significantly changed as a result of the purchase by TU
Acquisitions, and the post-merger and pre-merger operating
results, except as affected by purchase accounting and as noted
in the discussion, are comparable. The combined year ended March
31, 1999 information has not been audited. For a discussion of
significant purchase accounting adjustments, see -- "Introduction
-- Accounting Impacts of the Acquisition."
OPERATING RESULTS
Energy
------
Eastern's energy business is comprised of the energy retail
and the energy management and generation segments. Until October
1996, Eastern's energy operations were only in the UK, where the
increase in demand for electricity in recent years has been
modest. However, Eastern managed to increase the profit
attributable to its energy operations significantly by:
. adding related assets, including three power stations
leased from National Power in June 1996 and two power
stations leased from PowerGen in June and July 1996,
which increased Eastern's generation capacity by almost
6,000 MW;
. successfully expanding electricity and gas sales in
markets opened to competition; and
. developing energy management activities to optimize the
portfolio of physical assets and supply contracts.
26
<PAGE>
The franchise market for electricity sales became fully
deregulated in May 1999. Deregulation of the franchise market
will allow Eastern and other licensed electricity suppliers to
compete for current franchise customers outside their authorized
areas. Eastern cannot predict the effect that increased
competition due to the deregulation of the franchise market will
have on its results of operations.
Networks
--------
The networks business has been a predictable source of
operating income and cash flow and, historically, the growth in
units of electricity distributed has generally matched increases
in the gross domestic product for the UK. The networks business
is highly regulated and in 1994 and 1995 was the subject of two
distribution price control reviews by the Office of Electricity
Regulation covering England, Wales and Scotland (OFFER). Based
on the current distribution price control formula, future
increases in profit by the networks operations will depend upon
unit growth and productivity improvements, which there can be no
assurance Eastern will achieve. A further distribution price
control review is scheduled to be completed in April 2000.
Eastern cannot predict the effect of any future price control
reviews by OFFER, now known as the Office of Gas and Electricity
Markets or OFGEM.
Eastern's retail sales and units distributed through the network
were as follows:
YEAR ENDED MARCH 31,
---------------------------
1997 1998 1999
------ ------ ------
Retail sales (units sold):
Electricity (GWh) . . . . . 32,546 35,920 37,859
Gas (millions of therms) . . 1,266 1,262 1,352
Network sales
(GWh distributed) . . . . . 31,550 31,776 32,700
The following table sets out the revenues by segment, total
operating income and net interest expense of Eastern and Holdings
for the periods indicated:
EASTERN
AND
EASTERN HOLDINGS
---------------- ---------
YEAR ENDED MARCH 31,
---------------------------
1997 1998 1999
------ ------ ------
((POUNDS STERLING) MILLION)
Revenues:
Energy:
Energy retail . . . . . . . 2,158 2,151 2,298
Energy management and
generation . . . . . . . . . 952 1,337 1,487
Networks . . . . . . . . . . . 420 414 427
Other . . . . . . . . . . . . 44 69 35
Intra-group sales . . . . . . (590) (496) (484)
----- ----- -----
2,984 3,475 3,763
----- ----- -----
Operating income . . . . . . . . 298 267 473
Net interest expense . . . . . . 88 126 294
27
<PAGE>
YEAR ENDED MARCH 31, 1999 COMPARED WITH YEAR ENDED MARCH 31, 1998
Revenues
--------
Energy retail -- Revenues in the energy retail operation
increased by approximately 7% from (pounds sterling)2.2 billion
for the year ended March 31, 1998 to (pounds sterling)2.3 billion
for the year ended March 31, 1999. The revenues are primarily
determined by the volumes of gas and electricity sold and the
unit sales prices. The increase in revenue is a result of higher
prices in gas retail, 5.4% higher volumes in electricity retail
primarily in the industrial and commercial markets and 7.1%
higher volumes in gas retail primarily in the domestic market.
Energy management and generation -- Revenues in the energy
management and generation operations increased by approximately
11% from (pounds sterling)1.3 billion for the year ended March
31, 1998 to (pounds sterling)1.5 billion for the year ended March
31, 1999. This increase was attributable to a significant
increase in generation output as a result of a full year's output
from the King's Lynn power station which became fully operational
in December 1997 and an increase in average pool prices,
partially offset by reduced output from a coal-fired power
station due to a fire in October 1998.
Networks -- Revenues in the networks business increased by
approximately 3% from (pounds sterling)414 million in the year
ended March 31, 1998 to (pounds sterling)427 million in the year
ended March 31, 1999. This increase was primarily the result of
an increase of 2.9% in the GWh distributed.
Other -- Other revenues decreased by approximately 49% from
(pounds sterling)69 million in the year ended March 31, 1998 to
(pounds sterling)35 million in the year ended March 31, 1999.
This decrease can be attributed primarily to the sale of
Eastern's contracting business in December 1997.
Operating income
----------------
Operating income increased 77% from (pounds sterling)267
million for the year ended March 31, 1998 to (pounds sterling)473
million for the year ended March 31, 1999. This increase is
attributable to changes in operating income of Holdings' and
Eastern's businesses as set forth below and certain purchase
accounting adjustments, partially offset by higher amortization
of goodwill.
In the energy management and generation business, operating
income increased because of decreased expenses as a result of the
amortization of the fair value of the power station leases over
extended estimated economic lives of the coal-fired stations as
discussed earlier, additional power station output and the impact
of purchase accounting adjustments in respect of unfavorable gas
and electricity contracts. This was offset by reduced output
from one of the coal-fired power stations in the last quarter
ended December 31, 1998 due to a fire. That power station
resumed full operations by the end of February 1999.
Operating income for the energy retail business improved
primarily as a result of lower operating costs in the gas retail
business in 1999 and purchase accounting adjustments.
In the networks operation, total operating income decreased
slightly as a result of increased operating costs offset by a
smaller increase in regulated income.
Net interest expense
--------------------
Net interest expense increased approximately 133% from
(pounds sterling)126 million for the year ended March 31, 1998 to
(pounds sterling)294 million for the year ended March 31, 1999.
The increase is primarily a result of interest expense related to
the financing of the acquisition of TEG, partially offset by
interest income on the proceeds from the sale of TEG's former
coal and power trading interests.
28
<PAGE>
Total tax expense
-----------------
The decrease in tax expense from (pounds sterling)189
million in the year ended March 31, 1998 to (pounds sterling)101
million in the year ended March 31, 1999 relates primarily to the
windfall tax charge of (pounds sterling)112 million in the year
ended March 31, 1998. (See --"Windfall Tax" below.)
YEAR ENDED MARCH 31, 1998 COMPARED WITH YEAR ENDED MARCH 31, 1997
Revenues
--------
Energy retail -- Overall revenues from the energy retail business
decreased approximately 0.3% from (pounds sterling)2,158 million
for the year ended March 31, 1997 to (pounds sterling)2,151
million for the year ended March 31, 1998.
In the part of the electricity retail market which was open
to competition at that time (customers with an annual maximum
demand over 100 kW - principally industrial and commercial
customers), revenues increased by 17.6% to (pounds sterling)0.7
billion. The sales volumes increased by 30.2% to 17,278 GWh but
this was offset by lower prices per unit, which principally
reflect the competitive pressure on retail prices. The increase
in revenues in the competitive market was offset by lower
revenues in the price regulated part of the electricity retail
market which was not open to competition (customers with an
annual maximum demand under 100 kW - principally residential and
small business customers) in which sales volumes decreased by
3.3% to 18,642 GWh arising mainly from weather effects. Revenues
in the price regulated market decreased by 8% to (pounds
sterling)1.2 billion reflecting the effect of the supply price
control regulatory formula.
In the gas retail market, volumes and revenues remained
stable at approximately 1.3 billion therms and (pounds
sterling)0.2 billion, respectively, for each period. There was,
however, a substantial increase in the number of customers signed
up with future contract start dates as the remaining areas of the
UK gas retail market were opened up to competition.
Energy management and generation -- Revenues of (pounds
sterling)1.3 billion from the energy management and generation
operations for the year ended March 31, 1998 increased
approximately 40% from (pounds sterling)1.0 billion for the year
ended March 31, 1997. The increase was primarily attributable to
both the inclusion for a full year of the additional output
provided by the five power stations leased in June and July 1996
and an underlying increase in the output levels during the year.
There was also additional revenue during the commissioning period
of the King's Lynn gas-fired power station.
Networks -- Networks revenues of (pounds sterling)414 million for
the year ended March 31, 1998 decreased approximately 1.4% from
(pounds sterling)420 million for the year ended March 31, 1997.
Revenues from Eastern's core regulated electricity distribution
business, which are determined by the distribution price control
formula, remained broadly stable since the allowed increase
referable to the Retail Price Index was offset by the required,
regulated price reduction factor of 3%. Units distributed
through the network increased by 0.7% from 31,550 GWh to 31,776
GWh.
Other - Revenues in the other segment increased from the year
ended March 31, 1997 to the year ended March 31, 1998 as a result
of increased revenues from the telecommunications business.
Operating income
----------------
Operating income decreased approximately 10% from (pounds
sterling)298 million for the year ended March 31, 1997 to (pounds
sterling)267 million for the year ended March 31, 1998.
Operating income for energy retail operations decreased
substantially as a result of lower margins and increased costs
associated with adding a substantial customer base in Eastern's
retail gas business, including customer acquisition costs which
29
<PAGE>
are expensed as incurred, and developing an infrastructure to
support that customer base. During this period, operating income
from the retail electricity business remained stable in the price
regulated franchise market and increased slightly in the
competitive market from higher gross margins. Operating income
from the energy management and generation business remained
stable primarily as a result of the inclusion of a loss making
quarter in respect of the five leased coal-fired power stations,
offset by additional output from power stations. The networks
business offset the reduction in operating income for the period
primarily due to cost savings in Eastern's core electricity
distribution business. The losses in the other segment reduced
from the year ended March 31, 1997 to the year ended March 31,
1998 because in the year ended March 31, 1997 there were charges
in this segment related to exposures on the overall energy
portfolio. In addition, the operating profit increased slightly
in the telecommunications business which was included within this
segment and was sold in December 1998.
Net interest expense
--------------------
Net interest expense increased by approximately (pounds
sterling)38 million from (pounds sterling)88 million in the year
ended March 31, 1997 to (pounds sterling)126 million in the year
ended March 31, 1998. The increase arose partly from interest
capitalized in the year ended March 31, 1997 of (pounds
sterling)11 million relating to the construction period of the
King's Lynn gas-fired power station. In addition, some funds
were placed in a tax efficient scheme in the year ended March 31,
1998 resulting in dividends receivable of approximately (pounds
sterling)4 million in place of interest on cash deposits. The
remaining increase is a result of interest expenses on higher
borrowings, partially offset by interest income on increased cash
deposits in the year ended March 31, 1998.
Total tax expense
-----------------
Total tax expense decreased by (pounds sterling)115 million
from (pounds sterling)304 million in the year ended March 31,
1997 to (pounds sterling)189 million in the year ended March 31,
1998. The decrease is a result of a large deferred tax charge in
connection with the five coal-fired power station leases and the
related rent factoring transaction in the year ended March 31,
1997 (see -- "Financing Arrangements" below). The decrease was
offset by the windfall tax charge in the year ended March 31,
1998 referred to below under -- "Windfall Tax."
LIQUIDITY AND CAPITAL RESOURCES
Net cash generated by operating activities for the years
ended March 31, 1997, 1998 and 1999 was (pounds sterling)292
million, (pounds sterling)341 million and (pounds sterling)118
million, respectively. Cash provided by (used by) changes in
operating assets and liabilities was (pounds sterling)(23)
million, (pounds sterling)223 million and (pounds sterling)(244)
million for the years ended 1997, 1998 and 1999, respectively.
The variances arise based upon changes in working capital
requirements. Cash flows from operations before changes in
operating assets and liabilities were (pounds sterling)315
million, (pounds sterling)118 million and (pounds sterling)362
million for the years ended 1997, 1998 and 1999, respectively.
In 1997 net deferred tax liabilities associated with leasing
transactions were established, resulting in a non-cash expense of
(pounds sterling)251 million. There were no transactions of this
magnitude in 1998 or 1999. The increase in 1999 in comparison to
1998 reflects net income which is (pounds sterling) 143 million
higher than that recognized in 1998 as well as an increase in
depreciation and amortization expense, which are non-cash items.
In the year ended March 31, 1997, cash used for financing
activities of Eastern was (pounds sterling)316 million. This
included the net effect of the receipt of (pounds sterling)1.1
billion from commercial banks as a part of the rent-factoring
agreement less the (pounds sterling)408 million which was set
aside in investments as cash collateral for the future intra-
group rental payments assigned. Further details are set out
below under -- "Financing Arrangements." Also impacting 1997
cash flows was the retirement of (pounds sterling)468 million of
long-term debt, the repayment of (pounds sterling)389 million of
bank debt and the payment of (pounds sterling)140 million of
dividends on common stock.
In the year ended March 31, 1998, cash provided by financing
activities of Eastern was (pounds sterling)121 million. In that
year, long-term debt of (pounds sterling)240 million was raised
and a further (pounds sterling)300 million was raised through a
financing of receivables under a debt securitization program. In
addition, in that same year, retirements of long-term debt
totaled (pounds sterling)215 million and a dividend of (pounds
sterling)200 million was paid.
30
<PAGE>
In the year ended March 31, 1999, cash provided by financing
activities was (pounds sterling)2.2 billion. There were drawings
under the acquisition facilities of (pounds sterling)2.1 billion
(which were subsequently rearranged as described further below
under "Financing Arrangements"). There was also an issue of
common stock of Holdings to subsidiaries of TXU Corp of (pounds
sterling)1.5 billion. These funds together provided a portion of
the financing for the acquisition of TEG. Approximately (pounds
sterling)1.3 billion of borrowings under the Credit Facilities
Agreement were repaid during the period using the proceeds of the
sale of TEG's former coal and power trading interests. Part of
the acquisition of TEG was financed by the issue of common stock
of TXU Corp to TEG shareholders. A subsidiary of Holdings
acquired the TXU Corp common stock used for this purpose by
issuing a term note to TXU Corp for (pounds sterling)882 million,
(pounds sterling)200 million of which was subsequently repaid in
cash in the period. TU Acquisitions also issued (pounds
sterling)85 million of loan notes to TEG shareholders. Another
subsidiary of TXU Corp provided the remainder of the acquisition
financing. There were also additional net borrowings of
approximately (pounds sterling)98 million in the period.
Cash used in investing activities for the years ended March
31, 1997, 1998 and 1999 were (pounds sterling)229 million,
(pounds sterling)234 million and (pounds sterling)1.9 billion,
respectively. The amount for 1999 includes (pounds sterling)1.4
billion representing the net cash paid to acquire TEG. The
capital expenditures of Eastern were (pounds sterling)204
million, (pounds sterling)254 million and (pounds sterling)281
million for the years ended March 31, 1997, 1998 and 1999,
respectively. The increases primarily relate to the increased
level of expenditures on the distribution network and in 1998, on
the development of the telecommunications business, which was
sold in December 1998. In addition, in the year ended March 31,
1997, Eastern invested (pounds sterling)29.5 million in acquiring
an 11.6% interest in Severomoravska Energetica a.s., a
distribution company in the Czech Republic, and (pounds
sterling)19.9 million in acquiring a 52.8% interest in Teplarny
Brno a.s., a district heating company in the Czech Republic. In
the year ended March 31, 1998 further investments totalling
(pounds sterling)9.9 million were made to increase Eastern's
interest in these two companies. In the period ended March 31,
1999, a subsidiary of Holdings also acquired the offtake
generated from water rights in hydroelectric power facilities in
Norway for (pounds sterling)124 million and spent (pounds
sterling)36 million to increase its interest in Hidroelectrica
del Cantabrico, a Spanish energy company, to 5%.
FINANCING ARRANGEMENTS
At December 31, 1998, Holdings, TU Finance, TU Acquisitions
and TEG had a joint sterling-denominated line of credit with a
group of banking institutions under a credit facility agreement
(Sterling Credit Agreement). The Sterling Credit Agreement had
an acquisition facility and a revolving credit facility. Eastern
Electricity also has a separate revolving credit facility for
short-term borrowings of up to (pounds sterling)250 million to be
used for Eastern Electricity's general corporate purposes.
Borrowings under the acquisition facility provided financing to
acquire TEG and pay acquisition related expenses. The revolving
credit facility provided for short-term borrowings. At December
31, 1998, borrowings totaled (pounds sterling)750 million under
the acquisition facility and a total of (pounds sterling)231
million under the two revolving credit facilities. Under the
terms of the Sterling Credit Agreement, one half of the
borrowings under the facilities were required to be swapped from
floating rate to fixed rate and, accordingly, swaps with a
notional amount of (pounds sterling)800 million were entered
into. On January 2, 1999 Holdings' ability to borrow additional
amounts under the acquisition facility terminated.
The Sterling Credit Agreement was amended in March 1999.
The amended Sterling Credit Agreement provides for borrowings up
to (pounds sterling)1.275 billion and has two facilities: a
(pounds sterling)750 million term facility which will terminate
on March 2, 2003 and a (pounds sterling)525 million revolving
credit facility which has a (pounds sterling)200 million 364-day
tranche (Tranche A) and a (pounds sterling)325 million tranche
which terminates March 2, 2003 (Tranche B). Holdings and TU
Finance currently are the only permitted borrowers under the
amended Sterling Credit Agreement. The amended Sterling Credit
Agreement allows for borrowings at various interest rates based
on the prevailing rates in effect in the countries in which the
borrowings originate. As of March 31, 1999, (pounds sterling)750
million of borrowings were outstanding under the term facility,
and approximately (pounds sterling)233 million under Tranche B.
In addition, letters of credit totalling $61 million ((pounds
sterling)38 million) were issued under Tranche A and letters of
credit totalling $137 million ((pounds sterling)85 million) were
issued under Tranche B. The amended Sterling Credit Agreement is
unsecured. As of March 31, 1999, there were no borrowings
outstanding under Eastern Electricity's revolving credit
facility.
31
<PAGE>
As of March 31, 1999, Eastern Electricity had issued
long-term, fixed rate bonds in the aggregate outstanding
principal amount of (pounds sterling)750 million, and Overseas
had issued notes in the aggregate principal amount of $500
million which are guaranteed by TEG and Holdings.
Some subsidiaries of Holdings are parties to an agreement
with commercial banks under which certain future intra-group
rental payments receivable from the leased power stations for a
five year period ending 2001 were assigned in return for a
capital sum of (pounds sterling)1,097 million. That capital sum
was drawn down on October 28, 1996 and (pounds sterling)408
million of the proceeds was used as collateral for obligations to
a group of banks in respect of the funding of the leases of power
stations. The payment of the assigned rentals or, in certain
circumstances, their capital value on resale by the banks, is
subject to guarantees and indemnities provided by those
subsidiaries. Neither Eastern nor Holdings expects any of the
provisions of its financing arrangements to affect the ability of
Funding and Holdings to timely perform their respective
obligations under the senior notes.
Eastern has facilities with a financial institution whereby
it may, from time to time borrow funds that are collateralized by
portions of Eastern's trade accounts receivable. At March 31,
1999, Eastern had fully borrowed (pounds sterling)300 million
under these facilities. The loans bear interest at an annual
rate based on commercial paper rates plus 0.225%, which was 5.7%
at March 31, 1999.
On June 11, 1999, TU Finance (No. 2) Limited entered into an
arrangement with a financial institution to borrow funds up to an
aggregate maximum of (pounds sterling)275 million through a note
purchase arrangement. (pounds sterling)150 million of this
facility has been drawn down.
On May 13, 1999, Funding issued $1.5 billion ((pounds
sterling)915 million) worth of senior notes which are guaranteed
by Holdings in three tranches: $350 million ((pounds
sterling)214 million), 6.15% due May 15, 2002, $650 million
((pounds sterling)396 million), 6.45% due May 15, 2005, and $500
million ((pounds sterling)305 million), 6.75% due May 15, 2009.
The proceeds of this issuance were used to repay the note payable
to TXU Corp, to reduce borrowings under the Sterling Credit
Agreement and for general corporate purposes. Shortly
thereafter, Holdings entered into various interest rate and
currency swaps that in effect changed the interest rates on the
borrowings from fixed to variable based on LIBOR and fixed the
principal amount to be repaid in sterling.
On May 18, 1999, $198 million in letters of credit issued
under the Sterling Credit Agreement/revolving credit facility
matured and were not renewed.
CUSTOMER ACQUISITION COSTS
Beginning in the year ended March 31, 1998, Eastern has
incurred customer acquisition costs associated with acquiring
customers in the newly deregulated gas market. Those costs are
charged to expense when incurred, although revenues from the
acquired customer base are expected to be received over several
years. Total charges for the years ended March 31, 1997, 1998
and 1999 were zero, (pounds sterling)41 million and (pounds
sterling)25 million, respectively. Eastern expects that it will
continue to incur those costs in connection with its effort to
acquire natural gas customers for the foreseeable future. In
addition, Eastern expects to incur similar customer acquisition
costs in connection with the deregulation of the electricity
franchise market.
WINDFALL TAX
For the year ended March 31, 1998, a windfall tax was levied
on Eastern according to a formula contained in the UK Finance
(No. 2) Act 1997. The liability to the tax was assessed at
(pounds sterling)112 million of which half was paid on December
1, 1997 and the balance was paid on December 1, 1998. The
windfall tax was included in the tax provision for the year ended
March 31, 1998.
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CURRENCY RISKS; ABSENCE OF HEDGING TRANSACTIONS
Holdings' revenues generated by Eastern will be primarily in
pounds sterling while the purchase price which was paid to
Funding for the senior notes was paid in US dollars, and the
interest and principal payment obligations with respect to the
exchange senior notes will be payable in US dollars. As a
result, any change in the currency exchange rate that reduces the
amount in pounds sterling obtained upon conversion of the US
dollar-based net proceeds of the senior notes or that increases
the effective principal and interest payment obligations
represented by the exchange senior notes upon conversion of
pounds sterling-based revenues into US dollars may, if not
appropriately hedged, have a material adverse effect on Holdings
and Funding or on their ability to make payments on the exchange
senior notes or the guarantee. See EXCHANGE RATES for
information concerning the Noon Buying Rate for pounds sterling
expressed in US dollars. Although Holdings has entered into
transactions to hedge risks associated with exchange rate
fluctuations, there can be no assurance that any such
transactions will be successful in reducing those risks.
EUROPEAN MONETARY UNION (EMU)
Most of Eastern's income and expenditures are denominated in
pounds sterling or in the currencies of other countries which
either are not eligible or have not joined the first stage of
EMU. Eastern therefore does not expect the introduction of the
Euro, the new currency of countries which participate in EMU, to
have a material impact on those operations for so long as the UK
continues to remain outside EMU. Eastern has prepared its
accounting systems to be able to deal with the receipt of
payments in Euros effective from January 1, 1999.
EFFECT OF INFLATION
Because of the relatively low level of inflation experienced
in the UK, inflation did not have a material impact on results of
operations for the periods presented.
CHANGES IN ACCOUNTING STANDARDS
SFAS 133, "Accounting for Derivative Instruments and Hedging
Activities," is effective for fiscal years beginning after June
15, 1999. This standard requires that all derivative financial
instruments be recognized as either assets or liabilities on the
balance sheet at their fair values and that accounting for the
changes in their fair values is dependent upon the intended use
of the derivatives and their resulting designations. The new
standard will supersede or amend existing standards which deal
with hedge accounting and derivatives. While Holdings has not
yet determined the effects adopting this standard will have on
the consolidated financial statements, those effects could be
material. On May 19, 1999, the Financial Accounting Standards
Board decided that it would amend SFAS 133 and defer its
effective date to fiscal quarters of all fiscal years beginning
after June 15, 2000.
The Emerging Issues Task Force (EITF) has issued No. 98-10
"Accounting for Energy Trading and Risk Management Activities,"
which is effective for fiscal years beginning after December 15,
1998. EITF 98-10 requires that contracts for energy commodities
which are entered into under trading activities should be marked
to market with the gains and losses shown net in the income
statement. As Holdings' fiscal year ends on December 31,
Holdings adopted EITF 98-10 effective January 1, 1999 for the
fiscal year ending December 31, 1999. As Holdings is not
primarily involved in trading activities, EITF 98-10 has not had
a material impact on the consolidated financial statements upon
adoption.
YEAR 2000 ISSUES
Many existing computer programs use only the last two digits
to identify a year in the date field. Thus, they would not
recognize a year that begins with 20 instead of 19. If not
corrected, many computer applications could fail or produce
erroneous data on or about the year 2000.
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In August 1996, Eastern established a program of projects to
ensure that all its systems are Y2K compliant. In testing for
conformity, Eastern uses the revised version of the British
Standards Institute's definition of Y2K Conformity. Eastern's
Y2K program is sponsored by the Chief Executive of Eastern and is
managed by a committee consisting of Eastern Managing Directors
and Senior Managers. Each of the projects in the program has six
phases: inventory; risk assessment; analysis; remediation;
testing and contingency.
EASTERN'S STATE OF READINESS
The inventory, risk assessment and analysis of the mainframe
systems were completed in June 1997. All COBOL code was fixed by
November 1998. The mainframe remediation work was completed in
March 1999 and the testing work is scheduled for completion by
July 1999.
Inventories of all the other information technology (IT)
systems and of embedded systems that are part of controls,
monitoring and protection systems, including electricity meters
and customer premises and systems used in the offices of Eastern
and Holdings, were completed in February 1998. Risk assessments
were completed in August 1998. Many of the older IT systems have
already been replaced by systems which are Y2K compliant.
Remediation and testing of these systems is underway and is
scheduled for completion by August 1999. Since October 1996,
requirements have been included in Eastern's purchasing terms and
conditions requiring Y2K readiness for new systems. Acceptance
tests for any significant new or upgraded system include testing
for Y2K readiness.
The IT infrastructure is currently based on a mixture of
hardware and operating systems connected by local and wide area
networks. The system was remediated in March 1999 and will be
tested and verified compliant by the end of July 1999. The
infrastructure PABX systems were upgraded to be compliant in
February 1999.
Remediation products for three of the eight power station
turbine control systems were not available from all suppliers in
time for the planned summer shutdowns of 1998. Completion of
this work therefore has been delayed until August 1999. All the
electricity distribution systems have been checked, and testing
will be completed by September 1999.
COSTS TO ADDRESS Y2K ISSUES
The costs of addressing the Y2K issue are estimated to be
approximately (pounds sterling)20 million. These costs include
all Y2K activities. They do not include the cost of achieving
Y2K compliance for new IT systems installed in connection with
the opening up of the domestic electricity retail market to
competition, new systems installed to meet other business needs,
or the cost of developing contingency plans for the energy
management business. Costs of addressing the Y2K issue are being
expensed as incurred. Amounts expended through December 1998
totalled (pounds sterling)2.8 million, cost expenditures for 1999
are estimated at (pounds sterling)14.7 million, of which
approximately (pounds sterling)2.0 million were incurred in the
first quarter of 1999, and an additional (pounds sterling)2.4
million for 2000.
RISKS AND CONTINGENCY PLANS
With respect to internal risks, Eastern's current assessment
of the most reasonably likely worst case scenario is that impacts
on either service or financial performance will not be materially
adverse. Eastern believes, based on the results of testing that
has already occurred on a large portion of production equipment
with embedded systems, that if any disruption to service occurs,
it will be isolated and of short-term duration.
All of Eastern's businesses, other than the energy
management business, have developed Y2K contingency plans. The
energy management business is in the process of developing its
contingency plan. The Y2K process includes a review of all the
existing contingency plans and further development of contingency
arrangements to cover Y2K failure scenarios. The work planned is
underway and due to be completed by June 1999, to be followed by
further review, testing and refinement and will result in
revisions to the existing contingency plans.
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Eastern is working with its equipment suppliers to ensure
their products and services are Y2K compliant. Reviews were
completed by December 1998. Eastern believes that any failure of
those suppliers to be compliant is unlikely to have a material
effect on Eastern or its operations. Eastern's operations are
heavily dependent upon the reliability of National Grid and the
operations of the Pool. National Grid and the Pool have taken
the position that they anticipate no material disruptions of
service.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
RISK MANAGEMENT
Holdings is exposed to a number of different market risks
including changes in gas and electricity prices, interest rates
and foreign currency exchange rates. Holdings has developed a
control framework of policies and procedures to monitor and
manage the exposures arising from volatility in these markets.
To implement these policies and procedures, Holdings enters into
various derivative instruments for hedging purposes. Both the
energy management and the treasury operations make use of those
instruments, but only well understood derivative instruments are
authorized for use.
INTEREST RATE RISK
Holdings' exposure to interest rate risk is managed by
maintaining a balance of fixed and floating rate borrowings and
deposits. Interest rate swaps and forward rate agreements are
used from time to time to adjust the proportion of fixed rate
exposure within the specified limits.
The table below provides information concerning Holdings'
financial instruments as of March 31, 1999 that are sensitive to
changes in interest rates, which include debt obligations by
principal amount and interest rate swaps. For debt obligations,
the table presents principal cash flows and related weighted
average interest rates by expected maturity dates. Holdings has
entered into interest rate swaps under which they have agreed to
exchange the difference between fixed-rate and variable-rate
interest amounts calculated with reference to specified notional
principal amounts. The contracts require settlement of net
interest receivable at specified intervals which generally
coincide with the dates on which interest is payable on the
underlying debt, primarily semi-annually. When differences exist
between the swap settlement dates and the dates on which interest
is payable on the underlying debt, the gap exposure, or basis
risk, is managed by means of forward rate agreements. These
forward rate agreements are not expected to have a material
effect on Holdings' financial position, results of operations or
cash flows. For interest rate swaps, the table presents notional
amounts and weighted average interest rates by expected
(contractual) maturity dates. Weighted average variable rates
are based on rates in effect at the reporting date.
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Expected Maturity Date
-------------------------------
2000 2001 2002 2003
---- ---- ---- ----
Long-term Debt
(including current
maturities):
Fixed Rate ((pounds
sterling)m) 225.1 923.8 127.9
Average interest
rate . . . . 7.35% 6.87% 7.35%
Variable Rate
((pounds
sterling)m) 1,004.0
Average interest
rate . . . . 6.33%
Interest Rate Swaps:
Fixed to Variable
((pounds sterling)m)
Average pay rate . . . .
Average Receive rate
Variable to Fixed
((pounds sterling)m) . . 15.8 400.0
Average pay rate . . . . 12.91% 6.71%
Average receive rate . . 8.02% 5.63%
Expected Maturity
Date March
----------------- 31,
1999
There- Fair
2004 after Total Value
---- ------ ----- ------
Long-term Debt
(including
current
maturities):
Fixed Rate
((pounds
sterling)m) 361.9 1,160.1 2,798.8 2,874.2
Average
interest
rate . . . . 8.38% 8.20% 7.61%
Variable
Rate
((pounds
sterling)m) . 75.6 1,079.6 1,079.6
Average
interest
rate . . . . 5.42% 6.27%
Interest Rate Swaps:
Fixed to Variable
((pounds
sterling)m) 100.0 100.0 15.2
Average pay
rate . . . . 4.75%
Average
Receive rate 8.38%
Variable to
Fixed
((pounds
sterling)m) 432.0 847.8 (57.4)
Average pay
rate . . . . 6.45%
Average
receive rate 5.76%
Forward rate agreements totalling (pounds sterling)355 million
for a maximum duration of approximately one year to swap floating
rate deposits into fixed rates were outstanding at March 31, 1999
with a weighted average interest rate of approximately 6.66%.
The market value of these forward rate agreements was not
materially different from the notional value.
FOREIGN CURRENCY
Holdings manages its exposure to foreign currency rates
principally by matching foreign currency denominated assets with
borrowings in the same currency. Currency swaps and options are
also used where appropriate to hedge any residual exposures. In
addition, some imports of capital equipment and fuel are
denominated in foreign currencies and the sterling cost of these
is fixed by means of forward contracts as soon as Holdings'
contractual commitment is firm. The US$ option contracts
outstanding at December 31, 1998 all matured in the period to
March 31, 1999. The principal foreign currency hedges
outstanding at March 31, 1999 were as follows:
US$/GBP swaps in respect of the semi-annual interest payments
on, but not the principal amount of, the $500 million of
guaranteed notes previously issued to swap from US$ to GBP as
follows:
Annual March 31, 1999
Period Amount Rate Fair Value
------ ------ ---- ---------------
Annually to 2017 $14.8 million 1.61 (pounds sterling)(5.7)
million
Annually to 2027 $22.5 million 1.62 (pounds sterling)(15.6)
million
ENERGY RISK MANAGEMENT
The energy business contracts to supply electricity to
customers at fixed prices and buys output from the electricity
Pool to meet the demand of these customers. Since the price of
electricity purchased from the Pool can be volatile, Eastern is
exposed to the risk arising from the differences between
the fixed price at which it sells electricity to customers and
the variable prices at which it buys electricity from the Pool.
Eastern's generation business provides a physical hedge to this
risk as it is exposed to Pool price fluctuations from selling
electricity into the Pool. Eastern's overall exposure to those
risks is managed by the energy management business which also
enters into derivatives to hedge the portfolio and maintain
energy price exposure to within a limit set by the Board of
Directors of Eastern. The derivatives used are contracts for
difference (CfDs) and electricity forward agreements (EFAs).
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CfDs are bilaterally negotiated contracts which fix the price of
electricity for an agreed quantity and duration by reference to
an agreed strike price. EFAs are similar in principle to CfDs
but are on standard terms and tend to be for smaller quantities
and shorter durations. The hypothetical loss in fair value of
Eastern's CfDs and EFAs in existence at March 31, 1999 arising
from a 10% adverse movement in future electricity prices is
estimated at (pounds sterling)52 million. This loss is
calculated by modelling the contracts against an internal
forecast of Pool prices using discounted cash flow techniques.
The fair value of outstanding CfDs and EFAs at March 31, 1999 was
(pounds sterling)48 million, calculated as the difference between
the expected value of the CfDs and EFAs, based on their known
strike price and known value and the current market value, based
on an estimate of forward prices for the CfD or EFA term.
Eastern also sells fixed price gas contracts to customers
and supplies the customer through a portfolio of gas purchase
contracts and other wholesale contracts. Eastern's overall net
exposure to the gas spot market is also managed within a limit
set by the Board of Directors of Eastern using natural gas
futures and swaps, as appropriate, to hedge the exposures. There
were no gas swaps outstanding at March 31, 1999.
Management of the market risks associated with the portfolio
of physical generation assets, upstream gas assets and gas and
electricity sales and derivative contracts is critical to the
success of Eastern and therefore comprehensive risk management
processes, policies and procedures have been established to
monitor and control these market risks.
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INDUSTRY BACKGROUND
GENERAL
Traditionally, the electric industry in the UK, including
distribution, transmission and generation, has been highly
regulated. Throughout England and Wales, electricity power
stations, together with the transmission and distribution
systems, constitute a single integrated network. Privatization
of the UK electricity industry has opened the market to new
participants. Each participant must be licensed to generate,
transmit or supply electricity. Almost all electricity generated
in England and Wales must be sold to and purchased from the Pool.
Prices for electricity are set by the Pool for each half hour
based on bids of generators and a complex set of calculations
that matches supply and demand.
The gas industry in Great Britain has been privatized and
competition among suppliers is encouraged, first by deregulating
the supply of gas to larger customers and, more recently, to
smaller customers including residential users. Most of the UK
gas transmission and distribution network is owned and operated
by BG plc, which is required to provide fair access to its
network to all shippers of gas. Charges to shippers of gas are
based on the amount of pipeline capacity reserved and the number
of points of entry and exit to and from the national network.
THE ELECTRICITY INDUSTRY IN ENGLAND AND WALES
Almost all electricity generated at power stations in
England and Wales is delivered through the high voltage
transmission system owned and operated by The National Grid
Company (National Grid). It is then transformed for delivery on
to the local distribution networks owned and operated by holders
of public electricity supply (PES) licenses such as Eastern
Electricity.
During the five years ended March 31, 1998, demand for
electricity in England and Wales rose by approximately eight
percent. National Grid expects demand to rise by approximately
seven percent during the five years ended March 31, 2003.
The Seven Year Statement published by National Grid reports
that electricity produced by the UK generating industry,
including imports from Electricit de France, in the year ended
March 31, 1991, totalled approximately 300 TWh, of which
approximately 66 percent was produced by coal-fired power
stations and 18 percent by nuclear power stations. Sixteen
percent was output from pumped storage, oil and interconnectors.
During that time no combined cycle gas turbine (CCGT) power
stations were in operation. The statement indicates that in the
year ended December 31, 1997, including imports from Electricite
de France, the percentage of total electricity generated by coal-
fired power stations had declined to approximately 34 percent and
the output from pumped storage, oil and interconnectors had
declined to 12 percent while the percentage generated by nuclear
power stations had increased to 27 percent and CCGT power
stations accounted for 27 percent. Reasons for the development
of CCGT generating capacity since 1991 include the availability
of large volumes of natural gas, developments in technology and
the privatization of the UK electricity industry, which has
allowed new entrants to participate in the generation market.
In December 1997, the UK government announced a review of
energy sources for power generation, including fuel diversity,
sustainable development and the role of coal. The government's
conclusions were published in an October 1998 policy statement.
The government's policy for issuing consents for the construction
of new generating stations, as set out in the October 1998 policy
statement, is that gas-powered generation would normally be
inconsistent with the government's energy policy, unless the
project has other benefits, such as combined heat and power
(CHP), which has environmental or transmission system benefits.
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<PAGE>
THE POOL
The Pool was established in 1990 for bulk trading of
electricity in England and Wales between generators and
suppliers. The Pool reflects two principal characteristics of
the physical generation and supply of electricity from a
particular generator to a particular supplier. First, it is not
possible to trace electricity from a particular generator to a
particular supplier. Second, it is not practicable to store
electricity in significant quantities. These characteristics
create the need for a constant matching of supply and demand.
All electricity generated in England and Wales, other than
electricity generated by small generators connected directly to
the local distribution networks rather than National Grid, must
be sold to the Pool. In turn, electricity suppliers generally
must buy electricity from the Pool for resale to their customers.
Even groups which are both generators and licensed suppliers,
such as Eastern, in most circumstances, must act through the Pool
to sell all the electricity they generate and to purchase all
electricity they sell to customers.
The Pool is operated under the Pooling and Settlement
Agreement, which is currently under review by the UK government.
The Pooling and Settlement Agreement governs the constitution and
operation of the Pool and the calculation of payments due to and
from generators and suppliers of electricity. The UK government
and all licensed generators and suppliers of electricity in
England and Wales are parties to the Pooling and Settlement
Agreement. The Pool also provides centralized settlement of
accounts and clearing.
Generators sell electricity to the Pool at a price for each
unit of electricity generated. Also, generators receive
availability payments when they declare themselves to be
available but are not called upon to run. Suppliers buy
electricity through the Pool at a price which reflects these
components and which may also include additional amounts payable
to National Grid.
Prices for electricity are set by the Pool daily for each
half hour of the following day based on the bids of the
generators and a complex set of calculations that matches supply
and demand and takes account of system security. Generators make
individual bids into the Pool once each day, stating the price
and volume at which they are prepared to generate at any point
during the following day. National Grid ranks the generating
units in an order known as the "merit order," primarily according
to the price offered. National Grid then schedules the
generating units to operate according to this merit order,
calling into service the least expensive generating units first
and continuing to call generating units into service until enough
are operating to meet demand. Factors which may constrain
National Grid's ability to order stations into operation in
strict observance of the merit order include the constraints of
transmission systems and the technical operating characteristics
of some generating units. The price paid to all generators which
are called to run is set primarily by reference to the highest
bid price of all the generators selected to run in that half
hour. A computerized settlement system is used to calculate
prices and to process metered, operational and other data and to
carry out the other procedures necessary to calculate the
payments due under the Pool trading arrangements. The settlement
system is administered on a day to day basis by Energy
Settlements and Information Services Limited, a subsidiary of
National Grid, as settlement system administrator. Pool prices
for the purchase of power can vary significantly from day to day
and during each day.
In order to reduce their exposure to fluctuations in Pool
prices, generators and suppliers enter into financial hedging
contracts with each other. These contracts are in the form of
CfDs and EFAs. CfDs and EFAs in effect fix the price that a
supplier pays and a generator receives for electricity. They
therefore are used to reduce the price risk that would otherwise
be associated with the sale and purchase of electricity through
the Pool.
ELECTRICITY SUPPLY MARKETS IN ENGLAND AND WALES
The regulatory framework in England and Wales differs for
consumers with maximum annual demands over and under 100 kW. The
under 100 kW market, comprising the former regional supply
monopolies (franchises) of the twelve RECs, has recently been
opened to competition. It is sometimes referred to as the "ex-
franchise" market. This market itself contains two subdivisions.
The first consists of all residential customers and small
39
<PAGE>
businesses using up to 12,000 kWh/annum. It is called the
designated market. The remainder of the ex-franchise market
consists of smaller businesses with annual maximum demands under
100 kW that use more than 12,000 kWh/annum. The over 100 kW
market consists of all customers with an annual maximum demand of
100 kW or more.
Until September 1998, residential and small business
customers in all service areas could buy electricity only from
the REC authorized to supply service in the area where the
customers were located. However, competition has been introduced
fully and customers are now able to buy electricity from any
appropriately licensed supplier. Ex-franchise customers are
usually supplied with electricity in accordance with published
tariffs. A price control formula set out in the supplier's PES
license limits prices charged to customers in the designated
market. These prices are regulated by the Director General of
Electricity Supply (DGES) as described below under EASTERN
BUSINESS OVERVIEW -- "UK Regulatory Matters; Energy Regulation;
Electricity Supply Price Regulation." A formula determines the
maximum prices which any PES license holder is permitted to
charge. A separate price control formula described below under
EASTERN BUSINESS OVERVIEW -- "UK Regulatory Matters; Networks
Regulation; Distribution Price Regulation" determines the maximum
distribution revenue which a PES license holder may earn from
charges made to its own electricity supply business and other
electricity suppliers for use of its distribution network. These
formulas are in effect until March 31, 2000.
To be able to supply electricity, a supplier must either
have a second tier supply license (Second Tier Supply License)
issued pursuant to the Electricity Act 1989 of Great Britain
(Electricity Act) described below under EASTERN BUSINESS OVERVIEW
-- "UK Regulatory Matters; Networks Regulation; Distribution
Price Regulation" or hold a PES license for the authorized area
where its customers are located. The license holder must
demonstrate that it has adequate systems and processes in place
to fulfill its obligations. Customers who choose to be supplied
by a second tier supplier and customers in the over 100 kW market
are charged under the terms of their negotiated supply contracts,
which may provide for fixed or variable prices. Variable prices
normally reflect expected fluctuations in the price paid by
suppliers for the purchase of electricity from the Pool.
All suppliers use the national transmission system, for
which they pay published transmission charges, and the
distribution system of the local PES license holder, for which
they pay published distribution charges, to secure delivery of
electricity to their customers.
Electricity supply and distribution businesses in England
and Wales are subject to price controls. Since the
implementation of the initial price controls in 1990, there have
been two reviews of the supply price control, effective for the
periods from April 1, 1994 to March 31, 1998 and from April 1,
1998 to March 31, 2000. These reviews have resulted in reduced
supply and distribution prices, but because related costs have
also been reduced, the effect on Eastern has not been material.
With the consent of the PES license holders, the DGES has
modified the PES licenses to require that the PES license holders
support the introduction of competition for franchise supply
customers by offering services to competing suppliers. These
services include registration, data collection and aggregation,
emergency reporting and meter operation. The PES license holders
may be required to provide meters to customers who pay in advance
for their electricity, usually customers with outstanding
obligations to the PES license holder. The PES license holders
are also required to provide, collectively, consumption and other
customer data and a data transfer service to facilitate customer
transfers to other providers in the open electricity market.
The RECs also have contributed to a program by the Pool to
adopt settlement arrangements for the competitive market in 1998.
The costs of this program will be recovered from charges to be
made to suppliers by the Pool over a five year period. There is
a cap above which the RECs will only partially recover these
costs. Eastern's share of the costs beyond this cap is not
expected to be material.
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REGULATION OF THE ELECTRICITY SUPPLY INDUSTRY UNDER THE
ELECTRICITY ACT
The Electricity Act created the institutional framework
under which the industry is currently regulated, including the
office of the DGES, who is appointed by the UK Secretary of State
for Trade and Industry (Secretary of State). The government is
currently consulting on legislation to make significant
amendments to the Electricity Act to reflect proposed changes in
the regulatory and legal framework of the industry. The
government appointed Callum McCarthy, a former banker, as the
Director General of Gas Supply (DGGS) beginning November 1, 1998.
He assumed the duties of DGES beginning January 1, 1999. The
Office of Gas Supply (OFGAS) merged with that of OFFER. Since
June 17, 1999, the merged office has been known as OFGEM (Office
of Gas and Electricity Markets).
The DGES's functions under the Electricity Act include:
. Granting licenses to generate, transmit or supply
electricity, a function which he exercises under a
general authority from the Secretary of State;
. Proposing modifications to licenses and, in case of
non-acceptance of those proposals by licensees, making
license modification referrals to the Monopolies and
Mergers Commission;
. Enforcing compliance with license conditions;
. Advising the Secretary of State in respect of the
setting of each PES license holder's non-fossil fuel
obligation, which fixes the requirement for the
licensee to purchase electricity from non-fossil
sources;
. Calculating the rate of the levy to reimburse
generators and RECs for the extra costs involved in
non-fossil fuel plant generation and collecting this
fossil fuel levy;
. Determining certain disputes between electricity
licensees and customers; and
. Setting standards of performance for electricity
licensees.
The term "supply" as used in the context of the Electricity Act
covers both distribution and supply activities.
The DGES exercises concurrently with the Director General of
Fair Trading certain functions relating to monopoly situations
under the UK Fair Trading Act 1973 and certain functions relating
to courses of conduct which have, or might have, the effect of
restricting, distorting or preventing competition in the
generation, transmission or supply of electricity in
contravention of the UK Competition Act 1980. The new
Competition Act which becomes effective March 1, 2000 will
replace certain provisions of the UK Fair Trading Act 1973 and
the UK Competition Act 1980. The new Competition Act conforms to
fair trade laws being enacted throughout the EU, including the
introduction of stricter enforcement and investigative powers.
Subject to these duties, the Secretary of State and the DGES
are further required to exercise their functions in the manner
which each considers is best calculated:
. To protect the interests of consumers of electricity
supplied by licensed suppliers in respect of price,
continuity of supply and the quality of electricity
supply services;
. To promote efficiency and economy on the part of
licensed electricity suppliers and the efficient use of
electricity supplied to consumers;
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<PAGE>
. To promote research and development by persons
authorized by license to generate, transmit or supply
electricity;
. To protect the public from the dangers arising from the
generation, transmission or supply of electricity; and
. To secure the establishment and maintenance of
machinery for promoting the health and safety of
workers in the electricity industry.
The Secretary of State and the DGES also have a duty to take into
account the effect on the physical environment of activities
connected with the generation, transmission or supply of
electricity.
In performing their duties to protect the interests of
consumers in respect of prices and other terms of supply, the
Secretary of State and the DGES are required to take into account
in particular the interests of consumers in rural areas. In
performing their duties to protect the interests of consumers in
respect of the quality of electricity supply services, they are
required to take into account in particular the interests of
those who are disabled or of pensionable age.
The Electricity Act requires the DGES and the Secretary of
State to carry out their functions in the manner each considers
is best calculated to ensure that all reasonable demands for
electricity will be satisfied, that license holders will be able
to finance their licensed activities and that will promote
competition in the generation and supply of electricity.
GOVERNMENT REVIEW OF UTILITY REGULATION
On June 30, 1997, the UK government announced its intention
to conduct a comprehensive review of the regulatory framework
governing the electricity distribution and supply businesses in
England and Wales, as well as the regulatory framework applicable
to providers of water and telecommunications services. The
review culminated in a March 1998 policy statement which sets
forth a number of proposals of the UK government designed to re-
examine utility regulation in the UK. Among the main proposals
contained in that policy statement, some of which would require
implementing legislation, are:
. The retention of "RPI-Xd," the current distribution
price control formula, as the basis for price
regulation;
. Increased transparency and consistency of regulations;
. The merger of OFFER and OFGAS;
. The separate licensing of the distribution and supply
businesses of the RECs; and
. Amendment of the statutory duties of utility regulators
to provide a new primary duty to exercise their
functions in the manner best calculated to protect the
interests of the consumers in the short and long term
wherever possible, through promoting competition and
adopting price regulation to distinguish between income
earned through companies' own efforts and income which
results from other factors.
42
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On May 13, 1998, the DGES issued a consultation paper on the
separation of distribution and supply businesses for RECs and the
future treatment of metering and meter reading. The material
proposals and recommendations set out in the consultation paper
are the following:
. Full separation of the management of the supply and
distribution business was recommended and consideration
of appropriate interim arrangements for separate
companies that will make up the distribution and supply
activities, each acting independently of the other.
Measures should be introduced to ensure that each PES
license holder's supply subsidiary operates at arm's
length from the distribution subsidiary. These
measures would include separate contracts between the
supply and distribution businesses to avoid the sharing
of facilities between the businesses. Separate
management teams would be required for the two
businesses and corporate headquarters activities would
be minimized.
. The distribution company should be responsible for the
maintenance and operation of the network and have a
statutory duty to develop and maintain an efficient,
coordinated and economical system of electricity
distribution and to facilitate competition in
generation and supply. It should connect any customer
to the network on reasonable terms and provide "last
resort" meter reading service for any supplier not
wishing to provide the service itself.
. All suppliers should be placed on the same legislative
footing, and tariff supply should be replaced by supply
under contract. License conditions would be introduced
to protect customers and competitors against dominant
suppliers.
. Metering services should be open to competition, and
arrangements for transmission in Scotland should be
brought into line with those in England and Wales.
In October 1998, the Department of Trade and Industry
published a consultation paper setting out its views, following
consultation on a number of issues relating to the reform of
regulatory structure in the gas and electricity markets. It
intends to take account of responses to the consultation when
submitting draft proposals for possible legislation in the late
spring or summer of 1999. The October 1998 consultation paper
sets out the government's view that separate ownership of
distribution and supply companies was inappropriate, but that the
two businesses should be held in separate subsidiary companies.
In November 1998, the DGES set out further proposals on
business separation. These proposals concentrate on the goal of
full operational separation of integrated support activities for
the distribution and supply businesses. He also appointed
consultants to advise him in drawing up a separation compliance
plan. These were followed on May 19, 1999 by a further OFFER
document that stressed the need to move rapidly towards
operational separation and proposed that work begin immediately
on company specific compliance plans. OFFER also proposes the
appointment of a senior level compliance manager within each REC.
The DGES is also reviewing the operations of the Pool with a
view to promoting alternative trading arrangements.
Holdings and Eastern cannot predict the results of any of
these reviews, whether proposals recommended in the consultation
paper will be implemented or the ultimate effects on Eastern or
Holdings.
THE GAS INDUSTRY IN THE UK
Natural gas is used for a wide range of residential and
small business and industrial purposes and also for gas-fired
electricity generating stations. Total consumption of natural
gas in the UK in 1997 was equal to 54 million tons of oil which
equated to 407 million barrels of oil. Production of natural gas
in the UK in 1997 was equal to 87 million tons of oil. This
equates to approximately 656 million barrels of oil.
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From the nationalization of the gas industry in Great
Britain in 1948 until 1986, when British Gas plc was privatized,
the supply of piped gas to customers was a monopoly. In parallel
with the privatization of British Gas plc, steps were taken to
develop greater competition within the industry, initially by
deregulating the supply of gas to the contract market. The
contract market is made up of customers that use more than 25,000
therms per year (1,000 tons of oil equivalent is equal to 0.3968
therms). Within the contract market there are "interruptible"
customers, whose supply can be interrupted in periods of
exceptional demand, and "firm" customers to whom supply is
guaranteed.
Competition has been extended to all consumers, including
residential and small business customers.
British Gas plc divided itself into two separate companies,
Centrica plc and BG plc. The former is a shipper and supplier of
gas, while almost all of the UK gas transmission and distribution
network is owned and operated by BG plc.
Participants in the gas industry are required to hold
licenses granted by the DGGS. These are:
. A "public gas transporter's license," which permits the
licensee to carry gas through pipelines to any premises
or to a pipeline system operated by another public gas
transporter;
. A "gas supplier's license," which is required to supply
gas to customers; and
. A "gas shipper's license," which allows the licensee to
arrange with a public gas transporter to introduce,
convey or take gas out of the transporter's pipeline
system.
In addition, the exploration for and production of gas in the
North Sea is subject to license by the Department of Trade and
Industry.
BG plc is required to provide fair access to its network to
all shippers of gas, who pay charges determined by the amount of
capacity they have reserved on the system's entry and exit points
and commodity charges based on the amount of gas actually
transmitted.
Shippers and suppliers obtain natural gas directly from
offshore fields, in which they may own equity interests, from
wholesalers, or from both. There are various types of contracts
for the purchase of gas, but most of these currently relate
directly to physical volumes to be delivered into the UK gas
supply network. Many of these include "take or pay" obligations,
under which the buyer agrees to pay for a minimum quantity of gas
in a year, although the amount it takes in any specific time
period can vary according to its need. Gas can be purchased for
delivery from one day to several years ahead.
Shippers in the gas industry have financial incentives to
ensure that they have sufficient gas, within limited tolerances,
to meet the needs of their suppliers and customers on a daily
basis. Failure to do so could result in additional costs being
incurred. Fluctuations in demand are met by altering the
quantity of gas taken from fields, by adjusting wholesale
purchase contracts and the use of storage. Demand may also be
limited by interrupting supplies to certain interruptible
customers. Any excess or shortfall in supply has to be sold to,
or bought from, the network operator at prices determined each
day under an agreed pricing formula.
44
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EASTERN BUSINESS OVERVIEW
GENERAL
Eastern is an integrated energy group. Its principal
business operations are electricity networks and energy
businesses in the UK.
The networks business is the largest distributor of
electricity in England and Wales, with over 3 million customers
in a service area covering approximately 20,300 square kilometers
in the east of England and parts of north London.
Eastern's energy business is made up of:
. Eastern Trading, which coordinates and manages for
Eastern the price and volume risks associated with
Eastern's generation and electricity and gas retail
businesses and those of third parties;
. Energy Retail, Eastern's electricity and gas
operations, which is one of the largest retailers of
electricity in the UK, with approximately 3.2 million
electricity customers of Eastern Electricity and
Eastern Energy Limited and 792,000 customers of Eastern
Natural Gas as of May 31, 1999; and
. Eastern Generation, the fourth largest generator of
electricity in the UK, which currently owns, operates
or has an interest in ten power stations representing
approximately 9.4% of the UK's total generating
capacity as of December 31, 1998.
Eastern also has interests in other parts of Europe,
including Scandinavia, Germany, the Czech Republic, The
Netherlands, Poland and Spain, and in four natural gas producing
fields in the North Sea.
The electric operations of Eastern are highly seasonal with
a very substantial proportion of its profits earned in the winter
months. The purchase price for electricity in each half hour
varies according to total demand, the amount of generation
capacity available but not needed and the prices bid by
generators. Consequently, the purchase price tends to be highest
during mid-week afternoons in winter, when demand is highest, or
in late autumn, when a significant number of power stations
undergo scheduled maintenance. Purchase prices are generally
lowest during summer months. Seasonal variations in results are
likely to continue under revised trading arrangements that are
due to be introduced during 2000.
The energy retail, energy management and generation and
networks segments, the primary operating segments of Eastern,
contributed 61%, 39% and 11%, respectively, of Eastern's revenues
during the last fiscal year. For financial information by
operating segment for the years ended March 31, 1997 and 1998,
and for the period from April 1, 1998 through May 18, 1998, see
Note 15 to the Consolidated Financial Statements for Eastern
Group plc and Subsidiaries included elsewhere in this prospectus.
For financial information by operating segment for the periods
from formation (February 5, 1998) through December 31, 1998 and
from formation through March 31, 1999, see Note 17 to the
Consolidated Financial Statements for TXU Eastern Holdings
Limited and Subsidiaries included elsewhere in this prospectus.
That information has been prepared and presented in accordance
with Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related
Information."
EASTERN'S FLEXIBLE ENERGY PORTFOLIO CONCEPT
Eastern began as a REC, operating what is now the largest
electric networks and supply business in the UK. As the UK
energy market has become increasingly competitive, Eastern has
been a pioneer in the development of the flexible energy
45
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portfolio concept in the UK. The growth in Eastern's electric
generation and gas production assets has provided the opportunity
to hedge substantially Eastern's downstream retail electricity
and natural gas contracts and commitments to customers. This
growth has allowed the development of a substantial portfolio of
positions in physical assets and contracts with which Eastern
Trading can service Eastern and other industry participants. The
physical positions are not an exact match. Therefore Eastern
Trading manages the resulting exposure through contracts in the
markets served by adjusting the balance of supply and demand in
Eastern's portfolio, by varying power station and gas field
output, by contracting with counterparties and by adjusting
trading prices to the retail operations. To the extent Eastern
is naturally hedged, Eastern can avoid the expenses of entering
into alternative hedging arrangements. Some of these arrangements
are described under "Portfolio Management/Energy Trading" below.
Overall, Eastern Trading integrates all aspects of Eastern's
energy business. It coordinates Eastern's energy operations,
taking into account anticipated demand and the availability to
Eastern of electricity and natural gas from all sources,
including generation, gas production, and contracted supplies.
In carrying out these duties, Eastern Trading:
. Supports the pricing and volume of sales in the
competitive, franchise and ex-franchise markets through
transfer pricing arrangements with Eastern's and
others' retail operations;
. Bids into the Pool both price and volume for Eastern's
generation, taking account of anticipated retail demand
and the overall contractual position;
. Manages purchases from the Pool for Eastern and others;
. Manages Eastern's CfDs and EFAs; and
. Matches Eastern's gas assets and purchase contracts,
including access to gas storage, with anticipated
demand, including demand from Eastern's gas-fired
generating plants using the other trading markets to
settle the net demand/supply position.
Finally, Eastern is also forming various business alliances
with European power companies and expects to implement a similar
strategy in other parts of continental Europe as markets there
open to competition.
STRATEGY FOR EASTERN'S ENERGY BUSINESS
Eastern's strategy for the energy business is to increase
Eastern's UK market share in the retail sale of gas and
electricity by strengthening its existing positions in those
markets. Eastern believes that substantial economic and
marketing benefits are derived from operating its natural gas and
electricity retailing business as a single unit. Competitive
markets provide opportunities for Eastern to expand its retail
base through superior marketing and a focus on service to
customers. As the retail base grows, Eastern's overall energy
portfolio will be adapted to manage the associated price and
volume risks. Providing similar development and management of
portfolios to third parties that are other energy providers gives
Eastern additional opportunities to develop its customer base.
Eastern also plans additional growth in continental Europe.
Eastern expects competition to increase in European markets. As
opportunities arise, Eastern intends to expand its current
European presence by developing an integrated European energy
business. This could be by direct acquisition or contractual
arrangements. As appropriate, Eastern aims to establish
positions through interests in physical assets or through
contracts and trading. It expects to develop distribution and
retail customer bases through direct marketing and/or alliances
with businesses having existing customer bases. These steps will
enable Eastern to operate profitably in these markets by taking
advantage of price, weather, load curve or other differentials
between connected European markets, as it does in the UK.
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EASTERN GENERATION
Eastern Generation is the fourth largest generator of
electricity in the UK. Its share of total UK generating capacity
is approximately 9.4%. It currently owns, operates or has an
interest in ten power stations in the UK. Eastern Generation
also has a controlling interest in Nedalo (UK) Limited, the
largest supplier of small (less than 1 MW) electrical CHP plants
in the UK.
UK GENERATION FACILITIES
Eastern's current portfolio of power stations is
predominately a mix of CCGT and coal-fired stations. It
represents both base load plants, which run throughout most of
the year, and mid-merit plants, which run in periods of high
demand. Eastern's portfolio of power stations provides
flexibility in managing the price and volume risks of its energy
contracts and has enabled Eastern to diversify its fuel supply
risk.
Information on Eastern's interests in power stations in the
UK is set out in the following table and discussed further below:
-------------------------------------------------------------------
INSTALLED DATE OF EARLIEST
PLANT TYPE CAPACITY(1) COMMISSIONING
-------------------------------------------------------------------
MW
West Burton Coal-fired 2,012 1967
Rugeley B Coal-fired 1,046 1972
Drakelow C Coal-fired 976 1965
Ironbridge Coal-fired 970 1970
High Marnham Coal-fired 945 1959
Peterborough CCGT(2) 360 1993
King's Lynn CCGT(2) 340 1997
Barking CCGT(2) 135(3) 1995
London-Citigen CHP(4) 31 1992
Grimsby-MIC(5) CHP(4) 15 1995
------
Total 6,830
======
(1) In all cases installed generating capacity is equal to
registered generating capacity except for Peterborough and
King's Lynn, which have registered generating capacities of
405 MW and 380 MW, respectively, but installed generating
capacities, as shown above, of 360 MW and 340 MW,
respectively.
(2) Combined cycle gas turbine.
(3) Represents Eastern's approximately 13.5% interest in a 1,000
MW plant.
(4) Combined heat and power plant.
(5) Located on the property of a customer.
West Burton, Rugeley B and Ironbridge. In June 1996,
-------------------------------------
Eastern assumed operational and commercial control, through a
combination of lease and outright purchase from National Power,
of all of the assets and a portion of the liabilities of the West
Burton, Rugeley B and Ironbridge power stations. Eastern holds a
99-year lease over the land, buildings and plant at each of those
power stations and has the right to purchase the freehold land
after 50 years. Under the leases, Eastern was committed to make
fixed payments totaling (pounds sterling)737.5 million, of which
(pounds sterling)337.5 million was paid at commencement of the
leases. The balance, together with interest at 7.75%, is payable
in 2001. Further payments of approximately (pounds sterling)6
per MWh, indexed to inflation and linked to output levels from
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these stations, are also payable to National Power through 2004.
National Power has agreed in principle with the Department of
Trade and Industry to modify the payment terms, although the
specific terms of the modification are not yet agreed. The new
terms will not change Eastern's obligations under the leases.
The National Power leases have been characterized as capital
leases under US GAAP.
Drakelow C and High Marnham. Eastern has leased the land,
---------------------------
buildings and plant at the Drakelow C and High Marnham power
stations from PowerGen for a period of 99 years, pursuant to
agreements entered into in July 1996. PowerGen is responsible
for decommissioning costs should Eastern decide to close these
stations during the term of the leases. Eastern is committed to
fixed payments totaling (pounds sterling)230 million, subject to
minor adjustments if aggregate capacity falls below a certain
level. The payments, together with interest, are to be made in
installments, over eight years beginning in 1996. As with the
National Power leases, further output-related payments of
approximately (pounds sterling)6 per MWh, indexed to inflation,
are payable to PowerGen for the first five years of operation by
Eastern. On November 25, 1998, the Secretary of State confirmed
that, as a condition for allowing PowerGen to acquire East
Midlands Electricity plc, he would require that the
output-related elements of these lease arrangements be terminated
15 months early. The output-related payments to PowerGen will
now terminate in March 2000.
Peterborough. The power station at Peterborough was
------------
developed and built as a joint venture between Eastern and Hawker
Siddeley Power (Peterborough) Limited between 1990 and 1993.
Eastern acquired Hawker Siddeley's interest in September 1994.
Eastern Trading has secured contracts with natural gas suppliers
to meet the station's natural gas requirements. The Peterborough
plant is operated and maintained on behalf of Eastern by a third
party contractor under a seven year contract which commenced in
1993.
King's Lynn. The 340 MW CCGT power station at King's Lynn
-----------
was constructed for Eastern under a turnkey contract. The
station began commercial generation in December 1997 and is
operated and maintained by Eastern. Eastern Trading has secured
contracts with natural gas suppliers to meet the station's
natural gas needs.
Barking. Eastern has an interest of approximately 13.5% in
-------
a 1,000 MW CCGT power station at Barking which was constructed as
a joint venture between Eastern and a number of other companies
and which became operational in 1995.
London-Citigen and Grimsby-MIC. In December 1998, Eastern
------------------------------
Generation acquired from BG plc two CHP plants: a 15 MW CHP plant
based on the Millennium Inorganic Chemicals site at Grimsby and a
31 MW district heating and chilling plant, Citigen, in London.
Nedalo. Eastern owns 75% of Nedalo, which provides to
------
customers small scale CHP equipment that can produce up to one
electrical MW per single unit. Separate units can be grouped
together to produce MW in a number equal to the number of units.
Nedalo is estimated to have approximately 80% of this segment of
the UK CHP market.
NON-UK GENERATION FACILITIES
Czech Republic. Eastern has invested (pounds sterling)27.8
--------------
million in an interest of 83.7% in Teplarny Brno, a district
heating and generation company based in Brno, the second largest
city in the Czech Republic. Teplarny Brno owns oil and gas-fired
plants that are capable of generating 851 MW of energy in the
form of steam and hot water. This is sold principally to
industrial and residential customers. It also owns a 169
kilometer pipeline network for distributing heat to customers'
premises. Teplarny Brno also has an electricity generation
capacity of approximately 97 MW. The output is sold to the
regional electricity company. A CCGT plant is currently being
commissioned and will provide 86 MW of additional heat capacity
and 95 MW of additional electricity generating capacity. This
plant, which has a contract value of approximately (pounds
sterling)31.6 million as of the date of this prospectus, is
expected to be fully commissioned by mid-September 1999.
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<PAGE>
Poland. Eastern has acquired 49% of Zamosc Energy Company,
------
a joint venture with the Polish regional distribution company,
Zamejska Korporacja Energetyczna SA, which was established to
develop power plants in southeast Poland. A 125 MW CCGT project
is being developed at Jaraslaw, but the financing has not yet
been closed.
OTHER PROJECTS
In December 1997, the UK government stopped granting
consents for the construction of new gas-fired power stations
pending adoption of the stricter consents policy announced in an
October 1998 policy statement on Energy Sources for Power
Generation. This policy has delayed the construction of some
projects by Eastern and its competitors. However, in December
1998, Eastern received government consent to build a 215 MW CHP
plant to provide heat and power to Shotton Paper on Deeside.
Eastern continues to consider other new generation projects
and, in April 1999 it announced that a one MW wind turbine in
Northern Ireland had successfully completed tests and had begun
generating electricity. The Government imposes on electricity
suppliers an obligation to purchase a portion of their
requirements from renewable energy sources under the Non-Fossil
Fuel Obligation (NFFO) levy scheme. The differences between the
Pool price and the power purchase price from the renewable
generator is covered by the NFFO levy applied to suppliers bills.
As of March 31, 1999, Eastern had entered into development
agreements in the UK for 100 MW installed capacity of on-shore
wind projects under NFFO power purchase contracts that are
awaiting planning consents from local authorities. Additional
opportunities for renewable energy projects and large and small
scale CHP plants are being actively considered, together with
other conventional generating projects.
COMPETITION IN GENERATION
Eastern was the fourth largest generator in the UK as of
December 31, 1998 with a share of approximately 9.4% of the UK's
total UK generation capacity registered at that date. This
compares to shares of approximately 22%, 20% and 10% for National
Power, PowerGen and British Energy plc, respectively. Eastern's
mix of generating plants enables it to operate in the mid-merit
and base load sectors of the market and to spread its fuel risk.
The generation market will be affected by the outcome of the
review of energy sources by the UK Government and the regulatory
review of electricity trading arrangements. Eastern cannot
predict the impact of these reviews. The introduction of new
generating facilities is likely to have an effect on the market
price of electricity. However, amortization of the capital costs
of older generating plant may result in a lower marginal cost of
generation than new facilities that are burdened with a high debt
service. For further discussion, see INDUSTRY BACKGROUND -- "The
Electricity Industry in England and Wales" above.
ENERGY RETAILING
Eastern has integrated its electricity and gas retailing
operations into a single energy business.
The electricity retailing business involves the sale to
customers of electricity that is purchased from the Pool. Pool
price risk is managed on behalf of the retail business by Eastern
Trading. The energy business is charged a regulated price by
transmission and distribution companies, including Eastern
Electricity, for the physical delivery of electricity.
Eastern Electricity supplies electricity to customers in all
sectors of the market and is one of the largest retailers of
electricity in England and Wales. Eastern's service area, which
covers approximately 20,300 square kilometers in the east of
England and parts of north London, was one of four areas in the
first group to be fully opened for competition. At May 31, 1999,
Eastern Electricity supplied electricity to approximately 2.9
million customers, including approximately 2.7 million
residential customers and 240,000 small businesses. Industrial
and commercial customers accounted for approximately 57% of
Eastern Electricity's retail sales.
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Eastern Natural Gas is one of the largest suppliers of
natural gas in the UK. At December 31, 1998 Eastern's market
share by volume was estimated at approximately 11% of gas
delivered to the competitive industrial and commercial market.
At May 31, 1999, it was supplying 792,000 customers in the UK,
ranging from residential households to large industrial
companies.
In November 1998, Eastern announced a gas retailing joint
venture in Holland with Energie Noord West and an electricity
trading and retail joint venture with Lunds Energi in Sweden.
In June 1999, Eastern announced details of a program to
restructure the energy retailing business in order to be more
cost effective in the competitive energy markets. This program
will result in the closure of two principal offices with the loss
of 300 permanent and 200 temporary positions. Eastern also
intends to seek new ways to access the energy markets and to form
more partnerships with the objective of reducing costs, improving
access to customers and capitalizing on emerging new markets such
as the internet.
COMPETITION IN ELECTRICITY RETAILING
Eastern is an active participant in the competitive UK
electricity market. The competitive market is made up of
customers with maximum annual demand of more than 100 kW. It
typically includes large commercial and industrial users. As of
December 31, 1998, this market consisted of over 51,000 sites.
Eastern estimates that this represents a market size of
approximately (pounds sterling)6 billion per year based upon
electricity prices at that date. In addition, Eastern estimates
that more than 85% of these sites are outside its authorized
area, and that over 60% of its electricity sales to the
competitive market are to customers outside its authorized area.
Eastern had more than 13% of this market. Eastern competes in
the competitive market for customers with maximum annual demand
of more than 100kW on the basis of the quality of its customer
service and by competitive pricing. The largest suppliers in
this market over the same period were PowerGen and National
Power.
Competition has been fully introduced for customers in all
areas of Great Britain. New entrants to the competitive market
have been limited to British Gas Trading Limited, Independent
Energy and a small number of other companies. Eastern competes
nationally for residential and small business customers and, by
May 31, 1999, it was supplying 158,000 customers outside its
traditional service area and had agreed contracts with a further
100,000 residential customers. At the same date, approximately
195,000 customers in Eastern's service area had transferred to
other suppliers.
There is no assurance whether or not competition among
suppliers of electricity will adversely affect Eastern.
COMPETITION IN GAS SUPPLY BUSINESS
As a result of UK government action in recent years, the UK
retail gas supply market is open to competition. Eastern's main
competitors are Centrica plc and the gas marketing arms of some
major oil companies. Further competition is provided by a number
of other electricity companies and smaller gas suppliers which
are independent of the major oil companies and which each have a
minor presence in the market.
Eastern intends to maintain a significant share of this
market through high-quality customer service and competitive
pricing.
PORTFOLIO MANAGEMENT/ENERGY TRADING
Typically, holders of PES licenses issued pursuant to the
Electricity Act in connection with supply and distribution within
an authorized area in Great Britain are exposed to risk, as they
are obliged to supply electricity to their customers at stable
prices but have to purchase almost all the electricity necessary
50
<PAGE>
to supply those customers from the Pool at prices that are
constantly changing. The ownership of generating assets provides
a natural hedge against these risks; the use of financial
instruments such as CfDs provide another hedging alternative.
A CfD is an agreement between two parties calling for
payments between the parties of amounts equal to the product of:
. The difference in each settlement period between the
Pool price and the price specified in the CfD (strike
price) and
. The amount of electricity provided for in that
settlement period, which is usually expressed in MW of
demand.
Each settlement period is one-half hour. CfDs effectively fix
the prices a supplier pays and a generator receives for
electricity. If the Pool price is lower than the strike price
for the settlement period, the supplier pays the generator; and
if the Pool price is higher, the generator pays the supplier. In
this way, CfDs reduce the financial risk otherwise associated
with the sale and purchase of electricity through the Pool.
Eastern Trading coordinates Eastern's activities in managing
risk. It provides support to Eastern's energy retail activities,
taking into account its energy purchases and sales and its
contract portfolios, including Eastern's generating assets and
natural gas production interests. Eastern Trading is responsible
for setting the level of bids into the Pool for the output of
each of Eastern's generating stations, other than Barking and the
CHP plants. Eastern Trading uses this method to coordinate the
operation of Eastern's generating stations with Eastern's fuel
contract position and its retail and wholesale energy sales
portfolios to Eastern's best advantage. It also coordinates the
operation of Eastern's generating stations, taking into
consideration the relative prices in the energy markets. Eastern
Trading also earns revenue by providing risk management services
to other energy retailers to assist in managing their Pool/market
price risk.
Eastern Trading manages Eastern's financial exposure to
fluctuations in electricity prices by:
. Managing its portfolio of CfDs;
. Bidding both price and volume for Eastern's generation
output, other than for the Barking plant and the CHP
plants, into the Pool for each half hour of the day;
and
. Deciding with the electricity retailing division of
Eastern on the volume and pricing of sales in the
competitive and ex-franchise markets.
The overall electricity position for each half hour of the
day is monitored by Eastern Trading with the goal of optimizing
electricity purchases and sales positions through the use of
generation facilities, long and short-term retail sales contracts
and appropriate financial instruments. The overall gas position
is monitored in a similar way with additional opportunities
presented through the operation of gas-fired power stations,
storage facilities and the use of the upstream gas assets.
Together, the overall electricity and gas positions are managed
by reference to risk exposure limits that are monitored by a risk
management team within Eastern. The risk management team
verifies that the trading instruments employed have been approved
for use by Eastern Trading and carries out credit checks on
current and proposed counterparties. Eastern's ability to manage
that risk in the future will depend, in part, on the terms of its
supply contracts, the continuation of an adequate market for
hedging instruments and the performance of its generating and
upstream gas assets.
In order to help meet the expected needs of its natural gas
wholesale and retail customers, including Eastern's power
stations, Eastern has entered into a variety of gas purchase
contracts. As of December 31, 1998, the commitments under
long-term purchase contracts amounted to an estimated (pounds
sterling)1.3 billion, covering periods of up to 16 years. Firm
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<PAGE>
sales commitments, including estimated power station usage, at
the same date amounted to an estimated (pounds sterling)3.0
billion, covering periods up to 18 years.
Eastern Trading also purchases coal, oil and natural gas for
the Eastern's UK power stations and has equity interests in four
natural gas-producing fields in the North Sea. In November 1998,
Eastern announced a significant expansion of its North Sea gas
interests through an agreement to purchase all of BHP Petroleum's
assets in the Southern North Sea for approximately (pounds
sterling)102 million. In December 1998, Eastern also agreed to
purchase Monument Oil's share of the Johnston field in the
Southern North Sea for almost (pounds sterling)20 million. These
purchases would increase Eastern's interest in the Johnston field
from approximately 5.5% to 55%. Both acquisitions are subject to
the approval of the UK Department of Trade and Industry.
Decisions are expected before the end of 1999.
The energy management business also trades on the Nord Pool,
the electricity trading market in Scandinavia, and has recently
acquired access to up to 140 MW of hydro output in Norway for 55
years, for which Eastern has paid an upfront fee of up to (pounds
sterling)124 million. This agreement also provides for Eastern
to acquire an additional 47MW of hydropower in Norway. In Spain,
Eastern has acquired a 5% minority shareholding in Hidroelectrica
del Cantabrico, S.A. It has created a 50/50 joint venture
trading company with Hidroelectrica del Cantabrico, S.A.,
Synergia Trading S.A., covering the Iberian peninsula.
NETWORKS
ELECTRICITY DISTRIBUTION
Eastern's electricity networks business consists of the
ownership, management and operation of the electricity
distribution network within Eastern's authorized area. Eastern
receives electricity in England and Wales from National Grid.
Eastern then distributes electricity to end users connected to
Eastern's power lines.
Almost all electricity customers in Eastern's authorized
area, whether franchise or competitive, are connected to and
dependent upon Eastern's distribution system. Eastern
distributes approximately 32 TWh of electricity annually to over
3 million customers, representing more than seven million people.
Most of the tangible fixed assets owned by Eastern in the UK are
currently employed in the electricity distribution business. The
distribution by Eastern of electricity in its authorized area is
regulated by its PES license, which, other than in exceptional
circumstances, is due to remain in effect until at least 2025.
PHYSICAL DISTRIBUTION SYSTEM
Eastern receives electricity from National Grid at 21 supply
points within its authorized area and three points in the
authorized areas of neighboring RECs. Most of this electricity
is received at 132kV. It is then distributed to customers
through Eastern's system of approximately 35,200 kilometers of
overhead lines, 54,600 kilometers of underground cable and
numerous transformers and switchgear, through a series of
interconnected networks operating at successively lower voltages.
Eastern also receives electricity directly from generating
stations located in its authorized area and, from time to time,
from customers' own generating plants and connections with
neighboring RECs.
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At March 31, 1999, Eastern's electricity distribution system network,
excluding service connections to consumers, included overhead lines and
underground cables at the operating voltage levels indicated in the table
below:
OVERHEAD UNDERGROUND
LINES CABLES
OPERATING (CIRCUIT (CIRCUIT
VOLTAGE KILOMETERS) KILOMETERS)
-------- ----------- ------------
132kV . . . . 2,365 220
33kV . . . . 3,883 2,450
25kV . . . . 0 23
11kV . . . . 19,377 16,625
6.6kV . . . . 0 29
3kV . . . . 0 21
LV . . . . 9,533 35,221
------ -------
Total . . 35,158 54,589
======= =======
In addition to the circuits referred to above, Eastern's distribution
facilities also include:
AGGREGATE CAPACITY
TRANSFORMERS NUMBER (MEGA VOLT AMPERES)
------------ ------ -------------------
132kV . . . . . . 230 13,306
33kV . . . . . . 869 10,360
11kV . . . . . . 61,406 14,719
------ ------
Total . . . 62,505 38,385
====== ======
AGGREGATE CAPACITY
SUBSTATIONS NUMBER (MEGA VOLT AMPERES)
----------- ------ -------------------
132kV . . . . . . 99 13,306
33kV . . . . . . 437 10,360
11kV . . . . . . 61,828 14,719
------ ------
Total . . . 62,364 38,385
====== ======
CUSTOMERS
Most of the revenue from use of the distribution system is from
Eastern's electricity retail operations. The rest is derived from
holders of Second Tier Supply Licenses in respect of the delivery of
electricity to their customers located in Eastern's authorized area.
The following table sets out details of Eastern's customers and
electricity units distributed:
FISCAL YEAR ENDED MARCH 31,
-----------------------------------
1997 1998 1999
--------- --------- ---------
NUMBERS OF CUSTOMERS CONNECTED AT
YEAR END
----------------------------------
Domestic (Residential) . . . . . . . 2,868,090 2,891,970 2,957,943
Commercial, Industrial and Other . . 254,245 263,502 268,208
--------- --------- ---------
Total . . . . . . . . . . . . . 3,122,335 3,155,472 3,226,151
========= ========= =========
ELECTRICITY DISTRIBUTED(GWh)
----------------------------
Domestic (Residential) . . . . . . . 13,390 12,946 13,786
Commercial, Industrial and Other . . 18,160 18,830 18,914
------- ------- -------
Total . . . . . . . . . . . . . 31,550 31,776 32,700
======= ======= =======
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SYSTEM PERFORMANCE
The performance of all UK distribution networks is monitored
and publicly reported upon annually by OFFER, now known as OFGEM.
According to the OFFER Report on Distribution and Transmission
System Performance 1997/98, Eastern achieved the best overall
distribution system performance, measured by number of faults per
100 kilometers of network, of all the PES license holders in the
year ended March 31, 1998. For the year ended March 31, 1999,
Eastern achieved a 25% reduction in minutes lost per customer and
a 18% reduction in interruptions per 100 customers compared to
the year ended March 31, 1998. These improvements exceeded the
targets of 70 interruptions in a year per 100 customers and 66
minutes lost in a year per customer that Eastern had declared for
itself for the year ended March 31, 2000.
DISTRIBUTION CHARGES AND PRICE CONTROL
The distribution charges levied by Eastern and the other
RECs consist of charges for use of the system and charges for
other services outside the scope of the price control, including
connection charges. Distribution and supply charges are
regulated by certain conditions in Eastern's PES license, which
sets out a formula for determining the maximum average charge per
unit distributed in any financial year. Sales of Eastern's
electricity network business consist primarily of charges for the
use of its distribution system, most of which are levied on
Eastern's electricity retail business, being the largest supplier
from the network, and are passed through to its customers. Most
of the charges for the use of the distribution system are subject
to distribution price controls. See --"UK Regulatory Matters"
below.
COMPETITION IN THE ELECTRICITY NETWORKS BUSINESS
At present, Eastern experiences little competition in the
operation of its electricity distribution system. In limited
circumstances, some customers may establish or increase capacity
for their own generation by becoming directly connected to
National Grid or by establishing their own generating capacity,
thereby avoiding charges for the use of the distribution system.
Eastern does not currently consider this a significant threat to
its electricity networks business.
STRATEGY FOR THE ELECTRICITY NETWORKS BUSINESS
In support of Eastern's European integrated energy business
concept, the electricity networks business may evaluate growth
opportunities that enhance value. Eastern is also examining
opportunities to manage major third-party networks.
CZECH REPUBLIC
In October 1996, Eastern acquired an 11.6% minority interest
in Severomoravska Energetika a.s., a Czech electricity
distribution and supply company, as part of its plan to develop
interests in companies that would further its integrated energy
strategy overseas. This interest was increased to 16.3% in March
1998.
FINLAND
Eastern announced in May 1999 that it had agreed to make an
investment in Savon Voima Oy, a regional electricity distributor
in central Finland. The investment will be a purchase of 36% of
Savon Voima Oy's share capital for a purchase price of (pounds
sterling)42 million. Savon Voima Oy is currently owned by 29
local municipalities. There are put options exercisable by the
municipalities which if exercised would automatically give
Eastern a controlling stake. The purchase is part of Eastern's
overall strategy to manage a flexible Scandinavian energy
portfolio and to develop Eastern's Scandinavian businesses
working with local partners.
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OTHER ACTIVITIES
In December 1998, Eastern sold its wholly-owned subsidiary,
Eastern Group Telecoms Limited, to NTL Incorporated for (pounds
sterling)91 million. Eastern's current strategic plan does not
focus on telecommunications activities.
EMPLOYEES
At December 31, 1998, Eastern had approximately 7,000 full-
time employees.
Eastern recognizes trade unions for collective bargaining
purposes, and approximately 54% of employees of Eastern's
businesses are union members. Union membership existed at
Eastern when it was privatized. However, the new companies set
up by Eastern subsequent to privatization have no obligations to
recognize trade unions. Eastern Natural Gas and Eastern Trading
do not recognize trade unions, and most workers in these
businesses are employed under individual contracts. There have
been no industrial disputes or work stoppages at Eastern during
the period following its privatization in 1990.
UK REGULATORY MATTERS
The electricity industry in the UK, including Eastern, is
subject to regulation under, among other things, the Electricity
Act and certain UK and EU environmental legislation. Eastern is
also subject to existing UK and EU legislation on competition and
regulation in its gas business. Eastern has all of the necessary
franchises, licenses and certificates required to enable it to
conduct its businesses. In addition, part of any profit on
disposal of certain assets vested in Eastern at the time of its
privatization is subject to recovery by the Secretary of State
until March 31, 2000.
Eastern expects proposals with respect to utility regulation
to be part of legislation that will be introduced in 1999 or
2000. The implementation of utility regulation could result in
significant changes to the existing regulatory regime. There can
be no assurance regarding the potential impact of regulatory
changes, if any, on Eastern.
ENERGY REGULATION
GENERATION
Unless covered by an exemption, all electricity generators
operating a power station in the UK are required to have
generation licenses. The conditions attached to a generation
license in the UK require the holder, among other things, to be a
member of the Pool and to submit the output of the power
station's generating units or turbines for central dispatch.
Failure to comply with any of the generation license conditions
may subject the licensee to a variety of sanctions, including
enforcement orders by the DGES and license revocation if an
enforcement order is not complied with.
The Secretary of State has power under the Electricity Act
to require generators operating power stations with a capacity of
not less than 50 MW to maintain stocks of fuel and other
materials at power stations. The Secretary of State has recently
completed a review of the level of fuel stocks held by generators
in 1997. No increase was required, but Pool rules were changed
as of December 1997 to penalize gas power plants that reduce
output during times of insufficient plant margins. Eastern does
not anticipate that these changes will have a material adverse
effect on its results of operations.
In the UK each PES license limits the amount of generation
capacity in which each REC may hold an interest without the prior
consent of the DGES. These "own-generation" limits currently
restrict the participation by a REC and its affiliates in
generation to a level of approximately 15% of the simultaneous
maximum electricity demand in that REC's authorized area at the
time of privatization. Eastern's limit is 1,000 MW. The DGES
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<PAGE>
stated in January 1996 that he would be prepared to consider a
REC's request to increase its own-generation capacity on the
condition that it accept explicit restrictions on the contracts
it signs with its own supply business. At a minimum, a REC would
be prohibited from entering into contracts to provide the
additional own-generation output to its franchise market.
Following public consultation, the DGES set out the basis on
which consents for RECs to acquire new generation capacity would
be allowed. The specific consent of the DGES to the leasing by
Eastern of approximately 6,000 MW of generating capacity from
National Power and PowerGen was subsequently confirmed by OFFER
and is not subject to the aforementioned supply business
restrictions. Eastern received government consent to build a CHP
plant at Shotton in December 1998 and the acquisition of
additional generation capacity at Dowlais has been approved in
principle by the DGES.
ELECTRICITY RETAILING
Subject to specific exceptions, retail suppliers of
electricity in the franchise market in the UK are required either
to have a PES license for an authorized area or to obtain a
Second Tier Supply License. PES license holders are required
under the Electricity Act to provide a supply of electricity upon
request to any premises in their authorized area, except in
specified circumstances. Each PES license holder is subject to
various obligations under its PES license. These include
prohibitions on cross-subsidies among its various regulated
businesses and discrimination in respect of the supply of
customers. Each PES license holder is also required to offer
open access to its distribution network on non-discriminatory
terms. This obligation includes a requirement not to
discriminate between its own supply business and other users of
its distribution system. PES license holders are subject to
separate controls on the tariffs to franchise customers and in
respect of distribution charges. OFGEM is reviewing the
distribution and supply price controls. This is expected to lead
to changes, possibly substantial, in the year 2000. Eastern is
not able to predict the outcome of this review or the impact on
its results of operations.
A supplier of electricity to the competitive market in the
UK must have, subject to specific exemptions, a Second Tier Supply
License or a PES license for the service area in which customers
are supplied.
ELECTRICITY SUPPLY PRICE REGULATION
Supply charges in the ex-franchise market are regulated by a
maximum price control that applies to each tariff in the
residential and small business customer market and effectively
provides customers with price guarantees. On April 1, 1998,
Eastern's tariffs were reduced by 8.9%, before adjustments for
inflation. As provided in the formula, Eastern's tariffs were
reduced by a further 3%, before adjustments for inflation,
beginning April 1, 1999. There are no other changes in place for
retail tariffs.
As the ex-franchise market is opened to competition, supply
price restraints are no longer expected to be applicable to
current franchise market supply customers. However, the DGES has
indicated in his supply price restraint proposals published in
October 1997, that beginning April 1, 1998, price regulation
would be put in place for supply to all designated (residential
and small business) customers whose annual consumption is below
12,000 kWh within Eastern's authorized area, and will remain in
place until an adequate level of competition is established, and,
at least, until March 31, 2000.
GAS
The natural gas supply activities of Eastern are principally
regulated by the DGGS under the UK Gas Act 1986, as amended by
the UK Gas Act 1995 (Gas Acts) and by the conditions of Eastern's
gas licenses granted by the DGGS. Eastern Natural Gas currently
holds a gas supplier's license. Eastern's natural gas supply
business is not subject to price regulation. Subsidiaries of
Eastern currently hold a gas shipper's license and a public gas
transporter's license.
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ENERGY TRADING
Eastern Trading is permitted by the Financial Services
Authority under the Financial Services Act 1986 to deal in CfDs,
including futures and options. A subsidiary of Eastern Trading
is a joint holder of production licenses relating to its equity
interests in four North Sea natural gas fields.
NETWORKS REGULATION
DISTRIBUTION PRICE REGULATION
A formula determines the maximum average price per unit of
electricity distributed (in pence per kilowatt hour) that a REC
is entitled to charge. This price, when multiplied by the
expected number of units to be distributed, determines the
expected distribution revenues of the REC for the relevant year.
The current Distribution Price Control Formula, P x (1+(RPI-Xd)),
is based on the following:
. P is the previous year's maximum average price per unit
of electricity distributed. Because the maximum
average price in any year is based in part on the
maximum average price in the preceding year, a price
reduction in any given year has an ongoing effect on
the maximum average price for all subsequent years.
. RPI is a measure of inflation, and equals the
percentage change in the UK Retail Price Index between
the six-month period of July to December of the two
previous years. Because RPI is based on a weighted
average of the prices of goods and services purchased
by a typical household, which bear little resemblance
to the inputs contributing to Eastern's business costs,
the RPI calculation may not accurately reflect price
changes affecting Eastern.
. The Xd factor is established by the DGES each five
years. It is based on an estimate of expected
efficiency gains during the next five years.
The formula permits RECs to retain part of their additional
revenues due to increased distribution of units and allows for a
pound sterling for pound sterling increase in operating profit
for efficient operations and reduction of expenses within a
review period. In relation to the next Distribution Price
Control Formula review, scheduled to be implemented in April
2000, the DGES may reduce any increase in operating profit to the
extent he determines it not to be a function of efficiency
savings and/or, if genuine efficiency savings have been made, he
determines that customers should benefit through lower prices in
the future.
Distribution costs vary according to the voltage at which
consumers are connected and the level of use of the distribution
system at the time units are distributed. Changes in the mix of
units distributed at different voltage levels and between peak
and off-peak periods are reflected in the calculation of the
maximum average permitted charge per unit distributed by
reference to a "basket" of distribution categories.
Electricity distributed to extra high voltage premises is
excluded from the Distribution Price Control Formula, as are
charges for specific additional services including connection
charges. Connection charges must be set at a level which enables
the licensee to recover no more than the appropriate proportion
of the costs incurred and no more than a reasonable rate of
return on the capital represented by those costs. Any dispute
over connection charges may be determined by the DGES. In
addition, income received in respect of exit charges related to
National Grid that are incurred by a REC and received through
system charges is not subject to distribution price control.
In certain circumstances, the DGES may propose amendments to
the Distribution Price Control Formula or the terms of the
license. In the cases where a PES license holder is not willing
to accept modifications to the Distribution Price Control Formula
or other license conditions put forward by the DGES, the normal
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process would be for the DGES to refer the matter to Monopolies
and Mergers Commission or its replacement, the Competition
Commission, after the effective date of the new Competition Act.
ENVIRONMENTAL REGULATIONS AND EMISSIONS
Eastern's businesses are subject to numerous regulatory
requirements with respect to the protection of the environment.
The electricity generation industry in the UK is subject to a
framework of national and EU environmental laws which regulate
the construction, operation and decommissioning of generating
stations. Under these laws, each generating station operated by
Eastern is required to have an authorization which regulates its
releases into the environment and seeks to minimize pollution of
the environment taken as a whole, having regard to the best
available techniques not entailing excessive cost. These
authorizations are issued by the Environment Agency which has the
responsibility for regulating the impact of Eastern's generating
stations on the environment. The principal laws which have
environmental implications for Eastern are the Electricity Act,
the Environmental Protection Act 1990 and the UK Environment Act
1995.
The Electricity Act requires Eastern to consider the
preservation of natural beauty and the conservation of natural
and man-made features of particular interest when it formulates
proposals for development in connection with certain of its
activities. Environmental assessments are required to be carried
out in certain cases, including overhead line constructions at
high voltages and generating station developments. Eastern has
produced Environmental Policy Statements and Electricity Act
Schedule 9 Statements which set forth the manner in which it
complies with its environmental obligations.
Possible adverse health effects of electro-magnetic fields
(EMF) from various sources, including transmission and
distribution lines, have been the subject of extensive worldwide
scientific research. Over eighty independent and authoritative
scientific review bodies have concluded that the scientific
evidence to date does not establish that EMF cause adverse human
health effects. Even with no health effects established, it is
possible that the passage of legislation and changing regulatory
standards could require measures to mitigate EMF. These changes
could result in increased capital and operational costs. In
addition, it is always possible for lawsuits to be brought by
plaintiffs alleging damages caused by EMF. The National
Radiological Protection Board (NRPB) is the body in the UK with
the statutory responsibility for advising on EMF. Eastern fully
complies with the guidance of the NRPB.
Eastern has approximately 680 and 192 kilometers of
underground cables insulated with an oil-filled wrap which
operate at 33kV and 132kV, respectively. This type of cable is
in common use by utilities in the UK and parts of continental
Europe. These cables generally supply substantial amounts of
electricity to large substations in urban areas and to large
customers. Most of Eastern's cables are between 30 and 50 years
old. Eastern operates these cables in accordance with the
Environment Agency's Operating Code for Fluid-Filled Cables,
monitoring and repairing both gradual and substantial leaks that
arise through age deterioration and damage by a third party.
Eastern has a program to reduce oil leakage and minimize the
possibility of pollution to watercourses and ground water. This
involves establishing a more effective standard procedure for
dealing with cable leaks and implementation of an effective
monitoring system. Eastern also has a plan for gradual
replacement and refurbishment of these cables with more modern
solid cables in the future. Eastern believes that its existing
monitoring systems and planned replacement and refurbishment
program effectively minimize the risk of major environmental
incidents or additional replacement expenditures. Eastern could
incur significant expenditures if it were required to replace its
fluid-filled cables, other than in the ordinary course of
business, pursuant to new or existing legislation; however,
Eastern is not aware of any plans of any governmental authority
to impose that kind of requirement.
The principal EU Directive affecting atmosphere emissions to
the environment currently in force is the Large Combustion Plants
Directive (LCPD). The LCPD required the UK to reduce from 1980
levels its sulfur dioxide (SO2) emissions from its existing
plants by 60% by 2003 and nitrogen oxides (NOx) emissions by 30%
by 1998. The Large Combustion Plant National Plan is the
mechanism by which the LCPD has been implemented in the UK and
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sets annual targets for reductions in emissions for the
electricity industry. Discussions are under way in the EU
regarding an update of the LCPD which will introduce tighter
emission controls as well as national limits for 2010. The UK
government has recently made a review of energy sources and
electricity trading arrangements and has made proposals regarding
new limits for SO2 emissions to apply in the period to 2005. The
government is expected to propose tighter controls on NOx
emissions in the near future. Eastern is examining the economic
and practical implications of fitting a flue gas desulphurization
plant to its West Burton station to operate beginning in autumn
2003.
At a local level, the UK's Air Quality Strategy provides set
targets for 2005 and places a duty on local authorities to review
air quality with a view to setting up action plans for management
in places where targets are unlikely to be met. When adverse
meteorological conditions occur, some generating stations might
have to introduce measures to comply with these targets, which
could include installation of costly equipment or reduction of
the operating level of the stations.
In December 1997, the Conference of the Parties of the
United Nations Framework Convention on Climate Change adopted the
Kyoto Protocol which specifies targets and timetables for certain
countries to reduce greenhouse gas emissions. The UK is a
signatory to the Kyoto Protocol and this involves a 12 1/2%
reduction in CO2 emissions by 2010 if the Protocol is ratified.
Eastern is unable to predict what impact the implementation of
the Kyoto Protocol will have on it, although the UK Government is
proposing to introduce a tax on the business use of energy in
order to reduce energy consumption.
Eastern believes that it is currently in compliance with,
has taken, and intends to continue to take, measures to comply,
in all material respects, with the applicable law and government
regulations for the protection of the environment. There are no
material legal or administrative proceedings pending against
Eastern with respect to any environmental matter.
FOSSIL FUEL LEVY
All the RECs are obliged to obtain a specified amount of
generating capacity from non-fossil fuel sources. Because
electricity generated from non-fossil fuel plants is generally
more expensive than electricity from fossil fuel plants, a fossil
fuel levy has been instituted to reimburse the generators and the
RECs for the extra costs involved. The DGES sets the rate of the
fossil fuel levy annually. The current fossil fuel levy is 0.9%
of the value of sales of electricity made in England and Wales
and 0.8% of the value of sales of electricity made in Scotland.
UK AND EU FAIR COMPETITION LAW
Eastern is subject to the fair competition (i.e., antitrust)
rules of both the UK and the EU.
The UK Fair Trading Act 1973 and the UK Competition Act 1980
both regulate the activities of companies with market power. The
UK Resale Price Act 1976 regulates resale prices. The UK
Restrictive Trade Practices Act 1976 provides that failure to
furnish to the Office of Fair Trading an agreement that can be
registered under the Act renders unenforceable certain
restrictions contained in the agreement. UK competition law is
in the process of reform pursuant to the Competition Act 1998
which will become effective on March 1, 2000. In broad terms,
the Competition Act 1998 conforms to fair trade laws being
enacted throughout the EU, including the introduction of stricter
enforcement and investigative powers.
The Treaty of Rome contains provisions which prohibit anti-
competitive agreements and practices, including the abuse of a
dominant position within the EU or a substantial part of it.
Penalties for violation of these provisions include fines, third
party damages and making infringing contractual provisions
unenforceable.
EU Directive 93/36 was implemented by the UK in December
1996 and covers service contracts as well as supply and work
contracts. Those contracts that exceed the relevant financial
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thresholds have to be advertised in the Official Journal of the
European Communities. Disappointed suppliers and contractors who
believe they have suffered harm from a company's failure to
implement the correct procedures in awarding a contract are able
to institute proceedings in the English High Court. The European
Commission also has a role for ensuring compliance with EU
procurement regulations.
PROPERTIES
The principal properties owned or occupied by Holdings'
continuing businesses are as follows:
TERM SITE
OWNER/LEASE OF PRINCIPAL AREA
PROPERTY HOLDER INTEREST LEASE USE (ACRES)
117 TEG (Head Freehold -- Offices __
Piccadilly, Office)
London Limited
Bedford Eastern Freehold -- Offices 5.0
Electricity and Depot
Carterhatch Eastern Freehold -- Offices 4.0
Lane, Enfield Electricity and Depot
Milton, Eastern Freehold -- Offices 24.0
Cambridge Electricity and Depot
Rayleigh Eastern Freehold -- Offices 7.8
Electricity and Depot
Wherstead Eastern Freehold -- Offices 17.0
Park, Electricity
Wherstead,
Ipswich
King's Lynn Anglian Freehold -- Power 16.1
Power Station Power station
Generators
Limited
Peterborough Eastern Freehold -- Power 18.1
Power Station Generation station
Drakelow C Eastern Leasehold 99 Power 177.0
Power Station Merchant years station
Properties
Limited
High Marnham Eastern Leasehold 99 Power 178.4
Power Station Merchant years station
Properties
Limited
Ironbridge Eastern Leasehold 99 Power 212.7
Power Station Merchant years station
Properties
Limited
Rugeley B Eastern Leasehold 99 Power 299.0
Power Station Merchant years station
Properties
Limited
West Burton Eastern Leasehold 99 Power 511.5
Power Station Merchant years station
Properties
Limited
For information concerning Eastern's generating stations,
see -- "Generation" above.
LEGAL PROCEEDINGS
Holdings is not involved in any legal or arbitration
proceedings which management believes will have a material
adverse effect upon Holdings' business or financial position.
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On May 19, 1998 a complaint was filed by Optimum Solutions
Limited (OSL) against National Grid, Yorkshire Electricity Group
plc (Yorkshire Electricity), Eastern Electricity and Logica Plc.
Yorkshire Electricity and Eastern Electricity are both members of
the Pool. OSL alleges breach of confidence in respect of
information supplied in the context of the development of the
trading arrangements for the 1998 liberalization of electricity
supply in England and Wales (Trading Arrangements). OSL requests
an unspecified amount of damages relating to breach of contract,
an unspecified amount of equitable compensation for misuse of the
confidential information and return of material alleged to
contain confidential information. It is alleged that the Pool
has made use of the confidential information in the development
of the Trading Arrangements and that Eastern Electricity made use
of it in using the systems developed by the Pool for trading
purposes. The action against Eastern Electricity is being
strenuously defended.
In February 1997, the official government representative of
pensioners in the UK (Pensions Ombudsman) made final
determinations against National Grid and its group trustees with
respect to complaints by two pensioners in National Grid's
section of the Electricity Supply Pension Scheme (ESPS) relating
to the use of the pension fund surplus resulting from the March
31, 1992 actuarial valuation of the National Grid section to meet
certain costs arising from the payment of pensions of early
retirement upon reorganization or downsizing. These
determinations were set aside by the High Court on June 10, 1997,
and the arrangements made by National Grid and its group trustees
in dealing with the surplus were confirmed. The two pensioners
appealed this decision, and judgment has now been received
although a final order is awaited. The appeal endorsed the
Pensions Ombudsman's determination that the corporation was not
entitled to unilaterally deal with any surplus. If a similar
claim were to be made against Eastern in relation to its use of
actuarial surplus in its section of the ESPS, it would vigorously
defend the action, ultimately through the courts. However, if a
determination were finally to be made against it and upheld in
the courts, Eastern could have a potential liability to repay to
its section of the ESPS an amount estimated by Eastern to be up
to (pounds sterling)45 million, exclusive of any applicable
interest charges.
On January 25, 1999, the Hindustan Development Corporation
issued proceedings in the Arbitral Tribunal in Delhi, India
against TEG claiming damages of US$413 million for breach of
contract following the termination of a Joint Development
Agreement dated March 20, 1997 relating to the construction,
development and operation of a lignite based thermal power plant
at Barsingsar, Rajasthan. Holdings is vigorously defending this
claim.
In November 1998, five complaints were filed against
subsidiaries of Eastern by five of their former sales agencies.
The agencies claim a total (pounds sterling)104 million arising
from the summary termination for the claimed fundamental breach
of their respective contracts in April 1998. The five agencies
are claiming damages for failure to give reasonable notice and
for compensation under the UK Commercial Agents Regulations 1994.
These actions are all being defended strenuously, and
counterclaims have been filed. Eastern cannot predict the
outcome of these claims and counterclaims.
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SECURITY OWNERSHIP
Holdings is wholly-owned indirectly by TXU Corp. Funding is
wholly-owned indirectly by Holdings. The following table shows
the number of shares of common stock of TXU Corp owned by the
directors of Holdings and Funding as of June 10, 1999:
NUMBER OF SHARES
--------------------------------------
BENEFICIALLY
NAME OWNED PHANTOM STOCK TOTAL
---- ------------ ------------- -----
Erle Nye 116,520 64,168 180,688
H. Jarrell Gibbs 34,251 27,658 61,909
Michael J. McNally 46,778 17,274 64,052
Robert A. Wooldridge 1,926 0 1,926
Philip G. 7,000 9,355 16,355
Turberville
Paul C. Marsh 5,000 5,479 10,479
James Whelan 5,000 5,479 10,479
Derek C. Bonham 1,000 STET 0 1,000
Directors of Funding 217,475 129,413 346,888
and Holdings as a
group (8 persons)
_______________
(*) Share units held in individual accounts in phantom stock plans of TXU
Corp and Eastern. Although the plans allow the units to be paid only
in the form of cash, investments in the units create essentially the
same investment stake in the performance of the common stock of TXU
Corp as do investments in actual shares of common stock.
The named individuals have sole voting and investment power
for the shares of common stock reported as beneficially owned.
Ownership of that common stock by each individual director and
for all directors as a group constituted less than 1% of the
outstanding shares of TXU Corp.
MANAGEMENT OF TXU EASTERN FUNDING COMPANY
MANAGEMENT OF FUNDING
The following table lists certain information with respect
to the management of Funding and Holdings as of June 10, 1999:
NAME AGE POSITION
---- --- --------
Erle Nye 61 Director
H. Jarrell Gibbs 61 Director
Michael J. McNally 44 Director
Robert A. Wooldridge 61 Director
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Erle Nye has been a director of Funding since February 1999.
He has served as a director and Chairman of the Board and Chief
Executive of TXU Corp since May 1997 and of TXU Gas Company since
August 1997. He has also been a director and Chairman of the
Board and Chief Executive of TXU Electric Company for more than
the last five years. Mr. Nye is also a director of Holdings. In
addition, Mr. Nye was President of TXU Corp from February 1987
through May 1995 and President and Chief Executive of TXU Corp
from May 1995 through May 1997.
H. Jarrell Gibbs has served as a director of Funding since
February 1999. He is Vice Chairman of TXU Corp and a director
and Vice Chairman of the Board of TXU Gas Company. Prior
thereto, Mr. Gibbs was the President of TXU Electric Company and
Vice President and Principal Financial Officer of TXU Corp. Mr.
Gibbs is also a director of Eastern and of Holdings.
Michael J. McNally has served as a director of Funding since
February 1999. He is the Executive Vice President and Chief
Financial Officer of TXU Corp. Prior thereto, Mr. McNally was
President of the Transmission Division of TXU Electric Company;
Executive Vice President of TXU Electric Company; Principal of
Enron Development Corporation; Managing Director of Industrial
Services (Enron Capital and Trade Resources); and President of
Houston Pipe Line Company and Enron Gas Liquids, Inc. Mr.
McNally is also a director of TXU Electric Company, TXU Gas
Company and Holdings.
Robert A. Wooldridge has been a director of Funding since
February 1999. Mr. Wooldridge is a partner in the law firm
Worsham, Forsythe & Wooldridge L.L.P. in Dallas, Texas which
provides legal services to Holdings and Funding, as well as TXU
Corp and other subsidiaries of TXU Corp. Mr. Wooldridge is also
a director of TXU Gas Company and Holdings.
There is no family relationship between any of the above-named
directors. Funding has no executive officers other than its
directors.
DIRECTOR COMPENSATION OF FUNDING
Mr. Wooldridge does not receive compensation for his
services as a director of Funding. The remaining directors of
Funding listed above have received, and will continue to receive,
compensation in respect of services performed by those persons as
directors of Funding from their primary employer which is either
TXU Corp or another subsidiary of TXU Corp. These directors
receive no cash or non-cash compensation beyond that which they
would otherwise receive from TXU Corp or a TXU Corp subsidiary
for the services performed by them for those companies.
MANAGEMENT OF TXU EASTERN HOLDINGS LIMITED
MANAGEMENT OF FUNDING AND HOLDINGS
The following table lists certain information with respect
to the management of Holdings as of June 10, 1999:
NAME AGE POSITION
---- --- --------
Erle Nye 61 Director
H. Jarrell Gibbs 61 Director
Michael J. McNally 44 Director
Robert A. Wooldridge 61 Director
Philip G. Turberville 47 Director
Paul C. Marsh 41 Director
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James Whelan 46 Director
Derek C. Bonham 55 Director
Erle Nye has been a director of Holdings since February
1998. He has served as a director and Chairman of the Board and
Chief Executive of TXU Corp since May 1997 and of TXU Gas Company
since August 1997. He has also been a director and Chairman of
the Board and Chief Executive of TXU Electric Company for more
than the last five years. Mr. Nye is also a director of Funding.
In addition, Mr. Nye was President of TXU Corp from February 1987
through May 1995 and President and Chief Executive of TXU Corp
from May 1995 through May 1997.
H. Jarrell Gibbs has served as a director of Holdings since
February 1998. He is Vice Chairman of TXU Corp and a director
and Vice Chairman of the Board of TXU Gas Company. Prior
thereto, Mr. Gibbs was the President of TXU Electric Company and
Vice President and Principal Financial Officer of TXU Corp. Mr.
Gibbs is also a director of Eastern and of Funding.
Michael J. McNally has served as a director of Holdings
since February 1998. He is the Executive Vice President and
Chief Financial Officer of TXU Corp. Prior thereto, Mr. McNally
was President of the Transmission Division of TXU Electric
Company; Executive Vice President of TXU Electric Company;
Principal of Enron Development Corporation; Managing Director of
Industrial Services (Enron Capital and Trade Resources); and
President of Houston Pipe Line Company and Enron Gas Liquids,
Inc. Mr. McNally is also a director of TXU Electric Company, TXU
Gas Company and Funding.
Robert A. Wooldridge has been a director of Holdings since
February 1998. Mr. Wooldridge is a partner in the law firm
Worsham, Forsythe & Wooldridge L.L.P. in Dallas, Texas, which
provides legal services to Holdings and Funding, as well as TXU
Corp and other subsidiaries of TXU Corp. Mr. Wooldridge is also
a director of TXU Gas Company and Funding.
Philip G. Turberville has served as a director of Holdings
since May 1999. Mr. Turberville has served as a director and the
Chairman of the Board and Chief Executive Officer of Eastern
since January 4, 1999. Prior thereto, Mr. Turberville was
President of the Europe Oil Products division of The Royal Dutch
Shell Group, where he had worked in a variety of roles providing
him with extensive international experience since 1976.
Paul C. Marsh has served as a director of Holdings since May
1999. He has been with Eastern since October 1992 and has served
as Finance Director of Eastern since February 24, 1997. Prior
thereto, Mr. Marsh worked in Ernst & Young's Corporate Advisory
Services Division. Prior thereto, Mr. Marsh served as Finance
Director in two medium sized private sales and trading groups.
James Whelan has served as a director of Holdings since May
1999. He has been the Managing Director, Power and Energy
Trading of Eastern since July 1, 1997. Prior thereto, Mr. Whelan
led Eastern's acquisitions of the National Power and PowerGen
interests in 1996. Mr. Whelan joined Eastern in 1993.
Derek C. Bonham has served as a director of Holdings since
May 1999. He has served as Chairman of Imperial Tobacco Group
PLC since October 1996. Prior thereto, Mr. Bonham was Chairman
of The Energy Group PLC from February 1997 through July 1998.
Prior thereto, Mr. Bonham served as Deputy Chairman and Chief
Executive of Hanson PLC from November 1993 through February 1997
and as Chief Executive of Hanson PLC from April 1992 through
November 1993. Mr. Bonham is also a director of Glaxo Wellcome
PLC, Imperial Tobacco Group PLC, Newsquest PLC, Fieldens PLC and
TXU Corp.
There is no family relationship between any of the above-
named directors. Holdings has no executive officers other than
its directors.
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DIRECTOR COMPENSATION OF HOLDINGS
In the fiscal year ended December 31, 1998, the directors of
Holdings did not receive any compensation in respect of their
services performed for Holdings. Mr. Wooldridge did not receive
compensation for his services as a director of Holdings. Messrs.
Nye, Gibbs and McNally received, and will continue to receive,
compensation in respect of services performed by those persons as
directors of Holdings from their primary employer which is either
TXU Corp or another US subsidiary of TXU Corp and an affiliate of
Holdings. These directors received no cash or non-cash
compensation beyond that which they would have otherwise received
from TXU Corp or a TXU Corp subsidiary for the services performed
by them for those companies. During 1998 all persons performing
the functions of executive officers of Holdings were directors of
that company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Wooldridge is a partner in Worsham, Forsythe &
Wooldridge, L.L.P., which provides legal services to Funding and
Holdings, as well as TXU Corp and other subsidiaries of TXU Corp.
MANAGEMENT OF EASTERN GROUP PLC
The following table lists certain information with respect
to the management of Eastern as of June 10, 1999:
NAME AGE POSITION
---- --- --------
H. Jarrell Gibbs 61 Director
David J.H. Huber 49 Director
Edward B. Hyams 48 Director
James A. Keohane 49 Director
Paul C. Marsh 41 Director
David W. Owens 47 Director
Philip G. Turberville 47 Director
James Whelan 45 Director
H. Jarrell Gibbs has served as a director of Eastern since
July 2, 1998. He is Vice Chairman of TXU Corp and a director and
Vice Chairman of the Board of TXU Gas Company. Prior thereto,
Mr. Gibbs was the President of TXU Electric Company and Vice
President and Principal Financial Officer of TXU Corp. Mr. Gibbs
is also a director of Funding and Holdings.
David J.H. Huber has been the Human Resources Director of
Eastern since September 1, 1997. Prior thereto, Dr. Huber was
the Human Resources Director of Safeway Stores plc from 1988;
prior thereto, Dr. Huber was the Senior Personnel Director at
Burton Group plc from 1985.
Edward B. Hyams has served as a director of Eastern since
September 13, 1996, first as the Managing Director of its
networks business and, since May 1998, as the Managing Director,
Generation. Prior thereto, Mr. Hyams served as Director of
Engineering at Southern Electric plc from 1992.
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James A. Keohane has been the Managing Director of Eastern's
Energy Retail business since October 1, 1997. Prior thereto, Mr.
Keohane served as Managing Director-Supply at East Midlands plc
from 1995; prior thereto, he served as Commercial Director of
East Midlands plc from 1992. Prior thereto, Mr. Keohane served
as Director of Energy Trading from 1989 and as Business Planning
Manager of East Midlands plc from 1987.
Paul C. Marsh has been with Eastern since October 1992 and
has served as Finance Director of Eastern since February 24,
1997. Prior thereto, Mr. Marsh worked in Ernst & Young's
Corporate Advisory Services Division. Prior thereto, Mr. Marsh
served as Finance Director in two medium sized private sales and
trading groups. Mr. Marsh has also served as a director of
Holdings since May 1999.
David W. Owens has been the Managing Director, Networks,
since May 18, 1998. Prior thereto, Mr. Owens served as Managing
Director at ABB Power T&D Limited from 1994. Prior thereto, Mr.
Owens held a number of senior positions at GEC Alstom and GEC.
Philip G. Turberville has served as a director and the
Chairman of the Board and Chief Executive Officer of Eastern
since January 4, 1999. Prior thereto, Mr. Turberville was
President of the Europe Oil Products division of The Royal Dutch
Shell Group, where he had worked in a variety of roles providing
him with extensive international experience since 1976. Mr.
Turberville has also served as a director of Holdings since May
1999.
James Whelan has been the Managing Director, Power and
Energy Trading since July 1, 1997. Prior thereto, Mr. Whelan led
Eastern's acquisitions of the National Power and PowerGen
interests in 1996. Mr. Whelan joined Eastern in 1993. Mr.
Whelan has also served as a director of Holdings since May 1999.
There is no family relationship among any of the above-named
directors.
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EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Funding issued and sold interests in the senior notes on May
13, 1999 to the initial purchasers in a private offering, and the
initial purchasers subsequently sold interests in the senior
notes to qualified institutional buyers in reliance on Rule 144A
or in offshore transactions in accordance with Regulation S under
the Securities Act. At the same time, Funding and Holdings
agreed in a registration rights agreement with the initial
purchasers to proceed with efforts to exchange the senior notes
for exchange senior notes registered under the Securities Act.
As of the date of this prospectus, all of the outstanding
interests in senior notes are in book-entry form. It is not
expected that any senior notes or exchange senior notes will be
in registered certificated form at the time of the exchange. It
is expected that all senior notes before the exchange, and
exchange senior notes and any senior notes outstanding after the
exchange, will be represented by global certificates for notes in
bearer form held by The Bank of New York as depositary and that
DTC will have a book-entry interest in those notes. Beneficial
interests in those notes will be held through participants in DTC
acting as securities intermediaries. Therefore, references in
this section to senior notes or exchange senior notes are
references to beneficial interests in the senior notes or
exchange senior notes in bearer form except where the discussion
is explicitly about certificated notes, and references to owners
are to owners of those beneficial interests.
Owners of senior notes should instruct the brokers, dealers,
commercial banks or trust companies with whom they have
securities accounts or their nominees to tender for them.
Exchanges by owners will be represented by an exchange of global
certificates for senior notes held by the depositary for global
certificates for exchange senior notes. If fewer than all senior
notes are tendered for exchange, the depositary will hold global
certificates for both senior notes and exchange senior notes
representing the appropriate aggregate amounts.
In the registration rights agreement, Funding and Holdings
agreed to use their reasonable best efforts to register notes and
guarantees of those notes with the SEC for issuance in the
exchange offer. Funding and Holdings will use their reasonable
best efforts to keep the exchange offer open for at least 30 days
after the date of this prospectus. An owner that tenders senior
notes pursuant to the exchange offer and does not withdraw them
will receive exchange senior notes in the same principal amount
as the tendered senior notes. Interest on exchange senior notes
will accrue from the date of the last interest payment on the
senior notes tendered. If no interest has been paid on the
senior notes, interest will accrue from the date of issuance of
the senior notes. The description of the terms of the
registration rights agreement in this prospectus is not complete.
A copy of the registration rights agreement has been filed as an
exhibit to the registration statement that includes this
prospectus.
Based on existing interpretations of the Securities Act by
the staff of the SEC's Division of Corporation Finance (Staff)
set forth in several no-action letters requested by other issuers
of securities, Funding and Holdings believe that the exchange
senior notes issued pursuant to the exchange offer may be offered
for resale, resold and otherwise transferred by the owners
thereof, other than owners who are broker-dealers, without
further compliance with the registration and prospectus delivery
provisions of the Securities Act. However, any purchaser of
senior notes:
. Who is an affiliate of Funding and Holdings;
. Who did not acquire the exchange senior notes to be
received in the ordinary course of business; or
. Who intends to participate in the exchange offer for
the purpose of distributing exchange senior notes, or
who is a broker-dealer who purchased senior notes to
resell pursuant to Rule 144A or any other available
exemption under the Securities Act;
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cannot rely on the interpretation of the Staff in those no-action
letters, will not be entitled to tender its senior notes in the
exchange offer, and must comply with the registration and
prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the senior notes unless
that sale or transfer is exempt from those requirements.
Funding and Holdings do not intend to seek their own no-
action letter, and there can be no assurance that the Staff would
make a similar determination with respect to the exchange senior
notes as it has in those no-action letters to other issuers of
securities. In November 1998, the SEC proposed changes to the
regulatory structure for offerings registered under the
Securities Act. The SEC has stated that, if these proposals are
adopted, the Staff will repeal its interpretations set forth in
the no-action letters mentioned above. Funding and Holdings
cannot predict whether these proposals will be adopted or, if
they are adopted, when and in what form they will be adopted and
how they will affect resales of the exchange senior notes.
Except for those owners described above, each owner of
senior notes that wants to exchange senior notes for exchange
senior notes in the exchange offer will be required to represent
that:
. It is not an affiliate of Funding and Holdings;
. The exchange senior notes to be received by it were
acquired in the ordinary course of its business; and
. At the time of the exchange offer, it has no
arrangement with any person to participate in the
distribution (within the meaning of the Securities Act)
of the exchange senior notes.
In addition, in connection with any resales of exchange senior
notes, any Participating Broker-Dealer, a broker-dealer that
acquired the exchange senior notes, other than directly from
Funding, for its own account as a result of market-making or
other trading activities, must deliver a prospectus meeting the
requirements of the Securities Act. Applying the Staff's
position in the no-action letters mentioned above, such a
Participating Broker-Dealer may fulfill its prospectus delivery
requirements with respect to exchange senior notes by using this
prospectus, except if they are reselling an unsold allotment from
the original sale of senior notes. Under the registration rights
agreement, Funding and Holdings therefore must allow those
Participating Broker-Dealers and other persons that have similar
prospectus delivery requirements to use this prospectus in
connection with the resale of exchange senior notes.
The information set forth above concerning certain
interpretations of and positions taken by the Staff is not
intended to constitute legal advice, and owners of senior notes
should consult their own legal advisors with respect to these
matters.
TERMS OF THE EXCHANGE OFFER
Subject to the terms and conditions described in this
prospectus and in the Letter of Transmittal that has been
prepared for delivery with this prospectus to owners of senior
notes, Funding and Holdings will accept any and all senior notes
validly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date. Funding will issue 6.15%
exchange senior notes, 6.45% exchange senior notes and 6.75%
exchange senior notes in exchange for equal principal amounts of
6.15% senior notes, 6.45% senior notes and 6.75% senior notes,
respectively, that are properly surrendered pursuant to the
exchange offer. Senior notes may be tendered only in
denominations of $10,000 and integral multiples of $1,000 in
excess thereof.
As of the date of this prospectus, there were outstanding
$350,000,000 aggregate principal amount of 6.15% senior notes,
$650,000,000 aggregate principal amount of 6.45% senior notes and
$500,000,000 aggregate principal amount of 6.75% senior notes,
all of which are held in book-entry form. This prospectus,
together with the Letter of Transmittal, is being sent to
securities intermediaries for all owners of the senior notes.
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In the event any certificates for senior notes are issued
prior to the exchange and registered on the books of Funding, a
Letter of Transmittal will be sent to registered holders of those
certificates with specific instructions for delivery of
certificates and the interests they represent.
Funding and Holdings intend to conduct the exchange offer in
accordance with the provisions of the registration rights
agreement and the applicable requirements of the Exchange Act.
The terms of the exchange senior notes of each series will be the
same as the terms of the senior notes of the related series
except that the exchange senior notes will not have transfer
restrictions or any terms relating to registration rights. The
exchange senior notes of each series will evidence the same debt
as the senior notes of the related series. The exchange senior
notes of each series will be issued under and entitled to the
benefits of the indenture pursuant to which the related senior
notes were issued.
Senior notes that are not tendered for exchange in the
exchange offer will remain outstanding and also will be entitled
to the rights and benefits that the owners have under the
indenture. Unless they are Participating Broker-Dealers, they
will no longer have any rights under the registration rights
agreement. They will, however, remain subject to transfer
restrictions, and the market for secondary resales is likely to
be minimal.
Funding and Holdings will be deemed to have accepted
properly tendered senior notes when, as and if Funding has given
oral or written notice thereof to the exchange agent for the
exchange offer.
Owners who tender senior notes in the exchange offer will
not be required to pay brokerage commissions or fees or, subject
to the instructions in the Letter of Transmittal, transfer taxes
with respect to the exchange pursuant to the exchange offer.
Funding and Holdings will pay all charges and expenses, other
than applicable taxes described below, in connection with the
exchange offer. See --"Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date," means 5:00 p.m., New York City
time on (), 1999, unless Funding and Holdings, in their sole
discretion, extend the exchange offer, in which case the term
"Expiration Date" will mean the latest date and time to which the
exchange offer is extended.
In order to extend the exchange offer, Funding and Holdings
will notify the exchange agent of any extension by oral or
written notice and by public announcement, which may be in the
form of a news release. Public announcement of an extension will
be made before 9:00 a.m., New York City time, on the next
business day after the then Expiration Date.
Funding and Holdings reserve the right, in their sole
discretion:
. To delay accepting any senior notes, to extend the
exchange offer or to terminate the exchange offer if
any of the conditions set forth below under --
"Conditions" will not have been satisfied, by giving
oral or written notice of that delay, extension or
termination to the exchange agent; or
. To amend the terms of the exchange offer in any manner
consistent with the registration rights agreement.
Any delay in acceptances, extension, termination or amendment
will be followed as promptly as practicable by oral or written
notice thereof to the depositary and to DTC for delivery to its
participants. If the exchange offer is amended in a manner
determined by Funding and Holdings to constitute a material
change, Funding and Holdings will promptly disclose that
amendment by means of a prospectus supplement that will be made
available to owners of senior notes, and Funding and Holdings
will extend the exchange offer for a period of five to ten
business days, depending upon the significance of the amendment
and the manner of disclosure to the owners, if the exchange offer
would otherwise expire during that five to ten business day
period.
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Without limiting the manner in which Funding and Holdings
may choose to make a public announcement of any delay, extension,
amendment or termination of the exchange offer, Funding and
Holdings will have no obligation to publish, advertise, or
otherwise communicate any public announcement, other than by
making a timely release to an appropriate news agency.
Upon satisfaction or waiver of all the conditions to the
exchange offer, Funding and Holdings will accept, promptly after
the Expiration Date, all senior notes properly tendered and will
issue exchange senior notes promptly after acceptance of the
senior notes. See --"Conditions." The exchange senior notes
issued will be represented by global certificates in bearer form
to be held by The Bank of New York as depositary. For purposes
of the exchange offer, Funding and Holdings will be deemed to
have accepted properly tendered exchange senior notes for
exchange when, as and if Funding and Holdings have given oral or
written notice thereof to the exchange agent.
In all cases, issuance of exchange senior notes for senior
notes that are accepted for exchange pursuant to the exchange
offer will be made only after timely receipt by the exchange
agent of a confirmation of tender by book-entry of those senior
notes into the exchange agent's account at DTC pursuant to the
Letter of Transmittal; provided, however, that Funding and
Holdings reserve the absolute right to waive any defects or
irregularities in the tender or conditions of the exchange offer.
If any tendered senior notes are not accepted for any reason set
forth in the terms and conditions of the exchange offer, then
those unaccepted senior notes evidencing the unaccepted portion
will be credited to an account maintained at DTC without expense
to the tendering owner as promptly as practicable after the
expiration or termination of the exchange offer.
CONDITIONS
Notwithstanding any other term of the exchange offer,
Funding and Holdings will not be required to exchange any
exchange senior notes for any senior notes of any series and may
terminate the exchange offer before the acceptance of senior
notes for exchange, if, with respect to that series, the exchange
offer violates any applicable law or interpretation of the staff
of the SEC.
If Funding and Holdings determine in their sole discretion
that there is that kind of violation, Funding and Holdings may:
. Terminate the exchange offer or refuse to accept any
senior notes and have all tendered notes credited to
the appropriate account at DTC. No termination will
affect the remaining obligations of Funding and
Holdings under the registration rights agreement;
. Extend the exchange offer and retain all senior notes
tendered prior to the expiration of the exchange offer,
subject, however, to the rights of owners who tendered
those senior notes to withdraw their tendered senior
notes; or
. Waive any unsatisfied conditions with respect to the
exchange offer and accept all properly tendered senior
notes which have not been withdrawn. If that waiver
constitutes a material change to the exchange offer,
Funding and Holdings will promptly disclose that waiver
by means of a prospectus supplement that will be
distributed to the owners of senior notes, and Funding
and Holdings will extend the exchange offer for a
period of five to ten business days, depending upon the
significance of the waiver and the manner of disclosure
to the holders, if the exchange offer would otherwise
expire during the five to ten business day period.
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PROCEDURES FOR TENDERING
To tender senior notes in the exchange offer, an owner must
instruct its securities intermediary by use of the Letter of
Transmittal, or any other means acceptable to its securities
intermediary. A timely confirmation of tender by book-entry of
the beneficial interests in the senior notes into the exchange
agent's account at DTC pursuant to the procedure for tender by
book-entry described below must be received by the exchange agent
prior to the Expiration Date. The same Letter of Transmittal may
be used for senior notes of any or all series.
A tender by an owner which is not withdrawn prior to the
Expiration Date will constitute an agreement between that owner
and Funding and Holdings in accordance with the terms and subject
to the conditions in this prospectus.
THE METHOD OF DELIVERY OF THE SENIOR NOTES AND THE LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS TO THE SECURITIES
INTERMEDIARY IS AT THE ELECTION AND RISK OF THE OWNER. INSTEAD
OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT TENDERING OWNERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE DELIVERY OF CONFIRMATION OF
TENDER BY BOOK-ENTRY BY THE SECURITIES INTERMEDIARY TO DTC AND BY
DTC TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. OWNERS OF
SENIOR NOTES SHOULD INSTRUCT THE BROKERS, DEALERS, COMMERCIAL
BANKS OR TRUST COMPANIES WITH WHOM THEY HAVE SECURITIES ACCOUNTS
OR THEIR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR THEM.
All questions as to the validity, form, eligibility
(including time of receipt), acceptance of tendered senior notes
and withdrawal of tendered senior notes will be determined by
Funding and Holdings in their sole discretion, which
determination will be final and binding. Funding and Holdings
reserve the absolute right to reject any and all senior notes not
properly tendered or senior notes the acceptance of which would,
in the opinion of counsel for Funding and Holdings, be unlawful.
Funding and Holdings also reserve the right to waive any defects,
irregularities or conditions of tender as to particular senior
notes. Funding's and Holdings' interpretation of the terms and
conditions of the exchange offer, including the instructions in
the Letter of Transmittal, will be final and binding on all
parties. Unless waived, any defects or irregularities in
connection with tenders of senior notes must be cured within a
period of time as Funding and Holdings will determine. Although
Funding and Holdings intend to notify owners of defects or
irregularities with respect to tenders of senior notes, none of
Funding, Holdings, the exchange agent or any other person will
incur any liability for failure to give that notification.
Tenders of senior notes will not be deemed to have been made
until the defects or irregularities have been cured or waived.
In addition, Funding and Holdings reserve the right in their
sole discretion to purchase or make offers for any senior notes
that remain outstanding subsequent to the Expiration Date or, as
set forth above under --"Conditions," to terminate the exchange
offer and, to the extent permitted by applicable law, purchase
senior notes in the open market, in privately negotiated
transactions or otherwise. The terms of any of those purchases
or offers could differ from the terms of the exchange offer.
By tendering, each owner will be deemed to have represented
to Funding and Holdings that, among other things:
. The exchange senior notes acquired pursuant to the
exchange offer are being obtained in the ordinary
course of business of the person receiving beneficial
ownership in the exchange senior notes, whether or not
interests are held in the name of another person, such
as a participant in DTC;
. Neither the owner nor any such other person is engaging
in or intends to engage in a distribution of the
beneficial interests in the exchange senior notes;
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. Neither the owner nor any such other person has an
arrangement or understanding with any person to
participate in the distribution of the exchange senior
notes; and
. Neither the owner nor any such other person is an
"affiliate," as defined in Rule 405 of the Securities
Act, of Funding or Holdings.
In all cases, issuance of exchange senior notes for senior
notes tendered pursuant to the exchange offer will be made only
after timely receipt by the exchange agent of confirmation of
tender by book-entry of those beneficial interests in the senior
notes into the exchange agent's account at DTC. If any tendered
senior notes are not accepted for any reason set forth in the
terms and conditions of the exchange offer, the non-exchanged
beneficial interests in the senior notes will be credited to an
account maintained with DTC as promptly as practicable after the
expiration or termination of the exchange offer without expense
to the tendering owner.
TENDER BY BOOK-ENTRY
The exchange agent will make a request to establish an
account with respect to the beneficial interests in the senior
notes at DTC for purposes of the exchange offer within two
business days after the date of this prospectus, and any
financial institution that is a participant in DTC's systems may
make book-entry delivery of beneficial interests in the senior
notes by causing DTC to transfer the beneficial interests in the
senior notes into the exchange agent's account in accordance with
DTC's procedures for transfer.
WITHDRAWAL OF TENDERS
Except as otherwise provided in this prospectus, tenders of
senior notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
To withdraw a tender of senior notes in the exchange offer,
an owner should notify its securities intermediary. A withdrawal
will be effective upon notice received by the exchange agent from
DTC, prior to 5:00 p.m., New York City time on the Expiration
Date by telegram, facsimile transmission, letter or withdrawal by
book-entry noting:
. The series and principal amount of senior notes,
delivered for exchange; and
. A statement that the owner is withdrawing the senior
notes for exchange.
All questions as to the validity, form and eligibility
(including time of receipt) of those notices will be determined
by Funding and Holdings, and their determination will be final
and binding on all parties. Any senior notes so withdrawn will
be deemed not to have been validly tendered for purposes of the
exchange offer and the non-exchanged beneficial interests in the
senior notes will be credited to an account maintained with DTC
as promptly as practicable after the expiration or termination of
the exchange offer without expense to the tendering owner unless
the senior notes so withdrawn are validly retendered. Properly
withdrawn senior notes may be retendered by following one of the
procedures described above under --"Procedures for Tendering" at
any time prior to the Expiration Date.
EXCHANGE AGENT
The Bank of New York has been appointed exchange agent of
the exchange offer. Questions and requests for assistance and
requests for additional copies of this prospectus or of the
Letter of Transmittal should be directed to the exchange agent
addressed as follows:
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By Registered Mail or Certified By Overnight Courier:
Mail:
The Bank of New York The Bank of New York
101 Barclay Street, 7E 101 Barclay Street
New York, New York 10286 Corporate Trust Services
Attention: Reorganization Section, Window
Gertrude Jean Pierre Ground Level
New York, New York 10286
Attention: Reorganization
Section,
Gertrude Jean Pierre
By Telephone: By Facsimile:
(212) 815-6920 (212) 815-6339
LUXEMBOURG STOCK EXCHANGE
The senior notes are listed, and Funding and Holdings have
applied to list the exchange senior notes, on the Luxembourg
Stock Exchange. Funding and Holdings and will use their
reasonable best efforts to effect this listing. As long as the
exchange senior notes are listed on that Exchange:
. The exchange of certificated senior notes, if any, for
the exchange senior notes may be done through
Kredietbank, the Luxembourg paying agent;
. Funding and Holdings will provide Kredietbank SA
Luxembourgeoise, the Luxembourg paying agent, with
necessary documentation regarding the exchange offer;
. All of the necessary documentation regarding the
exchange offer will be made available at the offices of
Kredietbank SA Luxembourgeoise, the Luxembourg paying
agent; and
. Funding and Holdings will cause the publication of a
notice in a daily leading newspaper with general
circulation in Luxembourg and will submit that notice
to the Luxembourg Stock Exchange:
- before the exchange offer, announcing the
offer and indicating procedures to be
followed; and
- after the exchange offer, giving the results
of the exchange.
FEES AND EXPENSES
The expenses of soliciting tenders will be paid by Funding
and Holdings. The principal solicitation is being made by mail;
however, additional solicitation may be made by telecopier,
telephone or in person by officers and regular employees of
Funding and Holdings and their affiliates.
Funding and Holdings have not retained any dealer-manager in
connection with the exchange offer and will not make any payments
to brokers-dealers or others soliciting acceptances of the
exchange offer. Funding and Holdings will pay the exchange agent
reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the
exchange offer will be paid by Funding and Holdings and are
estimated in the aggregate to be approximately $(). The expenses
include registration fees, fees and expenses of the exchange
agent, accounting and legal fees and printing costs, among
others.
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Funding and Holdings will pay all transfer taxes, if any,
applicable to the exchange of the senior notes pursuant to the
exchange offer.
The exchange offer is being made to satisfy Funding's and
Holdings' obligations under the registration rights agreement.
Funding and Holdings will not receive any proceeds from the
exchange offer. In consideration of issuing global exchange
senior notes in bearer form to the depositary in the exchange
offer, Funding and Holdings will receive an equal principal
amount of global senior notes in bearer form. Global senior
notes in bearer form that are properly tendered in the exchange
offer and not validly withdrawn will be accepted, canceled and
retired and cannot be reissued.
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DESCRIPTION OF THE EXCHANGE SENIOR NOTES
The following description applies only to exchange senior
notes, but all of the terms will also apply to any senior notes
outstanding after the exchange offer. However, those senior
notes will not be registered under the Securities Act and will
remain subject to transfer restrictions.
The senior notes were and the exchange senior notes will be
issued pursuant to an indenture dated as of May 1, 1999 among
Funding, Holdings and The Bank of New York, as trustee. The
indenture includes a full, unconditional and irrevocable
guarantee of the senior notes and the exchange senior notes by
Holdings.
Global certificates for the exchange senior notes in bearer
form will be held by The Bank of New York as depositary under a
deposit agreement. Beneficial interests in the exchange senior
notes will trade through DTC. Specific terms of each series of
the exchange senior notes will be described in an officer's
certificate delivered to the trustee. Terms of the exchange
senior notes and the indenture are summarized below. This
summary is not complete. You should read the indenture, the
Trust Indenture Act, the officer's certificates and the deposit
agreement for a more complete description. Copies of the
indenture, the officer's certificates and the deposit agreement
are available upon request to the trustee or depositary.
Whenever particular provisions or defined terms in the indenture
are referred to under this DESCRIPTION OF THE EXCHANGE SENIOR
NOTES, those provisions or defined terms are incorporated by
reference in this prospectus. For your convenience, we indicate
sections of the indenture where they are described.
Each series of debt securities issued under the indenture
will be unsecured and unsubordinated obligations of Funding.
Funding is a financing company whose sole source of funds is
payment on loans it makes to Holdings. The exchange senior notes
will be fully, unconditionally and irrevocably guaranteed by
Holdings as to payment of principal, premium, if any, and
interest and any Additional Amounts (as described below), and the
guarantee will be an unsecured and unsubordinated obligation of
Holdings. See --"Guarantee of Notes by Holdings; Effective
Priority of Subsidiary Obligations." The indenture does not
limit the aggregate amount of indebtedness that Funding, Holdings
or Holdings' subsidiaries may issue or the number of series or
amount of debt securities that may be issued under the indenture.
The covenants contained in the indenture will not afford
beneficial owners of the exchange senior notes protection in the
event of a highly-leveraged transaction involving Funding or
Holdings.
PAYMENT OF INTEREST AND PRINCIPAL
Interest on each series of exchange senior notes will:
. Be payable in US dollars at the rate per annum
specified in the title of the series;
. Be computed on the basis of a 360-day year of twelve
30-day months, and for any period shorter than a month,
on the basis of the actual number of days elapsed;
. Be payable semi-annually in arrears on May 15 and
November 15 of each year, beginning November 15, 1999;
. Originally accrue from, and include May 13, 1999, the
date of initial issuance; and
. Be payable on overdue interest to the extent permitted
by law at the same rate as interest is payable on
principal.
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In the event that any payment date is not a business day,
payment will be made on the next business day, and no interest or
other payment will result from the delay. With respect to
payments, a business day is a day, other than a Saturday, Sunday
or a day on which banking institutions and trust companies are
generally authorized or required to remain closed in the place of
payment.
The record date for any exchange senior notes in
certificated form will be the fifteenth day of the calendar month
prior to the relevant interest payment date, whether or not it is
a business day in The City of New York.
The Bank of New York is paying agent for the exchange senior
notes in The City of New York. So long as the exchange senior
notes are listed on the Luxembourg Stock Exchange, Funding will
maintain a paying agent in Luxembourg. Initially that paying
agent will be Kredietbank SA Luxembourgeoise.
Interest on each exchange senior note will be paid on each
interest payment date to the bearer or, if the exchange senior
notes are in certificated form, to the holder in whose name that
exchange senior note is registered as of the close of business on
the related record date, except that interest payable at maturity
or upon redemption will be paid to the holder to whom principal
is paid. If interest has not been paid when due on any exchange
senior note, the defaulted interest may be payable to the bearer
or, if the exchange senior notes are in certificated form, to the
registered owner as of the close of business on a date selected
by the trustee which may be not more than 15 days and not less
than 10 days before the date proposed by Funding or Holdings for
payment (Indenture, Section 307).
The 6.15% exchange senior notes will mature on May 15, 2002.
The 6.45% exchange senior notes will mature on May 15, 2005. The
6.75% exchange senior notes will mature on May 15, 2009.
The principal of and interest on the exchange senior notes
at maturity will be payable, at par, upon presentation of the
exchange senior notes at the office of a paying agent. Funding
may change the place of payment on the exchange senior notes,
appoint one or more additional paying agents (including Funding)
and may remove any paying agent, all at its discretion so long as
there is a paying agent in The City of New York and, while the
exchange senior notes are listed on the Luxembourg Stock
Exchange, in Luxembourg.
GUARANTEE OF HOLDINGS; EFFECTIVE PRIORITY OF SUBSIDIARY
OBLIGATIONS
Holdings has fully, unconditionally and irrevocably agreed
to make the guarantee payments listed below in full to the
holders of the exchange senior notes if they are not made by
Funding, as and when due, regardless of any defense, right of
set-off or counterclaim (except the defense of payment) that
Holdings may have or assert. The following payments will be
subject to the guarantee, without duplication:
. Any accrued and unpaid interest required to be paid on
the exchange senior notes;
. Principal and premium, if any, plus all accrued and
unpaid interest and Additional Amounts, if any,
required to be paid on the exchange senior notes at
maturity, upon acceleration or upon redemption
(Indenture, Section 1401).
Holdings' obligation to make a guarantee payment may be
satisfied by direct payment of the required amounts by Holdings
to the holders of exchange senior notes or The Bank of New York,
as paying agent, or other paying agent for the exchange senior
notes or by causing Funding to pay those amounts to those
holders.
The guarantee will remain in effect until all exchange
senior notes and senior notes are paid. It will rank equally in
right of payment to guarantees of other series of debt securities
issued under the indenture (Indenture, Section 1401). The
guarantee will also rank equally with any other senior debt
obligations of Holdings except as described under --"Limitation
on Liens."
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Holdings is a holding company that derives substantially all
of its income from Eastern and its subsidiaries. Substantially
all of Holdings' consolidated assets are held by Eastern and its
subsidiaries. Accordingly, the ability of Holdings to service
its debt, including its obligations under the guarantee, is
largely dependent on the earnings of Eastern and its subsidiaries
and the payment of those earnings to Holdings in the form of
dividends, loans or advances, and through repayment of loans or
advances from Holdings to those subsidiaries. The subsidiaries
of Holdings, except for Funding, have no obligation to pay any
amounts due on the exchange senior notes or to make any funds
available for those payments.
The guarantee therefore is effectively subordinated to debt
and preference share capital at the subsidiary level. The
financial statements of Holdings and its predecessors included in
this prospectus show the aggregate amount of subsidiary debt and
preference share capital as of the date of those statements.
This includes trade payables, guarantees and leases, letters of
credit and other obligations of Holdings' subsidiaries. Upon
liquidation or reorganization of a subsidiary of Holdings, the
claims of that subsidiary's creditors will be superior to the
claims of the holders of exchange senior notes or other creditors
of Holdings. Although some debt instruments limit the amount of
debt Holdings and its subsidiaries may incur, both Holdings and
its subsidiaries retain the ability to incur substantial
additional indebtedness and other obligations such as those under
leases, letters of credit and other instruments.
DENOMINATIONS
The exchange senior notes will be payable only in US
dollars. The exchange senior notes and beneficial interests in
them will be issued, and may be transferred, only in principal
amounts of $10,000 and integral multiples of $1,000 for amounts
in excess of $10,000.
FORM, BOOK-ENTRY PROCEDURES AND TRANSFER
INTRODUCTION
Beneficial interests in the exchange senior notes will trade
through DTC. The exchange senior notes of each series in which
beneficial interests are sold will be issued in the form of one
or more global exchange senior notes in bearer form. Upon
issuance, the trustee will authenticate and deliver the global
exchange senior notes of each series to The Bank of New York,
which will hold those global exchange senior notes as depositary
for the benefit of DTC pursuant to the deposit agreement. The
depositary will issue to DTC or its nominee, in respect of each
global exchange senior note, one or more certificateless book-
entry interests, which together will represent a 100% beneficial
interest in the global exchange senior notes of that series. The
exchange senior notes issued pursuant to the registration rights
agreement will be held in global bearer form by the depositary
and certificateless book-entry interests representing beneficial
ownership of these exchange senior notes will be held by, or on
behalf of, DTC.
The depositary will record Cede & Co., as nominee of DTC, on
its books as the initial registered owner of the book-entry
interests and will also record any subsequent registration and
transfer of the book-entry interests. Unless and until the
global exchange senior notes are exchanged in whole for
certificated registered exchange senior notes, the depositary may
not register the transfer of the book-entry interests except as a
whole by DTC or its nominee to DTC or another nominee of DTC or a
successor of DTC or a nominee of that successor.
Upon the issuance by the depositary of the book-entry
interests to DTC, DTC will credit the participants' accounts with
the interests owned on its book-entry registration and transfer
system. Ownership of beneficial interests in the book-entry
interests will be shown on DTC's records or the records of direct
or indirect participants of DTC. Transfer of beneficial
interests in the book-entry interests will be effected only
through records maintained by DTC or its direct or indirect
participants. The beneficial interests in the exchange senior
notes are governed by the terms and conditions of the indenture,
the deposit agreement and the letters of representations from
Funding to DTC.
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Pursuant to the deposit agreement, the global bearer
exchange senior notes may be transferred only as a whole and,
with Funding's consent, by the depositary or its nominee to the
depositary or to a successor depositary or nominee.
For so long as the depositary or its nominee is the holder
of the global exchange senior notes, the depositary or its
nominee will be considered the sole owner of the exchange senior
notes for all purposes under the indenture. Except as set forth
below under "--Certificated Registered exchange senior notes,"
owners of beneficial interests in the exchange senior notes will
not be entitled to have exchange senior notes registered in their
names and will not receive physical delivery of exchange senior
notes in certificated form. They will not be considered the
owners or holders of the exchange senior notes under the
indenture or the deposit agreement. Accordingly, each person
owning a beneficial interest must rely on the procedures of the
depositary and DTC and, if that person is not a participant in
DTC, on the procedures of the participant through which that
person owns its beneficial interest, to exercise its rights and
perform its obligations under the indenture or the deposit
agreement. Those beneficial interests held through Euroclear or
Cedelbank may also be subject to the procedures and requirements
of that system.
Notwithstanding any statement in this prospectus, Funding
reserves the right to require such legends on the exchange senior
notes as it may determine are necessary to ensure compliance with
the securities laws of the US and the individual states and with
any other applicable laws.
DTC
DTC is a New York clearing corporation and a clearing agency
registered under Section 17A of the Exchange Act. DTC holds
securities for its participants. DTC facilitates settlement
transactions among its participants through electronic
computerized book-entry changes in participants' accounts. This
eliminates the need for physical movement of securities
certificates. The participants include securities brokers and
dealers, banks, trust companies and clearing corporations. DTC
is owned by a number of its participants and by the New York
Stock Exchange, Inc., the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Others who
maintain a custodial relationship with a participant can use the
DTC system. The rules that apply to DTC and those using its
systems are on file with the SEC.
DTC management is aware that some computer applications,
systems, and the like for processing data (systems) that are
dependent upon calendar dates, including dates before, on, or
after January 1, 2000, may encounter "Year 2000 Problems." DTC
has informed its participants and other members of the financial
community that it has developed and is implementing a program so
that its systems, as the same relate to the timely payment of
distributions (including principal and income payments) to
security holders, book-entry deliveries, and settlement of trades
within DTC, continue to function appropriately. This program
includes a technical assessment and a remediation plan, each of
which is complete, and a testing phase, which is expected to be
completed within appropriate time frames.
However, DTC's ability to perform properly its services is
also dependent upon other parties, including, but not limited to,
issuers and their agents, as well as third party vendors from
whom DTC licenses software and hardware, and third party vendors
on whom DTC relies for information or the provision of services,
including telecommunication and electric utility service
providers, among others. DTC has informed the industry that it
is contacting, and will continue to contact, third party vendors
from which DTC acquires services to: (1) impress upon them the
importance of such services being Year 2000 compliant; and (2)
determine the extent of their efforts for Year 2000 remediation,
and, as appropriate, testing, of their services. In addition,
DTC is in the process of developing such contingency plans as it
deems appropriate.
DTC has established a Year 2000 Project Office and will
provide information concerning DTC's Year 2000 compliance to
persons requesting such information. The address is as follows:
The Depository Trust Company, Year 2000 Project Office, 55 Water
Street, New York, New York 10041. Telephone numbers for the DTC
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Year 2000 Project Office are (212) 855-8068 and (212) 855-8881.
In addition, information concerning DTC's Year 2000 compliance
can be obtained from its web site at the following address:
www.dtc.org.
According to DTC, the foregoing information with respect to
DTC has been provided to the industry for informational purposes
only and is not intended to serve as a representation, warranty,
or contract modification of any kind.
EUROCLEAR AND CEDELBANK
Euroclear and Cedelbank each holds securities for its
account holders and facilitates the clearance and settlement of
securities transactions by electronic book-entry transfer between
its respective account holders, thereby eliminating the need for
physical movements of certificates and any risk that transfers of
securities will not be simultaneous.
Euroclear and Cedelbank provide various services including
safekeeping, administration, clearance and settlement of
internationally traded securities and securities lending and
borrowing. Euroclear and Cedelbank also deal with residential
securities markets in several countries through established
depositary and custodial relationships. Euroclear and Cedelbank
have established an electronic link between their two systems
which allows their respective account holders to settle trades
with each other.
Account holders in Euroclear and Cedelbank are worldwide
financial institutions, including underwriters, securities
brokers and dealers, banks, trust companies and clearing
corporations. Indirect access to Euroclear and Cedelbank is
available to other institutions that clear through or maintain a
custodial relationship with an account holder of either system.
Account holders' overall contractual relations with
Euroclear and Cedelbank are governed by the respective rules and
operating procedures of Euroclear and Cedelbank and any
applicable laws. Euroclear and Cedelbank act under those rules
and operating procedures only on behalf of their respective
account holders and have no record of or relationship with
persons holding through their account holders.
TRANSFERS AND SETTLEMENT
All transfers of beneficial interests in book-entry
interests will be recorded on the book-entry system maintained by
DTC, will be effected in accordance with DTC's procedures, and
will be settled in same-day funds. Transfers between account
holders in Euroclear and Cedelbank will be effected in the
ordinary way in accordance with the respective rules and
operating procedures of Euroclear and Cedelbank.
Subject to compliance with the transfer restrictions
applicable to the beneficial interests, cross-market transfers
between participants in DTC, on the one hand, and Euroclear or
Cedelbank account holders, on the other hand, will be effected
through DTC, in accordance with DTC's rules, on behalf of
Euroclear or Cedelbank, as the case may be, through a depositary.
Cross-market transfers will require delivery of instructions to
Euroclear or Cedelbank, as the case may be, by the counterparty
in that system in accordance with the rules and procedures and
within the established deadlines of that system. Euroclear
account holders and Cedelbank account holders may not deliver
instructions directly to the depositaries for Euroclear or
Cedelbank.
Because of time zone differences, the securities account of
a Euroclear or Cedelbank account holder purchasing a book-entry
interest from a participant in DTC will be credited, and any
crediting will be reported to the relevant Euroclear or Cedelbank
account holder, during the securities settlement processing day
immediately following the DTC settlement date. This must be a
business day for Euroclear and Cedelbank. Cash received in
Euroclear or Cedelbank as a result of sales of a book-entry
interest by or through a Euroclear or Cedelbank account holder to
a DTC participant will be received with value on the DTC
settlement date but will be available in the relevant Euroclear
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or Cedelbank cash account only as of the business day for
Euroclear or Cedelbank following the DTC settlement date.
Although the foregoing sets out the procedures of DTC,
Euroclear and Cedelbank in order to facilitate the transfer of
interests in the exchange senior notes among participants of DTC,
Euroclear and Cedelbank, none of DTC, Euroclear and Cedelbank are
under any obligation to perform or continue to perform those
procedures, and those procedures may be discontinued at any time.
Funding, Holdings, the trustee, the depositary and any of
the agents will not have any responsibility for the performance
by DTC, Euroclear and Cedelbank or their respective participants
of their respective obligations under the rules and procedures
governing their operation.
PAYMENTS ON THE EXCHANGE SENIOR NOTES
Payments on the global exchange senior notes will be made by
Funding through the trustee or other paying agent to the
depositary as the holder of global exchange senior notes. The
depositary will, in turn, make payments in the same amounts to
DTC. DTC will immediately credit participants' accounts with
those payments in amounts proportionate to their interests in the
book-entry interests as shown on the records of DTC. Payments by
participants to owners of beneficial interests will be made
according to standing customer instructions and customary
practices. DTC will have no responsibility for payments by its
participants.
Neither Funding, Holdings, the trustee nor any paying agent
will have any responsibility for payments made or to be made by
the depositary to DTC in respect of the exchange senior notes or
the book-entry interests in them, including any payments of
Additional Amounts. Only DTC and its direct and indirect
participants will be responsible for maintaining records of
beneficial interests in book-entry interests and making payments
related to those beneficial interests.
REDEMPTION OF BOOK-ENTRY INTERESTS
If any global exchange senior notes are redeemed, the
depositary will deliver the amount received by it to DTC. In the
event of a partial redemption, selection of interests in the
related book-entry interest to be redeemed will be made by DTC on
a pro rata basis or on any other basis that DTC deems fair and
appropriate.
If all the exchange senior notes of any series are redeemed,
the depositary will surrender the global exchange senior notes of
that series to the trustee or the paying agent in Luxembourg for
cancellation. The depositary will cancel the book-entry
interests issued with respect to those exchange senior notes. If
there is a partial redemption, the depositary will surrender the
related global exchange senior note to the trustee or the paying
agent in Luxembourg for reduction of principal amount by
endorsement on the reverse of the global exchange senior note or
in exchange for a substitute global exchange senior note in a
reduced principal amount. The depositary will record on its
books a corresponding reduction in the principal amount of the
book-entry interests issued with respect to the global exchange
senior note.
ACTION BY HOLDERS OF EXCHANGE SENIOR NOTES
Funding understands that DTC, under its current practices,
would authorize its participants owning interests to take any
action holders are entitled to take under the indenture. Those
participants would authorize indirect participants to take that
action or would otherwise act upon the instructions of owners of
beneficial interests holding through them.
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Within 10 days after receipt by the depositary of notice of
any request for consents or similar action relating to the global
exchange senior notes under the deposit agreement or the
indenture, the depositary will mail to DTC a notice containing:
. Information contained in the notice to the depositary;
. The record date for response to the request or other
action;
. A statement that, on or prior to a specified date no
later than 180 days after the record date, DTC may
instruct the depositary as to the request or other
action; and
. The manner in which those instructions may be given.
The depositary will try to act in accordance with DTC's
instructions, provided that the depositary has been offered
security or indemnity satisfactory to it against the costs,
expenses and liabilities that might be incurred by it in
compliance with these instructions. The depositary will not
itself exercise any discretion in the granting of consents or the
taking of any other action in respect of book-entry interests or
global exchange senior notes. DTC is expected to follow its
customary practices and procedures with respect to soliciting
instructions from its participants.
REPORTS AND NOTICES
Notices to holders of the exchange senior notes listed on
the Luxembourg Stock Exchange will be published in a leading
daily newspaper having general circulation in Luxembourg,
probably the Luxemburger Wort. The depositary will promptly send
to DTC a copy of any notices, reports and other communications
received by it relating to Funding, the senior notes or the book-
entry interests. In the case of certificated registered exchange
senior notes, all notices regarding the exchange senior notes
will also be mailed to the last known addresses of the holders
shown on the security register for the exchange senior notes.
AMENDMENT AND TERMINATION OF DEPOSIT AGREEMENT
The deposit agreement may be amended by Funding and the
depositary without the consent of DTC or the beneficial owners of
the exchange senior notes:
. To cure any defect, omission, inconsistency or
ambiguity;
. To add covenants and agreements of Funding or the
depositary;
. To assign the depositary's rights and duties to a
qualified successor;
. To conform the deposit agreement to the requirements of
the Securities Act, the Exchange Act, the Investment
Company Act of 1940 or the Trust Indenture Act or any
other applicable securities laws;
. To modify the deposit agreement in connection with an
amendment to the indenture that does not require the
consent of DTC; or
. To amend or supplement the deposit agreement in any way
which, in the opinion of counsel acceptable to Funding,
is not materially adverse to DTC or beneficial owners
of an interest in the book-entry interests or
inconsistent with the deposit agreement itself.
Otherwise, no amendment that materially adversely affects DTC or
any beneficial owner of an exchange senior note may be made to
the deposit agreement without the consent of DTC or the
beneficial owner.
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The deposit agreement will cease to be of further effect
when the indenture has been satisfied and discharged or:
. Certificated registered exchange senior notes have been
issued and the global exchange senior notes have been
canceled;
. All sums payable by Funding under the deposit agreement
have been paid; and
. The deposit agreement has been satisfied and
discharged.
RESIGNATION OF DEPOSITARY
The depositary may resign upon 60 days' written notice to
Funding and DTC. The resignation of the depositary will become
effective upon acceptance of a successor depositary to similar
arrangements. If no successor has been appointed by Funding
within 120 days, then DTC may request issuance of the
certificated registered exchange senior notes in the names and
denominations as DTC instructs in writing. The depositary will
thereupon surrender the global exchange senior notes to the
trustee for cancellation and the trustee shall distribute the
certificated registered exchange senior notes in accordance with
the instructions of DTC.
OBLIGATION OF DEPOSITARY
The depositary will undertake to perform only those duties
specifically set forth in the deposit agreement and, subject to
exceptions set forth in the deposit agreement, will assume no
obligation under the deposit agreement other than for its own bad
faith, negligence or willful misconduct in the performance of its
duties under the deposit agreement.
CERTIFICATED REGISTERED EXCHANGE SENIOR NOTES
Owners of beneficial interests in the exchange senior notes
shall be entitled to receive certificated registered exchange
senior notes only in the limited circumstances set forth below:
. DTC will not continue to hold the book-entry interests
related to the global exchange senior notes or is no
longer a clearing agency registered under the Exchange
Act and Funding does not replace DTC within 120 days;
. The depositary will not continue as depositary and no
successor is appointed within 120 days; or
. Funding, in its sole discretion, determines that the
global exchange senior notes shall be so exchangeable.
In addition, if an Event of Default under the indenture occurs
and is continuing with respect to one or more series of exchange
senior notes, any owner of a beneficial interest in the global
exchange senior notes in default will, upon written request, be
entitled to receive certificated registered exchange senior notes
in exchange for the interest. In no event will an owner of
beneficial interests be entitled to receive certificated exchange
senior notes in bearer form.
Certificated registered exchange senior notes will be issued
only in principal amounts of $10,000 and additional multiples of
$1,000 for amounts over $10,000. They will be issued in
registered form only, without coupons, and will have the same
interest rate, terms, maturity and be in the same aggregate
principal amount as the related global exchange senior note.
These certificated registered exchange senior notes shall be
registered in the names of which the depositary notifies the
trustee based on the instructions of DTC. It is expected that
those instructions may be based upon directions received by DTC
from its participants with respect to ownership of beneficial
interests.
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Holders of certificated registered exchange senior notes
will be paid interest by check, except that registered owners of
certificated registered exchange senior notes in an aggregate
principal amount in excess of $50,000,000 may request payment of
interest by wire transfer. Checks will be mailed to those
holders at their last address known to the Security Registrar.
BENEFICIAL OWNERS SHOULD BE AWARE THAT, UNDER CURRENT UK TAX
LAW, FOLLOWING THE ISSUANCE OF CERTIFICATED REGISTERED EXCHANGE
SENIOR NOTES, UK INCOME TAX (CURRENTLY AT THE RATE OF 20%) WILL
BE WITHHELD ON ANY PAYMENTS OF INTEREST. SEE CERTAIN INCOME TAX
CONSIDERATIONS --"UK TAX CONSIDERATIONS." IF CERTIFICATED
REGISTERED EXCHANGE SENIOR NOTES ARE ISSUED FOLLOWING AN EVENT OF
DEFAULT PURSUANT TO THE REQUEST OF BENEFICIAL OWNERS OF INTERESTS
IN THE GLOBAL EXCHANGE SENIOR NOTES, FUNDING WILL NOT PAY ANY
ADDITIONAL AMOUNTS TO THOSE REQUESTING BENEFICIAL OWNERS (OR
THEIR SUCCESSORS) IN RESPECT OF SUCH CERTIFICATED REGISTERED
EXCHANGE SENIOR NOTES. SEE -- "ADDITIONAL AMOUNTS."
However, payment of interest may be made free of deduction
of UK income tax or subject to a reduced deduction by virtue of
relief being available to the holder of certificated registered
exchange senior notes under a double taxation treaty between the
UK and the country of which that holder is resident. See CERTAIN
INCOME TAX CONSIDERATIONS --"UK Tax Considerations." In some
cases, if an owner of a beneficial interest receives a
certificated registered New Note other than pursuant to its
request, such owner will be entitled to receive Additional
Amounts with respect to that certificated registered senior note.
See -- "Additional Amounts."
REGISTRATION AND TRANSFER
The transfer of certificated exchange senior notes may be
registered, and exchange senior notes may be exchanged for other
exchange senior notes of the same series of authorized
denominations with the same terms and principal amounts at the
corporate trust office of The Bank of New York in The City of New
York or at the office of the paying agent in Luxembourg while the
exchange senior notes are listed on the Luxembourg Stock
Exchange. Funding may change the place for registration of
transfer of the certificated exchange senior notes and may
designate one or more additional places for that registration and
exchange, all at its discretion. No service charge will be made
for any registration of transfer or exchange of the exchange
senior notes, but Funding may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of
the exchange senior notes. Funding will not be required to
execute or to provide for the registration of transfer of, or the
exchange of:
. Any exchange senior notes during a period of 15 days
prior to giving any notice of redemption; or
. Any exchange senior notes selected for redemption in
whole or in part, except the unredeemed portion of any
exchange senior notes being redeemed in part
(Indenture, Section 305).
REDEMPTION
. If Funding or Holdings is required to pay any
Additional Amounts on any series of exchange senior
notes or its related guarantee, Funding may redeem all
exchange senior notes of the affected series at any
time at the principal amount thereof plus accrued
interest and any accrued Additional Amounts. Required
payments of Additional Amounts are described in detail
below.
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. Funding may redeem all or part of the 6.45% exchange
senior notes and 6.75% exchange senior notes at any
time prior to maturity at a redemption price equal to:
- the greater of:
- 100% of the principal amount of the exchange
senior notes to be redeemed, and
- the sum of the present values of all interest
and principal payments scheduled from the
redemption date to the maturity date
calculated as described below
- plus, in each case, accrued interest to the date
of redemption and any accrued Additional Amounts.
For purposes of determining this redemption price, future
payments will be calculated on a semi-annual basis for 360-day
years of twelve 30-day months. The present value will be
determined by discounting each future payment at the "Treasury
Rate" plus 20 basis points, in the case of the 6.45% exchange
senior notes, and 25 basis points, in the case of the 6.75%
exchange senior notes.
The "Treasury Rate" used to calculate the redemption price
for any redemption date will equal the semi-annual equivalent
yield to maturity of the Comparable Treasury Security.
The "Comparable Treasury Security" will be a United States
Treasury security selected by an independent investment banker
because (1) it has a maturity comparable to the remaining term of
the exchange senior notes to be redeemed and (2) is a security
that would ordinarily be used to price new issues of corporate
debt securities of comparable maturity to the remaining term of
the exchange senior notes to be redeemed. The independent
investment banker that selects the comparable Treasury security
will be one of the Reference Treasury Dealers appointed by the
trustee after consultation with Funding.
In determining the yield to maturity of the Comparable
Treasury Security, a price will be assumed for that security for
any redemption date that is equal to:
. The average of the bid and asked prices for the
Comparable Treasury Security (expressed in each case as
a percentage of its principal amount) on the third
business day before the redemption date, as set forth
in the daily statistical release (or any successor
release) published by the Federal Reserve Bank of New
York and designated "Composite 3:30 p.m. Quotations for
US Government Securities," or
. If those prices are not published that day, the average
of the Reference Treasury Dealer Quotations actually
obtained by the trustee for that redemption date.
"Reference Treasury Dealer Quotations" means, for each
Reference Treasury Dealer and any redemption date, the average,
as determined by the trustee, of the bid and asked prices for the
Comparable Treasury Security, expressed in each case as a
percentage of its principal amount, quoted in writing to the
trustee by that Reference Treasury Dealer at 5:00 p.m. on the
third business day before the redemption date.
"Reference Treasury Dealer" means each of Lehman Brothers
Inc. and Morgan Stanley & Co. Incorporated and their respective
successors; provided, however, that if either of them is no
longer a primary US Government securities dealer in The City of
New York, Funding shall substitute a dealer that is.
If the exchange senior notes are in global form, Funding
will give notice to the holder of the exchange senior notes to be
redeemed 30 to 60 days before the redemption date. If the
exchange senior notes are in certificated form, Funding will mail
notice to each holder of exchange senior notes to be redeemed 30
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days to 60 days before the redemption date. In addition, if the
exchange senior notes are listed on the Luxembourg Stock
Exchange, notice of the redemption will also be published in a
leading daily newspaper with general circulation in Luxembourg,
probably the Luxemburger Wort, 30 to 60 days before the
redemption date. At the time notice is given or mailed, the
redemption may be made subject to receipt of redemption moneys by
the trustee on or before the redemption date (Indenture, Section
404).
No further interest or Additional Amounts will accrue after
the redemption date upon payment by Funding or Holdings to the
trustee of the redemption price on the exchange senior notes.
ADDITIONAL AMOUNTS
All payments made pursuant to the guarantee or on the
exchange senior notes will be made without withholding or
deduction for any taxes or other governmental charges imposed by
a jurisdiction in which Funding or Holdings was organized or is
managed or has a place of business, or any political subdivision
or taxing authority of that jurisdiction (each a Taxing
Jurisdiction), unless the withholding or deduction is required by
law. If any required withholding or deduction is made (Gross-Up
Taxes), Funding or Holdings will pay to each holder of exchange
senior notes as an Additional Amount the amount as may be
necessary so that the net amount received by each holder of
exchange senior notes after the withholding or deduction equals
the amount that the holder would have received absent that
withholding or deduction, except that no Additional Amounts will
be payable:
. To or for a holder who is liable for Gross-Up Taxes
because of the holder's connection with the relevant
jurisdiction, whether as a citizen, a resident or a
national of the jurisdiction or because the holder
carries on a business or maintains a permanent
establishment there or is physically present there;
. To or for a holder who presents an exchange senior note
required to be presented for payment more than 30 days
after the date on which payment first becomes due,
unless that holder would have been entitled to those
Additional Amounts by presenting an exchange senior
note on the last day of the 30 day period;
. To or for a holder who presents an exchange senior
note, when presentation is required, at any place other
than in The City of New York, or, so long as the
exchange senior notes are listed on the Luxembourg
Stock Exchange, in Luxembourg;
. To or for a holder who would not be liable for the
Gross-Up Tax by making a declaration of non-residence
or similar claim for exemption to the relevant tax
authority; or
. To or for a holder of a certificated exchange senior
note issued following and during the continuance of an
Event of Default at the request of that holder, or its
predecessor holder.
No Additional Amounts will be payable with respect to any
exchange senior note if the beneficial owner would not have been
entitled to that payment if that beneficial owner had been a
holder.
References in this prospectus to any payments pursuant to
the guarantee shall include any Additional Amounts payable in
connection therewith.
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OPTIONAL REDEMPTION TO AVOID ADDITIONAL AMOUNTS
Funding will have the right to redeem all but not fewer than
all of the exchange senior notes of a series at the principal
amount thereof plus accrued interest and any accrued Additional
Amounts upon not less than 30 nor more than 60 days' notice if
Funding or Holdings certifies to the trustee that it would be
required to pay Additional Amounts with respect to that series
because of:
. An amendment to, clarification of, change in, or
announced change to occur in the future in, the laws or
regulations of a Taxing Jurisdiction or any political
subdivision or taxing authority of the Taxing
Jurisdiction;
. The issuance of certificated registered exchange senior
notes:
- at the request of beneficial owners of the
exchange senior notes, following an Event of
Default;
- because DTC will not or cannot continue to hold
the interests in the exchange senior notes in
book-entry form and Funding does not replace DTC
within 120 days; or
- because The Bank of New York will not or cannot
continue to act as depositary for the exchange
senior notes and Funding does not replace it
within 120 days;
and if Funding or Holdings further certifies to the trustee that
Funding or Holdings cannot avoid the requirement to pay
Additional Amounts by taking reasonable steps available to it.
DEFEASANCE
Funding and Holdings will be discharged from their
obligations on the exchange senior notes or any other series of
debt securities issued under the indenture when either of them
deposits with the trustee cash or government securities
sufficient to pay the principal, interest, any premium and any
other sums when due on or prior to the stated maturity date or a
redemption date for that series of debt securities (Indenture,
Section 701).
LIMITATION ON LIENS
So long as any exchange senior notes remain outstanding,
neither Funding nor Holdings nor any subsidiary of Holdings may
secure any debt with a lien on any of its coal, gas or
electricity properties or gas or electricity contracts, or on
shares of stock or on any debt of any subsidiary of Holdings that
owns any of those properties or contracts, unless all exchange
senior notes and the guarantee are secured by an equal or prior
lien.
Exceptions include the following permitted liens:
. Liens on property or shares of stock existing at the
time they were acquired or which secured their purchase
price, or debt incurred within 270 days for the purpose
of financing the cost of acquisition, improvement or
construction of or on the property;
. Liens existing at the date of the indenture;
. Liens on property or on shares of stock or indebtedness
of any entity existing at the time it is merged into or
consolidated with Funding, Holdings or a subsidiary;
. Liens arising by operation of law, other than by reason
of default;
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. Liens to secure short-term debt incurred in the
ordinary course of business;
. Mechanic's liens, worker's compensation or similar
liens;
. Liens to secure project finance debt;
. Liens arising in connection with certain securities,
commodities, or currency contracts;
. Liens securing Holdings' or Funding's debt to some of
its subsidiaries;
. Liens for taxes or governmental charges which are not
yet delinquent or are being disputed in good faith by
appropriate proceedings;
. A lien on any gas or electricity contracts that the
Board of Directors of Holdings has determined are not
material to the business of Holdings and its
subsidiaries taken as a whole;
. A lien on property or shares of stock or indebtedness
of an entity existing at the time it becomes a
subsidiary, if the lien was not created in
contemplation of the entity becoming a subsidiary;
. Liens relating to the cash management facilities of
Holdings or its subsidiaries;
. Liens in favor of Funding or Holdings from any of their
subsidiaries;
. Any extension, renewal or replacement of a permitted
lien; and
. A Lien with respect to debt in an aggregate amount
which, together with all other secured debt of Funding
or Holdings and the value of its properties sold and
leased back, excluding permitted sale and leaseback
transactions, does not at the time exceed 10% of
Holdings' consolidated tangible assets net of current
liabilities (Indenture, Section 608).
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
So long as any debt securities remain outstanding, neither
Funding nor Holdings will, and they will not permit any
subsidiary of Holdings that owns coal, gas or electricity
properties or gas or electricity contracts or shares of a
subsidiary owning them, to sell and lease back for a period of
more than three years, including renewals, any of these
properties, contracts or shares which it has owned for more than
270 days unless, after giving effect to the sale and leaseback,
the lesser of (x) the aggregate value of all properties of
Funding, Holdings and those Holdings' subsidiaries subject to
sale and leaseback transactions and (y) the present value of the
total rent to be paid during the remaining term of the lease plus
all debt of Funding, Holdings and those Holdings' subsidiaries
secured by liens does not exceed 10% of Holdings' consolidated
tangible assets net of current liabilities. Liens which are
exceptions to the limitation on liens noted above will not be
included in that calculation.
Sale and leasebacks will also be permitted with respect to
any property:
. If a lien on the property to be leased would be
excepted from the limitation on liens noted above;
. If Funding, Holdings or a Holdings subsidiary will have
expended, within the time periods and for one or more
of the purposes noted below, an amount equal to the
greater of (a) the net proceeds received from the sale
and leaseback and (b) the fair market value of the
property to be leased at the time of entering into the
sale and leaseback:
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. within the period beginning a year before and
ending a year after the receipt of proceeds from
the sale and leaseback, for other property
(including capital improvements thereon) subject
to the limitation on liens noted above, or shares
of a subsidiary owning that property;
. within a year following the receipt of proceeds
from the sale and leaseback, for the repayment of
either long-term debt of Holdings which ranks
equally with the senior notes or long-term debt of
certain Holdings subsidiaries, but, unless the
payment is required because of the sale and
leaseback, not if the debt repayment is at
maturity or pursuant to any mandatory prepayment
or sinking fund provision (Indenture, Section
609).
CONSOLIDATION, MERGER, AND SALE OF ASSETS
Under the terms of the indenture, neither Funding nor
Holdings may consolidate with or merge into any other entity or
convey, transfer or lease its properties and assets substantially
as an entirety to any entity, unless:
. The surviving or successor entity is organized under
the laws of any jurisdiction and validly existing under
the laws of that jurisdiction and it expressly assumes
the obligations of Funding or Holdings, as the case may
be, on all debt securities, the guarantee and under the
indenture;
. Immediately after giving effect to the transaction, no
Event of Default and event which, after notice or lapse
of time or both, would become an Event of Default, will
have occurred and be continuing; and
. Funding or Holdings, as the case may be, will have
delivered to the trustee a certificate of an officer
and an opinion of counsel as provided in the indenture
(Indenture, Section 1101).
The indenture does not restrict Funding or Holdings from
entering into a merger in which Funding or Holdings, as the case
may be, is the surviving entity (Indenture, Section 1103).
EVENTS OF DEFAULT
"Event of Default," when used in the indenture with respect
to each series of the exchange senior notes, means any of the
following has occurred:
. Failure to pay interest on any exchange senior note of
that series within 30 days after it is due;
. Failure to pay the principal of or any premium on any
exchange senior note of that series when due;
. Failure to perform or remedy any breach of any other
covenant in the indenture, other than a covenant that
does not relate to that series of debt securities, that
continues for 90 days after Funding or Holdings
receives written notice from the trustee, or Funding or
Holdings and the trustee receive a written notice from
the holders of 25% or more in principal amount of the
debt securities of that series;
. The guarantee of that series becomes ineffective or is
disaffirmed by Holdings;
. Certain events in bankruptcy or insolvency of Funding
or Holdings;
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. Certain events in bankruptcy or insolvency of a
subsidiary of Holdings whose gross assets are 25% or
more of Holdings' consolidated gross assets or whose
gross revenues are 25% or more of Holdings'
consolidated gross revenues;
. Default in the payment when due of indebtedness for
money borrowed exceeding $50,000,000 of Funding,
Holdings or any subsidiary of Holdings whose gross
assets are 25% or more of Holdings' consolidated gross
assets or whose gross revenues are 25% or more of
Holdings' consolidated gross revenues; or
. Failure to pay Additional Amounts on any exchange
senior note of that series within 30 days after it is
due (Indenture, Section 801).
An Event of Default for a particular series of debt
securities does not necessarily constitute an Event of Default
for any other series of debt securities issued under the
indenture. The trustee will give notice to the holders of debt
securities of the relevant series of any default known to the
trustee in the manner and to the extent required by the Trust
Indenture Act, unless cured or waived, in respect to payment of
the exchange senior notes, effectiveness of the guarantee,
payment of indebtedness of Funding, Holdings or a subsidiary of
Holdings, or bankruptcy or insolvency of Funding, Holdings or any
subsidiary of Holdings. The trustee will not give notice to the
holders of debt securities of any other default known to the
trustee until at least 45 days after the occurrence of the
default (Indenture, Section 902).
REMEDIES
If an Event of Default with respect to fewer than all the
series of debt securities occurs and continues, the trustee or
the holders of at least 25% in principal amount of the debt
securities of the affected series may declare the entire
principal amount of all the debt securities of that series,
together with accrued interest, to be due and payable
immediately. However, if the Event of Default applies to all
outstanding debt securities under the indenture, only the trustee
or holders of at least 25% in principal amount of all outstanding
debt securities of all series, voting as one class, and not the
holders of any one series, may make that declaration of
acceleration (Indenture, Section 802).
At any time after a declaration of acceleration with respect
to the debt securities of any series has been made and before a
judgment or decree for payment of the money due has been obtained
by the trustee, the Event of Default giving rise to the
declaration of acceleration will be considered waived, and the
declaration and its consequences will be considered rescinded and
annulled, if Funding or Holdings has paid or deposited with the
trustee a sum sufficient to pay:
. All overdue interest on all debt securities of the
series;
. The principal of and premium, if any, on any debt
securities of the series which have otherwise
become due and interest that is currently due;
. To the extent permitted by law, interest on
overdue interest;
. All amounts due to the trustee under the
indenture; and
. Any other Event of Default with respect to the
debt securities of that series has been cured or
waived as provided in the indenture (Indenture,
Section 802).
There is no automatic acceleration, even in the event of
bankruptcy, insolvency or reorganization of Funding or Holdings.
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Other than its duties in case of an Event of Default, the
trustee is not obligated to exercise any of its rights or powers
under the indenture at the request, order or direction of any of
the holders, unless the holders offer the trustee a reasonable
indemnity. If they provide this reasonable indemnity, the
holders of a majority in principal amount of any series of debt
securities will have the right to direct the time, method and
place of conducting any proceeding for any remedy available to
the trustee, or exercising any power conferred upon the trustee.
However, if the Event of Default relates to more than one series,
only the holders of a majority in aggregate principal amount of
all affected series will have the right to give this direction.
The trustee is not obligated to comply with directions that
conflict with law or other provisions of the indenture
(Indenture, Section 812).
No holder of debt securities of any series will have any
right to institute any proceeding under the indenture, or any
remedy under the indenture, unless:
. The holder has previously given to the trustee written
notice of a continuing Event of Default;
. The holders of a majority in aggregate principal amount
of the outstanding debt securities of all series in
respect of which an Event of Default has occurred and
is continuing have made a written request to the
trustee, and have offered reasonable indemnity to the
trustee, to institute proceedings;
. The trustee has failed to institute any proceeding for
60 days after notice; and
. The holders of a majority in aggregate principal amount
of all series in default have not given the trustee
direction inconsistent with the written request within
that 60 day period (Indenture, Section 807).
However, these limitations do not apply to a suit by a holder of
a debt security for payment of the principal, premium, if any, or
interest or Additional Amounts, if any, due on the debt security
on or after the applicable due date (Indenture, Section 808).
Holdings will provide to the trustee an annual statement by
an appropriate officer as to compliance with all conditions and
covenants under the indenture (Indenture, Section 606).
MODIFICATION AND WAIVER
Without the consent of any holder of debt securities,
Funding, Holdings and the trustee may enter into one or more
supplemental indentures for any of the following purposes:
. To evidence the assumption by any permitted successor
of the covenants of Funding or Holdings in the
indenture and in the debt securities;
. To add additional covenants of Funding or Holdings or
to surrender any right or power of Funding or Holdings
under the indenture;
. To add additional Events of Default;
. To change or eliminate or add any provision to the
indenture; provided, however, if the change,
elimination or addition will adversely affect the
interests of the holders of debt securities of any
series in any material respect, that change,
elimination or addition will become effective only:
(1) when the consent of the holders of debt securities
of that series has been obtained in accordance
with the indenture; or
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(2) when no debt securities of the affected series
remain outstanding under the indenture;
. To provide collateral security for all but not part of
the debt securities;
. To establish the form or terms of debt securities of
any other series or any guarantees as permitted by the
indenture;
. To provide for the issuance of additional bearer
securities and related coupons, if any;
. To evidence and provide for the acceptance of
appointment of a separate or successor trustee;
. To provide for the procedures required for use of a
noncertificated system of registration for the debt
securities of all or any series;
. To change any place where principal, premium, if any,
and interest will be payable, debt securities may be
surrendered for registration of transfer or exchange
and notices to Funding and Holdings may be served; or
. To cure any ambiguity or inconsistency or to make any
other provisions with respect to matters and questions
arising under the indenture; provided that the action
shall not adversely affect the interests of the holders
of debt securities of any series in any material
respect (Indenture, Section 1201).
The holders of a majority in aggregate principal amount of
the debt securities of all series then outstanding may waive
compliance by Funding and Holdings with some restrictive
provisions of the indenture (Indenture, Section 607). The
holders of a majority in aggregate principal amount of the debt
securities of one or more but less than all series or tranches
then outstanding may waive compliance by Funding and Holdings
with some restrictive provisions of the indenture with respect to
those series or tranches (Indenture, Section 607). The holders
of not less than a majority in principal amount of the
outstanding debt securities of any series may waive any past
default under the indenture with respect to that series, except a
default in the payment of principal, premium, if any, or interest
or Additional Amounts, if any, and some covenants and provisions
of the indenture that cannot be modified or amended without the
consent of the holder of each outstanding debt security of the
series affected (Indenture, Section 813).
If the Trust Indenture Act of 1939 is amended after the date
of the indenture in such a way as to require changes to the
indenture, the indenture will be deemed to be amended so as to
conform to that amendment of that Act. Funding, Holdings and the
trustee may, without the consent of any holders of any debt
securities, enter into one or more supplemental indentures to
evidence the amendment (Indenture, Section 1201).
The consent of the holders of a majority in aggregate
principal amount of the debt securities of all series then
outstanding is required for all other modifications to the
indenture. However, if less than all of the series of debt
securities outstanding are directly affected by a proposed
supplemental indenture, then the consent only of the holders of a
majority in aggregate principal amount of all series that are
directly affected will be required. No amendment or modification
may:
. Change the stated maturity of the principal of, or any
installment of principal of or interest on, any debt
security, or reduce the principal amount of any debt
security or its rate of interest or change the method
of calculating the interest rate or reduce any premium
payable upon redemption, or change the currency in
which payments are made, or impair the right to
institute suit for the enforcement of any payment on or
after the stated maturity of any debt security, without
the consent of the holder;
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. Reduce the percentage in principal amount of the
outstanding debt securities of any series whose consent
is required for any supplemental indenture or any
waiver of compliance with a provision of the indenture
or any default thereunder and its consequences, or
reduce the requirements for quorum or voting, without
the consent of all the holders of the series; or
. Modify certain of the provisions of the indenture
relating to supplemental indentures, waivers of certain
covenants and waivers of past defaults with respect to
the debt securities of any series, without the consent
of the holder of each outstanding debt security
affected thereby (Indenture, Section 1202).
A supplemental indenture which changes the indenture solely
for the benefit of one or more particular series of debt
securities, or modifies the rights of the holders of debt
securities of one or more series, will not affect the rights
under the indenture of the holders of the debt securities of any
other series (Indenture, Section 1202).
The indenture provides that debt securities owned by
Funding, Holdings or anyone else required to make payment on the
debt securities shall be disregarded and considered not to be
outstanding in determining whether the required holders have
given a request or consent.
Funding or Holdings may fix in advance a record date to
determine the required number of holders entitled to give any
request, demand, authorization, direction, notice, consent,
waiver or other such act of the holders, but neither Funding or
Holdings will have any obligation to do so. If a record date is
fixed for that purpose, the request, demand, authorization,
direction, notice, consent, waiver or other act of the holders
may be given before or after the record date, but only the
holders of record at the close of business on that record date
will be considered holders for the purposes of determining
whether holders of the required percentage of the outstanding
debt securities have authorized or agreed or consented to the
request, demand, authorization, direction, notice, consent,
waiver or other act of the holders. For that purpose, the
outstanding debt securities will be computed as of the record
date. Any request, demand, authorization, direction, notice,
consent, election, waiver or other act of a holder will bind
every future holder of the same debt securities and the holder of
every debt security issued upon the registration of transfer of
or in exchange of these debt securities. A transferee will be
bound by acts of the trustee, Funding or Holdings taken in
reliance thereon, whether or not notation of the action is made
upon the debt security (Indenture, Section 104).
RESIGNATION OF A TRUSTEE
A trustee may resign at any time by giving written notice to
Funding and Holdings or may be removed at any time by act of the
holders of a majority in principal amount of all outstanding
series of debt securities and notice of that act has been
delivered to the trustee, Funding and Holdings. No resignation
or removal of a trustee and no appointment of a successor trustee
will be effective until the acceptance of appointment by a
successor trustee. So long as no Event of Default or event
which, after notice or lapse of time, or both, would become an
Event of Default has occurred and is continuing and except with
respect to a trustee appointed by act of the holders, if Funding
and Holdings deliver to the trustee resolutions of their Boards
of Directors appointing a successor trustee and that successor
has accepted the appointment in accordance with the terms of the
indenture, the trustee will be deemed to have resigned and the
successor will be deemed to have been appointed as trustee in
accordance with the indenture (Indenture, Section 910).
NOTICES
Notices to holders of global bearer exchange senior notes
will be given as provided for in the exchange senior notes. The
depositary will forward these notices to DTC. These notices will
then be forwarded to owners of beneficial interests in accordance
with DTC's procedures. If certificated registered exchange
senior notes are issued, notices will be given by mail to the
addresses of the holders as they may appear in the security
register for those exchange senior notes (Indenture, Section
106). So long as the exchange senior notes are listed on the
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Luxembourg Stock Exchange, notices will also be published in a
leading daily newspaper with general circulation in Luxembourg,
probably the Luxemburger Wort.
TITLE
Funding, Holdings, the trustee, and any agent of Funding,
Holdings or the trustee, will treat the bearer as the absolute
owner of the global bearer exchange senior note. If certificated
notes are issued, Funding, Holdings, the trustee, and any agent
of Funding, Holdings or the trustee may treat the person in whose
name certificated exchange senior notes are registered as the
absolute owner thereof, whether or not the exchange senior notes
may be overdue, for the purpose of making payments and for all
other purposes irrespective of notice to the contrary (Indenture,
Section 308).
GOVERNING LAW
The indenture, the deposit agreement, the exchange senior
notes and the guarantee will be governed by, and construed in
accordance with, the laws of the State of New York (Indenture,
Section 112).
REGARDING THE TRUSTEE
The trustee under the indenture is The Bank of New York.
The Bank of New York is also depositary under the deposit
agreement. Holdings and certain of its affiliates also maintain
various banking and trust relationships with The Bank of New
York. One of the initial purchasers of the senior notes, BNY
Capital Markets, Inc., is an affiliate of the trustee.
STATUS
The exchange senior notes will be unsecured and
unsubordinated obligations of Funding and will rank equally
without any preference among themselves. Funding is a special
purpose entity whose sole source of funds is payment on loans it
makes to Holdings.
MEETINGS OF HOLDERS OF SENIOR NOTES
The indenture contains provisions for the calling of
meetings of holders of one or more series of the exchange senior
notes to consider matters affecting their interest, including
consents or waivers or other actions by the holders. See -
"Modification and Waiver" and "Remedies." The trustee may call a
meeting of holders of one or more series at any time. The
trustee shall call a meeting at the request of Funding, Holdings
or the holders of 33% in aggregate principal amount of the
exchange senior notes of one or more series, considered as one
class. Notice of the meeting shall be given to the holders of
the exchange senior notes of the affected series not less than 21
nor more than 180 days prior to the date of the meeting. The
holders of a majority in principal amount of the exchange senior
notes of the affected series, considered as one class, shall
constitute a quorum at the meeting. Attendance at a meeting may
be in person or by proxy.
CERTAIN INCOME TAX CONSIDERATIONS
UK TAX CONSIDERATIONS
The following is a summary of current law and practice in
the UK relating to the taxation of the exchange senior notes.
Some aspects do not apply to certain classes of taxpayers (such
as dealers).
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Prospective noteholders who may be subject to tax in a
jurisdiction other than the UK or who may be unsure as to their
tax position should seek their own professional advice.
For the purposes of this summary, references to noteholders
are references to the holders of interests in exchange senior
notes and the holders of certificated registered exchange senior
notes (certificated exchange senior notes).
INTEREST AND OTHER PROFITS, GAINS AND LOSSES IN RELATION TO THE
EXCHANGE SENIOR NOTES
Interest on the Bearer Exchange Senior Notes - Withholding Tax
--------------------------------------------------------------
The exchange senior notes will constitute "quoted Eurobonds"
as long as they continue to be in bearer form and listed on a
"recognised stock exchange." The Luxembourg Stock Exchange is a
"recognised stock exchange" for these purposes. Accordingly,
payments of interest on the exchange senior notes may be made
without withholding or deduction for, or on account of, UK income
tax:
(a) where payment is made by or through a person outside
the UK; or
(b) where the payment is made by or through a person in the
UK and either:
(1) the beneficial owner of the exchange senior notes
and of the interest thereon is not resident in the
UK, or
(2) the exchange senior notes are held in a
"recognised clearing system"; DTC, on whose behalf
the exchange senior notes will be held by the
depositary, is designated as a "recognised
clearing system" for this purpose;
and a declaration to that effect in the required form
has been given to the paying agent (and the UK Inland
Revenue has not issued a direction that it considers
that no exemption from the requirement to withhold or
deduct applies).
In all other cases, whether or not payment is made through a
paying agent, interest on the exchange senior notes will be paid
under deduction of UK income tax at the lower rate (currently,
20%), unless the Inland Revenue has previously directed, in
relation to a particular holder of exchange senior notes, that
payment should be made free of such deduction or subject to a
reduced deduction by virtue of relief being available to the
holder of such exchange senior notes under the provisions of any
applicable double taxation treaty.
A person (a collecting agent) in the UK who, in the course
of a trade or profession, either:
(a) acts as custodian of the exchange senior notes and
receives interest on the exchange senior notes, or
directs that interest on the exchange senior notes
be paid to another person, or consents to such
payment;
(b) collects or secures payment of, or receives
interest on, the exchange senior notes for another
person (including the holder of such exchange
senior notes); or
(c) acts for another person in arranging to collect or
secure payment of interest on the exchange senior
notes;
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(except by means solely of clearing a check or arranging for the
clearing of a check) will be required to withhold UK income tax
at the lower rate unless:
(1) the relevant exchange senior notes are held in a
"recognised clearing system" and the collecting
agent either:
(A) pays or accounts for the interest directly or
indirectly to the "recognised clearing
system;" or
(B) is acting as a depositary for the "recognised
clearing system";
(2) the beneficial owner of the exchange senior notes
and of the interest thereon is not resident in the
UK; or
(3) one of certain other exceptions to the requirement
to withhold applies by reference to the status of
the recipient (for example, the exchange senior
notes are held by a discretionary trust not having
UK resident beneficiaries, a foreign government, a
UK bank, a charity or a tax-exempt pension fund).
In the case of most of the above exceptions, conditions
imposed by regulations (including, where so required, the making
of a declaration in the required form) may have to be satisfied.
The collecting agent will be required to withhold if the Inland
Revenue, having reason to believe that no exception applies,
issues a direction to that effect.
Interest on Certificated Exchange Senior Notes - Withholding Tax
----------------------------------------------------------------
Interest on certificated exchange senior notes will be
payable subject to deduction of UK income tax at the lower rate
(currently, 20%), unless the Inland Revenue has previously
directed, in relation to a particular holder of certificated
exchange senior notes, that payment should be made free of such
deduction or subject to a reduced deduction by virtue of relief
available to the holder of such certificated exchange senior
notes under the provisions of any applicable double taxation
treaty.
Taxation of Interest and Other Profits, Gains and Losses in
-----------------------------------------------------------
relation to the Exchange Senior Notes
-------------------------------------
Unless otherwise stated, the following summary applies to
noteholders who are UK resident persons and non-UK resident
persons who hold exchange senior notes (including interests in
bearer exchange senior notes) for the purposes of a business
carried on in the UK through a branch or agency.
(1) Corporate noteholders
A corporate noteholder will, in any accounting period,
normally bring into account, for the purposes of UK
corporation tax on income, debits and credits in such
accounting period relating to interest on the exchange
senior notes and fluctuations in the value of the
exchange senior notes (including fluctuations as a
result of changes in the US dollar/sterling exchange
rate) broadly in accordance with the noteholder's
statutory accounting treatment. If any UK income tax
is deducted from interest paid to such noteholder, the
sterling equivalent at the time of deduction of such
income tax will either be offset against any income tax
payable by the noteholder in respect of certain
payments which it makes or be available for credit
against the noteholder's liability to corporation tax.
The exchange of senior notes for exchange senior notes
pursuant to the exchange offer may constitute a
disposal of the senior notes by corporate noteholders.
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However, depending on the accounting treatment, such a
disposal is unlikely to result in a charge to
corporation tax which is greater than if no exchange
had taken place.
(2) Non-corporate noteholders
Non-corporate noteholders will generally be liable for
UK income tax on the gross amount of any interest
received in respect of the exchange senior notes (by
reference to the US dollar/sterling exchange rate at
the date of receipt). If any income tax is deducted
from interest paid to such a noteholder, credit will be
available for its sterling equivalent at the time of
deduction.
The disposal of all or some of the exchange senior
notes (including on redemption) by a non-corporate
noteholder would generally be treated, for the purposes
of UK capital gains tax, as a disposal or part disposal
of those exchange senior notes by that noteholder.
Such a disposal or part disposal could, depending on
that noteholder's individual circumstances, give rise
to a liability for capital gains tax. Taper, or
graduated, relief may be available to reduce any gain
arising on such a disposal or part disposal, depending
on the length of time for which the exchange senior
notes disposed of have been held at the time of
disposal. However, under the "accrued income scheme,"
a transfer of exchange senior notes could also give
rise to a charge to UK income tax in respect of an
amount representing interest on the exchange senior
notes which has accrued since the preceding interest
payment date (or since issue); any amount charged to
income tax in that way would be deducted from the
disposal proceeds for the purposes of capital gains
tax. The exchange of senior notes for exchange senior
notes pursuant to the exchange offer should constitute
a conversion of securities, and, therefore, should not
be treated as a disposal for the purposes of UK capital
gains tax.
Under proposals announced but not yet enacted, the UK
tax treatment of certain securities will be amended.
If those proposals are enacted in their current form,
the tax treatment of exchange senior notes for non-
corporate noteholders who are "connected" with Funding
for UK tax purposes (which is unlikely to be the case)
would be different from that set out above.
(3) Other noteholders
A noteholder who is neither a UK resident person nor a
non-UK resident person holding exchange senior notes
for the purposes of a business carried on in the UK
through a branch or agency will not be subject to UK
tax on any interest received on the exchange senior
notes or any fluctuations in value of the exchange
senior notes, except to the extent that UK income tax
is deducted at source. As mentioned above, such a
noteholder should be able to obtain payment of interest
on the exchange senior notes without deduction of tax.
STAMP DUTY AND STAMP DUTY RESERVE TAX
No stamp duty or stamp duty reserve tax will be payable on
the issue of the bearer exchange senior notes or the certificated
exchange senior notes.
No stamp duty will be payable on the transfer by delivery of
bearer exchange senior notes. No stamp duty reserve tax will be
payable on an agreement to transfer bearer exchange senior notes.
No stamp duty reserve tax or stamp duty will be payable on
an agreement for the transfer of, or on the transfer of,
certificated exchange senior notes.
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US INCOME TAX CONSIDERATIONS
The following summary describes certain US federal income
tax consequences of the acquisition, ownership and disposition of
the exchange senior notes. Except where noted, it deals only
with exchange senior notes held as capital assets within the
meaning of section 1221 of the US Internal Revenue Code of 1986,
as amended (Code), and does not deal with special situations,
such as those of dealers in securities or currencies, financial
institutions, life insurance companies, persons holding the
exchange senior notes as part of a hedging or conversion
transaction or a straddle, persons who have a functional currency
other than the US dollar, or persons who are not US holders (as
defined below). In addition, this discussion does not address
the tax consequences to persons who purchased the senior notes
other than pursuant to their initial issuance and distribution,
and who acquire the exchange senior notes other than pursuant to
the exchange offer. Furthermore, the discussion below is based
upon the Code, existing and proposed Treasury regulations
promulgated thereunder, and current administrative rulings and
judicial decisions thereon, all of which are subject to change,
possibly on a retroactive basis, so as to result in US federal
income tax consequences different from those discussed below.
As used in this prospectus, a US holder means a holder of a
beneficial interest in an exchange senior note that is (1) a
citizen or resident of the US, (2) a corporation, partnership or
other entity created or organized in or under the laws of the US
or any political subdivision thereof, (3) an estate the income of
which is subject to US federal income taxation regardless of its
source, or (4) a trust the administration of which is subject to
the primary supervision of a court within the US and for which
one or more US persons have the authority to control all
substantial decisions.
Prospective holders of beneficial interests in the exchange
senior notes are advised to consult with their tax advisors as to
the US federal income tax consequences of the purchase, ownership
and disposition of the exchange senior notes in light of their
particular circumstances, as well as the effect of any state,
local or other tax laws.
EXCHANGE OF SENIOR NOTES FOR EXCHANGE SENIOR NOTES
An exchange of beneficial interests in senior notes for
beneficial interests in exchange senior notes pursuant to the
exchange offer should not constitute a taxable event for US
federal income tax purposes because the exchange senior notes
should not be considered materially different in kind or extent
from the senior notes. Rather, beneficial interests in exchange
senior notes should be treated as a continuation of beneficial
interests in senior notes in the hands of a US holder. As a
result, US holders who effect such an exchange should not
recognize any income, gain or loss for US federal income tax
purposes with respect to that exchange. In addition, a US
holder's tax basis in an exchange senior note will be the same as
that holder's basis in the senior note exchanged therefor, and a
US holder's holding period in an exchange senior note will
include that holder's holding period in the senior note exchanged
therefor.
PAYMENTS OF INTEREST
Stated interest on an exchange senior note (including any
Additional Amounts and any Gross-Up Taxes in respect of which
such Additional Amounts are paid) will generally be taxable to a
US holder as ordinary income at the time it is paid or accrued in
accordance with the US holder's method of accounting for tax
purposes.
For purposes of computing the US foreign tax credit
limitation, interest income received from Funding and payments
received from Holdings in respect of the guarantee will generally
be treated as foreign source income and, in general, passive
income or financial services income, or, if subject to a
withholding tax of 5% or more, high withholding tax income.
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SALE, EXCHANGE OR REDEMPTION OF THE EXCHANGE SENIOR NOTES
Upon the sale, exchange or redemption of beneficial
interests in the exchange senior notes, a US holder will
recognize gain or loss equal to the difference between (1) the
amount realized upon the sale, exchange or redemption (excluding
any accrued and unpaid interest not previously included in
income) and (2) such US holder's adjusted tax basis in the
exchange senior notes. A US holder's adjusted tax basis in the
exchange senior notes generally will be the initial purchase
price it paid for the senior notes exchanged therefor, net of
accrued interest. Such gain or loss will be capital gain or loss
and will be long-term capital gain or loss if, at the time of
sale, exchange or redemption, the exchange senior notes are
treated as having been held for more than one year. Under
current law, the deductibility of capital losses is subject to
limitations. The net capital gains of individuals are taxed at
lower rates than ordinary income.
Any gain or loss realized by a US holder on the sale,
exchange or redemption of the exchange senior notes generally
will be treated as from sources within the US for purposes of
computing the US foreign tax credit limitation.
INFORMATION REPORTING AND BACKUP WITHHOLDING
To the extent required by law, income on the exchange senior
notes will be reported to US holders on Form 1099, which should
be mailed to such holders by January 31 following each calendar
year.
Payment of the proceeds from the disposition of the exchange
senior notes to or through the US office of a broker is subject
to information reporting unless the US holder establishes an
exemption from information reporting.
Payments made in respect of, and proceeds from the sale of,
the exchange senior notes may be subject to "backup withholding"
tax of 31% if the US holder fails to comply with certain
identification requirements, or has previously failed to report
in full dividend and interest income, or does not otherwise
establish its entitlement to an exemption. Any withheld amounts
will be refunded or allowed as a credit against such US holder's
US federal income tax liability, provided that certain required
information is furnished to the US Internal Revenue Service.
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PLAN OF DISTRIBUTION
Except as described below, a broker-dealer may not
participate in the exchange offer in connection with a
distribution of the exchange senior notes, which, for the
purposes of this PLAN OF DISTRIBUTION section, generally means
beneficial interests in exchange senior notes. Each
broker-dealer that receives exchange senior notes for its own
account pursuant to the exchange offer must acknowledge that it
will deliver a prospectus in connection with any resale of the
exchange senior notes. Based on SEC staff interpretations, a
broker-dealer could use this prospectus, as it may be amended or
supplemented from time to time, in connection with resales of
exchange senior notes received in the exchange offer where the
beneficial interests in senior notes for which they were
exchanged were acquired as a result of market-making activities
or other trading activities. Funding and Holdings have agreed
that for a period not to exceed 90 days, they will make this
prospectus, as amended or supplemented, available to any
broker-dealer for use in connection with any such resale. In
addition, until ____________ ___, 1999 all dealers effecting
transactions in the exchange senior notes may be required to
deliver a prospectus.
The information set forth above concerning SEC staff
interpretations is not intended to constitute legal advice, and
broker-dealers should consult their own legal advisors with
respect to these matters.
Funding and Holdings will not receive any proceeds from the
exchange offer or any sale of exchange senior notes by
broker-dealers. Exchange senior notes received by broker-dealers
for their own account pursuant to the exchange offer may be sold
from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the
writing of options on the exchange senior notes or a combination
of those methods of resale, at market prices prevailing at the
time of resale, at prices related to those prevailing market
prices or negotiated prices. Any resale may be made directly to
purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any
broker-dealer and/or the purchasers of any exchange senior notes.
Any broker-dealer that resells exchange senior notes that were
received by it for its own account pursuant to the exchange offer
and any broker or dealer that participates in a distribution of
the exchange senior notes may be deemed to be an "underwriter"
within the meaning of the Securities Act and any profit on any
resale of exchange senior notes and any commissions or
concessions received by any of those persons may be deemed to be
underwriting compensation under the Securities Act. Any broker
or dealer registered under the Exchange Act who holds senior
notes that were acquired for its own account as a result of
market-making activities or other trading activities (other than
senior notes acquired directly from Funding and Holdings) may
exchange those senior notes pursuant to the exchange offer;
however, that broker or dealer may be deemed to be an
"underwriter" within the meaning of the Securities Act and must,
therefore, deliver a prospectus meeting the requirements of the
Securities Act in connection with any resales of the exchange
senior notes received by the broker or dealer in the exchange
offer. This prospectus delivery requirement may be satisfied by
the delivery by that broker or dealer of this prospectus. The
Letter of Transmittal states that by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning
of the Securities Act.
Funding and Holdings have agreed to pay the expenses of
registration of the exchange senior notes and will indemnify the
holders of the exchange senior notes (including any
broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
Prior to the exchange offer, there has been no public market
for the senior notes. Funding and Holdings do not intend to
apply for listing of the exchange senior notes on any securities
exchange other than the Luxembourg Stock Exchange. There can be
no assurance that an active market for the exchange senior notes
will develop. To the extent that a market for the exchange
senior notes does develop, the market value of the exchange
senior notes will depend on market conditions (including yields
on alternative investments), general economic conditions, Funding
and Holdings' financial condition and other conditions. Those
conditions might cause the exchange senior notes, to the extent
that they are actively traded, to trade at a significant discount
from face value. Funding and Holdings have not entered into any
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arrangement or understanding with any person to distribute the
exchange senior notes to be received in the exchange offer.
Funding and Holdings have not agreed to compensate broker-
dealers who effect the exchange of senior notes on behalf of
holders.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Eastern and
Holdings, and the financial statements of Overseas set forth in
this prospectus have been audited by PricewaterhouseCoopers,
independent auditors, as stated in their reports set forth in
this prospectus.
LEGAL REVIEW
The statements made as to matters of law and legal
conclusions in this prospectus under CERTAIN INCOME TAX
CONSIDERATIONS -- "UK Tax Considerations" have been reviewed by
Norton Rose, London, England, and are set forth in this
prospectus in reliance upon the opinion of that firm given upon
their authority as experts. The statements made as to matters of
law and legal conclusions in this prospectus under CERTAIN INCOME
TAX CONSIDERATIONS -- "US Income Tax Considerations" have been
reviewed by Thelen Reid & Priest LLP, New York, New York, and are
set forth in this prospectus in reliance upon the opinion of that
firm given upon their authority as experts.
LEGALITY
The validity of the exchange senior notes is being passed
upon for Funding and Holdings by Worsham, Forsythe & Wooldridge,
L.L.P., Dallas, Texas, by Thelen Reid & Priest LLP, by E.J. Lean,
General Counsel to Funding and Holdings. However, all matters
pertaining to the incorporation of Funding and Holdings and all
other matters of UK law relating to Funding and Holdings will be
passed upon only by E.J. Lean. At December 31, 1998, members of
the firm of Worsham, Forsythe & Wooldridge, L.L.P. owned approximately
41,000 shares of the common stock of TXU Corp.
NATURE OF FINANCIAL INFORMATION
The financial information in this prospectus in respect of
Holdings and Eastern set forth in SUMMARY -- "Selected Financial
Information," CAPITALIZATION and MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS does
not constitute statutory accounts under Section 240 of the UK
Companies Act 1985 (Companies Act). Statutory accounts of
Eastern for the fiscal year ended March 31, 1998 to which a
portion of that financial information relates have been delivered
to the Registrar of Companies in England and Wales. The auditors
of Eastern have made a report under Section 236 of the Companies
Act on the statutory accounts for that fiscal year which was not
qualified within the meaning of Section 262 of the Companies Act
and did not contain a statement made under Section 237(2) or
237(3) of the Companies Act.
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WHERE YOU CAN FIND MORE INFORMATION
Holdings will be required to file reports under the Exchange
Act of 1934 and will file those reports with the SEC. These SEC
filings will be available to the public over the Internet at the
SEC's website at http://www.sec.gov. You will also be able to
read and copy any of these SEC filings at the SEC's public
reference rooms in Washington, D.C., New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. In addition,
these filings will be available at the offices of the paying
agent in Luxembourg.
No separate financial statements of Funding are included or
incorporated by reference in this prospectus. Holdings and
Funding do not consider that those financial statements would be
material to holders of beneficial interests in the exchange
senior notes because (1) Funding is a newly incorporated company
that has no operating history and no independent operations, and
(2) Funding was formed for the sole purpose of providing
financing for the operations of Holdings and its subsidiaries.
In addition, Funding does not expect to file reports under the
Exchange Act as a result of the registration of the exchange
senior notes under the Securities Act. See TXU EASTERN FUNDING
COMPANY.
Copies of the indenture and the deposit agreement with
respect to the exchange senior notes will be available at the
offices of the paying agents for the exchange senior notes.
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LUXEMBOURG STOCK EXCHANGE AND OTHER INFORMATION
LISTING
A notice relating to the issue (Notice Legale) as well as
the Memorandum and Articles of Association of Funding and the
Memorandum and Articles of Association of Holdings have been
lodged with the Chief Registrar of the District Court of
Luxembourg (Greffier en chef du Tribunal d'Arrondissement de et a
Luxembourg) where these documents may be examined and copies
obtained.
EUROCLEAR AND CEDELBANK
The exchange senior notes have been accepted for clearance
through Cedelbank and Euroclear. For the 6.15% exchange senior
notes, the Common Code number is () and the ISIN number is ().
For the 6.45% exchange senior notes, the Common Code number is ()
and the ISIN number is (). For the 6.75% exchange senior notes,
the Common Code number is () and the ISIN number is ().
AUTHORIZATION
Funding was authorized to issue the exchange senior notes by
resolution of its Board of Directors on February 19, 1999.
Holdings was authorized to issue the guarantee by resolution of
its Board of Directors on February 19, 1999.
SIGNIFICANT OR MATERIAL CHANGE
Except as disclosed herein, there has been no significant
change in the financial or trading position of (1) Funding since
its incorporation, (2) Holdings since its incorporation and (3)
Eastern and its consolidated subsidiaries since March 31, 1998,
the date of the last published consolidated accounts of those
companies. Since those dates, except as disclosed in this
prospectus, there has been no material adverse change in the
financial position or prospects of Funding, Holdings or Eastern
and its subsidiaries.
LITIGATION
Neither Funding nor Holdings is involved in any litigation
or arbitration proceedings which are material in the context of
the issue of the exchange senior notes nor, so far as Funding or
Holdings is aware, is any such litigation or arbitration pending
or threatened.
AUDITORS
Funding has not published any financial statements since its
date of incorporation.
Holdings produced its first audited financial statements on
March 3, 1999.
The following additional audited financial statements for
Holdings are included in this prospectus:
(1) for the period from formation through December 31,
1998; and
(2) for the period from formation through March 31, 1999.
The financial information in respect of Eastern and its
subsidiaries as of March 31, 1998 and for the two year period
then ended, that is contained in this document does not
constitute statutory accounts within the meaning of Section 240
of the Companies Act. Statutory accounts for each of the two
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years in the two year period ended March 31, 1998 have been
delivered to the Registrar of Companies in England and Wales, and
Price Waterhouse gave an unqualified report on those accounts,
without any statement under Section 237(2) or (3) of the
Companies Act.
DOCUMENTS AVAILABLE
Copies of the following documents may be inspected at (and,
in the case of the financial statements referred to in clause
(iii) below, obtained from) the offices of the paying agent for
the exchange senior notes in Luxembourg during usual business
hours on any weekday (Saturdays and public holidays excepted) so
long as any of the exchange senior notes remain outstanding:
(i) the Memorandum and Articles of Association of Funding;
(ii) the Memorandum and Articles of Association of Holdings;
(iii) the latest annual consolidated financial
statements of Holdings and certain interim
financial statements of Holdings, which are
expected to be a available on a quarterly basis;
financial statements of Funding are not prepared
or published, nor are they expected to be prepared
or published in the future (if, in the future,
Funding is required to prepare and publish
financial statements, such financial statements
will be also be available at the offices of the
paying agent for the exchange senior notes in
Luxembourg); and
(iv) the indenture and each officer's certificate (which
contains the forms of a series of the exchange senior
notes), the deposit agreement and the letters of
representations.
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INDEX TO FINANCIAL STATEMENTS
TXU EASTERN HOLDINGS LIMITED AND SUBSIDIARIES (Successor
Company) Page
----
Report of Independent Accountants . . . . . . . . . . . . F-3
Financial Statements:
Consolidated balance sheets as of December 31, 1998 and
as of March 31, 1999 . . . . . . . . . . . . . . . F-4
Statements of consolidated income for the period from
formation through December 31, 1998 and for the
period from formation through March 31, 1999 . . . . . F-6
Statements of consolidated comprehensive income for
the period from formation through December 31, 1998
and for the period from formation through
March 31, 1999 . . . . . . . . . . . . . . . . . . . . F-7
Statements of consolidated common stock equity for the
period from formation through December 31, 1998 and
for the period from formation through March 31, 1999 . F-8
Statements of consolidated cash flows for the period from
formation through December 31, 1998 and for the
period from formation through March 31, 1999 . . . . F-9
Notes to the consolidated financial statements . . . . F-11
EASTERN GROUP plc AND SUBSIDIARIES (Predecessor Company)
Report of Independent Accountants . . . . . . . . . . . . F-34
Financial Statements:
Consolidated balance sheet as of March 31, 1998 . . . F-35
Statements of consolidated income for the years
ended March 31, 1997 and 1998 and for the
period from April 1, 1998 through May 18, 1998 . . . F-37
Statements of consolidated comprehensive income for the
years ended March 31, 1997 and 1998 and for the
period from April 1, 1998 through May 18, 1998 . . . F-38
Statements of consolidated common stock equity for the
years ended March 31, 1997 and 1998 and for the
period from April 1, 1998 through May 18, 1998 . . . F-39
Statements of consolidated cash flows for the years
ended March 31, 1997 and 1998 and for the
period from April 1, 1998 through May 18, 1998 . . F-40
Notes to the consolidated financial statements . . . . F-41
F-1
<PAGE>
ENERGY GROUP OVERSEAS B.V.
Report of Independent Accountants . . . . . . . . . . . . . F-60
Financial Statements:
Balance Sheet as of March 31, 1998 . . . . . . . . . . . F-61
Statements of income for the periods from formation
through March 31, 1998 and from April 1, 1998 through
May 18, 1998 . . . . . . . . . . . . . . . . . . . . . F-62
Statements of comprehensive income for the periods
from formation through March 31, 1998 and from
April 1, 1998 through May 18, 1998 . . . . . . . . . . F-63
Statements of common stock equity for the periods
from formation through March 31, 1998 and from
April 1, 1998 through May 18, 1998 . . . . . . . . . . F-64
Statements of cash flows for the periods from
formation through March 31, 1998 and from
April 1, 1998 through May 18, 1998 . . . . . . . . . . F-65
Notes to the financial statements . . . . . . . . . . . F-66
F-2
<PAGE>
PRICEWATERHOUSECOOPERS LLP
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and
Shareholders of TXU Eastern Holdings Limited and Subsidiaries
In our opinion, the accompanying consolidated balance sheets and the related
statements of consolidated income, of comprehensive income, of common stock
equity and of cash flows present fairly, in all material respects, the financial
position of TXU Eastern Holdings Limited and its subsidiaries at December 3l,
1998 and March 31, 1999, and the results of their operations and their cash
flows for the periods from formation (February 5, 1998) to December 31, 1998 and
from formation to March 31, 1999 in conformity with accounting principles
generally accepted in the United States. 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 audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards in the United Kingdom which do not differ significantly with those in
the United States and which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers
London, England
June 30, 1999
PricewaterhouseCoopers is the successor partnership to the UK firms of Price
Waterhouse and Coopers & Lybrand. The principal place of business of
PricewaterhouseCoopers and its associate partnerships, and of Coopers & Lybrand,
is 1 Embankment Place, London WC2N 6NN. The principal place of business of Price
Waterhouse is Southwark Towers, 32 London Bridge Street, London SE1 9SY. Lists
of the partners' names are available for inspection at those places.
All partners in the associate partnerships are authorised to conduct business as
agents of, and all contracts for services to clients are with,
PricewaterhouseCoopers. PricewaterhouseCoopers is authorised by the Institute of
Chartered Accountants in England and Wales to carry on investment business.
F-3
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
CONSOLIDATED BALANCE SHEETS
((pound) million)
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
ASSETS
Property, plant and equipment, net 2,676 2,516
----- -----
Current assets
Cash and cash equivalents 467 414
Accounts receivable (net of allowance for uncollectible accounts
of(pound)22 million and(pound)17 million at December 31, 1998
and March 31, 1999, respectively) 585 619
Inventories:
Materials and supplies 25 23
Fuel stock 116 97
Prepayments 40 22
ACT recoverable 30 30
Other current assets 40 29
----- -----
Total current assets 1,303 1,234
----- -----
Investments
Restricted cash 717 730
Other 233 284
----- -----
Total investments 950 1,014
----- -----
Deferred debits
Goodwill (net of accumulated amortization of(pound)52 million
and(pound)73 million at December 31, 1998 and
March 31, 1999, respectively) 3,209 3,451
Prepayments for pensions 257 259
Other deferred debits 134 109
----- -----
Total deferred debits 3,600 3,819
----- -----
TOTAL ASSETS 8,529 8,583
===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
CONSOLIDATED BALANCE SHEETS
((pound) million, except for par value)
<TABLE>
<CAPTION>
AS OF AS OF
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization
Common stock (3,000,000,000 shares at US$1 par and 100 deferred
shares at(pound)1 par authorized) 2,455,705,299 shares and 100
deferred shares issued and outstanding 1,467 1,467
Retained earnings 76 125
Accumulated other comprehensive loss (8) (11)
------ ------
Total common stock equity 1,535 1,581
------ ------
Minority interest 190 200
------ ------
Note payable to Texas Utilities Company 682 682
Long-term debt, less amounts due currently 3,629 3,754
------ ------
Total long-term debt 4,311 4,436
------ ------
Total capitalization 6,036 6,217
------ ------
Current liabilities
Notes payable - banks 238 53
Long-term debt due currently 382 486
Short-term loans on accounts receivable 300 300
Accounts payable:
Affiliates 7 7
Other 532 403
Taxes accrued 162 213
Interest accrued 53 16
Other current liabilities 17 56
------ ------
Total current liabilities 1,691 1,534
------ ------
Deferred credits and other noncurrent liabilities
Deferred income taxes, net 321 334
Provision for unfavorable contracts 250 248
Due to affiliates 33 45
Other deferred credits and noncurrent liabilities 198 205
------ ------
Total deferred credits and other noncurrent liabilities 802 832
------ ------
Commitments and contingencies (Notes 12 and 13) -- --
TOTAL CAPITALIZATION AND LIABILITIES 8,529 8,583
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
STATEMENTS OF CONSOLIDATED INCOME
((pound) million)
<TABLE>
<CAPTION>
PERIOD FROM FORMATION PERIOD FROM FORMATION
THROUGH THROUGH
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
Operating revenues 2,165 3,338
Costs and expenses
Purchased power 961 1,480
Gas purchased for resale 367 646
Operation and maintenance 379 526
Depreciation and amortization 144 202
------ ------
Total operating expenses 1,851 2,854
------ ------
Operating income 314 484
Other income - net 46 47
------ ------
Income before interest, income taxes and minority interest 360 531
Interest income 64 78
Interest expense, net of capitalized interest of(pound)4
million and(pound)5 million for the periods from formation
through December 31, 1998 and March 31, 1999,
respectively 269 356
------ ------
Income before income taxes and minority interest 155 253
Income tax expense 67 106
------ ------
Income before minority interest 88 147
Minority interest 11 21
------ ------
Net income 77 126
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
((pound) million)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
FORMATION THROUGH FORMATION THROUGH
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
Net income 77 126
Other comprehensive income
Unrealized loss on securities classified as available for sale (8) (11)
Cumulative translation adjustment -- --
------ ------
Comprehensive income 69 115
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
STATEMENTS OF CONSOLIDATED COMMON STOCK EQUITY
((pound) million)
<TABLE>
<CAPTION>
PERIOD FROM FORMATION THROUGH DECEMBER 31, 1998
--------------------------------------------------
ACCUMULATED OTHER
COMMON RETAINED COMPREHENSIVE
STOCK EARNINGS LOSS
------ -------- -----------------
<S> <C> <C> <C>
Balance at February 5, 1998 -- -- --
Net income -- 77 --
Cash dividends -- (1) --
Stock issued (2,456 million shares) 1,467 -- --
Unrealized loss on securities classified as available for sale -- -- (8)
Cumulative translation adjustment -- -- --
----- ----- -----
Balance at December 31, 1998 1,467 76 (8)
===== ===== =====
<CAPTION>
PERIOD FROM FORMATION THROUGH MARCH 31, 1999
--------------------------------------------------
ACCUMULATED OTHER
COMMON RETAINED COMPREHENSIVE
STOCK EARNINGS LOSS
------ -------- -----------------
<S> <C> <C> <C>
Balance at February 5, 1998 -- -- --
Net income -- 126 --
Cash dividends -- (1) --
Stock issued (2,456 million shares) 1,467 -- --
Unrealized loss on securities classified as available for sale -- -- (11)
Cumulative translation adjustment -- -- --
----- ----- -----
Balance at March 31, 1999 1,467 125 (11)
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
STATEMENTS OF CONSOLIDATED CASH FLOWS
((pound) million)
<TABLE>
<CAPTION>
Period from Period from
formation through formation through
December 31, 1998 March 31, 1999
----------------- --------------
<S> <C> <C>
Cash flows - operating activities
Net income 77 126
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 144 202
Amortization of fair value of long-term debt (5) (6)
Deferred income taxes 24 35
Net gain on sale of businesses (13) (12)
Minority interest 11 21
Undistributed equity in earnings of TEG (2) (2)
Changes in operating assets and liabilities:
Accounts receivable (138) (173)
Inventories (26) (7)
Prepayments and other assets (7) (16)
Accounts payable
Affiliates 7 7
Other 198 73
Interest accrued 40 1
Taxes accrued (95) (77)
Other liabilities (211) (173)
Due to affiliates 33 45
------ ------
Cash provided by operating activities 37 44
------ ------
Cash flows - investing activities
Acquisition of TEG, net of cash acquired of(pound)2,011 million (1,432) (1,444)
Capital expenditures (207) (230)
Purchase of Citigen (London) Ltd and BG Cogen Ltd (14) (14)
Proceeds from sale of businesses 60 63
Investment in Svartisen (124) (124)
Investment in marketable securities (36) (36)
Other investments (14) (73)
------ ------
Cash used in investing activities (1,767) (1,858)
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-9
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
STATEMENTS OF CONSOLIDATED CASH FLOWS (continued)
((pound) million)
<TABLE>
<CAPTION>
PERIOD FROM PERIOD FROM
FORMATION THROUGH FORMATION THROUGH
DECEMBER 31, 1998 MARCH 31, 1999
----------------- --------------
<S> <C> <C>
Cash flows - financing activities
Net borrowings under the:
Acquisition facility 1,821 1,821
Interim facility 243 243
Other long-term debt 66 360
Issuance of common stock to parent 1,467 1,467
Retirements of :
Acquisition facility (1,071) (1,071)
Interim facility (243) (243)
Loan notes (9) (9)
Other long-term debt (174) (242)
Change in notes payable - banks 168 (27)
Change in minority interest 166 166
Retirements of advances from Texas Utilities (200) (200)
Debt financing cost (36) (36)
Dividends paid (1) (1)
------ ------
Cash provided by financing activities 2,197 2,228
------ ------
Net change in cash and cash equivalents 467 414
Cash and cash equivalents - beginning balance -- --
------ ------
Cash and cash equivalents - ending balance 467 414
====== ======
Supplemental cash flow disclosures:
Cash paid for interest 223 310
Cash paid for income taxes 137 148
Non-cash transactions
Investment received in consideration for sale of EG
Telecoms 22 22
Consolidation of debt and related investment on
cross-border leases 170 170
Issuance of loan notes upon acquisition of TEG 85 85
Advances from Texas Utilities upon acquisition of TEG 882 882
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-10
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
The business and operations of TXU Eastern Holdings Limited and
Subsidiaries (the Company) are divided into three principal segments, as
follows:
(i) The energy retail business which supplies electricity and gas to
national domestic, industrial and commercial customers in the United
Kingdom;
(ii) The energy management and generation business which manages an
integrated portfolio of generation assets, physical gas assets and
contracts; and
(iii) The networks business which owns, manages and operates the
electricity distribution system.
These businesses are carried out primarily in the United Kingdom with
interests increasingly being developed throughout the rest of Europe.
Formation
The Company is a holding company that owns 90% of the outstanding common
stock of TU Finance (No. 2) Limited (TU Finance) which in turn owns 100% of
the common stock of TU Acquisitions Limited (TU Acquisitions).
The Company was incorporated as a private limited company on February 5,
1998. Through a series of restructurings and capital transactions
subsequent to its formation, the Company became an indirect, wholly owned
subsidiary of Texas Utilities Company (Texas Utilities). The "period from
formation through December 31, 1998" referred to in these financial
statements represents February 5, 1998 through December 31, 1998,
inclusive. The "period from formation through March 31, 1999" referred to
in these financial statements represents February 5, 1998 through March 31,
1999, inclusive. From March 1998 to May 18, 1998 the Company, through TU
Acquisitions, had acquired an equity interest in The Energy Group PLC (TEG)
of approximately 22%, which resulted in the recognition of equity income of
(pound)2 million, which is reflected in "Other Income-net" in the Statement
of Consolidated Income.
The Company has two classes of shares outstanding, ordinary and deferred.
Both classes are held by wholly owned subsidiaries of Texas Utilities. The
principal difference between the two classes is that ordinary shares have
voting rights, whereas deferred shares do not.
Purchase Accounting
As of May 19, 1998, TU Acquisitions acquired control of TEG. This business
combination was accounted for as a purchase. Substantially all of TEG's
continuing operations are conducted through Eastern Group plc (Eastern),
one of the largest integrated electricity and gas groups in the United
Kingdom. Also on May 19, 1998, TEG sold its United States and Australian
coal businesses and United States energy marketing operations (Peabody
Sale). The "TEG Businesses Acquired" refers to TEG, exclusive of the
operations sold in the Peabody Sale.
The total purchase consideration for the TEG Businesses Acquired was
approximately (pound)4.4 billion. The excess of the purchase consideration
plus acquisition costs over the net fair value of tangible and identifiable
intangible assets acquired and liabilities assumed resulted in goodwill
of (pound)3.5 billion, which is being amortized over 40 years.
F-11
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
1. Description of Business (continued)
In addition to the cash offer, shareholders of TEG were offered a share
alternative, which gave them the option to exchange their TEG shares for
shares of Texas Utilities' common stock and a loan note option. TU
Acquisitions exchanged 37,316,884 shares of Texas Utilities' common stock
for TEG shares held by those who elected the share alternative, and paid
cash or issued loan notes in exchange for the remainder of TEG shares. TU
Acquisitions acquired the shares of Texas Utilities common stock used in
its exchange for TEG shares by issuing a term note to Texas Utilities for
(pound)882 million.
2. Basis of Presentation and Significant Accounting Policies
The consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the United States (US GAAP).
Consolidation -- The consolidated financial statements include the accounts
of the Company and all majority owned subsidiaries. Minority interest
represents the minority shareholders' proportionate share in the equity or
income of the Company's majority-owned subsidiaries.
All significant intercompany items and transactions have been eliminated in
consolidation. Investments in significant unconsolidated affiliates are
accounted for by the equity method.
Use of estimates -- The preparation of the Company's consolidated financial
statements, in conformity with US GAAP, requires management to make
estimates and assumptions about future events that affect the reporting and
disclosure of assets and liabilities at the balance sheet dates and the
reported amounts of revenue and expense during the period covered by the
consolidated financial statements. In the event estimates and/or
assumptions prove to be different from actual amounts, adjustments are made
in subsequent periods to reflect more current information.
Presentation - Certain December 31, 1998 amounts have been restated to
conform to the March 31, 1999 presentation.
Cash and cash equivalents - Cash equivalents consist of highly liquid
investments, which are readily convertible into cash and have maturities of
three months or less.
Inventories - Inventories consist of fuel stock, material and supplies, and
are stated at the lower of cost or net realizable value. The cost of
inventories is determined using a weighted average cost method.
Capitalized interest - Interest is capitalized on major capital
expenditures during the period of construction.
F-12
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Basis of Presentation and Significant Accounting Policies (continued)
Property, plant and equipment - Property, plant and equipment are stated at
cost less accumulated depreciation. The cost of additions, improvements,
and interest on construction are capitalized, while maintenance and repairs
are charged to expense when incurred.
Leased generating stations meeting certain criteria and related equipment
are capitalized and the present value of the related lease payments is
recorded as a liability. Depreciation of capitalized lease assets is
computed on the straight-line basis over the shorter of the estimated
remaining useful life of the asset or the lease term.
Depletion of gas reserves is charged on a unit-of-production basis, based
on an assessment of proven reserves. Depreciation of all other property,
plant and equipment, is determined on the straight-line method over
estimated useful lives of the assets as follows:
Electricity generating station assets 30 years
Electricity generating station assets Shorter of lease period or estimated
under capital lease remaining useful life
Electricity distribution system assets 40 years (3% per annum for first 20
years and 2% per annum for last
20 years)
Buildings Up to 60 years
Leasehold improvements Shorter of remaining lease term or
estimated useful life
Plant and equipment Up to 10 years
Customer contributions to the construction of electricity distribution
system assets are amortized to income over a forty-year period, at a rate
of 3% per year for the first 20 years and 2% per year for the last 20
years. The unamortized amount of these contributions is deducted from
property, plant and equipment.
Upon sale, retirement, abandonment or other disposition of property, the
cost and related accumulated depreciation are eliminated from the accounts
and any gain or loss is reflected in income.
The United Kingdom Government is entitled to claim a portion of any gain
realized by the Company on certain property disposals made up to March 31,
2000. Provisions for such claims are made when an actual disposal occurs.
Provision is made for abandonment costs relating to gas fields. Such
provisions are determined in accordance with local conditions and
requirements, and on the basis of costs estimated at the respective balance
sheet date. These costs are expensed on a unit-of-production basis.
The Company early adopted Statement of Position 98-1, "Accounting for the
costs of computer software developed or obtained for internal use" (SOP
98-1) beginning on May 19, 1998. Their costs are being amortized over a
five year period.
Valuation of long-lived assets - The Company periodically evaluates the
carrying value of long-lived assets to be held and used, including
goodwill, when events and circumstances warrant such a review. The carrying
value of a long-lived asset is considered impaired when the projected
undiscounted cash flows from such asset is separately identifiable and is
less than its carrying value. In that event, a loss is recognized based on
the amount by which the carrying value exceeds the fair market value of the
long-lived asset. Fair market value is determined primarily utilizing the
anticipated cash flows discounted at a rate commensurate with the risk
involved.
Goodwill - Goodwill is capitalized and amortized over 40 years using the
straight-line method. The Company reviews the goodwill recoverability
period on a regular basis.
Derivative financial instruments - The Company defers the effect of changes
in the market value of derivative financial instruments for contracts for
differences and electricity forward agreements, which are
F-13
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Basis of Presentation and Significant Accounting Policies (continued)
used to hedge firm commitments, to the period when the related transaction
is completed. In the event that an overall analysis of the firm commitments
being hedged indicates that the Company is in a net loss position, a
provision is made for these anticipated losses. Transactions that are
entered into that do not meet the criteria for hedge accounting are marked
to market on the balance sheet at the period end, and the unrealized gain
or loss is recognized in the Statement of Consolidated Income for that
period.
Revenue recognition - Electricity and gas sales revenues are recognized
when services are provided to customers and include an estimated accrual
for the value of electricity and gas consumed by customers between the date
of their last meter reading and the period-end date. Operating revenues are
stated exclusive of value added tax, but inclusive of the fossil fuel levy.
Foreign currencies - Assets and liabilities of foreign subsidiaries are
translated at the exchange rate on the balance sheet date. Revenues, costs
and expenses are translated at average rates of exchange prevailing during
the period. Translation adjustments resulting from this process are charged
or credited to the cumulative currency translation adjustment account in
common stock equity. Gains and losses on foreign currency transactions are
included in nonoperating expenses on the Statement of Consolidated Income.
Income taxes - Income tax expense includes United Kingdom and other
national income taxes. The Company intends to reinvest the earnings of its
foreign subsidiaries into those businesses. Accordingly, no provision has
been made for taxes which would be payable if such earnings were
distributed to the Company.
Advance Corporation Tax (ACT) recoverable represents the amount of tax paid
or payable on outgoing dividends paid and proposed which can be set off
against a corporation tax liability arising currently or in the future,
thereby reducing current tax expense.
Deferred income taxes are determined under the liability method. Deferred
income taxes represent liabilities to be paid or assets to be received in
the future and reflect the tax consequences on future years of temporary
differences between the tax bases of assets and liabilities and their
financial reporting amounts. Future tax rate changes would affect those
deferred tax liabilities or assets in the period when the tax rate change
is enacted.
Future tax benefits, such as net operating loss carryforwards, are
recognized to the extent that realization of such benefits is more likely
than not.
Marketable securities - The Company has classified all of its marketable
securities as available for sale. Available for sale securities are carried
at fair value with the unrealized gains and losses reported as a component
of accumulated other comprehensive income in common stock equity. Declines
in fair value that are other than temporary are reflected in the Statement
of Consolidated Income.
Appraisal and development expenditure of gas fields - Appraisal
expenditures are accounted for under the successful efforts method. General
seismic and other costs are expensed as incurred.
Ceiling test - The capitalized costs of gas fields under evaluation, under
development or in production are assessed each year on a field-by-field
basis. To the extent that the future net revenues from the remaining
commercial reserves, or, in the case of prospects under evaluation, the
estimated potential commercial reserves, are less than the net capitalized
costs of the field, a charge is made to the Statement of Consolidated
Income.
New accounting standards - Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was originally to be effective for fiscal years beginning
after June 15, 1999. This statement requires that all derivative financial
instruments be recognized as either assets or liabilities on the balance
sheet at their fair values and that accounting for the changes in their
fair
F-14
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Basis of Presentation and Significant Accounting Policies (continued)
values is dependent upon the intended use of the derivatives and their
resulting designations. The new standard will supersede or amend existing
standards that deal with hedge accounting and derivatives. The Company has
not determined the effect that adopting this standard will have on its
consolidated financial statements. On May 19, 1999, the Financial
Accounting Standards Board decided that it would amend SFAS No. 133, and
defer its effective date to all fiscal quarters of all fiscal years
beginning after June 15, 2000.
The Emerging Issues Task Force (EITF) has issued No. 98-10 "Accounting for
Energy Trading and Risk Management Activities", which is effective for
fiscal years beginning after December 15, 1998. EITF 98-10 requires that
contracts for energy commodities which are entered into under trading
activities should be marked to market with the gains and losses shown net
in the income statement. As the Company's fiscal year ends on December 31,
the Company adopted EITF 98-10 effective January 1, 1999 for the fiscal
year ending December 31, 1999. As the Company is not primarily involved in
trading activities, EITF 98-10 has not had a material impact on the
consolidated financial statements upon adoption.
3. Property, Plant and Equipment
Property, plant and equipment, stated at cost less accumulated
depreciation, consisted of:
December 31, 1998 March 31, 1999
---------------- ----------------
((pound)million) ((pound)million)
Electricity distribution system 1,143 1,142
Electricity generating stations 1,262 1,124
Upstream gas assets 35 35
Other land and buildings 100 102
Plant and equipment 225 239
Accumulated depreciation (89) (126)
----- -----
Net property, plant and equipment 2,676 2,516
===== =====
Depreciation expense for the period from formation through December 31,
1998 was (pound)92 million and for the period from formation through March
31, 1999 was (pound)129 million.
Electricity generating stations and plant and equipment include assets
under capital leases as follows:
December 31, 1998 March 31, 1999
((pound)million) ((pound)million)
---------------- ----------------
Cost 913 835
Accumulated depreciation (25) (36)
----- -----
Net book value 888 799
===== =====
Capitalized software costs totalling (pound)14 million are included in
plant and equipment as of December 31, 1998 and March 31, 1999.
Amortization expense relating to software costs of (pound)1 million has
been recorded in the period from formation through March 31, 1999. No
amortization expense was recorded in the period to December 31, 1998.
F-15
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
4. Restricted Cash
At December 31, 1998 and at March 31, 1999, (pound)408 million of deposits
has been used to cash-collateralize existing future lease obligations to
certain banks related to the funding of the leases of three power stations
from National Power PLC (see Note 9). Additionally (pound)309 million and
(pound)317 million at December 31, 1998 and March 31, 1999, respectively,
have been used to cash-collateralize existing future lease obligations
arising from a cross-border leasing arrangement on two other power stations
(Note 9). When the Company invested in Eastern Norge Kobbelv AS (Kobbelv)
(see Note 5) it was required to place on restricted deposit (pound)5
million, which is also included in restricted cash at March 31, 1999.
5. Investments
Marketable investments are classified as available for sale, and are
considered non-current based upon management's intentions in holding the
investments. Marketable investments consisted of:
<TABLE>
<CAPTION>
Cost Fair market value Unrealized gain/(loss)
------------------------- -------------------------- -------------------------
December 31, March 31, December 31, March 31, December 31, March 31,
((pound)million) 1998 1999 1998 1999 1998 1998
------------ --------- ------------ --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
SME 28 23 13 11 (15) (12)
HC 56 53 63 54 7 1
--- --- --- --- --- ---
84 76 76 65 (8) (11)
=== === === === === ===
</TABLE>
At December 31, 1998 and March 31, 1999, the Company held a 16% investment
in Severomoravska Energetika (SME), which is listed in the Czech Republic.
At December 31, 1998 and March 31, 1999, the Company held a 5% investment
in Hidroelectrica del Cantabrico (HC), which is listed in Spain. As the
Company does not have the ability to exercise significant influence over
either SME's or HC's operating and financial policies, these investments
have been accounted for as marketable securities and accordingly have been
marked to market at December 31, 1998 and March 31, 1999.
Non-marketable investments at December 31, 1998 and March 31, 1999 consist
principally of an investment of (pound)124 million in Eastern Norge
Svartisen AS (Svartisen) consisting of the offtake generated from water
rights in hydro-electric power plants in Norway over the next 55 years,
commencing in 1998. In February of 1999, the Company invested (pound)27
million in Kobbelv which also consists of the offtake generated from water
rights in hydro-electric power plants over the next 55 years. The carrying
value at December 31, 1998 and March 31, 1999 of an investment in the
preferred stock of NTL Incorporated (NTL Inc.), the acquiror of the
Company's telecoms business, which was received as a portion of the
consideration for the sale (Note 15) was (pound)22 million. The remaining
(pound)11 million at December 31, 1998 and (pound)46 million at March 31,
1999 consists of other investments.
There were no sales of marketable securities during the period from
formation through December 31, 1998 and March 31, 1999.
6. Pensions
The majority of Eastern employees are members of the Electricity Supply
Pension Scheme (ESPS) which provides pensions of a defined benefit nature
for employees throughout the England and Wales Electricity Supply Industry.
The ESPS operates on the basis that there is no cross-subsidy between
employers and the financing of Eastern's pension liabilities is therefore
independent of the experience of other participating employers. The assets
of the ESPS are held in a separate trustee-administered fund and consists
principally of United Kingdom and European equities, United Kingdom
property holdings and cash. The pension cost relating to the Eastern
portion of the ESPS is assessed in accordance with the advice of
independent qualified actuaries using the projected unit method. The
benefits under these plans are primarily based on years of service and
compensation levels as defined under the respective plan provisions.
F-16
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Pensions (continued)
As part of the purchase accounting for TEG, the accrued pension liabilities
were adjusted to recognize all previously unrecognized gains or losses
arising from past experience.
The Company determined the additional pension expense for the three months
from January 1, 1999 through March 31, 1999 based on forecasted expense
from the December 31, 1998 actuary report.
<TABLE>
<CAPTION>
Period from Period from
formation through formation through
December 31, 1998 March 31, 1999
----------------- --------------
((pound) million)
<S> <C> <C>
Change in benefit obligation:
-----------------------------
Benefit obligation at beginning of period 882 882
Service cost 7 11
Interest cost 33 46
Plan participants' contributions 5 7
Plan amendment 7 7
Actuarial loss 82 23
Benefits paid (31) (44)
Net transfer of obligations to other plans -- (27)
------ ------
Ending benefit obligation 985 905
====== ======
Change in plan assets:
----------------------
Fair value of plan assets at beginning of period 1,130 1,130
Actual return on plan assets (25) 38
Employer contribution 3 7
Plan participants contributions 5 7
Benefits paid (31) (44)
Net transfer of assets to other plans -- (28)
------ ------
Ending fair value of plan assets 1,082 1,110
====== ======
Funded Status:
--------------
Funded status 97 205
Unrecognized net actuarial loss 153 47
Unrecognized prior service cost 7 7
------ ------
Prepaid benefit cost 257 259
====== ======
Weighted average assumptions:
-----------------------------
Discount rate 5.5% 5.5%
Expected return on plan assets 6.0% 6.0%
Rate of compensation increase 3.5% 3.5%
Components of net periodic pension (benefit):
---------------------------------------------
Service cost 7 11
Interest cost 33 46
Expected return on plan assets (45) (61)
Net amortization -- 1
------ ------
Net periodic pension benefit (5) (3)
====== ======
</TABLE>
The transfer of assets of (pound)28 million in the period to March 31, 1999
and the related transfer of benefit obligations of (pound)27 million relate
to the sale of the contracting business which occurred in January of 1998.
F-17
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Taxation
The components of income tax expense are as follows:
Period from Period from
formation through formation through
December 31, 1998 March 31, 1999
---------------- ----------------
((pound)million) ((pound)million)
Current:
United Kingdom 24 51
United States 18 19
Other Countries 1 1
--- ---
43 71
Deferred:
United Kingdom 24 35
--- ---
Total income tax expense 67 106
=== ===
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1999
---------------- ----------------
((pound)million) ((pound)million)
<S> <C> <C>
Deferred tax assets:
Leased assets (353) (387)
Tax loss carryforwards (9) (9)
Provision for unfavorable contracts (75) (74)
Other (54) (85)
---- ----
Total deferred tax assets (491) (555)
Valuation allowance for deferred tax assets 138 187
---- ----
Net deferred tax assets (353) (368)
---- ----
Deferred tax liabilities:
Excess of book value over taxation value of fixed
assets 281 292
Leased assets 334 326
Other 59 84
---- ----
Total deferred tax liabilities 674 702
---- ----
Net deferred tax liabilities 321 334
==== ====
</TABLE>
The recognized deferred tax asset is based upon the expected future
utilization of net operating loss carryforwards and the reversal of other
temporary differences. For financial reporting purposes, the Company has
recognized a valuation allowance for those benefits for which realization
does not meet the more likely than not criteria. The valuation allowance
has been recognized in respect of leased assets. The Company continually
reviews the adequacy of the valuation allowance and is recognizing these
benefits only as reassessment indicates that it is more likely than not
that the benefits will be realized.
There was no valuation allowance at formation (February 5, 1998). At the
date of acquisition of TEG (May 19, 1998), the valuation allowance acquired
was (pound)130 million, which increased by (pound)8 million in the period
to December 31, 1998, resulting in a balance of (pound)138 million at
December 31, 1998. For the period
F-18
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Taxation (continued)
to March 31, 1999, the valuation allowance increased by (pound)57 million,
resulting in a balance of (pound)187 million at March 31, 1999.
Income before income taxes:
<TABLE>
<CAPTION>
Period from Period from
formation through Formation through
December 31, 1998 March 31, 1999
---------------- ----------------
((pound)million) ((pound)million)
<S> <C> <C>
United Kingdom 103 198
United States 51 54
Other Countries 1 1
--- ---
Total income before income taxes and minority interest 155 253
=== ===
</TABLE>
United Kingdom income tax expense at the statutory tax rate is reconciled
below to the actual income tax expense:
<TABLE>
<CAPTION>
Period from Period from
formation through formation through
December 31, 1998 March 31, 1999
---------------- ----------------
((pound)million) ((pound)million)
<S> <C> <C>
Tax at United Kingdom statutory rate (31%) 48 78
Non-deductible goodwill 16 22
Effect of overseas tax rates 2 2
Effect of tax rate on United Kingdom dividends (4) (4)
Tax rate change (8) (8)
Movement in valuation allowance charged to expense 8 11
Non-deductible expenses 5 5
--- ---
Income tax expense 67 106
=== ===
</TABLE>
As at December 31, 1998 and March 31, 1999, the Company has net operating
loss carryforwards of (pound)9 million that are available to offset future
taxable income. The net operating loss carryforwards have no expiration
date.
On July 31, 1998, legislation was enacted that decreased the United Kingdom
statutory income tax rate on companies by 1% with effect from April 1,
1999. In accordance with the provisions of Statement of Financial
Accounting Standards No. 109, the assets and liabilities for deferred
income taxes were adjusted to reflect the expected reversal of certain
temporary differences at the lower income tax rate.
The tax effect of the components included in accumulated other
comprehensive income for the period from formation through December 31,
1998 was a benefit of (pound)2 million and for the period from formation
through March 31, 1999 was a benefit of (pound)6 million.
F-19
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
8. Related Party Transactions
As part of the funding for the acquisition of TEG, Texas Utilities provided
shares of its common stock in exchange for a two year term note from TU
Acquisitions in the amount of (pound)882 million that matures in May 2000
with an interest rate of 6.7% per annum. In December 1998, (pound)200
million of this note was repaid, leaving an outstanding balance of
(pound)682 million at both December 31, 1998 and March 31, 1999 (see Note
19). The interest on the two year term note is due at maturity, and the
"Due to affiliates" balance at December 31, 1998 and March 31, 1999
reflects (pound)33 million and (pound)45 million, respectively of accrued
interest.
The 10% holding in TU Finance of (pound)177 million and (pound)187 at
December 31, 1998 and March 31, 1999 respectively, which is held by a
wholly owned subsidiary of Texas Utilities, has been included in "Minority
interest".
At December 31, 1998 and March 31, 1999 the balance of (pound)7 million in
the "Accounts payable - Affiliate" account arises from payments of amounts
by Texas Utilities on behalf of the Company.
9. Notes Payable and Long-term Debt
Weighted average interest rates at December 31, 1998 and March 31, 1999 on
notes payable to banks is 8.98% and 13.8%, respectively.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1999
---------------- ----------------
((pound)million) ((pound)million)
<S> <C> <C>
Notes and Bonds:
$200 million 7.425% guaranteed notes due 2017 121 124
$300 million 7.55% guaranteed notes due 2027 181 186
(pound)350 million 8.375% bonds due 2004 363 362
(pound)200 million 8.5% bonds due 2025 237 237
(pound)200 million 8.75% bonds due 2012 229 229
Other:
Sterling Credit Agreement (See Note 10) 801 983
Rent factoring loans (weighted average interest rate of
7.35%, due 1999-2001) 649 595
Other unsecured loans, due in installments (weighted
average rates range from 4.95% - 10.8%) 139 164
Capital leases 982 1,043
Note payable to Texas Utilities, 6.7% term note due 2000
(see Note 19) 682 682
Cross-border leases 309 317
----- -----
Total long-term debt 4,693 4,922
Less current portion 382 486
----- -----
Long-term debt, less amounts due currently 4,311 4,436
===== =====
</TABLE>
The $200 million and $300 million notes due in 2017 and 2027, respectively,
are guaranteed by TEG and the Company.
Rent factoring loans - Certain subsidiaries of Eastern entered into an
agreement with commercial banks whereby future intra-group rental payments
receivable were assigned to these banks in return for a capital sum.
(pound)408 million of the capital sums at both December 31, 1998 and March
31, 1999 have been deposited
F-20
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Notes Payable and Long-term Debt (continued)
to cash collateralize existing future lease obligations to certain banks
related to the funding of the leases of three power stations leased from
National Power (see Note 4).
Long-term debt balances are denominated in the following currencies:
December 31, March 31,
1998 1999
---------------- ----------------
((pound)million) ((pound)million)
Sterling 4,044 4,232
United States dollars 611 627
Other 38 63
----- -----
Total long-term debt 4,693 4,922
===== =====
(pound)100 million of the (pound)350 million 8.375% bonds included in
long-term debt has been converted into floating rate debt by way of
interest rate swaps, which expire in the year 2004.
Long-term debt, excluding capital lease balances, is repayable as follows:
Year Ending Year Ending
December 31, March 31,
---------------- ----------------
((pound)million) ((pound)million)
1999 222 --
2000 919 225
2001 190 924
2002 24 128
2003 801 1,004
2004 362 362
Thereafter 1,193 1,236
----- -----
3,711 3,879
Capital leases 982 1,043
----- -----
Total long-term debt 4,693 4,922
===== =====
F-21
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Notes Payable and Long-term Debt (continued)
Capital lease obligations - As at December 31, 1998 and March 31, 1999,
future minimum lease payments for assets under capital leases, together
with the present value of minimum lease payments, were:
<TABLE>
<CAPTION>
Year Ending Year Ending
December 31 March 31
---------------- ----------------
((pound)million) ((pound)million)
<S> <C> <C>
1999 48 --
2000 50 53
2001 461 54
2002 17 465
2003 16 21
2004 16 19
Thereafter 67 204
---- ----
Total future minimum lease payments 675 816
Less amounts representing interest (105) (177)
---- ----
Present value of future minimum lease payments 570 639
---- ----
Current 46 50
Non-current 524 589
---- ----
Total 570 639
==== ====
</TABLE>
Substantially all of the capital lease obligations relate to coal-fired
power stations. Additional payments of approximately (pound)6 per megawatt
hour (indexed from 1996 prices) linked to output levels from the stations
are payable for the first seven years of their operation by Eastern
(operations commenced in 1996). In accounting for the acquisition of TEG, a
liability for the estimated probable additional payments linked to output
levels for coal-fired generating stations was established. At December 31,
1998 and March 31, 1999, the balance of the liability of (pound)412 million
and (pound)404 million, respectively, is included with capital lease
obligations, of which (pound)114 million and (pound)211 million are
classified as current, respectively.
The lease agreement for three of the coal-fired power stations contains a
purchase option of (pound)1 in 2046. The lease is for a total of
ninety-nine years.
In the period ended March 31, 1999, the Company entered into a capital
lease relating to the King's Lynn Power Station with a present value
obligation amount of (pound)68 million over the next 25 years.
Cross-border leases -Certain subsidiaries of Eastern have entered into
cross-border lease transactions in respect of two power stations that are
wholly owned by the Company. The Company has retained control of the power
stations and their output and is responsible for their operations. The debt
arising on the cross-border leases is fully collaterized by restricted cash
on deposit (see Note 4).
The Company's debt agreements contain certain covenants with which they
must comply, including leverage ratios, levels of net assets and interest
coverage covenants. At December 31, 1998, the Company was in compliance
with all such covenants.
F-22
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Lines of Credit and Other Credit Facilities
Lines of credit - At December 31, 1998, the Company, TU Finance, TU
Acquisitions and TEG had a joint sterling-denominated line of credit with a
group of banking institutions under a credit facility agreement (Sterling
Credit Agreement). At December 31, 1998, the Sterling Credit Agreement
provided for borrowings of up to (pound)1,525 million, of which (pound)351
million was available for use. The Sterling Credit Agreement had two
facilities - Acquisition and Revolving Credit. The Sterling Credit
Agreement bears interest at LIBOR plus 1.25%. The Company has entered into
various interest rates swaps as required by the Sterling Credit Agreements.
The Acquisition Facility provides for borrowings aggregating (pound)825
million outstanding at any one time and terminates March 2, 2003.
Borrowings under this facility provided financing to acquire TEG and pay
acquisition-related expenses. As part of this facility, (pound)75 million
has been allocated to financing the repayment of outstanding loan notes
issued upon acquisition.
The Revolving Credit Facility provides for borrowings aggregating
(pound)450 million outstanding at any one time and terminates March 2,
2003. A separate Eastern Electricity Revolving Credit Facility provides for
borrowings of up to (pound)250 million which can be used by Eastern
Electricity plc for general corporate purposes.
At December 31, 1998, (pound)750 million was borrowed under the Acquisition
Facility, (pound)51 million was borrowed under the Revolving Credit
Facility and (pound)180 million was borrowed under the Eastern Electricity
Revolving Credit Facility. The amounts outstanding under the Acquisition
Facility and Revolving Credit Facility represent long-term debt. There are
letters of credit associated with the Sterling Credit Agreement.
Obligations of commercial banks under standby letters of credit totalled
(pound)118 million at December 31, 1998 which, together with the (pound)51
million of borrowings reduced the amounts available for use under the
Revolving Credit Facility to (pound)281 million at December 31, 1998.
Borrowings under the Eastern Electricity Revolving Credit Facility are
classified as short-term debt.
The Sterling Credit Agreement was amended in March 1999. The amended
Sterling Credit Agreement provides for borrowings of up to (pound)1.275
billion and has two facilities: a (pound)750 million term facility which
will terminate on March 2, 2003 and a (pound)525 million revolving credit
facility which has a (pound)200 million 364-day tranche (Tranche A) and a
(pound)325 million tranche which terminates March 2, 2003 (Tranche B). The
Company and TU Finance currently are the only permitted borrowers under the
amended Sterling Credit Agreement. The amended Sterling Credit Agreement
allows for borrowings at various interest rates based on the prevailing
rates in effect in the countries in which the borrowings originate. As of
March 31, 1999, (pound)750 million of borrowings were outstanding under the
term facility, and approximately (pound)233 million were outstanding under
Tranche B (see Note 19). In addition, letters of credit totalling $61
million ((pound)38 million) were issued under Tranche A and letters of
credit totalling $137 million ((pound)85 million) were issued under Tranche
B. The amended Sterling Credit Agreement is unsecured.
There were no borrowings outstanding at March 31, 1999 under the Eastern
Electricity Revolving Credit Facility.
Promissory note program - The Company has a one year promissory note
program issued within the Czech Republic which has been utilized to fund
its investment in SME and Teplarny Brno a.s. The note bears interest at an
annual rate determined on the date of issuance based on PRIBOR plus 0.7%,
which was 13.89%. At December 31, 1998 and March 31, 1999, (pound)58
million and (pound)52 million, respectively, was outstanding under the
promissory note program.
Short-term loan on accounts receivable - Eastern has facilities with a
financial institution whereby it may, from time to time, borrow funds from
the financial institution. Outstanding borrowings under the agreements may
not exceed certain levels and are collateralized by portions of Eastern
Group's trade accounts receivable. At December 31, 1998 and March 31, 1999,
Eastern had borrowed (pound)300 million
F-23
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
10. Lines of Credit and Other Credit Facilities (continued)
under these facilities. The loan bears interest at an annual rate of based
on commercial paper rates plus 0.225%, which at December 31, 1998 and March
31, 1999 was 6.53% and 5.7%, respectively.
Letters of credit - At December 31, 1998 the Company had outstanding
letters of credit totalling (pound)121 million, (pound)118 million of which
was outstanding under the Revolving Credit Facility discussed above. At
March 31, 1999 the Company had outstanding letters of credit totalling
(pound)126 million, (pound)123 million of which was outstanding under the
amended Sterling Credit Agreement discussed above.
11. Provision for Unfavorable Contracts
As part of the purchase accounting for TEG, the Company has made provisions
for certain unfavorable long-term gas and electricity purchase contracts.
The electricity provision relates to two contracts that expire in 2009,
while the gas provision relates to eight contracts that expire in 2011.
During the period from formation through December 31, 1998 and the period
from formation through March 31, 1999, (pound)74 million and (pound)76
million, respectively, of the provision was released to offset expenses
recognized on purchases under unfavorable electricity and gas contacts. Of
the amounts recognized in the Statement of Consolidated Income, (pound)41
million, which is net of a release payment of (pound)24 million, was
related to one gas contract from which the Company negotiated in November
1998. Negotiations for release under the contract were not under
consideration at the purchase date.
12. Commitments
The Company evaluates its position relative to asserted and unasserted
claims, loss-making purchase commitments or future commitments and makes
provisions as needed.
The Company's investment in Svartisen (the offtake generated by water
rights in hydro-electric power plants in Norway) requires coverage of
approximately 31.2% of the costs incurred in relation to the operation of
the power plant, as well as a portion of the maintenance costs, property
tax, and feeding costs (defined as fixed charges such as connection and
capacity charges and volume related charges such as an energy charge) for
55 years, beginning in 1998. The electricity generated from the
hydro-electric plants will be sold into the Norwegian power pool, from
which the Company will receive income.
Gas take-or-pay contracts - The Company is party to various types of
contracts for the purchase of gas. Almost all include "take-or-pay"
obligations under which the buyer agrees to pay for a minimum quantity of
gas in a year. In order to help meet the expected needs of its wholesale
and retail customers, the Company has entered into a range of gas purchase
contracts. As at December 31, 1998 and March 31, 1999, the commitments
under long-term gas purchase contracts amounted to an estimated (pound)1.3
billion covering periods up to 16 years forward. Management does not
consider it likely, on the basis of the Company's current expectations of
demand from its customers as compared with its take-or-pay obligations
under such purchase contracts, that any material payments will become due
from the Company for gas not taken.
Coal contracts - In November 1998, the Company agreed two coal purchase
agreements with a supplier, supplementing the 12 million tons the Company
had previously contracted to take from said supplier between 1998 and 2001.
The first agreement is for 25 million tons in total between 1998 and 2003.
The second agreement is for 21 million tons in total between 2003 and 2009.
Total committed purchases under these contracts were approximately
(pound)1.4 billion and (pound)1.3 billion at December 31, 1998 and March
31, 1999, respectively.
F-24
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
12. Commitments (continued)
Rental commitments - The future minimum rental commitments under
non-cancellable operating leases were as follows:
Year ending Year Ending
December 31, March 31,
---------------- ----------------
((pound)million) ((pound)million)
1999 53 53
2000 36 36
2001 37 37
2002 34 34
2003 30 30
Thereafter 27 27
--- ---
Total 217 217
=== ===
The operating lease commitments relate to coal-fired power stations.
Additional variable payments of approximately (pound)6 per megawatt hour
(indexed to 1996 prices) linked to output levels from these stations are
payable through 2000, the first four years of the lease agreement, by the
Company.
Rental expense for operating leases amounted to (pound)16 million and
(pound)25 million for the periods ended December 31, 1998 and March 31,
1999, respectively. Rental expense for operating leases during the periods
ended December 31, 1998 and March 31, 1999 includes (pound)10 million and
(pound)14 million, respectively, of minimum lease payments and (pound)6
million and (pound)11 million, respectively, of variable lease payments.
Other commitments - In December 1998 the Company agreed to purchase various
assets in the North Sea from Monument Oil for (pound)20 million. The assets
comprise a 20% stake in the Johnston field plus a number of non-producing
gas discoveries and prospects. In November 1998, the Company reached an
agreement to purchase all of BHP Petroleum's assets in the North Sea for
(pound)102 million. The assets comprise a 30% stake in the Johnston field,
an 18% stake in Ravenspurn North field plus a number of non-producing gas
discoveries and prospects in a total of seven exploration licenses. Both
transactions are subject to approval from the Department of Trade and
Industry and consents from other parties participating in the fields.
13. Contingencies
The Company is subject to business risks that are actively managed to limit
exposures.
In February 1997, the official government representative of pensioners
(Pensions Ombudsman) made a determination against the National Grid Company
plc (National Grid) and its group trustees with respect to complaints by
two pensioners in National Grid's section of the ESPS relating to the use
of the pension fund surplus resulting from the March 31, 1992 actuarial
valuation of the National Grid section to meet certain costs arising from
the payment of pensions on early retirement upon reorganization or
downsizing. These determinations were set aside by the High Court on June
10, 1997 and the arrangements made by National Grid and its group trustees
in dealing with the surplus were confirmed. The two pensioners have now
appealed against this decision and judgment has now been received although
a final order is awaited. The appeal was allowed endorsing the Pensions
Ombudsman's determination that the corporation was not entitled to
unilaterally deal with any surplus. If a similar complaint were to be made
against Eastern in relation to its use of actuarial surplus in its section
of the ESPS, it would vigorously defend the action, ultimately through the
courts. However, if a determination were finally to be made against it and
upheld by the courts, Eastern could have a potential liability to repay to
its section of the ESPS an amount estimated by the Company to be up to
(pound)45 million (exclusive of any applicable interest charges).
F-25
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Contingencies (continued)
General - In addition to the above, the Company and its subsidiaries are
involved in various legal and administrative proceedings arising in the
ordinary course of its business. The Company believes that all such
lawsuits and resulting claims would not have a material effect on its
financial position, results of operation or cash flows.
Financial Guarantees -- TEG has guaranteed up to $110 million ((pound)65
million at December 31, 1998 and (pound)68 million at March 31, 1999) of
certain liabilities that may be incurred and payable by the purchasers of
the businesses sold in the Peabody Sale with respect to the Peabody Holding
Company Retirement Plan for Salaried Employees, the Powder River Coal
Company Retirement Plan and the Peabody Coal UMWA Retirement Plan, subject
to certain specified conditions.
TEG entered into various guarantees of obligations of affiliates of its
former subsidiary Citizens Power LLC, arising under power purchase
agreements and note purchase agreements in connection with various Citizens
Power energy restructuring projects, as well as various indemnity
agreements in connection with such projects. The Company and TEG continue
to be the guarantor or the indemnifying party, as the case may be, under
these various agreements. In connection with the acquisition, letters of
credit were issued under the Sterling Credit Facility in the amount of $198
million ((pound)118 million at December 31, 1998 and (pound)123 million at
March 31, 1999) to support certain debt financings associated with these
restructuring projects. (See Note 19).
As a consequence of a restructuring whereby a subsidiary of TU Acquisitions
transferred Eastern to another wholly-owned subsidiary of TU Acquisitions,
the Company and certain other affiliated United Kingdom subsidiaries of
Texas Utilities may be required to make certain adjustments to the
guarantees, which the Directors of the Company do not currently expect to
have a material adverse impact on the Company.
14. Employee Share Plans
During 1998, the Company instituted the Eastern Group Long Term Incentive
Plan (LTIP) which is administered by a remuneration committee. Awards of
"phantom stock" in Texas Utilities under the LTIP may be made available to
the management group, senior managers and salaried directors of Eastern.
Participants of the LTIP receive awards based on the number of shares that
a specified percentage of their annual basic pay could purchase, using the
stock price of Texas Utilities at or around the date of grant. For grants
during the periods May 19, 1998 through December 31, 1998 and May 19, 1998
through March 31, 1999, the stock price of Texas Utilities at May 19, 1998
was utilized. There were no grants between February 5, 1998 and May 18,
1998, inclusive.
Awards are subject to achieving certain performance criteria. There is a
deferral period from the end of the financial period in which the awards
were granted for which the participants must remain with the Company before
becoming vested in their awards. For the awards granted in 1998, the
deferral period for directors is one year. For the management group and
senior managers, one-half of the awards will vest on January 1, 2000, with
the balance of the awards vesting on January 1, 2001. For the awards
granted in 1999, the deferral period for directors is one year and for the
management group and senior managers is two years.
At the end of the deferral period, the Company shall pay to the
participant, in cash, an amount equal to the higher of the stock price of
Texas Utilities at the end of the deferral period, or a guaranteed price.
The guaranteed price is the stock price used to calculate the awards
granted, adjusted for interest at 6% compounded annually up to the date of
payment.
The Company granted 145,878 awards on September 1, 1998, of which 1,785
lapsed due to participants leaving the Company prior to December 31, 1998,
with an additional 8,216 lapses in the period from January 1, 1999 through
March 31, 1999. Additionally, the Company granted 178,276 awards on
F-26
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. Employee Share Plans (continued)
January 1, 1999. None of the 144,093 or 314,153 awards outstanding at
December 31, 1998 or March 31, 1998, respectively, were exercisable due to
the vesting criteria.
Compensation expense recognized under the plan for the periods ended
December 31, 1998 and March 31, 1999 were (pound)1 million and (pound)2
million, respectively. The Company applies Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" and related
Interpretations in accounting for its employee share plans. Had
compensation costs for the LTIP been determined in accordance with
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation", there would be no difference in the compensation
expense recognized.
15. Disposal and Acquisitions
On December 22, 1998, the Company disposed of Eastern Group Telecoms. The
Company recorded a gain relating to the disposal of (pound)13 million. In
consideration for the business, the Company received cash of (pound)60
million and an investment in the preferred stock of the purchaser, NTL
Inc., with a carrying value of (pound)22 million. The investment is not
traded on any stock exchange and is not convertible into cash until July
2000, but the value has been guaranteed by NTL Inc.
On December 19, 1998, the Company acquired two combined heat and power
companies from British Gas plc for total consideration of (pound)14
million. Citigen (London) Limited is a cogeneration company using two 16
megawatt gas diesel engines to supply electricity, district heating and
chilled water to customers in the City of London. BG Cogen Limited uses a
15 megawatt cogeneration plant to supply steam and electricity to
Millennium Inorganic Chemicals.
16. Dividend Restrictions
Certain debt instruments of the Company contain provisions that, under
certain conditions, restrict distributions on or acquisitions of common
stock. At December 31, 1998 and March 31, 1999 retained earnings was not
restricted as a result of such provisions.
F-27
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
17. Segments
<TABLE>
<CAPTION>
Period from formation through Period from formation through
December 31, 1998 March 31, 1999
Capital/ Capital/
investment investment
Contribution expenditure Contribution expenditure
------------ ----------- ------------ -----------
((pound)million) ((pound)million)
<S> <C> <C> <C> <C>
Energy retail (13) 21 (31) 22
Energy management and generation 121 61 264 99
Networks 100 82 157 109
Other 18 17 20 18
---- ---- ---- ----
226 181 410 248
Cost of capital elimination 86 -- 118 --
Unallocated corporate costs (17) 214 (40) 229
---- ---- ---- ----
295 395 488 477
---- ---- ---- ----
Purchase accounting and US GAAP
adjustments 57 -- 35 --
Unallocated restructuring costs (22) -- (22) --
Unallocated investment income 30 -- 30 --
---- ---- ---- ----
Income before interest, income
taxes and minority interest 360 -- 531 --
==== ==== ==== ====
</TABLE>
The segments have been identified on the basis of the underlying nature of
the business and its customer base and the corresponding skill sets
required, e.g., engineering, portfolio management and customer services.
The energy retail business segment provides electricity and gas to United
Kingdom national domestic, industrial and commercial users. It also has
commenced retailing joint ventures in continental Europe. The energy
management and generation business segment manages an integrated portfolio
of contracts and physical gas and generation assets. The contracts include
supplying the energy retail business with electricity and gas as well as
contracts with third party energy retailers, traders and wholesalers. The
networks business segment owns and manages the electricity distribution
system and its principal customer base is energy retail and other
electricity suppliers. The other category consists of two operating
segments, metering and telecoms which fall below the quantitative
thresholds for determining reportable segments.
As set out above, contribution is defined as operating profit before
exceptional and extraordinary items, but after a notional charge for the
cost of capital. Capital/investment expenditure includes all items of
capital and investment expenditures including the European equity
investment, but the figure excludes proceeds on the sale of investments.
The cost of capital is calculated as 0.5% per month on working capital and
is eliminated on consolidation. Overhead costs, such as those incurred by
the Company at head office and core costs related to information technology
are not allocated amongst the segments.
<TABLE>
<CAPTION>
Period from formation through Period from formation through
December 31, 1998 March 31, 1999
---------------------------------- ----------------------------------
Revenues Long-lived assets Revenues Long-lived assets
-------- ----------------- -------- -----------------
((pound) million)
<S> <C> <C> <C> <C>
United Kingdom 2,150 2,606 3,303 2,455
Other countries 15 70 35 61
----- ----- ----- -----
Total 2,165 2,676 3,338 2,516
===== ===== ===== =====
</TABLE>
F-28
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
17. Segments (continued)
Revenues are attributed to countries based on location of customers. There
are no revenues for transactions with a single external customer that are
10% or more of the Company's revenue. The electricity trading market in
England and Wales (the Pool) is not considered by the Company to be an
external customer, as all electricity generated is sold into the Pool and
is subsequently repurchased from the Pool for resale.
18. Derivative and Financial Instruments
The Company uses derivative financial instruments for purposes other than
trading and does so to reduce its exposure to fluctuations in electricity
prices, gas prices, interest rates and foreign exchange rates. Derivative
financial instruments used by the Company include contracts for
differences, electricity forward agreements, interest rate swaps, interest
forward rate agreements, options, gas swaps futures and foreign exchange
forward contracts.
Electricity price risk management - Electricity forward contracts are
primarily used by the Company to hedge future changes in electricity
prices. Almost all electricity generated in England and Wales must be sold
to the electricity trading market in England and Wales (the Pool), and
electricity suppliers must likewise generally buy electricity from the Pool
for resale to their customers. The Pool is operated under a Pooling and
Settlement Agreement to which all licensed generators and suppliers of
electricity in Great Britain are party. These trading arrangements are
currently under review by the United Kingdom government.
The Company enters into electricity forward contracts to assist in the
management of its exposure to fluctuations in electricity pool prices. The
contracts bought and sold are contracts for differences (CfDs) and
electricity forward agreements (EFAs) that fix the price of electricity for
an agreed quantity and duration by reference to an agreed strike price.
EFAs are similar in nature to CfDs, except that they tend to last for
shorter time periods and are based on standard industry terms rather than
being individually negotiated. Long-term CfDs are in place to hedge a
portion of the electricity to be purchased through to 2009. Such CfDs
represent an annual commitment of approximately five terawatt hours (TWh),
declining on a linear basis to approximately two TWh by 2005 and finally
expiring in 2010. There are no similar long-term commitments under EFAs.
The impact of changes in the market value of these contracts, which serve
as hedges, is deferred until the related transaction is completed.
The fair value of outstanding CfDs and EFAs at December 31, 1998 and March
31, 1999 was (pound)61 million and (pound)48 million, respectively,
calculated as the difference between the expected value of the CfDs or
EFAs, based on their known strike price and known volume, and the current
market value, based on an estimate of forward prices for the CfD or EFA
term. It should be noted that the market for the CfDs and EFAs has not been
liquid to date and there is no readily identifiable market through which
the majority of CfDs or EFAs could be realized through an exchange. No
easily definable forward price curve exists for the duration and shape of
the CfDs or EFAs that would be agreed generally.
Gas swaps and futures - In the gas retail business, the Company sells fixed
price contracts to customers and supplies the customer through a portfolio
of gas purchase contracts and other wholesale contracts. The overall net
exposure of the Company to the gas spot market is managed by using gas
swaps and futures.
Interest rate management - Interest rate swaps and forward rate agreements
are used by the Company to convert between fixed rates and floating rates
as required. Gains and losses from interest rate swaps and forward rate
agreements are accrued over the contract period. At December 31, 1998 and
March 31, 1999, the Company held two interest rate swaps which convert
(pound)100 million of the (pound)350 million 8.375% bonds due 2004 into
floating rate debt; (pound)35 million is based on LIBOR and (pound)65
million is based on LIBOR less 0.7625%.
At December 31, 1998 and March 31, 1999, the Company had various interest
rate swaps as required by the Sterling Credit Agreement. The Sterling
Credit Agreement requires that one-half of the borrowings under
F-29
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
18. Derivative and Financial Instruments (continued)
these facilities be swapped from a floating to a fixed interest rate with a
maturity of at least two years from July 28, 1998. The aggregate notional
amount of these interest rate swaps entered into is (pound)800 million,
with an average maturity of six years and average fixed rates of 6.58% and
6.54% at December 31, 1998 and March 31, 1999, respectively.
In addition, the Company has various other interest rate swaps on
subsidiary borrowings with a notional amount of (pound)48 million to swap
floating rate interest to fixed rates, a portion of which matures in 2002
and the remaining portion matures in 2008.
Forward rate agreements totalling (pound)531 million and (pound)355 million
for a maximum duration of less than one year to swap floating rate deposits
into fixed rates were outstanding at December 31, 1998 and March 31, 1999,
respectively.
Foreign currency risk management - The Company has exposure to foreign
currency movements and uses derivative financial instruments to manage this
exposure (principally on US$ denominated debt interest payments and
investments in European countries). The instruments used are forward
purchase contracts and options. The policy with regard to any such
exposures is to match assets owned in foreign countries with borrowings in
that same currency. Where there are firm commitments to purchase goods in a
foreign currency then forward contracts or options are used to fix the
exchange rate. At December 31, 1998, there were US$ options outstanding of
$10 million (at put rates of $1.57) and US$ options outstanding of $10
million (at call rates of $1.60). All of these contracts matured in the
period ended March 31, 1999.
The Company has entered into contracts to fix the exchange rate on the
interest payments to be made under the US$ denominated debt. For the $200
million 7.425% notes due 2017, the Company has entered into a contract
which sets the exchange rate between sterling and US$ at 1.605 over the
life of the debt. For the $300 million 7.55% notes due 2027, the Company
has entered into a contract which sets the exchange rate between sterling
and US$ at 1.625 over the life of the debt.
Concentrations and credit risk - The Company's financial instruments that
are exposed to concentrations of credit risk consist primarily of cash
equivalents, trade receivables and derivative contracts.
The Company only deposits cash with banks that have a rating in excess of
AA or invests in commercial paper from issuers with ratings of A1 or P1.
Maximum limits are set for each bank based on their ratings and also
maximum limits are set for each country.
The Company's trade receivables result primarily from its gas and
electricity retail operations and reflect a broad customer base including
industrial, commercial and domestic customers.
Credit risk relates to the risk of loss that the Company would incur as a
result of non-performance by counterparties to their respective derivative
instruments. The Company maintains credit policies with regard to its
counterparties that management believes significantly minimize overall
credit risk. The Company generally does not obtain collateral to support
the agreements but establishes credit limits and monitors the financial
viability of counterparties and believes its credit risk is minimal on
these transactions. The extent of this exposure varies with the prevailing
interest and currency rates and was not material throughout the period.
Approximately 54% by volume of the Company's CfDs and EFAs traded in the
periods ended December 31, 1998 and March 31, 1999 were contracted with two
primary counterparties. The risk of loss to the Company arising from
non-performance by these counterparties is considered unlikely.
F-30
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
18. Derivative and Financial Instruments (continued)
Fair value of financial instruments - The carrying amount and fair value of
the material financial instruments used by the Company are as follows:
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1999
---------------------- -----------------------
((pound)million) ((pound)million)
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
<S> <C> <C> <C> <C>
Assets
Other investments 233 233 284 284
Cash and cash equivalents 467 467 414 414
Restricted cash 717 717 730 730
Liabilities
Notes payable - banks (current) 238 238 53 53
Note payable to Texas Utilities 682 682 682 682
Total long-term debt 3,029 3,096 3,197 3,272
Short term loans on accounts receivable 300 300 300 300
Other financial instruments - favorable/(unfavorable)
Interest rate swaps -- (31) -- (42)
Foreign exchange contracts -- (18) -- (21)
Gas swaps -- (2) -- --
CfDs and EFAs -- 61 -- 48
Financial guarantees and letters of credit -- (186) -- (194)
</TABLE>
F-31
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
18. Derivative and Financial Instruments (continued)
The following methods and assumptions were used to determine the above fair
values:
(i) The fair value of other investments is estimated based on quoted
market prices where available and other estimates.
(ii) The carrying amounts of cash and cash equivalents, restricted cash,
notes payable - banks, short term loans on accounts receivable and the
notes payable to Texas Utilities approximate their fair values because
of the short maturity of these instruments.
(iii) The fair value of long term debt varies with market conditions and is
estimated based on current rates for similar financial instruments
offered to the Company.
(iv) The fair value of the interest rate swaps is based on the cancellation
value of each swap agreement independently calculated by reference to
the forward sterling interest rate curve for the unexpired portion of
the swap.
(v) The fair value of foreign exchange contracts is based upon valuations
provided by the counterparty.
(vi) The fair value of the gas swaps is based on the net present value of
discounted future cash flows in accordance with underlying gas forward
curves.
(vii) The fair value of the CfDs and EFAs is based upon a discounted cash
flow analysis using an estimate of forward prices in the Pool.
(viii) The fair value of financial guarantees and letters of credit is
based upon fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the obligations
with the counterparties at the reporting date.
19. Subsequent events
On May 13, 1999 the TXU Eastern Funding Company issued US$1.5 billion
((pound)915 million) worth of Senior Notes which are guaranteed by the
Company in three tranches; US$350 million ((pound)214 million), 6.15% due
May 15, 2002, US$650 million ((pound)396 million), 6.45% due May 15, 2005,
and US$500 million ((pound)305 million), 6.75% due May 15, 2009. The
proceeds of this issuance were used to repay the note payable to Texas
Utilities Company and to reduce borrowings under the Sterling Credit
Agreement and for other corporate purposes. Shortly thereafter, the Company
entered into various interest rate and currency swaps that in effect
changed the interest rate on the borrowings from fixed to variable based on
LIBOR, and fixed the principal amount to be repaid in sterling.
On June 11, 1999, TU Finance (No. 2) Limited entered into arrangements with
a financial institution to borrow funds up to an aggregate maximum of
(pound)275 million through a note purchase arrangement. (pound)150 million
of the facility has been drawn down.
On May 6, 1999, the Company paid (pound)42 million for a 36% interest in
Savon Voima Oy (SVO). This agreement includes an option which allows the
majority shareholders of SVO to require the Company to purchase the
remaining 64% interest in SVO at prices that are based upon a multiple of
the original purchase price for the first three years. After three years
the purchase price is based upon a calculation which considers SVO's
results of operations, as well as cash and cash equivalents and long-term
debt balances on hand at the date the option is exercised. The option may
be exercised at any time by the majority shareholders and does not expire.
F-32
<PAGE>
TXU Eastern Holdings Limited and Subsidiaries (Successor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
19. Subsequent events (continued)
On May 18, 1999, $198 million in letters of credit issued under the
Sterling Credit Agreement/Revolving Credit Facility matured and were not
renewed.
F-33
<PAGE>
[LETTERHEAD] PRICEWATERHOUSECOOPERS LLP
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of Eastern Group plc and Subsidiaries
In our opinion, the accompanying consolidated balance sheet and the related
statements of consolidated income, of comprehensive income, of common stock
equity and of cash flows present fairly, in all material respects, the financial
position of Eastern Group plc and Subsidiaries at March 3l, 1998, and the
results of their operations and their cash flows for the years ended March 31,
1997 and March 31, 1998 and for the period from April 1, 1998 through May 18,
1998 in conformity with accounting principles generally accepted in the United
States. 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 audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards in the United Kingdom
which do not differ significantly with those in the United States and which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers
London, England
April 26, 1999
PricewaterhouseCoopers is the successor partnership to the UK firms of Price
Waterhouse and Coopers & Lybrand. The principal place of business of
PricewaterhouseCoopers and its associate partnerships, and of Coopers & Lybrand,
is 1 Embankment Place, London WC2N 6NN. The principal place of business of Price
Waterhouse is Southwark Towers, 32 London Bridge Street, London SE1 9SY. Lists
of the partners' names are available for inspection at those places.
All partners in the associate partnerships are authorised to conduct business as
agents of, and all contracts for services to clients are with,
PricewaterhouseCoopers. PricewaterhouseCoopers is authorised by the Institute of
Chartered Accountants in England and Wales to carry on investment business.
F-34
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
CONSOLIDATED BALANCE SHEET
((pound) million)
<TABLE>
<CAPTION>
As of
March 31, 1998
--------------
<S> <C>
Assets
Property, plant and equipment, net 2,365
Current assets
Cash and cash equivalents 714
Accounts receivable (net of allowance for uncollectable accounts of(pound)13 million) 529
Inventories
Materials and supplies 23
Fuel stock 100
Prepayments 4
ACT recoverable 22
Other current assets 3
-----
Total current assets 1,395
-----
Investments
Restricted cash 547
Other 42
-----
Total investments 589
-----
Deferred debits
Goodwill (net of accumulated amortization of(pound)82 million) 1,222
Prepayments for pensions 150
Other deferred debits 105
-----
Total deferred debits 1,477
-----
Total assets 5,826
=====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-35
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
CONSOLIDATED BALANCE SHEET
((pound) million)
As of
March 31, 1998
--------------
Capitalization and liabilities
Capitalization
Contributed capital 2,603
Retained deficit (794)
Accumulated other comprehensive loss (7)
------
Total common stock equity 1,802
------
Minority interest 6
------
Long-term debt, less amounts due currently 1,976
------
Total capitalization 3,784
------
Current liabilities
Notes payable - banks 57
Long-term debt due currently 228
Short-term loans on accounts receivable 300
Accounts payable 218
Taxes accrued 182
Interest accrued 39
Other current liabilities 292
------
Total current liabilities 1,316
------
Deferred credits and other noncurrent liabilities
Deferred income taxes, net 434
Other deferred credits and noncurrent liabilities 292
------
Total deferred credits and other noncurrent liabilities 726
------
Commitments and contingencies (Notes 11 and 12) --
Total capitalization and liabilities 5,826
======
The accompanying notes are an integral part of these consolidated financial
statements.
F-36
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
STATEMENTS OF CONSOLIDATED INCOME
((pound) million)
<TABLE>
<CAPTION>
Period from
April 1, 1998
Year ended Year ended through
March 31, 1997 March 31, 1998 May 18, 1998
-------------- -------------- ------------
<S> <C> <C> <C>
Operating revenues 2,984 3,475 425
Costs and expenses
Purchased power 1,600 1,703 202
Gas purchased for resale 368 514 85
Operation and maintenance 557 806 123
Depreciation and amortization 161 185 26
------ ------ ------
Total operating expenses 2,686 3,208 436
------ ------ ------
Operating income (loss) 298 267 (11)
Other income - net 5 10 1
------ ------ ------
Income (loss) before interest, income taxes and minority
interest 303 277 (10)
Interest income 40 76 12
Interest expense, net of capitalized interest 128 202 28
------ ------ ------
Income (loss) before income taxes and minority interest 215 151 (26)
Income tax expense (benefit) 304 189 (5)
------ ------ ------
Loss before minority interest (89) (38) (21)
Minority interest (1) -- --
------ ------ ------
Net loss (90) (38) (21)
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-37
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
((pound) million)
<TABLE>
<CAPTION>
Period from
April 1, 1998
Year ended Year ended through
March 31, 1997 March 31, 1998 May 18, 1998
-------------- -------------- ------------
<S> <C> <C> <C>
Net loss (90) (38) (21)
Other comprehensive loss:
Unrealized loss on securities classified as available
for sale (5) (2) (3)
--- --- ---
Comprehensive loss (95) (40) (24)
=== === ===
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-38
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
STATEMENTS OF CONSOLIDATED COMMON STOCK EQUITY
((pound) million)
<TABLE>
<CAPTION>
Accumulated
other
Contributed Retained comprehensive
capital deficit income
------- ------- ------
<S> <C> <C> <C>
Balance at April 1, 1996 2,518 (326) --
Net loss for year ended March 31, 1997 -- (90) --
Cash dividends for the year ended March 31, 1997 -- (140) --
Tax relief received from Parent 68 -- --
Unrealized loss on securities classified as available for
sale for the year ended March 31, 1997 -- -- (5)
----- ----- -----
Balance at March 31, 1997 2,586 (556) (5)
----- ----- -----
Balance at April 1, 1997 2,586 (556) (5)
Net loss for the year ended March 31, 1998 -- (38) --
Cash dividends for the year ended March 31, 1998 -- (200) --
Tax relief received from Parent 17 -- --
Unrealized loss on securities classified as available for
sale for the year ended March 31, 1998 -- -- (2)
----- ----- -----
Balance at March 31, 1998 2,603 (794) (7)
----- ----- -----
Balance at April 1, 1998 2,603 (794) (7)
Net loss for the period from April 1, 1998 through May 18, 1998 -- (21) --
Unrealized loss on securities classified as available for
sale for the period from April 1, 1998 through May 18, 1998 -- -- (3)
----- ----- -----
Balance at May 18, 1998 2,603 (815) (10)
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-39
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
STATEMENTS OF CONSOLIDATED CASH FLOWS
((pound) million)
<TABLE>
<CAPTION>
Period from
April 1, 1998
Year ended Year ended through
March 31, 1997 March 31, 1998 May 18, 1998
-------------- -------------- ------------
<S> <C> <C> <C>
Cash flows - operating activities
Net loss (90) (38) (21)
Adjustments to reconcile net loss to cash provided by
operating activities:
Gain on disposal of assets (8) (5) --
Depreciation and amortization 161 185 26
Minority interest 1 -- --
Deferred income taxes 251 (24) (7)
Changes in operating assets and liabilities:
Accounts receivable (126) 78 65
Inventories (81) (25) 10
Prepayments and other assets (9) 8 (4)
Accounts payable 106 (82) 6
Interest accrued 35 4 27
Taxes accrued (53) 101 2
Other liabilities 105 139 (30)
---- ---- ----
Cash provided by operating activities 292 341 74
---- ---- ----
Cash flows - investing activities
Capital expenditures (204) (254) (51)
Proceeds from sales of assets 25 30 --
Investment in marketable securities (29) (3) (27)
Other investments (21) (7) --
---- ---- ----
Cash used in investing activities (229) (234) (78)
---- ---- ----
Cash flows - financing activities
Borrowings under long-term debt 692 240 --
Retirements of long-term debt (468) (215) --
Change in notes payable - banks (389) (4) 16
Receivable financing -- 300 --
Debt financing cost (11) -- --
Dividends paid (140) (200) --
---- ---- ----
Cash (used in) provided by financing activities (316) 121 16
---- ---- ----
Net change in cash and cash equivalents (253) 228 12
---- ---- ----
Cash and cash equivalents - beginning balance 739 486 714
---- ---- ----
Cash and cash equivalents - ending balance 486 714 726
---- ---- ----
Supplemental cash flow disclosures:
Cash paid for interest 93 198 5
Cash paid for income taxes 18 90 --
Non-cash transactions:
Record capital lease and related obligations 705 -- --
Consolidation of debt and related investment on
cross-border leases 408 139 --
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-40
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. Description of Business
The business and operations of Eastern Group plc and Subsidiaries (Eastern)
are divided into three principal segments, as follows:
The energy retail business which supplies electricity and gas to national
domestic, industrial and commercial customers in the United Kingdom;
The energy management and generation business which manages an integrated
portfolio of generation assets, physical gas assets and contracts; and
The networks business which owns, manages and operates the electricity
distribution system
These businesses are carried out primarily in the United Kingdom with
interests increasingly being developed throughout the rest of Europe.
Prior to May 19, 1998, Eastern was owned by The Energy Group PLC (TEG). On
May 19, 1998, TU Acquisitions Limited, a subsidiary of TXU Corp, acquired
control of TEG (see Note 17).
2. Basis of Presentation and Significant Accounting Policies
The consolidated financial statements are prepared in conformity with
accounting principles generally accepted in the United States (US GAAP).
Consolidation -- The consolidated financial statements include the accounts
of Eastern and all majority owned subsidiaries. Minority interest
represents the minority shareholders' proportionate share in the equity or
income of Eastern's majority-owned subsidiaries.
All significant intercompany items and transactions have been eliminated in
consolidation. Investments in significant unconsolidated affiliates are
accounted for by the equity method.
Use of estimates -- The preparation of Eastern's consolidated financial
statements, in conformity with US GAAP, requires management to make
estimates and assumptions about future events that affect the reporting and
disclosure of assets and liabilities at the balance sheet dates and the
reported amounts of revenue and expense during the period covered by the
consolidated financial statements. In the event estimates and/or
assumptions prove to be different from actual amounts, adjustments are made
in subsequent periods to reflect more current information.
Cash and cash equivalents -- Cash equivalents consist of highly liquid
investments, which are readily convertible into cash and have maturities of
three months or less.
Inventories - Inventories consist of fuel stock, material and supplies, and
are stated at the lower of cost or net realizable value. The cost of
inventories is determined using a weighted average cost method.
Capitalized interest - Interest is capitalized on major capital
expenditures during the period of construction.
Property, plant and equipment - Property, plant and equipment are stated at
cost less accumulated depreciation. The cost of additions, improvements,
and interest on construction are capitalized, while maintenance and repairs
are charged to expense when incurred.
Leased generating stations meeting certain criteria and related equipment
are capitalized and the present value of the related lease payments is
recorded as a liability. Depreciation of capitalized lease assets is
F-41
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Basis of Presentation and Significant Accounting Policies (continued)
computed on the straight-line basis over the shorter of the estimated
remaining useful life of the asset or the lease term.
Depletion of gas reserves is charged on a unit-of-production basis, based
on an assessment of proven reserves. Depreciation of all other property,
plant and equipment is determined on the straight-line method over
estimated useful lives of the assets as follows:
Electricity generating station assets 30 years
Electricity generating station assets
under capital lease Shorter of lease period or estimated
remaining useful life
Electricity distribution system assets 40 years (3% per annum for first 20
years and 2% per annum for last
20 years)
Buildings Up to 60 years
Leasehold improvements Shorter of remaining lease term or
estimated useful life
Plant and equipment Up to 10 years
Customer contributions to the construction of electricity distribution
system assets are amortized to income over a forty-year period, at a rate
of 3% per year for the first 20 years and 2% per year for the last 20
years. The unamortized amount of these contributions is deducted from
property, plant and equipment.
Upon sale, retirement, abandonment or other disposition of property, the
cost and related accumulated depreciation are eliminated from the accounts
and any gain or loss is reflected in income.
The United Kingdom Government is entitled to claim a portion of any gain
realized by Eastern on certain property disposals made up to March 31,
2000. Provisions for such claims are made when an actual disposal occurs.
Provision is made for abandonment costs relating to gas fields. Such
provisions are determined in accordance with local conditions and
requirements, and on the basis of costs estimated at the respective balance
sheet date. These costs are expensed on a unit-of-production basis.
Valuation of long lived assets - The Company periodically evaluates the
carrying value of long-lived assets to be held and used, including
goodwill, when events and circumstances warrant such a review. The carrying
value of a long-lived asset is considered impaired when the projected
undiscounted cash flows from such asset is separately identifiable and is
less than its carrying value. In that event, a loss is recognized based on
the amount by which the carrying value exceeds the fair market value of the
long-lived asset. Fair market value is determined primarily utilizing the
anticipated cash flows discounted at a rate commensurate with risk
involved.
Goodwill - Goodwill is capitalized and amortized over 40 years using the
straight-line method. The Company reviews the goodwill recoverability
period on a regular basis. Amortization expense for each of the years ended
March 31, 1997 and 1998 was (pound)33 million and for the period from April
1, 1998 through May 18, 1998 was (pound)4 million.
Derivative financial instruments - Eastern defers the effect of changes in
the market value of derivative financial instruments for contracts for
differences and electricity forward agreements, which are used to hedge
firm commitments, to the period when the related transaction is completed.
In the event that an overall analysis of the firm commitments being hedged
indicates that Eastern is in a net loss position, a provision is made for
these anticipated losses. Transactions that are entered into that do not
meet the criteria for hedge accounting are marked to market on the balance
sheet at the period end, and the unrealized gain or loss is recognized in
the Statement of Consolidated Income for that period.
Revenue recognition - Electricity and gas sales revenues are recognized
when services are provided to customers and include an estimated accrual
for the value of electricity and gas consumed by customers
F-42
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
2. Basis of Presentation and Significant Accounting Policies (continued)
between the date of their last meter reading and the period-end date.
Operating revenues are stated exclusive of value added tax, but inclusive
of the fossil fuel levy.
Foreign currencies - Assets and liabilities of foreign subsidiaries are
translated at the exchange rate on the balance sheet date. Revenues, costs
and expenses are translated at average rates of exchange prevailing during
the period. Translation adjustments resulting from this process are charged
or credited to the cumulative currency translation adjustment account in
common stock equity. Gains and losses on foreign currency transactions are
included in the Statement of Consolidated Income.
Income taxes - Income tax expense includes United Kingdom and other
national income taxes. Eastern intends to reinvest the earnings of its
foreign subsidiaries into those businesses. Accordingly, no provision has
been made for taxes which would be payable if such earnings were
distributed to Eastern.
Advance Corporation Tax (ACT) recoverable represents the amount of tax paid
or payable on outgoing dividends paid and proposed which can be set off
against a corporation tax liability arising currently or in the future,
thereby reducing current tax expense.
Deferred income taxes are determined under the liability method. Deferred
income taxes represent liabilities to be paid or assets to be received in
the future and reflect the tax consequences on future years of temporary
differences between the tax bases of assets and liabilities and their
financial reporting amounts. Future tax rate changes would affect those
deferred tax liabilities or assets in the period when the tax rate change
is enacted. Future tax benefits, such as net operating loss carryforwards,
are recognized to the extent that realization of such benefits is more
likely than not.
Marketable securities - Eastern has classified all of its marketable
securities as available for sale. Available for sale securities are carried
at fair value with the unrealized gains and losses reported as a component
of accumulated other comprehensive income in common stock equity. Declines
in fair value that are other than temporary are reflected in the Statement
of Consolidated Income.
Appraisal and development expenditure of gas fields - Appraisal
expenditures are accounted for under the successful efforts method. General
seismic and other costs are expensed as incurred.
Ceiling test - The capitalized costs of gas fields under evaluation, under
development or in production are assessed each year on a field-by-field
basis. To the extent that the future net revenues from the remaining
commercial reserves, or, in the case of prospects under evaluation, the
estimated potential commercial reserves, are less than the net capitalized
costs of the field, a charge is made to the profit and loss account.
New accounting standards - Statement of Financial Accounting Standards
(SFAS) No. 133, "Accounting for Derivative Instruments and Hedging
Activities," was to be effective for fiscal years beginning after June 15,
1999. This statement requires that all derivative financial instruments be
recognized as either assets or liabilities on the balance sheet at their
fair values and that accounting for the changes in their fair values is
dependent upon the intended use of the derivatives and their resulting
designations. The new standard will supersede or amend existing standards
that deal with hedge accounting and derivatives. Eastern has not determined
the effect that adopting this standard will have on its consolidated
financial statements.
The Emerging Issues Task Force (EITF) has issued No. 98-10 "Accounting for
Energy Trading and Risk Management Activities" which is effective for
fiscal years beginning after December 15, 1998. EITF 98-10 requires that
contracts for energy commodities which are entered into under trading
activities should be marked to market with the gains and losses shown net
in the income statement. As Eastern is not primarily involved in trading
activities, EITF 98-10 should not have a material impact on the
consolidated financial statements upon adoption.
F-43
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
3. Property, Plant and Equipment
Property, plant and equipment, stated at cost less accumulated
depreciation, consisted of:
March 31, 1998
((pound) million)
-----------------
Electricity distribution system 1,567
Electricity generating stations 1,154
Upstream gas assets 45
Other land and buildings 102
Plant and equipment 360
Accumulated depreciation (863)
------
Net property, plant and equipment 2,365
======
Depreciation expense for the years ended March 31, 1997 and 1998 was
(pound)128 million and (pound)152 million, respectively, and for the period
from April 1, 1998 through May 18, 1998 was (pound)22 million.
Electricity generating stations and plant and equipment include assets
under capital leases as follows:
March 31, 1998
((pound) million)
-----------------
Cost 839
Less accumulated depreciation (126)
----
Net book value 713
====
4. Restricted Cash
At March 31, 1998, (pound)408 million of deposits has been used to
cash-collateralize existing future lease obligations to certain banks
related to the funding of the leases of three power stations from National
Power PLC (Note 9). Additionally (pound)139 million at March 31, 1998 has
been used to cash-collateralize existing future lease obligations arising
from a cross-border leasing arrangement on two other power stations (Note
9).
F-44
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
5. Investments
Marketable investments are classified as available for sale, and are
considered non-current based upon management's intentions in holding the
investments. Marketable investments consisted of:
Fair market Unrealized
March 31, 1997 Cost value gain/(loss)
---- ----- -----------
((pound)million)
SME 29 24 (5)
--- --- ---
29 24 (5)
=== === ===
Fair market Unrealized
March 31, 1998 Cost value gain/(loss)
---- ----- -----------
((pound)million)
SME 25 18 (7)
HC 3 3 --
--- --- ---
28 21 (7)
=== === ===
Fair market Unrealized
May 18, 1998 Cost value gain/(loss)
---- ----- -----------
((pound)million)
SME 35 25 (10)
HC 20 20 --
--- --- ---
55 45 (10)
=== === ===
At March 31, 1998 Eastern held an 11.8% investment in Severomoravska
Energetika (SME), which is listed in the Czech Republic. During the period
from April 1, 1998 through May 18, 1998, Eastern's Investment in SME
increased to 16%. During the year ended March 31, 1998, Eastern acquired a
1.8% investment in Hidroelectrica del Cantabrico (HC), which is listed in
Spain. As Eastern does not have the ability to exercise significant
influence over either SME's or HC's operating and financial policies, these
investments have been accounted for as marketable securities and
accordingly have been marked to market at March 31, 1997 and 1998 and May
18, 1998.
There were no sales of marketable securities in the two year period ended
March 31, 1998, or from April 1, 1998 through May 18, 1998.
At March 31, 1998 Eastern held an additional (pound)21 million in other
investments.
6. Pensions
The majority of Eastern's employees are members of the Electricity Supply
Pension Scheme (ESPS) which provides pensions of a defined benefit nature
for employees throughout the England and Wales Electricity Supply Industry.
The ESPS operates on the basis that there is no cross-subsidy between
employers and the financing of Eastern's pension liabilities is therefore
independent of the experience of other participating employers. The assets
of the ESPS are held in a separate trustee-administered fund and consists
principally of United Kingdom and European equities, United Kingdom
property holdings and cash. The pension cost relating to the Eastern
portion of the ESPS is assessed in accordance with the advice of
independent qualified actuaries using the projected unit method. The
benefits under these plans are primarily based on years of service and
compensation levels as defined under the respective plan provisions.
F-45
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Pensions (continued)
The assets of the Electricity Supply Pension Scheme are held in a separate
trustee administered fund and consist principally of United Kingdom and
European equities, United Kingdom property holdings and cash.
Eastern has adopted SFAS No. 132, "Employer's Disclosure about Pensions and
other Post-retirement Benefits" for the year ended March 31, 1998.
Year ended
March 31, 1998
--------------
((pound) million)
Change in benefit obligations
-----------------------------
Benefit obligation at beginning of year 702
Service cost 9
Interest cost 53
Plan participants' contributions 7
Termination liability 15
Actuarial loss 100
Benefits paid (51)
------
Benefit obligation at end of year 835
======
Change in plan assets:
----------------------
Fair value of plan assets at beginning of year 874
Actual return on plan assets 285
Employer contribution 14
Plan participants' contributions 7
Benefits paid (51)
------
Fair value of plan assets at end of year 1,129
======
Funded Status:
--------------
Funded status 294
Unrecognized net actuarial gain (151)
Unrecognized prior service cost 7
------
Prepayments for pensions 150
======
F-46
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
6. Pensions (continued)
Weighted average assumptions:
<TABLE>
<CAPTION>
Period from
April 1, 1998
Year ended Year ended through
March 31, 1997 March 31, 1998 May 18, 1998
-------------- -------------- ------------
% % %
<S> <C> <C> <C>
Expected long-term rate of return on assets 8.5 7.0 7.0
Rate of salary increases 5.0 4.0 4.0
Discount rate 8.0 7.0 6.5
</TABLE>
Components of net periodic pension benefit:
<TABLE>
<CAPTION>
Period from
April 1, 1998
Year ended Year ended through
March 31, 1997 March 31, 1998 May 18, 1998
-------------- -------------- ------------
((pound) million)
<S> <C> <C> <C>
Service cost-benefits earned during the period 9 9 1
Interest cost on projected benefit obligations 58 53 7
Expected return on plan assets (75) (69) (10)
Net amortization and deferral -- 1 --
--- --- ---
Net periodic benefit (8) (6) (2)
=== === ===
</TABLE>
During 1997 and 1998 special retirement programs were offered to encourage
early retirements among certain employees which resulted in additional
pension cost of (pound)12 million and (pound)15 million in the years ended
March 31, 1997 and 1998, respectively.
7. Taxation
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
Period from
April 1, 1998
Year ended Year ended through
March 31, 1997 March 31, 1998 May 18, 1998
-------------- -------------- ------------
((pound) million)
<S> <C> <C> <C>
Current:
United Kingdom 53 213 2
---- ---- ----
Deferred:
United Kingdom 251 (24) (7)
---- ---- ----
Total income tax expense/(benefit) 304 189 (5)
==== ==== ====
</TABLE>
F-47
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Taxation (continued)
Income/(loss) before income taxes is as follows:
<TABLE>
<CAPTION>
Period from
April 1, 1998
Year ended Year ended through
March 31, 1997 March 31, 1998 May 18, 1998
-------------- -------------- ------------
((pound) million)
<S> <C> <C> <C>
United Kingdom 212 157 (27)
Other countries 3 (6) 1
---- ---- ----
Total income/(loss) before income taxes and
minority interest 215 151 (26)
==== ==== ====
</TABLE>
Significant components of the Company's deferred tax assets and liabilities
at March 31, 1998 are as follows:
As at
March 31, 1998
--------------
((pound) million)
Deferred tax assets
Tax loss carry forwards (1)
Leased assets (450)
Other (98)
----
Total deferred tax assets (549)
Valuation allowance for deferred tax assets 165
----
Net deferred tax assets (384)
----
Deferred tax liabilities
Excess of book value over taxation value of fixed assets 274
Leased assets 507
Other 37
----
Total deferred tax liabilities 818
----
Net deferred tax liabilities 434
====
All of the net deferred tax liabilities are non-current.
The recognized deferred tax asset is based upon the expected future
utilization of net operating loss carryforwards and the reversal of other
temporary differences. For financial reporting purposes, the Company has
recognized a valuation allowance for those benefits for which realization
does not meet the more likely than not criteria. The valuation allowance
has been recognized in respect of leased assets. The Company continually
reviews the adequacy of the valuation allowance and is recognizing these
benefits only as reassessments indicate that it is more likely than not
that the benefits will be realized. The valuation allowance increased by
(pound)18 million in the year ended March 31, 1998.
F-48
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
7. Taxation (continued)
United Kingdom income tax expense at the statutory tax rate (33% at March
31, 1997 and 31% at March 31, 1998 and May 18, 1998) is reconciled below to
the actual income tax expense:
<TABLE>
<CAPTION>
Period from
April 1, 1998
Year ended Year ended through
March 31, 1997 March 31, 1998 May 18, 1998
-------------- -------------- ------------
((pound) million)
<S> <C> <C> <C>
Tax at United Kingdom statutory rate 71 47 (8)
Windfall tax -- 112 --
Non-deductible goodwill 10 10 1
Effect of tax rate on United Kingdom dividends (2) (2) --
Movement in valuation allowance 147 18 2
Leasing transaction 93 -- --
Tax rate change (13) -- --
Profit on disposal taxed at lower rates (5) (1) --
Non-deductible expenses 2 3 --
Other 1 2 --
---- ---- ----
Income tax expense/ (benefit) 304 189 (5)
==== ==== ====
</TABLE>
For the year ended March 31, 1998, a windfall tax was levied on Eastern
according to a formula contained in the UK Finance (No. 2) Act 1997. The
liability to the tax was assessed at (pound)112 million of which half was
paid on December 1, 1997 and the balance was paid on December 1, 1998.
As at March 31, 1998 Eastern had net operating loss carryforwards of
(pound)1 million that are available to offset future taxable income. The
net operating loss carryforwards have no expiration date.
The tax effect of components included in accumulated other comprehensive
income was a benefit of (pound)2 million in the year ended March 31, 1997,
a benefit of (pound)1 million in the year ended March 31, 1998 and a
benefit of (pound)1 million for the period from April 1, 1998 through May
18, 1998.
8. Related Party Transactions
At March 31, 1998 Eastern was owed (pound)0.4 million by TEG, which arose
from payments of salary expenses by Eastern on behalf of TEG.
F-49
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Notes Payable and Long-term Debt
Weighted average interest rate at March 31, 1998 on notes payable to banks
was 13.2%.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
March 31, 1998
--------------
((pound) million)
<S> <C>
Notes and Bonds:
(pound)350 million 8.375% bonds due 2004 350
(pound)200 million 8.5% bonds due 2025 200
(pound)200 million 8.75% bonds due 2012 200
Other:
Rent factoring loans (weighted average interest rate of 7.35%, due 1999-2001) 804
Other unsecured loans, due in instalments 8.9% - 18.3% 50
Capital leases 461
Cross-border leases 139
-----
Total long-term debt 2,204
Less current portion 228
-----
Long-term debt, less amounts due currently 1,976
=====
</TABLE>
(pound)100 million of the (pound)350 million 8.375% bonds included in
long-term debt has been converted into floating rate debt by way of
interest rate swaps, which expire in the year 2004.
Rent factoring loans - Certain subsidiaries of Eastern entered into an
agreement with commercial banks whereby future intra-group rental payments
receivable were assigned to these banks in return for a capital sum.
(pound)408 million of the capital sum has been deposited to cash
collateralize existing future lease obligations to certain banks related to
the funding of the leases of three power stations leased from National
Power.
On December 17, 1997 a subsidiary of Eastern issued a(pound)21 million
floating rate (18.26% at March 31, 1998) bond in the Czech Republic.
Long-term debt balances are denominated in the following currencies:
March 31, 1998
--------------
((pound) million)
Sterling 2,044
United States dollars 139
Other 21
-----
Total long-term debt 2,204
=====
There was no capitalized interest for the year ended March 31, 1998, or for
the period from April 1, 1998 through May 18, 1998. Capitalized interest
for the year ended March 31, 1997 was (pound)11 million.
F-50
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Notes Payable and Long-term Debt (continued)
Long-term debt, excluding capital lease balances, is repayable as follows:
Year Ending
March 31
--------
1999 213
2000 225
2001 242
2002 127
2003 21
Thereafter 915
-----
1,743
Capital leases 461
-----
Total long-term debt 2,204
=====
Capital lease obligations - As at March 31, 1998, future minimum lease
payments for assets under capital leases, together with the present value
of minimum lease payments, were:
Year Ending
March 31
--------
((pound) million)
1999 16
2000 16
2001 17
2002 542
2003 17
Thereafter 98
----
Total future minimum lease payments 706
Less amounts representing interest (245)
----
Present value of future minimum lease payments 461
----
Current 15
Non-current 446
----
Total 461
====
Substantially all of the capital lease obligations relate to coal-fired
power stations. Additional payments of approximately (pound)6 per megawatt
hour (indexed from 1996 prices) linked to output levels from the stations
are payable for the first seven years of their operation by Eastern
(operations commenced in 1996).
The lease agreement for three of the coal-fired power stations contains a
purchase option of (pound)1 in 2046. The lease is for a total of
ninety-nine years.
Cross-border leases - The debt arising on the cross-border leases is fully
collaterized by restricted cash on deposit (see Note 4). Certain
subsidiaries of Eastern have entered into cross-border lease transactions
in respect of two power stations that are wholly owned by the Company. The
Company has retained control of the power stations and their output and is
responsible for their operations.
F-51
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
9. Notes Payable and Long-term Debt (continued)
The Company's debt agreements contain certain covenants with which they
must comply, including leverage ratios, levels of net assets and interest
cover covenants. At March 31, 1998, the Company was in compliance with all
covenants.
10. Lines of Credit and Other Credit Facilities
Credit facility - At March 31, 1998 Eastern had a five year committed
revolving credit borrowing facility amounting to (pound)350 million with
interest based on LIBOR plus 0.23% which at March 31, 1998 was 7.86%.
Promissory note program - Eastern has a one year promissory note program
issued within the Czech Republic which has been utilized to fund its
investment in SME and Teplarny Brno a.s. The note bears interest at an
annual rate of PRIBOR plus 0.7% which at March 31, 1998 was 18.3%.
Short-term loan on accounts receivable - Eastern has facilities with a
financial institution whereby it may, from time to time, borrow funds from
the financial institution. Outstanding borrowings under the agreements may
not exceed certain levels and are collateralized by portions of Eastern's
trade accounts receivable. At March 31, 1998, Eastern had borrowed
(pound)300 million under these facilities. The loan bears interest at an
annual rate based upon commercial paper rates plus 0.225% which at March
31, 1998 was 7.6%.
11. Commitments
Eastern evaluates its position relative to asserted and unasserted claims,
loss-making purchase commitments or future commitments and makes provisions
as needed.
Eastern's investment in Svartisen (the offtake generated by water rights in
hydro-electric power plants in Norway) requires coverage of approximately
31.2% of the costs incurred in relation to the operation of the power
plant, as well as a portion of the maintenance costs, property tax, and
feeding costs (defined as fixed charges such as connection and capacity
charges and volume related charges such as an energy charge) for 55 years,
beginning in 1998. The electricity generated from the hydro-electric plants
will be sold into the Norwegian power pool, from which Eastern will receive
income.
Gas take-or-pay contracts - Eastern is a party to various types of
contracts for the purchase of gas. Almost all include "take-or-pay"
obligations under which the buyer agrees to pay for a minimum quantity of
gas in a year. In order to help meet the expected needs of its wholesale
and retail customers, Eastern has entered into a range of gas purchase
contracts. As at March 31, 1998, the commitments under long-term gas
purchase contracts amounted to an estimated (pound)2.8 billion, covering
periods up to 16 years forward. Management does not consider it likely, on
the basis of Eastern's current expectations of demand from its customers as
compared with its take-or-pay obligations under such purchase contracts,
that any material payments will become due from Eastern for gas not taken.
F-52
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
11. Commitments (continued)
Rental commitments - The future minimum rental commitments under
non-cancellable operating leases were as follows:
Year ending
December 31
-----------
Period from May 19, 1998 through December 31, 1998 34
1999 53
2000 36
2001 37
2002 34
2003 30
Thereafter 27
---
Total 251
===
The operating lease commitments relate to coal-fired power stations.
Additional variable payments of approximately (pound)6 per megawatt hour
(indexed to 1996 prices) linked to output levels from these stations are
payable through 2000, the first four years of the lease agreement, by
Eastern.
Rental expense for operating leases amounted to (pound)49 million and
(pound)77 million for the years ended March 31, 1997 and 1998,
respectively. Rental expense for operating leases for the years ended March
31, 1997 and March 31, 1998 include (pound)32 million and (pound)42
million, respectively, of minimum lease payments and (pound)17 million and
(pound)35 million, respectively, of variable lease payments, based on
output. Rental expense for operating leases amounted to (pound)10 million
for the period ended May 18, 1998. Rental expense for operating leases
during the period to May 18, 1998 includes (pound)6 million of minimum
lease payments and (pound)4 million of variable lease payments, based upon
output.
12. Contingencies
Eastern is subject to business risks that are actively managed against
exposures.
In February 1997, the official government representative of pensioners
(Pensions Ombudsman) made a determination against the National Grid Company
plc (National Grid) and its group trustees with respect to complaints by
two pensioners in National Grid's section of the ESPS relating to the use
of the pension fund surplus resulting from the March 31, 1992 actuarial
valuation of the National Grid section to meet certain costs arising from
the payment of pensions on early retirement upon reorganization or
downsizing. These determinations were set aside by the High Court on June
10, 1997 and the arrangements made by National Grid and its group trustees
in dealing with the surplus were confirmed. The two pensioners have now
appealed against this decision and judgment has now been received although
a final order is awaited. The appeal was allowed endorsing the Pensions
Ombudsman's determination that the corporation was not entitled to
unilaterally deal with any surplus. If a similar complaint were to be made
against Eastern in relation to its use of actuarial surplus in its section
of the ESPS, it would vigorously defend the action, ultimately through the
courts. However, if a determination were finally to be made against it and
upheld by the courts, Eastern could have a potential liability to repay to
its section of the ESPS an amount estimated by Eastern to be up to
(pound)45 million (exclusive of any applicable interest charges).
General - In addition to the above, Eastern is involved in various legal
and administrative proceedings arising in the ordinary course of its
business. Eastern believes that all such lawsuits and resulting claims
would not have a material effect on its financial position, results of
operation or cash flows.
F-53
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Employee Share Plans
TEG had the following employee share plans in which Eastern's employees
participated for the two year period ended March 31, 1998 and for the
period from April 1, 1998 through May 18, 1998:
(a) The Energy Group Sharesave Scheme which was available to the United
Kingdom-based employees of Eastern and those directors who devoted
more than 25 hours a week to their duties. Employees who participated
in this scheme had to enter into a monthly savings contract.
(b) The Energy Group Executive Share Option Scheme which was administered
by the Remuneration Committee of the Board of Directors of TEG (the
Remuneration Committee) and was available at its discretion to
employees and those directors who devote more than 25 hours a week to
their duties.
(c) The Energy Group Long-term Incentive Plan operated in conjunction with
Eastern's Employee Benefit Trust. The plan was supervised and
administered by the Remuneration Committee. The Plan could be made
available to all employees and directors at the discretion of the
Remuneration Committee, but it was in practice limited to the
executive directors and certain senior executives of Eastern.
The movements in share options outstanding during the year ended March 31,
1998 and the period ended May 18, 1998 were:
<TABLE>
<CAPTION>
Fair
value As at As at As at
of Exercise March March 31, Exercise/ May 18,
options price 31, 1997 Exercised Lapsed Granted 1998 Lapsed Granted 1998
------- ----- -------- --------- ------ ------- ---- ------ ------- ----
(pence) (pence)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Executive
Share Options 73 547 774,416 10,958 38,353 -- 725,105 -- -- 725,105
Sharesave
Scheme - 3
year 109.8 465 19,455 -- -- 233,466 252,921 -- 29,183 282,104
Sharesave
Scheme - 5
year 133.3 438 73,254 -- -- 879,052 952,306 -- 36,627 988,933
Long-term
Incentive Plan 465 -- 486,926 -- 33,951 -- 452,975 -- -- 452,975
</TABLE>
No options lapsed or were exercised prior to March 31, 1997.
With the exception of the Sharesave Schemes, the options listed above were
all granted between February 25, 1997 and March 31, 1997. The granted
options for the Sharesave Schemes reflect additional amounts saved by
participants during the respective period.
Since May 18, 1998 all options or awards then outstanding under the
employee share plans described in (a) to (c) above have, as a consequence
of the takeover of Eastern by Texas Utilities (see Note 17), either been
exercised, waived or surrendered for a cash cancellation payment or lapsed.
Eastern recorded compensation expense relating to the employee share plans
of (pound)0.1 million in the year to March 31, 1997, (pound)2 million in
the year to March 31, 1998 and (pound)0.3 million in the period from April
1, 1998 to May 18, 1998.
Eastern determined the potential impact of SFAS No. 123, "Accounting For
Stock-Based Compensation" with regard to the recognition of compensation
expense. Under SFAS 123, compensation expense is determined based upon the
fair value at the grant date for awards. Had compensation expense for
Eastern share option schemes been determined based upon the methodology
prescribed under SFAS 123, Eastern's loss would not have been affected in
the year ended March 31, 1997, would have been (pound)500,000 lower in the
year ended March 31, 1998 and would have been (pound)125,000 lower in the
period ended May 18, 1998. The fair value of the options granted are
estimated using the Black Scholes model.
F-54
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
13. Employee Share Plans (continued)
The following weighted-average assumptions were assumed in determining the
fair value of options for the Executive Share Option Scheme: exercise price
is equal to the fair value of the stock on the grant date; risk-free
interest rate is 5.31%; expected lives of 2 years and remaining contract
life of 5.5 years; expected volatility of 27.3% and a dividend yield of
5.48%. The same assumptions were used in determining the compensation cost
as of the grant date for the Long-term Incentive Plan and the Sharesave
Schemes for the risk free interest rate, expected volatility and dividend
yield. For the 5 year Sharesave Scheme the exercise price is 80% of the
stock price at date of grant and a contract life of 4.3 years. For the 3
year Sharesave Scheme the exercise price is 85% of the stock price at date
of grant and a contract life of 2.3 years. For the Long-term Incentive Plan
the exercise price is nil and the expected life is 3 years.
14. Dividend Restrictions
Certain debt instruments of Eastern contain provisions that, under certain
conditions, restrict distributions on or acquisitions of common stock. At
March 31, 1998 retained earnings were not restricted as a result of such
provisions.
15. Segmental Information
<TABLE>
<CAPTION>
Period from April 1, 1998
Year ended March 31, through May 18, 1998
---------------------------------------------------- -------------------------
Capital/ Capital/ Capital/
1997 Investment 1998 Investment Investment
Contribution expenditure Contribution expenditure Contribution expenditure
------------ ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Energy retail (8) 16 (52) 42 (5) 6
Energy management and
generation 103 60 180 44 (13) 6
Networks 165 147 189 120 21 31
Other -- -- -- 32 (3) 35
---- ---- ---- ---- ---- ----
260 223 317 238 -- 78
Cost of capital elimination 151 -- 125 -- 17 --
Unallocated corporate costs (40) 31 (11) 26 (28) --
---- ---- ---- ---- ---- ----
371 254 431 264 (11) 78
---- ---- ---- ---- ---- ----
Purchase accounting and
US GAAP adjustments (61) -- (70) -- -- --
Unallocated contract costs -- -- (68) -- -- --
Unallocated restructuring costs (20) -- (20) -- -- --
Unallocated investment
income 13 -- 4 -- 1 --
---- ---- ---- ---- ---- ----
Income (loss) before
interest, income
taxes and minority
interest 303 -- 277 -- (10) --
==== ==== ==== ==== ==== ====
</TABLE>
The segments have been identified on the basis of the underlying nature of
the business and its customer base and the corresponding skill sets
required, e.g., engineering, portfolio management and customer services.
The energy retail business segment provides electricity and gas to United
Kingdom national domestic, industrial and commercial users. It also has
commenced retailing joint ventures in continental Europe. The energy
management and generation business segment manages an integrated portfolio
of contracts
F-55
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
15. Segmental Information (continued)
and physical gas and generation assets. The contracts include supplying the
energy retail business with electricity and gas as well as contracts with
third party energy retailers, traders and wholesalers. The networks
business segment owns and manages the electricity distribution system and
its principal customer base is energy retail and other electricity
suppliers. The other category consists of two operating segments, metering
and telecoms which fall below the quantitative thresholds for determining
reportable segments.
As set out above, contribution is defined as operating profit before
exceptional and extraordinary items, but after a notional charge for the
cost of capital. Capital/investment expenditure includes all items of
capital and investment expenditures including the European equity
investment. The cost of capital is calculated as 0.5% per month on working
capital and is eliminated on consolidation. Overhead costs, such as those
incurred by Eastern at head office and core costs related to information
technology are not allocated among the segments.
Revenues for
the period
from
Revenues for the April 1, 1998
year ended March 31, through
1997 1998 May 18, 1998
--------------- ---------------- ----------------
((pound)million) ((pound)million) ((pound)million)
United Kingdom 2,966 3,447 422
Other countries 18 28 3
----- ----- -----
Total 2,984 3,475 425
===== ===== =====
Revenues are attributed to countries based on location of customers. There
are no revenues for transactions with a single external customer that are
10% or more of Eastern's revenue. The electricity trading market in England
and Wales (the Pool) is not considered by Eastern to be an external
customer, as all electricity generated is sold into the Pool and is then
repurchased from the Pool for subsequent resale.
Long-lived
assets at
March 31, 1998
--------------
((pound) million)
United Kingdom 2,314
Other countries 51
-----
Total 2,365
=====
16. Derivative and Financial Instruments
Eastern uses derivative financial instruments for purposes other than
trading and does so to reduce its exposure to fluctuations in electricity
prices, gas prices, interest rates and foreign exchange rates. Derivative
financial instruments used by Eastern include contracts for differences,
electricity forward rate contracts, interest rate swaps, interest forward
rate agreements, options, gas swaps futures and foreign exchange forward
contracts.
F-56
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. Derivative and Financial Instruments (continued)
Electricity price risk management - Electricity forward contracts are
primarily used by Eastern to hedge future changes in electricity prices.
Almost all electricity generated in England and Wales must be sold to the
Pool, and electricity suppliers must likewise generally buy electricity
from the Pool for resale to their customers. The Pool is operated under a
Pooling and Settlement Agreement to which all licensed generators and
suppliers of electricity in Great Britain are party. These trading
arrangements are currently under review by the United Kingdom government.
Eastern enters into electricity forward contracts to assist in the
management of its exposure to fluctuations in electricity pool prices. The
contracts bought and sold are contracts for differences (CfDs) and
electricity forward agreements (EFAs) that fix the price of electricity for
an agreed quantity and duration by reference to an agreed strike price.
EFAs are similar in nature to CfDs, except that they tend to last for
shorter time periods and are based on standard industry terms rather than
being individually negotiated. Long-term CfDs are in place to hedge a
portion of the electricity to be purchased through to 2009. Such CfDs
represent an annual commitment of approximately five terawatt hours (TWh),
declining on a linear basis to approximately two TWh by 2005 and finally
expiring in 2010. There are no similar long-term commitments under EFAs.
The impact of changes in the market value of these contracts, which serve
as hedges, is deferred until the related transaction is completed.
The fair value of outstanding CfDs and EFAs at March 31, 1998 was (pound)29
million, calculated as the difference between the expected value of the
CfDs or EFAs, based on their known strike price and known volume, and the
current market value, based on an estimate of forward prices for the CfD or
EFA term. It should be noted that the market for the CfDs and EFAs has not
been liquid to date and there is no readily identifiable market through
which the majority of CfDs or EFAs could be realized through an exchange.
No easily definable forward price curve exists for the duration and shape
of the CfDs or EFAs that would be agreed generally.
Gas swaps and futures - In the gas retail business, Eastern sells fixed
price contracts to customers and supplies the customer through a portfolio
of gas purchase contracts and other wholesale contracts. The overall net
exposure of Eastern to the gas spot market is managed by using gas swaps
and futures.
Interest rate management - Interest rate swaps and forward rate agreements
are used by Eastern to convert between fixed rates and floating rates as
required. Gains and losses from interest rate swaps and forward rate
agreements are accrued over the contract period. The interest rate swaps
held by Eastern as at March 31, 1998 are comprised of two swaps to convert
(pound)100 million of the (pound)350 million 8.375% bonds due 2004 into
floating rate debt; (pound)35 million is based on LIBOR and (pound)65
million is based on LIBOR less 0.7625%.
Forward rate agreements totalling (pound)865 million for a maximum duration
of one year to swap floating rate deposits into fixed rates were
outstanding at March 31, 1998.
Foreign currency risk management - Eastern has exposure to foreign currency
movements and uses derivative financial instruments to manage this exposure
(principally investments in European countries). The instruments used are
forward purchase contracts and options. The policy with regard to any such
exposures is to match assets owned in foreign countries with borrowings in
that same currency. Where there are firm commitments to purchase goods in a
foreign currency then forward contracts or options are used to fix the
exchange rate. There were no material foreign exchange forward contracts
outstanding at March 31, 1998.
Concentrations and credit risk - Eastern's financial instruments that are
exposed to concentrations of credit risk consist primarily of cash
equivalents, trade receivables and derivative contracts.
F-57
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. Derivative and Financial Instruments (continued)
Eastern only deposits cash with banks that have a rating in excess of AA or
invests in commercial paper from issuers with ratings of A1 or P1. Maximum
limits are set for each bank based on their ratings and also maximum limits
are set for each country.
Eastern's trade receivables result primarily from its gas and electricity
retail operations and reflect a broad customer base including industrial,
commercial and domestic customers.
Approximately 38 per cent by volume of all of Eastern's CfDs and EFAs in
the year ended March 31, 1998 were contracted with two primary
counterparties.
Credit risk relates to the risk of loss that Eastern would incur as a
result of non-performance by counterparties to their respective derivative
instruments. Eastern maintains credit policies with regard to its
counterparties that management believes significantly minimize overall
credit risk. Eastern generally does not obtain collateral to support the
agreements but establishes credit limits and monitors the financial
viability of counterparties and believes its credit risk is minimal on
these transactions. The extent of this exposure varies with the prevailing
interest and currency rates and was not material throughout the periods
presented.
At March 31, 1998, no single bank was party to more than (pound)100 million
nominal value of such agreements. Eastern believes the risk of
nonperformance by counterparties is minimal.
Fair value of financial instruments
The carrying amounts and fair values of the material financial instruments
of Eastern are as follows:
<TABLE>
<CAPTION>
As at March 31, 1998
-------------------------
Carrying Fair
amount value
-------- -------
((pound) million)
<S> <C> <C>
Assets
Other investments 42 42
Restricted cash investments 547 547
Cash and equivalents 714 714
Liabilities
Notes payable - banks 57 57
Short-term loans on accounts receivable 300 300
Total long-term debt 1,743 1,827
Other financial instruments - favorable/(unfavorable)
Interest rate swaps -- 11
Foreign exchange contracts -- (1)
Gas swaps -- 21
CfDs and EFAs -- 29
Financial guarantees and letters of credit -- (2)
</TABLE>
The following methods and assumptions were used to determine the above fair
values:
(i) The fair value of fixed asset investments is estimated based on quoted
market prices where available and other estimates;
(ii) The carrying amounts of current asset investments, short-term
deposits, cash and bank overdrafts, etc. approximate their fair values
because of the short maturity of these instruments;
F-58
<PAGE>
Eastern Group plc and Subsidiaries (Predecessor Company)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
16. Derivative and Financial Instruments (continued)
(iii) The fair value of the investment bonds is based on their quoted
mid-market prices and excludes the value of the interest rate swaps;
(iv) The fair value of the interest rate swaps is based on the cancellation
value of each swap quoted by the relevant bank counterparty;
(v) The fair value of foreign exchange contracts is based upon valuations
provided by the counterparty;
(vi) The fair value of the gas swaps is based on the net present value of
discounted future cash flows in accordance with the underlying gas
forward curve;
(vii) The fair value of the CfDs and EFAs is based upon a discounted cash
flow analysis using an estimate of forward prices in the Pool;
(viii) The fair value of financial guarantees and letters of credit is
based upon fees currently charged for similar agreements or on the
estimated cost to terminate them or otherwise settle the obligations
with the counterparties at the reporting date.
17. Subsequent Events
As of May 19, 1998, TU Acquisitions Limited (TU Acquisitions), a wholly
owned subsidiary of Texas Utilities, acquired control of TEG. This business
combination was accounted for as a purchase. During the period between
February 5, 1998 and May 18, 1998, TU Acquisitions had acquired a 22%
interest in TEG. Substantially all of TEG's continuing operations are
conducted through Eastern. The acquisition of TEG by TU Acquisitions
resulted in the replacement of the five year committed revolving credit
facility, amounting to (pound)350 million, with revolving borrowing
facilities of (pound)700 million, of which (pound)250 million is a stand
alone facility for the exclusive use of Eastern and a revolving credit
facility under which the current holding company of Eastern may borrow up
to (pound)450 million for general corporate purposes.
F-59
<PAGE>
[LETTERHEAD] PRICEWATERHOUSECOOPERS LLP
REPORT OF INDEPENDENT ACCOUNTANTS
---------------------------------
To the Board of Directors and Shareholders of Energy Group Overseas B.V.
In our opinion, the accompanying balance sheet and the related statements of
income, of comprehensive income, of common stock equity and of cash flows
present fairly, in all material respects, the financial position of Energy Group
Overseas B.V. at March 3l, 1998 and the results of its operations and its cash
flows for the period from formation (October 8, 1997) to March 31, 1998 and from
April 1, 1998 to May 18, 1998 in conformity with accounting principles generally
accepted in the United States. These financial statements are the responsibility
of Overseas' management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards in the
United Kingdom which do not differ significantly with those in the United States
and which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers
London, England
April 26, 1999
F-60
<PAGE>
Energy Group Overseas B.V.
BALANCE SHEET
((pound) thousand)
<TABLE>
<CAPTION>
As of
March 31, 1998
--------------
<S> <C>
Current Assets:
Cash and cash equivalents 5
Interest receivable 10,049
Unamortized debt issue costs 2,552
Prepaid expenses 2
-------
12,608
-------
Long-term loan to Related Party Obligor 297,053
-------
Total assets 309,661
=======
Current Liabilities:
Interest payable 9,883
Corporation tax 55
Accrued expenses 1
-------
9,939
Long-term Debt:
Guaranteed Notes (net of unamortized discount of (pound)576) 296,477
Unearned income related to amortization of discount and debt issue costs 3,128
-------
299,605
-------
Common Stock Equity:
Common stock 13
Retained earnings 104
Accumulated other comprehensive income --
-------
117
-------
Total liabilities and common stock equity 309,661
=======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-61
<PAGE>
Energy Group Overseas B.V.
STATEMENTS OF INCOME
((pound) thousand)
<TABLE>
<CAPTION>
Period from Period from
formation through April 1 through
March 31, 1998 May 18, 1998
-------------- ------------
<S> <C> <C>
Financial income/(charges)
Interest expense on Guaranteed Notes (10,099) (3,209)
Interest income from related party 10,268 3,263
Amortization of discount (13) (4)
Amortization of debt issue costs (48) (15)
Amortization income charged to Related Party Obligor 61 19
------- -------
169 54
------- -------
General and administrative expenses (6) (5)
------- -------
Profit before taxation 163 49
Tax expense (59) (18)
------- -------
Net income 104 31
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-62
<PAGE>
Energy Group Overseas B.V.
STATEMENTS OF COMPREHENSIVE INCOME
((pound) thousand)
Period from Period from
formation through April 1 through
March 31, 1998 May 18, 1998
-------------- ------------
Net income 104 31
Other comprehensive income:
Cumulative translation adjustment -- 3
--- ---
Comprehensive income 104 34
=== ===
The accompanying notes are an integral part of these financial statements.
F-63
<PAGE>
Energy Group Overseas B.V.
STATEMENTS OF COMMON STOCK EQUITY
((pound) thousand)
<TABLE>
<CAPTION>
Accumulated
other
Retained comprehensive
Common stock earnings income
------------ -------- ------
<S> <C> <C> <C>
Balance at October 8, 1997 -- -- --
Stock (40,000 shares) issued 13 -- --
Net income for the period from formation through
March 31, 1998 -- 104 --
Cumulative translation adjustment -- -- --
Balance at March 31, 1998 13 104 --
--- --- ---
Balance at April 1, 1998 13 104 --
=== === ===
Net income for the period from April 1 through -- 31 --
May 18, 1998
Cumulative translation adjustment -- -- 3
--- --- ---
Balance at May 18, 1998 13 135 3
=== === ===
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-64
<PAGE>
Energy Group Overseas B.V.
STATEMENTS OF CASH FLOWS
((pound) thousand)
<TABLE>
<CAPTION>
Period from Period from April
formation through 1 through
March 31, 1998 May 18, 1998
-------------- ------------
<S> <C> <C>
Cash flows - operating activities:
Net income 104 31
Change in interest receivable (10,268) (3,262)
Change in prepaid expenses (2) --
Change in interest payable 10,099 (8,064)
Change in corporation tax payable 59 18
Change in accrued expenses 1 4
-------- --------
Total cash flow used by operating activities (7) (11,273)
-------- --------
Cash flows - investing activities -- --
Cash flows - financing activities:
Issuance of common stock: 13 --
Proceeds from Guaranteed Note offering 305,765 --
Long term loan to Related Party Obligor (305,765) --
Proceeds on loan from Related Party Obligor -- 11,272
-------- --------
Total cash flow from financing activities 13 11,272
-------- --------
Effect of exchange rate changes on cash (1) --
-------- --------
Net change in cash and cash equivalents 5 (1)
Cash and cash equivalents - beginning balance -- 5
-------- --------
Cash and cash equivalents - ending balance 5 4
======== ========
Supplemental cash flow disclosures:
Cash paid for interest -- 11,272
Cash paid for income taxes -- --
</TABLE>
The accompanying notes are an integral part of these financial statements
F-65
<PAGE>
Energy Group Overseas B.V.
NOTES TO THE FINANCIAL STATEMENTS
1. Description of business and summary of significant accounting policies
General -- Energy Group Overseas B.V. (Overseas) is a private limited
liability company established in Amsterdam on October 8, 1997. Overseas, a
consolidated subsidiary of The Energy Group (TEG), issued on October 10,
1997 US$ 500 million aggregate principal amount of notes guaranteed by TEG
(Guaranteed Notes).
The Financial Statements have been prepared in conformity with accounting
principles generally accepted in the United States (US GAAP).
Foreign currencies -- All assets and liabilities expressed in currencies
other than US Dollars (US$), Overseas' functional currency, have been
translated into US Dollars at the rates of exchange approximating those at
the date of the transactions. Resulting exchange differences are recognized
in the profit and loss account. The financial statements have been
translated from US Dollars to British pounds sterling ((pound)) utilizing
the exchange rate prevailing at the period end for the balance sheet and at
the average rate for the period for all profit and loss accounts. Any
difference in the translation process has been recorded as accumulated
other comprehensive income in the common stock equity section of the
balance sheet.
Amortization of debt issue costs -- The discount and debt issue costs
relating to the issuance of the Guaranteed Notes have been deferred and are
being amortized on a straight line basis over the life of the debt, which
does not differ significantly from the interest method.
Use of estimates -- The preparation of Overseas' financial statements, in
conformity with US GAAP, requires management to make estimates and
assumptions about future events that affect the reporting and disclosure of
assets and liabilities at the balance sheet dates and the reported amounts
of revenue and expense during the period covered by the financial
statements. In the event estimates and/or assumptions prove to be different
from actual amounts, adjustments are made in subsequent periods to reflect
more current information.
Cash and cash equivalents -- Cash equivalents consist of highly liquid
investments, which are readily convertible into cash and have maturities of
three months or less.
Income taxes -- Deferred income taxes are determined under the liability
method. Deferred income taxes represent liabilities to be paid or assets to
be received in the future and reflect the tax consequences on future years
of temporary differences between the tax bases of assets and liabilities
and their financial reporting amounts. Future tax rate changes would affect
those deferred tax liabilities or assets in the period when the tax rate
change is enacted.
Future tax benefits, such as net operating loss carryforwards, are
recognized to the extent that realization of such benefits is more likely
than not.
Dividends -- Dutch law prescribes that no dividends can be declared until
all losses, if any, have been recovered.
2. Guaranteed Notes
On October 10, 1997, Overseas issued US$ 500 million aggregate principal
amount of Guaranteed Notes. The Guaranteed Notes were issued in two series;
US$ 200 million 7.375% Notes due 2017 and US$ 300 million Notes 7.50% due
2027. The Guaranteed Notes are unconditionally guaranteed by TEG. Interest
is payable semi-annually in arrears on April 15 and October 15 in each
year, beginning April 1998. No principal payments on either series are due
until the Guaranteed Notes are due.
F-66
<PAGE>
Energy Group Overseas B.V.
NOTES TO THE FINANCIAL STATEMENTS (continued)
3. Common stock equity
The authorized share capital of Overseas consists of 200,000 ordinary
shares of NLG 1 each. As at March 31, 1998, 40,000 shares ((pound)13,000)
were issued and fully paid up. All shares are held by a wholly owned
subsidiary of TEG.
4. Related party transactions
At March 31, 1998, Overseas had a long-term loan to a wholly-owned
subsidiary of TEG (Related Party Obligor) of (pound)297,053,000. The
long-term loan balance equals the principal amount of the Guaranteed Notes.
Overseas had interest receivable from the Related Party Obligor relating to
the long-term loan of (pound)10,049,000 at March 31, 1998. Interest income
of (pound)10,268,000 and (pound)3,263,000 for the periods ended March 31,
1998 and May 18, 1998, respectively, was attributable to interest earned on
the long-term loan to the Related Party Obligor. Additional funding in the
amount of (pound)11,272,000 was received from the Related Party Obligor in
April of 1998.
Overseas will at all times earn a net spread of 12.5 basis points between
the rate Overseas pays on the Guaranteed Notes and the rate Overseas
charges the Related Party Obligor.
Additionally, the Related Party Obligor has agreed to discharge and
indemnify Overseas for the costs incurred by Overseas in issuing the
Guaranteed Notes. The amortization charges shown in the statement of income
are directly offset by the amortization income charged to the Related Party
Obligor. The (pound)3,128,000 balance at March 31, 1998 represents the
remaining unamortized discount and debt issue costs which will be
recognized in the statement of income over the life of the Guaranteed
Notes.
5. Taxes
All profit before tax is taxed in The Netherlands.
A minimum taxable income, calculated as the 12.5 basis point spread between
interest income and interest expense, must be utilized for determination of
income tax expense if it exceeds Overseas' pre-tax income.
During the period from April 1, 1998 through May 18, 1998, additional tax
expense was incurred as the minimum taxable income exceeded actual pre-tax
income. Any benefit from additional tax expense relating to the minimum
taxable income can be carried forward for a three year period. Overseas has
provided for a full valuation reserve against the deferred tax asset of
(pound)2,000 at May 18, 1998 as it is more likely than not that the benefit
will not be recognized.
During the period ended March 31, 1998, the Dutch statutory rate for income
under NGL 100,000 was decreased by 1% from 36% for income earned through
December 31, 1997 to 35% for income earned on or after January 1, 1998.
There was no change in the statutory rate for income over NGL 100,000.
<TABLE>
<CAPTION>
Period from Period from
formation April 1, 1998
through through
March 31, 1998 May 18, 1998
-------------- ------------
((pound) thousand)
<S> <C> <C>
Tax at Dutch statutory rate on pre-tax income 59 16
Movement on valuation allowance -- 2
-- --
Tax expense 59 18
== ==
</TABLE>
F-67
<PAGE>
Energy Group Overseas B.V.
NOTES TO THE FINANCIAL STATEMENTS (continued)
6. Fair value of financial instruments
The carrying amount and fair value of the material financial instruments
used by Overseas are as follows:
As of March 31, 1998
------------------------
Carrying Fair
amount value
-------- -----
((pound) thousand)
Guaranteed Notes 296,477 306,388
Long-term loan to Related Party Obligor 297,053 306,981
The fair value of the Guaranteed Notes and the long-term loan to the
Related Party Obligor varies with market conditions and is estimated based
on trading levels at March 31, 1998.
The carrying amounts of all other assets and liabilities approximate their
fair values because of the short maturity of these instruments.
7. Subsequent events
On May 19, 1998 TU Acquisitions Limited (TU Acquisitions), a wholly-owned
subsidiary of Texas Utilities Company, acquired control of TEG. On October
9, 1998, due to a downgrading of the credit rating on the Guaranteed Notes,
the interest rate on both series of Guaranteed Notes increased by five
basis points. Overseas will continue to maintain its 12.5 basis point
spread. In October 1998, in connection with a restructuring of TEG and its
subsidiaries, Overseas and its direct holding company were sold to another
wholly-owned subsidiary of TU Acquisitions and that subsidiary assumed the
obligations of the Related Party Obligor under the long-term intercompany
loan. In addition, TXU Eastern Holdings Limited, an indirect 90% holding
company of TU Acquisitions, guaranteed the Guaranteed Notes.
F-68
<PAGE>
TXU EASTERN HOLDINGS LIMITED AND SUBSIDIARIES
Unaudited condensed combined pro forma statement
of income from continuing operations for the year
ended December 31, 1998 . . . . . . . . . . . . . . . P-2
Notes to unaudited condensed combined pro forma
statement of income . . . . . . . . . . . . . . . . . P-4
P-1
<PAGE>
TXU Eastern Holdings Limited
Unaudited Condensed Combined Pro Forma Statement of Income
For the Year ended December 31, 1998
As of May 19, 1998, TU Acquisitions Limited (TU Acquisitions), an indirect
wholly-owned subsidiary of Texas Utilities Company (Texas Utilities), acquired
control of The Energy Group PLC (now known as Energy Holdings (No. 3) Limited)
(TEG). TXU Eastern Holdings Limited (the Company), an indirect wholly-owned
subsidiary of Texas Utilities, indirectly owns 90% of TU Acquisitions, and
another indirect wholly-owned subsidiary of Texas Utilities owns the remaining
10%.
Immediately prior to the purchase of TEG by TU Acquisitions, subsidiaries
of TEG completed the sale of TEG's US and Australian coal businesses and US
energy marketing operations (Peabody Sale). The TEG businesses acquired,
exclusive of those operations sold in the Peabody Sale, are referred to as the
"TEG Businesses Acquired", and include Eastern Group plc (Eastern), Energy Group
Overseas B.V., a finance subsidiary (Overseas), and other minor operations.
The following unaudited condensed combined pro forma statement of income
for the year ended December 31, 1998 (the Pro Forma Statement of Income) has
been prepared from, and should be read in conjunction with, the historical
consolidated financial statements and notes thereto of the Company, Eastern and
Overseas included elsewhere in this offering memorandum. The Pro Forma Statement
of Income assumes that the acquisition of the TEG Businesses Acquired occurred
on January 1, 1998. The historical information included in the Pro Forma
Statement of Income has been prepared in accordance with US GAAP.
The acquisition of TEG by TU Acquisitions was accounted for as a purchase.
The Pro Forma Statement of Income includes the effects of fair value and
purchase accounting adjustments.
The Pro Forma Statement of Income combines the unaudited historical
condensed statements of consolidated income of Eastern and Overseas for the
three months ended March 31, 1998 and the audited historical statements of
consolidated income (loss) of Eastern and Overseas for the period from April 1,
1998 to May 18, 1998 with the audited historical statement of consolidated
income of the Company for the period from formation to December 31, 1998 and
gives effect to the pro forma adjustments described in the Notes hereto. The pro
forma adjustments reflect estimates made by the Company and assumptions it
believes to be reasonable. The Pro Forma Statement of Income includes an
estimate of the financing charge as if the acquisition financing had been in
place for the whole period. The pro forma information has not taken into account
any significant changes in future operating activities that may occur as a
result of the acquisition.
P-2
<PAGE>
TXU Eastern Holdings Limited
The Unaudited Condensed Combined Pro Forma Statement of Income is provided
for illustrative purposes only and does not purport to represent what the actual
results of operations would have been if the purchase had occurred on January 1,
1998, nor is it necessarily indicative of future operating results.
<TABLE>
<CAPTION>
TEG Businesses
Acquired The Company
-------------------------------- -------------------------------------------------
Historical Historical Pro Forma
---------------------------------- ------------------ -------------------------------
Three Months Period from Period from Year ended
ended April 1 to Formation to Pro forma December 31,
March 31, 1998 May 18, 1998 December 31, 1998 Adjustments 1998
----------------- -------------- ----------------- --------------- --------------
((pound) million)
<S> <C> <C> <C> <C> <C>
Operating revenues 1,100 425 2,165 0 3,690
Costs and expenses 996 436 1,851 (101)(a) 3,182
------ ------ ------ ------ ------
Operating income (loss) 104 (11) 314 101 508
Other income (deductions) 4 1 46 (20)(b) 31
Interest income 23 12 64 (24)(c) 75
Interest expense (60) (31) (269) (56)(d) (416)
------ ------ ------ ------ ------
Income (loss) before income
taxes 71 (29) 155 1 198
Income tax expense
(benefit) 30 (6) 67 - 91
------ ------ ------ ------ ------
Income (loss) before
minority interest 41 (23) 88 1 107
Minority interest -- -- 11 2(e) 13
------ ------ ------ ------ ------
Net income (loss) 41 (23) 77 (1) 94
====== ====== ====== ====== ======
</TABLE>
See Notes to Unaudited Condensed Combined Pro Forma Statement of Income.
P-3
<PAGE>
TXU Eastern Holdings Limited
Notes to Unaudited Condensed Combined Pro Forma Statement of Income
The amounts for the TEG Businesses Acquired are comprised of the following:
<TABLE>
<CAPTION>
Three Months Ended March 31, 1998 Period from April 1 through May 18, 1998
------------------------------------------ -------------------------------------------
Eastern Overseas Other(1) Total Eastern Overseas Other(1) Total
------- -------- -------- ----- ------- -------- -------- -----
((pound) million)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operating revenues 1,100 -- -- 1,100 425 -- -- 425
Operating expenses 996 -- -- 996 436 -- -- 436
------ ------ ------ ------ ------ ------ ------ ------
Operating income
(loss) 104 -- -- 104 (11) -- -- (11)
Other income 4 -- -- 4 1 -- -- 1
Interest income 23 6 (6) 23 12 3 (3) 12
Interest expense (54) (6) -- (60) (28) (3) -- (31)
------ ------ ------ ------ ------ ------ ------ ------
Income (loss)
before income taxes 77 -- (6) 71 (26) -- (3) (29)
Income tax expense
(benefit) 32 -- (2) 30 (5) -- (1) (6)
------ ------ ------ ------ ------ ------ ------ ------
Net income (loss) 45 -- (4) 41 (21) -- (2) (23)
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
(1) Other represents the elimination of intercompany interest income on a
long-term loan between Overseas and another subsidiary of TEG.
Summary of pro forma adjustments:
(a) Costs and expenses
------------------
((pound) million)
(1) Unfavorable electricity and gas contracts (29)
(2) Leases (96)
(3) Goodwill amortization 24
----
Total (101)
====
P-4
<PAGE>
TXU Eastern Holdings Limited
Notes to Unaudited Condensed Combined Pro Forma Statement of Income
(continued)
(1) Represents reversal of operating expenses, primarily for electricity and gas
purchases, recorded by Eastern, to the extent that a liability for the present
value of unfavorable commitments, obligations and contracts is made in purchase
accounting.
(2) Represents impact of purchase accounting adjustments to fair value of leased
assets, establishing a liability for probable variable payments and adjustment
for the amortization of operating lease payments and capitalized leases over the
revised estimated economic life of power plants under lease. Alternative
operating methodologies employed by Texas Utilities extend the estimated
economic life of the plants by ten years.
(3) Goodwill recorded by the Company from the acquisition totals approximately
(pound)3.5 billion. Annual amortization over the 40-year life is (pound)88
million of which (pound)52 million was recorded during the period from May 19 to
December 31, 1998. The net pro forma amortization for the period to acquisition
is (pound)36 million which is (pound)24 million greater than amortization
recorded by Eastern of (pound)12 million.
(b) Other income/deductions
-----------------------
((pound) million)
(1) Equity in net income of TEG (2)
(2) Earnings on portion of Peabody Sale proceeds
invested in tax efficient scheme (18)
-----
Total (20)
=====
(1) Represents reversal of equity in net income of TEG of (pound)2 million
recorded by the Company for its approximate 22% interest for the period March
through May 18, 1998.
(2) Represents reversal of earnings of (pound)18 million recorded by the Company
on the portion of the Peabody Sale proceeds invested in a short-term investment.
These proceeds have been used to reduce Acquisition debt for the entire period
presented in the pro forma statement of income.
((pound) million)
(c) Interest income (24)
--------------- =====
Represents reversal of interest earnings on the remaining Peabody Sale
proceeds invested in cash. These proceeds have been used to reduce Acquisition
debt for the entire period presented in the pro forma statement of income.
((pound) million)
(d) Interest expense
----------------
(1) Interest and fees on Acquisition debt (50)
(2) Interest on unfavorable commitments, obligations
and unfavorable contracts (8)
(3) Amortization of discount on fair value of debt at acquisition 2
-----
Total (56)
=====
(1) The annual pro forma interest expense on debt issued in the acquisition is
(pound)120 million consisting of interest on the Acquisition facility of
(pound)55 million, on the intercompany note to Texas Utilities of (pound)59
million and on loan notes of (pound)6 million. Pro forma annual amortization of
financing fees on the Acquisition debt is (pound)12 million. Interest and
P-5
<PAGE>
TXU Eastern Holdings Limited
Notes to Unaudited Condensed Consolidated Pro Forma Statement of Income
(continued)
other charges incurred for the period from formation to December 31, 1998
total(pound)82 million. The net pro forma increase in interest expense
is(pound)50 million.
(2) Represents pro forma annual interest on the present value of commitments,
obligations and unfavorable contracts of (pound)13 million, less (pound)8
million incurred for the period from May 19 to December 31, 1998 plus (pound)3
million on imputed interest for a capital lease.
(3) Represents amortization of fair value adjustment to debt at acquisition of
(pound)2 million.
(e) Represents minority interest on net earnings of TEG Businesses Acquired and
pro forma adjustments.
The Company's total investment to acquire TEG was (pound)4,448 million.
((pound) million)
The investment was funded as follows:
Borrowings repaid with cash from Peabody Sale received by TEG prior
to the Acquisition 1,314
Proceeds from common stock issued to Texas Utilities 1,467
Borrowings under Acquisition facilities 700
Note issued to Texas Utilities for TEG ordinary shares acquired by
Texas Utilities in the Share Alternative 882
Loan notes 85
------
Total 4,448
======
Texas Utilities issued 37,316,884 shares of Texas Utilities common stock which
TU Acquisitions offered to TEG shareholders as part of its Share Alternative.
105,117,983 of TEG ordinary shares outstanding were tendered by TEG shareholders
and exchanged for Texas Utilities common stock. TU Acquisitions acquired the
shares of Texas Utilities common stock from Texas Utilities by the issuance of
an intercompany note for (pound)882 million bearing interest at 6.7% per annum.
P-6
<PAGE>
REGISTERED OFFICE OF FUNDING
Kempson House
Camomile Street
London EC3A 7AN
REGISTERED OFFICE OF HOLDINGS
Kempson House
Camomile Street
London EC3A 7AN
TRUSTEE, PAYING AGENT AND TRANSFER AGENT
The Bank of New York
101 Barclay Street
New York, New York 10286
LUXEMBOURG PAYING AGENT AND TRANSFER AGENT
Kredietbank SA Luxembourgeoise
43, Boulevard Royal L-2955
Luxembourg
BOOK-ENTRY DEPOSITARY
The Bank of New York
101 Barclay Street
New York, New York 10286
EXCHANGE AGENT
The Bank of New York
101 Barclay Street
New York, New York 10286
LEGAL ADVISORS
To the Issuer and the Guarantor as
to United States law
Thelen Reid & Priest LLP Worsham, Forsythe E.J. Lean
40 West 57th Street & Wooldridge, L.L.P. Eastern Group plc
New York, New York 10019 1601 Bryan Street Wherstead Park
Dallas, Texas 75201 Ipswich, Suffolk
England IP9 2AQ
To the Issuer and the Guarantor as
to English law
Norton Rose
Kempson House
Camomile Street
London EC3A 7AN
To the Holders
as to United States law
Winthrop, Stimson, Putnam & Roberts
One Battery Park Plaza
New York, New York 10004
AUDITORS
PricewaterhouseCoopers
LISTING AGENT
Kredietbank SA Luxembourgeoise
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under English law, directors are entitled to an
indemnity out of the assets of the company for liabilities
incurred by them in the proper management of the company's
business, other than for wrongful or unauthorized acts. However,
Section 310 Companies Act 1985 makes void any agreement by a
company, whether contained in a company's articles of association
or elsewhere, to indemnify any director or officer against, or
hold him exempt from, any liability which would otherwise attach
to him as a consequence of any illegal act, negligence, default,
breach of duty or breach of trust of which he may be guilty in
relation to the company.
There are certain exceptions to that general rule:
(1) A company is not prevented from purchasing and
maintaining insurance for any director, officer or
auditor against liability; and
(2) A company may indemnify any director, officer or
auditor against any liability incurred by him in
successfully defending civil or criminal
proceedings or in successfully applying for
judicial relief from liability in the case of
honest and reasonable conduct under the Companies
Act 1985 (i.e., actions under section 727
Companies Act 1985).
Indemnification with respect to (2) may be done by including
Regulation 118 of Table A in a company's articles. Regulation
118 states that:
"subject to the provisions of the Act but without
prejudice to any indemnity to which a director may
otherwise be entitled, every director or other officer
or auditor of the company shall be indemnified out of
the assets of the company against any liability
incurred by him in defending any proceedings, whether
civil or criminal in which judgment is given in his
favour or in which he is acquitted or in connection
with any application in which relief is granted to him
by the court from liability for negligence, default,
breach of duty, or breach of trust in relation to the
affairs of the company."
Article 15 of the Articles of Association of TXU Eastern Funding
Company provides as follows:
"Every Director or other officer of the Company shall be
indemnified out of the assets of the Company against all
losses or liabilities which he may sustain or incur in or
about the execution of the duties of his office or otherwise
in relation thereto, including any liability incurred by him
in defending any proceedings, whether civil or criminal, in
which judgment is given in his favour or in which he is
acquitted or in connection with any application under the
Act in which relief is granted to him by the Court, and no
Director or other officer shall be liable for any loss,
damage or misfortune which may happen to or be incurred by
the Company in the execution of the duties of his office or
in relation thereto. This Regulation shall have effect only
in so far as its provisions are not avoided by Section 310
of the Companies Act 1985. Regulation 118 in Table A shall
not apply to the Company."
II-1
<PAGE>
Article 11.1 of the New Articles of Association of TXU Eastern
Holdings Limited provides as follows:
"Subject to the provisions of, and so far as may be
consistent with, the Statutes, but without prejudice to any
indemnity to which a director may be otherwise entitled,
every director, auditor, secretary or other officer of the
company shall be entitled to be indemnified by the company
against all costs, charges, losses, expenses and liabilities
incurred by him in the execution and/or discharge of his
duties and/or the exercise of his powers and/or otherwise in
relation to or in connection with his duties, powers or
office including (without prejudice to the generality of the
foregoing) any liability incurred by him in defending any
proceedings, civil or criminal, which relate to anything
done or omitted or alleged to have been done or omitted by
him as an officer or employee of the company and in which
judgment is given in his favour (or the proceedings are
otherwise disposed of without any finding or admission of
any material breach of duty on his part) or in which he is
acquitted or in connection with any application under any
statute for relief from liability in respect of any such act
or omission in which relief is granted to him by the Court."
II-2
<PAGE>
ITEM 21. EXHIBITS.
PREVIOUSLY FILED*
-------------------
WITH FILE AS
EXHIBIT NUMBER EXHIBIT
------- --------- -------
3(a) - Memorandum of Association of TXU
Eastern Funding Company.
3(b) - Articles of Association of TXU
Eastern Funding Company.
3(c) - Memorandum of Association of TXU
Eastern Holdings Limited.
3(d) - Articles of Association of TXU
Eastern Holdings Limited.
4(a) - Indenture (For Unsecured Debt
Securities) dated May 1, 1999.
4(b) - Officer's Certificate
establishing 6.15% senior notes
due May 15, 2002 and 6.15%
exchange senior notes due May 15,
2002, with the forms of notes
attached thereto.
4(c) - Officer's Certificate
establishing 6.45% senior notes
due May 15, 2005 and 6.45%
exchange senior notes due May 15,
2005, with the forms of notes
attached thereto.
4(d) - Officer's Certificate
establishing 6.75% senior notes
due May 15, 2009 and 6.75%
exchange senior notes due May 15,
2009 with the forms of notes
attached thereto.
4(e) - Registration Rights Agreement
with respect to the senior notes.
4(f) - Deposit Agreement with respect to
the senior notes and the exchange
senior notes.
4(g) - Form of Letter of Transmittal.
5(a) - Opinion and Consent of E.J. Lean,
General Counsel to TXU Eastern
Funding Company and TXU Eastern
Holdings Limited.
5(b) - Opinion and Consent of Worsham,
Forsythe & Wooldridge, L.L.P.,
United States counsel to TXU
Eastern Funding Company and TXU
Eastern Holdings Limited.
5(c) - Opinion and Consent of Thelen
and Reid & Priest LLP, special
8(a) United States counsel to TXU
Eastern Funding Company and TXU
Eastern Holdings Limited.
**8(b) - Opinion of Norton Rose, English
legal advisers to TXU Eastern
Funding Company and TXU Eastern
Holdings Limited.
10(a) 1-12833 10(a) - Facilities Agreement for (pounds
Form 10-Q sterling)1,275,000, Credit
(Quarter Facilities, dated March 24, 1999,
ended March among TXU Eastern Holdings
31, 1999) Limited, TU Finance (No. 2)
Limited, TU Acquisitions Limited,
Chase Manhattan Bank plc, Lehman
Brothers International (Europe),
Merrill Lynch Capital Corporation
and the other banks named
therein.
II-3
<PAGE>
PREVIOUSLY FILED*
-------------------
WITH FILE AS
EXHIBIT NUMBER EXHIBIT
------- --------- -------
10(b) 1-12833 99(a) - Facility Agreement for (pounds
Form 10-Q sterling)250,000,000 Revolving
(Quarter Credit Facility, dated May 21,
ended 1998, among Eastern Electricity
September plc, and Chase Manhattan plc,
30, 1998) Lehman Brothers International and
Merrill Lynch Capital Corporation
as Joint Lead Arrangers, and The
Chase Manhattan Bank, Lehman
Commercial Paper Inc. and Merrill
Lynch Capital Corporation as
Underwriters.
10(c) 333-8008 and 4.1 - Indenture, dated as of October
333-8008-1 16, 1997, among Energy Group
Overseas B.V. (EGO), The Energy
Group PLC and The Bank of New
York, as Trustee.
10(d) 333-8008 and 4.2 - Form of 7.375% Series B
333-8008-1 Guaranteed note of EGO due 2017.
10(e) 333-8008 and 4.3 - Form of 7.500% Series B
333-8008-1 Guaranteed note of EGO due 2027.
10(f) 1-14576 3.10 - Deed of Assignment of Rents,
Form 20-F, dated as of October 28, 1996,
dated among Eastern Merchant Properties
January 27, Limited (EMPL), Eastern Group
1997 Finance Limited, Barclays Bank
PLC (as agent) and the banks
listed therein.
10(g) 1-14576 3.11 - Standby Credit Facility
Form 20-F, Agreement, dated as of October
dated 18, 1996, among EMPL and Eastern
January 27, Merchant Generation Limited
1997 (EMGL) (as borrowers), Eastern
Group plc (Eastern) and Eastern
Generation Limited (EGL) (as
guarantors), Eastern Electricity
plc (EE), The Industrial Bank of
Japan, Limited (as arranger and
agent), The Bank of Nova Scotia,
the Dai-ichi Kangyo Bank,
Limited, The Royal Bank of
Scotland plc and Societe Generale
(as co-arrangers), and the
financial institutions listed
therein.
**10(h) - Pooling and Settlement Agreement
dated 30 March 1990, as amended
as of 15 April 1999, among
Eastern Electricity plc, National
Grid Company plc and other
parties.
**10(i) - Master Connection and Use of
System Agreement dated as of 30
March 1990 among the National
Grid Company plc and its users
(including Eastern Electricity
plc).
**10(j) - Lease of land and premises known
as West Burton, Ironbridge and
Rugeley B Power Stations dated 27
June 1996 from National Power
PLC to Eastern Merchant
Properties Limited and Eastern
Group PLC.
**10(k) - Sublease of land and premises
known as West Burton, Ironbridge
and Rugeley B Power Stations
dated 27 June 1996 from Eastern
Merchant Properties Limited to
Eastern Merchant Generation
Limited and Eastern Group PLC.
**10(l) - Lease of commercial premises at
High Marnham, Newark,
Nottinghamshire dated 2 July 1996
between PowerGen plc and Eastern
Merchant Properties Limited.
II-4
<PAGE>
PREVIOUSLY FILED*
-------------------
WITH FILE AS
EXHIBIT NUMBER EXHIBIT
------- --------- -------
**10(m) - Underlease of commercial premises
at High Marnham, Newark,
Nottinghamshire dated 2 July 1996
between Eastern Merchant
Properties Limited and Eastern
Merchant Generation Limited.
**10(n) - Lease of commercial premises at
Drakelow, Burton-on-Trent,
Staffordshire dated 2 July 1996
between PowerGen plc and Eastern
Merchant Properties Limited.
**10(o) - Underlease of commercial premises
at Drakelow, Burton-on-Trent,
Staffordshire dated 2 July 1996
between Eastern Merchant
Properties Limited and Eastern
Merchant Generation Limited.
12(a) - Computation of Ratio of Earnings
to Fixed Charges for TXU Eastern
Holdings Limited.
12(b) - Computation of Ratio of Earnings
to Fixed Charges for Eastern
Group plc and Subsidiaries (US
GAAP basis).
12(c) - Computation of Ratio of Earnings
to Fixed Charges for Earnings to
Fixed Charges for Eastern Group
plc and Subsidiaries (UK GAAP
basis).
21(a) - List of subsidiaries of TXU
Eastern Holdings Limited.
23(a) - Consent of PricewaterhouseCoopers.
23(b) - Consent of E.J. Lean (included in
Opinion filed as Exhibit 5(a)
hereto).
23(c) - Consent of Worsham, Forsythe &
Wooldridge, L.L.P. (included in
Opinion filed as Exhibit 5(b)
hereto).
23(d) - Consent of Thelen Reid & Priest LLP
(included in Opinion filed as
Exhibits 5(c) and 8(a) hereto).
23(e) - Consent of Norton Rose.
24(a) - Power of Attorney for TXU Eastern
Funding Company (see Page II-7).
24(b) - Power of Attorney for TXU Eastern
Holdings Limited (see Page II-8).
25(a) - Statement on Form T-1 of The Bank
of New York relating to the
Indenture (For Unsecured Debt
Securities) dated May 1, 1999.
27(a) - Financial Data Schedule.
99(a) - Form of Exchange Agent Agreement.
-----------------------------------
* Incorporated herein by reference.
**To be filed by amendment.
II-5
<PAGE>
ITEM 22. UNDERTAKINGS.
a. The undersigned registrants hereby undertake:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar
value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form
of prospectus filed with the Commission pursuant to Rule
424(b) under the Securities Act of 1933 if, in the aggregate,
the changes in volume and price represent no more than a 20%
change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement; and
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
b. That, insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of the registrants pursuant to
the provisions described under Item 20 above, or otherwise, the
registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrants of expenses incurred or paid by a director, officer
or controlling person of the registrants in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the registrants will, unless in the
opinion of their counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by them is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
c. (i) To respond to requests for information that is
incorporated by reference into the prospectus pursuant to Items
4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents
by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the request.
d. To supply by means of a post-effective amendment all
information concerning a transaction and the company being
acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-6
<PAGE>
POWER OF ATTORNEY
EACH DIRECTOR AND/OR OFFICER OF THE REGISTRANT WHOSE
SIGNATURE APPEARS BELOW HEREBY APPOINTS THE AGENTS FOR SERVICE
NAMED IN THIS REGISTRATION STATEMENT, AND EACH OF THEM SEVERALLY,
AS HIS ATTORNEY-IN-FACT TO SIGN IN HIS NAME AND BEHALF, IN ANY
AND ALL CAPACITIES STATED BELOW, AND TO FILE WITH THE SECURITIES
AND EXCHANGE COMMISSION, ANY AND ALL AMENDMENTS, INCLUDING POST-
EFFECTIVE AMENDMENTS, TO THIS REGISTRATION STATEMENT, AND THE
REGISTRANT HEREBY ALSO APPOINTS EACH SUCH AGENT FOR SERVICE AS
ITS ATTORNEY-IN-FACT WITH LIKE AUTHORITY TO SIGN AND FILE ANY
SUCH AMENDMENTS IN ITS NAME AND BEHALF.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF DALLAS, STATE OF TEXAS, ON JULY 2, 1999.
TXU EASTERN FUNDING COMPANY
BY /s/ Robert A. Wooldridge
-------------------------------
(ROBERT A. WOOLDRIDGE, DIRECTOR
AND DULY APPOINTED ATTORNEY FOR
THE REGISTRANT)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
----------- ----- -----
/s/ Erle Nye PRINCIPAL
----------------------------- EXECUTIVE
(ERLE NYE) OFFICER AND
DIRECTOR July 2, 1999
/s/ Michael J. McNally
----------------------------- PRINCIPAL
(MICHAEL J. MCNALLY) FINANCIAL
OFFICER,
PRINCIPAL
ACCOUNTING
OFFICER
AND DIRECTOR July 2, 1999
/s/ H. Jarrell Gibbs
----------------------------- DIRECTOR July 2, 1999
(H. JARRELL GIBBS)
/s/ Robert A. Wooldridge
----------------------------- DIRECTOR July 2, 1999
(ROBERT A. WOOLDRIDGE)
/s/ Robert J. Reger, Jr.
----------------------------- AUTHORIZED
(ROBERT J. REGER, JR.) REPRESENTATIVE
IN THE UNITED
STATES July 2, 1999
II-7
<PAGE>
POWER OF ATTORNEY
EACH DIRECTOR AND/OR OFFICER OF THE REGISTRANT WHOSE
SIGNATURE APPEARS BELOW HEREBY APPOINTS THE AGENTS FOR SERVICE
NAMED IN THIS REGISTRATION STATEMENT, AND EACH OF THEM SEVERALLY,
AS HIS ATTORNEY-IN-FACT TO SIGN IN HIS NAME AND BEHALF, IN ANY
AND ALL CAPACITIES STATED BELOW, AND TO FILE WITH THE SECURITIES
AND EXCHANGE COMMISSION, ANY AND ALL AMENDMENTS, INCLUDING POST-
EFFECTIVE AMENDMENTS, TO THIS REGISTRATION STATEMENT, AND THE
REGISTRANT HEREBY ALSO APPOINTS EACH SUCH AGENT FOR SERVICE AS
ITS ATTORNEY-IN-FACT WITH LIKE AUTHORITY TO SIGN AND FILE ANY
SUCH AMENDMENTS IN ITS NAME AND BEHALF.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED, IN THE CITY OF DALLAS, STATE OF TEXAS, ON JULY 2, 1999.
TXU EASTERN HOLDINGS LIMITED
BY /s/ Robert A. Wooldridge
-------------------------------
(ROBERT A. WOOLDRIDGE, DIRECTOR
AND DULY APPOINTED ATTORNEY FOR
THE REGISTRANT)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
---------- ----- -----
/s/ Erle Nye
------------------------------ PRINCIPAL
(ERLE NYE) EXECUTIVE
OFFICER AND
DIRECTOR July 2, 1999
/s/ Michael J. McNally
------------------------------ PRINCIPAL
(MICHAEL J. MCNALLY) FINANCIAL
OFFICER,
PRINCIPAL
ACCOUNTING
OFFICER
AND DIRECTOR July 2, 1999
/s/ Robert A. Wooldridge
------------------------------ DIRECTOR July 2, 1999
(ROBERT A. WOOLDRIDGE)
/s/ Derek Charles Bonham
------------------------------ DIRECTOR July 2, 1999
(DEREK CHARLES BONHAM)
/s/ H. Jarrell Gibbs
------------------------------ DIRECTOR July 2, 1999
(H. JARRELL GIBBS)
/s/ Paul Colin Marsh
------------------------------ DIRECTOR July 2, 1999
(PAUL COLIN MARSH)
/s/ Philip George Turberville
------------------------------ DIRECTOR July 2, 1999
(PHILIP GEORGE TURBERVILLE)
/s/ James Whelan
------------------------------ DIRECTOR July 2, 1999
(JAMES WHELAN)
/s/ Robert J. Reger, Jr.
------------------------------ AUTHORIZED
(ROBERT J. REGER, JR.) REPRESENTATIVE
IN THE UNITED
STATES July 2, 1999
II-8
<PAGE>
EXHIBIT INDEX
PREVIOUSLY FILED*
-------------------
WITH FILE AS
EXHIBIT NUMBER EXHIBIT
------- --------- -------
3(a) - Memorandum of Association of TXU
Eastern Funding Company.
3(b) - Articles of Association of TXU
Eastern Funding Company.
3(c) - Memorandum of Association of TXU
Eastern Holdings Limited.
3(d) - Articles of Association of TXU
Eastern Holdings Limited.
4(a) - Indenture (For Unsecured Debt
Securities) dated May 1, 1999.
4(b) - Officer's Certificate
establishing 6.15% senior notes
due May 15, 2002 and 6.15%
exchange senior notes due May 15,
2002, with the forms of notes
attached thereto.
4(c) - Officer's Certificate
establishing 6.45% senior notes
due May 15, 2005 and 6.45%
exchange senior notes due May 15,
2005, with the forms of notes
attached thereto.
4(d) - Officer's Certificate
establishing 6.75% senior notes
due May 15, 2009 and 6.75%
exchange senior notes due May 15,
2009 with the forms of notes
attached thereto.
4(e) - Registration Rights Agreement
with respect to the senior notes.
4(f) - Deposit Agreement with respect to
the senior notes and the exchange
senior notes.
4(g) - Form of Letter of Transmittal.
5(a) - Opinion and Consent of E.J. Lean,
General Counsel to TXU Eastern
Funding Company and TXU Eastern
Holdings Limited.
5(b) - Opinion and Consent of Worsham,
Forsythe & Wooldridge, L.L.P.,
United States counsel to TXU
Eastern Funding Company and TXU
Eastern Holdings Limited.
5(c) - Opinion and Consent of Thelen
and Reid & Priest and LLP, special
8(a) United States counsel to TXU
Eastern Funding Company and TXU
Eastern Holdings Limited.
**8(b) - Opinion of Norton Rose, English
legal advisers to TXU Eastern
Funding Company and TXU Eastern
Holdings Limited.
10(a) 1-12833 10(a) - Facilities Agreement for (pounds
Form 10-Q sterling)1,275,000, Credit
(Quarter Facilities, dated March 24, 1999,
ended March among TXU Eastern Holdings
31, 1999) Limited, TU Finance (No. 2)
Limited, TU Acquisitions Limited,
Chase Manhattan Bank plc, Lehman
Brothers International (Europe),
Merrill Lynch Capital Corporation
and the other banks named
therein.
II-9
<PAGE>
PREVIOUSLY FILED*
-------------------
WITH FILE AS
EXHIBIT NUMBER EXHIBIT
------- --------- -------
10(b) 1-12833 99(a) - Facility Agreement for (pounds
Form 10-Q sterling)250,000,000 Revolving
(Quarter Credit Facility, dated May 21,
ended 1998, among Eastern Electricity
September plc, and Chase Manhattan plc,
30, 1998) Lehman Brothers International and
Merrill Lynch Capital Corporation
as Joint Lead Arrangers, and The
Chase Manhattan Bank, Lehman
Commercial Paper Inc. and Merrill
Lynch Capital Corporation as
Underwriters.
10(c) 333-8008 and 4.1 - Indenture, dated as of October
333-8008-1 16, 1997, among Energy Group
Overseas B.V. (EGO), The Energy
Group PLC and The Bank of New
York, as Trustee.
10(d) 333-8008 and 4.2 - Form of 7.375% Series B
333-8008-1 Guaranteed note of EGO due 2017.
10(e) 333-8008 and 4.3 - Form of 7.500% Series B
333-8008-1 Guaranteed note of EGO due 2027.
10(f) 1-14576 3.10 - Deed of Assignment of Rents,
Form 20-F, dated as of October 28, 1996,
dated among Eastern Merchant Properties
January 27, Limited (EMPL), Eastern Group
1997 Finance Limited, Barclays Bank
PLC (as agent) and the banks
listed therein.
10(g) 1-14576 3.11 - Standby Credit Facility
Form 20-F, Agreement, dated as of October
dated 18, 1996, among EMPL and Eastern
January 27, Merchant Generation Limited
1997 (EMGL) (as borrowers), Eastern
Group plc (Eastern) and Eastern
Generation Limited (EGL) (as
guarantors), Eastern Electricity
plc (EE), The Industrial Bank of
Japan, Limited (as arranger and
agent), The Bank of Nova Scotia,
the Dai-ichi Kangyo Bank,
Limited, The Royal Bank of
Scotland plc and Societe Generale
(as co-arrangers), and the
financial institutions listed
therein.
**10(h) - Pooling and Settlement Agreement
dated 30 March 1990, as amended
as of 15 April 1999, among
Eastern Electricity plc, National
Grid Company plc and other
parties.
**10(i) - Master Connection and Use of
System Agreement dated as of 30
March 1990 among the National
Grid Company plc and its users
(including Eastern Electricity
plc).
**10(j) - Lease of land and premises known
as West Burton, Ironbridge and
Rugeley B Power Stations dated 27
June 1996 from National Power
PLC to Eastern Merchant
Properties Limited and Eastern
Group PLC.
**10(k) - Sublease of land and premises
known as West Burton, Ironbridge
and Rugeley B Power Stations
dated 27 June 1996 from Eastern
Merchant Properties Limited to
Eastern Merchant Generation
Limited and Eastern Group PLC.
**10(l) - Lease of commercial premises at
High Marnham, Newark,
Nottinghamshire dated 2 July 1996
between PowerGen plc and Eastern
Merchant Properties Limited.
II-10
<PAGE>
PREVIOUSLY FILED*
-------------------
WITH FILE AS
EXHIBIT NUMBER EXHIBIT
------- --------- -------
**10(m) - Underlease of commercial premises
at High Marnham, Newark,
Nottinghamshire dated 2 July 1996
between Eastern Merchant
Properties Limited and Eastern
Merchant Generation Limited.
**10(n) - Lease of commercial premises at
Drakelow, Burton-on-Trent,
Staffordshire dated 2 July 1996
between PowerGen plc and Eastern
Merchant Properties Limited.
**10(o) - Underlease of commercial premises
at Drakelow, Burton-on-Trent,
Staffordshire dated 2 July 1996
between Eastern Merchant
Properties Limited and Eastern
Merchant Generation Limited.
12(a) - Computation of Ratio of Earnings
to Fixed Charges for TXU Eastern
Holdings Limited.
12(b) - Computation of Ratio of Earnings
to Fixed Charges for Eastern
Group plc and Subsidiaries (US
GAAP basis).
12(c) - Computation of Ratio of Earnings
to Fixed Charges for Earnings to
Fixed Charges for Eastern Group
plc and Subsidiaries (UK GAAP
basis).
21(a) - List of subsidiaries of TXU
Eastern Holdings Limited.
23(a) - Consent of PricewaterhouseCoopers.
23(b) - Consent of E.J. Lean (included in
Opinion filed as Exhibit 5(a)
hereto).
23(c) - Consent of Worsham, Forsythe &
Wooldridge, L.L.P. (included in
Opinion filed as Exhibit 5(b)
hereto).
23(d) - Consent of Thelen Reid & Priest LLP
(included in Opinion filed as
Exhibits 5(c) and 8(a) hereto).
23(e) - Consent of Norton Rose.
24(a) - Power of Attorney for TXU Eastern
Funding Company (see Page II-7).
24(b) - Power of Attorney for TXU Eastern
Holdings Limited (see Page II-8).
25(a) - Statement on Form T-1 of The Bank
of New York relating to the
Indenture (For Unsecured Debt
Securities) dated May 1, 1999.
27(a) - Financial Data Schedule.
99(a) - Form of Exchange Agent Agreement.
-----------------------------------
* Incorporated herein by reference.
**To be filed by amendment.
II-11
The Companies Act 1985
Unlimited Company having a Share Capital
MEMORANDUM OF ASSOCIATION
of
TXU EASTERN FUNDING COMPANY
_________________________________________________________________
1. The Company's name is TXU Eastern Funding Company.
2. The Company's registered office is to be situated in England
and Wales.
3. The Company's objects are:
(a) (i) the object of the Company is to carry on business
as a general commercial company;
(ii) without prejudice to the generality of clause
3(a)(i) of this Memorandum of Association, and the
powers of the Company derived from Section 3A of
the Companies Act 1985 to 1989, the Company has
power to do all or any of the following objects or
any of them;
(b) to carry on any other trade or business whatever, which
can in the opinion of the Directors be advantageously
carried on in connection with or ancillary to any of
the businesses of the Company;
(c) to purchase, take on lease or in exchange, hire or
otherwise acquire and hold for any estate or interest
any lands, buildings, easements, rights, privileges,
concessions, patents, patent rights, licenses, secret
processes, machinery, plant, stock-in-trade, and any
real or personal property of any kind necessary or
convenient for the purposes of or in connection with
the Company's business or any branch or department
thereof;
(d) to erect, construct, lay down, enlarge, alter and
maintain any roads, railways, tramways, sidings,
bridges, reservoirs, shops, stores, factories,
buildings, works, plant and machinery necessary or
convenient for the Company's business, and to
contribute to or subsidise the erection, construction
and maintenance of any of the above;
(e) to borrow or raise or secure the payment of money for
the purposes of or in connection with the Company's
business, and for the purposes of or in connection with
the borrowing or raising of money by the Company to
become a member of any building society;
(f) to mortgage and charge the undertaking and all or any
of the real and personal property and assets, present
or future, and all or any of the uncalled capital for
the time being of the Company and to issue at par or at
a premium or discount, and for such consideration and
with and subject to such rights, powers, privileges and
conditions as may be thought fit, debentures or
debenture stock, either permanent or redeemable or
repayable, and collaterally or further to secure any
securities of the Company by a trust deed or other
assurances;
(g) to issue and deposit any securities which the Company
has power to issue by way of mortgage, and also by way
of security for the performance of any contracts or
obligations of the Company or of its customers or other
persons or corporations having dealings with the
Company, or in whose businesses or undertakings the
Company is interested, whether directly or indirectly;
(h) to receive money on deposit or loan upon such terms as
the Company may approve, and to guarantee the
obligations and contracts of customers and others;
(i) to lend money to any company, firm or person and to
give all kinds of indemnities and either with or
without the Company receiving any consideration or
advantage, direct or indirect, for giving any such
guarantee, to guarantee either by personal covenant or
by mortgaging or charging all or any part of the
undertaking property and assets present and future and
uncalled capital of the Company or by both such
methods, the performance of the obligations and the
payment of the capital or principal (together with any
premium) of and dividends or interest on any debenture
stocks, shares or other securities of any company, firm
or person and in particular (but without limiting the
generality of the foregoing) any company which is for
the time being the Company's holding or subsidiary
company as defined by Section 736 of the Companies Act
1985 or otherwise associated with the Company in
business and whether or not this Company receives
directly or indirectly any consideration or advantage
therefrom;
(j) to establish and maintain or procure the establishment
and maintenance of any non-contributory or contributory
pension or superannuation funds for the benefit of, and
give or procure the giving of donations, gratuities,
pensions, allowances, or emoluments to any persons who
are or were at any time in the employment or service of
the Company, or of any company which is for the time
being the Company's holding or subsidiary company as
defined by Section 736 of the Companies Act 1985 or
otherwise associated with the Company in business or
who are or were at the time directors or officers of
the Company or of any such other company as aforesaid,
and the wives, widows, families and dependents of any
such persons, and also to establish and subsidise or
subscribe to any institutions, associations, clubs or
fund calculated to be for the benefit of or to advance
the interests and well-being of the Company or of any
such other company as aforesaid, or of any such persons
as aforesaid, and to make payments for or towards the
insurance of any such persons as aforesaid, and to
subscribe or guarantee money for charitable or
benevolent objects or for any exhibition or for any
public, general or useful object; and to establish, set
up, support and maintain share purchase schemes or
profit-sharing schemes for the benefit of any employees
of the Company or of any company which is for the time
being the Company's holding or subsidiary company as
defined by Section 736 of the Companies Act 1985 and to
do any of the matters aforesaid; either alone or in
conjunction with any such other company as aforesaid;
(k) to draw, make, accept, endorse, negotiate, discount and
execute promissory notes, bills of exchange and other
negotiable instruments;
(l) to invest and deal with the moneys of the Company not
immediately required for the purposes of its business
in or upon such investments or securities and in any
such manner as may from time to time be determined;
(m) to pay for any property or rights acquired by the
Company, either in cash or in fully or partly paid-up
shares, with or without preferred or deferred or
special rights or restrictions in respect of dividend,
repayment of capital, voting or otherwise, or by any
securities which the Company has power to issue, or
partly in one mode and partly in another, and generally
on such terms as the Company may determine;
(n) to accept payment for any property or rights sold or
otherwise disposed of or dealt with by the Company,
either in cash, by instalments or otherwise, or in
fully or partly paid-up shares of any company or
corporation, with or without deferred or preferred or
special rights or restrictions in respect of dividend,
repayment of capital, voting or otherwise, or in
debentures or mortgage debentures or debenture stock,
mortgages or other securities of any company or
corporation, or partly in one mode and partly in
another, and generally on such terms as the Company may
determine, and to hold, dispose of or otherwise deal
with any shares, stock or securities so acquired;
(o) to enter into any partnership or joint-purse
arrangement or arrangement for sharing profits union of
interests or co-operation with any company, firm or
person carrying on or proposing to carry on any
business within the objects of this Company and to
acquire and hold, sell, deal with or dispose of shares,
stock or securities of and to subsidise or otherwise
assist any such company;
(p) to establish or promote or concur in establishing or
promoting any other company whose objects shall include
the acquisition and taking over of all or any of the
assets and liabilities of the Company or the promotion
of which shall be in any manner calculated to advance
directly or indirectly the objects or interests of this
Company, and to acquire and hold or dispose of shares,
stock or securities and guarantee the payment of
dividends, interest or capital of any shares, stock or
securities issued by or any other obligations of any
such company;
(q) to purchase or otherwise acquire and undertake all or
any part of the business, property, assets, liabilities
and transactions of any person, firm or company
carrying on any business which this Company is
authorised to carry on;
(r) to sell, improve, manage, develop, turn to account,
exchange, let on rent, royalty, share of profits or
otherwise, grant licences, easements and other rights
in or over and in any other manner deal with or dispose
of the undertaking and all or any of the property and
assets for the time being of the Company for such
consideration as the Company may think fit;
(s) to amalgamate with any other company whose objects are
or include objects similar to those of this Company,
whether by sale or purchase (for fully or partly paid-
up shares or otherwise) of the undertaking, subject to
the liabilities of this or any such other company as
aforesaid, with or without winding up, or by sale or
purchase (for fully or partly paid-up shares or
otherwise) of all or a controlling interest in the
shares or stock of this or any such other company as
aforesaid, or by partnership, or any arrangement of the
nature of partnership, or in any other manner;
(t) to subscribe or guarantee money for or organise or
assist any national, local, charitable, benevolent,
public, general or useful object, or for any exhibition
or for any purpose which may be considered likely
directly or indirectly to further the objects of the
Company or the interest of its members;
(u) to distribute among the members in specie any property
of the Company, or any proceeds of sale and disposal of
any property of the Company, but so that no
distribution amounting to a reduction of capital be
made except with the sanction (if any) for the time
being required by law;
(v) to give such financial assistance, directly or
indirectly, for the purpose of the acquisition of
shares in the Company or the Company's holding company
as defined by Section 736 of the Companies Act 1985 or
for the purpose of reducing or discharging any
liability incurred by any person for the purpose of the
acquisition of shares in the Company or the Company's
holding company as defined by Section 736 of the
Companies Act 1985 as may be lawful;
(w) to do all or any of the above things in any part of the
world, and either as principals, agents, trustees,
contractors or otherwise, and either alone or in
conjunction with others, and either by or through
agents, trustees, subcontractors or otherwise;
(x) to do all such things as are incidental or conducive to
the above objects or any of the them.
And it is hereby declared that the objects of the Company as
specified in each of the foregoing paragraphs of this clause
(except only if and so far as otherwise expressly provided
in any paragraphs) shall be separate and distinct objects of
the Company and shall not be in any way limited by reference
to any other paragraph or the name of the Company.
4. The Company's share capital is L200 divided into 200
Ordinary Shares of L1 each.
<PAGE>
WE, the several persons whose names, addresses and descriptions
are subscribed are desirous of being formed into a Company in
pursuance of this Memorandum of Association and we respectively
agree to take the number of shares in the capital of the Company
set opposite our respective names.
_________________________________________________________________
NAMES, ADDRESSES AND DESCRIPTIONS OF NUMBER OF
SUBSCRIBERS SHARES
TAKEN BY EACH
SUBSCRIBER
_________________________________________________________________
Signed on behalf of the company
by: H. Jarrell Gibbs
/s/ H. Jarrell Gibbs
TXU Eastern Finance (A) Limited One Hundred
117 Picadilly
London
Signed on behalf of the company
by: H. Jarrell Gibbs
/s/ H. Jarrell Gibbs
TXU Eastern Finance (B) Limited One Hundred
117 Picadilly
London
_________________________________________________________________
DATED 2nd February 1999
WITNESS to the above signatures: /s/ John Buchanan
John Buchanan
117 Piccadilly
London W1V 9FJ
Taxation Manager
The Companies Acts 1985 to 1989
Unlimited Company having a Share Capital
ARTICLES OF ASSOCIATION
of
TXU EASTERN FUNDING
_________________________________________________________________
PRELIMINARY
-----------
1. The Regulations contained in Table A in the Schedule to The
Companies (Tables A to F) Regulations 1985, as amended by
The Companies (Tables A to F) (Amendment) Regulations 1985
(such Table being hereinafter called "Table A") shall apply
to the Company save in so far as they are excluded or varied
hereby and such Regulations (save as so excluded or varied)
and the Articles hereinafter contained shall be the
Regulations of the Company. Regulations 3, 32, 34 and 35 of
Table A shall not apply to this Company.
SHARES
------
2. The Company may by Special Resolution:
(a) increase the share capital by such sum to be divided
into shares of such amount as the resolution may
prescribe;
(b) consolidate and divide all or any of its share capital
into shares of a larger amount than its existing
shares;
(c) subdivide its shares, or any of them, into shares which
at the date of the passing of the resolution have not
been taken or agreed to be taken by any person;
(d) reduce its share capital and share premium account in
any way.
3.
(a) Shares which are comprised in the authorised share
capital with which the Company is incorporated shall be
under the control of the Directors who may (subject to
paragraph (d) below), allot, grant options over or
otherwise dispose of the same, to such persons, on such
terms and in such manner as they think fit.
(b) After the first allotment of shares by the Directors
any further shares proposed to be issued shall first be
offered to the Members in proportion as nearly as may
be to the number of the existing shares held by them
respectively unless the Company shall by Special
Resolution otherwise direct. The offer shall be made
by notice specifying the number of shares offered, and
limiting a period (not being less than fourteen days)
within which the offer, if not accepted, will be deemed
to be declined. After the expiration of that period,
those shares so deemed to be declined shall be offered
in the proportion aforesaid to the persons who have,
within the said period, accepted all the shares offered
to them; such further offer shall be made in like terms
in the same manner and limited by a like period as the
original offer. Any shares not accepted pursuant to
such offer or further offer as aforesaid or not capable
of being offered as aforesaid except by way of
fractions and any shares released from the provision of
this Article by such Special Resolution as aforesaid
shall be under the control of the Directors, who may
(subject to paragraph (d) below) allot, grant options
over or otherwise dispose of the same to such persons,
on such terms, and in such manner as they think fit,
provided that, in the case of shares not accepted as
aforesaid, such shares shall not be disposed of on
terms which are more favourable to the subscribers
therefor than the terms on which they were offered to
the Members.
(c) In accordance with Section 91 of the Companies Act 1985
Sections 89(l) and 90 of the said Act shall not apply
to the Company.
(d) The Directors are generally and unconditionally
authorised for the purposes of Section 80 of the
Companies Act 1985 to exercise any power of the Company
to allot and grant rights to subscribe for or convert
securities into shares of the Company up to the amount
of the authorised share capital with which the Company
is incorporated at any time or times during the period
of five years from the date of incorporation and the
Directors may after that period, allot any shares or
grant any such rights under this authority in pursuance
of an offer or agreement so to do made by the Company
within that period. The authority hereby given may at
any time (subject to the said Section 80) be renewed,
revoked or varied by Ordinary Resolution.
LIEN
----
4. The Company shall have a first and paramount lien on every
share (whether or not it is a fully paid share) for all
moneys (whether presently payable or not) called or payable
at a fixed time in respect of that share and the Company
shall also have a first and paramount lien on all shares
(whether fully paid or not) standing registered in the name
of any person whether solely or as one of two or more joint
holders for all moneys presently payable by him or his
estate to the Company; but the Directors may at any time
declare any share to be wholly or in part exempt from the
provisions of this Article. The Company's lien on a share
shall extend to any dividend or other amount payable in
respect thereof. Regulation 8 in Table A shall not apply to
the Company.
CALLS
-----
5. The liability of any Member in default in respect of a call
shall be increased by the addition at the end of the first
sentence of Regulation 18 in Table A of the words "and all
expenses that may have been incurred by the Company by
reason of such non-payment".
REDEMPTION OF SHARES
--------------------
6. Subject to the provisions of the Companies Acts, shares may
be issued which are to be redeemed or are to be liable to be
redeemed at the option of the Company or the holder,
provided that the terms on which and the manner in which any
such redeemable shares shall be redeemed shall be specified
by Special Resolution before the issue thereof.
GENERAL MEETINGS AND RESOLUTIONS
--------------------------------
7. Every notice convening a General Meeting shall comply with
the provisions of Section of the Companies Act 1985 as to
giving information to Members in regard to their right to
appoint proxies; and notices of and other communications
relating to any General Meeting which any Member is entitled
to receive shall be sent to the Directors and to the Auditor
for the time being of the Company.
8. In Regulation 41 of Table A there shall be inserted at the
end thereof the words "and if at the adjourned meeting a
quorum is not present within half an hour from the time
appointed for the meeting, the members present shall be a
quorum".
9. The words "at least seven clear days' notice" shall be
substituted for "at least fourteen days' clear notice" in
Regulation 38 of Table A.
APPOINTMENT OF DIRECTORS
------------------------
10.
(a) The number of the Directors may be determined by
Ordinary Resolution of the Company but unless and until
so fixed there shall be no maximum number of Directors
and the minimum number of Directors shall be one. In
the event of the minimum number of Directors fixed by
or pursuant to these Articles or Table A being one, a
sole Director shall have authority to exercise all the
powers and discretions by Table A or these Articles
expressed to be vested in the Directors generally and
the quorum for the transaction of the business of the
Directors shall be one. Regulation 64 in Table A shall
not apply to the Company.
(b) The Directors shall not be required to retire by
rotation and accordingly Regulations 73, 74 and 75 in
Table A shall not apply to the Company and Regulations
76, 77, 78 and 79 in Table A shall be modified
accordingly.
11. Any appointment or removal of an alternate Director may be
made by letter, cable, telex, telegram, facsimile or
radiogram or in any other manner approved by the Directors.
Any cable, telex, telegram, facsimile or radiogram shall be
confirmed as soon as possible by letter but is a valid
appointment in the meantime. Accordingly Regulation 68 in
Table A shall not apply to the Company.
POWERS OF DIRECTORS
-------------------
12. In addition to and without prejudice to the generality of
the powers conferred by Regulation 70 of Table A, the
Directors may exercise all the powers of the Company to
borrow money and to mortgage or charge all the undertaking
and property of the Company including the uncalled capital
or any part thereof, and to issue debentures, debenture
stock and other securities whether outright or as security
for any debt, liability or obligation of the Company or of
any third party.
13. A Director may vote as a Director in regard to any contract
or arrangement in which he is interested or upon any matter
arising therefrom, and if he shall so vote his vote shall be
counted and he shall be reckoned in estimating a quorum when
any such contract or arrangement is under consideration and
Regulations 94 to 97 in Table A shall be modified
accordingly.
14. Any Director or member of a committee of the Directors may
participate in a meeting of the Directors or such committee
by means of conference telephone or similar communications
equipment whereby all persons meeting in this manner shall
be deemed to constitute presence in person at such meeting.
INDEMNITY
---------
15. Every Director or other officer of the Company shall be
indemnified out of the assets of the Company against all
losses or liabilities which he may sustain or incur in or
about the execution of the duties of his office or otherwise
in relation thereto, including any liability incurred by him
in defending any proceedings, whether civil or criminal, in
which judgment is given in his favour or in which he is
acquitted or in connection with any application under the
Act in which relief is granted to him by the Court, and no
Director or other officer shall be liable for any loss,
damage or misfortune which may happen to or be incurred by
the Company in the execution of the duties of his office or
in relation thereto. This Regulation shall have effect only
in so far as its provisions are not avoided by Section 310
of the Companies Act 1985. Regulation 118 in Table A shall
not apply to the Company.
<PAGE>
_________________________________________________________________
NAMES, ADDRESSES AND DESCRIPTIONS OF NUMBER OF SHARES
SUBSCRIBERS TAKEN BY EACH
SUBSCRIBER
_________________________________________________________________
Signed on behalf of the company
by: H. Jarrell Gibbs
/s/ H. Jarrell Gibbs
TXU Eastern Finance (A) Limited One Hundred
117 Picadilly
London
W1V 9FFJ
Limited Company
Signed on behalf of the company
by: H. Jarrell Gibbs
/s/ H. Jarrell Gibbs
TXU Eastern Finance (B) Limited One Hundred
117 Picadilly
London
W1V 9FJ
_________________________________________________________________
DATED: 2nd February 1999
WITNESS to the above signatures: /s/ John Buchanan
John Buchanan
117 Piccadilly
London W1V 9FJ
Taxation Manager
THE COMPANIES ACT 1985
PRIVATE COMPANY LIMITED BY SHARES
MEMORANDUM OF ASSOCIATION
OF
TXU EASTERN HOLDINGS LIMITED
------------------------------------------------------------------
1. The Company's name is *TXU Eastern Holdings Limited.
2. The Company's registered office is to be situated in England
and Wales
3. The Company's objects are:
(a) (i) the object of the Company is to carry on business
as a general commercial company;
(ii) without prejudice to the generality of clause
3(a)(i) of this Memorandum of Association, and the
powers of the Company derived from Section 3A of
the Companies Act 1985 to 1989, the Company has
power to do all or any of the following objects or
any of them;
(b) to carry on any other trade or business whatever, which
can in the opinion of the Directors be advantageously
carried on in connection with or ancillary to any of
the businesses of the Company;
(c) to purchase, take on lease or in exchange, hire or
otherwise acquire and hold for any estate or interest
in any lands, buildings, easements, rights, privileges,
concessions, patents, patent rights licences, secret
processes, machinery, plant, stock-in-trade, and any
real or personal property of any kind necessary or
convenient for the purposes of or in connection with
the Company's business or any branch or department
thereof;
(d) to erect, construct, lay down, enlarge, alter and
maintain any roads, railways, tramways, sidings,
bridges, reservoirs, shops, stores, factories,
buildings, works, plant and machinery necessary or
convenient for the Company's business, and to
contribute to or subsidise the erection, construction
and maintenance of any of the above
---------------
* The name of the Company was changed from ERRORFREE LIMITED to
TU FINANCE (No. 1) LIMITED on 26 February 1998 by Special
Resolution passed on 25 February 1998 and from TU FINANCE (No. 1)
LIMITED to TXU EASTERN HOLDINGS LIMITED by Special Resolution
passed on 16 December 1998.
<PAGE>
(e) to borrow or raise or secure the payment of money for
the purposes of or in connection with the Company's
business, and for the purposes of or in connection with
the borrowing or raising of money by the Company to
become a member of any building society;
(f) to mortgage and charge the undertaking and all or any
of the real and personal property and assets, present
or future, and all or any of the uncalled capital for
the time being of the Company and to issue at par or at
a premium or discount, and for such consideration and
with and subject to such rights, powers, privileges and
conditions as may be thought fit, debentures or
debenture stock, either permanent or redeemable or
repayable, and collaterally or further to secure any
securities of the Company by a trust deed or other
assurances;
(g) to issue and deposit any securities which the Company
has power to issue by way of mortgage, and also by way
of security for the performance of any contracts or
obligations of the Company or of its customers or other
persons or corporations having dealings with the
Company, or in whose businesses or undertakings the
Company is interested, whether directly or indirectly;
(h) to receive money on deposit or loan upon such terms as
the Company may approve, and to guarantee the
obligations and contracts of customers and others;
(i) to lend money to any company, firm or person and to
give all kinds of indemnities and either with or
without the Company receiving any consideration or
advantage, direct or indirect, for giving, any such
guarantee, to guarantee either by personal convenant or
by mortgaging or charging all or any part of the
undertaking property and assets present and future and
uncalled capital of the Company or by both such
methods, the performance of the obligations and the
payment of the capital or principal (together with any
premium) of and dividends or interest on any debenture
stocks, shares or other securities of any company, firm
or person and in particular (but without limiting the
generality of the foregoing) any company which is for
the time being the Company's holding or subsidiary
company as defined by Section 736 of the Companies Act
1985 or otherwise associated with the Company in
business and whether or not this Company receives
directly or indirectly any consideration or advantage
therefrom;
(j) to establish and maintain or procure the establishment
and maintenance of any non-contributory or contributory
pension or superannuation funds for the benefit of, and
give or procure the giving of donations, gratuities,
pensions, allowances, or emoluments to any persons who
are or were at any time in the employment or service of
the Company, or of any company which is for the time
being the Company's holding or subsidiary company as
defined by Section 736 of the Companies Act 1985 or
otherwise associated with the Company in business or
who are or were at the time directors or officers of
the Company or of any such other company as aforesaid,
and the wives, widows, families and dependents of any
such persons, and also to establish and subsidise or
subscribe to any institutions, associations, clubs or
fund calculated to be for the benefit of or to advance
the interests and well-being of the Company or of any
such other company as aforesaid, or of any such persons
as aforesaid, and to make payments for or towards the
insurance of any such persons as aforesaid, and to
subscribe or guarantee money for charitable or
benevolent objects or for any exhibition or for any,
public, general or useful object; and to establish, set
up, support and maintain share purchase schemes or
profit-sharing schemes for the benefit of any employees
of the Company or of any company which is for the time
being the Company's holding or subsidiary company as
defined by Section 736 of the Companies Act 1985 and to
do any of the matters aforesaid; either alone or in
conjunction with any such other company as aforesaid;
(k) to draw, make, accept, endorse, negotiate, discount and
execute promissory notes, bills of exchange and other
negotiable instruments;
(l) to invest and deal with the moneys of the Company not
immediately required for the purposes of its business
in or upon such investments or securities and in any
such manner as may from time to time be determined;
(m) to pay for any property or rights acquired by the
Company, either in cash or in fully or partly paid-up
shares, with or without preferred or deferred or
special rights or restrictions in respect of dividend,
repayment of capital, voting or otherwise, or by any
securities which the Company has power to issue, or
partly in one mode and partly in another, and generally
on such terms as the Company may determine;
(n) to accept payment for any property or rights sold or
otherwise disposed of or dealt with by the Company,
either in cash, by installments or otherwise, or in
fully or partly paid-up shares of any company or
corporation, with or without deferred or preferred or
special rights or restrictions in respect of dividend,
repayment of capital, voting or otherwise, or in
debentures or mortgage debentures or debenture stock,
mortgages or other securities of any company or
corporation, or partly in one mode and partly in
another, and generally on such terms as the Company may
determine, and to hold, dispose of or otherwise deal
with any shares, stock or securities so acquired;
(o) to enter into any partnership or joint-purse
arrangement or arrangement for sharing profits union of
interests or co-operation with any company, firm or
person carrying on or proposing to carry on any
business within the objects of this Company and to
acquire and hold, sell, deal with or dispose of shares,
stock or securities of and to subsidise or otherwise
assist any such company;
(p) to establish or promote or concur in establishing or
promoting any other company whose objects shall include
the acquisition and taking over of all or any of the
assets and liabilities of the Company or the promotion
of which shall be in any manner calculated to advance
directly or indirectly the objects or interests of this
Company, and to acquire and hold or dispose of shares,
stock or securities and guarantee the payment of
dividends, interest or capital of any shares, stock or
securities issued by or any other obligations of any
such company;
(q) to purchase or otherwise acquire and undertake all or
any part of the business, property, assets, liabilities
and transactions of any person, firm or company
carrying on any business which this Company is
authorised to carry on;
(r) to sell, improve, manage, develop, turn to account,
exchange, let on rent, royalty, share of profits or
otherwise, grant licences, easements and other rights
in or over and in any other manner deal with or dispose
of the undertaking and all or any of the property and
assets for the time being of the Company for such
consideration as the Company may think fit;
(s) to amalgamate with any other company whose objects are
or include objects similar to those of this Company,
whether by sale or purchase (for fully or partly paid-
up shares or otherwise) of the undertaking, subject to
the liabilities of this or any such other company as
aforesaid, with or without winding up, or by sale or
purchase (for fully or partly paid-up shares or
otherwise) of all or a controlling interest in the
shares or stock of this or any such other company as
aforesaid, or by partnership, or any arrangement of the
nature of partnership, or in any other manner;
(t) to subscribe or guarantee money for or organise or
assist any national, local, charitable, benevolent,
public, general or useful object, or for any exhibition
or for any purpose which may be considered likely
directly or indirectly to further the objects of the
Company or the interest of its members;
(u) to distribute among the members in specie any property
of the Company, or any proceeds of sale and disposal of
any property of the Company, but so that no
distribution amounting to a reduction of capital be
made except with the sanction (if any) for the time
being required by law;
(v) to give such financial assistance, directly or
indirectly, for the purpose of the acquisition of
shares in the Company or the Company's holding company
as defined by Section 736 of the Companies Act 1985 or
for the purpose of reducing or discharging any
liability incurred by any person for the purpose of the
acquisition of shares in the Company or the Company's
holding company as defined by Section 736 of the
Companies Act 1985 as may be lawful;
(w) to do all or any of the above things in any part of the
world, and either as principals, agents, trustees,
contractors or otherwise, and either alone or in
conjunction with others, and either by or through
agents, trustees, subcontractors or otherwise;
(x) to do all such things as are incidental or conducive to
the above objects or any of the them.
And it is hereby declared that the objects of the Company
as specified in each of the foregoing paragraphs of this
clause (except only if and so far as otherwise expressly
provided in any paragraphs) shall be separate and distinct
objects of the Company and shall not be in any way limited
by reference to any other paragraph or the name of the
Company.
4 The liability of the members is limited.
5. The Company's share capital is *L100 divided into
100 Deferred Shares of L1 each and US$3,000,000,000
divided into 3,000,000,000 Ordinary Shares of US$1
each.
---------------
* The Share Capital of the Company was increased from L1,000
to L2,000,000,000 by Ordinary Resolution passed 26 February
1998.
By Special Resolution passed on 22 May 1998, the authorised
share capital of the Company was changed to L100 and
US$3,000,000,000 by the cancellation of 1,999,999,900
Ordinary Shares of L1 each in the authorised but unissued
share capital, by the creation of 3,000,000,000 new Ordinary
Shares of US$1 and by the conversion of 100 issued Ordinary
Shares of L1 into 100 Deferred Shares of L1 each.
<PAGE>
WE, the several persons whose names, addresses and descriptions
are subscribed are desirous of being formed into a Company in
pursuance of this Memorandum of Association and we respectively
agree to take the number of shares in the capital of the Company
set opposite our respective names.
-------------------------------------------------------------------
NAMES, ADDRESSES AND NUMBER OF SHARES
DESCRIPTIONS OF SUBSCRIBERS TAKEN BY EACH SUBSCRIBER
-------------------------------------------------------------------
LUCIENE JAMES LIMITED One
83 Leonard Street
London EC2A 4QS
Limited Company
THE COMPANY REGISTRATION AGENTS One
LIMITED
83 Leonard Street
London EC2A 4QS
Limited Company
-------------------------------------------------------------------
DATED 29 January 1998
WITNESS to the above signatures:-
FREDERICK PAUL CURTIS
8 Moreton Road South
Luton LU2 0JL
Company Registration Agent
THE COMPANIES ACT 1985
_________________________
COMPANY LIMITED BY SHARES
__________________________
NEW
ARTICLES OF ASSOCIATION
of
TXU EASTERN HOLDINGS LIMITED*
Registered in England - No. 3505836
(Adopted by Special Resolution passed on 22 May 1998)
1 PRELIMINARY
-----------
1.1 In these Articles:
"THE ACT" means the Companies Act 1985 (as amended)
"TABLE A" means Table A in the Companies (Tables A to
F) Regulations 1985 as amended by the Companies (Tables
A to F) (Amendment) Regulations 1985. Reference to
regulations are to regulations in Table A.
* By Special Resolution passed on 16 December 1998 the name
of the Company was changed from TU Finance (No. 1) Limited
to TXU Eastern Holdings Limited.
<PAGE>
"THE STATUTES" means the Act and any statutory
modification or re-enactment thereof for the time being
in force and every other Act for the time being in
force concerning companies and affecting the company.
1.2 Subject as hereinafter provided, the regulations
contained in Table A shall apply to the company.
1.3 Regulations 69, 73 to 78 inclusive, 101 and 118 shall
not apply to the company, but the Articles hereinafter
contained and the remaining regulations of Table A,
subject to the modifications hereinafter expressed,
shall constitute the regulations of the company.
2 SHARE CAPITAL
-------------
2.1 The share capital of the company at the date of the
adoption of these Articles is US$3,000,000,000
denominated in US dollars divided into 3,000,000,000
Ordinary Shares of US$1 each and L100 denominated in
sterling divided into 100 Deferred Shares of L1 each.
2.2 The following rights and restrictions shall be attached
to the Deferred Shares:
(a) As regards income
The holders of the Deferred Shares shall not be
entitled to receive any, dividend out of the
profits of the company available for distribution
and resolved to be distributed in respect of any
financial year or any other income or right to
participate therein.
(b) As regards capital
On a distribution of assets on a winding-up or
other return of capital (otherwise than on
conversion or redemption or purchase by the
company of any of its shares) the holders of the
Deferred Shares shall be entitled to receive the
amount paid up on their shares after there shall
have been distributed (in cash or specie) to the
holders of the Ordinary Shares the amount of
L100,000,000 in respect of each Ordinary Share
held by them respectively. For this purpose
distributions in currency other than sterling
shall be treated as converted into sterling, and
the value for any distribution in specie shall be
ascertained in sterling, in each case in such
manner as the directors or the company in general
meeting may approve. The Deferred Shares shall
not entitle the holders thereof to any further or
other right of participation in the assets of the
company.
(c) As regards voting
The holders of Deferred Shares shall not be
entitled to receive notice of or to attend (either
personally or by proxy) any general meeting of the
company or to vote (either personally or by proxy)
on any resolution to be proposed thereat.
(d) Variation
The rights attached to the Deferred Shares shall
not be deemed to be varied or abrogated by the
creation or issue of any new shares ranking in
priority to or pari passu with or subsequent to
such shares.
(e) Repurchase
Notwithstanding any other provision of these
Articles, the company shall have the power and
authority at any time to purchase all or any of
the Deferred Shares for an aggregate consideration
of L1.
2.3 Subject to the provisions of Articles 2.4 and 2.5
and to any directions which may be given by the
company in general meeting, the directors may
generally and unconditionally exercise the power
of the company to allot relevant securities
(within the meaning of section 80(2) of the Act)
and without prejudice to the generality of the
foregoing any shares unissued at the date of
adoption of these Articles and any shares
hereafter created shall be under the control of
the directors, who may allot, grant options over
or otherwise dispose of the same to such persons
(including, the directors themselves) on such
terms and at such times as they may think proper,
provided that no shares shall be issued at a
discount.
2.4 The maximum nominal amount of share capital which
or in respect of which the directors may allot,
grant options or subscription or conversion
rights, create, deal or otherwise dispose of in
accordance with this Article shall be
US$3,000,000,000 or such other amount as shall be
authorised by the company in general meeting.
2.5 The authority conferred on the directors by
Articles 2.3 and 2.4 shall expire on the day
preceding, the fifth anniversary of the date of
adoption of these Articles.
2.6 Pursuant to section 95(l) of the Act the directors
may allot equity securities (within the meaning of
section 94 of the Act) pursuant to the authority
in Articles 2.3 and 2.4 as if section 89(l) of the
Act did not apply to the allotment.
3 GENERAL MEETINGS
----------------
3.1 Regulation 37 shall be modified by:
(a) the substitution of the words "four weeks" for the
words "eight weeks"; and
(b) the deletion of the second sentence thereof and by
the addition at the end of the regulation of the
following sentence: "The holder of a majority of
the issued Ordinary Shares shall be entitled at
any time to call a general meeting".
3.2 For all purposes of these Articles apart from the
company has only one member, a general meeting of the
company or of the holders of any class of its shares
shall be valid and effective for all purposes if one
person being a duly authorised representative of two or
more corporations each of which is a member entitled to
vote upon the business to be transacted is present.
Regulation 40 of Table A shall be modified accordingly.
If, and for so long as, the company has only one
member, that member or the proxy for that member or,
where that member is a corporation, its duly authorised
representative shall be a quorum at any general
meetings of the company or of the holders of any class
of shares. Regulation 40 of Table A shall be modified
accordingly.
3.3 A resolution in writing in accordance with regulation
53 shall be deemed to have been duly executed on behalf
of a corporation if signed by one of its directors or
its secretary. In the case of a share held by joint
holders the signature of any one of them on behalf of
all such joint holders shall be sufficient for the
purposes of that regulation. The directors shall cause
a record of each resolution in writing, and of the
signatures to it, to be entered in a book in the same
way as minutes of proceedings of a general meeting of
the company and to be signed by a director or the
secretary of the company.
3.4 A proxy shall be entitled to vote on a show of hands
and regulation 54 shall be modified accordingly.
3.5 The instrument appointing a proxy and (if required by
the directors) any authority under which it is executed
or a copy of the authority, certified notarially or in
some other manner approved by the directors, may be
delivered to the office (or to such other place or to
such person as may be specified or agreed by the
directors) before the time for holding the meeting or
adjourned meeting at which the person named in the
instrument proposes to act or, in the case of a poll
taken subsequently to the date of the meeting or
adjourned meeting, before the time appointed for the
taking of the poll, and an instrument of proxy which is
not so delivered shall be invalid. The directors may
at their discretion treat a faxed or other machine made
copy of an instrument appointing a proxy as such an
instrument for the purpose of this article. Regulation
62 of Table A shall not apply.
4 POWERS AND DUTIES OF DIRECTORS
------------------------------
4.1 Subject to the provisions of the Statutes, a director
may be interested directly or indirectly in any
contract or arrangement or in any proposed contract or
arrangement with the company or with any other company
in which the company may be interested and he may hold
and be remunerated in respect of any office or place of
profit (other than the office of auditor of the company
or any subsidiary thereof) under the company or any
such other company and he or any firm of which he is a
member may act in a professional capacity for the
company or any such other company and be remunerated
therefor. Notwithstanding his interest a director may
vote on any matter in which he is interested and be
included for the purpose of a quorum at any meeting at
which the same is considered and he may retain for his
own benefit all profits and advantages accruing to him.
Regulations 94 and 95 shall be modified accordingly.
5 APPOINTMENT, REMOVAL AND DISQUALIFICATION OF DIRECTORS
------------------------------------------------------
5.1 Without prejudice to the powers of the company under
section 303 of the Act to remove a director by Ordinary
Resolution, the holder or holders for the time being of
more than one half of the issued Ordinary Shares of the
company shall have the power from time to time and at
any time to appoint any person or persons as a director
or directors and to remove from office any director
howsoever appointed. Any such appointment or removal
shall be effected by an instrument in writing signed by
the member or members making the same or (in the case
of a member being a corporation) signed on its behalf
by one of its directors or its secretary and shall take
effect upon lodgment at the registered office of the
company.
5.2 The office of a director shall be vacated if he is
removed from office under Article 5.1. Regulation 81
shall be modified accordingly.
5.3 Unless and until otherwise determined by the company by
Ordinary Resolution, either generally or in any
particular case, no director shall vacate or be
required to vacate his office as a director on or by
reason of his attaining or having attained the age of
70, and any person proposed to be appointed a director
shall be capable of being appointed as a director
notwithstanding that he has attained the age of 70, and
no special notice need be given of any resolution for
the appointment as a director of a person who shall
have attained the age of 70, and it shall not be
necessary to give to the members notice of the age of
any director or person proposed to be appointed as
such.
5.4 Regulation 88 shall be modified by the deletion of the
third sentence thereof.
6 ROTATION OF DIRECTORS
---------------------
6.1 The directors shall not be liable to retire by
rotation, and accordingly the second and third
sentences of regulation 79 shall be deleted.
7 ALTERNATE DIRECTORS
-------------------
7.1 Any director (other than an alternate director) may
appoint any other director, or any other person who is
willing to act, to be an alternate director and may
remove from office an alternate director so appointed
by him. Regulation 65 of Table A shall not apply.
7.2 Any appointment or removal of an alternate director
under Table A shall be delivered at the registered
office of the company.
7.3 If his appointor is for the time being absent from the
United Kingdom or otherwise not available the signature
of an alternate director to any resolution in writing
of the directors shall be as effective as the signature
of his appointor. An alternate director shall be
deemed to be a director for the purpose of signing
instruments pursuant to Article 10. Save as aforesaid,
an alternate director shall not have power to act as a
director nor shall he be deemed to be a director for
the purposes of these Articles.
7.4 An alternate director shall be entitled to contract and
be interested in and benefit from contracts or
arrangements with the company and to be repaid expenses
and to be indemnified to the same extent mutatis
mutandis as if he were a director, but he shall not be
entitled to receive from the company in respect of his
appointment as alternate director any remuneration,
except only such part (if any) of the remuneration
otherwise payable to his appointor as such appointor
may by notice in writing to the company from time to
time direct.
8 PROCEEDINGS OF DIRECTORS
------------------------
8.1 Any director or member of a committee of the directors
may participate in a meeting of the directors or such
committee by means of conference telephone or similar
communications equipment whereby all persons
participating in the meeting can hear each other and
participation in a meeting in this manner shall be
deemed to constitute presence in person at such
meeting.
8.2 The following sentence shall be inserted after the
first sentence of regulation 72: "Any committee shall
have power unless the directors direct otherwise to co-
opt as a member or members of the committee any person
or persons although not being a director of the
company."
8.3 For a signed resolution under regulation 93 to be
effective it shall not be necessary for it to be signed
by a director who is prohibited by the Articles or by
law from voting thereon. Regulation 93 shall be
modified accordingly.
8.4 The directors may delegate any of their powers (with
power to sub-delegate) to committees consisting of such
person or persons (whether directors or not) as they
think fit. Regulation 72 of Table A shall be modified
accordingly and references in Table A to a committee of
directors or to a director as a member of such a
committee shall include a committee established under
this article or such person or persons.
9 THE SEAL
--------
9.1 If the company has a seal, it shall only be used with
the authority of the directors or a committee of the
directors. The directors may determine who shall sign
any installment to which the seal is affixed and unless
otherwise so determined it shall be signed by a
director and by the secretary or second director. The
obligation under regulation 6 relating to the sealing
of share certificates shall apply only if the company
has a seal.
9.2 If the company has a common seal, the company may also
have an official seal for use abroad under the
provisions of the Act, where and as the directors shall
determine, and the company may by writing under the
common seal appoint any agents or agent, committees or
committee abroad to be the duly authorised agents of
the company, for the purpose of affixing and using such
official seal, and may impose such restrictions on the
use thereof as may be thought fit. Wherever in these
Articles reference is made to the common seal of the
company, the reference shall, when and so far as may be
applicable, be deemed to include any such official seal
as aforesaid.
10 NOTICES
-------
10.1 Every director of the company shall be entitled to
receive notices of general meetings (at his usual
address or such other address as he may notify to the
company) in addition to the persons so entitled under
the Statutes. The words "but otherwise no such member
shall be entitled to receive any notice from the
Company" in the last sentence of regulation 112 shall
be deleted.
10.2 Any notice required by these Articles to be given by
the company may be given by any visible form on paper,
including telex, facsimile and electronic mail, and a
notice communicated by such forms of immediate
transmission shall be deemed to be given at the time it
is transmitted to the person to whom it is addressed.
Regulations 111 and 112 shall be modified accordingly.
10.3 In the first sentence of regulation 112 the words "(or
at such other address, whether within or outside the
United Kingdom, as he may supply to the company for
that purpose)" shall be inserted after "registered
address".
10.4 A notice posted to an address outside the United
Kingdom shall be deemed, unless the contrary is proved,
to be given at the expiration of 7 days after the
envelope containing it was posted and regulation 115
shall be amended accordingly.
10.5 Regulation 116 shall be modified by the substitution of
the words "the address, if any, whether within or
outside the United Kingdom" for the words "the address,
if any, within the United Kingdom" in the first
sentence thereof.
11 INDEMNITY
---------
11.1 Subject to the provisions of, and so far as may be
consistent with, the Statutes, but without prejudice to
any indemnity to which a director may be otherwise
entitled, every director, auditor, secretary or other
officer of the company shall be entitled to be
indemnified by the company against all costs, charges,
losses, expenses and liabilities incurred by him in the
execution and/or discharge of his duties and/or the
exercise of his powers and/or otherwise in relation to
or in connection with his duties, powers or office
including (without prejudice to the generality of the
foregoing) any liability incurred by him in defending
any proceedings, civil or criminal, which relate to
anything done or omitted or alleged to have been done
or omitted by him as an officer or employee of the
company and in which judgment is given in his favour
(or the proceedings are otherwise disposed of without
any finding or admission of any material breach of duty
on his part) or in which he is acquitted or in
connection with any application under any statute for
relief from liability in respect of any such act or
omission in which relief is granted to him by the
Court.
------------------------------------------
TXU EASTERN FUNDING COMPANY
ISSUER
AND
TXU EASTERN HOLDINGS LIMITED,
GUARANTOR
TO
THE BANK OF NEW YORK
TRUSTEE
---------
INDENTURE
(FOR UNSECURED DEBT SECURITIES)
DATED AS OF MAY 1, 1999
------------------------------------------
<PAGE>
TABLE OF CONTENTS
PARTIES...................................................................... 1
RECITAL OF THE COMPANY
RECITAL OF THE GUARANTOR
ARTICLE ONE
Definitions and Other Provisions of General Application
SECTION 101. Definitions............................................... 1
Act................................................................ 2
Additional Amounts................................................. 2
Affiliate.......................................................... 2
Attributable Debt.................................................. 2
Authenticating Agent............................................... 3
Authorized Officer................................................. 3
Board of Directors................................................. 3
Board Resolution................................................... 3
Business Day....................................................... 3
Commission......................................................... 3
Company............................................................ 3
Company Request or Company Order................................... 3
Consolidated Net Tangible Assets................................... 3
Corporate Trust Office............................................. 4
corporation........................................................ 4
Debt............................................................... 4
Defaulted Interest................................................. 4
Discount Security.................................................. 4
Dollar or $........................................................ 4
Eligible Obligations............................................... 4
Event of Default................................................... 4
Funded Debt........................................................ 4
Governmental Authority............................................. 4
Government Obligations............................................. 4
Guarantee.......................................................... 5
Guarantor.......................................................... 5
Guarantor Order or Guarantor Request............................... 5
Holder............................................................. 5
Indenture.......................................................... 5
Interest Payment Date.............................................. 5
Judgment Currency.................................................. 5
Jurisdiction of Incorporation...................................... 5
Lien............................................................... 6
Maturity........................................................... 6
Note: This table of contents shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE>
ii
Net Proceeds....................................................... 6
Officer's Certificate.............................................. 6
Opinion of Counsel................................................. 6
Outstanding........................................................ 6
Paying Agent....................................................... 7
Periodic Offering.................................................. 7
Person............................................................. 8
Place of Payment................................................... 8
Predecessor Security............................................... 8
Principal Property................................................. 8
Redemption Date.................................................... 8
Redemption Price................................................... 8
Regular Record Date................................................ 8
Required Currency.................................................. 8
Responsible Officer................................................ 8
Restricted Subsidiary.............................................. 8
Sale and Leaseback Transaction..................................... 8
Securities......................................................... 9
Security Register and Security Registrar........................... 9
Special Record Date................................................ 9
Stated Interest Rate............................................... 9
Stated Maturity.................................................... 9
Subsidiary......................................................... 9
Tranche............................................................ 9
Trust Indenture Act................................................ 9
Trustee............................................................ 9
United States...................................................... 9
SECTION 102. Compliance Certificates and Opinions...................... 10
SECTION 103. Form of Documents Delivered to Trustee.................... 10
SECTION 104. Acts of Holders........................................... 11
SECTION 105. Notices, etc. to Trustee, Company or Guarantor............ 13
SECTION 106. Notice to Holders of Securities; Waiver................... 14
SECTION 107. Conflict with Trust Indenture Act......................... 15
SECTION 108. Effect of Headings and Table of Contents.................. 15
SECTION 109. Successors and Assigns.................................... 15
SECTION 110. Separability Clause....................................... 15
SECTION 111. Benefits of Indenture..................................... 15
SECTION 112. Governing Law............................................. 16
SECTION 113. Legal Holidays............................................ 16
SECTION 114. Agent to Receive Service of Process....................... 16
SECTION 115. Consent to Jurisdiction; Appointment of Agent
for Service; Judgment Currency; Waiver of Immunities...... 16
ARTICLE TWO
Security Forms
SECTION 201. Forms Generally........................................... 18
SECTION 202. Form of Trustee's Certificate of Authentication........... 19
<PAGE>
iii
ARTICLE THREE
The Securities
SECTION 301. Amount Unlimited; Issuable in Series...................... 19
SECTION 302. Denominations............................................. 23
SECTION 303. Execution, Authentication, Delivery and Dating............ 23
SECTION 304. Temporary Securities...................................... 27
SECTION 305. Registration, Registration of Transfer and Exchange....... 27
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.......... 29
SECTION 307. Payment of Interest; Interest Rights Preserved............ 29
SECTION 308. Persons Deemed Owners..................................... 31
SECTION 309. Cancellation by Security Registrar........................ 31
SECTION 310. Computation of Interest................................... 31
SECTION 311. Payment to Be in Proper Currency.......................... 31
SECTION 312. Extension of Interest Payment............................. 32
ARTICLE FOUR
Redemption of Securities
SECTION 401. Applicability of Article.................................. 32
SECTION 402. Election to Redeem; Notice to Trustee..................... 32
SECTION 403. Selection of Securities to Be Redeemed.................... 33
SECTION 404. Notice of Redemption...................................... 33
SECTION 405. Securities Payable on Redemption Date..................... 34
SECTION 406. Securities Redeemed in Part............................... 35
ARTICLE FIVE
Sinking Funds
SECTION 501. Applicability of Article.................................. 35
SECTION 502. Satisfaction of Sinking Fund Payments with Securities..... 35
SECTION 503. Redemption of Securities for Sinking Fund................. 36
ARTICLE SIX
Covenants
SECTION 601. Payment of Principal, Premium and Interest................ 37
SECTION 602. Maintenance of Office or Agency........................... 37
SECTION 603. Money for Securities Payments to Be Held in Trust......... 38
SECTION 604. Corporate Existence....................................... 39
SECTION 605. Maintenance of Corporate Records; Protection of Assets.... 39
SECTION 606. Annual Officer's Certificate as to Compliance............. 39
SECTION 607. Waiver of Certain Covenants............................... 39
SECTION 608. Limitation on Liens....................................... 40
SECTION 609. Limitation on Sale and Leaseback Transactions............. 42
SECTION 610. Business of the Company................................... 43
ARTICLE SEVEN
<PAGE>
iv
Satisfaction and Discharge
SECTION 701. Satisfaction and Discharge of Securities.................. 43
SECTION 702. Satisfaction and Discharge of Indenture................... 45
SECTION 703. Application of Trust Money................................ 46
ARTICLE EIGHT
Events of Default; Remedies
SECTION 801. Events of Default......................................... 47
SECTION 802. Acceleration of Maturity; Rescission and Annulment........ 48
SECTION 803. Collection of Indebtedness and Suits for Enforcement
by Trustee................................................ 50
SECTION 804. Trustee May File Proofs of Claim.......................... 50
SECTION 805. Trustee May Enforce Claims Without Possession of
Securities................................................ 51
SECTION 806. Application of Money Collected............................ 51
SECTION 807. Limitation on Suits....................................... 52
SECTION 808. Unconditional Right of Holders to Receive Principal,
Premium and Interest...................................... 52
SECTION 809. Restoration of Rights and Remedies........................ 53
SECTION 810. Rights and Remedies Cumulative............................ 53
SECTION 811. Delay or Omission Not Waiver.............................. 53
SECTION 812. Control by Holders of Securities.......................... 53
SECTION 813. Waiver of Past Defaults................................... 54
SECTION 814. Undertaking for Costs..................................... 54
SECTION 815. Waiver of Stay or Extension Laws.......................... 54
ARTICLE NINE
The Trustee
SECTION 901. Certain Duties and Responsibilities....................... 55
SECTION 902. Notice of Defaults........................................ 55
SECTION 903. Certain Rights of Trustee................................. 56
SECTION 904. Not Responsible for Recitals or Issuance of Securities.... 57
SECTION 905. May Hold Securities....................................... 57
SECTION 906. Money Held in Trust....................................... 57
SECTION 907. Compensation and Reimbursement............................ 57
SECTION 908. Disqualification; Conflicting Interests................... 58
SECTION 909. Corporate Trustee Required; Eligibility................... 59
SECTION 910. Resignation and Removal; Appointment of Successor......... 59
SECTION 911. Acceptance of Appointment by Successor.................... 61
SECTION 912. Merger, Conversion, Consolidation or Succession to
Business.................................................. 62
SECTION 913. Preferential Collection of Claims Against Company......... 63
SECTION 914. Co-trustees and Separate Trustees......................... 63
SECTION 915. Appointment of Authenticating Agent....................... 64
ARTICLE TEN
Holders' Lists and Reports by Trustee, Company and Guarantor
SECTION 1001. Lists of Holders......................................... 66
<PAGE>
v
SECTION 1002. Reports by Trustee, Company and Guarantor................ 67
ARTICLE ELEVEN
Consolidation, Merger, Conveyance or Other Transfer
SECTION 1101. Company or Guarantor May Consolidate, etc.,
Only on Certain Terms..................................... 67
SECTION 1102. Successor Corporation Substituted......................... 68
SECTION 1103. Merger into Company or Guarantor; Certain Transfers....... 68
SECTION 1104. Consolidation Defined..................................... 68
ARTICLE TWELVE
Supplemental Indentures
SECTION 1201. Supplemental Indentures Without Consent of Holders........ 68
SECTION 1202. Supplemental Indentures With Consent of Holders........... 70
SECTION 1203. Execution of Supplemental Indentures...................... 72
SECTION 1204. Effect of Supplemental Indentures......................... 72
SECTION 1205. Conformity With Trust Indenture Act....................... 72
SECTION 1206. Reference in Securities to Supplemental Indentures........ 72
SECTION 1207. Modification Without Supplemental Indenture............... 72
ARTICLE THIRTEEN
Meetings of Holders; Action Without Meeting
SECTION 1301. Purposes for Which Meetings May Be Called................. 73
SECTION 1302. Call, Notice and Place of Meetings........................ 73
SECTION 1303. Persons Entitled to Vote at Meetings...................... 74
SECTION 1304. Quorum; Action............................................ 74
SECTION 1305. Attendance at Meetings; Determination of Voting Rights;
Conduct and Adjournment of Meetings....................... 75
SECTION 1306. Counting Votes and Recording Action of Meetings........... 76
SECTION 1307. Action Without Meeting.................................... 76
ARTICLE FOURTEEN
Guarantee
SECTION 1401. Guarantee................................................. 77
SECTION 1402. Execution and Delivery of Guarantee....................... 79
ARTICLE FIFTEEN
Immunity of Incorporators, Shareholders, Officers and Directors
SECTION 1501. Liability Solely Corporate................................ 79
ARTICLE SIXTEEN
Senior Notes of the First Series, Second Series,
<PAGE>
vi
Third Series, Fourth Series, Fifth Series and Sixth Series
SECTION 1601. Designation of Senior Notes of the First Series........... 80
SECTION 1602. Designation of Senior Notes of the Second Series.......... 80
SECTION 1603. Designation of Senior Notes of the Third Series........... 80
SECTION 1604. Designation of Senior Notes of the Fourth Series.......... 80
SECTION 1605. Designation of Senior Notes of the Fifth Series........... 80
SECTION 1606. Designation of Senior Notes of the Sixth Series........... 81
Testimonium.................................................................. 82
Signatures................................................................... 82
<PAGE>
TXU EASTERN FUNDING COMPANY
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939
AND INDENTURE, DATED AS OF MAY 1, 1999
TRUST INDENTURE ACT SECTION INDENTURE SECTION
Section 310 (a)(1).................................................909
(a)(2).................................................909
(a)(3).................................................914
(a)(4)............................................Not Applicable
(b)....................................................908
910
Section 311 (a)....................................................913
(b)....................................................913
(c)....................................................913
Section 312 (a)...................................................1001
(b)...................................................1001
(c)...................................................1001
Section 313 (a)...................................................1002
(b)...................................................1002
(c)...................................................1002
Section 314 (a)...................................................1002
(a)(4).................................................606
(b)...............................................Not Applicable
(c)(1).................................................102
(c)(2).................................................102
(c)(3)............................................Not Applicable
(d)...............................................Not Applicable
(e)....................................................102
Section 315 (a)....................................................901
903
(b)....................................................902
(c)....................................................901
(d)....................................................901
(e)....................................................814
Section 316 (a)....................................................812
813
(a)(1)(A)..............................................802
812
(a)(1)(B)..............................................813
(a)(2)............................................Not Applicable
(b)....................................................808
Section 317 (a)(1).................................................803
(a)(2).................................................804
(b)....................................................603
Section 318 (a)....................................................107
<PAGE>
INDENTURE, dated as of May 1, 1999, among TXU EASTERN FUNDING COMPANY,
a private unlimited company duly incorporated and existing under the laws of
England and Wales (herein called the "Company"), having its registered office at
Crown House, 51 Aldwych, London WC2B 4AX, England, TXU EASTERN HOLDINGS LIMITED,
a private limited company duly incorporated and existing under the laws of
England and Wales (herein called the "Guarantor"), having its principal office
at Crown House, 51 Aldwych, London WC2B 4AX, England and THE BANK OF NEW YORK, a
banking corporation of the State of New York, having its principal corporate
trust office at 101 Barclay Street, New York, New York 10286, as Trustee (herein
called the "Trustee").
RECITAL OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured
debentures, notes or other evidences of indebtedness (herein called the
"Securities"), in an unlimited aggregate principal amount to be issued in one or
more series as contemplated herein with a Guarantee endorsed thereon; and all
acts necessary to make this Indenture a valid agreement of the Company have been
performed.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires, capitalized terms used herein
shall have the meanings assigned to them in Article One of this Indenture.
RECITAL OF THE GUARANTOR
The Guarantor has duly authorized the execution and delivery of this
Indenture to provide for the Guarantee of the Securities provided for herein;
and all acts necessary to make this Indenture a valid agreement of the
Guarantor, in accordance with its terms have been performed.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities or of any
series thereof, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(b) all terms used herein without definition which are defined in the
Trust Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles in the United States, and, except as otherwise herein expressly
provided, the term "generally accepted accounting principles" with respect
to any computation required or permitted hereunder shall mean such
accounting principles as are generally accepted in the United States at the
date of such computation or, at the election of the Company from time to
time, at the date of the execution and delivery of this Indenture;
provided, however, that in determining generally accepted accounting
principles applicable to the Company, the Company shall, to the extent
required, conform to any order, rule or regulation of any administrative
agency, regulatory authority or other governmental body having jurisdiction
over the Company; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Article Nine, are defined in that
Article.
"ACT", when used with respect to any Holder of a Security, has the
meaning specified in Section 104.
"ADDITIONAL AMOUNTS" means amounts that may be payable with respect to
Securities of one or more series or Tranches as may be provided pursuant to
Section 301.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"CONTROL" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or through one or
more intermediaries, whether through the ownership of voting securities, by
contract or otherwise; and the terms "CONTROLLING" and "CONTROLLED" have
meanings correlative to the foregoing.
"ATTRIBUTABLE DEBT" means as to any lease in respect of a Sale and
Leaseback Transaction, as of the date of determination, the lesser of (i) the
fair value of the property subject to the Sale and Leaseback Transaction (as
determined by the Board of Directors of the Guarantor) and (ii) the present
value (discounted at a rate equal to the weighted average of the rate of
interest on all Securities then issued and outstanding under the Indenture,
compounded semi-annually) of the total amount of rent required to be paid under
such lease during the remaining term thereof, including any period for which
such lease has been extended. Such rental payments shall not include amounts
payable by or on behalf of the lessee on account of maintenance and repairs,
insurance, taxes, assessments, water rates and similar charges.
"AUTHENTICATING AGENT" means any Person (other than the Company or an
Affiliate of the Company) authorized by the Trustee pursuant to Section 915 to
act on behalf of the Trustee to authenticate one or more series of Securities or
Tranche thereof.
"AUTHORIZED OFFICER" means the Chairman of the Board, any director,
any managing director, the President, any Vice President, the Treasurer, any
Assistant Treasurer, or any other officer or agent of the Company or the
Guarantor, as the case may be, authorized by a Board Resolution of the Company
or the Guarantor, as the case requires, to act in respect of matters relating to
this Indenture.
"BOARD OF DIRECTORS" means either the board of directors of the
Company or the Guarantor, as the case requires, or any committee of that board
duly authorized to act in respect of matters relating to this Indenture or its
equivalent if the Company or the Guarantor has no board of directors.
"BOARD RESOLUTION" means a copy of a resolution certified by the
Secretary or an Assistant Secretary or a director or other persons designated by
the Board of Directors of the Company or the Guarantor, as the case requires, to
have been duly adopted by the Board of Directors of the Company or the
Guarantor, as the case requires, and to be in full force and effect on the date
of such certification, and delivered to the Trustee.
"BUSINESS DAY", when used with respect to a Place of Payment or any
other particular location specified in the Securities or this Indenture, means
any day, other than a Saturday or Sunday, which is not a day on which banking
institutions or trust companies in such Place of Payment or other location are
generally authorized or required by law, regulation or executive order to remain
closed, except as may be otherwise specified as contemplated by Section 301.
"COMMISSION" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, as
amended, or, if at any time after the date of execution and delivery of this
Indenture such Commission is not existing and performing the duties now assigned
to it under the Trust Indenture Act, then the body, if any, performing such
duties at such time.
"COMPANY" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"COMPANY REQUEST" or "COMPANY ORDER" means a written request or order
signed in the name of the Company by an Authorized Officer and delivered to the
Trustee.
"CONSOLIDATED NET TANGIBLE ASSETS" means the aggregate amount of total
assets of the Guarantor and its consolidated subsidiaries after deducting
therefrom (i) all current liabilities and (ii) all goodwill, trade names,
trademarks, patents and other like intangible assets, as shown on the audited
consolidated balance sheet contained in the latest annual report to shareholders
of the Guarantor.
"CORPORATE TRUST OFFICE" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the date of execution and delivery of this
instrument is located on the 21st floor, at 101 Barclay Street-21W, New York,
New York 10286.
"CORPORATION" means a corporation, association, company, limited
liability company, partnership, joint stock company or business trust.
"DEBT" means any notes, bonds, debentures or other similar evidences
of indebtedness.
"DEFAULTED INTEREST" has the meaning specified in Section 307.
"DISCOUNT SECURITY" means any Security which provides for an amount
less than the principal amount thereof to be due and payable upon a declaration
of acceleration of the Maturity thereof pursuant to Section 802. "Interest" with
respect to a Discount Security means interest, if any, borne by such Security at
a Stated Interest Rate.
"DOLLAR" or "$" means a dollar or other equivalent unit in such coin
or currency of the United States as at the time shall be legal tender for the
payment of public and private debts.
"ELIGIBLE OBLIGATIONS" means:
(a) with respect to Securities denominated in Dollars, Government
Obligations; or
(b) with respect to Securities denominated in a currency other than
Dollars or in a composite currency, such other obligations or instruments
as shall be specified with respect to such Securities, as contemplated by
Section 301.
"EVENT OF DEFAULT" has the meaning specified in Section 801.
"FUNDED DEBT" means any indebtedness which by its terms or by the
terms of any instrument or agreement relating thereto matures, or which is
otherwise payable or unpaid, more than one year from, or is directly or
indirectly renewable or extendible at the option of the debtor to a date more
than one year from the date of creation thereof.
"GOVERNMENTAL AUTHORITY" means the government of any country or state
or of any count y, municipality or other political subdivision of any of the
foregoing, or any department, agency, authority or other instrumentality of any
of the foregoing.
"GOVERNMENT OBLIGATIONS" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States and
entitled to the benefit of the full faith and credit thereof; and
(b) certificates, depositary receipts or other instruments which
evidence a direct ownership interest in obligations described in clause (a)
above or in any specific interest or principal payments due in respect
thereof; provided, however, that the custodian of such obligations or
specific interest or principal payments shall be a bank or trust company
(which may include the Trustee or any Paying Agent) subject to Federal or
state supervision or examination with a combined capital and surplus of at
least $50,000,000; and provided, further, that except as may be otherwise
required by law, such custodian shall be obligated to pay to the holders of
such certificates, depositary receipts or other instruments the full amount
received by such custodian in respect of such obligations or specific
payments and shall not be permitted to make any deduction therefrom.
"GUARANTEE" means any guarantee of the Guarantor endorsed on a
Security authenticated and delivered pursuant to this Indenture in the form
thereof established pursuant to Section 201 and shall include the guarantee set
forth in Section 1401.
"GUARANTOR" means the Person named as "Guarantor" in the first
paragraph of this Indenture until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Guarantor" shall include such successor Person.
"GUARANTOR ORDER" or "GUARANTOR REQUEST" mean, respectively, a written
order or request, as the case may be, signed in the name of the Guarantor by an
Authorized Officer of the Guarantor and delivered to the Trustee.
"HOLDER" means a Person in whose name a Security is registered in the
Security Register or, in the case of a Security issued in bearer, global form,
the bearer of such Security.
"INDENTURE" means this instrument as originally executed and delivered
and as it may from time to time be supplemented or amended by one or more
indentures supplemental hereto entered into pursuant to the applicable
provisions hereof and shall include the terms of a particular series of
Securities established as contemplated by Section 301.
"INTEREST PAYMENT DATE", when used with respect to any Security, means
the Stated Maturity of an installment of interest on such Security.
"JUDGMENT CURRENCY" has the meaning specified in Section 115(c).
"JURISDICTION OF INCORPORATION" shall mean each jurisdiction in which
the Company or the Guarantor, as the case requires, is incorporated or
organized.
"LIEN" means any mortgage, pledge, security interest, lien or other
similar encumbrance.
"MATURITY", when used with respect to any Security, means the date on
which the principal of such Security or an installment of principal becomes due
and payable as provided in such Security or in this Indenture, whether at the
Stated Maturity, by declaration of acceleration, upon call for redemption or
otherwise.
"NET PROCEEDS" has the meaning specified in Section 609.
"OFFICER'S CERTIFICATE" means a certificate signed by an Authorized
Officer of the Company or the Guarantor, as the case requires, and delivered to
the Trustee. An Officer's Certificate of the Company may be combined with an
Officer's Certificate of the Guarantor if signed by Authorized Officers of the
Company and the Guarantor.
"OPINION OF COUNSEL" means a written opinion of counsel, who may be
counsel for the Company or the Guarantor, as the case requires, or other counsel
acceptable to the Trustee.
"OUTSTANDING", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(a) Securities theretofore canceled or delivered to the Security
Registrar for cancellation;
(b) Securities deemed to have been paid in accordance with
Section 701; and
(c) Securities which have been paid pursuant to Section 306 or
in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any such
Securities in respect of which there shall have been presented to the
Trustee proof satisfactory to it and the Company that such Securities are
held by a bona fide purchaser or purchasers in whose hands such Securities
are valid obligations of the Company;
provided, however, that in determining whether or not the Holders of the
requisite principal amount of the Securities Outstanding under this Indenture,
or the Outstanding Securities of any series or Tranche, have given any request,
demand, authorization, direction, notice, consent or waiver hereunder or whether
or not a quorum is present at a meeting of Holders of Securities,
(x) Securities owned by the Company or any other obligor upon
the Securities or any Affiliate of the Company or of such other obligor
(unless the Company, such Affiliate or such obligor owns all Securities
Outstanding under this Indenture, or (except for the purposes of actions to
be taken by Holders of (i) more than one series voting as a class under
Section 812 or (ii) more than one series or more than one Tranche, as the
case may be, voting as a class under Section 1202) all Outstanding
Securities of each such series and each such Tranche, as the case may be,
determined without regard to this clause (x)) shall be disregarded and
deemed not to be Outstanding, except that, in determining whether the
Trustee shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver or upon any such
determination as to the presence of a quorum, only Securities which the
Trustee knows to be so owned shall be so disregarded; provided, however,
that Securities so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of
the Trustee the pledgee's right so to act with respect to such Securities
and that the pledgee is not the Company or any other obligor upon the
Securities or any Affiliate of the Company or of such other obligor;
(y) the principal amount of a Discount Security that shall be
deemed to be Outstanding for such purposes shall be the amount of the
principal thereof that would be due and payable as of the date of such
determination upon a declaration of acceleration of the Maturity thereof
pursuant to Section 802; and
(z) the principal amount of any Security which is denominated
in a currency other than Dollars or in a composite currency that shall be
deemed to be Outstanding for such purposes shall be the amount of Dollars
which could have been purchased by the principal amount (or, in the case of
a Discount Security, the Dollar equivalent on the date determined as set
forth below of the amount determined as provided in (y) above) of such
currency or composite currency evidenced by such Security, in each case
certified to the Trustee in an Officer's Certificate of the Company, based
(i) on the average of the mean of the buying and selling spot rates quoted
by three banks which are members of the New York Clearing House Association
selected by the Company in effect at 11:00 a.m. (New York time) in The City
of New York on the fifth Business Day preceding any such determination or
(ii) if on such fifth Business Day it shall not be possible or practicable
to obtain such quotations from three such banks, on such other quotations
or alternative methods of determination which shall be as consistent as
practicable with the method set forth in (i) above;
provided, further, that, in the case of any Security the principal of which is
payable from time to time without presentment or surrender, the principal amount
of such Security that shall be deemed to be Outstanding at any time for all
purposes of this Indenture shall be the original principal amount thereof less
the aggregate amount of principal thereof theretofore paid.
"PAYING AGENT" means any Person, including the Company or the
Guarantor, authorized by the Company to pay the principal of, and premium, if
any, or interest, if any, on any Securities on behalf of the Company or the
Guarantor.
"PERIODIC OFFERING" means an offering of Securities of a series from time
to time any or all of the specific terms of which Securities, including without
limitation the rate or rates of interest, if any, thereon, the Stated Maturity
or Maturities thereof and the redemption provisions, if any, with respect
thereto, are to be determined by the Company or its agents upon the issuance of
such Securities.
"PERSON" means any individual, corporation, joint venture, trust or
unincorporated organization or any Governmental Authority.
"PLACE OF PAYMENT", when used with respect to the Securities of any
series, or any Tranche thereof, means the place or places, specified as
contemplated by Section 301, at which, subject to Section 602, principal of and
premium, if any, and interest, if any, and Additional Amounts, if any, on the
Securities of such series or Tranche are payable.
"PREDECESSOR SECURITY" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed (to the extent
lawful) to evidence the same debt as the mutilated, destroyed, lost or stolen
Security.
"PRINCIPAL PROPERTY" means (i) any interests in (a) coal or gas
reserves or producing properties, including any building, structure or other
facility thereon including underground or surface mines, (b) any electricity
generation facility or transmission or distribution network, or (c) any
contracts for the purchase or sale of electricity or gas or contracts for
differences relating to electricity prices, other than such contracts or
portions thereof which in the aggregate are, in the opinion of the Board of
Directors of the Guarantor, not of material importance to the business of the
Guarantor and its Subsidiaries taken as a whole, and (ii) any shares of capital
stock of any Subsidiary owning any such properties or contracts.
"REDEMPTION DATE", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"REDEMPTION PRICE", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"REGULAR RECORD DATE" for the interest payable on any Interest Payment
Date on the Securities of any series means the date specified for that purpose
as contemplated by Section 301.
"REQUIRED CURRENCY" has the meaning specified in Section 311.
"RESPONSIBLE OFFICER", when used with respect to the Trustee, means
any Vice President, Assistant Vice President, Trust Officer or other officer of
the Trustee assigned by the Trustee to the Corporation Trust Administration
Division of the Trustee (or any successor division or department of the
Trustee).
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Guarantor which
owns a Principal Property.
"SALE AND LEASEBACK TRANSACTION" has the meaning stated in
Section 609.
"SECURITIES" has the meaning stated in the first recital of this
Indenture and more particularly means any securities authenticated and delivered
under this Indenture.
"SECURITY REGISTER" and "SECURITY REGISTRAR" have the respective
meanings specified in Section 305.
"SPECIAL RECORD DATE" for the payment of any Defaulted Interest on the
Securities of any series means a date fixed by the Trustee pursuant to
Section 307.
"STATED INTEREST RATE" means a rate (whether fixed or variable) at
which an obligation by its terms is stated to bear simple interest. Any
calculation or other determination to be made under this Indenture by reference
to the Stated Interest Rate on a Security shall be made without regard to the
effective interest cost to the Company of such Security and without regard to
the Stated Interest Rate on, or the effective cost to the Company of, any other
indebtedness in respect of which the Company's obligations are evidenced or
secured in whole or in part by such Security.
"STATED MATURITY", when used with respect to any obligation or any
installment of principal thereof or interest thereon, means the date on which
the principal of such obligation or such installment of principal or interest is
stated to be due and payable (without regard to any provisions for redemption,
prepayment, acceleration, purchase or extension).
"SUBSIDIARY" means a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company, the
Guarantor or by one or more other Subsidiaries, or by the Company or the
Guarantor and one or more other Subsidiaries. For the purposes of this
definition, "voting stock" means stock that ordinarily has voting power for the
election of directors, whether at all times or only so long as no senior class
of stock has such voting power by reason of any contingency.
"TRANCHE" means a group of Securities which (a) are of the same series
and (b) have identical terms except as to principal amount and/or date of
issuance.
"TRUST INDENTURE ACT" means, as of any time, the Trust Indenture Act
of 1939, or any successor statute, as in effect at such time.
"TRUSTEE" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
with respect to one or more series of Securities pursuant to the applicable
provisions of this Indenture, and thereafter "Trustee" shall mean or include
each Person who is then a Trustee hereunder, and if at any time there is more
than one such Person, "Trustee" as used with respect to the Securities of any
series shall mean the Trustee with respect to Securities of that series.
"UNITED STATES" means the United States of America, its Territories,
its possessions and other areas subject to its political jurisdiction.
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Except as otherwise expressly provided in this Indenture, upon any
application or request by the Company or the Guarantor to the Trustee to take
any action under any provision of this Indenture, the Company and the Guarantor
shall each, if requested by the Trustee, furnish to the Trustee an Officer's
Certificate stating that all conditions precedent, if any, provided for in this
Indenture relating to the proposed action (including any covenants compliance
with which constitutes a condition precedent) have been complied with and an
Opinion of Counsel stating that in the opinion of such counsel all such
conditions precedent, if any, have been complied with, except that in the case
of any such application or request as to which the furnishing of such documents
is specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that each Person signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(b) 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;
(c) a statement that, in the opinion of each such Person, such
Person has made such examination or investigation as is necessary to enable
such Person to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such Person,
such condition or covenant has been complied with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
Any certificate or opinion of an officer of the Company or the
Guarantor may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which such
officer's certificate or opinion are based are erroneous. Any such certificate
or Opinion of Counsel may be based, insofar as it relates to factual matters,
upon a certificate or opinion of, or representations by, an officer or officers
of the Company stating that the information with respect to such factual matters
is in the possession of the Company, unless such counsel knows, or in the
exercise of reasonable care should know, that the certificate or opinion or
representations with respect to such matters are erroneous. In addition, any
Opinion of Counsel may be based (without further examination or investigation),
insofar as it relates to or is dependent upon matters covered in an Opinion of
Counsel rendered by other counsel, upon such other Opinion of Counsel, unless
such counsel has actual knowledge that the Opinion of Counsel rendered by such
other counsel with respect to the matters upon which his Opinion of Counsel may
be based as aforesaid are erroneous. If, in order to render any Opinion of
Counsel provided for herein, the signer thereof shall deem it necessary that
additional facts or matters be stated in any Officer's Certificate provided for
herein, then such certificate may state all such additional facts or matters as
the signer of such Opinion of Counsel may request.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever, subsequent to the receipt by the Trustee of any Board
Resolution, Officer's Certificate, Opinion of Counsel or other document or
instrument, a clerical, typographical or other inadvertent or unintentional
error or omission shall be discovered therein, a new document or instrument may
be substituted therefor in corrected form with the same force and effect as if
originally filed in the corrected form and, irrespective of the date or dates of
the actual execution and/or delivery thereof, such substitute document or
instrument shall be deemed to have been executed and/or delivered as of the date
or dates required with respect to the document or instrument for which it is
substituted. Anything in this Indenture to the contrary notwithstanding, if any
such corrective document or instrument indicates that action has been taken by
or at the request of the Company which could not have been taken had the
original document or instrument not contained such error or omission, the action
so taken shall not be invalidated or otherwise rendered ineffective but shall be
and remain in full force and effect, except to the extent that such action was a
result of willful misconduct or bad faith. Without limiting the generality of
the foregoing, any Securities issued under the authority of such defective
document or instrument shall nevertheless be the valid obligations of the
Company entitled to the benefits of this Indenture equally and ratably with all
other Outstanding Securities, except as aforesaid.
SECTION 104. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
election, waiver or other action provided by this Indenture to be made,
given or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person
or by an agent duly appointed in writing or, alternatively, may be embodied
in and evidenced by the record of Holders voting in favor thereof, either
in person or by proxies duly appointed in writing, at any meeting of
Holders duly called and held in accordance with the provisions of Article
Thirteen, or a combination of such instruments and any such record. Except
as herein otherwise expressly provided, such action shall become effective
when such instrument or instruments or record or both are delivered to the
Trustee and, where it is hereby expressly required, to the Company and the
Guarantor. Such instrument or instruments and any such record (and the
action embodied therein and evidenced thereby) are herein sometimes
referred to as the "Act" of the Holders signing such instrument or
instruments and so voting at any such meeting. Proof of execution of any
such instrument or of a writing appointing any such agent, or of the
holding by any Person of a Security, shall be sufficient for any purpose of
this Indenture and (subject to Section 901) conclusive in favor of the
Trustee, the Company and the Guarantor, if made in the manner provided in
this Section. The record of any meeting of Holders shall be proved in the
manner provided in Section 1306.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer
authorized by law to take acknowledgments of deeds, certifying that the
individual signing such instrument or writing acknowledged to him the
execution thereof or may be proved in any other manner which the Trustee
and the Company deem sufficient. Where such execution is by a signer acting
in a capacity other than his individual capacity, such certificate or
affidavit shall also constitute sufficient proof of his authority.
(c) The principal amount (except as otherwise contemplated in
clause (y) of the first proviso to the definition of Outstanding) and
serial numbers of Securities held by any Person, and the date of holding
the same, shall be proved by the Security Register.
(d) Any request, demand, authorization, direction, notice, consent,
election, waiver or other Act of a Holder shall bind every future Holder of
the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee,
the Company or the Guarantor in reliance thereon, whether or not notation
of such action is made upon such Security.
(e) Until such time as written instruments shall have been delivered
to the Trustee with respect to the requisite percentage of principal amount
of Securities for the action contemplated by such instruments, any such
instrument executed and delivered by or on behalf of a Holder may be
revoked with respect to any or all of such Securities by written notice by
such Holder or any subsequent Holder, proven in the manner in which such
instrument was proven.
(f) Securities of any series, or any Tranche thereof, authenticated
and delivered after any Act of Holders may, and shall if required by the
Trustee, bear a notation in form approved by the Trustee as to any action
taken by such Act of Holders. If the Company shall so determine, new
Securities of any series, or any Tranche thereof, so modified as to
conform, in the opinion of the Trustee and the Company, to such action may
be prepared and executed by the Company and the Guarantor and authenticated
and delivered by the Trustee in exchange for Outstanding Securities of such
series or Tranche.
(g) If the Company or Guarantor shall solicit from Holders any
request, demand, authorization, direction, notice, consent, waiver or other
Act, the Company may, at its option, fix in advance a record date for the
determination of Holders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other Act, but neither
the Company nor the Guarantor shall have any obligation to do so. If such a
record date is fixed, such request, demand, authorization, direction,
notice, consent, waiver or other Act may be given before or after such
record date, but only the Holders of record at the close of business on the
record date shall be deemed to be Holders for the purposes of determining
whether Holders of the requisite proportion of the Outstanding Securities
have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Outstanding Securities shall be computed as of the record
date.
SECTION 105. NOTICES, ETC. TO TRUSTEE, COMPANY OR GUARANTOR.
Any request, demand, authorization, direction, notice, consent,
election, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with, the
Trustee by any Holder or by the Company or the Guarantor, or the Company or the
Guarantor by the Trustee or by any Holder, shall be sufficient for every purpose
hereunder (unless otherwise herein expressly provided) if in writing and
delivered personally to an officer or other responsible employee of the
addressee at the applicable location set forth below or at such other location
as such party may from time to time designate by written notice, or transmitted
by facsimile transmission or other direct written electronic means to such
telephone number or other electronic communications address as the parties
hereto shall from time to time designate by written notice, or transmitted by
certified or registered mail, charges prepaid, to the applicable address set
forth below or to such other address as such party may from time to time
designate by written notice:
If to the Trustee, to:
The Bank of New York
Corporate Trust Administration, 21st Floor
101 Barclay Street - 21W
New York, New York 10286
Attention: Vice President, Corporate Trust Administration
Telephone: (212) 815-5375
Telecopy: (212) 815-5915
If to the Company, to:
TXU Eastern Funding Company
Crown House
51 Aldwych
London WC2B 4AX
Attention: Treasurer
Telephone: 011-44-171-420-4000
Telecopy: 011-44-171-420-4066
With a copy to:
TXU Eastern Holdings Limited
Crown House
51 Aldwych
London WC2B 4AX
Attention: Treasurer
Telephone: 011-44-171-420-4000
Telecopy: 011-44-171-420-4066
If to the Guarantor, to:
TXU Eastern Holdings Limited
Crown House
51 Aldwych
London WC2B 4AX
Attention: Treasurer
Telephone: 011-44-171-420-4000
Telecopy: 011-44-171-420-4066
Any communication contemplated herein shall be deemed to have been
made, given, furnished and filed if personally delivered, on the date of
delivery, if transmitted by facsimile transmission or other direct written
electronic means, on the date of receipt, and if transmitted by certified or
registered mail, on the date of receipt.
SECTION 106. NOTICE TO HOLDERS OF SECURITIES; WAIVER.
Except as otherwise expressly provided herein, where this Indenture
provides for notice to Holders of any event, such notice shall be sufficiently
given, and shall be deemed given, to Holders if in writing and mailed,
first-class postage prepaid, to each Holder affected by such event, at the
address of such Holder as it appears in the Security Register, not later than
the latest date, if any, and not earlier than the earliest date, if any,
prescribed for the giving of such notice.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice to
Holders by mail (as in the case of bearer Securities where the address of the
Holder is not known to the Security Registrar), then such notification as shall
be made with the approval of the Trustee shall constitute a sufficient
notification for every purpose hereunder. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders.
Any notice required by this Indenture may be waived in writing by the
Person entitled to receive such notice, either before or after the event
otherwise to be specified therein, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
SECTION 107. CONFLICT WITH TRUST INDENTURE ACT.
If any provision of this Indenture limits, qualifies or conflicts with
another provision hereof which is required or deemed to be included in this
Indenture by, or is otherwise governed by, any of the provisions of the Trust
Indenture Act, such other provision shall control; and if any provision hereof
otherwise conflicts with the Trust Indenture Act, the Trust Indenture Act shall
control unless otherwise provided as contemplated by Section 301 with respect to
any series of Securities.
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings in this Indenture and the Table of
Contents are for convenience only and shall not affect the construction hereof.
SECTION 109. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company or the
Guarantor and Trustee shall bind their respective successors and assigns,
whether so expressed or not.
SECTION 110. SEPARABILITY CLAUSE.
In case any provision in this Indenture or the Securities or the
Guarantees shall be held to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 111. BENEFITS OF INDENTURE.
Nothing in this Indenture, the Securities or the Guarantees, express
or implied, shall give to any Person, other than the parties hereto, their
successors hereunder and the Holders, any benefit or any legal or equitable
right, remedy or claim under this Indenture.
SECTION 112. GOVERNING LAW.
THIS INDENTURE, THE SECURITIES AND THE GUARANTEES SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS, EXCEPT TO THE EXTENT THAT THE LAW OF
ANY OTHER JURISDICTION SHALL BE MANDATORILY APPLICABLE; PROVIDED, HOWEVER, THAT
ALL MATTERS GOVERNING THE AUTHORIZATION BY THE COMPANY OF THIS INDENTURE AND THE
SECURITIES, THE AUTHORIZATION OF THE GUARANTOR OF THE GUARANTEES AND THE
CORPORATE EXISTENCE OF THE COMPANY AND THE GUARANTOR, AS THE CASE MAY BE, WILL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE JURISDICTION
IN WHICH THE COMPANY OR THE GUARANTOR, AS THE CASE MAY BE, IS INCORPORATED OR
ORGANIZED.
SECTION 113. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day at any Place of Payment,
then (notwithstanding any other provision of this Indenture or of the Securities
other than a provision in Securities of any series, or any Tranche thereof, or
in the Board Resolution or Officer's Certificate which establishes the terms of
the Securities of such series or Tranche, which specifically states that such
provision shall apply in lieu of this Section) payment of interest or principal
and premium, if any, need not be made at such Place of Payment on such date, but
may be made on the next succeeding Business Day at such Place of Payment, with
the same force and effect, and in the same amount, as if made on the Interest
Payment Date or Redemption Date, or at the Stated Maturity, as the case may be,
and, if such payment is made or duly provided for on such Business Day, no
interest shall accrue on the amount so payable for the period from and after
such Interest Payment Date, Redemption Date or Stated Maturity, as the case may
be, to such Business Day.
SECTION 114. AGENT TO RECEIVE SERVICE OF PROCESS.
Unless otherwise specified in an Officer's Certificate of the Company
or the Guarantor delivered to the Trustee, Thelen Reid & Priest LLP in New York
City will be the authorized agent of the Company and the Guarantor to receive
service of process in the State of New York.
SECTION 115. CONSENT TO JURISDICTION; APPOINTMENT OF AGENT FOR SERVICE;
JUDGMENT CURRENCY; WAIVER OF IMMUNITIES.
(a) Consent to Jurisdiction. The Company and the Guarantor each
-----------------------
irrevocably consents to the nonexclusive jurisdiction of any court of the
State of New York or any United States Federal court sitting, in each case,
in the Borough of Manhattan, The City of New York, New York, United States
of America, and any appellate court from any thereof in any suit, action or
proceeding that may be brought in connection with this Indenture, the
Securities or the Guarantees, and waives any immunity from the jurisdiction
of such courts. The Company and the Guarantor each irrevocably waives, to
the fullest extent permitted by law, any objection to any such suit, action
or proceeding that may be brought in such courts whether on the grounds of
venue, residence or domicile or on the ground that any such suit, action or
proceeding has been brought in an inconvenient forum. The Company and the
Guarantor each agrees, to the fullest extent that it lawfully may do so,
that final judgment in any such suit, action or proceeding brought in such
a court shall be conclusive and binding upon the Company or the Guarantor,
as the case may be, and waives, to the fullest extent permitted by law, any
objection to the enforcement by any competent court in the Jurisdiction of
Incorporation of judgments validly obtained in any such court in New York
on the basis of such suit, action or proceeding; provided, however, that
the Company or the Guarantor does not waive, and the foregoing provisions
of this sentence shall not constitute or be deemed to constitute a waiver
of, (i) any right to appeal any such judgment, to seek any stay or
otherwise to seek reconsideration or review of any such judgment, (ii) any
stay of execution or levy pending an appeal from, or a suit, action or
proceeding for reconsideration of, any such judgment, or (iii) any other
right or remedy of the Company or the Guarantor to the extent not expressly
waived in accordance with this Section 115.
(b) Appointment of Agent for Service. The Company and the Guarantor
--------------------------------
each has designated and appointed Thelen Reid & Priest LLP, 40 West 57th
Street, New York, New York 10019, as its authorized agent upon which
process may be served in any suit or proceeding in any Federal or State
court in the Borough of Manhattan, The City of New York arising out of or
relating to the Securities, the Guarantees or this Indenture, but for that
purpose only, and agrees that service of process upon said agent shall be
deemed in every respect effective service of process upon it in any such
suit or proceeding in any Federal or State court in the Borough of
Manhattan, The City of New York. Such appointment shall be irrevocable so
long as any of the Securities remain Outstanding until the appointment of a
successor by the Company and the Guarantor and such successor's acceptance
of such appointment. Upon such acceptance, the Company and the Guarantor
shall notify the Trustee of the name and address of such successor. The
Company and the Guarantor further agree to take any and all action,
including the execution and filing of any and all such documents and
instruments, as may be necessary to continue such designation and
appointment of said agent in full force and effect so long as any of the
Securities shall be Outstanding. The Trustee shall not be obligated and
shall have no responsibility with respect to any failure by the Company or
the Guarantor to take any such action.
Nothing in this Section shall affect the right of the Trustee or any
Holder of any Security to serve process in any manner permitted by
applicable law or limit the right of the Trustee or any Holder of any
Security to bring proceedings against the Company or the Guarantor in the
courts of any other jurisdiction or jurisdictions.
(c) Judgment Currency. The Company and the Guarantor each agrees, to
-----------------
the fullest extent that it may effectively do so under applicable law, that
(a) if for the purpose of obtaining judgment in any court it is necessary
to convert the sum due in respect of the principal of, or premium or
interest, if any, on the Securities of any series from the Required
Currency into a currency in which a judgment will be rendered (the
"Judgment Currency"), the rate of exchange used shall be the rate at which,
in accordance with normal banking procedures, the Trustee could purchase
the Required Currency with the Judgment Currency and (b) its obligations
under this Indenture to make payments in the Required Currency (i) shall
not be discharged or satisfied by any tender, or any recovery pursuant to
any judgment (whether or not entered in accordance with subsection (a)), in
any currency other than the Required Currency, except to the extent that
such tender or recovery shall result in the actual receipt, by the payee,
of the full amount of the Required Currency expressed to be payable in
respect of such payments, (ii) shall be enforceable as an alternative or
additional cause of action for the purpose of recovering the amount, if any
by which actual receipt shall fall short of the full amount of the Required
Currency so expressed to be payable and (iii) shall not be affected by
judgment being obtained for any other sum due under this Indenture.
(d) Waiver of Immunities. To the extent that the Company, the
-------------------
Guarantor or any of their respective properties, assets or revenues may
have or may hereafter become entitled to, or have attributed to it, any
right of immunity, on the grounds of sovereignty or otherwise, from legal
action, suit or proceeding, from the giving of any relief in any thereof,
from set-off or counterclaim, from the jurisdiction of any court, from
service of process, from attachment upon or prior to judgment, from
attachment in aid of execution of judgment, or from execution of judgment,
or other legal process or proceeding for the giving of any relief or for
the enforcement of any judgment, in any jurisdiction in which proceedings
may at any time be commenced, with respect to its obligations, liabilities
or any other matter under or arising out of or in connection with this
Indenture or the Securities issued hereunder or the Guarantees endorsed
thereon, each of the Company and the Guarantor hereby irrevocably and
unconditionally waives and agrees not to plead or claim, any such immunity
and consents to such relief and enforcement. Nothing in this paragraph
shall be deemed to waive any defense (other than such immunity) available
to either the Company or the Guarantor.
ARTICLE TWO
SECURITY FORMS
SECTION 201. FORMS GENERALLY.
The definitive Securities of each series shall be in substantially the
form or forms thereof established in the indenture supplemental hereto
establishing such series or in a Board Resolution establishing such series, or
in an Officer's Certificate of the Company pursuant to such supplemental
indenture or Board Resolution, in each case with such appropriate terms,
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the Person executing such Securities, as
evidenced by their execution thereof. The Guarantees to be endorsed on such
Securities shall be in substantially the form or forms thereof established in an
indenture supplemental hereto establishing such series or in an Officer's
Certificate of the Guarantor delivered to the Trustee in connection with the
establishment of such series, in each case with such appropriate terms,
insertions, omissions, substitutions and other variations as may be determined
by the Authorized Officer signing such supplemental indenture or Officer's
Certificate, and may have such letters, numbers or other marks of identification
and such legends or endorsements place thereon as may be required to comply with
the rules of any securities exchange or as may, consistently herewith, be
determined by the Person executing such Guarantees. If the form or forms of
Securities of any series or Guarantees endorsed thereon, as the case may be, are
established in a Board Resolution or in an Officer's Certificate pursuant to a
Board Resolution, such Board Resolution and Officer's Certificate, if any, shall
be delivered to the Trustee at or prior to the delivery of the Company Order
contemplated by Section 303 for the authentication and delivery of such
Securities.
Unless otherwise specified as contemplated by Section 301 or
clause (g) of Section 1201, the Securities of each series shall be issuable in
registered form without coupons. The definitive Securities and Guarantees
endorsed thereon shall be produced in such manner as shall be determined by the
Person executing such Securities or Guarantees, as evidenced by their execution
thereof.
SECTION 202. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
The Trustee's certificate of authentication shall be in substantially
the form set forth below:
This is one of the Securities of the series designated
therein and the Guarantee thereof referred to in the within-
mentioned Indenture.
Dated:
---------------------------------
as Trustee
By:
------------------------------
Authorized Signatory
ARTICLE THREE
THE SECURITIES
SECTION 301. AMOUNT UNLIMITED; ISSUABLE IN SERIES.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. Subject to the
last paragraph of this Section, prior to the authentication and delivery of
Securities of any series there shall be established by specification in a
supplemental indenture or in a Board Resolution of the Company, or in an
Officer's Certificate of the Company pursuant to a supplemental indenture or a
Board Resolution:
(a) the title of the Securities of such series (which shall
distinguish the Securities of such series from Securities of all other
series);
(b) any limit upon the aggregate principal amount of the
Securities of such series which may be authenticated and delivered under
this Indenture (except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, other
Securities of such series pursuant to Section 304, 305, 306, 406 or 1206
and except for any Securities which, pursuant to Section 303, are deemed
never to have been authenticated and delivered hereunder);
(c) the Person or Persons (without specific identification) to whom
interest on Securities of such series, or any Tranche thereof, shall be
payable on any Interest Payment Date, if other than the Persons in whose
names such Securities (or one or more Predecessor Securities) are
registered at the close of business on the Regular Record Date for such
interest;
(d) the date or dates on which the principal of the Securities of such
series, or any Tranche thereof, is payable or any formulary or other method
or other means by which such date or dates shall be determined, by
reference to an index or other fact or event ascertainable outside of this
Indenture or otherwise (without regard to any provisions for redemption,
prepayment, acceleration, purchase or extension);
(e) the rate or rates at which the Securities of such series, or any
Tranche thereof, shall bear interest, if any (including the rate or rates
at which overdue principal shall bear interest, if different from the rate
or rates at which such Securities shall bear interest prior to Maturity,
and, if applicable, the rate or rates at which overdue premium or interest
shall bear interest, if any), or any formulary or other method or other
means by which such rate or rates shall be determined, by reference to an
index or other fact or event ascertainable outside of this Indenture or
otherwise; the date or dates from which such interest shall accrue; the
Interest Payment Dates on which such interest shall be payable and the
Regular Record Date, if any, for the interest payable on such Securities on
any Interest Payment Date; the right of the Company, if any, to extend the
interest payment periods and the duration of any such extension as
contemplated by Section 312; and the basis of computation of interest, if
other than as provided in Section 310;
(f) the place or places at which or methods by which (1) the
principal of and premium, if any, and interest, if any, on Securities of
such series, or any Tranche thereof, shall be payable, (2) registration of
transfer of Securities of such series, or any Tranche thereof, may be
effected, (3) exchanges of Securities of such series, or any Tranche
thereof, may be effected and (4) notices and demands to or upon the Company
in respect of the Securities of such series, or any Tranche thereof, and
this Indenture may be served; the Security Registrar for such series or
Tranche; and if such is the case, that the principal of such Securities
shall be payable without presentment or surrender thereof;
(g) the period or periods within which, or the date or dates on
which, the price or prices at which and the terms and conditions upon which
the Securities of such series, or any Tranche thereof, may be redeemed, in
whole or in part, at the option of the Company and any restrictions on such
redemptions, including but not limited to a restriction on a partial
redemption by the Company of the Securities of any series, or any Tranche
thereof, resulting in delisting of such Securities from any national
exchange;
(h) the obligation or obligations, if any, of the Company to
redeem or purchase or repay the Securities of such series, or any Tranche
thereof, pursuant to any sinking fund or other mandatory redemption
provisions or at the option of a Holder thereof and the period or periods
within which or the date or dates on which, the price or prices at which
and the terms and conditions upon which such Securities shall be redeemed
or purchased or repaid, in whole or in part, pursuant to such obligation,
and applicable exceptions to the requirements of Section 404 in the case of
mandatory redemption or redemption or repayment at the option of the
Holder;
(i) the denominations in which Securities of such series, or any
Tranche thereof, shall be issuable if other than denominations of $1,000
and any integral multiple thereof;
(j) the currency or currencies, including composite currencies, in
which payment of the principal of and premium, if any, and interest, if
any, on the Securities of such series, or any Tranche thereof, shall be
payable (if other than in Dollars);
(k) if the principal of or premium, if any, or interest, if any, on
the Securities of such series, or any Tranche thereof, are to be payable,
at the election of the Company or a Holder thereof, in a coin or currency
other than that in which the Securities are stated to be payable, the
period or periods within which and the terms and conditions upon which,
such election may be made;
(l) if the principal of or premium, if any, or interest, if any, on
the Securities of such series, or any Tranche thereof, are to be payable,
or are to be payable at the election of the Company or a Holder thereof, in
securities or other property, the type and amount of such securities or
other property, or the formulary or other method or other means by which
such amount shall be determined, and the period or periods within which,
and the terms and conditions upon which, any such election may be made;
(m) if the amount payable in respect of principal of or premium, if
any, or interest, if any, on the Securities of such series, or any Tranche
thereof, may be determined with reference to an index or other fact or
event ascertainable outside of this Indenture, the manner in which such
amounts shall be determined to the extent not established pursuant to
clause (e) of this paragraph;
(n) if other than the principal amount thereof, the portion of the
principal amount of Securities of such series, or any Tranche thereof,
which shall be payable upon declaration of acceleration of the Maturity
thereof pursuant to Section 802;
(o) any Events of Default, in addition to those specified in
Section 801, with respect to the Securities of such series, and any
covenants of the Company or the Guarantor for the benefit of the Holders of
the Securities of such series, or any Tranche thereof, in addition to those
set forth in Article Six or any exceptions to those set forth in
Article Six;
(p) the terms, if any, pursuant to which the Securities of such
series, or any Tranche thereof, may be converted into or exchanged for
shares of capital stock or other securities of the Company or any other
Person;
(q) the obligations or instruments, if any, which shall be
considered to be Eligible Obligations in respect of the Securities of such
series, or any Tranche thereof, denominated in a currency other than
Dollars or in a composite currency, and any additional or alternative
provisions for the reinstatement of the Company's indebtedness in respect
of such Securities after the satisfaction and discharge thereof as provided
in Section 701;
(r) if the Securities of such series, or any Tranche thereof, are to
be issued in global form, (i) any limitations on the rights of the Holder
or Holders of such Securities to transfer or exchange the same or to obtain
the registration of transfer thereof, (ii) any limitations on the rights of
the Holder or Holders thereof to obtain certificates therefor in definitive
form in lieu of temporary form and (iii) any and all other matters
incidental to such Securities;
(s) if the Securities of such series, or any Tranche thereof, are to
be issuable as bearer securities, any and all matters incidental thereto
which are not specifically addressed in a supplemental indenture as
contemplated by clause (g) of Section 1201;
(t) to the extent not established pursuant to clause (r) of this
paragraph, any limitations on the rights of the Holders of the Securities
of such Series, or any Tranche thereof, to transfer or exchange such
Securities or to obtain the registration of transfer thereof; and if a
service charge will be made for the registration of transfer or exchange of
Securities of such series, or any Tranche thereof, the amount or terms
thereof;
(u) any exceptions to Section 113, or variation in the definition of
Business Day, with respect to the Securities of such series, or any Tranche
thereof;
(v) any collateral security or assurance for the securities of such
series;
(w) any rights or duties of another Person to assume the obligations
of the Company with respect to the Securities of such series (whether as
joint obligor, primary obligor, secondary obligor or substitute obligor)
and any rights or duties to discharge and release any obligor with respect
to the Securities of such series or the Indenture to the extent related to
such series;
(x) any rights to change or eliminate any provision of this Indenture
or to add any new provision to this Indenture (by supplemental indenture or
otherwise) without the consent of the Holders of the Securities of such
series, or with the consent of the Holders of the Securities of such series
as specified for such series;
(y) the agent of the Company and the Guarantor to receive service of
process in the State of New York, if other than Thelen Reid & Priest LLP in
New York City; and
(z) any other terms of the Securities of such series, or any Tranche
thereof, not inconsistent with the provisions of this Indenture.
The terms of the Securities include any additional amounts that may be
payable in certain circumstances with respect to such Securities.
With respect to Securities of a series subject to a Periodic Offering,
the indenture supplemental hereto or the Board Resolution which establishes such
series, or the Officer's Certificate pursuant to such supplemental indenture or
Board Resolution, as the case may be, may provide general terms or parameters
for Securities of such series and provide either that the specific terms of
Securities of such series, or any Tranche thereof, shall be specified in a
Company Order or that such terms shall be determined by the Company or its
agents in accordance with procedures specified in a Company Order as
contemplated by clause (b) of Section 303.
SECTION 302. DENOMINATIONS.
Unless otherwise provided as contemplated by Section 301 with respect
to any series of Securities, or any Tranche thereof, the Securities of each
series shall be issuable in denominations of $1,000 and any integral multiple
thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
Unless otherwise provided as contemplated by Section 301 with respect
to any series of Securities, or any Tranche thereof, the Securities shall be
executed on behalf of the Company by an Authorized Officer of the Company, and
may have the corporate seal of the Company affixed thereto or reproduced thereon
attested by any other Authorized Officer of the Company or by the Secretary or
an Assistant Secretary of the Company. The signature of any or all of these
officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at the time of execution Authorized Officers of the Company or the
Secretary or an Assistant Secretary of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
Unless otherwise provided as contemplated by Section 301, with respect
to any series of Securities or Tranche thereof, Guarantees to be endorsed on any
Securities shall be executed and delivered in accordance with the provisions of
Section 1402.
The Trustee shall authenticate and deliver Securities of a series with
the Guarantees endorsed thereon, for original issue, at one time or from time to
time in accordance with the Company Order referred to below, upon receipt by the
Trustee of:
(a) the instrument or instruments establishing the form or forms and
terms of the Securities of such series and the Guarantees to be endorsed
thereon, as provided in Sections 201 and 301;
(b) a Company Order requesting the authentication and delivery of
such Securities, and, to the extent that the terms of such Securities shall
not have been established in an indenture supplemental hereto or in a Board
Resolution, or in an Officer's Certificate pursuant to a supplemental
indenture or Board Resolution, all as contemplated by Sections 201 and 301,
either (i) establishing such terms or (ii) in the case of Securities of a
series subject to a Periodic Offering, specifying procedures, acceptable to
the Trustee, by which such terms are to be established (which procedures
may provide, to the extent acceptable to the Trustee, for authentication
and delivery pursuant to oral or electronic instructions from the Company
or any agent or agents thereof, which oral instructions are to be promptly
confirmed electronically or in writing), in either case in accordance with
the instrument or instruments delivered pursuant to clause (a) above;
(c) A Guarantor Order (which may be combined with a Company Order
hereunder) requesting authentication and delivery of the Guarantees to be
endorsed on such Securities;
(d) the Securities of such series, each executed on behalf of
the Company by an Authorized Officer of the Company and having a Guarantee
endorsed thereon executed on behalf of the Guarantor by an Authorized
Officer of the Guarantor;
(e) one or more Opinions of Counsel of the Company and the Guarantor
to the effect that:
(i)(A) the form or forms of such Securities have been
duly authorized by the Company, (B) the form or forms of such
Guarantees have been duly authorized by the Guarantor, and (C) the
form or forms of the Securities and the Guarantees have been
established in conformity with the provisions of this Indenture;
(ii)(A) the terms of such Securities have been duly authorized
by the Company, (B) the terms of such Guarantees have been duly
authorized by the Guarantor, and (C) the terms of the Securities and
the Guarantees have been established in conformity with the provisions
of this Indenture; and
(iii) such Securities and the Guarantees endorsed thereon,
when authenticated and delivered by the Trustee and issued and
delivered by the Company and the Guarantor in the manner and subject
to any conditions specified in such Opinion of Counsel, will have been
duly issued under this Indenture and will constitute valid and legally
binding obligations of the Company and the Guarantor, respectively,
entitled to the benefits provided by this Indenture, and enforceable
in accordance with their terms, subject, as to enforcement, to laws
relating to or affecting generally the enforcement of creditors'
rights, including, without limitation, bankruptcy and insolvency laws
and to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law);
provided, however, that, with respect to Securities of a series subject to a
Periodic Offering, the Trustee shall be entitled to receive such Opinion of
Counsel only once at or prior to the time of the first authentication of such
Securities and the Guarantees endorsed thereon (provided that such Opinion of
Counsel addresses the authentication and delivery of all Securities of such
series) and that in lieu of the opinions described in clauses (ii) and (iii)
above Counsel may opine that:
(x) when the terms of such Securities and the Guarantees
endorsed thereon shall have been established pursuant to a Company
Order or Orders and, if applicable, a Guarantor Order or Orders or
pursuant to such procedures (acceptable to the Trustee) as may be
specified from time to time by a Company Order or Orders, and, if
applicable, a Guarantor Order or Orders all as contemplated by and in
accordance with the instrument or instruments delivered pursuant to
clause (a) above, such terms will have been duly authorized by the
Company and the Guarantor, respectively, and will have been
established in conformity with the provisions of this Indenture; and
(y) such Securities and the Guarantees endorsed thereon, when (1)
executed by the Company or the Guarantor, as the case may be, (2)
authenticated and delivered by the Trustee in accordance with this
Indenture and the Company Order or Orders or specified procedures
referred to in paragraph (x) above, (3) issued and delivered by the
Company and the Guarantor in the manner and subject to any conditions
specified in such Opinion of Counsel, and (4) paid for, all as
contemplated by and in accordance with the aforesaid Company Order or
Orders and, if applicable, a Guarantor Order or Orders or specified
procedures, as the case may be, will have been duly issued under this
Indenture and will constitute valid and legally binding obligations of
the Company and the Guarantor, respectively, entitled to the benefits
provided by the Indenture, and enforceable in accordance with their
terms, subject, as to enforcement, to laws relating to or affecting
generally the enforcement of creditors' rights, including, without
limitation, bankruptcy and insolvency laws, and to general principles
of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
With respect to Securities of a series subject to a Periodic Offering,
the Trustee may conclusively rely, as to the authorization by the Company and
the Guarantor of any of such Securities and Guarantees, the form and terms
thereof, the legality, validity, binding effect and enforceability thereof, and
compliance of the authentication and delivery thereof with the terms and
conditions of this Indenture, upon the Opinion of Counsel and other documents
delivered pursuant to Sections 201 and 301 and this Section, as applicable, at
or prior to the time of the first authentication of Securities of such series
with the Guarantees endorsed thereon, unless and until such opinion or other
documents have been superseded or revoked or expire by their terms. In
connection with the authentication and delivery of Securities of a series with
Guarantees endorsed thereon, pursuant to a Periodic Offering, the Trustee shall
be entitled to assume that the Company's instructions to authenticate and
deliver such Securities and the Guarantor's approval of the delivery of the
Guarantees thereon, do not violate any applicable law or any applicable rule,
regulation or order of any Governmental Authority having jurisdiction over the
Company or the Guarantor.
If the form or terms of the Securities of any series have been
established by or pursuant to a Board Resolution or an Officer's Certificate as
permitted by Sections 201 or 301, the Trustee shall not be required to
authenticate such Securities if the issuance of such Securities pursuant to this
Indenture will materially or adversely affect the Trustee's own rights, duties
or immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.
Unless otherwise specified as contemplated by Section 301 with respect
to any series of Securities, or any Tranche thereof, each Security, and any
Guarantee endorsed thereon, shall each be dated the date of its authentication.
Unless otherwise specified as contemplated by Section 301 with respect
to any series of Securities or any Tranche thereof, no Security or Guarantee
endorsed thereon shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for herein
executed by the Trustee or an Authenticating Agent by manual signature, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security and such Guarantee endorsed thereon has been duly
authenticated and delivered hereunder and is entitled to the benefits of this
Indenture. Notwithstanding the foregoing, if any Security shall have been
authenticated and delivered hereunder to the Company, or any Person acting on
its behalf, but shall never have been issued and sold by the Company, and the
Company shall deliver such Security to the Security Registrar for cancellation
as provided in Section 309 together with a written statement (which need not
comply with Section 102 and need not be accompanied by an Opinion of Counsel)
stating that such Security has never been issued and sold by the Company, for
all purposes of this Indenture such Security (including any Guarantee endorsed
thereon) shall be deemed never to have been authenticated and delivered
hereunder and shall never be entitled to the benefits hereof.
SECTION 304. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities of any series, or any
Tranche thereof, the Company may execute, and upon a Company Order and a
Guarantor Order the Trustee shall authenticate and deliver, temporary Securities
which are printed, lithographed, typewritten, mimeographed or otherwise
produced, in any authorized denomination, substantially of the tenor of the
definitive Securities in lieu of which they are issued, having Guarantees
endorsed thereon, with such appropriate insertions, omissions, substitutions and
other variations as the officers executing such Securities or Guarantees may
determine, as evidenced by their execution of such Securities or Guarantees;
provided, however, that temporary Securities need not recite specific
redemption, sinking fund, conversion or exchange provisions.
Unless otherwise specified as contemplated by Section 301 with respect
to the Securities of any series, or any Tranche thereof, after the preparation
of definitive Securities of such series or Tranche, the temporary Securities of
such series or Tranche shall be exchangeable, without charge to the Holder
thereof, for definitive Securities of such series or Tranche with the definitive
Guarantees of Guarantor endorsed thereon, upon surrender of such temporary
Securities at the office or agency of the Company maintained pursuant to Section
602 in a Place of Payment for such Securities. Upon such surrender of temporary
Securities for such exchange, the Company shall, except as aforesaid, execute
and the Trustee shall authenticate and deliver in exchange therefor definitive
Securities of the same series and Tranche of authorized denominations and of
like tenor and aggregate principal amount with the definitive Guarantees of the
Guarantor endorsed thereon.
Until exchanged in full as hereinabove provided, temporary Securities
shall in all respects be entitled to the same benefits under this Indenture as
definitive Securities of the same series and Tranche and of like tenor
authenticated and delivered hereunder.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
Unless otherwise specified as contemplated by Section 301 with respect
to any series of Securities, the Company shall cause to be kept in each office
designated pursuant to Section 602, with respect to the Securities of each
series, a register (all registers kept in accordance with this Section being
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of those Securities of such series, or any Tranche thereof, which
are not in bearer global form, and the registration of transfer thereof. The
Company shall designate one Person to maintain the Security Register for the
Securities of each series on a consolidated basis, and such Person is referred
to herein, with respect to such series, as the "Security Registrar." Anything
herein to the contrary notwithstanding, the Company may designate one or more of
its offices or an office of any Affiliate (including the Guarantor) as an office
in which a register with respect to the Securities of one or more series shall
be maintained, and the Company may designate itself or any Affiliate (including
the Guarantor) as the Security Registrar with respect to one or more of such
series. The Security Register shall be open for inspection by the Trustee and
the Company at all reasonable times.
Except as otherwise specified as contemplated by Section 301 with
respect to the Securities of any series, or any Tranche thereof, upon surrender
for registration of transfer of any Security of such series or Tranche at the
office or agency of the Company maintained pursuant to Section 602 in a Place of
Payment for such series or Tranche, the Company shall execute, and the Trustee
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Securities of the same series and Tranche, of
authorized denominations and of like tenor and aggregate principal amount with
the Guarantee of the Guarantor endorsed thereon.
Except as otherwise specified as contemplated by Section 301 with
respect to the Securities of any series, or any Tranche thereof, any Security of
such series or Tranche may be exchanged at the option of the Holder, for one or
more new Securities of the same series and Tranche, of authorized denominations
and of like tenor and aggregate principal amount, upon surrender of the
Securities to be exchanged at any such office or agency. Whenever any Securities
are so surrendered for exchange, the Company shall execute, and the Trustee
shall authenticate and deliver, the Securities, with the Guarantees of the
Guarantor endorsed thereon, which the Holder making the exchange is entitled to
receive.
All Securities and Guarantees delivered upon any registration of
transfer or exchange of Securities and the Guarantees endorsed thereon shall be
valid obligations of the Company and the Guarantor, respectively, evidencing the
same debt, and entitled to the same benefits under this Indenture, as the
Securities and Guarantees surrendered upon such registration of transfer or
exchange.
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company, the Guarantor, the Trustee
or the Security Registrar) be duly endorsed or shall be accompanied by a written
instrument of transfer in form satisfactory to the Company, the Guarantor, the
Trustee or the Security Registrar, as the case may be, duly executed by the
Holder thereof or his attorney duly authorized in writing.
Unless otherwise specified as contemplated by Section 301, with
respect to Securities of any series, or any Tranche thereof, no service charge
shall be made for any registration of transfer or exchange of Securities, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer or exchange of Securities, other than exchanges pursuant to
Section 304, 406 or 1206 not involving any transfer.
The Company shall not be required to execute or to provide for the
registration of transfer of or the exchange of (a) Securities of any series, or
any Tranche thereof, during a period of 15 days immediately preceding the date
notice is to be given identifying the serial numbers of the Securities of such
series or Tranche called for redemption or (b) any Security so selected for
redemption in whole or in part, except the unredeemed portion of any Security
being redeemed in part.
Securities issued in bearer global form shall be transferred by
delivery thereof, unless otherwise specified as contemplated by Section 301 with
respect to any series of Securities.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of the same series and Tranche, and of like tenor and
principal amount, having a Guarantee of the Guarantor endorsed thereon and
bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company, the Guarantor and the
Trustee (a) evidence to their satisfaction of the ownership of and the
destruction, loss or theft of any Security and (b) such security or indemnity as
may be reasonably required by them to save each of them and any agent of any of
them harmless, then, in the absence of notice to the Company, the Guarantor or
the Trustee that such Security is held by a Person purporting to be the owner of
such Security, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new Security
of the same series and Tranche, and of like tenor and principal amount, having a
Guarantee of the Guarantor endorsed thereon and bearing a number not
contemporaneously outstanding.
Notwithstanding the foregoing, in case any such mutilated, destroyed,
lost or stolen Security has become or is about to become due and payable, the
Company or the Guarantor in its discretion may, instead of issuing a new
Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
reasonable expenses (including the fees and expenses of the Trustee) connected
therewith.
Every new Security of any series issued pursuant to this Section in
lieu of any destroyed, lost or stolen Security and any Guarantee endorsed
thereon shall constitute an original additional contractual obligation of the
Company and the Guarantor, respectively, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone other than the Holder
of such new Security, and any such new Security shall be entitled to all the
benefits of this Indenture equally and proportionately with any and all other
Securities of such series duly issued hereunder and the Guarantees endorsed on
such Securities.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Unless otherwise specified as contemplated by Section 301 with respect
to the Securities of any series, or any Tranche thereof, interest on any
Security which is payable, and is punctually paid or duly provided for, on any
Interest Payment Date shall be paid to the Person in whose name that Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest.
Subject to Section 312, any interest on any Security of any series
which is payable, but is not punctually paid or duly provided for, on any
Interest Payment Date (herein called "Defaulted Interest") shall forthwith cease
to be payable to the Holder on the related Regular Record Date by virtue of
having been such Holder, and such Defaulted Interest may be paid by the Company
or the Guarantor, at its election in each case, as provided in clause (a) or (b)
below:
(a) The Company or the Guarantor may elect to make payment of
any Defaulted Interest to the Persons in whose names the Securities of such
series (or their respective Predecessor Securities) are registered at the
close of business on a date (herein called a "Special Record Date") for the
payment of such Defaulted Interest, which shall be fixed in the following
manner. The Company or the Guarantor shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security of
such series and the date of the proposed payment, and at the same time the
Company or the Guarantor, as the case may be, shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit on or prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than 15 days
and not less than 10 days prior to the date of the proposed payment and not
less than 10 days after the receipt by the Trustee of the notice of the
proposed payment. The Trustee shall promptly notify the Company or the
Guarantor of such Special Record Date and, in the name and at the expense
of the Company or the Guarantor, shall promptly cause notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor to be mailed, first-class postage prepaid, to each Holder of
Securities of such series at the address of such Holder as it appears in
the Security Register, not less than 10 days prior to such Special Record
Date. Notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor having been so mailed, such Defaulted Interest
shall be paid to the Persons in whose names the Securities of such series
(or their respective Predecessor Securities) are registered at the close of
business on such Special Record Date.
(b) The Company or the Guarantor may make payment of any Defaulted
Interest on the Securities of any series in any other lawful manner not
inconsistent with the requirements of any securities exchange on which such
Securities may be listed, and upon such notice as may be required by such
exchange, if, after notice given by the Company or the Guarantor to the
Trustee of the proposed payment pursuant to this clause, such manner of
payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section and Section 305,
each Security delivered under this Indenture upon registration of transfer of or
in exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.
SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer,
the Company, the Guarantor, the Trustee and any agent of the Company, the
Guarantor or the Trustee may treat the Person in whose name such Security is
registered or, in the case of a Security issued in bearer global form, the
bearer of such Security, unless otherwise provided pursuant to Section 301, as
the absolute owner of such Security for the purpose of receiving payment of
principal of and premium, if any, and (subject to Sections 305 and 307)
interest, if any, on such Security and for all other purposes whatsoever,
whether or not such Security be overdue, and none of the Company, the Guarantor,
the Trustee or any agent of the Company, the Guarantor or the Trustee shall be
affected by notice to the contrary.
SECTION 309. CANCELLATION BY SECURITY REGISTRAR.
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Security
Registrar, be delivered to the Security Registrar and, if not theretofore
canceled, shall be promptly canceled by the Security Registrar. The Company or
the Guarantor may at any time deliver to the Security Registrar for cancellation
any Securities previously authenticated and delivered hereunder which the
Company may have acquired in any manner whatsoever or which the Company or the
Guarantor shall not have issued and sold, and all Securities so delivered shall
be promptly canceled by the Security Registrar. No Securities shall be
authenticated in lieu of or in exchange for any Securities canceled as provided
in this Section, except as expressly permitted by this Indenture. All canceled
Securities held by the Security Registrar shall be disposed of in accordance
with the customary practices of the Security Registrar at the time in effect,
and the Security Registrar shall not be required to destroy any such
certificates. The Security Registrar shall promptly deliver a certificate of
disposition to the Trustee and the Company unless, by a Company Order, similarly
delivered, the Company shall direct that canceled Securities be returned to it.
The Security Registrar shall promptly deliver evidence of any cancellation of a
Security in accordance with this Section 309 to the Trustee and the Company.
SECTION 310. COMPUTATION OF INTEREST.
Except as otherwise specified as contemplated by Section 301 for
Securities of any series, or any Tranche thereof, interest on the Securities of
each series shall be computed on the basis of a 360-day year consisting of
twelve 30-day months and for any period shorter than a full month, on the basis
of the actual number of days elapsed in such period.
SECTION 311. PAYMENT TO BE IN PROPER CURRENCY.
In the case of the Securities of any series, or any Tranche thereof,
denominated in any currency or in a composite currency (the "Required
Currency"), except as otherwise specified with respect to such Securities as
contemplated by Section 301, the obligation of the Company or the Guarantor to
make any payment of the principal thereof, or the premium or interest thereon,
shall not be discharged or satisfied by any tender by the Company, or recovery
by the Trustee, in any currency other than the Required Currency, except to the
extent that such tender or recovery shall result in the Trustee timely holding
the full amount of the Required Currency then due and payable. If any such
tender or recovery is in a currency other than the Required Currency, the
Trustee may take such actions as it considers appropriate to exchange such
currency for the Required Currency. The costs and risks of any such exchange,
including without limitation the risks of delay and exchange rate fluctuation,
shall be borne by the Company and the Guarantor, the Company and the Guarantor
shall remain fully liable for any shortfall or delinquency in the full amount of
Required Currency then due and payable, and in no circumstances shall the
Trustee be liable therefor except in the case of its negligence or willful
misconduct. The Company and the Guarantor hereby waive any defense of payment
based upon any such tender or recovery which is not in the Required Currency, to
the extent such amount, when exchanged for the Required Currency by the Trustee,
is less than the full amount of Required Currency then due and payable
SECTION 312. EXTENSION OF INTEREST PAYMENT.
The Company shall have the right at any time, so long as the Company is
not in default in the payment of interest on the Securities of any series
hereunder, to extend interest payment periods on all Securities of one or more
series, if so specified as contemplated by Section 301 with respect to such
Securities and upon such terms as may be specified as contemplated by Section
301 with respect to such Securities.
ARTICLE FOUR
REDEMPTION OF SECURITIES
SECTION 401. APPLICABILITY OF ARTICLE.
Securities of any series, or any Tranche thereof, which are redeemable
before their Stated Maturity shall be redeemable in accordance with their terms
and (except as otherwise specified as contemplated by Section 301 for Securities
of such series or Tranche) in accordance with this Article.
SECTION 402. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities shall be
evidenced by a Board Resolution or an Officer's Certificate of the Company. The
Company shall, at least 45 days prior to the Redemption Date fixed by the
Company (unless a shorter notice shall be satisfactory to the Trustee), notify
the Trustee in writing of such Redemption Date and of the principal amount of
such Securities to be redeemed. In the case of any redemption of Securities (a)
prior to the expiration of any restriction on such redemption provided in the
terms of such Securities or elsewhere in this Indenture or (b) pursuant to an
election of the Company which is subject to a condition specified in the terms
of such Securities, the Company and the Guarantor shall each furnish the Trustee
with an Officer's Certificate evidencing compliance with such restriction or
condition.
SECTION 403. SELECTION OF SECURITIES TO BE REDEEMED.
If less than all the Securities of any series, or any Tranche thereof,
are to be redeemed, the particular Securities to be redeemed shall be selected
by the Trustee from the Outstanding Securities of such series or Tranche not
previously called for redemption, by such method as shall be provided for any
particular series, or, in the absence of any such provision, by such method as
the Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of portions (equal to the minimum authorized
denomination for Securities of such series or Tranche or any integral multiple
thereof) of the principal amount of Securities of such series or Tranche of a
denomination larger than the minimum authorized denomination for Securities of
such series or Tranche; provided, however, that if, as indicated in an Officer's
Certificate, the Company shall have offered to purchase all or any principal
amount of the Securities then Outstanding of any series, or any Tranche thereof,
and less than all of such Securities as to which such offer was made shall have
been tendered to the Company for such purchase, the Trustee, if so directed by
Company Order, shall select for redemption all or any principal amount of such
Securities which have not been so tendered.
The Trustee shall promptly notify the Company and the Security
Registrar in writing of the Securities selected for redemption and, in the case
of any Securities selected to be redeemed in part, the principal amount thereof
to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal amount of such Securities which has been or is to be
redeemed.
SECTION 404. NOTICE OF REDEMPTION.
Except as otherwise specified as contemplated by Section 301 for
Securities of any series, notice of redemption shall be given in the manner
provided in Section 106 to the Holders of the Securities to be redeemed not less
than 30 nor more than 60 days prior to the Redemption Date.
All notices of redemption shall state:
(a) the Redemption Date,
(b) the Redemption Price (if known),
(c) if less than all the Securities of any series or Tranche are to be
redeemed, the identification of the particular Securities to be redeemed
and the portion of the principal amount of any Security to be redeemed in
part,
(d) that on the Redemption Date the Redemption Price, together with
accrued interest, if any, to the Redemption Date, will become due and
payable upon each such Security to be redeemed and, if applicable, that
interest thereon will cease to accrue on and after said date,
(e) the place or places where such Securities are to be surrendered
for payment of the Redemption Price and accrued interest, if any, unless it
shall have been specified as contemplated by Section 301 with respect to
such Securities that such surrender shall not be required,
(f) that the redemption is for a sinking or other fund, if such is the
case, and
(g) such other matters as the Company shall deem desirable or
appropriate.
Unless otherwise specified with respect to any Securities in
accordance with Section 301, with respect to any notice of redemption of
Securities at the election of the Company, unless, upon the giving of such
notice, such Securities shall be deemed to have been paid in accordance with
Section 701, such notice may state that such redemption shall be conditional
upon the receipt by the Paying Agent or Agents for such Securities, on or prior
to the date fixed for such redemption, of money sufficient to pay the principal
of and premium, if any, and interest, if any, on such Securities and that if
such money shall not have been so received such notice shall be of no force or
effect and the Company shall not be required to redeem such Securities. In the
event that such notice of redemption contains such a condition and such money is
not so received, the redemption shall not be made and within a reasonable time
thereafter notice shall be given, in the manner in which the notice of
redemption was given, that such money was not so received and such redemption
was not required to be made, and the Paying Agent or Agents for the Securities
otherwise to have been redeemed shall promptly return to the Holders thereof any
of such Securities which had been surrendered for payment upon such redemption.
Notice of redemption of Securities to be redeemed at the election of
the Company, and any notice of non-satisfaction of a condition for redemption as
aforesaid, shall be given by the Company or, at the Company's request, by the
Security Registrar in the name and at the expense of the Company. Notice of any
mandatory redemption of Securities shall be given by the Security Registrar in
the name and at the expense of the Company.
SECTION 405. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, and the
conditions, if any, set forth in such notice having been satisfied, the
Securities or portions thereof so to be redeemed shall, on the Redemption Date,
become due and payable at the Redemption Price therein specified, and from and
after such date (unless, in the case of an unconditional notice of redemption,
the Company shall default in the payment of the Redemption Price and accrued
interest and Additional Amounts, if any) such Securities or portions thereof, if
interest-bearing, shall cease to bear interest. Upon surrender of any such
Security for redemption in accordance with such notice, such Security or portion
thereof shall be paid by the Company at the Redemption Price, together with
accrued interest and Additional Amounts, if any, to the Redemption Date;
provided, however, that no such surrender shall be a condition to such payment
if so specified as contemplated by Section 301 with respect to such Security;
and provided, further, that except as otherwise specified as contemplated by
Section 301 with respect to such Security, any installment of interest on any
Security the Stated Maturity of which installment is on or prior to the
Redemption Date shall be payable to the Holder of such Security, or one or more
Predecessor Securities, registered as such at the close of business on the
related Regular Record Date according to the terms of such Security and subject
to the provisions of Section 307.
SECTION 406. SECURITIES REDEEMED IN PART.
Upon the surrender of any Security which is to be redeemed only in
part at a Place of Payment therefor (with, if the Company, the Guarantor or the
Trustee so requires, due endorsement by, or a written instrument of transfer in
form satisfactory to the Company, the Guarantor and the Trustee duly executed
by, the Holder thereof or his attorney duly authorized in writing), the Company
shall execute, and the Trustee shall authenticate and deliver to the Holder of
such Security, without service charge, a new Security or Securities of the same
series and Tranche, of any authorized denomination requested by such Holder and
of like tenor and in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered with the
Guarantee of the Guarantor endorsed thereon.
ARTICLE FIVE
SINKING FUNDS
SECTION 501. APPLICABILITY OF ARTICLE.
The provisions of this Article shall be applicable to any sinking fund
for the retirement of the Securities of any series, or any Tranche thereof,
except as otherwise specified as contemplated by Section 301 for Securities of
such series or Tranche.
The minimum amount of any sinking fund payment provided for by the
terms of Securities of any series, or any Tranche thereof, is herein referred to
as a "mandatory sinking fund payment", and any payment in excess of such minimum
amount provided for by the terms of Securities of any series, or any Tranche
thereof, is herein referred to as an "optional sinking fund payment". If
provided for by the terms of Securities of any series, or any Tranche thereof,
the cash amount of any sinking fund payment may be subject to reduction as
provided in Section 502. Each sinking fund payment shall be applied to the
redemption of Securities of the series or Tranche in respect of which it was
made as provided for by the terms of such Securities.
SECTION 502. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES.
The Company (a) may deliver to the Trustee Outstanding Securities
(other than any previously called for redemption) of a series or Tranche in
respect of which a mandatory sinking fund payment is to be made and (b) may
apply as a credit Securities of such series or Tranche which have been redeemed
either at the election of the Company pursuant to the terms of such Securities
or through the application of permitted optional sinking fund payments pursuant
to the terms of such Securities, in each case in satisfaction of all or any part
of such mandatory sinking fund payment with respect to the Securities of such
series; provided, however, that no Securities shall be applied in satisfaction
of a mandatory sinking fund payment if such Securities shall have been
previously so applied. Securities so applied shall be received and credited for
such purpose by the Trustee at the Redemption Price specified in such Securities
for redemption through operation of the sinking fund and the amount of such
mandatory sinking fund payment shall be reduced accordingly.
SECTION 503. REDEMPTION OF SECURITIES FOR SINKING FUND.
Not less than 45 days prior to each sinking fund payment date for the
Securities of any series, or any Tranche thereof, the Company shall deliver to
the Trustee an Officer's Certificate specifying:
(a) the amount of the next succeeding mandatory sinking fund payment
for such series or Tranche;
(b) the amount, if any, of the optional sinking fund payment to be
made together with such mandatory sinking fund payment;
(c) the aggregate sinking fund payment;
(d) the portion, if any, of such aggregate sinking fund payment which
is to be satisfied by the payment of cash; and
(e) the portion, if any, of such aggregate sinking fund payment which
is to be satisfied by delivering and crediting Securities of such series or
Tranche pursuant to Section 502 and stating the basis for such credit and
that such Securities have not previously been so credited, and the Company
shall also deliver to the Trustee any Securities to be so delivered.
If the Company shall have not delivered such Officer's Certificate
and, to the extent applicable, all such Securities, the next succeeding sinking
fund payment for such series or Tranche shall be made entirely in cash in the
amount of the mandatory sinking fund payment. Not less than 30 days before each
such sinking fund payment date the Trustee shall select the Securities to be
redeemed upon such sinking fund payment date in the manner specified in Section
403 and cause notice of the redemption thereof to be given in the name of and at
the expense of the Company in the manner provided in Section 404. Such notice
having been duly given, the redemption of such Securities shall be made upon the
terms and in the manner stated in Sections 405 and 406.
ARTICLE SIX
COVENANTS
SECTION 601. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company shall pay the principal of and premium, interest and
Additional Amounts, if any, on the Securities of each series in accordance with
the terms of such Securities and this Indenture.
SECTION 602. MAINTENANCE OF OFFICE OR AGENCY.
The Company and the Guarantor shall maintain in each Place of Payment
for the Securities of each series, or any Tranche thereof, an office or agency
where payment of such Securities shall be made, where the registration of
transfer or exchange of such Securities may be effected and where notices and
demands to or upon the Company or the Guarantor in respect of such Securities
and this Indenture may be served. The Company and the Guarantor shall give
prompt written notice to the Trustee of the location, and any change in the
location, of each such office or agency and prompt notice to the Holders of any
such change in the manner specified in Section 106. If at any time the Company
or the Guarantor shall fail to maintain any such required office or agency in
respect of Securities of any series, or any Tranche thereof, or shall fail to
furnish the Trustee with the address thereof, payment of such Securities shall
be made, registration of transfer or exchange thereof may be effected and
notices and demands in respect thereof may be served at the Corporate Trust
Office of the Trustee, and each of the Company and the Guarantor hereby appoint
the Trustee as its agent for all such purposes in any such event.
The Company or the Guarantor may also from time to time designate one
or more other offices or agencies with respect to the Securities of one or more
series, or any Tranche thereof, for any or all of the foregoing purposes and may
from time to time rescind such designations; provided, however, that, unless
otherwise specified as contemplated by Section 301 with respect to the
Securities of such series or Tranche, no such designation or rescission shall in
any manner relieve the Company or the Guarantor of its obligation to maintain an
office or agency for such purposes in each Place of Payment for such Securities
in accordance with the requirements set forth above. The Company and the
Guarantor shall give prompt written notice to the Trustee, and prompt notice to
the Holders in the manner specified in Section 106, of any such designation or
rescission and of any change in the location of any such other office or agency.
Anything herein to the contrary notwithstanding, any office or agency
required by this Section may be maintained at an office of the Company or the
Guarantor of any Affiliate of either of them, in which event the Company, the
Guarantor or such Affiliate, as the case may be, shall perform all functions to
be performed at such office or agency.
SECTION 603. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent with
respect to the Securities of any series, or any Tranche thereof, it shall, on or
before each due date of the principal of or premium, interest or Additional
Amounts, if any, on any of such Securities, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay the principal,
premium, interest or Additional Amounts so becoming due until such sums shall be
paid to such Persons or otherwise disposed of as herein provided. The Company
shall promptly notify the Trustee of any failure by the Company (or any other
obligor on such Securities) to make any payment of principal of or premium,
interest or Additional Amounts, if any, on such Securities.
Whenever the Company shall have one or more Paying Agents for the
Securities of any series, or any Tranche thereof, it shall, on or before each
due date of the principal of or premium, interest, or Additional Amounts, if
any, on such Securities, deposit with such Paying Agents sums sufficient
(without duplication) to pay the principal, premium, interest or Additional
Amounts so becoming due, such sums to be held in trust for the benefit of the
Persons entitled to such principal, premium, interest or Additional Amounts, and
(unless such Paying Agent is the Trustee) the Company shall promptly notify the
Trustee of any failure by it so to act.
The Company shall cause each Paying Agent for the Securities of any
series, or any Tranche thereof, other than the Company or the Trustee, to
execute and deliver an instrument in which such Paying Agent shall agree,
subject to the provisions of this Section, that such Paying Agent shall:
(a) hold all sums held by it for the payment of the principal of or
premium, interest or Additional Amounts, if any, on such Securities in
trust for the benefit of the Persons entitled thereto until such sums shall
be paid to such Persons or otherwise disposed of as herein provided;
(b) give the Trustee notice of any failure by the Company (or any
other obligor upon such Securities) to make any payment of principal of or
premium, interest or Additional Amounts, if any, on such Securities; and
(c) at any time during the continuance of any such failure, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent and furnish to the Trustee such
information as it possesses regarding the names and addresses of the
Persons entitled to such sums.
The Company may at any time pay, or by Company Order direct any Paying
Agent to pay, to the Trustee all sums held in trust by the Company or such
Paying Agent, such sums to be held by the Trustee upon the same trusts as those
upon which such sums were held by the Company or such Paying Agent and, if so
stated in a Company Order delivered to the Trustee, in accordance with the
provisions of Article Seven; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of and premium,
interest or Additional Amounts, if any, on any Security and remaining unclaimed
for two years after such principal or premium, interest or Additional Amounts
have become due and payable shall be paid to the Company on Company Request, or,
if then held by the Company, shall be discharged from such trust; and, upon such
payment or discharge, the Holder of such Security shall, as an unsecured general
creditor and not as a Holder of an Outstanding Security, look only to the
Company for payment of the amount so due and payable and remaining unpaid, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such payment to the Company, may at the expense of the
Company cause to be mailed, on one occasion only, notice to such Holder that
such money remains unclaimed and that, after a date specified therein, which
shall not be less than 30 days from the date of such mailing, any unclaimed
balance of such money then remaining will be paid to the Company.
SECTION 604. CORPORATE EXISTENCE.
Subject to the rights of the Company and the Guarantor under Article
Eleven, each of the Company and the Guarantor shall do or cause to be done all
things necessary to preserve and keep in full force and effect its existence as
a corporation.
SECTION 605. MAINTENANCE OF CORPORATE RECORDS; PROTECTION OF ASSETS.
Each of the Company and the Guarantor shall maintain proper books of
record and accounts and shall maintain and protect its assets in accordance with
customary business practices.
SECTION 606. ANNUAL OFFICER'S CERTIFICATE AS TO COMPLIANCE.
Not later than June 1 in each year, commencing June 1, 1999, the
Company and the Guarantor each shall deliver to the Trustee an Officer's
Certificate which need not comply with Section 102, executed by the principal
executive officer, the principal financial officer or the principal accounting
officer of the Company, as to such officer's knowledge of such obligor's
compliance with all conditions and covenants under this Indenture, such
compliance to be determined without regard to any period of grace or requirement
of notice under this Indenture, and making any other statements as may be
required by the provisions of Section 314(a)(4) of the Trust Indenture Act.
SECTION 607. WAIVER OF CERTAIN COVENANTS.
The Company or the Guarantor may omit in any particular instance to
comply with any term, provision or condition set forth in (a) Section 602 or any
additional covenant or restriction specified with respect to the Securities of
any series, or any Tranche thereof, as contemplated by Section 301 or by clause
(b) of Section 1201, if before the time for such compliance the Holders of a
majority in aggregate principal amount of the Outstanding Securities of all
series and Tranches with respect to which compliance with Section 602 or such
additional covenant or restriction is to be omitted, considered as one class,
shall, by Act of such Holders, either waive such compliance in such instance or
generally waive compliance with such term, provision or condition and (b)
Section 605 or Article Eleven if before the time for such compliance the Holders
of a majority in principal amount of Securities Outstanding under this Indenture
shall, by Act of such Holders, either waive such compliance in such instance or
generally waive compliance with such term, provision or condition; but, in the
case of (a) or (b), no such waiver shall extend to or affect such term,
provision or condition except to the extent so expressly waived, and, until such
waiver shall become effective, the obligations of the Company and the Guarantor
and the duties of the Trustee in respect of any such term, provision or
condition shall remain in full force and effect.
SECTION 608. LIMITATION ON LIENS.
So long as any of the Securities remain Outstanding, the Company and
the Guarantor will not, nor will the Guarantor permit any Restricted Subsidiary
to, create, incur, guarantee or assume any Debt secured by a Lien on any
Principal Property or on any shares of stock or indebtedness of any Restricted
Subsidiary, without effectively providing concurrently with the creation,
incurrence, guarantee or assumption of such Debt that the Securities and the
Guarantees will be secured equally and ratably with (or prior to) such Debt, so
long as such Debt will be so secured, except that this restriction will not
apply to:
(a) Liens on property, shares of stock or indebtedness of any
corporation existing at the time such corporation becomes a Subsidiary,
provided that any such Lien was not created in contemplation of such
Subsidiary becoming a Subsidiary;
(b) Liens on property or shares of stock existing at the time of
acquisition thereof or to secure the payment of all or any part of the
purchase price thereof or all or part of the cost of the improvement,
construction, alteration or repair of any building, equipment or facilities
or of any other improvements on all or any part of such property or to
secure any Debt incurred prior to, at the time of, or within 270 days
after, in the case of shares of stock, the acquisition of such shares and,
in the case of property, the later of the acquisition, the completion of
construction (including any improvements, alterations or repairs on an
existing property) or the commencement of commercial operation of such
property, which Debt is incurred for the purpose of financing all or any
part of the purchase price thereof or all or part of the cost of
improvement, construction, alteration or repair thereon;
(c) Liens existing at the date of this Indenture;
(d) Liens on property owned or held by any corporation or on shares of
stock, other equity interests or indebtedness of any corporation, in either
case existing at the time such corporation is merged into or consolidated
or amalgamated with either the Company, the Guarantor or a Subsidiary of
either thereof or at the time of a sale, lease or other disposition of
property of a corporation or a sale or other disposition of stock of a
corporation as an entirety or substantially as an entirety to the Company,
the Guarantor or a Subsidiary of either thereof;
(e) Liens arising by operation of law (other than by reason of
default);
(f) Liens to secure Debt incurred in the ordinary course of business
and maturing not more than twelve months from the date incurred;
(g) Liens to secure indebtedness for borrowed money incurred in
connection with a specifically identifiable project where the Lien relates
to a Principal Property with respect to which such project has been
undertaken (including Principal Property consisting of the shares of
capital stock of Subsidiaries, the business of which is undertaking such
project) and recourse of the creditors in respect of such Lien is
substantially limited to such project and Principal Property;
(h) Liens arising under any options, futures, swaps, short sale
contracts or similar or related instruments which relate to the purchase or
sale of securities, commodities or currencies;
(i) Liens securing Debt owing to a Restricted Subsidiary by the
Guarantor or the Company;
(j) Liens for any tax, assessment, or other governmental charge or
levy not yet delinquent or which are being contested in good faith by
appropriate proceedings diligently conducted, if such reserve or other
appropriate provision, if any, as shall be required by general accepted
accounting principles in the United Kingdom, shall have been made therefor;
(k) any Lien arising over accounts with banks and financial
institutions as a result of netting and set-off arrangements existing with
those banks and financial institutions which have extended cash management
facilities to the Guarantor or any of its subsidiaries;
(l) any Liens incurred or deposits made in the ordinary course of
business and not in connection with the borrowing of money, including, but
not limited to (i) any mechanic's, materialman's, carrier's, workmen's,
vendor's Lien, or other like Lien, (ii) any Lien securing amounts in
connection with worker's compensation, unemployment insurance or other
types of such security and (iii) any easements, rights-of-way, restrictions
and other similar charges which do not materially impair the use of the
affected property for the purposes for which it is held by the Guarantor or
its Subsidiaries;
(m) any Liens in favor of the Company or the Guarantor, as the case
may be, from any of their Subsidiaries;
(n) any extension, renewal or replacement (or successive extensions,
renewals or replacements), as a whole or in part, of any Lien referred to
in the foregoing clauses (a) to (m), inclusive, or of any Debt secured
thereby; provided that the principal amount of Debt secured thereby shall
not exceed the principal amount of Debt so secured at the time of such
extension, renewal or replacement (plus any related fees and expenses), and
that such extension, renewal or replacement Lien shall be limited to all or
any part of the same property or shares of stock that secured the Lien
extended, renewed or replaced (plus improvements on such property), or
property received or shares of stock issued in substitution or exchange
therefor.
Notwithstanding the foregoing, the Company or the Guarantor may
create, incur, guarantee or assume Debt secured by a Lien or Liens which would
otherwise be subject to the foregoing restrictions in an aggregate amount which,
together with all other such Debt of the Company or the Guarantor and its
Attributable Debt in respect of Sale and Leaseback Transactions, does not at the
time exceed 10% of Consolidated Net Tangible Assets. There shall be excluded
from this calculation Attributable Debt in respect of Sale and Leaseback
Transactions that are permitted because the Company or the Guarantor would be
entitled to create, incur, guarantee or assume such Debt secured by a Lien on
the property to be leased without equally and ratably securing the Securities
pursuant to this Section 608 and other than Sale and Leaseback Transactions the
proceeds of which have been applied as provided in Section 609 (iii).
SECTION 609. LIMITATION ON SALE AND LEASEBACK TRANSACTIONS.
So long as any of the Securities remain Outstanding, the Company and
the Guarantor will not, and will not permit any Restricted Subsidiary to, enter
into any arrangement with any Person (not including any Subsidiary) providing
for the leasing by the Company, Guarantor or Restricted Subsidiary for a period,
including renewals, in excess of three years, of any Principal Property which
has been owned by the Company, Guarantor or Restricted Subsidiary, as the case
may be, for more than 270 days and which has been or is to be sold or
transferred by the Company, Guarantor or Restricted Subsidiary, as the case may
be, to such Person (a "Sale and Leaseback Transaction") unless, after giving
effect thereto, the aggregate amount of all Attributable Debt with respect to
all such Sale and Leaseback Transactions plus all Debt incurred, issued, assumed
or guaranteed and secured by a Lien or Liens (with the exception of Debt secured
by a Lien or Liens on property that the Company, the Guarantor and any
Restricted Subsidiary would be entitled to create, incur, issue, guarantee or
assume without equally and ratably securing the Securities pursuant to the
provisions of the Securities referred to in Section 608) does not exceed 10% of
Consolidated Net Tangible Assets. This restriction shall not apply to any Sale
and Leaseback Transaction if (i) the Company, Guarantor or Restricted Subsidiary
would be entitled to create, incur, issue, guarantee or assume Debt secured by a
Lien on the Principal Property to be leased (in an amount at least equal to the
Attributable Debt with respect to such Sale and Leaseback Transaction) without
equally and ratably securing the Securities pursuant to the provisions of the
Securities referred to in Section 608; (ii) within a period commencing twelve
months prior to the receipt of Net Proceeds (hereinafter defined) of the Sale
and Leaseback Transaction and ending twelve months after the receipt of Net
Proceeds of such Sale and Leaseback Transaction, the Company, the Guarantor or
any Restricted Subsidiary has expended or will expend for purchase,
construction, repair, alteration or addition of any Principal Property
(including capital improvements thereon) an amount equal to (a) the greater of
(x) the net proceeds received from such Sale and Leaseback Transaction and (y)
the fair market value of the Principal Property so sold at the time of entering
into such transaction, as determined by the Board of Directors (the greater of
the sums specified in clauses (x) and (y) being referred to herein as the "Net
Proceeds") or (b) a part of the Net Proceeds and the Company elects to apply the
balance of such Net Proceeds in the manner described in the following clause
(iii); or (iii) the Company, Guarantor or any Restricted Subsidiary, within
twelve months after the consummation of any such Sale and Leaseback Transaction,
applies an amount equal to the Net Proceeds (less any part of the Net Proceeds
to be expended for Principal Property as provided under clause (ii) above) to
the retirement or repayment of Funded Debt of the Company ranking pari passu
with the Securities or Funded Debt of a Restricted Subsidiary. No retirement
referred to in clause (iii) may be effected by payment at Maturity or pursuant
to any mandatory sinking fund or prepayment provision (unless such repayment is
required due to the receipt of the Net Proceeds).
SECTION 610. BUSINESS OF THE COMPANY.
So long as any Securities are outstanding, the Company will not engage
in significant business activities other than issuing securities, incurring debt
and entering into financing transactions to enable it to make loans or advances
to, purchase securities from, or otherwise provide financing to the Guarantor
for the benefit of the Guarantor and its Subsidiaries.
ARTICLE SEVEN
SATISFACTION AND DISCHARGE
SECTION 701. SATISFACTION AND DISCHARGE OF SECURITIES.
Any Security or Securities, or any portion of the principal amount
thereof, shall be deemed to have been paid for all purposes of this Indenture,
and the entire indebtedness of each of the Company and the Guarantor in respect
thereof shall be deemed to have been satisfied and discharged, if there shall
have been irrevocably deposited with the Trustee or any Paying Agent (other than
the Company or the Guarantor), in trust:
(a) money in an amount which shall be sufficient, or
(b) in the case of a deposit made prior to the Maturity of such
Securities or portions thereof, Eligible Obligations, which shall not
contain provisions permitting the redemption or other prepayment thereof at
the option of the issuer thereof, the principal of and the interest on
which when due, without any regard to reinvestment thereof, will provide
moneys which, together with the money, if any, deposited with or held by
the Trustee or such Paying Agent, shall be sufficient, or
(c) a combination of (a) or (b) which shall be sufficient,
to pay when due the principal of and premium, interest and Additional Amounts,
if any, due and to become due on such Securities or portions thereof on or prior
to Maturity; provided, however, that in the case of the provision for payment or
redemption of less than all the Securities of any series or Tranche, such
Securities or portions thereof shall have been selected by the Trustee as
provided herein and, in the case of a redemption, the notice requisite to the
validity of such redemption shall have been given or irrevocable authority shall
have been given by the Company to the Trustee to give such notice, under
arrangements satisfactory to the Trustee; and provided, further, that the
Company shall have delivered to the Trustee and such Paying Agent:
(x) if such deposit shall have been made prior to the Maturity of
such Securities, a Company Order stating that the money and Eligible
Obligations deposited in accordance with this Section shall be held in
trust, as provided in Section 703; and
(y) if Eligible Obligations shall have been deposited, an Opinion
of Counsel that the obligations so deposited constitute Eligible
Obligations and do not contain provisions permitting the redemption or
other prepayment at the option of the issuer thereof, and an opinion
of an independent public accountant of nationally recognized standing,
selected by the Company, to the effect that the requirements set forth
in clause (b) above have been satisfied; and
(z) if such deposit shall have been made prior to the Maturity of
such Securities, an Officer's Certificate stating the Company's
intention that, upon delivery of such Officer's Certificate, its
indebtedness in respect of such Securities or portions thereof will
have been satisfied and discharged as contemplated in this Section.
Upon the deposit of money or Eligible Obligations, or both, in
accordance with this Section, together with the documents required by clauses
(x), (y) and (z) above, the Trustee shall, upon receipt of a Company Request,
acknowledge in writing that the Security or Securities or portions thereof with
respect to which such deposit was made are deemed to have been paid for all
purposes of this Indenture and that the entire indebtedness of the Company in
respect thereof has been satisfied and discharged as contemplated in this
Section. In the event that all of the conditions set forth in the preceding
paragraph shall have been satisfied in respect of any Securities or portions
thereof except that, for any reason, the Officer's Certificate specified in
clause (z) shall not have been delivered, such Securities or portions thereof
shall nevertheless be deemed to have been paid for all purposes of this
Indenture, and the Holders of such Securities or portions thereof shall
nevertheless be no longer entitled to the benefits of this Indenture or of any
of the covenants of the Company under Article Six (except the covenants
contained in Sections 602 and 603) or any other covenants made in respect of
such Securities or portions thereof as contemplated by Section 301 or Section
1201(b), but the indebtedness of the Company in respect of such Securities or
portions thereof shall not be deemed to have been satisfied and discharged prior
to Maturity for any other purpose, and the Holders of such Securities or
portions thereof shall continue to be entitled to look to the Company for
payment of the indebtedness represented thereby; and, upon Company Request, the
Trustee shall acknowledge in writing that such Securities or portions thereof
are deemed to have been paid for all purposes of this Indenture.
If payment at Stated Maturity of less than all of the Securities of
any series, or any Tranche thereof, is to be provided for in the manner and with
the effect provided in this Section, the Security Registrar shall select such
Securities, or portions of principal amount thereof, in the manner specified by
Section 403 for selection for redemption of less than all the Securities of a
series or Tranche.
In the event that Securities which shall be deemed to have been paid
for purposes of this Indenture, and, if such is the case, in respect of which
the Company's indebtedness shall have been satisfied and discharged, all as
provided in this Section do not mature and are not to be redeemed within the 60
day period commencing with the date of the deposit of moneys or Eligible
Obligations, as aforesaid, the Company shall, as promptly as practicable, give a
notice, in the same manner as a notice of redemption with respect to such
Securities, to the Holders of such Securities to the effect that such deposit
has been made and the effect thereof.
Notwithstanding that any Securities shall be deemed to have been paid
for purposes of this Indenture, as aforesaid, the obligations of the Company,
the Guarantor and the Trustee in respect of such Securities under Sections 304,
305, 306, 404, 503 (as to notice of redemption), 602, 603, 907 and 915 and this
Article Seven shall survive.
The Company shall pay, and shall indemnify the Trustee or any Paying
Agent with which Eligible Obligations shall have been deposited as provided in
this Section against, any tax, fee or other charge imposed on or assessed
against such Eligible Obligations or the principal or interest received in
respect of such Eligible Obligations, including, but not limited to, any such
tax payable by any entity deemed, for tax purposes, to have been created as a
result of such deposit.
Anything herein to the contrary notwithstanding, (a) if, at any time
after a Security would be deemed to have been paid for purposes of this
Indenture, and, if such is the case, the Company's indebtedness in respect
thereof would be deemed to have been satisfied or discharged, pursuant to this
Section (without regard to the provisions of this paragraph), the Trustee or any
Paying Agent, as the case may be, shall be required to return the money or
Eligible Obligations, or combination thereof, deposited with it as aforesaid to
the Company or its representative under any applicable bankruptcy, insolvency or
other similar law, such Security shall thereupon be deemed retroactively not to
have been paid and any satisfaction and discharge of the Company's indebtedness
in respect thereof shall retroactively be deemed not to have been effected, and
such Security shall be deemed to remain Outstanding and (b) any satisfaction and
discharge of the Company's indebtedness in respect of any Security shall be
subject to the provisions of the last paragraph of Section 603.
SECTION 702. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall upon Company Request cease to be of further
effect (except as hereinafter expressly provided), and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(a) no Securities remain Outstanding hereunder; and
(b) the Company or the Guarantor has paid or caused to be paid all
other sums payable hereunder by the Company or the Guarantor;
provided, however, that if, in accordance with the last paragraph of Section
701, any Security, previously deemed to have been paid for purposes of this
Indenture, shall be deemed retroactively not to have been so paid, this
Indenture shall thereupon be deemed retroactively not to have been satisfied and
discharged, as aforesaid, and to remain in full force and effect, and the
Company shall execute and deliver such instruments as the Trustee shall
reasonably request to evidence and acknowledge the same.
Notwithstanding the satisfaction and discharge of this Indenture as
aforesaid, the obligations of the Company, the Guarantor and the Trustee under
Sections 304, 305, 306, 404, 503 (as to notice of redemption), 602, 603, 907 and
915 and this Article Seven shall survive.
Upon satisfaction and discharge of this Indenture as provided in this
Section, the Trustee shall assign, transfer and turn over to the Company,
subject to the lien provided by Section 907, any and all money, securities and
other property then held by the Trustee for the benefit of the Holders of the
Securities other than money and Eligible Obligations held by the Trustee
pursuant to Section 703 and shall execute and deliver to the Company and the
Guarantor such instruments as, in the judgment of the Company and the Guarantor,
shall be necessary, desirable or appropriate to effect or evidence the
satisfaction and discharge of this Indenture.
SECTION 703. APPLICATION OF TRUST MONEY.
Neither the Eligible Obligations nor the money deposited pursuant to
Section 701, nor the principal or interest payments on any such Eligible
Obligations, shall be withdrawn or used for any purpose other than, and shall be
held in trust for, the payment of the principal of and premium, interest and
Additional Amounts, if any, on the Securities or portions of principal amount
thereof in respect of which such deposit was made, all subject, however, to the
provisions of Section 603; provided, however, that, so long as there shall not
have occurred and be continuing an Event of Default, any cash received from such
principal or interest payments on such Eligible Obligations, if not then needed
for such purpose, shall, to the extent practicable and upon Company Request, be
invested in Eligible Obligations of the type described in clause (b) in the
first paragraph of Section 701 maturing at such times and in such amounts as
shall be sufficient, together with any other moneys and the principal of and
interest on any other Eligible Obligations then held by the Trustee, to pay when
due the principal of and premium, if any, and interest, if any, due and to
become due on such Securities or portions thereof on and prior to the Maturity
thereof, and interest earned from such reinvestment shall be paid over to the
Company as received, free and clear of any trust, lien or pledge under this
Indenture except the lien provided by Section 907; and provided, further, that,
so long as there shall not have occurred and be continuing an Event of Default,
any moneys held in accordance with this Section on the Maturity of all such
Securities in excess of the amount required to pay the principal of and premium,
interest and Additional Amounts, if any, then due on such Securities shall be
paid over to the Company free and clear of any trust, lien or pledge under this
Indenture except the lien provided by Section 907; and provided, further, that
if an Event of Default shall have occurred and be continuing, moneys to be paid
over to the Company pursuant to this Section shall be held until such Event of
Default shall have been waived or cured.
ARTICLE EIGHT
EVENTS OF DEFAULT; REMEDIES
SECTION 801. EVENTS OF DEFAULT.
"Event of Default", wherever used herein with respect to Securities of
any series, means any one of the following events:
(a) failure to pay interest, if any, on any Security of such series
within 30 days after the same becomes due and payable; provided, however,
that a valid extension of the interest payment period by the Company as
contemplated in Section 312 of this Indenture shall not constitute a
failure to pay interest for this purpose; or
(b) failure to pay the principal of or premium, if any, on any
Security of such series at its Maturity; or
(c) failure to perform, or to remedy any breach of, any covenant or
warranty of the Company or the Guarantor in this Indenture (other than a
covenant or warranty a default in the performance of which or breach of
which is elsewhere in this Section specifically dealt with or which has
expressly been included in this Indenture solely for the benefit of one or
more series of Securities other than such series) for a period of 90 days
after there has been given, by registered or certified mail, to the Company
and the Guarantor by the Trustee, or to the Company, the Guarantor and the
Trustee by the Holders of at least 25% in principal amount of the
Outstanding Securities of such series, a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder, unless the Trustee, or the
Trustee and the Holders of a principal amount of Securities of such series
not less than the principal amount of Securities the Holders of which gave
such notice, as the case may be, shall agree in writing to an extension of
such period prior to its expiration; provided, however, that the Trustee,
or the Trustee and the Holders of such principal amount of Securities of
such series, as the case may be, shall be deemed to have agreed to a
reasonable extension of such period if corrective action is initiated by
the Company or the Guarantor within such period and is being diligently
pursued; or
(d) except as provided by the terms hereof, the Securities of such
series and the Guarantees endorsed thereon, the cessation of effectiveness
of the Guarantee endorsed on a Security of such series or the finding by
any judicial proceeding that the Guarantee endorsed on a Security of such
series is unenforceable or invalid or the denial or disaffirmation by the
Guarantor of its obligations under the Guarantee endorsed on a Security of
such series; or
(e) the entry by a court having jurisdiction in the premises of (1) a
decree or order for relief in respect of the Company or the Guarantor in an
involuntary case or proceeding under any applicable bankruptcy, insolvency,
or other similar law or (2) a decree or order adjudging the Company or the
Guarantor a bankrupt or insolvent, or approving as properly filed a
petition by one or more Persons other than the Company or the Guarantor
seeking arrangement, adjustment or composition of or in respect of the
Company or the Guarantor under any applicable bankruptcy, insolvency, or
other similar law, or appointing a custodian, receiver, liquidator,
administrator, assignee, trustee, sequestrator or other similar official
for the Company or the Guarantor or for any substantial part of its
property, or ordering the winding up or liquidation of its affairs, and any
such decree or order for relief or any such other decree or order shall
have remained unstayed and in effect for a period of 90 consecutive days;
or
(f) the commencement by the Company or the Guarantor of a voluntary
case or proceeding under any applicable bankruptcy, insolvency, or other
similar law or of any other case or proceeding to be adjudicated a bankrupt
or insolvent, or the consent by the Company or the Guarantor to the entry
of a decree or order for relief in respect of the Company or the Guarantor
in a case or proceeding under any applicable bankruptcy, insolvency, or
other similar law or to the commencement of any bankruptcy or insolvency
case or proceeding against the Company or the Guarantor, or the filing by
the Company or the Guarantor of a petition or answer or consent seeking
relief under any applicable bankruptcy, insolvency, or other similar law,
or the consent by the Company or the Guarantor to the filing of such
petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, administrator, assignee, trustee, sequestrator or
similar official of the Company or the Guarantor or of any substantial part
of its property or the consent by the Company or the Guarantor to the
winding up or liquidation of its affairs, or the making by the Company or
the Guarantor of an assignment for the benefit of creditors, or the
admission by the Company or the Guarantor in writing of inability to pay
its debts generally as they become due, or the authorization of such action
by the Board of Directors of the Company or the Guarantor; or
(g) any other Event of Default specified in an Officer's Certificate
with respect to Securities of such series.
SECTION 802. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default due to the default in payment of principal of,
or interest on, any series of Securities or due to the default in the
performance or breach of any other covenant or warranty of the Company
applicable to the Securities of such series but not applicable to all
Outstanding Securities shall have occurred and be continuing, either the Trustee
or the Holders of not less than 25% in principal amount of the Securities of
such series may then declare the principal amount (or, if any of the Securities
of such series are Discount Securities, such portion of the principal amount as
may be specified in the terms thereof as contemplated by Section 301) of all
Securities of such series and interest accrued thereon to be due and payable
immediately. If an Event of Default due to default in the performance of any
other of the covenants or agreements herein applicable to all Outstanding
Securities or an Event of Default specified in Section 801(d), (e) or (f) shall
have occurred and be continuing, either the Trustee or the Holders of not less
than 25% in principal amount of all Securities then Outstanding (considered as
one class), and not the Holders of the Securities of any one of such series, may
declare the principal of all Securities and interest accrued thereon to be due
and payable immediately. As a consequence of each such declaration (herein
referred to as a declaration of acceleration) with respect to Securities of any
series, the principal amount (or portion thereof in the case of Discount
Securities) of such Securities and interest accrued thereon shall become due and
payable immediately.
At any time after such a declaration of acceleration with respect to
Securities of any series shall have been made and before a judgment or decree
for payment of the money due shall have been obtained by the Trustee as
hereinafter in this Article provided, the Event of Default or Events of Default
giving rise to such declaration of acceleration shall, without further act, be
deemed to have been waived, and such declaration and its consequences shall,
without further act, be deemed to have been rescinded and annulled, if
(a) the Company or the Guarantor shall have paid or deposited with the
Trustee a sum sufficient to pay
(1) all overdue interest on all Securities of such series;
(2) the principal of and premium, if any, on any Securities of
such series which have become due otherwise than by such declaration
of acceleration and interest thereon at the rate or rates prescribed
therefor herein or in such Securities;
(3) to the extent that payment of such interest is lawful,
interest upon overdue interest, if any, at the rate or rates
prescribed therefor herein or in such Securities;
(4) all amounts due to the Trustee under Section 907;
and
(b) any other Event of Default or Events of Default with respect to
Securities of such series, other than the nonpayment of the principal of
Securities of such series which shall have become due solely by such
declaration of acceleration, shall have been cured or waived as provided in
Section 813.
No such rescission shall affect any subsequent Event of Default or impair any
right consequent thereon.
SECTION 803. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
If an Event of Default described in clause (a) or (b) of Section 801
shall have occurred and be continuing, the Company or the Guarantor shall, upon
demand of the Trustee, pay to it, for the benefit of the Holders of the
Securities of the series with respect to which such Event of Default shall have
occurred, the whole amount then due and payable on such Securities for principal
and premium, interest and Additional Amounts, if any, and, to the extent
permitted by law, interest on any overdue principal, premium, interest and
Additional Amounts, if any, at the rate or rates prescribed therefor herein or
in such Securities, and, in addition thereto, such further amount as shall be
sufficient to cover any amounts due to the Trustee under Section 907. Unless
otherwise specified pursuant to Section 301 with respect to any series of
Securities, the rate or rates at which Securities shall bear interest on overdue
principal, premium, interest and Additional Amounts shall be, to the extent
permitted by law, the same rate or rates at which such Securities shall bear
interest prior to maturity.
If the Company or the Guarantor shall fail to pay such amounts
forthwith upon such demand, the Trustee, in its own name and as trustee of an
express trust, may institute a judicial proceeding for the collection of the
sums so due and unpaid, may prosecute such proceeding to judgment or final
decree and may enforce the same against the Company, the Guarantor or any other
obligor upon such Securities and collect the moneys adjudged or decreed to be
payable in the manner provided by law out of the property of the Company, the
Guarantor or any other obligor upon such Securities, wherever situated.
If an Event of Default with respect to Securities of any series shall
have occurred and be continuing, the Trustee may in its discretion proceed to
protect and enforce its rights and the rights of the Holders of Securities of
such series by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 804. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, arrangement, adjustment, composition or other judicial proceeding
relative to the Company or the Guarantor or any other obligor upon the
Securities or the property of the Company or the Guarantor or of such other
obligor or their creditors, the Trustee (irrespective of whether the principal
of the Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Trustee shall have made
any demand on the Company or the Guarantor for the payment of overdue principal
or interest) shall be entitled and empowered, by intervention in such proceeding
or otherwise,
(a) to file and prove a claim for the whole amount of principal,
premium, if any, and interest, if any, owing and unpaid in respect of the
Securities and to file such other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee (including any
claim for amounts due to the Trustee under Section 907) and of the Holders
allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amounts due it under Section 907.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
arrangement, adjustment or composition affecting the Securities or the rights of
any Holder thereof or to authorize the Trustee to vote in respect of the claim
of any Holder in any such proceeding.
SECTION 805. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.
All rights of action and claims under this Indenture or the Securities
or the Guarantee endorsed thereon may be prosecuted and enforced by the Trustee
without the possession of any of the Securities or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Holders in respect of which such
judgment has been recovered.
SECTION 806. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or premium, if
any, or interest, if any, upon presentation of the Securities in respect of
which or for the benefit of which such money shall have been collected and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
907;
SECOND: To the payment of the amounts then due and unpaid upon the
Securities for principal of and premium, if any, and interest, if any, in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal, premium, if any,
and interest, if any, respectively; and
THIRD: To the payment of the remainder, if any, to the Company or to
whomsoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct.
SECTION 807. LIMITATION ON SUITS.
No Holder shall have any right to institute any proceeding, judicial
or otherwise, with respect to this Indenture, or for the appointment of a
receiver or trustee, or for any other remedy hereunder, unless:
(a) such Holder shall have previously given written notice to the
Trustee of a continuing Event of Default with respect to the Securities of
such series;
(b) the Holders of a majority in aggregate principal amount of the
Outstanding Securities of all series in respect of which an Event of
Default shall have occurred and be continuing, considered as one class,
shall have made written request to the Trustee to institute proceedings in
respect of such Event of Default in its own name as Trustee hereunder;
(c) such Holder or Holders shall have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity shall have failed to institute any such proceeding;
and
(e) no direction inconsistent with such written request shall have
been given to the Trustee during such 60-day period by the Holders of a
majority in aggregate principal amount of the Outstanding Securities of all
series in respect of which an Event of Default shall have occurred and be
continuing, considered as one class;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all of such
Holders.
SECTION 808. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of and premium, if any, and (subject to
Sections 307 and 312) interest, if any, and Additional Amounts, if any, on such
Security on the Stated Maturity or Maturities expressed in such Security (or, in
the case of redemption, on the Redemption Date) and to institute suit for the
enforcement of any such payment, and such rights shall not be impaired without
the consent of such Holder.
SECTION 809. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding shall have been
discontinued or abandoned for any reason, or shall have been determined
adversely to the Trustee or to such Holder, then and in every such case, subject
to any determination in such proceeding, the Company, the Guarantor, the Trustee
and such Holder shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Trustee and
such Holder shall continue as though no such proceeding had been instituted.
SECTION 810. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided in the last paragraph of Section 306, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 811. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder to exercise any
right or remedy accruing upon any Event of Default shall impair any such right
or remedy or constitute a waiver of any such Event of Default or an acquiescence
therein. Every right and remedy given by this Article or by law to the Trustee
or to the Holders may be exercised from time to time, and as often as may be
deemed expedient, by the Trustee or by the Holders, as the case may be.
SECTION 812. CONTROL BY HOLDERS OF SECURITIES.
If an Event of Default shall have occurred and be continuing in
respect of a series of Securities, the Holders of a majority in principal amount
of the Outstanding Securities of such series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee, with
respect to the Securities of such series; provided, however, that if an Event of
Default shall have occurred and be continuing with respect to more than one
series of Securities, the Holders of a majority in aggregate principal amount of
the Outstanding Securities of all such series, considered as one class, shall
have the right to make such direction, and not the Holders of the Securities of
any one of such series; and provided, further, that such direction shall not be
in conflict with any rule of law or with this Indenture. The Trustee may take
any other action, deemed proper by the Trustee, which is not inconsistent with
any such direction. Before proceeding to exercise any right or power hereunder
at the direction of such Holders, the Trustee shall be entitled to receive from
such Holders reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with any such direction.
SECTION 813. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series may on behalf of the Holders of all the
Securities of such series waive any past default hereunder with respect to such
series and its consequences, except a default
(a) in the payment of the principal of or premium, interest or
Additional Amounts, if any, on any Security of such series, or
(b) in respect of a covenant or provision hereof which under Section
1202 cannot be modified or amended without the consent of the Holder of
each Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any and
all Events of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
SECTION 814. UNDERTAKING FOR COSTS.
The Company, the Guarantor and the Trustee agree, and each Holder by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the Company
or the Guarantor, to any suit instituted by the Trustee, to any suit instituted
by any Holder, or group of Holders, holding in the aggregate more than 10% in
aggregate principal amount of the Outstanding Securities of all series in
respect of which such suit may be brought, considered as one class, or to any
suit instituted by any Holder for the enforcement of the payment of the
principal of or premium, if any, or interest, if any, on any Security on or
after the Stated Maturity or Maturities expressed in such Security (or, in the
case of redemption, on or after the Redemption Date).
SECTION 815. WAIVER OF STAY OR EXTENSION LAWS.
Each of the Company and the Guarantor covenants (to the extent that it
may lawfully do so) that it will not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and each of the
Company and the Guarantor (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
ARTICLE NINE
THE TRUSTEE
SECTION 901. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee in the
Trust Indenture Act and no implied covenants or obligations shall be read
into this Indenture against the Trustee. For purposes of Sections 315(a)
and 315(c) of the Trust Indenture Act, the term "default" is hereby defined
as an Event of Default which has occurred and is continuing.
(b) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of
its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
(c) Notwithstanding anything contained in this Indenture to the
contrary, the duties and responsibilities of the Trustee under this
Indenture shall be subject to the protections, exculpations and limitations
on liability afforded to the Trustee under the provisions of the Trust
Indenture Act. For the purposes of Sections 315(b)(2) and 315(d)(2) of the
Trust Indenture Act, the term "responsible officer" is hereby defined as a
Responsible Officer and the chairman or vice-chairman of the board of
directors, the chairman or vice-chairman of the executive committee of the
board of directors, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier,
any assistant cashier, any trust officer or assistant trust officer, the
controller and any assistant controller of the Trustee, or any other
officer of the Trustee customarily performing functions similar to those
performed by a Responsible Officer or any of the above designated officers
and also means, with respect to a particular corporate trust matter, any
other officer to whom such matter is referred because of his or her
knowledge of and familiarity with the particular subject.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of
this Section.
SECTION 902. NOTICE OF DEFAULTS.
The Trustee shall give notice of any default hereunder with respect to
the Securities of any series to the Holders of Securities of such series known
to the Trustee in the manner and to the extent required to do so by the Trust
Indenture Act, unless such default shall have been cured or waived; provided,
however, that in the case of any default of the character specified in Section
801(c), no such notice to Holders shall be given until at least 45 days after
the occurrence thereof. For the purpose of this Section and clause (h) of
Section 903, the term "default" means any event which is, or after notice or
lapse of time, or both, would become, an Event of Default.
SECTION 903. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 901 and to the applicable
provisions of the Trust Indenture Act:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting in good faith upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document reasonably believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(b) any request or direction of the Company or the Guarantor mentioned
herein shall be sufficiently evidenced by a Company Request or Company
Order or a Guarantor Request or Guarantor Order, as the case may be, or as
otherwise expressly provided herein, and any resolution of the Board of
Directors of the Company or the Guarantor may be sufficiently evidenced by
a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officer's Certificate of the Company or the
Guarantor;
(d) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any Holder pursuant to this Indenture, unless such Holder shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with
such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall (subject to applicable legal requirements) be entitled to examine,
during normal business hours, the books, records and premises of the
Company or the Guarantor, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys, and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder; and
(h) the Trustee shall not be charged with knowledge of any default or
Event of Default with respect to the Securities of any series for which it
is acting as Trustee unless either (1) a Responsible Officer of the Trustee
shall have actual knowledge that such default or Event of Default exists
and constitutes a default or Event of Default under this Indenture, or (2)
written notice of such default or Event of Default shall have been given in
the manner provided in Section 105 hereof to the Trustee by the Company or
the Guarantor or any other obligor on such Securities or by any Holder of
such Securities.
SECTION 904. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Securities and the Guarantees
endorsed thereon (except the Trustee's certificates of authentication) shall be
taken as the statements of the Company and the Guarantor, as the case may be,
and neither the Trustee nor any Authenticating Agent assumes responsibility for
their correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities or the Guarantees endorsed
thereon. Neither the Trustee nor any Authenticating Agent shall be accountable
for the use or application by the Company of Securities or the proceeds thereof.
SECTION 905. MAY HOLD SECURITIES.
Each of the Trustee, any Authenticating Agent, any Paying Agent, any
Security Registrar or any other agent of the Company, in its individual or any
other capacity, may become the owner or pledgee of Securities and, subject to
Sections 908 and 913, may otherwise deal with the Company with the same rights
it would have if it were not the Trustee, Authenticating Agent, Paying Agent,
Security Registrar or such other agent.
SECTION 906. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated
from other funds, except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
expressly provided herein or otherwise agreed with, and for the sole benefit of,
the Company or the Guarantor.
SECTION 907. COMPENSATION AND REIMBURSEMENT.
The Company and the Guarantor jointly and severally agree
(a) 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);
(b) except as otherwise expressly provided herein, to reimburse the
Trustee upon its request for all reasonable expenses, disbursements and
advances reasonably 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 to the extent
that any such expense, disbursement or advance may be attributable to the
Trustee's negligence, wilful misconduct or bad faith; and
(c) to indemnify the Trustee for, and hold it harmless from and
against, any loss, liability or expense reasonably incurred by it arising
out of or in connection with the acceptance or administration of the trust
or trusts hereunder or the performance of its duties hereunder, including
the reasonable costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its
powers or duties hereunder, except to the extent any such loss, liability
or expense may be attributable to its negligence, wilful misconduct or bad
faith.
As security for the performance of the obligations of the Company and
the Guarantor under this Section, the Trustee shall have a lien prior to the
Securities upon all property and funds held or collected by the Trustee as such
other than property and funds held in trust under Section 703 (except as
otherwise provided in Section 703). "Trustee" for purposes of this Section shall
include any predecessor Trustee; provided, however, that the negligence, wilful
misconduct or bad faith of any Trustee hereunder shall not affect the rights of
any other Trustee hereunder.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 801(d) or Section 801(e), the
expenses (including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable bankruptcy, insolvency or other similar law.
The provisions of this Section 907 shall survive the termination of
this Indenture.
SECTION 908. DISQUALIFICATION; CONFLICTING INTERESTS.
If the Trustee shall have or acquire any conflicting interest within
the meaning of the Trust Indenture Act, it shall either eliminate such
conflicting interest or resign to the extent, in the manner and with the effect,
and subject to the conditions, provided in the Trust Indenture Act and this
Indenture.
For purposes of Section 310(b)(1) of the Trust Indenture Act and to
the extent permitted thereby, the Trustee, in its capacity as trustee in respect
of the Securities of any series or Guarantees endorsed thereon, shall not be
deemed to have a conflicting interest arising from its capacity as trustee in
respect of the Securities of any other series or Guarantees endorsed thereon.
SECTION 909. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be
(a) a corporation organized and doing business under the laws of the
United States, any State or Territory thereof or the District of Columbia,
authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000 and subject to
supervision or examination by Federal, State or other applicable government
authority, or
(b) if and to the extent permitted by the Commission by rule,
regulation or order upon application, a corporation or other Person
organized and doing business under the laws of a foreign government,
authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000 or the Dollar
equivalent of the applicable foreign currency and subject to supervision or
examination by authority of such foreign government or a political
subdivision thereof substantially equivalent to supervision or examination
applicable to United States institutional trustees,
and, in either case, qualified and eligible under this Article and the Trust
Indenture Act. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of such supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 910. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(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 in accordance with the
applicable requirements of Section 911.
(b) The Trustee may resign at any time with respect to the Securities
of one or more series by giving written notice thereof to the Company and
the Guarantor. If the instrument of acceptance by a successor Trustee
required by Section 911 shall not have been delivered to the Trustee within
30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.
(c) The Trustee may be removed at any time by Act of the Holders of a
majority in principal amount of the Outstanding Securities of all series
and delivery of such Act to the Trustee, the Company and the Guarantor.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 908 after
written request therefor by the Company, the Guarantor or by any
Holder who has been a bona fide Holder for at least six months, or
(2) the Trustee shall cease to be eligible under Section 909 and
shall fail to resign after written request therefor by the Company,
the Guarantor or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation,
then, in any such case, (x) the Company and the Guarantor by Board
Resolutions may remove the Trustee with respect to all Securities or (y)
subject to Section 814, any Holder who has been a bona fide Holder for at
least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the removal of
the Trustee with respect to all Securities and the appointment of a
successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause
(other than as contemplated in clause (y) in Subsection (d) of this
Section), with respect to the Securities of one or more series, the Company
and the Guarantor, by Board Resolutions, shall promptly appoint a successor
Trustee or Trustees with respect to the Securities of that or those series
(it being understood that any such successor Trustee may be appointed with
respect to the Securities of one or more or all of such series and that at
any time there shall be only one Trustee with respect to the Securities of
any particular series) and shall comply with the applicable requirements of
Section 911. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee with
respect to the Securities of any series shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities of
such series delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment in accordance with the applicable requirements of Section 911,
become the successor Trustee with respect to the Securities of such series
and to that extent supersede the successor Trustee appointed by the Company
and the Guarantor. If no successor Trustee with respect to the Securities
of any series shall have been so appointed by the Company and the Guarantor
or the Holders and accepted appointment in the manner required by Section
911, any Holder who has been a bona fide Holder of a Security of such
series for at least six months may, on behalf of itself and all others
similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee with respect to the Securities of such
series.
(f) So long as no event which is, or after notice or lapse of time, or
both, would become, an Event of Default shall have occurred and be
continuing, and except with respect to a Trustee appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
pursuant to Subsection (e) of this Section, if the Company and the
Guarantor shall have delivered to the Trustee (i) Board Resolutions of the
Company and the Guarantor appointing a successor Trustee, effective as of a
date specified therein, and (ii) an instrument of acceptance of such
appointment, effective as of such date, by such successor Trustee in
accordance with Section 911, the Trustee shall be deemed to have resigned
as contemplated in Subsection (b) of this Section, the successor Trustee
shall be deemed to have been appointed by the Company and the Guarantor
pursuant to Subsection (e) of this Section and such appointment shall be
deemed to have been accepted as contemplated in Section 911, all as of such
date, and all other provisions of this Section and Section 911 shall be
applicable to such resignation, appointment and acceptance except to the
extent inconsistent with this Subsection (f).
(g) The Company (or, should the Company fail so to act promptly, the
successor trustee at the expense of the Company) shall give notice of each
resignation and each removal of the Trustee with respect to the Securities
of any series and each appointment of a successor Trustee with respect to
the Securities of any series by mailing written notice of such event by
first-class mail, postage prepaid, to all Holders of Securities of such
series as their names and addresses appear in the Security Register. Each
notice shall include the name of the successor Trustee with respect to the
Securities of such series and the address of its corporate trust office.
SECTION 911. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of all series, every such successor Trustee so
appointed shall execute, acknowledge and deliver to the Company, the
Guarantor and to the retiring Trustee an instrument accepting such
appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on the request of
the Company, the Guarantor or the successor Trustee, such retiring Trustee
shall, upon payment of all sums owed to it, execute and deliver an
instrument transferring to such successor Trustee all the rights, powers
and trusts of the retiring Trustee and shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such
retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company,
the Guarantor, the retiring Trustee and each successor Trustee with respect
to the Securities of one or more series shall execute and deliver an
indenture supplemental hereto wherein each successor Trustee shall accept
such appointment and which (1) shall contain such provisions as shall be
necessary or desirable to transfer and confirm to, and to vest in, each
successor Trustee all the rights, powers, trusts and duties of the retiring
Trustee with respect to the Securities of that or those series to which the
appointment of such successor Trustee relates, (2) if the retiring Trustee
is not retiring with respect to all Securities, shall contain such
provisions as shall be deemed necessary or desirable to confirm that all
the rights, powers, trusts and duties of the retiring Trustee with respect
to the Securities of that or those series as to which the retiring Trustee
is not retiring shall continue to be vested in the retiring Trustee and (3)
shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein
or in such supplemental indenture shall constitute such Trustees
co-trustees of the same trust and that each such Trustee shall be trustee
of a trust or trusts hereunder separate and apart from any trust or trusts
hereunder administered by any other such Trustee; and upon the execution
and delivery of such supplemental indenture the resignation or removal of
the retiring Trustee shall become effective to the extent provided therein
and each such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee with respect to the Securities of that or
those series to which the appointment of such successor Trustee relates;
but, on request of the Company, the Guarantor or any successor Trustee,
such retiring Trustee, upon payment of all sums owed to it, shall duly
assign, transfer and deliver to such successor Trustee all property and
money held by such retiring Trustee hereunder with respect to the
Securities of that or those series to which the appointment of such
successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company and the
Guarantor shall execute any instruments which fully vest in and confirm to
such successor Trustee all such rights, powers and trusts referred to in
Subsection (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 912. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any Person into which the Trustee may be merged or converted or with
which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any Person
succeeding to all or substantially all the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided such Person
shall be otherwise qualified and eligible under this Article, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto. In case any Securities shall have been authenticated, but not
delivered, by the Trustee then in office, any successor by merger, conversion or
consolidation to such authenticating Trustee may adopt such authentication and
deliver the Securities so authenticated with the same effect as if such
successor Trustee had itself authenticated such Securities.
SECTION 913. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If the Trustee shall be or become a creditor of the Company, the
Guarantor or any other obligor upon the Securities (other than by reason of a
relationship described in Section 311(b) of the Trust Indenture Act), the
Trustee shall be subject to any and all applicable provisions of the Trust
Indenture Act regarding the collection of claims against the Company, the
Guarantor or such other obligor. For purposes of Section 311(b) of the Trust
Indenture Act:
(a) the term "cash transaction" means any transaction in which full
payment for goods or securities sold is made within seven days after
delivery of the goods or securities in currency or in checks or other
orders drawn upon banks or bankers and payable upon demand;
(b) the term "self-liquidating paper" means any draft, bill of
exchange, acceptance or obligation which is made, drawn, negotiated or
incurred by the Company for the purpose of financing the purchase,
processing, manufacturing, shipment, storage or sale of goods, wares or
merchandise and which is secured by documents evidencing title to,
possession of, or a lien upon, the goods, wares or merchandise or the
receivables or proceeds arising from the sale of the goods, wares or
merchandise previously constituting the security, provided the security is
received by the Trustee simultaneously with the creation of the creditor
relationship with the Company arising from the making, drawing, negotiating
or incurring of the draft, bill of exchange, acceptance or obligation.
SECTION 914. CO-TRUSTEES AND SEPARATE TRUSTEES.
At any time or times, for the purpose of meeting the legal
requirements of any applicable jurisdiction, the Company and the Trustee shall
have power to appoint, and, upon the written request of the Trustee or of the
Holders of at least 33% in principal amount of the Securities then Outstanding,
the Company shall for such purpose join with the Trustee in the execution and
delivery of all instruments and agreements necessary or proper to appoint, one
or more Persons approved by the Trustee either to act as co-trustee, jointly
with the Trustee, or to act as separate trustee, in either case with such powers
as may be provided in the instrument of appointment, and to vest in such Person
or Persons, in the capacity aforesaid, any property, title, right or power
deemed necessary or desirable, subject to the other provisions of this Section.
If the Company does not join in such appointment within 15 days after the
receipt by it of a request so to do, or if an Event of Default shall have
occurred and be continuing, the Trustee alone shall have power to make such
appointment.
Should any written instrument or instruments from the Company be
required by any co-trustee or separate trustee so appointed to more fully
confirm to such co-trustee or separate trustee such property, title, right or
power, any and all such instruments shall, on request, be executed, acknowledged
and delivered by the Company.
Every co-trustee or separate trustee shall, to the extent permitted by
law, but to such extent only, be appointed subject to the following conditions:
(a) the Securities shall be authenticated and delivered, and all
rights, powers, duties and obligations hereunder in respect of the custody
of securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustee hereunder, shall be exercised
solely, by the Trustee;
(b) the rights, powers, duties and obligations hereby conferred or
imposed upon the Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed
either by the Trustee or by the Trustee and such co-trustee or separate
trustee jointly, as shall be provided in the instrument appointing such
co-trustee or separate trustee, except to the extent that under any law of
any jurisdiction in which any particular act is to be performed, the
Trustee shall be incompetent or unqualified to perform such act, in which
event such rights, powers, duties and obligations shall be exercised and
performed by such co-trustee or separate trustee;
(c) the Trustee at any time, by an instrument in writing executed by
it, with the concurrence of the Company, may accept the resignation of or
remove any co-trustee or separate trustee appointed under this Section,
and, if an Event of Default shall have occurred and be continuing, the
Trustee shall have power to accept the resignation of, or remove, any such
co-trustee or separate trustee without the concurrence of the Company. Upon
the written request of the Trustee, the Company shall join with the Trustee
in the execution and delivery of all instruments and agreements necessary
or proper to effectuate such resignation or removal. A successor to any
co-trustee or separate trustee so resigned or removed may be appointed in
the manner provided in this Section;
(d) no co-trustee or separate trustee hereunder shall be personally
liable by reason of any act or omission of the Trustee, or any other such
trustee hereunder; and
(e) any Act of Holders delivered to the Trustee shall be deemed to
have been delivered to each such co-trustee and separate trustee.
SECTION 915. APPOINTMENT OF AUTHENTICATING AGENT.
The Trustee may appoint an Authenticating Agent or Agents with respect
to the Securities of one or more series, or Tranche thereof, which shall be
authorized to act on behalf of the Trustee to authenticate Securities of such
series or Tranche, and any Guarantee to be endorsed thereon, issued upon
original issuance and upon exchange, registration of transfer or partial
redemption thereof or pursuant to Section 306, and Securities, and any
Guarantees endorsed thereon, so authenticated shall be entitled to the benefits
of this Indenture and shall be valid and obligatory for all purposes as if
authenticated by the Trustee hereunder. Wherever reference is made in this
Indenture to the authentication and delivery of Securities or Guarantees by the
Trustee or the Trustee's certificate of authentication, such reference shall be
deemed to include authentication and delivery on behalf of the Trustee by an
Authenticating Agent and a certificate of authentication executed on behalf of
the Trustee by an Authenticating Agent. Each Authenticating Agent shall be
acceptable to the Company and the Guarantor and shall at all times be a
corporation organized and doing business under the laws of the United States,
any State or territory thereof or the District of Columbia, authorized under
such laws to act as Authenticating Agent, having a combined capital and surplus
of not less than $50,000,000 and subject to supervision or examination by
Federal, State or other applicable government authority. If such Authenticating
Agent publishes reports of condition at least annually, pursuant to law or to
the requirements of said supervising or examining authority, then for the
purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee, the Company and the Guarantor. The Trustee may at
any time terminate the agency of an Authenticating Agent by giving written
notice thereof to such Authenticating Agent, the Company and the Guarantor. Upon
receiving such a notice of resignation or upon such a termination, or in case at
any time such Authenticating Agent shall cease to be eligible in accordance with
the provisions of this Section, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Company and the Guarantor.
Any successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its predecessor
hereunder, with like effect as if originally named as an Authenticating Agent.
No successor Authenticating Agent shall be appointed unless eligible under the
provisions of this Section.
The Trustee agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section, and the
Trustee shall be entitled to be reimbursed for such payments, in accordance
with, and subject to the provisions of, Section 907.
The provisions of Sections 308, 904 and 905 shall be applicable to
each Authenticating Agent.
If an appointment with respect to the Securities of one or more series
shall be made pursuant to this Section, the Securities of such series may have
endorsed thereon, in addition to the Trustee's certificate of authentication, an
alternate certificate of authentication substantially in the following form:
This is one of the Securities of the series designated therein and the
Guarantee thereof referred to in the within-mentioned Indenture.
Dated: ________________________
As Trustee
By______________________
As Authenticating
Agent
By______________________
Authorized Signatory
If all of the Securities of a series may not be originally issued at
one time, and if the Trustee does not have an office capable of authenticating
Securities upon original issuance located in a Place of Payment where the
Company wishes to have Securities of such series authenticated upon original
issuance, the Trustee, if so requested by the Company in writing (which writing
need not comply with Section 102 and need not be accompanied by an Opinion of
Counsel), shall appoint, in accordance with this Section and in accordance with
such procedures as shall be acceptable to the Trustee, an Authenticating Agent
having an office in a Place of Payment designated by the Company with respect to
such series of Securities.
ARTICLE TEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE, COMPANY AND GUARANTOR
SECTION 1001. LISTS OF HOLDERS.
Semiannually, not later than May 1 and November 1 in each year,
commencing May 1, 1999, and at such other times as the Trustee may request in
writing, the Company and the Guarantor shall furnish or cause to be furnished to
the Trustee information as to the names and addresses of the Holders, and the
Trustee shall preserve such information and similar information received by it
in any other capacity and afford to the Holders access to information so
preserved by it, all to such extent, if any, and in such manner as shall be
required by the Trust Indenture Act; provided, however, that no such list need
be furnished so long as the Trustee shall be the Security Registrar.
SECTION 1002. REPORTS BY TRUSTEE, COMPANY AND GUARANTOR.
Not later than May 1 in each year, commencing May 1, 2000, the Trustee
shall transmit to the Holders, the Commission and each securities exchange upon
which any Securities are listed, a report, dated as of the next preceding March
1, with respect to any events and other matters described in Section 313(a) of
the Trust Indenture Act, in such manner and to the extent required by the Trust
Indenture Act. The Trustee shall transmit to the Holders, the Commission and
each securities exchange upon which any Securities are listed, and the Company
and the Guarantor shall file with the Trustee (within 30 days after filing with
the Commission in the case of reports which pursuant to the Trust Indenture Act
must be filed with the Commission and furnished to the Trustee) and transmit to
the Holders, such other information, reports and other documents, if any, at
such times and in such manner, as shall be required by the Trust Indenture Act.
The Company and the Guarantor shall notify the Trustee of the listing of any
Securities on any securities exchange.
ARTICLE ELEVEN
CONSOLIDATION, MERGER, CONVEYANCE OR OTHER TRANSFER
SECTION 1101. COMPANY OR GUARANTOR MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
Neither the Company nor the Guarantor shall consolidate with or merge
into any other corporation, or convey or otherwise transfer or lease its
properties and assets substantially as an entirety to any Person, unless
(a) the corporation formed by such consolidation or into which the
Company or Guarantor, as the case may be, is merged or the Person which
acquires by conveyance or transfer, or which leases, the properties and
assets of the Company or Guarantor, as the case may be, substantially as an
entirety shall be a Person organized under any jurisdiction and validly
existing under the laws of such jurisdiction, and shall expressly assume,
by an indenture supplemental hereto, executed and delivered to the Trustee,
in form satisfactory to the Trustee, the due and punctual payment of the
principal of and premium, if any, and interest, if any, on all Outstanding
Securities (or the Guarantees endorsed thereon, as the case may be) and the
performance of every covenant of this Indenture on the part of the Company
or the Guarantor, as the case may be, to be performed or observed;
(b) immediately after giving effect to such transaction no Event of
Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have occurred and be continuing; and
(c) the Company or the Guarantor, as the case may be, shall have
delivered to the Trustee an Officer's Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, conveyance, or other
transfer or lease and such supplemental indenture comply with this Article
and that all conditions precedent herein provided for relating to such
transactions have been complied with.
SECTION 1102. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation by the Company or the Guarantor with or merger
by the Company or the Guarantor into any other corporation or any conveyance, or
other transfer or lease of the properties and assets of the Company or the
Guarantor substantially as an entirety in accordance with Section 1101, the
successor corporation formed by such consolidation or into which the Company or
the Guarantor, as the case may be, is merged or the Person to which such
conveyance, transfer or lease is made shall succeed to, and be substituted for,
and may exercise every right and power of, the Company or the Guarantor, as the
case may be, under this Indenture with the same effect as if such successor
Person had been named as the Company or the Guarantor, as the case may be,
herein, and thereafter, except in the case of a lease, the predecessor Person
shall be relieved of all obligations and covenants under this Indenture and the
Securities Outstanding hereunder or the Guarantees endorsed thereon, as the case
may be.
SECTION 1103. MERGER INTO COMPANY OR GUARANTOR; CERTAIN TRANSFERS.
Nothing in this Indenture shall be deemed to prevent or restrict any
consolidation or merger after the consummation of which the Company or the
Guarantor, as the case may be, would be the surviving or resulting corporation
or any conveyance or other transfer, or lease of any part of the properties of
the Company or the Guarantor, as the case may be, which does not constitute the
entirety, or substantially the entirety, thereof.
SECTION 1104. CONSOLIDATION DEFINED.
The term "consolidation" as used in this Article shall include similar
transactions such as amalgamations and reorganizations.
ARTICLE TWELVE
SUPPLEMENTAL INDENTURES
SECTION 1201. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company, the Guarantor and the
Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form satisfactory to the Trustee, for any of
the following purposes:
(a) to evidence the succession of another Person to the Company or the
Guarantor, as the case may be, and the assumption by any such successor of
the covenants of the Company or the Guarantor, as the case may be, herein
and in the Securities, all as provided in Article Eleven; or
(b) to add one or more covenants of the Company or the Guarantor or
other provisions for the benefit of all Holders or for the benefit of the
Holders of, or to remain in effect only so long as there shall be
Outstanding, Securities of one or more specified series, or one or more
specified Tranches thereof, or to surrender any right or power herein
conferred upon the Company or the Guarantor; or
(c) to add any additional Events of Default with respect to all or any
series of Securities Outstanding hereunder; or
(d) to change or eliminate any provision of this Indenture or to add
any new provision to this Indenture; provided, however, that if such
change, elimination or addition shall adversely affect the interests of the
Holders of Securities of any series or Tranche Outstanding on the date of
such indenture supplemental hereto in any material respect, such change,
elimination or addition shall become effective with respect to such series
or Tranche only pursuant to the provisions of Section 1202 hereof or when
no Security of such series or Tranche remains Outstanding; or
(e) to provide collateral security for all but not part of the
Securities; or
(f) to establish the form or terms of Securities of any series or
Tranche or any Guarantees as contemplated by Sections 201 and 301; or
(g) to the extent not provided herein, to provide for the
authentication, delivery and issuance of bearer securities and coupons
appertaining thereto representing interest, if any, thereon and for the
procedures for the registration, exchange and replacement thereof and for
the giving of notice to, and the solicitation of the vote or consent of,
the holders thereof, and for any and all other matters incidental thereto;
or
(h) to evidence and provide for the acceptance of appointment
hereunder by a separate or successor Trustee or co-trustee with respect to
the Securities of one or more series and to add to or change any of the
provisions of this Indenture as shall be necessary to provide for or
facilitate the administration of the trusts hereunder by more than one
Trustee, pursuant to the requirements of Section 911(b); or
(i) to provide for the procedures required to permit the Company to
utilize, at its option, a noncertificated system of registration for all,
or any series or Tranche of, the Securities; or
(j) to change any place or places where (1) the principal of and
premium, interest and Additional Amounts, if any, on all or any series of
Securities, or any Tranche thereof, shall be payable, (2) all or any series
of Securities, or any Tranche thereof, may be surrendered for registration
of transfer, (3) all or any series of Securities, or any Tranche thereof,
may be surrendered for exchange and (4) notices and demands to or upon the
Company or the Guarantor in respect of all or any series of Securities, or
any Tranche thereof, and this Indenture may be served; or
(k) to cure any ambiguity, to correct or supplement any provision
herein which may be defective or inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture, provided that such action shall not
adversely affect the interests of the Holders of Securities of any series
or Tranche in any material respect.
Without limiting the generality of the foregoing, if the Trust
Indenture Act as in effect at the date of the execution and delivery of this
Indenture or at any time thereafter shall be amended and
(x) if any such amendment shall require one or more changes to
any provisions hereof or the inclusion herein of any additional
provisions, or shall by operation of law be deemed to effect such
changes or incorporate such provisions by reference or otherwise, this
Indenture shall be deemed to have been amended so as to conform to
such amendment to the Trust Indenture Act, and the Company, the
Guarantor and the Trustee may, without the consent of any Holders,
enter into an indenture supplemental hereto to effect or evidence such
changes or additional provisions; or
(y) if any such amendment shall permit one or more changes to, or
the elimination of, any provisions hereof which, at the date of the
execution and delivery hereof or at any time thereafter, are required
by the Trust Indenture Act to be contained herein, this Indenture
shall be deemed to have been amended to effect such changes or
elimination, and the Company, the Guarantor and the Trustee may,
without the consent of any Holders, enter into an indenture
supplemental hereto to evidence such amendment hereof.
SECTION 1202. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of a majority in aggregate principal
amount of the Securities of all series then Outstanding under this Indenture,
considered as one class, by Act of said Holders delivered to the Company, the
Guarantor and the Trustee, the Company and the Guarantor, when authorized by
Board Resolutions, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or changing in
any manner or eliminating any of the provisions of, this Indenture or modifying
in any manner the rights of the Holders of Securities of such series under the
Indenture; provided, however, that if there shall be Securities of more than one
series Outstanding hereunder and if a proposed supplemental indenture shall
directly affect the rights of the Holders of Securities of one or more, but less
than all, of such series, then the consent only of the Holders of a majority in
aggregate principal amount of the Outstanding Securities of all series so
directly affected, considered as one class, shall be required; and provided,
further, that if the Securities of any series shall have been issued in more
than one Tranche and if the proposed supplemental indenture shall directly
affect the rights of the Holders of Securities of one or more, but less than
all, of such Tranches, then the consent only of the Holders of a majority in
aggregate principal amount of the Outstanding Securities of all Tranches so
directly affected, considered as one class, shall be required; and provided,
further, that no such supplemental indenture shall:
(a) change the Stated Maturity of the principal of, or any installment
of principal of or interest on, any Security, or reduce the principal
amount thereof or the rate of interest thereon (or the amount of any
installment of interest thereon) or change the method of calculating such
rate or reduce any premium payable upon the redemption thereof, or reduce
the amount of the principal of a Discount Security that would be due and
payable upon a declaration of acceleration of the Maturity thereof pursuant
to Section 802, or change the coin or currency (or other property), in
which any Security or any premium or the interest thereon is payable, or
impair the right to institute suit for the enforcement of any such payment
on or after the Stated Maturity of any Security (or, in the case of
redemption, on or after the Redemption Date), without, in any such case,
the consent of the Holder of such Security, or
(b) reduce the percentage in principal amount of the Outstanding
Securities of any series, or any Tranche thereof, the consent of the
Holders of which is required for any such supplemental indenture, or the
consent of the Holders of which is required for any waiver of compliance
with any provision of this Indenture or of any default hereunder and its
consequences, or reduce the requirements of Section 1304 for quorum or
voting, without, in any such case, the consent of the Holders of each
Outstanding Security of such series or Tranche, or
(c) modify any of the provisions of this Section, Section 607 or
Section 813 with respect to the Securities of any series, or any Tranche
thereof, except to increase the percentages in principal amount referred to
in this Section or such other Sections or to provide that other provisions
of this Indenture cannot be modified or waived without the consent of the
Holder of each Outstanding Security affected thereby; provided, however,
that this clause shall not be deemed to require the consent of any Holder
with respect to changes in the references to "the Trustee" and concomitant
changes in this Section, or the deletion of this proviso, in accordance
with the requirements of Sections 911(b), 914 and 1201(h).
A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular series of Securities, or one or more Tranches
thereof, or which modifies the rights of the Holders of Securities of such
series with respect to such covenant or other provision, shall be deemed not to
affect the rights under this Indenture of the Holders of Securities of any other
series or Tranche.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof. A waiver by a
Holder of such Holder's right to consent under this Section shall be deemed to
be a consent of such Holder.
SECTION 1203. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 901) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties, immunities or liabilities under this Indenture or
otherwise.
SECTION 1204. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby. Any supplemental indenture permitted by this Article may
restate this Indenture in its entirety, and, upon the execution and delivery
thereof, any such restatement shall supersede this Indenture as theretofore in
effect for all purposes.
SECTION 1205. CONFORMITY WITH TRUST INDENTURE ACT.
Unless otherwise provided as contemplated by Section 301 with respect
to any series of Securities, every supplemental indenture executed pursuant to
this Article shall conform to the requirements of the Trust Indenture Act as
then in effect.
SECTION 1206. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities of any series, or any Tranche thereof, authenticated and
delivered after the execution of any supplemental indenture pursuant to this
Article may, and shall if required by the Trustee, bear a notation in form
approved by the Trustee as to any matter provided for in such supplemental
indenture. If the Company and the Guarantor shall so determine, new Securities
of any series, or any Tranche thereof, so modified as to conform, in the opinion
of the Trustee, the Company and the Guarantor, to any such supplemental
indenture may be prepared and executed by the Company with Guarantees of the
Guarantor endorsed thereon and authenticated and delivered by the Trustee in
exchange for Outstanding Securities of such series or Tranche.
SECTION 1207. MODIFICATION WITHOUT SUPPLEMENTAL INDENTURE.
If the terms of any particular series of Securities shall have been
established in a Board Resolution or an Officer's Certificate as contemplated by
Section 301, and not in an indenture supplemental hereto, additions to, changes
in or the elimination of any of such terms may be effected by means of a
supplemental Board Resolution or Officer's Certificate, as the case may be,
delivered to, and accepted by, the Trustee; provided, however, that such
supplemental Board Resolution or Officer's Certificate shall not be accepted by
the Trustee or otherwise be effective unless all conditions set forth in this
Indenture which would be required to be satisfied if such additions, changes or
elimination were contained in a supplemental indenture shall have been
appropriately satisfied. Upon the acceptance thereof by the Trustee, any such
supplemental Board Resolution or Officer's Certificate shall be deemed to be a
"supplemental indenture" for purposes of Section 1204 and 1206.
ARTICLE THIRTEEN
MEETINGS OF HOLDERS; ACTION WITHOUT MEETING
SECTION 1301. PURPOSES FOR WHICH MEETINGS MAY BE CALLED.
A meeting of Holders of Securities of one or more, or all, series, or
any Tranche or Tranches thereof, may be called at any time and from time to time
pursuant to this Article to make, give or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be made, given or taken by Holders of Securities of such
series or Tranches.
SECTION 1302. CALL, NOTICE AND PLACE OF MEETINGS.
(a) The Trustee may at any time call a meeting of Holders of
Securities of one or more, or all, series, or any Tranche or Tranches
thereof, for any purpose specified in Section 1301, to be held at such time
and at such place in the Borough of Manhattan, The City of New York, as the
Trustee shall determine, or, with the approval of the Company, at any other
place. Notice of every such meeting, setting forth the time and the place
of such meeting and in general terms the action proposed to be taken at
such meeting, shall be given, in the manner provided in Section 106, not
less than 21 nor more than 180 days prior to the date fixed for the
meeting.
(b) If the Trustee shall have been requested to call a meeting of the
Holders of Securities of one or more, or all, series, or any Tranche or
Tranches thereof, by the Company, the Guarantor or by the Holders of 33% in
aggregate principal amount of all of such series and Tranches, considered
as one class, for any purpose specified in Section 1301, by written request
setting forth in reasonable detail the action proposed to be taken at the
meeting, and the Trustee shall not have given the notice of such meeting
within 21 days after receipt of such request or shall not thereafter
proceed to cause the meeting to be held as provided herein, then the
Company, the Guarantor or the Holders of Securities of such series and
Tranches in the amount above specified, as the case may be, may determine
the time and the place in the Borough of Manhattan, The City of New York,
or in such other place as shall be determined or approved by the Company or
the Guarantor, for such meeting and may call such meeting for such purposes
by giving notice thereof as provided in Subsection (a) of this Section.
(c) Any meeting of Holders of Securities of one or more, or all,
series, or any Tranche or Tranches thereof, shall be valid without notice
if the Holders of all Outstanding Securities of such series or Tranches are
present in person or by proxy and if representatives of the Company, the
Guarantor and the Trustee are present, or if notice is waived in writing
before or after the meeting by the Holders of all Outstanding Securities of
such series, or any Tranche or Tranches thereof, or by such of them as are
not present at the meeting in person or by proxy, and by the Company, the
Guarantor and the Trustee.
SECTION 1303. PERSONS ENTITLED TO VOTE AT MEETINGS.
To be entitled to vote at any meeting of Holders of Securities of one
or more, or all, series, or any Tranche or Tranches thereof, a Person shall be
(a) a Holder of one or more Outstanding Securities of such series or Tranches,
or (b) a Person appointed by an instrument in writing as proxy for a Holder or
Holders of one or more Outstanding Securities of such series or Tranches by such
Holder or Holders. The only Persons who shall be entitled to attend any meeting
of Holders of Securities of any series or Tranche shall be the Persons entitled
to vote at such meeting and their counsel, any representatives of the Trustee
and its counsel and any representatives of the Company, the Guarantor and their
counsel.
SECTION 1304. QUORUM; ACTION.
The Persons entitled to vote a majority in aggregate principal amount
of the Outstanding Securities of the series and Tranches with respect to which a
meeting shall have been called as hereinbefore provided, considered as one
class, shall constitute a quorum for a meeting of Holders of Securities of such
series and Tranches; provided, however, that if any action is to be taken at
such meeting which this Indenture expressly provides may be taken by the Holders
of a specified percentage, which is less than a majority, in principal amount of
the Outstanding Securities of such series and Tranches, considered as one class,
the Persons entitled to vote such specified percentage in principal amount of
the Outstanding Securities of such series and Tranches, considered as one class,
shall constitute a quorum. In the absence of a quorum within one hour of the
time appointed for any such meeting, the meeting shall, if convened at the
request of Holders of Securities of such series and Tranches, be dissolved. In
any other case the meeting may be adjourned for such period as may be determined
by the chairman of the meeting prior to the adjournment of such meeting. In the
absence of a quorum at any such adjourned meeting, such adjourned meeting may be
further adjourned for such period as may be determined by the chairman of the
meeting prior to the adjournment of such adjourned meeting. Except as provided
by Section 1305(e), notice of the reconvening of any meeting adjourned for more
than 30 days shall be given as provided in Section 1302(a) not less than 10 days
prior to the date on which the meeting is scheduled to be reconvened. Notice of
the reconvening of an adjourned meeting shall state expressly the percentage, as
provided above, of the principal amount of the Outstanding Securities of such
series and Tranches which shall constitute a quorum.
Except as limited by Section 1202, any resolution presented to a
meeting or adjourned meeting duly reconvened at which a quorum is present as
aforesaid may be adopted only by the affirmative vote of the Holders of a
majority in aggregate principal amount of the Outstanding Securities of the
series and Tranches with respect to which such meeting shall have been called,
considered as one class; provided, however, that, except as so limited, any
resolution with respect to any action which this Indenture expressly provides
may be taken by the Holders of a specified percentage, which is less than a
majority, in principal amount of the Outstanding Securities of such series and
Tranches, considered as one class, may be adopted at a meeting or an adjourned
meeting duly reconvened and at which a quorum is present as aforesaid by the
affirmative vote of the Holders of such specified percentage in principal amount
of the Outstanding Securities of such series and Tranches, considered as one
class.
Any resolution passed or decision taken at any meeting of Holders of
Securities duly held in accordance with this Section shall be binding on all the
Holders of Securities of the series and Tranches with respect to which such
meeting shall have been held, whether or not present or represented at the
meeting.
SECTION 1305. ATTENDANCE AT MEETINGS; DETERMINATION OF VOTING RIGHTS;
CONDUCT AND ADJOURNMENT OF MEETINGS.
(a) Attendance at meetings of Holders of Securities may be in person
or by proxy; and, to the extent permitted by law, any such proxy shall
remain in effect and be binding upon any future Holder of the Securities
with respect to which it was given unless and until specifically revoked by
the Holder or future Holder of such Securities before being voted.
(b) Notwithstanding any other provisions of this Indenture, the
Trustee may make such reasonable regulations as it may deem advisable for
any meeting of Holders of Securities in regard to proof of the holding of
such Securities and of the appointment of proxies and in regard to the
appointment and duties of inspectors of votes, the submission and
examination of proxies, certificates and other evidence of the right to
vote, and such other matters concerning the conduct of the meeting as it
shall deem appropriate. Except as otherwise permitted or required by any
such regulations, the holding of Securities shall be proved in the manner
specified in Section 104 and the appointment of any proxy shall be proved
in the manner specified in Section 104. Such regulations may provide that
written instruments appointing proxies, regular on their face, may be
presumed valid and genuine without the proof specified in Section 104 or
other proof.
(c) The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been
called by the Company or the Guarantor or by Holders as provided in Section
1302(b), in which case the Company or the Guarantor or the Holders of
Securities of the series and Tranches calling the meeting, as the case may
be, shall in like manner appoint a temporary chairman. A permanent chairman
and a permanent secretary of the meeting shall be elected by vote of the
Persons entitled to vote a majority in aggregate principal amount of the
Outstanding Securities of all series and Tranches represented at the
meeting, considered as one class.
(d) At any meeting each Holder or proxy shall be entitled to one vote
for each $1 principal amount of Securities held or represented by him;
provided, however, that no vote shall be cast or counted at any meeting in
respect of any Security challenged as not Outstanding and ruled by the
chairman of the meeting to be not Outstanding. The chairman of the meeting
shall have no right to vote, except as a Holder of a Security or proxy.
(e) Any meeting duly called pursuant to Section 1302 at which a quorum
is present may be adjourned from time to time by Persons entitled to vote a
majority in aggregate principal amount of the Outstanding Securities of all
series and Tranches represented at the meeting, considered as one class;
and the meeting may be held as so adjourned without further notice.
SECTION 1306. COUNTING VOTES AND RECORDING ACTION OF MEETINGS.
The vote upon any resolution submitted to any meeting of Holders shall
be by written ballots on which shall be subscribed the signatures of the Holders
or of their representatives by proxy and the principal amounts and serial
numbers of the Outstanding Securities, of the series and Tranches with respect
to which the meeting shall have been called, held or represented by them. The
permanent chairman of the meeting shall appoint two inspectors of votes who
shall count all votes cast at the meeting for or against any resolution and who
shall make and file with the secretary of the meeting their verified written
reports of all votes cast at the meeting. A record of the proceedings of each
meeting of Holders shall be prepared by the secretary of the meeting and there
shall be attached to said record the original reports of the inspectors of votes
on any vote by ballot taken thereat and affidavits by one or more persons having
knowledge of the facts setting forth a copy of the notice of the meeting and
showing that said notice was given as provided in Section 1302 and, if
applicable, Section 1304. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company, and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
SECTION 1307. ACTION WITHOUT MEETING.
In lieu of a vote of Holders at a meeting as hereinbefore contemplated
in this Article, any request, demand, authorization, direction, notice, consent,
waiver or other action may be made, given or taken by Holders by written
instruments as provided in Section 104.
ARTICLE FOURTEEN
GUARANTEE
SECTION 1401. GUARANTEE.
The Guarantor hereby unconditionally and irrevocably guarantees to
each Holder of a Security authenticated and delivered by the Trustee, and to the
Trustee on behalf of such Holder, the due and punctual payment of the principal
of, and premium, if any, and interest and Additional Amounts, if any, on such
Security when and as the same shall become due and payable, whether at the
Stated Maturity, by declaration of acceleration, call for redemption, or
otherwise, in accordance with the terms of such Security and of this Indenture,
regardless of any defense, right of set-off or counterclaim that the Guarantor
may have (except the defense of payment). In case of the failure of the Company
punctually to make any such payment, the Guarantor hereby agrees to cause such
payment to be made punctually when and as the same shall become due and payable,
whether at the Stated Maturity or by declaration of acceleration, call for
redemption or otherwise, and as if such payment were made by the Company. The
Guarantor's obligation to make a guarantee payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holder of the Security
or to a Paying Agent, or by causing the Company to pay such amount to such
Holder or a Paying Agent.
Unless otherwise provided as contemplated by Section 201 or except as
provided pursuant to Section 608 hereof, this Guarantee is an unsecured and
unsubordinated obligation of the Guarantor and shall at all times rank at least
pari passu with each other Guarantee issued pursuant to the Indenture and,
except as permitted by Sections 608 and 806 hereof, will rank at least pari
passu with all other unsecured unsubordinated indebtedness of the Guarantor.
The Guarantor hereby agrees that its obligations hereunder shall be
absolute and unconditional irrespective of, and shall be unaffected by, any
invalidity, irregularity or unenforceability of such Security or this Indenture,
any failure to enforce the provisions of such Security or this Indenture, any
extension of time for payment or performance by the Company as provided by such
Security or this Indenture, or any waiver, modification or indulgence granted to
the Company with respect thereto, by the Holder of such Security or the Trustee
or any other circumstance which may otherwise constitute a legal or equitable
discharge or defense of a surety or guarantor; provided, however, that
notwithstanding the foregoing, no such waiver, modification or indulgence shall,
without the consent of the Guarantor, increase the principal amount of such
Security, or increase the interest rate thereon, or change any redemption
provisions thereof (including any change to increase any premium payable upon
redemption thereof), or change the Stated Maturity thereof, or increase the
principal amount of any Discount Security that would be due and payable upon a
declaration of acceleration or the maturity thereof pursuant to Article Eight of
this Indenture.
The Guarantor hereby waives the benefits of diligence, presentment,
demand for payment, any requirement that the Trustee or any of the Holders
exhaust any right or take any action against the Company or any other Person,
filing of claims with a court in the event of insolvency or bankruptcy of the
Company, any right to require a proceeding first against the Company, protest or
notice with respect to any Security or the indebtedness evidenced thereby and
all demands whatsoever, and covenants that this Guarantee will not be discharged
in respect of any Security except by complete performance of the obligations
contained in such Security and in this Indenture and in this Guarantee. This
Guarantee shall constitute a guarantee of payment and not of collection. The
Guarantor hereby agrees that, in the event of a default in payment of principal,
or premium, if any, or interest, if any, on any Security, whether at its Stated
Maturity, by declaration of acceleration, call for redemption, or otherwise,
legal proceedings may be instituted by the Trustee on behalf of, or by, the
Holder of such Security, subject to the terms and conditions set forth in this
Indenture, directly against the Guarantor to enforce this Guarantee without
first proceeding against the Company. The Guarantor agrees that if, after the
occurrence and during the continuance of an Event of Default, the Trustee or any
of the Holders are prevented by applicable law from exercising their respective
rights to accelerate the maturity of the Securities, to collect interest on the
Securities, or to enforce or exercise any other right or remedy with respect to
the Securities, the Guarantor will pay to the Trustee for the account of the
Holders, upon demand therefor, the amount that otherwise would have been due and
payable had such rights and remedies been permitted to be exercised by the
Trustee or any of the Holders.
The obligations of the Guarantor hereunder with respect to any
Security shall be continuing and irrevocable until the date upon which the
entire principal of, premium, if any, and interest on such Security has been, or
has been deemed pursuant to the provisions of Article Seven of this Indenture to
have been, paid in full or otherwise discharged.
The Guarantor shall be subrogated to all rights of the Holder of each
Security upon which its Guarantee is endorsed against the Company in respect of
any amounts paid by the Guarantor on account of such Security pursuant to the
provisions of its Guarantee or this Indenture; provided, however, that the
Guarantor shall not be entitled to enforce or to receive any payments arising
out of, or based upon, such right of subrogation until the principal of, and
premium, if any, and interest, if any, on all Securities issued hereunder shall
have been paid in full.
This Guarantee shall remain in full force and effect and continue
notwithstanding any petition filed by or against the Company for liquidation or
reorganization, the Company becoming insolvent or making an assignment for the
benefit of creditors or a receiver or trustee being appointed for all or any
significant part of the Company's assets, and shall, to the fullest extent
permitted by law, continue to be effective or reinstated, as the case may be, if
at any time payment of any Security upon which this Guarantee is endorsed, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by any Holder of such Security, whether as a "voidable
preference," "fraudulent transfer," or otherwise, all as though such payment or
performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned on a Security, such
Security shall, to the fullest extent permitted by law, be reinstated and deemed
paid only by such amount paid and not so rescinded, reduced, restored or
returned.
SECTION 1402. EXECUTION AND DELIVERY OF GUARANTEE.
The Guarantee to be endorsed on the certificate for the Securities of
each series shall include the terms of the Guarantee set forth in Section 1401
and any other terms, insertions, omissions or variations that may be set forth
as established pursuant to Section 201. The Guarantor hereby agrees to execute
its Guarantee, in a form established pursuant to Sections 201 and 1401, to be
endorsed on each certificate for a Security authenticated and delivered by the
Trustee.
The Guarantee shall be executed on behalf of the Guarantor by an
Authorized Officer of the Guarantor. The signature of any such officer on the
Guarantee may be manual or facsimile.
A Guarantee bearing the manual or facsimile signature of an individual
who was at the time of execution an Authorized Officer of the Guarantor shall
bind the Guarantor, notwithstanding that any such individual has ceased to be an
Authorized Officer prior to the authentication and delivery of the Security on
which such Guarantee is endorsed or was not an Authorized Officer at the date of
such Guarantee.
The delivery of any Security by the Trustee, after the authentication
thereof hereunder, shall constitute due delivery of the Guarantee endorsed
thereon on behalf of the Guarantor. The Guarantor by its execution of this
Indenture hereby authorizes the Company, in the name and on behalf of the
Guarantor, to confirm the applicable Guarantee to the Holder of each Security
authenticated and delivered hereunder by its delivery of each such Security,
with such Guarantee endorsed thereon, authenticated and delivered by the
Trustee.
ARTICLE FIFTEEN
IMMUNITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS AND DIRECTORS
SECTION 1501. LIABILITY SOLELY CORPORATE.
No recourse shall be had for the payment of the principal of or
premium, if any, or interest, if any, on any Securities, any Guarantees, or any
part thereof, or for any claim based thereon or otherwise in respect thereof, or
of the indebtedness represented thereby, or upon any obligation, covenant or
agreement under this Indenture, against any incorporator, shareholder, officer
or director, as such, past, present or future of the Company or the Guarantor or
of any predecessor or successor corporation of either of them (either directly
or through the Company or the Guarantor, as the case may be, or a predecessor or
successor corporation of either of them), whether by virtue of any
constitutional provision, statute or rule of law, or by the enforcement of any
assessment or penalty or otherwise; it being expressly agreed and understood
that this Indenture and all the Securities and Guarantees are solely corporate
obligations, and that no personal liability whatsoever shall attach to, or be
incurred by, any incorporator, shareholder, officer or director, past, present
or future, of the Company or of the Guarantor or of any predecessor or successor
corporation, either directly or indirectly through the Company or the Guarantor
or any predecessor or successor corporation, because of the indebtedness hereby
authorized or under or by reason of any of the obligations, covenants or
agreements contained in this Indenture or in any of the Securities or Guarantees
or to be implied herefrom or therefrom, and that any such personal liability is
hereby expressly waived and released as a condition of, and as part of the
consideration for, the execution of this Indenture and the issuance of the
Securities and the Guarantees.
ARTICLE SIXTEEN
SENIOR NOTES OF THE FIRST SERIES, SECOND SERIES,
THIRD SERIES, FOURTH SERIES, FIFTH SERIES AND SIXTH SERIES
SECTION 1601. DESIGNATION OF SENIOR NOTES OF THE FIRST SERIES.
There is hereby created a series of Securities designated "6.15%
Senior Notes due May 15, 2002" (herein sometimes referred to as "Senior Notes of
the First Series"). The form and terms of the Senior Notes of the First Series
and the Guarantee to be endorsed thereon shall be established in an Officer's
Certificate pursuant to Sections 201 and 301.
SECTION 1602. DESIGNATION OF SENIOR NOTES OF THE SECOND SERIES.
There is hereby created a series of Securities designated "6.15%
Exchange Notes due May 15, 2002" (herein sometimes referred to as "Senior Notes
of the Second Series"). The form and terms of the Senior Notes of the Second
Series and the Guarantee to be endorsed thereon shall be established in an
Officer's Certificate pursuant to Sections 201 and 301.
SECTION 1603. DESIGNATION OF SENIOR NOTES OF THE THIRD SERIES.
There is hereby created a series of Securities designated "6.45%
Senior Notes due May 15, 2005" (herein sometimes referred to as "Senior Notes of
the Third Series"). The form and terms of the Senior Notes of the Third Series
and the Guarantee to be endorsed thereon shall be established in an Officer's
Certificate pursuant to Sections 201 and 301.
SECTION 1604. DESIGNATION OF SENIOR NOTES OF THE FOURTH SERIES.
There is hereby created a series of Securities designated "6.45%
Exchange Senior Notes due May 15, 2005" (herein sometimes referred to as "Senior
Notes of the Fourth Series"). The form and terms of the Senior Notes of the
Fourth Series and the Guarantee to be endorsed thereon shall be established in
an Officer's Certificate pursuant to Sections 201 and 301.
SECTION 1605. DESIGNATION OF SENIOR NOTES OF THE FIFTH SERIES.
There is hereby created a series of Securities designated "6.75%
Senior Notes due May 15, 2009" (herein sometimes referred to as "Senior Notes of
the Fifth Series"). The form and terms of the Senior Notes of the Fifth Series
and the Guarantee to be endorsed thereon shall be established in an Officer's
Certificate pursuant to Sections 201 and 301.
SECTION 1606. DESIGNATION OF SENIOR NOTES OF THE SIXTH SERIES.
There is hereby created a series of Securities designated "6.75%
Exchange Senior Notes due May 15, 2009" (herein sometimes referred to as "Senior
Notes of the Sixth Series"). The form and terms of the Senior Notes of the Sixth
Series and the Guarantee to be endorsed thereon shall be established in an
Officer's Certificate pursuant to Sections 201 and 301.
-------------------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the day and year first above written.
TXU EASTERN FUNDING COMPANY
By: /s/ Kirk R. Oliver
-----------------------
Kirk R. Oliver
Authorized Attorney
By: /s/ Michael J. McNally
-------------------------
Michael J. McNally
Director
TXU EASTERN HOLDINGS LIMITED
By: /s/ Kirk R. Oliver
-------------------------
Kirk R. Oliver
Authorized Attorney
By: /s/ Michael J. McNally
-------------------------
Michael J. McNally
Director
THE BANK OF NEW YORK, Trustee
By: /s/ Walter N. Gitlin
-------------------------
W.N. GITLIN
Vice President
TXU EASTERN FUNDING COMPANY
TXU EASTERN HOLDINGS LIMITED
OFFICER'S CERTIFICATE
Kirk R. Oliver, an authorized attorney of TXU Eastern
Funding Company, a private unlimited company duly incorporated
and existing under the laws of England and Wales (the "Company"),
and Michael J. McNally, a Director of the Company, pursuant to
the authority granted in the Board Resolutions of the Company
dated February 19, 1999, and Sections 201, 301, 1601 and 1602 of
the Indenture defined herein, and Kirk R. Oliver, an authorized
attorney of TXU Eastern Holdings Limited, a private limited
company duly incorporated and existing under the laws of England
and Wales (the "Guarantor"), and Michael J. McNally, a Director
of the Guarantor, pursuant to the authority granted in the Board
Resolutions of the Guarantor, dated February 19, 1999 and Section
201 of the Indenture defined herein, do hereby certify to The
Bank of New York (the "Trustee"), as Trustee under the Indenture
of the Company (For Unsecured Debt Securities) dated as of May 1,
1999 (the "Indenture") that:
1. The securities of the first series to be issued under the
Indenture shall be designated "6.15% Senior Notes due May
15, 2002" (the "Senior Notes of the First Series"). The
Senior Notes of the First Series will be unconditionally
guaranteed by the Guarantor, as to payment of principal,
premium, if any, and interest and Additional Amounts, if
any. The securities of the second series to be issued under
the Indenture shall be designated "6.15% Exchange Senior
Notes due May 15, 2002" (the "Senior Notes of the Second
Series", and together with the Senior Notes of the First
Series, the "Senior Notes of the First and Second Series").
(The term "Senior Notes of First or Second Series" shall
refer to either Senior Notes of the First Series or Senior
Notes of the Second Series, except as otherwise noted.) All
capitalized terms used in this certificate which are not
defined herein but are defined in Exhibit A, Exhibit B,
Exhibit C or Exhibit D shall have the meanings therein; all
capitalized terms used in this certificate or Exhibit A,
Exhibit B, Exhibit C or Exhibit D which are not defined
herein or therein but are defined in the Indenture shall
have the meanings set forth in the Indenture.
2. The Senior Notes of the First Series initially shall be
issued in substantially the form thereof set forth in
Exhibit A hereto. The Senior Notes of the First Series
shall have such terms and provisions as are provided herein,
in the Indenture and in the forms thereof set forth in
Exhibits A or B hereto, whichever is applicable, and shall
be issued in substantially such form. The Senior Notes of
the Second Series shall have such terms and provisions as
are provided herein, in the Indenture and in the forms
thereof set forth in Exhibits C or D hereto, whichever is
applicable, and shall be issued in substantially such form.
3. The Senior Notes of the First and Second Series shall mature
and the principal shall be due and payable together with all
accrued and unpaid interest thereon on May 15, 2002.
4. The Senior Notes of the First and Second Series shall be
issued in the denominations of $10,000 and in integral
multiples of $1,000 in excess thereof; except that Senior
Notes of the First Series issued or transferred to
institutional "accredited investors," as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the
Securities Act ("IAIs") will be in a minimum principal
amount of $250,000.
5. The Senior Notes of the First and Second Series shall bear
interest as provided in Exhibit A, Exhibit B, Exhibit C or
Exhibit D, as applicable.
6. Each installment of interest on a Senior Note of the First
and Second Series shall be payable on the dates specified in
Exhibit A, Exhibit B, Exhibit C or Exhibit D, as applicable.
7. The principal of (and premium, if any, on) and each
installment of interest on and any other amounts payable on
the Senior Notes of the First and Second Series shall be
payable at, and registration and registration of transfers
and exchanges in respect of the Senior Notes of the First
and Second Series may be effected at, the office or agency
of the Company in The City of New York and, for so long as
the Senior Notes of the First and Second Series are listed
on the Luxembourg Stock Exchange, at the agency of the
Company in Luxembourg; provided that, in the case of
certificated Senior Notes of the First or Second Series,
payment of interest may be made at the option of the Company
by check mailed to the address of the Persons entitled
thereto, except that payment of interest, if any, in respect
of any certificated registered Senior Notes of the First or
Second Series may also be made, in the case of a Holder of
an aggregate principal amount in excess of $50,000,000, by
wire transfer to a U.S. Dollar account maintained by the
Holder with a bank in the United States; provided that such
Holder elects payment by wire transfer by giving written
notice to the Trustee or a Paying Agent to such effect
designating such account no later than 15 days immediately
preceding the relevant due date for payment (or such other
date as the Trustee may accept in its discretion). In the
case of Senior Notes of the First and Second Series issued
in global bearer form, interest shall be paid upon
presentation of the applicable Senior Note of such Series to
a Paying Agent; the Paying Agent shall mark the original
Senior Note of such Series in the appropriate box on the
interest payment schedule included therein to indicate that
the interest payment has been made.
8. Notices and demands to or upon the Company or the Guarantor
in respect of the Senior Notes of the First and Second
Series may be served at the office or agency of the Company
in The City of New York.
9. The Corporate Trust Office of the Trustee will initially be
the agency of the Company in The City of New York for
payments, registration and registration of transfers and
exchanges and service of notices and demands with respect to
the Senior Notes of the First and Second Series and the
Company hereby appoints the Trustee as its agent for all
such purposes, and the Corporate Trust Office of Kredietbank
SA Luxembourgeoise ("Kredietbank") at 43, Boulevard Royal L-
2955, Luxembourg, initially will be the agency of the
Company in Luxembourg; provided, however, that the Company
reserves the right to change, by one or more Officer's
Certificates, any such office or agency and such agent,
provided the Company will always have a paying agent
location in The City of New York and, for so long as any
Senior Notes of the First or Second Series are listed on the
Luxembourg Stock Exchange, in Luxembourg. The Trustee
initially will be the Security Registrar and the Paying
Agent for the Senior Notes of the First and Second Series.
10. The following constitute additional Events of Default with
respect to the Senior Notes of the First and Second Series:
(a) The entry by a court having jurisdiction in the
premises of (1) a decree or order for relief in respect
of a Principal Subsidiary of the Guarantor in an
involuntary case or proceeding under any applicable
bankruptcy, insolvency, or other similar law or (2) a
decree or order adjudging a Principal Subsidiary of the
Guarantor a bankrupt or insolvent, or approving as
properly filed a petition by one or more Persons other
than a Principal Subsidiary of the Guarantor seeking
arrangement, adjustment or composition of or in respect
of a Principal Subsidiary of the Guarantor under any
applicable bankruptcy, insolvency, or other similar
law, or appointing a custodian, receiver, liquidator,
administrator, assignee, trustee, sequestrator or other
similar official for a Principal Subsidiary of the
Guarantor or for any substantial part of its property,
or ordering the winding up or liquidation of its
affairs (other than for the purpose of a solvent
amalgamation, reorganization or similar transaction not
involving disposal of all or substantially all of its
assets for the benefit of creditors other than the
Guarantor or its Subsidiaries), and any such decree or
order for relief or any such other decree or order
shall have remained unstayed and in effect for a period
of 90 consecutive days;
(b) The commencement by a Principal Subsidiary of the
Guarantor of a voluntary case or proceeding under any
applicable bankruptcy, insolvency, or other similar law
or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by a Principal
Subsidiary of the Guarantor to the entry of a decree or
order for relief in respect of such Principal
Subsidiary of the Guarantor in a case or proceeding
under any applicable bankruptcy, insolvency, or other
similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against such Principal
Subsidiary of the Guarantor, or the filing by a
Principal Subsidiary of the Guarantor of a petition or
answer or consent seeking relief under any applicable
bankruptcy, insolvency, or other similar law, or the
consent by a Principal Subsidiary of the Guarantor to
the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator,
administrator, assignee, trustee, sequestrator or
similar official of such Principal Subsidiary of the
Guarantor or of any substantial part of its property,
or the consent by a Principal Subsidiary of the
Guarantor to the winding up or liquidation of its
affairs (other than for the purpose of a solvent
amalgamation, reorganization or similar transaction not
involving disposal of all or substantially all of its
assets for the benefit of creditors other than the
Guarantor or its Subsidiaries) or the making by a
Principal Subsidiary of the Guarantor of an assignment
for the benefit of creditors, or the admission by a
Principal Subsidiary of the Guarantor in writing of
inability to pay its debts generally as they become
due, or the authorization of such action by the Board
of Directors of such Principal Subsidiary of the
Guarantor;
(c) Default in the payment when due of indebtedness for
money borrowed exceeding $50,000,000 of the Company,
the Guarantor or any Principal Subsidiary of the
Guarantor; and
(d) Failure of the Company or the Guarantor to pay
Additional Amounts (as defined herein) on any Note of
the First or Second Series within 30 days after it is
due.
For the purposes of (a), (b) and (c) above, a "Principal
Subsidiary" means a Subsidiary of the Guarantor whose gross
assets are 25% or more of the Guarantor's consolidated gross
assets or whose gross revenues are 25% or more of the
Guarantor's consolidated gross revenues.
11. The Senior Notes of the First Series will be redeemable as
provided in the forms thereof attached hereto as Exhibit A
or Exhibit B, as applicable; the Senior Notes of the Second
Series will be redeemable as provided in the forms thereof
attached hereto as Exhibit C or Exhibit D, as applicable.
12. Notwithstanding Section 106 of the Indenture, notice to a
Holder of Senior Notes of the First or Second Series in
bearer, global form shall be given sufficiently if given to
such Holder in writing by the Trustee, if the Trustee knows
the identity of such Holder, or in such other manner as the
Trustee deems necessary or desirable; provided, however,
that so long as the Senior Notes of the First and Second
Series are listed on the Luxembourg Stock Exchange and the
rules of the Luxembourg Stock Exchange so require, notices
to Holders of the Senior Notes of the First and Second
Series will be published in a leading daily newspaper having
general circulation in Luxembourg (which is expected to be
the Luxemburger Wort).
13. The Senior Notes of the First Series will be initially
issued pursuant to Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act"), as one or more
global Senior Notes of the First Series in bearer form and
shall be issued to the Book-Entry Depositary (as defined in
the Deposit Agreement by and between The Bank of New York,
as Book-Entry Depositary, and TXU Eastern Funding Company,
as Issuer, dated as of May 13, 1999 (the "Deposit
Agreement")). The Senior Notes of the First Series shall
contain restrictions on transfer, substantially as described
in the forms set forth in Exhibit A or Exhibit B hereto.
Each Senior Note of the First Series, whether in a global
form or in a certificated form, shall bear the non-
registration legend and the registration rights legend in
substantially the form thereof set forth in Exhibit A or
Exhibit B hereto, unless otherwise agreed by the Company,
such agreement to be confirmed in writing to the Trustee.
Nothing in the Indenture, the Senior Notes of the First
Series or this certificate shall be construed to require the
Company to register any Senior Notes of the First Series
under the Securities Act, unless otherwise expressly agreed
by the Company, confirmed in writing to the Trustee, or to
make any transfer of such Senior Notes of the First Series
in violation of applicable law; provided, however, that the
Company will enter into a registration rights agreement (the
"Registration Rights Agreement") with the initial purchasers
of the Senior Notes of the First Series, confirmed in
writing to the Trustee, pursuant to which, among other
things, the Senior Notes of the First Series may be
exchanged for the Senior Notes of the Second Series
registered under the Securities Act or, failing such
registration, the Senior Notes of the First Series will be
registered under the Securities Act.
14. It is contemplated that the Book-Entry Depositary will issue
to The Depository Trust Company ("DTC"), New York, New York,
one or more Book-Entry Interests (as defined in the Deposit
Agreement), which together will represent a 100% interest in
the global Senior Notes of the First or Second Series. The
Trustee, the Security Registrar and the Company will have no
responsibility under the Indenture for transfers of
beneficial interests in the Senior Notes of the First and
Second Series.
In connection with any transfer of beneficial interests in
the Senior Notes of the First Series, the Trustee, the
Security Registrar and the Company shall be under no duty to
inquire into, may conclusively presume the correctness of,
and shall be fully protected in relying upon the
certificates and other information (in the forms attached
hereto as Exhibit E, for use in connection with the transfer
of beneficial interests in the Senior Notes of the First
Series, or in the form attached at the rear of Exhibit B,
for use in connection with the transfer of Senior Notes of
the First Series in certificated form, or otherwise)
received from the Holders and any transferees of any
beneficial interests in the Senior Notes of the First Series
or certificated Senior Notes of the First Series regarding
the validity, legality and due authorization of any such
transfer, the eligibility of the transferee to receive such
beneficial interests in such Senior Note and any other facts
and circumstances related to such transfer.
15. No service charge shall be made for the registration of
transfer or exchange of the Senior Notes of the First and
Second Series; provided, however, that the Company may
require payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection
with the exchange or transfer.
16. Additional Amounts. All payments of principal and interest
------------------
(including Additional Interest, as defined in the
Registration Rights Agreement, and payments of discount and
premium, if any) with respect to the Senior Notes of the
First and Second Series and all payments made pursuant to
the Guarantee shall be made free and clear of, and without
withholding or deduction for or on account of, any present
or future taxes, duties, assessments or governmental charges
of whatever nature imposed, levied, collected, withheld or
assessed by or within any supranational federation to which
a Jurisdiction of Incorporation belongs or any Jurisdiction
of Incorporation (or any political subdivision or taxing
authority thereof or therein) or any jurisdiction in which
the Company or the Guarantor is managed or has a place of
business (each, a "Taxing Jurisdiction") or by or within any
political subdivision thereof or any authority therein or
thereof having power to tax, unless such withholding or
deduction is required by law. In the event of any such
withholding or deduction ("Gross-Up Taxes"), the Company or
the Guarantor, as the case may be, shall pay to the Holder
of such Senior Notes of the First or Second Series such
additional amount ("Additional Amount") as shall be
necessary in order that the amount received by such Holder
after withholding or deduction shall equal the amount that
would otherwise have been due to such Holder in the absence
of such withholding or deduction, except that no such
Additional Amounts shall be payable:
(A) to, or to a Person on behalf of, a Holder who is
liable for such Gross-Up Taxes with respect to the Senior
Notes of the First or Second Series or the Guarantee, by
reason of such Holder having some connection with the
relevant Taxing Jurisdiction (including being a citizen or
resident or national of, or carrying on a business or
maintaining a permanent establishment in, or being
physically present in, such Taxing Jurisdiction) other than
the mere holding of a Senior Note of the First or Second
Series or the receipt of principal and interest (including
payments of discount and premium, if any) in respect thereof
or in respect of the Guarantee;
(B) to, or to a Person on behalf of, a Holder who
presents a Senior Note of the First or Second Series
(whenever presentation is required) for payment more than 30
days after the date on which payment first becomes due
except to the extent that such Holder would have been
entitled to such Additional Amounts on presenting such
Senior Note of the First or Second Series for payment on the
last day of such period of 30 days;
(C) to, or to a Person on behalf of, a Holder who
presents a Senior Note of the First or Second Series (when
presentation is required) other than at a Place of Payment
in The City of New York or, so long as the Senior Notes of
the First or Second Series are listed on the Luxembourg
Stock Exchange, in Luxembourg;
(D) to, or to a Person on behalf of, a Holder who
would not be liable or subject to the withholding or
deduction by making a declaration of non-residence or
similar claim for exemption to the relevant tax authority;
or
(E) to, or to a Person on behalf of, a Holder of a
Senior Note of the First or Second Series that is issued in
certificated form following and during the continuance of an
Event of Default if such Holder (or any predecessor Holder)
was one of the beneficial owners requesting that such
certificated Senior Notes of the First or Second Series be
so issued.
Such Additional Amounts will also not be payable where, had
the beneficial owner of the Senior Note of the First or
Second Series (or any interest therein) been the Holder of
the Senior Note of the First or Second Series, it would not
have been entitled to payment of Additional Amounts by
reason of any one or more of clauses (A) through (E) above.
If the Company or the Guarantor, as applicable, shall
determine that Additional Amounts will not be payable
because of the immediately preceding sentence, the Company
or the Guarantor, as applicable, will inform such Holder
promptly after making such determination setting forth the
reason(s) therefor.
17. Special Redemption. If (a) the Company or the Guarantor
------------------
certifies to the Trustee prior to the giving of a notice as
provided below that it has or will become obligated to pay
Additional Amounts with respect to the Senior Notes of the
First Series or Second Series as a result of either (x) any
change in, or amendment to, or clarification of, or
announced change to occur in the future in, the laws or
regulations of the Taxing Jurisdiction or any political
subdivision or any authority or agency thereof or therein
having power to tax or levy duties, or any change in the
application or interpretation of such laws or regulations,
which change or amendment becomes effective on or after the
date of the offering memorandum or (y) the issuance of
certificated registered Senior Notes of such Series pursuant
to either (i) an Optional Certificated Security Request, as
defined in the Deposit Agreement, (ii) the unwillingness or
inability of DTC to continue to hold the Book-Entry
Interests with respect to the global Senior Notes of such
Series or interests therein or DTC's ceasing to be a
"clearing agency" registered under the United States
Securities Exchange Act of 1934, as amended, and, in either
case, a successor is not appointed by the Company within 120
days, or (iii) the unwillingness or inability of the Book-
Entry Depositary to continue to act as such and a successor
is not appointed by the Company within 120 days, and (b)
such obligation cannot be avoided by the Company or the
Guarantor taking reasonable measures available to it, and,
prior to the giving of a notice of redemption as hereinafter
in this paragraph provided, the Company or the Guarantor
delivers to the Trustee the certificate referred to in the
last sentence of this paragraph, then the Company shall have
the right, at its option, upon not less than 30 days nor
more than 60 days' prior written notice of redemption to the
Holders of Senior Notes of such Series, to redeem the Senior
Notes of such Series, in whole but not in part, at the
principal amount thereof plus accrued and unpaid interest
thereon, and accrued Additional Amounts with respect
thereto, if any, provided that no such notice of redemption
shall be given earlier than 90 days prior to the earliest
date on which the Guarantor or the Company would be
obligated to pay any such Additional Amounts with respect to
such Series. Prior to the mailing of any notice of
redemption pursuant to this paragraph, the Company shall
deliver to the Trustee a certificate signed by an officer of
the Company stating that the obligation referred to in (a)
above cannot be avoided by the Guarantor or the Company
taking reasonable measures available to it, and the Trustee
shall accept, and shall be fully protected in relying upon,
such certificate as sufficient evidence of the condition
precedent set out in (b) above, in which event it shall be
conclusive and binding on the Holders.
18. If the Company shall make any deposit of money and/or
Eligible Obligations with respect to any Senior Notes of the
First and Second Series, or any portion of the principal
amount thereof, as contemplated by Section 701 of the
Indenture, the Company shall not deliver an Officer's
Certificate described in clause (z) in the first paragraph
of said Section 701 unless the Company shall also deliver to
the Trustee, together with such Officer's Certificate,
either:
(A) an instrument wherein the Company, notwithstanding
the satisfaction and discharge of its indebtedness in
respect of the Senior Notes of the First and Second Series,
shall assume the obligation (which shall be absolute and
unconditional) to irrevocably deposit with the Trustee or
Paying Agent such additional sums of money, if any, or
additional Eligible Obligations (meeting the requirements of
Section 701), if any, or any combination thereof, at such
time or times, as shall be necessary, together with the
money and/or Eligible Obligations theretofore so deposited,
to pay when due the principal of and premium, if any, and
interest due and to become due and Additional Amounts, if
any, due and known to become due on such Senior Notes of the
First and Second Series or portions thereof, all in
accordance with and subject to the provisions of said
Section 701; provided, however, that such instrument may
state that the obligation of the Company to make additional
deposits as aforesaid shall be subject to the delivery to
the Company by the Trustee of a notice asserting the
deficiency accompanied by an opinion of an independent
public accountant of nationally recognized standing,
selected by the Trustee, showing the calculation thereof; or
(B) an Opinion of Counsel to the effect that, as a
result of a change in law occurring after the date of this
certificate, the Holders of such Senior Notes of the First
and Second Series, or portions of the principal amount
thereof, will not recognize income, gain or loss for United
States federal income tax purposes as a result of the
satisfaction and discharge of the Company's indebtedness in
respect thereof and will be subject to United States federal
income tax on the same amounts, at the same times and in the
same manner as if such satisfaction and discharge had not
been effected.
19. The Company reserves the right to require legends on Senior
Notes of the First Series as it may determine are necessary
to ensure compliance with the securities laws of the US and
the states therein and any other applicable laws.
20. Each of the undersigned has read all of the covenants and
conditions contained in the Indenture (including the
definitions in the Indenture relating thereto) relating to
the issuance of the Senior Notes of the First and Second
Series and the Guarantees endorsed thereon and in respect of
compliance with which this certificate is made.
21. The statements contained in this certificate are based upon
the familiarity of each of the undersigned with the
Indenture, the documents accompanying this certificate, and
upon discussions by each of the undersigned with officers
and employees of the Company and the Guarantor familiar with
the matters set forth herein.
22. In the opinion of each of the undersigned, he has made such
examination or investigation as is necessary to enable him
to express an informed opinion whether or not such covenants
and conditions have been complied with.
23. In the opinion of each of the undersigned, such conditions
and covenants and conditions precedent, if any (including
any covenants compliance with which constitutes a condition
precedent) to the authentication and delivery of the Senior
Notes of the First Series and the Guarantees to be endorsed
thereon requested in the accompanying Company Order and
Guarantor Order and the establishment of the Senior Notes of
the Second Series have been complied with.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this
Officer's Certificate as of this 13th day of May, 1999.
/s/ Kirk R. Oliver
--------------------------
Name: Kirk R. Oliver
Title: Authorized Attorney
/s/ Kirk R. Oliver
--------------------------
Name: Michael J. McNally
Title: Director
/s/ Kirk R. Oliver
--------------------------
Name: Kirk R. Oliver
Title: Authorized Attorney
/s/ Michael J. McNally
--------------------------
Name: Michael J. McNally
Title: Director
<PAGE>
EXHIBIT A
[non-registration legend]
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR WITH ANY SECURITIES
REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE
UNITED STATES AND MAY NOT BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED OTHER THAN (A) (1) TO TXU EASTERN FUNDING COMPANY OR
TXU EASTERN HOLDINGS LIMITED, (2) IN A TRANSACTION ENTITLED TO AN
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT, (3) SO LONG AS THIS SECURITY IS ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE,
PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,
(4) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (5) TO AN INSTITUTION THAT
IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT, IN A MINIMUM PRINCIPAL
AMOUNT OF THE SECURITIES OF $250,000, AND THAT IS ACQUIRING THE
SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (6)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, AND (B) IN EACH CASE IN ACCORDANCE WITH ALL THE
APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES"
[registration rights legend]
The Holder of this Security, by acceptance hereof, will be
deemed to have agreed to be bound by the provisions of the
Registration Rights Agreement dated May 13, 1999, among the
Company, the Guarantor and the initial purchasers of this
Security.
[FORM OF FACE OF SENIOR NOTE]
GLOBAL BEARER FORM
NO. . CUSIP NO. .
TXU EASTERN FUNDING COMPANY
6.15% SENIOR NOTES DUE MAY 15, 2002
TXU Eastern Funding Company, a corporation duly incorporated
and existing under the laws of England and Wales (herein referred
to as the "Company", which term includes any successor Person
under the Indenture), for value received, hereby promises to pay
to the bearer upon surrender hereof the principal sum of
$350,000,000 Dollars on May 15, 2002, and to pay interest on said
principal sum semi-annually in arrears on May 15 and November 15
of each year (each an Interest Payment Date) at the rate of 6.15%
per annum until the principal hereof is paid or made available
for payment. Interest on the Securities of this series shall be
computed on the basis of a 360-day year consisting of twelve 30-
day months and for any period shorter than a full month, on the
basis of the actual number of days elapsed in such period.
Interest on the Securities of this series will accrue from May
13, 1999, to the first Interest Payment Date (which shall be
November 15, 1999), and thereafter will accrue from the last
Interest Payment Date to which interest has been paid or duly
provided for. In the event that any Interest Payment Date is not
a Business Day, then payment of interest payable on such date
will be made on the next succeeding day which is a Business Day
(and without any interest or other payment in respect of such
delay) with the same force and effect as if made on the Interest
Payment Date. The interest so payable, and punctually paid or
duly provided for, on any Interest Payment Date will be paid upon
presentation to any Paying Agent; such Paying Agent shall mark
this Security in the appropriate box on the Interest Payment
Schedule included therein to indicate that the interest payment
has been made. Payments of any Defaulted Interest will be paid
to the bearer hereof at the time of presentation.
Payment of the principal of (and premium, if any) and
interest on this Security will be made at the office or agency of
the Company maintained for that purpose in The City of New York,
the State of New York and, for so long as the Securities of this
series shall be listed on the Luxembourg Stock Exchange, in
Luxembourg, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of
public and private debts.
Reference is hereby made to the further provisions of
this Security set forth on the reverse hereof, which further
provisions shall for all purposes have the same effect as if set
forth at this place.
Unless the certificate of authentication hereon has
been executed by the Trustee referred to on the reverse hereof by
manual signature, this Security shall not be entitled to any
benefit under the Indenture or be valid or obligatory for any
purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed.
TXU EASTERN FUNDING COMPANY
By:
------------------------------
<PAGE>
[FORM OF GUARANTEE]
TXU Eastern Holdings Limited, a corporation
incorporated under the laws of England and Wales (the
"Guarantor", which term includes any successor under the
Indenture (the "Indenture") referred to in the Security upon
which this Guarantee is endorsed), for value received, hereby
unconditionally and irrevocably guarantees to the Holder of the
Security upon which this Guarantee is endorsed, the due and
punctual payment of the principal of, and premium, if any, and
interest and Additional Amounts, if any, on such Security when
and as the same shall become due and payable, whether at the
Stated Maturity, by declaration of acceleration, call for
redemption, or otherwise, in accordance with the terms of such
Security and of the Indenture, regardless of any defense, right
of set-off or counterclaim that the Guarantor may have (except
the defense of payment). In case of the failure of TXU Eastern
Funding Company, a corporation incorporated under the laws of
England and Wales (the "Company", which term includes any
successor under the Indenture), punctually to make any such
payment, the Guarantor hereby agrees to cause such payment to be
made punctually when and as the same shall become due and
payable, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise, and as if such
payment were made by the Company. The Guarantor's obligation to
make a guarantee payment may be satisfied by direct payment of
the required amounts by the Guarantor to the Holder of such
Security or to a Paying Agent, or by causing the Company to pay
such amount to such Holder or a Paying Agent.
Except as provided pursuant to Section 608 of the
Indenture, this Guarantee is an unsecured and unsubordinated
obligation of the Guarantor and shall at all times rank at least
pari passu with each other Guarantee issued pursuant to the
Indenture and, except as permitted by Sections 608 and 806 of the
Indenture, will rank at least pari passu with all other unsecured
unsubordinated indebtedness of the Guarantor.
The Guarantor hereby agrees that its obligations
hereunder shall be absolute and unconditional irrespective of,
and shall be unaffected by, any invalidity, irregularity or
unenforceability of such Security or the Indenture, any failure
to enforce the provisions of such Security or the Indenture, any
extension of time for payment or performance by the Company as
provided by such Security or the Indenture, or any waiver,
modification or indulgence granted to the Company with respect
thereto, by the Holder of such Security or the Trustee or any
other circumstance which may otherwise constitute a legal or
equitable discharge or defense of a surety or guarantor;
provided, however, that notwithstanding the foregoing, no such
waiver, modification or indulgence shall, without the consent of
the Guarantor, increase the principal amount of such Security, or
increase the interest rate thereon, or change any redemption
provisions thereof (including any change to increase any premium
payable upon redemption thereof) or change the Stated Maturity
thereof.
The Guarantor hereby waives the benefits of diligence,
presentment, demand for payment, any requirement that the Trustee
or the Holder of such Security exhaust any right or take any
action against the Company or any other Person, filing of claims
with a court in the event of insolvency or bankruptcy of the
Company, any right to require a proceeding first against the
Company, protest or notice with respect to such Security or the
indebtedness evidenced thereby and all demands whatsoever, and
covenants that this Guarantee will not be discharged in respect
of such Security except by complete performance of the
obligations contained in such Security and in this Indenture and
in this Guarantee. This Guarantee shall constitute a guarantee
of payment and not of collection. The Guarantor hereby agrees
that, in the event of a default in payment of principal, or
premium, if any, or interest, if any, on such Security, whether
at its Stated Maturity, by declaration of acceleration, call for
redemption, or otherwise, legal proceedings may be instituted by
the Trustee on behalf of, or by, the Holder of such Security,
subject to the terms and conditions set forth in the Indenture,
directly against the Guarantor to enforce this Guarantee without
first proceeding against the Company. The Guarantor agrees that
if, after the occurrence and during the continuance of an Event
of Default, the Trustee or any of the Holders are prevented by
applicable law from exercising their respective rights to
accelerate the maturity of the Securities, to collect interest on
the Securities, or to enforce or exercise any other right or
remedy with respect to the Securities, the Guarantor will pay to
the Trustee for the account of the Holders, upon demand therefor,
the amount that would otherwise have been due and payable had
such rights been permitted to be exercised by the Trustee or any
of the Holders.
The obligations of the Guarantor hereunder with respect
to such Security shall be continuing and irrevocable until the
date upon which the entire principal of, premium, if any, and
interest and Additional Amounts, if any, on such Security has
been, or has been deemed pursuant to the provisions of Article
Seven of the Indenture to have been, paid in full or otherwise
discharged.
The Guarantor shall be subrogated to all rights of the
Holder of each Security upon which its Guarantee is endorsed
against the Company in respect of any amounts paid by the
Guarantor on account of such Security pursuant to the provisions
of its Guarantee or the Indenture; provided, however, that the
Guarantor shall not be entitled to enforce or to receive any
payments arising out of, or based upon, such right of subrogation
until the principal of, and premium, if any, and interest, if
any, and Additional Amounts, if any, on all Securities issued
under the Indenture shall have been paid in full.
This Guarantee shall remain in full force and effect
and continue notwithstanding any petition filed by or against the
Company for liquidation or reorganization, the Company becoming
insolvent or making an assignment for the benefit of creditors or
a receiver or trustee being appointed for all or any significant
part of the Company's assets, and shall, to the fullest extent
permitted by law, continue to be effective or reinstated, as the
case may be, if at any time payment of the Security upon which
this Guarantee is endorsed, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or
returned by the Holder of such Security, whether as a "voidable
preference," "fraudulent transfer," or otherwise, all as though
such payment or performance had not been made. In the event that
any payment, or any part thereof, is rescinded, reduced, restored
or returned on such Security, such Security shall, to the fullest
extent permitted by law, be reinstated and deemed paid only by
such amount paid and not so rescinded, reduced, restored or
returned.
This Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication of the Security
upon which this Guarantee is endorsed shall have been manually
executed by or on behalf of the Trustee under the Indenture.
All terms used in this Guarantee which are defined in
the Indenture shall have the meanings assigned to them in such
Indenture.
This Guarantee shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes
shall be governed by and construed in accordance with the laws of
the State of New York.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this
Guarantee to be executed as of the date first written above.
TXU EASTERN HOLDINGS LIMITED
By:
-------------------------
<PAGE>
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities of the series designated
therein and the Guarantee thereof referred to in the within-
mentioned Indenture.
THE BANK OF NEW YORK, as Trustee
By:
-----------------------------
Authorized Signatory
<PAGE>
[FORM OF REVERSE OF SENIOR NOTE]
This Security is one of a duly authorized issue of
securities of the Company (herein called the "Securities"),
issued and to be issued in one or more series under an Indenture
(For Unsecured Debt Securities), dated as of May 1, 1999 (herein,
together with any amendments thereto, called the "Indenture",
which term shall have the meaning assigned to it in such
instrument), among the Company, TXU Eastern Holdings Limited, as
Guarantor (herein called the "Guarantor," which term includes any
successor under the Indenture) and The Bank of New York, as
Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), and reference is hereby
made to the Indenture, including the Board Resolutions and
Officer's Certificate filed with the Trustee on May 13, 1999,
creating the series designated on the face hereof, for a
statement of the respective rights, limitations of rights, duties
and immunities thereunder of the Company, the Guarantor, the
Trustee and the Holders of the Securities and of the terms upon
which the Securities are, and are to be, authenticated and
delivered. This Security is one of the series designated on the
face hereof.
If the Company or the Guarantor is required to pay
Additional Amounts with respect to Securities of this series, the
Company has the right to redeem this Security as set forth in the
Officer's Certificate described above.
Notwithstanding Section 404 of the Indenture, the
Trustee shall give the bearer of this Security notice of any
redemption hereof in such manner as the Trustee deems necessary
or desirable. So long as the Securities are listed on the
Luxembourg Stock Exchange and the rules of the Luxembourg Stock
Exchange so require, notices to Holders of the Securities will be
published in a leading daily newspaper having general circulation
in Luxembourg (which is expected to be the Luxemburger Wort).
Upon payment of the Redemption Price, on and after the
Redemption Date interest and any Additional Amounts will cease to
accrue on the Securities of this series or portions thereof
called for redemption.
Except as provided above, the Securities of this series
are not redeemable prior to maturity. Except as provided herein,
Article Four of the Indenture shall apply to redemptions of the
Securities of this series.
The Indenture contains provisions for defeasance at any
time of the entire indebtedness of this Security upon compliance
with certain conditions set forth in the Indenture including the
Officer's Certificate described above.
If an Event of Default with respect to Securities of
this series shall occur and be continuing, the principal of the
Securities of this series may be declared due and payable in the
manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as
therein provided, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the
Holders of the Securities of each series to be affected under the
Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the
Securities at the time Outstanding of all series to be affected.
The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Securities of
each series at the time Outstanding, on behalf of the Holders of
all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future
Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made
upon this Security.
As provided in and subject to the provisions of the
Indenture, the Holder of this Security shall not have the right
to institute any proceeding with respect to the Indenture or for
the appointment of a receiver or trustee or for any other remedy
thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with
respect to the Securities of this series, the Holders of a
majority in aggregate principal amount of the Securities of all
series at the time Outstanding in respect of which an Event of
Default shall have occurred and be continuing shall have made
written request to the Trustee to institute proceedings in
respect of such Event of Default as Trustee and offered the
Trustee reasonable indemnity, and the Trustee shall not have
received from the Holders of a majority in aggregate principal
amount of Securities of all series at the time Outstanding in
respect of which an Event of Default shall have occurred and be
continuing a direction inconsistent with such request, and shall
have failed to institute any such proceeding, for 60 days after
receipt of such notice, request and offer of indemnity. The
foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal
hereof or any premium or interest hereon on or after the
respective due dates expressed herein.
No reference herein to the Indenture and no provision
of this Security or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of and any premium and interest on this
Security at the times, place and rate, and in the coin or
currency, herein prescribed.
The Indenture contains terms, provisions and conditions
relating to the consolidation or merger of the Company or the
Guarantor with or into, and the conveyance or other transfer, or
lease, of assets to another Person and to the release and
discharge of the Company or the Guarantor, as the case may be, in
certain circumstances from such obligations.
The Securities of this series are issuable only in
registered form without coupons in denominations of $10,000 and
in integral multiples of $1,000 in excess thereof; except that
Securities of this series issued or transferred to institutional
"accredited investors," as defined in Rule 501(a)(1), (2), (3) or
(7) of Regulation D of the Securities Act, will be in a minimum
principal amount of $250,000. As provided in the Indenture and
subject to certain limitations therein set forth, Securities of
this series are exchangeable for a like aggregate principal
amount of Securities of this series and of like tenor and of
authorized denominations, as requested by the Holder surrendering
the same.
No service charge shall be made for any such
registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
The bearer of this Security shall be treated as the
owner of it for all purposes, subject to the terms of the
Indenture. As provided in the Indenture and subject to certain
limitations therein set forth, Securities of this series are
exchangeable for a like aggregate principal amount of Securities
of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
All terms used in this Security which are defined in
the Indenture shall have the meanings assigned to them in the
Indenture and in the Officer's Certificate establishing the terms
of the Securities of this series.
INTEREST PAYMENT SCHEDULE
Instructions to Paying Agent: Mark the box across from the
appropriate Interest Payment Date when the interest payable on
such date has been paid.
Interest Payment Date (Mark When Interest is Paid)
--------------------- ----------------------------
November 15, 1999 [ ]
May 15, 2000 [ ]
November 15, 2000 [ ]
May 15, 2001 [ ]
November 15, 2001 [ ]
PRINCIPAL PAYMENT SCHEDULE
PRINCIPAL AMOUNT OF THIS GLOBAL BEARER SENIOR NOTE
The outstanding aggregate principal amount of this Global Bearer
Senior Note is initially as shown on the face of this Global
Bearer Senior Note and, pursuant thereto, by the latest entry
made by or on behalf of the Issuer in the third column below.
Reductions in the principal amount of this Global Bearer Senior
Note following, among other things, partial redemptions, exchange
of an interest in this Global Bearer Senior Note for certificated
Senior Notes of this series, exchange of an interest in this
Global Bearer Senior Note for an interest in a Global Bearer
Senior Note of the Second Series, or exchange of an interest in
this Global Bearer Senior Note for an interest in another Global
Bearer Senior Note of this series of Securities, and increases in
the principal amount of this Global Bearer Senior Note following
exchange of an interest in another Global Bearer Senior Note of
this series of Securities for an interest in this Global Bearer
Senior Note, are entered in the second column below.
OUTSTANDING
PRINCIPAL
AMOUNT OF
THIS GLOBAL
BEARER
SENIOR NOTE TRUSTEE'S
FOLLOWING AUTHENTIC
AMOUNT OF SUCH ATION
(REDUCTION)/ (REDUCTION)/ SIGNATURE
DATE INCREASE INCREASE ---------
---- ------- --------
--------------- ---------------- ----------------- --------------
--------------- ---------------- ----------------- --------------
--------------- ---------------- ----------------- --------------
--------------- ---------------- ----------------- --------------
--------------- ---------------- ----------------- --------------
--------------- ---------------- ----------------- --------------
--------------- ---------------- ----------------- --------------
--------------- ---------------- ----------------- --------------
--------------- ---------------- ----------------- --------------
<PAGE>
EXHIBIT B
[non-registration legend]
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR WITH ANY SECURITIES
REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE
UNITED STATES AND MAY NOT BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED OTHER THAN (A) (1) TO TXU EASTERN FUNDING COMPANY OR
TXU EASTERN HOLDINGS LIMITED, (2) IN A TRANSACTION ENTITLED TO AN
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT, (3) SO LONG AS THIS SECURITY IS ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE,
PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,
(4) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (5) TO AN INSTITUTION THAT
IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT, IN A MINIMUM PRINCIPAL
AMOUNT OF THE SECURITIES OF $250,000, AND THAT IS ACQUIRING THE
SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (6)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, AND (B) IN EACH CASE IN ACCORDANCE WITH ALL THE
APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES"
[registration rights legend]
The Holder of this Security, by acceptance hereof, will be
deemed to have agreed to be bound by the provisions of the
Registration Rights Agreement dated May 13, 1999, among the
Company, the Guarantor and the initial purchasers of this
Security.
NO. . CUSIP NO. .
[FORM OF FACE OF CERTIFICATED SENIOR NOTE]
TXU EASTERN FUNDING COMPANY
6.15% SENIOR NOTES DUE MAY 15, 2002
TXU Eastern Funding Company, a corporation duly incorporated
and existing under the laws of England and Wales (herein referred
to as the "Company", which term includes any successor Person
under the Indenture), for value received, hereby promises to pay
to
or registered assigns, the principal sum of $350,000,000 Dollars
on May 15, 2002, and to pay interest on said principal sum semi-
annually in arrears on May 15 and November 15 of each year (each
an Interest Payment Date) at the rate of 6.15% per annum until
the principal hereof is paid or made available for payment.
Interest on the Securities of this series shall be computed on
the basis of a 360-day year consisting of twelve 30-day months
and for any period shorter than a full month, on the basis of the
actual number of days elapsed in such period. Interest on the
Securities of this series will accrue from May 13, 1999, to the
first Interest Payment Date (which shall be November 15, 1999),
and thereafter will accrue from the last Interest Payment Date to
which interest has been paid or duly provided for. In the event
that any Interest Payment Date is not a Business Day, then
payment of interest payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest
or other payment in respect of such delay) with the same force
and effect as if made on the Interest Payment Date. The interest
so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in such Indenture, be
paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on
the Regular Record Date for such interest, which shall be the
15th day of the calendar month next preceding such Interest
Payment Date. Any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder on
such Regular Record Date and may either be paid to the Person in
whose name this Security (or one or more Predecessor Securities)
is registered at the close of business on a Special Record Date
for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities
of this series not less than 10 days prior to such Special Record
Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on
which the Securities of this series may be listed, and upon such
notice as may be required by such exchange, all as more fully
provided in the Indenture referred to on the reverse hereof.
Payment of the principal of (and premium, if any) and
interest on this Security will be made at the office or agency of
the Company maintained for that purpose in The City of New York,
the State of New York and, for so long as this Security shall be
listed on the Luxembourg Stock Exchange, in Luxembourg, in such
coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private
debts.
Reference is hereby made to the further provisions of
this Security set forth on the reverse hereof, which further
provisions shall for all purposes have the same effect as if set
forth at this place.
Unless the certificate of authentication hereon has
been executed by the Trustee referred to on the reverse hereof by
manual signature, this Security shall not be entitled to any
benefit under the Indenture or be valid or obligatory for any
purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed.
TXU EASTERN FUNDING COMPANY
By:
-------------------------
<PAGE>
[FORM OF GUARANTEE]
TXU Eastern Holdings Limited, a corporation
incorporated under the laws of England and Wales (the
"Guarantor", which term includes any successor under the
Indenture (the "Indenture") referred to in the Security upon
which this Guarantee is endorsed), for value received, hereby
unconditionally and irrevocably guarantees to the Holder of the
Security upon which this Guarantee is endorsed, the due and
punctual payment of the principal of, and premium, if any, and
interest on such Security when and as the same shall become due
and payable, whether at the Stated Maturity, by declaration of
acceleration, call for redemption, or otherwise, in accordance
with the terms of such Security and of the Indenture, regardless
of any defense, right of set-off or counterclaim that the
Guarantor may have (except the defense of payment). In case of
the failure of TXU Eastern Funding Company, a corporation
incorporated under the laws of England and Wales (the "Company",
which term includes any successor under the Indenture),
punctually to make any such payment, the Guarantor hereby agrees
to cause such payment to be made punctually when and as the same
shall become due and payable, whether at the Stated Maturity or
by declaration of acceleration, call for redemption or otherwise,
and as if such payment were made by the Company. The Guarantor's
obligation to make a guarantee payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holder of
such Security or to a Paying Agent, or by causing the Company to
pay such amount to such Holder or a Paying Agent.
Except as provided pursuant to Section 608 of the
Indenture, this Guarantee is an unsecured and unsubordinated
obligation of the Guarantor and shall at all times rank at least
pari passu with each other Guarantee issued pursuant to the
Indenture and, except as permitted by Sections 608 and 806 of the
Indenture, will rank at least pari passu with all other unsecured
unsubordinated indebtedness of the Guarantor.
The Guarantor hereby agrees that its obligations
hereunder shall be absolute and unconditional irrespective of,
and shall be unaffected by, any invalidity, irregularity or
unenforceability of such Security or the Indenture, any failure
to enforce the provisions of such Security or the Indenture, any
extension of time for payment or performance by the Company as
provided by such Security or the Indenture, or any waiver,
modification or indulgence granted to the Company with respect
thereto, by the Holder of such Security or the Trustee or any
other circumstance which may otherwise constitute a legal or
equitable discharge or defense of a surety or guarantor;
provided, however, that notwithstanding the foregoing, no such
waiver, modification or indulgence shall, without the consent of
the Guarantor, increase the principal amount of such Security, or
increase the interest rate thereon, or change any redemption
provisions thereof (including any change to increase any premium
payable upon redemption thereof) or change the Stated Maturity
thereof.
The Guarantor hereby waives the benefits of diligence,
presentment, demand for payment, any requirement that the Trustee
or the Holder of such Security exhaust any right or take any
action against the Company or any other Person, filing of claims
with a court in the event of insolvency or bankruptcy of the
Company, any right to require a proceeding first against the
Company, protest or notice with respect to such Security or the
indebtedness evidenced thereby and all demands whatsoever, and
covenants that this Guarantee will not be discharged in respect
of such Security except by complete performance of the
obligations contained in such Security and in this Indenture and
in this Guarantee. This Guarantee shall constitute a guarantee
of payment and not of collection. The Guarantor hereby agrees
that, in the event of a default in payment of principal, or
premium, if any, or interest, if any, on such Security, whether
at its Stated Maturity, by declaration of acceleration, call for
redemption, or otherwise, legal proceedings may be instituted by
the Trustee on behalf of, or by, the Holder of such Security,
subject to the terms and conditions set forth in the Indenture,
directly against the Guarantor to enforce this Guarantee without
first proceeding against the Company. The Guarantor agrees that
if, after the occurrence and during the continuance of an Event
of Default, the Trustee or any of the Holders are prevented by
applicable law from exercising their respective rights to
accelerate the maturity of the Securities, to collect interest on
the Securities, the Guarantor will pay to the Trustee for the
account of the Holders, upon demand therefor, the amount that
would otherwise have been due and payable had such rights and
remedies been permitted to be exercised by the Trustee or any of
the Holders.
The obligations of the Guarantor hereunder with respect
to such Security shall be continuing and irrevocable until the
date upon which the entire principal of, premium, if any, and
interest and Additional Amounts, if any, on such Security has
been, or has been deemed pursuant to the provisions of Article
Seven of the Indenture to have been, paid in full or otherwise
discharged.
The Guarantor shall be subrogated to all rights of the
Holder of each Security upon which its Guarantee is endorsed
against the Company in respect of any amounts paid by the
Guarantor on account of such Security pursuant to the provisions
of its Guarantee or the Indenture; provided, however, that the
Guarantor shall not be entitled to enforce or to receive any
payments arising out of, or based upon, such right of subrogation
until the principal of, and premium, if any, and interest, if
any, and Additional Amounts, if any, on all Securities issued
under the Indenture shall have been paid in full.
This Guarantee shall remain in full force and effect
and continue notwithstanding any petition filed by or against the
Company for liquidation or reorganization, the Company becoming
insolvent or making an assignment for the benefit of creditors or
a receiver or trustee being appointed for all or any significant
part of the Company's assets, and shall, to the fullest extent
permitted by law, continue to be effective or reinstated, as the
case may be, if at any time payment of the Security upon which
this Guarantee is endorsed, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or
returned by the Holder of such Security, whether as a "voidable
preference," "fraudulent transfer," or otherwise, all as though
such payment or performance had not been made. In the event that
any payment, or any part thereof, is rescinded, reduced, restored
or returned on such Security, such Security shall, to the fullest
extent permitted by law, be reinstated and deemed paid only by
such amount paid and not so rescinded, reduced, restored or
returned.
This Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication of the Security
upon which this Guarantee is endorsed shall have been manually
executed by or on behalf of the Trustee under the Indenture.
All terms used in this Guarantee which are defined in
the Indenture shall have the meanings assigned to them in such
Indenture.
This Guarantee shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes
shall be governed by and construed in accordance with the laws of
the State of New York.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this
Guarantee to be executed as of the date first written above.
TXU EASTERN HOLDINGS LIMITED
By:
-------------------------
<PAGE>
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities of the series designated
therein and the Guarantee thereof referred to in the within-
mentioned Indenture.
THE BANK OF NEW YORK, as Trustee
By:
-----------------------------
Authorized Signatory
<PAGE>
[FORM OF REVERSE OF CERTIFICATED SENIOR NOTE]
This Security is one of a duly authorized issue of
securities of the Company (herein called the "Securities"),
issued and to be issued in one or more series under an Indenture
(For Unsecured Debt Securities), dated as of May 1, 1999 (herein,
together with any amendments thereto, called the "Indenture",
which term shall have the meaning assigned to it in such
instrument), among the Company, TXU Eastern Holdings Limited, as
Guarantor (herein called the "Guarantor," which term includes any
successor under the Indenture) and The Bank of New York, as
Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), and reference is hereby
made to the Indenture, including the Board Resolutions and
Officer's Certificate filed with the Trustee on May 13, 1999,
creating the series designated on the face hereof, for a
statement of the respective rights, limitations of rights, duties
and immunities thereunder of the Company, the Guarantor, the
Trustee and the Holders of the Securities and of the terms upon
which the Securities are, and are to be, authenticated and
delivered. This Security is one of the series designated on the
face hereof.
Each purchaser of this Security represents and agrees
as follows:
(1) it is acquiring the Security for its own account
or for an account with respect to which it exercises sole
investment discretion, and that it or such account, as the
case may be, is a Qualified Institutional Buyer (as defined
under the United States Securities Act of 1933, as amended
(the "Securities Act")), a foreign purchaser outside the
United States or an institutional "accredited investor"
acquiring the Security for investment purposes and not for
distribution;
(2) it acknowledges that the offer and sale of the
Security have not been registered under the Securities Act
and such Security may not be resold except as permitted
below;
(3) it understands and agrees that such Security is
being offered only in a transaction not involving any public
offering within the meaning of the Securities Act, and that
(A) if it decides to resell, pledge or otherwise transfer
the Security, the Security may be resold, pledged or
transferred only (i) to the Company or the Guarantor, (ii)
in a transaction entitled to an exemption from registration
provided by Rule 144 under the Securities Act ("Rule 144"),
(iii) so long as such Security is eligible for resale
pursuant to Rule 144A under the Securities Act ("Rule
144A"), to a person whom the seller reasonably believes is a
Qualified Institutional Buyer that purchases for its own
account or for the account of a Qualified Institutional
Buyer to whom notice is given that the resale, pledge or
transfer is being made in reliance on Rule 144A, (iv) in an
offshore transaction in accordance with Rule 904 of
Regulation S of the Securities Act, (v) to an institutional
"accredited investor" as defined in Rule 501(a)(1), (2),
(3), or (7) of Regulation D under the Securities Act
acquiring the Security, in a minimum principal amount of
$250,000, for investment purposes and not for distribution
(an "IAI Purchaser"), and (vi) pursuant to an effective
registration statement under the Securities Act, and (B) it
will, and each subsequent holder is required to, notify any
purchaser of the Security from it of the resale restrictions
referred to in (A) above, if then applicable. Before any
Security may be offered, sold, pledged or otherwise
transferred by a Qualified Institutional Buyer to a person
who is not a Qualified Institutional Buyer or by a purchaser
who purchases the Security in an offshore transaction in
accordance with Rule 904 of Regulation S of the Securities
Act (a "Regulation S Purchaser") to a person who is not a
Regulation S Purchaser, the transferee must provide the
Trustee with a written certification as to the compliance
with the transfer restrictions referred to above. If any
resale or other transfer of the Security is proposed to be
made pursuant to clause (v) above, the transferor shall
deliver a letter from the transferee (the form of which may
be obtained from the Company or the Trustee) to the Company,
the Guarantor and the Trustee, which shall provide among
other things, that the transferee is an institutional
"accredited investor" that is acquiring such Security for
investment purposes and not for distribution in violation of
the Securities Act. Each purchaser of this Security
acknowledges that the Company, the Guarantor and the Trustee
reserve the right prior to any offer, sale or other transfer
of such Security pursuant to clauses (ii), (iv) or (v) above
to require the delivery of an opinion of counsel,
certifications and/or other information satisfactory to the
Company, the Guarantor and the Trustee that the proposed
sale complies with the foregoing restrictions. An IAI
Purchaser may not transfer its Interest in an Initial Senior
Note to another IAI Purchaser;
(4) it (i) is able to fend for itself in the
transactions contemplated by the offering memorandum dated
May 6, 1999; (ii) has such knowledge and experience in
financial and business matters as to be capable of
evaluating the merits and risks of its prospective
investment in Security; (iii) has the ability to bear the
economic risks of its prospective investment and can afford
the complete loss of such investment; and (iv) acknowledges
that it may be required to bear the financial risks of this
investment for an indefinite period of time;
(5) if it is (i) a purchaser in a sale that occurs
outside the U.S. within the meaning of Regulation S of the
Securities Act, or (ii) a "distributor," "dealer" or person
"receiving a selling concession, fee or other remuneration"
in respect of Securities sold, prior to the expiration of
the Restricted Period (as defined below), it acknowledges
that until the expiration of the Restricted Period any offer
or sale of the Security shall not be made by it to a U.S.
person or for the account or benefit of a U.S. person within
the meaning of Rule 902(k) of the Securities Act, except
offers or sales made pursuant to Rule 144A. The "Restricted
Period" means, with respect to the Security, the 40-day
period following the later of (i) the date on which such
Securities are first offered to persons other than
distributors (as defined in Regulation S) and (ii) the
original issue date of such Securities;
(6) if it is a foreign purchaser, it acknowledges
that, until the expiration of the Restricted Period, it may
not, directly or indirectly, reoffer, resell, pledge or
otherwise transfer a Security or any interest therein except
to a person who certifies in writing to the Trustee that
such transfer satisfies, as applicable, the requirements of
the legend on the Security and that none of the Securities
will be accepted for registration of any transfer prior to
the end of the Restricted Period unless the transferee has
first complied with the certification requirements described
in this paragraph;
(7) it acknowledges that no part of the funds to be
used to purchase the Security to be purchased by such
purchaser constitutes assets which are directly or
indirectly the assets of any employee benefit plan such the
use of such assets constitutes a non-exempt prohibited
transaction under the U.S. Employee Retirement Income
Security Act of 1974, as amended (ERISA), or the U.S.
Internal Revenue Code of 1986, as amended. As used in this
paragraph, the term "employee benefit plan" shall have the
meaning assigned to such term in Section 3 of ERISA;
(8) it understands that the Company, the Guarantor,
the initial purchasers, the Trustee, the Paying Agents and
others will rely upon the truth and accuracy of the
foregoing acknowledgements, representations and agreements
and agrees that if any of the acknowledgements,
representations and warranties deemed to have been made by
it by its purchase of the Security are no longer accurate,
it shall promptly notify the Company, the Guarantor and the
initial purchasers. If it is acquiring the Security as a
fiduciary or agent for one or more investor accounts, it
represents that it has sole investment discretion with
respect to each such account and it has full power to make
the foregoing acknowledgements, representations and
agreements on behalf of such account.
If the Company or the Guarantor is required to pay
Additional Amounts with respect to Securities of this series, the
Company has the right to redeem this Security as set forth in the
Officer's Certificate described above.
Notice of any redemption will be mailed at least 30
days but no more than 60 days before the Redemption Date to each
Holder of the Securities of this series to be redeemed.
Upon payment of the Redemption Price, on and after the
Redemption Date interest and any Additional Amounts will cease to
accrue on the Securities of this series or portions thereof
called for redemption.
Except as provided above, the Securities of this series
are not redeemable prior to maturity. Except as provided herein,
Article Four of the Indenture shall apply to redemptions of the
Securities of this series.
The Indenture contains provisions for defeasance at any
time of the entire indebtedness of this Security upon compliance
with certain conditions set forth in the Indenture including the
Officer's Certificate described above.
If an Event of Default with respect to Securities of
this series shall occur and be continuing, the principal of the
Securities of this series may be declared due and payable in the
manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as
therein provided, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the
Holders of the Securities of each series to be affected under the
Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the
Securities at the time Outstanding of all series to be affected.
The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Securities of
each series at the time Outstanding, on behalf of the Holders of
all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future
Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made
upon this Security.
As provided in and subject to the provisions of the
Indenture, the Holder of this Security shall not have the right
to institute any proceeding with respect to the Indenture or for
the appointment of a receiver or trustee or for any other remedy
thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with
respect to the Securities of this series, the Holders of a
majority in aggregate principal amount of the Securities of all
series at the time Outstanding in respect of which an Event of
Default shall have occurred and be continuing shall have made
written request to the Trustee to institute proceedings in
respect of such Event of Default as Trustee and offered the
Trustee reasonable indemnity, and the Trustee shall not have
received from the Holders of a majority in aggregate principal
amount of Securities of all series at the time Outstanding in
respect of which an Event of Default shall have occurred and be
continuing a direction inconsistent with such request, and shall
have failed to institute any such proceeding, for 60 days after
receipt of such notice, request and offer of indemnity. The
foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal
hereof or any premium or interest hereon on or after the
respective due dates expressed herein.
No reference herein to the Indenture and no provision
of this Security or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of and any premium and interest on this
Security at the times, place and rate, and in the coin or
currency, herein prescribed.
The Indenture contains terms, provisions and conditions
relating to the consolidation or merger of the Company or the
Guarantor with or into, and the conveyance or other transfer, or
lease, of assets to another Person and to the release and
discharge of the Company or the Guarantor, as the case may be, in
certain circumstances from such obligations.
The Securities of this series are issuable only in
registered form without coupons in denominations of $10,000 and
in integral multiples of $1,000 in excess thereof; except that
Securities of this series issued or transferred to institutional
"accredited investors," as defined in Rule 501(a)(1), (2), (3) or
(7) of Regulation D of the Securities Act, will be in a minimum
principal amount of $250,000. As provided in the Indenture and
subject to certain limitations therein set forth, Securities of
this series are exchangeable for a like aggregate principal
amount of Securities of this series and of like tenor and of
authorized denominations, as requested by the Holder surrendering
the same.
No service charge shall be made for any such
registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
The Company, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name this Security
is registered as the absolute owner hereof for all purposes,
whether or not this Security be overdue, and neither the Company,
the Trustee nor any such agent shall be affected by notice to the
contrary.
All terms used in this Security which are defined in
the Indenture shall have the meanings assigned to them in the
Indenture and in the Officer's Certificate establishing the terms
of the Securities of this series.
<PAGE>
[CERTIFICATE OF TRANSFER]
6.15% SENIOR NOTES DUE MAY 15, 2002
FOR VALUE RECEIVED, the undersigned sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
[ ] ------------------------------
Name and address of assignee
must be printed or typewritten.
----------------------------------------------------------------
the within Security of the Company and does hereby irrevocably
constitute and appoint
----------------------------------------------------------------
to transfer the said Security on the books of the within-named
Company, with full power of substitution in the premises.
The undersigned certifies that said Security is being resold,
pledged or otherwise transferred as follows: (check one)
[ ] to the Company or the Guarantor;
[ ] to a Person whom the undersigned reasonably believes is a
qualified institutional buyer within the meaning of Rule
144A under the Securities Act of 1933, as amended (the
"Securities Act") purchasing for its own account or for the
account of a qualified institutional buyer to whom notice is
given that the resale, pledge or other transfer is being
made in reliance on Rule 144A;
[ ] in an offshore transaction in accordance with Rule 904 of
Regulation S under the Securities Act;
[ ] to an institution that is an "accredited investor" as
defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act that is acquiring the Security for investment
purposes and not for distribution (attach a copy of an
Accredited Investor Letter in the form provided by the
Company or Trustee signed by an authorized officer of the
transferee);
[ ] as otherwise permitted by the non-registration legend
appearing on this Security; or
[ ] as otherwise agreed by the Company or the Guarantor, as the
case may be, confirmed in writing to the Trustee, as
follows: [describe]
----------------------------------------------------------------
----------------------------------------------------------------
Dated:
--------------------------------- ----------------------
<PAGE>
EXHIBIT C
[FORM OF FACE OF EXCHANGE NOTE]
GLOBAL BEARER FORM
NO. CUSIP NO.
--------------- ----------
TXU EASTERN FUNDING COMPANY
6.15% EXCHANGE SENIOR NOTES DUE MAY 15, 2002
TXU Eastern Funding Company, a corporation duly incorporated
and existing under the laws of England and Wales (herein referred
to as the "Company", which term includes any successor Person
under the Indenture), for value received, hereby promises to pay
to the bearer upon surrender hereof, the principal sum of
$350,000,000 Dollars on May 15, 2002, and to pay interest on said
principal sum semi-annually in arrears on May 15 and November 15
of each year (each an Interest Payment Date) at the rate of 6.15%
per annum until the principal hereof is paid or made available
for payment. Interest on the Securities of this series shall be
computed on the basis of a 360 day year consisting of twelve 30-
day months and for any period shorter than a full month, on the
basis of the actual number of days elapsed in such period.
Interest on the Securities of this series will accrue from . , to
the first Interest Payment Date (which shall be . ), and
thereafter will accrue from the last Interest Payment Date to
which interest has been paid or duly provided for. In the event
that any Interest Payment Date is not a Business Day, then
payment of interest payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest
or other payment in respect of such delay) with the same force
and effect as if made on the Interest Payment Date. The interest
so payable, and punctually paid or duly provided for, on any
Interest Payment Date will be paid upon presentation to the
Paying Agent; the Paying Agent shall mark this Security in the
appropriate box on the Interest Payment Schedule included therein
to indicate that the interest payment has been made. Payments of
any Defaulted Interest will be paid to the bearer hereof at the
time of presentation.
Payment of the principal of (and premium, if any) and
interest on this Security will be made at the office or agency of
the Company maintained for that purpose in The City of New York,
the State of New York and, for so long as the Securities of this
series shall be listed on the Luxembourg Stock Exchange, in
Luxembourg, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of
public and private debts.
Reference is hereby made to the further provisions of
this Security set forth on the reverse hereof, which further
provisions shall for all purposes have the same effect as if set
forth at this place.
Unless the certificate of authentication hereon has
been executed by the Trustee referred to on the reverse hereof by
manual signature, this Security shall not be entitled to any
benefit under the Indenture or be valid or obligatory for any
purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed.
TXU EASTERN FUNDING COMPANY
By:
-------------------------------
<PAGE>
[FORM OF GUARANTEE]
TXU Eastern Holdings Limited, a corporation
incorporated under the laws of England and Wales (the
"Guarantor", which term includes any successor under the
Indenture (the "Indenture") referred to in the Security upon
which this Guarantee is endorsed), for value received, hereby
unconditionally and irrevocably guarantees to the Holder of the
Security upon which this Guarantee is endorsed, the due and
punctual payment of the principal of, and premium, if any, and
interest on such Security when and as the same shall become due
and payable, whether at the Stated Maturity, by declaration of
acceleration, call for redemption, or otherwise, in accordance
with the terms of such Security and of the Indenture, regardless
of any defense, right of set-off or counterclaim that the
Guarantor may have (except the defense of payment). In case of
the failure of TXU Eastern Funding Company, a corporation
incorporated under the laws of England and Wales (the "Company",
which term includes any successor under the Indenture),
punctually to make any such payment, the Guarantor hereby agrees
to cause such payment to be made punctually when and as the same
shall become due and payable, whether at the Stated Maturity or
by declaration of acceleration, call for redemption or otherwise,
and as if such payment were made by the Company. The Guarantor's
obligation to make a guarantee payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holder of
such Security or to a Paying Agent, or by causing the Company to
pay such amount to such Holder or a Paying Agent.
Except as provided pursuant to Section 608 of the
Indenture, this Guarantee is an unsecured and unsubordinated
obligation of the Guarantor and shall at all times rank at least
pari passu with each other Guarantee issued pursuant to the
Indenture and, except as permitted by Sections 608 and 806 of the
Indenture, will rank at least pari passu with all other unsecured
unsubordinated indebtedness of the Guarantor.
The Guarantor hereby agrees that its obligations
hereunder shall be absolute and unconditional irrespective of,
and shall be unaffected by, any invalidity, irregularity or
unenforceability of such Security or the Indenture, any failure
to enforce the provisions of such Security or the Indenture, any
extension of time for payment by the Company as provided by such
Security, or any waiver, modification or indulgence granted to
the Company with respect thereto, by the Holder of such Security
or the Trustee or any other circumstance which may otherwise
constitute a legal or equitable discharge or defense of a surety
or guarantor; provided, however, that notwithstanding the
foregoing, no such waiver, modification or indulgence shall,
without the consent of the Guarantor, increase the principal
amount of such Security, or increase the interest rate thereon,
or change any redemption provisions thereof (including any change
to increase any premium payable upon redemption thereof) or
change the Stated Maturity thereof.
The Guarantor hereby waives the benefits of diligence,
presentment, demand for payment, any requirement that the Trustee
or the Holder of such Security exhaust any right or take any
action against the Company or any other Person, filing of claims
with a court in the event of insolvency or bankruptcy of the
Company, any right to require a proceeding first against the
Company, protest or notice with respect to such Security or the
indebtedness evidenced thereby and all demands whatsoever, and
covenants that this Guarantee will not be discharged in respect
of such Security except by complete performance of the
obligations contained in such Security and in this Indenture and
in this Guarantee. This Guarantee shall constitute a guarantee
of payment and not of collection. The Guarantor hereby agrees
that, in the event of a default in payment of principal, or
premium, if any, or interest, if any, on such Security, whether
at its Stated Maturity, by declaration of acceleration, call for
redemption, or otherwise, legal proceedings may be instituted by
the Trustee on behalf of, or by, the Holder of such Security,
subject to the terms and conditions set forth in the Indenture,
directly against the Guarantor to enforce this Guarantee without
first proceeding against the Company. The Guarantor agrees that
if, after the occurrence and during the continuance of an Event
of Default, the Trustee or any of the Holders are prevented by
applicable law from exercising their respective rights to
accelerate the maturity of the Securities, to collect interest on
the Securities, or to enforce or exercise any other right or
remedy with respect to the Securities, the Guarantor will pay to
the Trustee for the account of the Holders, upon demand therefor,
the amount that would otherwise have been due and payable had
such rights been permitted to be exercised by the Trustee or any
of the Holders.
The obligations of the Guarantor hereunder with respect
to such Security shall be continuing and irrevocable until the
date upon which the entire principal of, premium, if any, and
interest and Additional Amounts, if any, on such Security has
been, or has been deemed pursuant to the provisions of Article
Seven of the Indenture to have been, paid in full or otherwise
discharged.
The Guarantor shall be subrogated to all rights of the
Holder of each Security upon which its Guarantee is endorsed
against the Company in respect of any amounts paid by the
Guarantor on account of such Security pursuant to the provisions
of its Guarantee or the Indenture; provided, however, that the
Guarantor shall not be entitled to enforce or to receive any
payments arising out of, or based upon, such right of subrogation
until the principal of, and premium, if any, and interest, if
any, and Additional Amounts, if any, on all Securities issued
under the Indenture shall have been paid in full.
This Guarantee shall remain in full force and effect
and continue notwithstanding any petition filed by or against the
Company for liquidation or reorganization, the Company becoming
insolvent or making an assignment for the benefit of creditors or
a receiver or trustee being appointed for all or any significant
part of the Company's assets, and shall, to the fullest extent
permitted by law, continue to be effective or reinstated, as the
case may be, if at any time payment of the Security upon which
this Guarantee is endorsed, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or
returned by the Holder of such Security, whether as a "voidable
preference," "fraudulent transfer," or otherwise, all as though
such payment or performance had not been made. In the event that
any payment, or any part thereof, is rescinded, reduced, restored
or returned on such Security, such Security shall, to the fullest
extent permitted by law, be reinstated and deemed paid only by
such amount paid and not so rescinded, reduced, restored or
returned.
This Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication of the Security
upon which this Guarantee is endorsed shall have been manually
executed by or on behalf of the Trustee under the Indenture.
All terms used in this Guarantee which are defined in
the Indenture shall have the meanings assigned to them in such
Indenture.
This Guarantee shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes
shall be governed by and construed in accordance with the laws of
the State of New York.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this
Guarantee to be executed as of the date first written above.
TXU EASTERN HOLDINGS LIMITED
By:
-------------------------
<PAGE>
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities of the series designated
therein and the Guarantee thereof referred to in the within-
mentioned Indenture.
THE BANK OF NEW YORK, as Trustee
By:
-----------------------
Authorized Signatory
<PAGE>
[FORM OF REVERSE OF EXCHANGE NOTE]
This Security is one of a duly authorized issue of
securities of the Company (herein called the "Securities"),
issued and to be issued in one or more series under an Indenture
(for Unsecured Debt Securities), dated as of May 1, 1999 (herein,
together with any amendments thereto, called the "Indenture",
which term shall have the meaning assigned to it in such
instrument), between the Company and The Bank of New York, as
Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), and reference is hereby
made to the Indenture, including the Board Resolutions and
Officer's Certificate filed with the Trustee on May 13, 1999,
creating the series designated on the face hereof, for a
statement of the respective rights, limitations of rights, duties
and immunities thereunder of the Company, the Trustee and the
Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered. This
Security is one of the series designated on the face hereof.
If the Company or the Guarantor is required to pay
Additional Amounts with respect to Securities of this series, the
Company has the right to redeem this Security as set forth in the
Officer's Certificate described above.
Notwithstanding Section 404 of the Indenture, the
Trustee shall give the bearer of this Security notice of any
redemption hereof in such manner as the Trustee deems necessary
or desirable. So long as the Securities are listed on the
Luxembourg Stock Exchange and the rules of the Luxembourg Stock
Exchange so require, notices to Holders of the Securities will be
published in a leading daily newspaper having general circulation
in Luxembourg (which is expected to be the Luxemburger Wort).
Upon payment of the Redemption Price, on and after the
Redemption Date interest and any Additional Amounts will cease to
accrue on the Securities of this series or portions thereof
called for redemption.
Except as provided above, the Securities of this series
are not redeemable prior to maturity. Except as provided herein,
Article Four of the Indenture shall apply to redemptions of the
Securities of this series.
The Indenture contains provisions for defeasance at any
time of the entire indebtedness of this Security upon compliance
with certain conditions set forth in the Indenture, including the
Officer's Certificate described above.
If an Event of Default with respect to Securities of
this series shall occur and be continuing, the principal of the
Securities of this series may be declared due and payable in the
manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as
therein provided, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the
Holders of the Securities of each series to be affected under the
Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the
Securities at the time Outstanding of all series to be affected.
The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Securities of
each series at the time Outstanding, on behalf of the Holders of
all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future
Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made
upon this Security.
As provided in and subject to the provisions of the
Indenture, the Holder of this Security shall not have the right
to institute any proceeding with respect to the Indenture or for
the appointment of a receiver or trustee or for any other remedy
thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with
respect to the Securities of this series, the Holders of a
majority in aggregate principal amount of the Securities of all
series at the time Outstanding in respect of which an Event of
Default shall have occurred and be continuing shall have made
written request to the Trustee to institute proceedings in
respect of such Event of Default as Trustee and offered the
Trustee reasonable indemnity, and the Trustee shall not have
received from the Holders of a majority in aggregate principal
amount of Securities of all series at the time Outstanding in
respect of which an Event of Default shall have occurred and be
continuing a direction inconsistent with such request, and shall
have failed to institute any such proceeding, for 60 days after
receipt of such notice, request and offer of indemnity. The
foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal
hereof or any premium or interest hereon on or after the
respective due dates expressed herein.
No reference herein to the Indenture and no provision
of this Security or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of and any premium and interest on this
Security at the times, place and rate, and in the coin or
currency, herein prescribed.
The Securities of this series are issuable only in
registered form without coupons in denominations of $10,000 and
in integral multiples of $1,000 in excess thereof. As provided
in the Indenture and subject to certain limitations therein set
forth, Securities of this series are exchangeable for a like
aggregate principal amount of Securities of this series and of
like tenor and of authorized denominations, as requested by the
Holder surrendering the same.
No service charge shall be made for any such
registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
The bearer of this Security shall be treated as the
owner of it for all purposes, subject to the terms of the
Indenture. As provided in the Indenture and subject to certain
limitations therein set forth, Securities of this series are
exchangeable for a like aggregate principal amount of Securities
of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
All terms used in this Security which are defined in
the Indenture shall have the meanings assigned to them in the
Indenture and in the Officer's Certificate establishing the terms
of the Securities of this series.
INTEREST PAYMENT SCHEDULE
Instructions to Paying Agent: Mark the box across from the
appropriate Interest Payment Date when the interest payable on
such date has been paid.
Interest Payment Date (Mark When Interest is Paid)
--------------------- ----------------------------
November 15, 1999 [ ]
May 15, 2000 [ ]
November 15, 2000 [ ]
May 15, 2001 [ ]
November 15, 2001 [ ]
PRINCIPAL PAYMENT SCHEDULE
PRINCIPAL AMOUNT OF THIS GLOBAL BEARER SENIOR NOTE
The outstanding aggregate principal amount of this Global Bearer
Senior Note is initially as shown on the face of this Global
Bearer Senior Note and, pursuant thereto, by the latest entry
made by or on behalf of the Issuer in the third column below.
Reductions in the principal amount of this Global Bearer Senior
Note following, among other things, partial redemptions or
exchange of an interest in this Global Bearer Senior Note for
certificated Senior Notes of this series, and increases in the
principal amount of this Global Bearer Senior Note following
exchange of an interest in a Global Bearer Senior Note of the
First Series for an interest in this Global Bearer Senior Note
are entered in the second column below.
OUTSTANDING
PRINCIPAL
AMOUNT OF
THIS GLOBAL
BEARER
SENIOR NOTE
FOLLOWING
AMOUNT OF SUCH TRUSTEE'S
(REDUCTION)/ (REDUCTION)/ AUTHENTICATION
DATE INCREASE INCREASE SIGNATURE
---- --------- -------- ---------
--------------- ---------------- ----------------- --------------
--------------- ---------------- ----------------- --------------
--------------- ---------------- ----------------- --------------
--------------- ---------------- ----------------- --------------
--------------- ---------------- ----------------- --------------
--------------- ---------------- ----------------- --------------
--------------- ---------------- ----------------- --------------
--------------- ---------------- ----------------- --------------
<PAGE>
EXHIBIT D
NO. CUSIP NO.
--------------- ----------
[FORM OF FACE OF CERTIFICATED EXCHANGE NOTE]
TXU EASTERN FUNDING COMPANY
6.15% EXCHANGE SENIOR NOTES DUE MAY 15, 2002
TXU Eastern Funding Company, a corporation duly incorporated
and existing under the laws of England and Wales (herein referred
to as the "Company", which term includes any successor Person
under the Indenture), for value received, hereby promises to pay
to
or registered assigns, the principal sum of $350,000,000 Dollars
on May 15, 2002, and to pay interest on said principal sum semi-
annually in arrears on May 15 and November 15 of each year (each
an Interest Payment Date) at the rate of 6.15% per annum until
the principal hereof is paid or made available for payment.
Interest on the Securities of this series shall be computed on
the basis of a 360 day year consisting of twelve 30-day months
and for any period shorter than a full month, on the basis of the
actual number of days elapsed in such period. Interest on the
Securities of this series will accrue from . , to the first
Interest Payment Date (which shall be . ), and thereafter will
accrue from the last Interest Payment Date to which interest has
been paid or duly provided for. In the event that any Interest
Payment Date is not a Business Day, then payment of interest
payable on such date will be made on the next succeeding day
which is a Business Day (and without any interest or other
payment in respect of such delay) with the same force and effect
as if made on the Interest Payment Date. The interest so payable,
and punctually paid or duly provided for, on any Interest Payment
Date will, as provided in such Indenture, be paid to the Person
in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the 15th
day of the calendar month next preceding such Interest Payment
Date. Any such interest not so punctually paid or duly provided
for will forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities
of this series not less than 10 days prior to such Special Record
Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on
which the Securities of this series may be listed, and upon such
notice as may be required by such exchange, all as more fully
provided in the Indenture referred to on the reverse hereof.
Payment of the principal of (and premium, if any) and
interest on this Security will be made at the office or agency of
the Company maintained for that purpose in The City of New York,
the State of New York and, for so long as this Security shall be
listed on the Luxembourg Stock Exchange, in Luxembourg, in such
coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private
debts, provided, however, that, at the option of the Company,
interest on this Security may be paid by check mailed to the
address of the person entitled thereto, as such address shall
appear on the Security Register.
Reference is hereby made to the further provisions of
this Security set forth on the reverse hereof, which further
provisions shall for all purposes have the same effect as if set
forth at this place.
Unless the certificate of authentication hereon has
been executed by the Trustee referred to on the reverse hereof by
manual signature, this Security shall not be entitled to any
benefit under the Indenture or be valid or obligatory for any
purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed.
TXU EASTERN FUNDING COMPANY
By:
-------------------------
<PAGE>
[FORM OF GUARANTEE]
TXU Eastern Holdings Limited, a corporation
incorporated under the laws of England and Wales (the
"Guarantor", which term includes any successor under the
Indenture (the "Indenture") referred to in the Security upon
which this Guarantee is endorsed), for value received, hereby
unconditionally and irrevocably guarantees to the Holder of the
Security upon which this Guarantee is endorsed, the due and
punctual payment of the principal of, and premium, if any, and
interest on such Security when and as the same shall become due
and payable, whether at the Stated Maturity, by declaration of
acceleration, call for redemption, or otherwise, in accordance
with the terms of such Security and of the Indenture, regardless
of any defense, right of set-off or counterclaim that the
Guarantor may have (except the defense of payment). In case of
the failure of TXU Eastern Funding Company, a corporation
incorporated under the laws of England and Wales (the "Company",
which term includes any successor under the Indenture),
punctually to make any such payment, the Guarantor hereby agrees
to cause such payment to be made punctually when and as the same
shall become due and payable, whether at the Stated Maturity or
by declaration of acceleration, call for redemption or otherwise,
and as if such payment were made by the Company. The Guarantor's
obligation to make a guarantee payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holder of
such Security or to a Paying Agent, or by causing the Company to
pay such amount to such Holder or a Paying Agent.
Except as provided pursuant to Section 608 of the
Indenture, this Guarantee is an unsecured and unsubordinated
obligation of the Guarantor and shall at all times rank at least
pari passu with each other Guarantee issued pursuant to the
Indenture and, except as permitted by Sections 608 and 806 of the
Indenture, will rank at least pari passu with all other unsecured
unsubordinated indebtedness of the Guarantor.
The Guarantor hereby agrees that its obligations
hereunder shall be absolute and unconditional irrespective of,
and shall be unaffected by, any invalidity, irregularity or
unenforceability of such Security or the Indenture, any failure
to enforce the provisions of such Security or the Indenture, any
extension of time for payment by the Company as provided by such
Security, or any waiver, modification or indulgence granted to
the Company with respect thereto, by the Holder of such Security
or the Trustee or any other circumstance which may otherwise
constitute a legal or equitable discharge or defense of a surety
or guarantor; provided, however, that notwithstanding the
foregoing, no such waiver, modification or indulgence shall,
without the consent of the Guarantor, increase the principal
amount of such Security, or increase the interest rate thereon,
or change any redemption provisions thereof (including any change
to increase any premium payable upon redemption thereof) or
change the Stated Maturity thereof.
The Guarantor hereby waives the benefits of diligence,
presentment, demand for payment, any requirement that the Trustee
or the Holder of such Security exhaust any right or take any
action against the Company or any other Person, filing of claims
with a court in the event of insolvency or bankruptcy of the
Company, any right to require a proceeding first against the
Company, protest or notice with respect to such Security or the
indebtedness evidenced thereby and all demands whatsoever, and
covenants that this Guarantee will not be discharged in respect
of such Security except by complete performance of the
obligations contained in such Security and in this Indenture and
in this Guarantee. This Guarantee shall constitute a guarantee
of payment and not of collection. The Guarantor hereby agrees
that, in the event of a default in payment of principal, or
premium, if any, or interest, if any, on such Security, whether
at its Stated Maturity, by declaration of acceleration, call for
redemption, or otherwise, legal proceedings may be instituted by
the Trustee on behalf of, or by, the Holder of such Security,
subject to the terms and conditions set forth in the Indenture,
directly against the Guarantor to enforce this Guarantee without
first proceeding against the Company. The Guarantor agrees that
if, after the occurrence and during the continuance of an Event
of Default, the Trustee or any of the Holders are prevented by
applicable law from exercising their respective rights to
accelerate the maturity of the Securities, to collect interest on
the Securities, or to enforce or exercise any other right or
remedy with respect to the Securities, the Guarantor will pay to
the Trustee for the account of the Holders, upon demand therefor,
the amount that would otherwise have been due and payable had
such rights been permitted to be exercised by the Trustee or any
of the Holders.
The obligations of the Guarantor hereunder with respect
to such Security shall be continuing and irrevocable until the
date upon which the entire principal of, premium, if any, and
interest and Additional Amounts, if any, on such Security has
been, or has been deemed pursuant to the provisions of Article
Seven of the Indenture to have been, paid in full or otherwise
discharged.
The Guarantor shall be subrogated to all rights of the
Holder of each Security upon which its Guarantee is endorsed
against the Company in respect of any amounts paid by the
Guarantor on account of such Security pursuant to the provisions
of its Guarantee or the Indenture; provided, however, that the
Guarantor shall not be entitled to enforce or to receive any
payments arising out of, or based upon, such right of subrogation
until the principal of, and premium, if any, and interest, if
any, and Additional Amounts, if any, on all Securities issued
under the Indenture shall have been paid in full.
This Guarantee shall remain in full force and effect
and continue notwithstanding any petition filed by or against the
Company for liquidation or reorganization, the Company becoming
insolvent or making an assignment for the benefit of creditors or
a receiver or trustee being appointed for all or any significant
part of the Company's assets, and shall, to the fullest extent
permitted by law, continue to be effective or reinstated, as the
case may be, if at any time payment of the Security upon which
this Guarantee is endorsed, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or
returned by the Holder of such Security, whether as a "voidable
preference," "fraudulent transfer," or otherwise, all as though
such payment or performance had not been made. In the event that
any payment, or any part thereof, is rescinded, reduced, restored
or returned on such Security, such Security shall, to the fullest
extent permitted by law, be reinstated and deemed paid only by
such amount paid and not so rescinded, reduced, restored or
returned.
This Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication of the Security
upon which this Guarantee is endorsed shall have been manually
executed by or on behalf of the Trustee under the Indenture.
All terms used in this Guarantee which are defined in
the Indenture shall have the meanings assigned to them in such
Indenture.
This Guarantee shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes
shall be governed by and construed in accordance with the laws of
the State of New York.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this
Guarantee to be executed as of the date first written above.
TXU EASTERN HOLDINGS LIMITED
By:
-------------------------
<PAGE>
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities of the series designated
therein and the Guarantee thereof referred to in the within-
mentioned Indenture.
THE BANK OF NEW YORK, as Trustee
By:
----------------------------------
Authorized Signatory
<PAGE>
[FORM OF REVERSE OF CERTIFICATED EXCHANGE NOTE]
This Security is one of a duly authorized issue of
securities of the Company (herein called the "Securities"),
issued and to be issued in one or more series under an Indenture
(for Unsecured Debt Securities), dated as of May 1, 1999 (herein,
together with any amendments thereto, called the "Indenture",
which term shall have the meaning assigned to it in such
instrument), between the Company and The Bank of New York, as
Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), and reference is hereby
made to the Indenture, including the Board Resolutions and
Officer's Certificate filed with the Trustee on May 13, 1999,
creating the series designated on the face hereof, for a
statement of the respective rights, limitations of rights, duties
and immunities thereunder of the Company, the Trustee and the
Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered. This
Security is one of the series designated on the face hereof.
If the Company or the Guarantor is required to pay
Additional Amounts with respect to Securities of this series, the
Company has the right to redeem this Security as set forth in the
Officer's Certificate described above.
Notice of any redemption will be mailed at least 30
days but no more than 60 days before the Redemption Date to each
Holder of the Securities of this series to be redeemed.
Upon payment of the Redemption Price, on and after the
Redemption Date interest and any Additional Amounts will cease to
accrue on the Securities of this series or portions thereof
called for redemption.
Except as provided above, the Securities of this series
are not redeemable prior to maturity. Except as provided herein,
Article Four of the Indenture shall apply to redemptions of the
Securities of this series.
The Indenture contains provisions for defeasance at any
time of the entire indebtedness of this Security upon compliance
with certain conditions set forth in the Indenture, including the
Officer's Certificate described above.
If an Event of Default with respect to Securities of
this series shall occur and be continuing, the principal of the
Securities of this series may be declared due and payable in the
manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as
therein provided, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the
Holders of the Securities of each series to be affected under the
Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the
Securities at the time Outstanding of all series to be affected.
The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Securities of
each series at the time Outstanding, on behalf of the Holders of
all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future
Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made
upon this Security.
As provided in and subject to the provisions of the
Indenture, the Holder of this Security shall not have the right
to institute any proceeding with respect to the Indenture or for
the appointment of a receiver or trustee or for any other remedy
thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with
respect to the Securities of this series, the Holders of a
majority in aggregate principal amount of the Securities of all
series at the time Outstanding in respect of which an Event of
Default shall have occurred and be continuing shall have made
written request to the Trustee to institute proceedings in
respect of such Event of Default as Trustee and offered the
Trustee reasonable indemnity, and the Trustee shall not have
received from the Holders of a majority in aggregate principal
amount of Securities of all series at the time Outstanding in
respect of which an Event of Default shall have occurred and be
continuing a direction inconsistent with such request, and shall
have failed to institute any such proceeding, for 60 days after
receipt of such notice, request and offer of indemnity. The
foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal
hereof or any premium or interest hereon on or after the
respective due dates expressed herein.
No reference herein to the Indenture and no provision
of this Security or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of and any premium and interest on this
Security at the times, place and rate, and in the coin or
currency, herein prescribed.
The Securities of this series are issuable only in
registered form without coupons in denominations of $10,000 and
in integral multiples of $1,000 in excess thereof. As provided
in the Indenture and subject to certain limitations therein set
forth, Securities of this series are exchangeable for a like
aggregate principal amount of Securities of this series and of
like tenor and of authorized denominations, as requested by the
Holder surrendering the same.
No service charge shall be made for any such
registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
The Company, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name this Security
is registered as the absolute owner hereof for all purposes,
whether or not this Security be overdue, and neither the Company,
the Trustee nor any such agent shall be affected by notice to the
contrary.
All terms used in this Security which are defined in
the Indenture shall have the meanings assigned to them in the
Indenture and in the Officer's Certificate establishing the terms
of the Securities of this series.
<PAGE>
FOR VALUE RECEIVED, the undersigned sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
[ ] ------------------------------
Name and address of assignee
must be printed or typewritten.
----------------------------------------------------------------
the within Security of the Company and does hereby irrevocably
constitute and appoint
----------------------------------------------------------------
to transfer the said Security on the books of the within-named
Company, with full power of substitution in the premises.
----------------------------------------------------------------
----------------------------------------------------------------
Dated:
----------------------------------- --------------------
<PAGE>
EXHIBIT E
[CERTIFICATE OF TRANSFER]
TXU EASTERN FUNDING COMPANY
6.15% SENIOR NOTES DUE MAY 15, 2002
FOR VALUE RECEIVED, the undersigned sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
[ ] ------------------------------
Name and address of assignee
must be printed or typewritten.
$---------------------------------------------------------------
principal amount of benficial interest in the referred Security
of the Company and does hereby irrevocably constitute and appoint
----------------------------------------------------------------
to transfer the said beneficial interest in such Security, with
full power of substitution in the premises.
The undersigned certifies that said Security is being resold,
pledged or otherwise transferred as follows: (check one)
[ ] to the Company or the Guarantor;
[ ] to a Person whom the undersigned reasonably believes is a
Qualified Institutional Buyer within the meaning of Rule
144A under the Securities Act of 1933, as amended (the
"Securities Act") purchasing for its own account or for the
account of a Qualified Institutional Buyer to whom notice is
given that the resale, pledge or other transfer is being
made in reliance on Rule 144A;
[ ] in an offshore transaction in accordance with Rule 904 of
Regulation S under the Securities Act;
[ ] to an institution that is an "accredited investor" as
defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act that is acquiring the Security for investment
purposes and not for distribution (attach a copy of an
Accredited Investor Letter in the form provided by the
Company or Trustee signed by an authorized officer of the
transferee);
[ ] as otherwise permitted by the non-registration legend; or
[ ] as otherwise agreed by the Company or the Guarantor, as the
case may be, confirmed in writing to the Trustee, as
follows: [describe]
----------------------------------------------------------------
----------------------------------------------------------------
Dated:
---------------------------------- ---------------------
TXU EASTERN FUNDING COMPANY
TXU EASTERN HOLDINGS LIMITED
OFFICER'S CERTIFICATE
Kirk R. Oliver, an authorized attorney of TXU Eastern
Funding Company, a private unlimited company duly incorporated
and existing under the laws of England and Wales (the "Company"),
and Michael J. McNally, a Director of the Company, pursuant to
the authority granted in the Board Resolutions of the Company
dated February 19, 1999, and Sections 201, 301, 1601 and 1602 of
the Indenture defined herein, and Kirk R. Oliver, an authorized
attorney of TXU Eastern Holdings Limited, a private limited
company duly incorporated and existing under the laws of England
and Wales (the "Guarantor"), and Michael J. McNally, a Director
of the Guarantor, pursuant to the authority granted in the Board
Resolutions of the Guarantor, dated February 19, 1999 and Section
201 of the Indenture defined herein, do hereby certify to The
Bank of New York (the "Trustee"), as Trustee under the Indenture
of the Company (For Unsecured Debt Securities) dated as of May 1,
1999 (the "Indenture") that:
1. The securities of the third series to be issued under the
Indenture shall be designated "6.45% Senior Notes due May
15, 2005" (the "Senior Notes of the Third Series"). The
Senior Notes of the Third Series will be unconditionally
guaranteed by the Guarantor, as to payment of principal,
premium, if any, and interest and Additional Amounts, if
any. The securities of the fourth series to be issued under
the Indenture shall be designated "6.45% Exchange Senior
Notes due May 15, 2005" (the "Senior Notes of the Fourth
Series", and together with the Senior Notes of the Third
Series, the "Senior Notes of the Third and Fourth Series").
(The term "Senior Notes of Third or Fourth Series" shall
refer to either Senior Notes of the Third Series or Senior
Notes of the Fourth Series, except as otherwise noted.) All
capitalized terms used in this certificate which are not
defined herein but are defined in Exhibit A, Exhibit B,
Exhibit C or Exhibit D shall have the meanings therein; all
capitalized terms used in this certificate or Exhibit A,
Exhibit B, Exhibit C or Exhibit D which are not defined
herein or therein but are defined in the Indenture shall
have the meanings set forth in the Indenture.
2. The Senior Notes of the Third Series initially shall be
issued in substantially the form thereof set forth in
Exhibit A hereto. The Senior Notes of the Third Series
shall have such terms and provisions as are provided herein,
in the Indenture and in the forms thereof set forth in
Exhibits A or B hereto, whichever is applicable, and shall
be issued in substantially such form. The Senior Notes of
the Fourth Series shall have such terms and provisions as
are provided herein, in the Indenture and in the forms
thereof set forth in Exhibits C or D hereto, whichever is
applicable, and shall be issued in substantially such form.
3. The Senior Notes of the Third and Fourth Series shall mature
and the principal shall be due and payable together with all
accrued and unpaid interest thereon on May 15, 2005.
4. The Senior Notes of the Third and Fourth Series shall be
issued in the denominations of $10,000 and in integral
multiples of $1,000 in excess thereof; except that Senior
Notes of the Third Series issued or transferred to
institutional "accredited investors," as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the
Securities Act ("IAIs") will be in a minimum principal
amount of $250,000.
5. The Senior Notes of the Third and Fourth Series shall bear
interest as provided in Exhibit A, Exhibit B, Exhibit C or
Exhibit D, as applicable.
6. Each installment of interest on a Senior Note of the Third
and Fourth Series shall be payable on the dates specified in
Exhibit A, Exhibit B, Exhibit C or Exhibit D, as applicable.
7. The principal of (and premium, if any, on) and each
installment of interest on and any other amounts payable on
the Senior Notes of the Third and Fourth Series shall be
payable at, and registration and registration of transfers
and exchanges in respect of the Senior Notes of the Third
and Fourth Series may be effected at, the office or agency
of the Company in The City of New York and, for so long as
the Senior Notes of the Third and Fourth Series are listed
on the Luxembourg Stock Exchange, at the agency of the
Company in Luxembourg; provided that, in the case of
certificated Senior Notes of the Third or Fourth Series,
payment of interest may be made at the option of the Company
by check mailed to the address of the Persons entitled
thereto, except that payment of interest, if any, in respect
of any certificated registered Senior Notes of the Third or
Fourth Series may also be made, in the case of a Holder of
an aggregate principal amount in excess of $50,000,000, by
wire transfer to a U.S. Dollar account maintained by the
Holder with a bank in the United States; provided that such
Holder elects payment by wire transfer by giving written
notice to the Trustee or a Paying Agent to such effect
designating such account no later than 15 days immediately
preceding the relevant due date for payment (or such other
date as the Trustee may accept in its discretion). In the
case of Senior Notes of the Third and Fourth Series issued
in global bearer form, interest shall be paid upon
presentation of the applicable Senior Note of such Series to
a Paying Agent; the Paying Agent shall mark the original
Senior Note of such Series in the appropriate box on the
interest payment schedule included therein to indicate that
the interest payment has been made.
8. Notices and demands to or upon the Company or the Guarantor
in respect of the Senior Notes of the Third and Fourth
Series may be served at the office or agency of the Company
in The City of New York.
9. The Corporate Trust Office of the Trustee will initially be
the agency of the Company in The City of New York for
payments, registration and registration of transfers and
exchanges and service of notices and demands with respect to
the Senior Notes of the Third and Fourth Series and the
Company hereby appoints the Trustee as its agent for all
such purposes, and the Corporate Trust Office of Kredietbank
SA Luxembourgeoise ("Kredietbank") at 43, Boulevard Royal L-
2955, Luxembourg, initially will be the agency of the
Company in Luxembourg; provided, however, that the Company
reserves the right to change, by one or more Officer's
Certificates, any such office or agency and such agent,
provided the Company will always have a paying agent
location in The City of New York and, for so long as any
Senior Notes of the Third or Fourth Series are listed on the
Luxembourg Stock Exchange, in Luxembourg. The Trustee
initially will be the Security Registrar and the Paying
Agent for the Senior Notes of the Third and Fourth Series.
10. The following constitute additional Events of Default with
respect to the Senior Notes of the Third and Fourth Series:
(a) The entry by a court having jurisdiction in the
premises of (1) a decree or order for relief in respect
of a Principal Subsidiary of the Guarantor in an
involuntary case or proceeding under any applicable
bankruptcy, insolvency, or other similar law or (2) a
decree or order adjudging a Principal Subsidiary of the
Guarantor a bankrupt or insolvent, or approving as
properly filed a petition by one or more Persons other
than a Principal Subsidiary of the Guarantor seeking
arrangement, adjustment or composition of or in respect
of a Principal Subsidiary of the Guarantor under any
applicable bankruptcy, insolvency, or other similar
law, or appointing a custodian, receiver, liquidator,
administrator, assignee, trustee, sequestrator or other
similar official for a Principal Subsidiary of the
Guarantor or for any substantial part of its property,
or ordering the winding up or liquidation of its
affairs (other than for the purpose of a solvent
amalgamation, reorganization or similar transaction not
involving disposal of all or substantially all of its
assets for the benefit of creditors other than the
Guarantor or its Subsidiaries), and any such decree or
order for relief or any such other decree or order
shall have remained unstayed and in effect for a period
of 90 consecutive days;
(b) The commencement by a Principal Subsidiary of the
Guarantor of a voluntary case or proceeding under any
applicable bankruptcy, insolvency, or other similar law
or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by a Principal
Subsidiary of the Guarantor to the entry of a decree or
order for relief in respect of such Principal
Subsidiary of the Guarantor in a case or proceeding
under any applicable bankruptcy, insolvency, or other
similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against such Principal
Subsidiary of the Guarantor, or the filing by a
Principal Subsidiary of the Guarantor of a petition or
answer or consent seeking relief under any applicable
bankruptcy, insolvency, or other similar law, or the
consent by a Principal Subsidiary of the Guarantor to
the filing of such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator,
administrator, assignee, trustee, sequestrator or
similar official of such Principal Subsidiary of the
Guarantor or of any substantial part of its property,
or the consent by a Principal Subsidiary of the
Guarantor to the winding up or liquidation of its
affairs (other than for the purpose of a solvent
amalgamation, reorganization or similar transaction not
involving disposal of all or substantially all of its
assets for the benefit of creditors other than the
Guarantor or its Subsidiaries) or the making by a
Principal Subsidiary of the Guarantor of an assignment
for the benefit of creditors, or the admission by a
Principal Subsidiary of the Guarantor in writing of
inability to pay its debts generally as they become
due, or the authorization of such action by the Board
of Directors of such Principal Subsidiary of the
Guarantor;
(c) Default in the payment when due of indebtedness for
money borrowed exceeding $50,000,000 of the Company,
the Guarantor or any Principal Subsidiary of the
Guarantor; and
(d) Failure of the Company or the Guarantor to pay
Additional Amounts (as defined herein) on any Note of
the Third or Fourth Series within 30 days after it is
due.
For the purposes of (a), (b) and (c) above, a "Principal
Subsidiary" means a Subsidiary of the Guarantor whose gross
assets are 25% or more of the Guarantor's consolidated gross
assets or whose gross revenues are 25% or more of the
Guarantor's consolidated gross revenues.
11. The Senior Notes of the Third Series will be redeemable as
provided in the forms thereof attached hereto as Exhibit A
or Exhibit B, as applicable; the Senior Notes of the Fourth
Series will be redeemable as provided in the forms thereof
attached hereto as Exhibit C or Exhibit D, as applicable.
12. Notwithstanding Section 106 of the Indenture, notice to a
Holder of Senior Notes of the Third or Fourth Series in
bearer, global form shall be given sufficiently if given to
such Holder in writing by the Trustee, if the Trustee knows
the identity of such Holder, or in such other manner as the
Trustee deems necessary or desirable; provided, however,
that so long as the Senior Notes of the Third and Fourth
Series are listed on the Luxembourg Stock Exchange and the
rules of the Luxembourg Stock Exchange so require, notices
to Holders of the Senior Notes of the Third and Fourth
Series will be published in a leading daily newspaper having
general circulation in Luxembourg (which is expected to be
the Luxemburger Wort).
13. The Senior Notes of the Third Series will be initially
issued pursuant to Section 4(2) of the Securities Act of
1933, as amended (the "Securities Act"), as one or more
global Senior Notes of the Third Series in bearer form and
shall be issued to the Book-Entry Depositary (as defined in
the Deposit Agreement by and between The Bank of New York,
as Book-Entry Depositary, and TXU Eastern Funding Company,
as Issuer, dated as of May 13, 1999 (the "Deposit
Agreement")). The Senior Notes of the Third Series shall
contain restrictions on transfer, substantially as described
in the forms set forth in Exhibit A or Exhibit B hereto.
Each Senior Note of the Third Series, whether in a global
form or in a certificated form, shall bear the non-
registration legend and the registration rights legend in
substantially the form thereof set forth in Exhibit A or
Exhibit B hereto, unless otherwise agreed by the Company,
such agreement to be confirmed in writing to the Trustee.
Nothing in the Indenture, the Senior Notes of the Third
Series or this certificate shall be construed to require the
Company to register any Senior Notes of the Third Series
under the Securities Act, unless otherwise expressly agreed
by the Company, confirmed in writing to the Trustee, or to
make any transfer of such Senior Notes of the Third Series
in violation of applicable law; provided, however, that the
Company will enter into a registration rights agreement (the
"Registration Rights Agreement") with the initial purchasers
of the Senior Notes of the Third Series, confirmed in
writing to the Trustee, pursuant to which, among other
things, the Senior Notes of the Third Series may be
exchanged for the Senior Notes of the Fourth Series
registered under the Securities Act or, failing such
registration, the Senior Notes of the Third Series will be
registered under the Securities Act.
14. It is contemplated that the Book-Entry Depositary will issue
to The Depository Trust Company ("DTC"), New York, New York,
one or more Book-Entry Interests (as defined in the Deposit
Agreement), which together will represent a 100% interest in
the global Senior Notes of the Third or Fourth Series. The
Trustee, the Security Registrar and the Company will have no
responsibility under the Indenture for transfers of
beneficial interests in the Senior Notes of the Third and
Fourth Series.
In connection with any transfer of beneficial interests in
the Senior Notes of the Third Series, the Trustee, the
Security Registrar and the Company shall be under no duty to
inquire into, may conclusively presume the correctness of,
and shall be fully protected in relying upon the
certificates and other information (in the forms attached
hereto as Exhibit E, for use in connection with the transfer
of beneficial interests in the Senior Notes of the Third
Series, or in the form attached at the rear of Exhibit B,
for use in connection with the transfer of Senior Notes of
the Third Series in certificated form, or otherwise)
received from the Holders and any transferees of any
beneficial interests in the Senior Notes of the Third Series
or certificated Senior Notes of the Third Series regarding
the validity, legality and due authorization of any such
transfer, the eligibility of the transferee to receive such
beneficial interests in such Senior Note and any other facts
and circumstances related to such transfer.
15. No service charge shall be made for the registration of
transfer or exchange of the Senior Notes of the Third and
Fourth Series; provided, however, that the Company may
require payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection
with the exchange or transfer.
16. Additional Amounts. All payments of principal and interest
------------------
(including Additional Interest, as defined in the
Registration Rights Agreement, and payments of discount and
premium, if any) with respect to the Senior Notes of the
Third and Fourth Series and all payments made pursuant to
the Guarantee shall be made free and clear of, and without
withholding or deduction for or on account of, any present
or future taxes, duties, assessments or governmental charges
of whatever nature imposed, levied, collected, withheld or
assessed by or within any supranational federation to which
a Jurisdiction of Incorporation belongs or any Jurisdiction
of Incorporation (or any political subdivision or taxing
authority thereof or therein) or any jurisdiction in which
the Company or the Guarantor is managed or has a place of
business (each, a "Taxing Jurisdiction") or by or within any
political subdivision thereof or any authority therein or
thereof having power to tax, unless such withholding or
deduction is required by law. In the event of any such
withholding or deduction ("Gross-Up Taxes"), the Company or
the Guarantor, as the case may be, shall pay to the Holder
of such Senior Notes of the Third or Fourth Series such
additional amount ("Additional Amount") as shall be
necessary in order that the amount received by such Holder
after withholding or deduction shall equal the amount that
would otherwise have been due to such Holder in the absence
of such withholding or deduction, except that no such
Additional Amounts shall be payable:
(A) to, or to a Person on behalf of, a Holder who is
liable for such Gross-Up Taxes with respect to the Senior
Notes of the Third or Fourth Series or the Guarantee, by
reason of such Holder having some connection with the
relevant Taxing Jurisdiction (including being a citizen or
resident or national of, or carrying on a business or
maintaining a permanent establishment in, or being
physically present in, such Taxing Jurisdiction) other than
the mere holding of a Senior Note of the Third or Fourth
Series or the receipt of principal and interest (including
payments of discount and premium, if any) in respect thereof
or in respect of the Guarantee;
(B) to, or to a Person on behalf of, a Holder who
presents a Senior Note of the Third or Fourth Series
(whenever presentation is required) for payment more than 30
days after the date on which payment first becomes due
except to the extent that such Holder would have been
entitled to such Additional Amounts on presenting such
Senior Note of the Third or Fourth Series for payment on the
last day of such period of 30 days;
(C) to, or to a Person on behalf of, a Holder who
presents a Senior Note of the Third or Fourth Series (when
presentation is required) other than at a Place of Payment
in The City of New York or, so long as the Senior Notes of
the Third or Fourth Series are listed on the Luxembourg
Stock Exchange, in Luxembourg;
(D) to, or to a Person on behalf of, a Holder who
would not be liable or subject to the withholding or
deduction by making a declaration of non-residence or
similar claim for exemption to the relevant tax authority;
or
(E) to, or to a Person on behalf of, a Holder of a
Senior Note of the Third or Fourth Series that is issued in
certificated form following and during the continuance of an
Event of Default if such Holder (or any predecessor Holder)
was one of the beneficial owners requesting that such
certificated Senior Notes of the Third or Fourth Series be
so issued.
Such Additional Amounts will also not be payable where, had
the beneficial owner of the Senior Note of the Third or
Fourth Series (or any interest therein) been the Holder of
the Senior Note of the Third or Fourth Series, it would not
have been entitled to payment of Additional Amounts by
reason of any one or more of clauses (A) through (E) above.
If the Company or the Guarantor, as applicable, shall
determine that Additional Amounts will not be payable
because of the immediately preceding sentence, the Company
or the Guarantor, as applicable, will inform such Holder
promptly after making such determination setting forth the
reason(s) therefor.
17. Special Redemption. If (a) the Company or the Guarantor
------------------
certifies to the Trustee prior to the giving of a notice as
provided below that it has or will become obligated to pay
Additional Amounts with respect to the Senior Notes of the
Third or Fourth Series as a result of either (x) any change
in, or amendment to, or clarification of, or announced
change to occur in the future in, the laws or regulations of
the Taxing Jurisdiction or any political subdivision or any
authority or agency thereof or therein having power to tax
or levy duties, or any change in the application or
interpretation of such laws or regulations, which change or
amendment becomes effective on or after the date of the
offering memorandum or (y) the issuance of certificated
registered Senior Notes of such Series pursuant to either
(i) an Optional Certificated Security Request, as defined in
the Deposit Agreement, (ii) the unwillingness or inability
of DTC to continue to hold the Book-Entry Interests with
respect to the global Senior Notes of such Series or
interests therein or DTC's ceasing to be a "clearing agency"
registered under the United States Securities Exchange Act
of 1934, as amended, and, in either case, a successor is not
appointed by the Company within 120 days, or (iii) the
unwillingness or inability of the Book-Entry Depositary to
continue to act as such and a successor is not appointed by
the Company within 120 days, and (b) such obligation cannot
be avoided by the Company or the Guarantor taking reasonable
measures available to it, and, prior to the giving of a
notice of redemption as hereinafter in this paragraph
provided, the Company or the Guarantor delivers to the
Trustee the certificate referred to in the last sentence of
this paragraph, then the Company shall have the right, at
its option, upon not less than 30 days nor more than 60
days' prior written notice of redemption to the Holders of
Senior Notes of such Series, to redeem the Senior Notes of
such Series, in whole but not in part, at the principal
amount thereof plus accrued and unpaid interest thereon, and
accrued Additional Amounts with respect thereto, if any,
provided that no such notice of redemption shall be given
earlier than 90 days prior to the earliest date on which the
Guarantor or the Company would be obligated to pay any such
Additional Amounts with respect to such Series. Prior to
the mailing of any notice of redemption pursuant to this
paragraph, the Company shall deliver to the Trustee a
certificate signed by an officer of the Company stating that
the obligation referred to in (a) above cannot be avoided by
the Guarantor or the Company taking reasonable measures
available to it, and the Trustee shall accept, and shall be
fully protected in relying upon, such certificate as
sufficient evidence of the condition precedent set out in
(b) above, in which event it shall be conclusive and binding
on the Holders.
18. If the Company shall make any deposit of money and/or
Eligible Obligations with respect to any Senior Notes of the
Third and Fourth Series, or any portion of the principal
amount thereof, as contemplated by Section 701 of the
Indenture, the Company shall not deliver an Officer's
Certificate described in clause (z) in the first paragraph
of said Section 701 unless the Company shall also deliver to
the Trustee, together with such Officer's Certificate,
either:
(A) an instrument wherein the Company, notwithstanding
the satisfaction and discharge of its indebtedness in
respect of the Senior Notes of the Third and Fourth Series,
shall assume the obligation (which shall be absolute and
unconditional) to irrevocably deposit with the Trustee or
Paying Agent such additional sums of money, if any, or
additional Eligible Obligations (meeting the requirements of
Section 701), if any, or any combination thereof, at such
time or times, as shall be necessary, together with the
money and/or Eligible Obligations theretofore so deposited,
to pay when due the principal of and premium, if any, and
interest due and to become due and Additional Amounts, if
any, due and known to become due on such Senior Notes of the
Third and Fourth Series or portions thereof, all in
accordance with and subject to the provisions of said
Section 701; provided, however, that such instrument may
state that the obligation of the Company to make additional
deposits as aforesaid shall be subject to the delivery to
the Company by the Trustee of a notice asserting the
deficiency accompanied by an opinion of an independent
public accountant of nationally recognized standing,
selected by the Trustee, showing the calculation thereof; or
(B) an Opinion of Counsel to the effect that, as a
result of a change in law occurring after the date of this
certificate, the Holders of such Senior Notes of the Third
and Fourth Series, or portions of the principal amount
thereof, will not recognize income, gain or loss for United
States federal income tax purposes as a result of the
satisfaction and discharge of the Company's indebtedness in
respect thereof and will be subject to United States federal
income tax on the same amounts, at the same times and in the
same manner as if such satisfaction and discharge had not
been effected.
19. The Company reserves the right to require legends on Senior
Notes of the Third Series as it may determine are necessary
to ensure compliance with the securities laws of the US and
the states therein and any other applicable laws.
20. Each of the undersigned has read all of the covenants and
conditions contained in the Indenture (including the
definitions in the Indenture relating thereto) relating to
the issuance of the Senior Notes of the Third and Fourth
Series and the Guarantees endorsed thereon and in respect of
compliance with which this certificate is made.
21. The statements contained in this certificate are based upon
the familiarity of each of the undersigned with the
Indenture, the documents accompanying this certificate, and
upon discussions by each of the undersigned with officers
and employees of the Company and the Guarantor familiar with
the matters set forth herein.
22. In the opinion of each of the undersigned, he has made such
examination or investigation as is necessary to enable him
to express an informed opinion whether or not such covenants
and conditions have been complied with.
23. In the opinion of each of the undersigned, such conditions
and covenants and conditions precedent, if any (including
any covenants compliance with which constitutes a condition
precedent) to the authentication and delivery of the Senior
Notes of the Third Series and the Guarantees to be endorsed
thereon requested in the accompanying Company Order and
Guarantor Order and the establishment of the Senior Notes of
the Fourth Series have been complied with.
IN WITNESS WHEREOF, the undersigned have executed this
Officer's Certificate as of this 13th day of May, 1999.
/s/ Kirk R. Oliver
-------------------
Name: Kirk R. Oliver
Title: Authorized Attorney
/s/ Michael J. McNally
-----------------------
Name: Michael J. McNally
Title: Director
/s/ Kirk R. Oliver
-------------------
Name: Kirk R. Oliver
Title: Authorized Attorney
/s/ Michael J. McNally
-----------------------
Name: Michael J. McNally
Title: Director
<PAGE>
EXHIBIT A
[non-registration legend]
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR WITH ANY SECURITIES
REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE
UNITED STATES AND MAY NOT BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED OTHER THAN (A) (1) TO TXU EASTERN FUNDING COMPANY OR
TXU EASTERN HOLDINGS LIMITED, (2) IN A TRANSACTION ENTITLED TO AN
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT, (3) SO LONG AS THIS SECURITY IS ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE,
PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,
(4) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (5) TO AN INSTITUTION THAT
IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT, IN A MINIMUM PRINCIPAL
AMOUNT OF THE SECURITIES OF $250,000, AND THAT IS ACQUIRING THE
SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (6)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, AND (B) IN EACH CASE IN ACCORDANCE WITH ALL THE
APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES"
[registration rights legend]
The Holder of this Security, by acceptance hereof, will be
deemed to have agreed to be bound by the provisions of the
Registration Rights Agreement dated May 13, 1999, among the
Company, the Guarantor and the initial purchasers of this
Security.
[FORM OF FACE OF SENIOR NOTE]
GLOBAL BEARER FORM
NO. . CUSIP NO. .
TXU EASTERN FUNDING COMPANY
6.45% SENIOR NOTES DUE MAY 15, 2005
TXU Eastern Funding Company, a corporation duly incorporated
and existing under the laws of England and Wales (herein referred
to as the "Company", which term includes any successor Person
under the Indenture), for value received, hereby promises to pay
to the bearer upon surrender hereof the principal sum of
$650,000,000 Dollars on May 15, 2005, and to pay interest on said
principal sum semi-annually in arrears on May 15 and November 15
of each year (each an Interest Payment Date) at the rate of 6.45%
per annum until the principal hereof is paid or made available
for payment. Interest on the Securities of this series shall be
computed on the basis of a 360-day year consisting of twelve 30-
day months and for any period shorter than a full month, on the
basis of the actual number of days elapsed in such period.
Interest on the Securities of this series will accrue from May
13, 1999, to the first Interest Payment Date (which shall be
November 15, 1999), and thereafter will accrue from the last
Interest Payment Date to which interest has been paid or duly
provided for. In the event that any Interest Payment Date is not
a Business Day, then payment of interest payable on such date
will be made on the next succeeding day which is a Business Day
(and without any interest or other payment in respect of such
delay) with the same force and effect as if made on the Interest
Payment Date. The interest so payable, and punctually paid or
duly provided for, on any Interest Payment Date will be paid upon
presentation to any Paying Agent; such Paying Agent shall mark
this Security in the appropriate box on the Interest Payment
Schedule included therein to indicate that the interest payment
has been made. Payments of any Defaulted Interest will be paid
to the bearer hereof at the time of presentation.
Payment of the principal of (and premium, if any) and
interest on this Security will be made at the office or agency of
the Company maintained for that purpose in The City of New York,
the State of New York and, for so long as the Securities of this
series shall be listed on the Luxembourg Stock Exchange, in
Luxembourg, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of
public and private debts.
Reference is hereby made to the further provisions of
this Security set forth on the reverse hereof, which further
provisions shall for all purposes have the same effect as if set
forth at this place.
Unless the certificate of authentication hereon has
been executed by the Trustee referred to on the reverse hereof by
manual signature, this Security shall not be entitled to any
benefit under the Indenture or be valid or obligatory for any
purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed.
TXU EASTERN FUNDING COMPANY
By:
-----------------------
<PAGE>
[FORM OF GUARANTEE]
TXU Eastern Holdings Limited, a corporation
incorporated under the laws of England and Wales (the
"Guarantor", which term includes any successor under the
Indenture (the "Indenture") referred to in the Security upon
which this Guarantee is endorsed), for value received, hereby
unconditionally and irrevocably guarantees to the Holder of the
Security upon which this Guarantee is endorsed, the due and
punctual payment of the principal of, and premium, if any, and
interest and Additional Amounts, if any, on such Security when
and as the same shall become due and payable, whether at the
Stated Maturity, by declaration of acceleration, call for
redemption, or otherwise, in accordance with the terms of such
Security and of the Indenture, regardless of any defense, right
of set-off or counterclaim that the Guarantor may have (except
the defense of payment). In case of the failure of TXU Eastern
Funding Company, a corporation incorporated under the laws of
England and Wales (the "Company", which term includes any
successor under the Indenture), punctually to make any such
payment, the Guarantor hereby agrees to cause such payment to be
made punctually when and as the same shall become due and
payable, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise, and as if such
payment were made by the Company. The Guarantor's obligation to
make a guarantee payment may be satisfied by direct payment of
the required amounts by the Guarantor to the Holder of such
Security or to a Paying Agent, or by causing the Company to pay
such amount to such Holder or a Paying Agent.
Except as provided pursuant to Section 608 of the
Indenture, this Guarantee is an unsecured and unsubordinated
obligation of the Guarantor and shall at all times rank at least
pari passu with each other Guarantee issued pursuant to the
Indenture and, except as permitted by Sections 608 and 806 of the
Indenture, will rank at least pari passu with all other unsecured
unsubordinated indebtedness of the Guarantor.
The Guarantor hereby agrees that its obligations
hereunder shall be absolute and unconditional irrespective of,
and shall be unaffected by, any invalidity, irregularity or
unenforceability of such Security or the Indenture, any failure
to enforce the provisions of such Security or the Indenture, any
extension of time for payment or performance by the Company as
provided by such Security or the Indenture, or any waiver,
modification or indulgence granted to the Company with respect
thereto, by the Holder of such Security or the Trustee or any
other circumstance which may otherwise constitute a legal or
equitable discharge or defense of a surety or guarantor;
provided, however, that notwithstanding the foregoing, no such
waiver, modification or indulgence shall, without the consent of
the Guarantor, increase the principal amount of such Security, or
increase the interest rate thereon, or change any redemption
provisions thereof (including any change to increase any premium
payable upon redemption thereof) or change the Stated Maturity
thereof.
The Guarantor hereby waives the benefits of diligence,
presentment, demand for payment, any requirement that the Trustee
or the Holder of such Security exhaust any right or take any
action against the Company or any other Person, filing of claims
with a court in the event of insolvency or bankruptcy of the
Company, any right to require a proceeding first against the
Company, protest or notice with respect to such Security or the
indebtedness evidenced thereby and all demands whatsoever, and
covenants that this Guarantee will not be discharged in respect
of such Security except by complete performance of the
obligations contained in such Security and in this Indenture and
in this Guarantee. This Guarantee shall constitute a guarantee
of payment and not of collection. The Guarantor hereby agrees
that, in the event of a default in payment of principal, or
premium, if any, or interest, if any, on such Security, whether
at its Stated Maturity, by declaration of acceleration, call for
redemption, or otherwise, legal proceedings may be instituted by
the Trustee on behalf of, or by, the Holder of such Security,
subject to the terms and conditions set forth in the Indenture,
directly against the Guarantor to enforce this Guarantee without
first proceeding against the Company. The Guarantor agrees that
if, after the occurrence and during the continuance of an Event
of Default, the Trustee or any of the Holders are prevented by
applicable law from exercising their respective rights to
accelerate the maturity of the Securities, to collect interest on
the Securities, or to enforce or exercise any other right or
remedy with respect to the Securities, the Guarantor will pay to
the Trustee for the account of the Holders, upon demand therefor,
the amount that would otherwise have been due and payable had
such rights been permitted to be exercised by the Trustee or any
of the Holders.
The obligations of the Guarantor hereunder with respect
to such Security shall be continuing and irrevocable until the
date upon which the entire principal of, premium, if any, and
interest and Additional Amounts, if any, on such Security has
been, or has been deemed pursuant to the provisions of Article
Seven of the Indenture to have been, paid in full or otherwise
discharged.
The Guarantor shall be subrogated to all rights of the
Holder of each Security upon which its Guarantee is endorsed
against the Company in respect of any amounts paid by the
Guarantor on account of such Security pursuant to the provisions
of its Guarantee or the Indenture; provided, however, that the
Guarantor shall not be entitled to enforce or to receive any
payments arising out of, or based upon, such right of subrogation
until the principal of, and premium, if any, and interest, if
any, and Additional Amounts, if any, on all Securities issued
under the Indenture shall have been paid in full.
This Guarantee shall remain in full force and effect
and continue notwithstanding any petition filed by or against the
Company for liquidation or reorganization, the Company becoming
insolvent or making an assignment for the benefit of creditors or
a receiver or trustee being appointed for all or any significant
part of the Company's assets, and shall, to the fullest extent
permitted by law, continue to be effective or reinstated, as the
case may be, if at any time payment of the Security upon which
this Guarantee is endorsed, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or
returned by the Holder of such Security, whether as a "voidable
preference," "fraudulent transfer," or otherwise, all as though
such payment or performance had not been made. In the event that
any payment, or any part thereof, is rescinded, reduced, restored
or returned on such Security, such Security shall, to the fullest
extent permitted by law, be reinstated and deemed paid only by
such amount paid and not so rescinded, reduced, restored or
returned.
This Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication of the Security
upon which this Guarantee is endorsed shall have been manually
executed by or on behalf of the Trustee under the Indenture.
All terms used in this Guarantee which are defined in
the Indenture shall have the meanings assigned to them in such
Indenture.
<PAGE>
This Guarantee shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes
shall be governed by and construed in accordance with the laws of
the State of New York.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this
Guarantee to be executed as of the date first written above.
TXU EASTERN HOLDINGS LIMITED
By:
-----------------------
<PAGE>
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities of the series designated
therein and the Guarantee thereof referred to in the within-
mentioned Indenture.
THE BANK OF NEW YORK, as Trustee
By:
--------------------------
Authorized Signatory
<PAGE>
[FORM OF REVERSE OF SENIOR NOTE]
This Security is one of a duly authorized issue of
securities of the Company (herein called the "Securities"),
issued and to be issued in one or more series under an Indenture
(For Unsecured Debt Securities), dated as of May 1, 1999 (herein,
together with any amendments thereto, called the "Indenture",
which term shall have the meaning assigned to it in such
instrument), among the Company, TXU Eastern Holdings Limited, as
Guarantor (herein called the "Guarantor," which term includes any
successor under the Indenture) and The Bank of New York, as
Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), and reference is hereby
made to the Indenture, including the Board Resolutions and
Officer's Certificate filed with the Trustee on May 13, 1999,
creating the series designated on the face hereof, for a
statement of the respective rights, limitations of rights, duties
and immunities thereunder of the Company, the Guarantor, the
Trustee and the Holders of the Securities and of the terms upon
which the Securities are, and are to be, authenticated and
delivered. This Security is one of the series designated on the
face hereof.
The Securities of this series will be redeemable as a
whole at any time or in part, from time to time, at the option of
the Company, at a Redemption Price equal to the sum of (a) the
greater of (i) 100% of the principal amount of the Securities of
this series to be redeemed, and (ii) the sum of the present
values of the remaining scheduled payments of principal and
interest on such Securities from the Redemption Date to the
maturity date, computed by discounting such payments, in each
case, to the Redemption Date on a semi-annual basis (assuming a
360-day year consisting of twelve 30-day months) at the Treasury
Rate plus 20 basis points, plus (b) accrued interest on the
principal amount of such Securities to the Redemption Date plus
(c) any accrued Additional Amounts.
"Treasury Rate" means, with respect to any Redemption
Date, the rate per annum equal to the semi-annual equivalent
yield to maturity of the Comparable Treasury Issue, assuming a
price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable
Treasury Price for such Redemption Date.
"Comparable Treasury Issue" means the United States
Treasury security selected by an Independent Investment Banker as
having a maturity comparable to the remaining term of such
Securities of this series to be redeemed that would be utilized,
at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt
securities of comparable maturity to the remaining terms of such
Securities of this series.
"Independent Investment Banker" means one of the
Reference Treasury Dealers appointed by the Trustee after
consultation with the Company.
"Business Day," when used for purposes of calculating
the Redemption Price, shall mean a Business Day (as defined in
the Indenture) in New York City, New York.
"Comparable Treasury Price" means, with respect to any
Redemption Date, (i) the average of the bid and asked prices for
the Comparable Treasury Issue (expressed in each case as a
percentage of its principal amount) on the third Business Day
preceding such Redemption Date, as set forth in the daily
statistical release (or any successor release) published by the
Federal Reserve Bank of New York and designated "Composite 3:30
p.m. Quotations for US Government Securities" or (ii) if such
release (or any successor release) is not published or does not
contain such prices on such Business Day, the average of the
Reference Treasury Dealer Quotations actually obtained by the
Trustee for such Redemption Date.
"Reference Treasury Dealer Quotations" means, with
respect to each Reference Treasury Dealer and any Redemption
Date, the average, as determined by the Trustee, of the bid and
asked prices for the Comparable Treasury Issue (expressed in each
case as a percentage of its principal amount) quoted in writing
to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on
the third Business Day preceding such Redemption Date.
"Reference Treasury Dealer" means each of Lehman
Brothers Inc. and Morgan Stanley & Co. Incorporated and their
respective successors; provided, however, that if either of the
foregoing shall cease to be a primary US Government securities
dealer in New York City (a "Primary Treasury Dealer"), the
Company shall substitute therefor another Primary Treasury
Dealer.
Notwithstanding Section 404 of the Indenture, the
Trustee shall give the bearer of this Security notice of any
redemption hereof in such manner as the Trustee deems necessary
or desirable. So long as the Securities are listed on the
Luxembourg Stock Exchange and the rules of the Luxembourg Stock
Exchange so require, notices to Holders of the Securities will be
published in a leading daily newspaper having general circulation
in Luxembourg (which is expected to be the Luxemburger Wort).
Upon payment of the Redemption Price, on and after the
Redemption Date interest and any Additional Amounts will cease to
accrue on the Securities of this series or portions thereof
called for redemption.
The Company shall deliver to the Trustee before any
Redemption Date for the Securities of this series its calculation
of the Redemption Price applicable to such redemption. Except
with respect to the obligations of the Trustee expressly set
forth in the foregoing definitions of "Comparable Treasury Issue"
and "Comparable Treasury Price," the Trustee shall be under no
duty to inquire into, may presume the correctness of, and shall
be fully protected in acting upon the Company's calculation of
any Redemption Price of the Securities of this series.
In lieu of stating the Redemption Price, notices of
redemption of the Securities of this series shall state
substantially the following: "The Redemption Price of the Notes
of the Securities of this series to be redeemed shall equal the
sum of (a) the greater of (i) 100% of the principal amount of
such Securities, and (ii) the sum of the present values of the
remaining scheduled payments of principal and interest thereon
from the Redemption Date to the maturity date, computed by
discounting such payments, in each case, to the Redemption Date
on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Rate (as defined in the
Indenture) plus 20 basis points plus accrued interest on the
principal amount hereof to the Redemption Date plus accrued
Additional Amounts, if any."
Except as provided herein, Article Four of the
Indenture shall apply to redemptions of the Securities of this
series.
If the Company or the Guarantor is required to pay
Additional Amounts with respect to Securities of this series, the
Company has the right to redeem this Security as set forth in the
Officer's Certificate described above.
The Indenture contains provisions for defeasance at any
time of the entire indebtedness of this Security upon compliance
with certain conditions set forth in the Indenture including the
Officer's Certificate described above.
If an Event of Default with respect to Securities of
this series shall occur and be continuing, the principal of the
Securities of this series may be declared due and payable in the
manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as
therein provided, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the
Holders of the Securities of each series to be affected under the
Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the
Securities at the time Outstanding of all series to be affected.
The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Securities of
each series at the time Outstanding, on behalf of the Holders of
all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future
Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made
upon this Security.
As provided in and subject to the provisions of the
Indenture, the Holder of this Security shall not have the right
to institute any proceeding with respect to the Indenture or for
the appointment of a receiver or trustee or for any other remedy
thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with
respect to the Securities of this series, the Holders of a
majority in aggregate principal amount of the Securities of all
series at the time Outstanding in respect of which an Event of
Default shall have occurred and be continuing shall have made
written request to the Trustee to institute proceedings in
respect of such Event of Default as Trustee and offered the
Trustee reasonable indemnity, and the Trustee shall not have
received from the Holders of a majority in aggregate principal
amount of Securities of all series at the time Outstanding in
respect of which an Event of Default shall have occurred and be
continuing a direction inconsistent with such request, and shall
have failed to institute any such proceeding, for 60 days after
receipt of such notice, request and offer of indemnity. The
foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal
hereof or any premium or interest hereon on or after the
respective due dates expressed herein.
No reference herein to the Indenture and no provision
of this Security or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of and any premium and interest on this
Security at the times, place and rate, and in the coin or
currency, herein prescribed.
The Indenture contains terms, provisions and conditions
relating to the consolidation or merger of the Company or the
Guarantor with or into, and the conveyance or other transfer, or
lease, of assets to another Person and to the release and
discharge of the Company or the Guarantor, as the case may be, in
certain circumstances from such obligations.
The Securities of this series are issuable only in
registered form without coupons in denominations of $10,000 and
in integral multiples of $1,000 in excess thereof; except that
Securities of this series issued or transferred to institutional
"accredited investors," as defined in Rule 501(a)(1), (2), (3) or
(7) of Regulation D of the Securities Act, will be in a minimum
principal amount of $250,000. As provided in the Indenture and
subject to certain limitations therein set forth, Securities of
this series are exchangeable for a like aggregate principal
amount of Securities of this series and of like tenor and of
authorized denominations, as requested by the Holder surrendering
the same.
No service charge shall be made for any such
registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
The bearer of this Security shall be treated as the
owner of it for all purposes, subject to the terms of the
Indenture. As provided in the Indenture and subject to certain
limitations therein set forth, Securities of this series are
exchangeable for a like aggregate principal amount of Securities
of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
All terms used in this Security which are defined in
the Indenture shall have the meanings assigned to them in the
Indenture and in the Officer's Certificate establishing the terms
of the Securities of this series.
INTEREST PAYMENT SCHEDULE
Instructions to Paying Agent: Mark the box across from the
appropriate Interest Payment Date when the interest payable on
such date has been paid.
Interest Payment Date (Mark When Interest is Paid)
--------------------- ---------------------------
November 15, 1999 [ ]
May 15, 2000 [ ]
November 15, 2000 [ ]
May 15, 2001 [ ]
November 15, 2001 [ ]
May 15, 2002 [ ]
November 15, 2002 [ ]
May 15, 2003 [ ]
November 15, 2003 [ ]
May 15, 2004 [ ]
November 15, 2004 [ ]
<PAGE>
PRINCIPAL PAYMENT SCHEDULE
PRINCIPAL AMOUNT OF THIS GLOBAL BEARER SENIOR NOTE
The outstanding aggregate principal amount of this Global Bearer
Senior Note is initially as shown on the face of this Global
Bearer Senior Note and, pursuant thereto, by the latest entry
made by or on behalf of the Issuer in the third column below.
Reductions in the principal amount of this Global Bearer Senior
Note following, among other things, partial redemptions, exchange
of an interest in this Global Bearer Senior Note for certificated
Senior Notes of this series, exchange of an interest in this
Global Bearer Senior Note for an interest in a Global Bearer
Senior Note of the Fourth Series, or exchange of an interest in
this Global Bearer Senior Note for another Global Bearer Senior
Note of this series of Securities, and increases in the principal
amount of this Global Bearer Senior Note following exchange of an
interest in another Global Bearer Senior Note of this series for
an interest in this Global Bearer Senior Note, are entered in the
second column below.
Outstanding
principal
amount of
this Global
Bearer
Senior Note
following
Amount of such Trustee's
(reduction)/ (reduction)/ Authentication
Date increase increase Signature
---- -------- -------- ---------
------ ---------- ----------- ----------
------ ---------- ----------- ----------
------ ---------- ----------- ----------
------ ---------- ----------- ----------
------ ---------- ----------- ----------
------ ---------- ----------- ----------
------ ---------- ----------- ----------
------ ---------- ----------- ----------
------ ---------- ----------- ----------
<PAGE>
EXHIBIT B
[non-registration legend]
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR WITH ANY SECURITIES
REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THE
UNITED STATES AND MAY NOT BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED OTHER THAN (A) (1) TO TXU EASTERN FUNDING COMPANY OR
TXU EASTERN HOLDINGS LIMITED, (2) IN A TRANSACTION ENTITLED TO AN
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE
SECURITIES ACT, (3) SO LONG AS THIS SECURITY IS ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE
144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE,
PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A,
(4) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (5) TO AN INSTITUTION THAT
IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2),
(3) OR (7) UNDER THE SECURITIES ACT, IN A MINIMUM PRINCIPAL
AMOUNT OF THE SECURITIES OF $250,000, AND THAT IS ACQUIRING THE
SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (6)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT, AND (B) IN EACH CASE IN ACCORDANCE WITH ALL THE
APPLICABLE SECURITIES LAWS OF THE STATES OF THE UNITED STATES"
[registration rights legend]
The Holder of this Security, by acceptance hereof, will be
deemed to have agreed to be bound by the provisions of the
Registration Rights Agreement dated May 13, 1999, among the
Company, the Guarantor and the initial purchasers of this
Security.
NO.. CUSIP NO. .
[FORM OF FACE OF CERTIFICATED SENIOR NOTE]
TXU EASTERN FUNDING COMPANY
6.45% SENIOR NOTES DUE MAY 15, 2005
TXU Eastern Funding Company, a corporation duly incorporated
and existing under the laws of England and Wales (herein referred
to as the "Company", which term includes any successor Person
under the Indenture), for value received, hereby promises to pay
to
or registered assigns, the principal sum of $650,000,000 Dollars
on May 15, 2005, and to pay interest on said principal sum semi-
annually in arrears on May 15 and November 15 of each year (each
an Interest Payment Date) at the rate of 6.45% per annum until
the principal hereof is paid or made available for payment.
Interest on the Securities of this series shall be computed on
the basis of a 360-day year consisting of twelve 30-day months
and for any period shorter than a full month, on the basis of the
actual number of days elapsed in such period. Interest on the
Securities of this series will accrue from May 13, 1999, to the
first Interest Payment Date (which shall be November 15, 1999),
and thereafter will accrue from the last Interest Payment Date to
which interest has been paid or duly provided for. In the event
that any Interest Payment Date is not a Business Day, then
payment of interest payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest
or other payment in respect of such delay) with the same force
and effect as if made on the Interest Payment Date. The interest
so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in such Indenture, be
paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on
the Regular Record Date for such interest, which shall be the
15th day of the calendar month next preceding such Interest
Payment Date. Any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder on
such Regular Record Date and may either be paid to the Person in
whose name this Security (or one or more Predecessor Securities)
is registered at the close of business on a Special Record Date
for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities
of this series not less than 10 days prior to such Special Record
Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on
which the Securities of this series may be listed, and upon such
notice as may be required by such exchange, all as more fully
provided in the Indenture referred to on the reverse hereof.
Payment of the principal of (and premium, if any) and
interest on this Security will be made at the office or agency of
the Company maintained for that purpose in The City of New York,
the State of New York and, for so long as this Security shall be
listed on the Luxembourg Stock Exchange, in Luxembourg, in such
coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private
debts.
Reference is hereby made to the further provisions of
this Security set forth on the reverse hereof, which further
provisions shall for all purposes have the same effect as if set
forth at this place.
Unless the certificate of authentication hereon has
been executed by the Trustee referred to on the reverse hereof by
manual signature, this Security shall not be entitled to any
benefit under the Indenture or be valid or obligatory for any
purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed.
TXU EASTERN FUNDING COMPANY
By:
-------------------------
<PAGE>
[FORM OF GUARANTEE]
TXU Eastern Holdings Limited, a corporation
incorporated under the laws of England and Wales (the
"Guarantor", which term includes any successor under the
Indenture (the "Indenture") referred to in the Security upon
which this Guarantee is endorsed), for value received, hereby
unconditionally and irrevocably guarantees to the Holder of the
Security upon which this Guarantee is endorsed, the due and
punctual payment of the principal of, and premium, if any, and
interest on such Security when and as the same shall become due
and payable, whether at the Stated Maturity, by declaration of
acceleration, call for redemption, or otherwise, in accordance
with the terms of such Security and of the Indenture, regardless
of any defense, right of set-off or counterclaim that the
Guarantor may have (except the defense of payment). In case of
the failure of TXU Eastern Funding Company, a corporation
incorporated under the laws of England and Wales (the "Company",
which term includes any successor under the Indenture),
punctually to make any such payment, the Guarantor hereby agrees
to cause such payment to be made punctually when and as the same
shall become due and payable, whether at the Stated Maturity or
by declaration of acceleration, call for redemption or otherwise,
and as if such payment were made by the Company. The Guarantor's
obligation to make a guarantee payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holder of
such Security or to a Paying Agent, or by causing the Company to
pay such amount to such Holder or a Paying Agent.
Except as provided pursuant to Section 608 of the
Indenture, this Guarantee is an unsecured and unsubordinated
obligation of the Guarantor and shall at all times rank at least
pari passu with each other Guarantee issued pursuant to the
Indenture and, except as permitted by Sections 608 and 806 of the
Indenture, will rank at least pari passu with all other unsecured
unsubordinated indebtedness of the Guarantor.
The Guarantor hereby agrees that its obligations
hereunder shall be absolute and unconditional irrespective of,
and shall be unaffected by, any invalidity, irregularity or
unenforceability of such Security or the Indenture, any failure
to enforce the provisions of such Security or the Indenture, any
extension of time for payment or performance by the Company as
provided by such Security or the Indenture, or any waiver,
modification or indulgence granted to the Company with respect
thereto, by the Holder of such Security or the Trustee or any
other circumstance which may otherwise constitute a legal or
equitable discharge or defense of a surety or guarantor;
provided, however, that notwithstanding the foregoing, no such
waiver, modification or indulgence shall, without the consent of
the Guarantor, increase the principal amount of such Security, or
increase the interest rate thereon, or change any redemption
provisions thereof (including any change to increase any premium
payable upon redemption thereof) or change the Stated Maturity
thereof.
The Guarantor hereby waives the benefits of diligence,
presentment, demand for payment, any requirement that the Trustee
or the Holder of such Security exhaust any right or take any
action against the Company or any other Person, filing of claims
with a court in the event of insolvency or bankruptcy of the
Company, any right to require a proceeding first against the
Company, protest or notice with respect to such Security or the
indebtedness evidenced thereby and all demands whatsoever, and
covenants that this Guarantee will not be discharged in respect
of such Security except by complete performance of the
obligations contained in such Security and in this Indenture and
in this Guarantee. This Guarantee shall constitute a guarantee
of payment and not of collection. The Guarantor hereby agrees
that, in the event of a default in payment of principal, or
premium, if any, or interest, if any, on such Security, whether
at its Stated Maturity, by declaration of acceleration, call for
redemption, or otherwise, legal proceedings may be instituted by
the Trustee on behalf of, or by, the Holder of such Security,
subject to the terms and conditions set forth in the Indenture,
directly against the Guarantor to enforce this Guarantee without
first proceeding against the Company. The Guarantor agrees that
if, after the occurrence and during the continuance of an Event
of Default, the Trustee or any of the Holders are prevented by
applicable law from exercising their respective rights to
accelerate the maturity of the Securities, to collect interest on
the Securities, the Guarantor will pay to the Trustee for the
account of the Holders, upon demand therefor, the amount that
would otherwise have been due and payable had such rights and
remedies been permitted to be exercised by the Trustee or any of
the Holders.
The obligations of the Guarantor hereunder with respect
to such Security shall be continuing and irrevocable until the
date upon which the entire principal of, premium, if any, and
interest and Additional Amounts, if any, on such Security has
been, or has been deemed pursuant to the provisions of Article
Seven of the Indenture to have been, paid in full or otherwise
discharged.
The Guarantor shall be subrogated to all rights of the
Holder of each Security upon which its Guarantee is endorsed
against the Company in respect of any amounts paid by the
Guarantor on account of such Security pursuant to the provisions
of its Guarantee or the Indenture; provided, however, that the
Guarantor shall not be entitled to enforce or to receive any
payments arising out of, or based upon, such right of subrogation
until the principal of, and premium, if any, and interest, if
any, and Additional Amounts, if any, on all Securities issued
under the Indenture shall have been paid in full.
This Guarantee shall remain in full force and effect
and continue notwithstanding any petition filed by or against the
Company for liquidation or reorganization, the Company becoming
insolvent or making an assignment for the benefit of creditors or
a receiver or trustee being appointed for all or any significant
part of the Company's assets, and shall, to the fullest extent
permitted by law, continue to be effective or reinstated, as the
case may be, if at any time payment of the Security upon which
this Guarantee is endorsed, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or
returned by the Holder of such Security, whether as a "voidable
preference," "fraudulent transfer," or otherwise, all as though
such payment or performance had not been made. In the event that
any payment, or any part thereof, is rescinded, reduced, restored
or returned on such Security, such Security shall, to the fullest
extent permitted by law, be reinstated and deemed paid only by
such amount paid and not so rescinded, reduced, restored or
returned.
This Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication of the Security
upon which this Guarantee is endorsed shall have been manually
executed by or on behalf of the Trustee under the Indenture.
All terms used in this Guarantee which are defined in
the Indenture shall have the meanings assigned to them in such
Indenture.
This Guarantee shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes
shall be governed by and construed in accordance with the laws of
the State of New York.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this
Guarantee to be executed as of the date first written above.
TXU EASTERN HOLDINGS LIMITED
By:
------------------------
<PAGE>
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities of the series designated
therein and the Guarantee thereof referred to in the within-
mentioned Indenture.
THE BANK OF NEW YORK, as Trustee
By:
------------------------------
Authorized Signatory
<PAGE>
[FORM OF REVERSE OF CERTIFICATED SENIOR NOTE]
This Security is one of a duly authorized issue of
securities of the Company (herein called the "Securities"),
issued and to be issued in one or more series under an Indenture
(For Unsecured Debt Securities), dated as of May 1, 1999 (herein,
together with any amendments thereto, called the "Indenture",
which term shall have the meaning assigned to it in such
instrument), among the Company, TXU Eastern Holdings Limited, as
Guarantor (herein called the "Guarantor," which term includes any
successor under the Indenture) and The Bank of New York, as
Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), and reference is hereby
made to the Indenture, including the Board Resolutions and
Officer's Certificate filed with the Trustee on May 13, 1999,
creating the series designated on the face hereof, for a
statement of the respective rights, limitations of rights, duties
and immunities thereunder of the Company, the Guarantor, the
Trustee and the Holders of the Securities and of the terms upon
which the Securities are, and are to be, authenticated and
delivered. This Security is one of the series designated on the
face hereof.
Each purchaser of this Security represents and agrees
as follows:
(1) it is acquiring the Security for its own account
or for an account with respect to which it exercises sole
investment discretion, and that it or such account, as the
case may be, is a Qualified Institutional Buyer (as defined
under the United States Securities Act of 1933, as amended
(the "Securities Act")), a foreign purchaser outside the
United States or an institutional "accredited investor"
acquiring the Security for investment purposes and not for
distribution;
(2) it acknowledges that the offer and sale of the
Security have not been registered under the Securities Act
and such Security may not be resold except as permitted
below;
(3) it understands and agrees that such Security is
being offered only in a transaction not involving any public
offering within the meaning of the Securities Act, and that
(A) if it decides to resell, pledge or otherwise transfer
the Security, the Security may be resold, pledged or
transferred only (i) to the Company or the Guarantor,
(ii) in a transaction entitled to an exemption from
registration provided by Rule 144 under the Securities Act
("Rule 144"), (iii) so long as such Security is eligible for
resale pursuant to Rule 144A under the Securities Act ("Rule
144A"), to a person whom the seller reasonably believes is a
Qualified Institutional Buyer that purchases for its own
account or for the account of a Qualified Institutional
Buyer to whom notice is given that the resale, pledge or
transfer is being made in reliance on Rule 144A, (iv) in an
offshore transaction in accordance with Rule 904 of
Regulation S of the Securities Act, (v) to an institutional
"accredited investor" as defined in Rule 501(a)(1), (2),
(3), or (7) of Regulation D under the Securities Act
acquiring the Security, in a minimum principal amount of
$250,000, for investment purposes and not for distribution
(an "IAI Purchaser"), and (vi) pursuant to an effective
registration statement under the Securities Act, and (B) it
will, and each subsequent holder is required to, notify any
purchaser of the Security from it of the resale restrictions
referred to in (A) above, if then applicable. Before any
Security may be offered, sold, pledged or otherwise
transferred by a Qualified Institutional Buyer to a person
who is not a Qualified Institutional Buyer or by a purchaser
who purchases the Security in an offshore transaction in
accordance with Rule 904 of Regulation S of the Securities
Act (a "Regulation S Purchaser") to a person who is not a
Regulation S Purchaser, the transferee must provide the
Trustee with a written certification as to the compliance
with the transfer restrictions referred to above. If any
resale or other transfer of the Security is proposed to be
made pursuant to clause (v) above, the transferor shall
deliver a letter from the transferee (the form of which may
be obtained from the Company or the Trustee) to the Company,
the Guarantor and the Trustee, which shall provide among
other things, that the transferee is an institutional
"accredited investor" that is acquiring such Security for
investment purposes and not for distribution in violation of
the Securities Act. Each purchaser of this Security
acknowledges that the Company, the Guarantor and the Trustee
reserve the right prior to any offer, sale or other transfer
of such Security pursuant to clauses (ii), (iv) or (v) above
to require the delivery of an opinion of counsel,
certifications and/or other information satisfactory to the
Company, the Guarantor and the Trustee that the proposed
sale complies with the foregoing restrictions. An IAI
Purchaser may not transfer its Interest in an Initial Senior
Note to another IAI Purchaser;
(4) it (i) is able to fend for itself in the
transactions contemplated by the offering memorandum dated
May 6, 1999; (ii) has such knowledge and experience in
financial and business matters as to be capable of
evaluating the merits and risks of its prospective
investment in Security; (iii) has the ability to bear the
economic risks of its prospective investment and can afford
the complete loss of such investment; and (iv) acknowledges
that it may be required to bear the financial risks of this
investment for an indefinite period of time;
(5) if it is (i) a purchaser in a sale that occurs
outside the U.S. within the meaning of Regulation S of the
Securities Act, or (ii) a "distributor," "dealer" or person
"receiving a selling concession, fee or other remuneration"
in respect of Securities sold, prior to the expiration of
the Restricted Period (as defined below), it acknowledges
that until the expiration of the Restricted Period any offer
or sale of the Security shall not be made by it to a U.S.
person or for the account or benefit of a U.S. person within
the meaning of Rule 902(k) of the Securities Act, except
offers or sales made pursuant to Rule 144A. The "Restricted
Period" means, with respect to the Security, the 40-day
period following the later of (i) the date on which such
Securities are first offered to persons other than
distributors (as defined in Regulation S) and (ii) the
original issue date of such Securities;
(6) if it is a foreign purchaser, it acknowledges
that, until the expiration of the Restricted Period, it may
not, directly or indirectly, reoffer, resell, pledge or
otherwise transfer a Security or any interest therein except
to a person who certifies in writing to the Trustee that
such transfer satisfies, as applicable, the requirements of
the legend on the Security and that none of the Securities
will be accepted for registration of any transfer prior to
the end of the Restricted Period unless the transferee has
first complied with the certification requirements described
in this paragraph;
(7) it acknowledges that no part of the funds to be
used to purchase the Security to be purchased by such
purchaser constitutes assets which are directly or
indirectly the assets of any employee benefit plan such the
use of such assets constitutes a non-exempt prohibited
transaction under the U.S. Employee Retirement Income
Security Act of 1974, as amended (ERISA), or the U.S.
Internal Revenue Code of 1986, as amended. As used in this
paragraph, the term "employee benefit plan" shall have the
meaning assigned to such term in Section 3 of ERISA;
(8) it understands that the Company, the Guarantor,
the initial purchasers, the Trustee, the Paying Agents and
others will rely upon the truth and accuracy of the
foregoing acknowledgements, representations and agreements
and agrees that if any of the acknowledgements,
representations and warranties deemed to have been made by
it by its purchase of the Security are no longer accurate,
it shall promptly notify the Company, the Guarantor and the
initial purchasers. If it is acquiring the Security as a
fiduciary or agent for one or more investor accounts, it
represents that it has sole investment discretion with
respect to each such account and it has full power to make
the foregoing acknowledgements, representations and
agreements on behalf of such account.
The Securities of this series will be redeemable as a
whole at any time or in part, from time to time, at the option of
the Company, at a Redemption Price equal to the sum of (a) the
greater of (i) 100% of the principal amount of the Securities of
this series to be redeemed, and (ii) the sum of the present
values of the remaining scheduled payments of principal and
interest on such Securities from the Redemption Date to the
maturity date, computed by discounting such payments, in each
case, to the Redemption Date on a semi-annual basis (assuming a
360-day year consisting of twelve 30-day months) at the Treasury
Rate plus 20 basis points, plus (b) accrued interest on the
principal amount of such Securities to the Redemption Date plus
(c) any accrued Additional Amounts.
"Treasury Rate" means, with respect to any Redemption
Date, the rate per annum equal to the semi-annual equivalent
yield to maturity of the Comparable Treasury Issue, assuming a
price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable
Treasury Price for such Redemption Date.
"Comparable Treasury Issue" means the United States
Treasury security selected by an Independent Investment Banker as
having a maturity comparable to the remaining term of such
Securities of this series to be redeemed that would be utilized,
at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt
securities of comparable maturity to the remaining terms of such
Securities of this series.
"Independent Investment Banker" means one of the
Reference Treasury Dealers appointed by the Trustee after
consultation with the Company.
"Business Day," when used for purposes of calculating
the Redemption Price, shall mean a Business Day (as defined in
the Indenture) in New York City, New York.
"Comparable Treasury Price" means, with respect to any
Redemption Date, (i) the average of the bid and asked prices for
the Comparable Treasury Issue (expressed in each case as a
percentage of its principal amount) on the third Business Day
preceding such Redemption Date, as set forth in the daily
statistical release (or any successor release) published by the
Federal Reserve Bank of New York and designated "Composite 3:30
p.m. Quotations for US Government Securities" or (ii) if such
release (or any successor release) is not published or does not
contain such prices on such Business Day, the average of the
Reference Treasury Dealer Quotations actually obtained by the
Trustee for such Redemption Date.
"Reference Treasury Dealer Quotations" means, with
respect to each Reference Treasury Dealer and any Redemption
Date, the average, as determined by the Trustee, of the bid and
asked prices for the Comparable Treasury Issue (expressed in each
case as a percentage of its principal amount) quoted in writing
to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on
the third Business Day preceding such Redemption Date.
"Reference Treasury Dealer" means each of Lehman
Brothers Inc. and Morgan Stanley & Co. Incorporated and their
respective successors; provided, however, that if either of the
foregoing shall cease to be a primary US Government securities
dealer in New York City (a "Primary Treasury Dealer"), the
Company shall substitute therefor another Primary Treasury
Dealer.
Notice of any redemption will be mailed at least 30
days but no more than 60 days before the Redemption Date to each
Holder of the Securities of this series to be redeemed.
Upon payment of the Redemption Price, on and after the
Redemption Date interest and any Additional Amounts will cease to
accrue on the Securities of this series or portions thereof
called for redemption.
The Company shall deliver to the Trustee before any
Redemption Date for the Securities of this series its calculation
of the Redemption Price applicable to such redemption. Except
with respect to the obligations of the Trustee expressly set
forth in the foregoing definitions of "Comparable Treasury Issue"
and "Comparable Treasury Price," the Trustee shall be under no
duty to inquire into, may presume the correctness of, and shall
be fully protected in acting upon the Company's calculation of
any Redemption Price of the Securities of this series.
In lieu of stating the Redemption Price, notices of
redemption of the Securities of this series shall state
substantially the following: "The Redemption Price of the
Securities of this series to be redeemed shall equal the sum of
(a) the greater of (i) 100% of the principal amount of such
Securities, and (ii) the sum of the present values of the
remaining scheduled payments of principal and interest thereon
from the Redemption Date to the maturity date, computed by
discounting such payments, in each case, to the Redemption Date
on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Rate (as defined in the
Indenture) plus 20 basis points plus accrued interest on the
principal amount hereof to the Redemption Date plus accrued
Additional Amounts, if any."
Except as provided herein, Article Four of the
Indenture shall apply to redemptions of the Securities of this
series.
If the Company or the Guarantor is required to pay
Additional Amounts with respect to Securities of this series, the
Company has the right to redeem this Security as set forth in the
Officer's Certificate described above.
The Indenture contains provisions for defeasance at any
time of the entire indebtedness of this Security upon compliance
with certain conditions set forth in the Indenture including the
Officer's Certificate described above.
If an Event of Default with respect to Securities of
this series shall occur and be continuing, the principal of the
Securities of this series may be declared due and payable in the
manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as
therein provided, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the
Holders of the Securities of each series to be affected under the
Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the
Securities at the time Outstanding of all series to be affected.
The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Securities of
each series at the time Outstanding, on behalf of the Holders of
all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future
Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made
upon this Security.
As provided in and subject to the provisions of the
Indenture, the Holder of this Security shall not have the right
to institute any proceeding with respect to the Indenture or for
the appointment of a receiver or trustee or for any other remedy
thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with
respect to the Securities of this series, the Holders of a
majority in aggregate principal amount of the Securities of all
series at the time Outstanding in respect of which an Event of
Default shall have occurred and be continuing shall have made
written request to the Trustee to institute proceedings in
respect of such Event of Default as Trustee and offered the
Trustee reasonable indemnity, and the Trustee shall not have
received from the Holders of a majority in aggregate principal
amount of Securities of all series at the time Outstanding in
respect of which an Event of Default shall have occurred and be
continuing a direction inconsistent with such request, and shall
have failed to institute any such proceeding, for 60 days after
receipt of such notice, request and offer of indemnity. The
foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal
hereof or any premium or interest hereon on or after the
respective due dates expressed herein.
No reference herein to the Indenture and no provision
of this Security or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of and any premium and interest on this
Security at the times, place and rate, and in the coin or
currency, herein prescribed.
The Indenture contains terms, provisions and conditions
relating to the consolidation or merger of the Company or the
Guarantor with or into, and the conveyance or other transfer, or
lease, of assets to another Person and to the release and
discharge of the Company or the Guarantor, as the case may be, in
certain circumstances from such obligations.
The Securities of this series are issuable only in
registered form without coupons in denominations of $10,000 and
in integral multiples of $1,000 in excess thereof; except that
Securities of this series issued or transferred to institutional
"accredited investors," as defined in Rule 501(a)(1), (2), (3) or
(7) of Regulation D of the Securities Act, will be in a minimum
principal amount of $250,000. As provided in the Indenture and
subject to certain limitations therein set forth, Securities of
this series are exchangeable for a like aggregate principal
amount of Securities of this series and of like tenor and of
authorized denominations, as requested by the Holder surrendering
the same.
No service charge shall be made for any such
registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
The Company, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name this Security
is registered as the absolute owner hereof for all purposes,
whether or not this Security be overdue, and neither the Company,
the Trustee nor any such agent shall be affected by notice to the
contrary.
All terms used in this Security which are defined in
the Indenture shall have the meanings assigned to them in the
Indenture and in the Officer's Certificate establishing the terms
of the Securities of this series.
<PAGE>
[CERTIFICATE OF TRANSFER]
6.45% SENIOR NOTES DUE MAY 15, 2005
FOR VALUE RECEIVED, the undersigned sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
[ --------------------------- ]
[ ]
[ --------------------------- ] -----------------------------
Name and address of assignee
must be printed or
typewritten.
-----------------------------------------------------------------
the within Security of the Company and does hereby irrevocably
constitute and appoint
-----------------------------------------------------------------
to transfer the said Security on the books of the within-named
Company, with full power of substitution in the premises.
The undersigned certifies that said Security is being resold,
pledged or otherwise transferred as follows: (check one)
[ ] to the Company or the Guarantor;
[ ] to a Person whom the undersigned reasonably believes is a
qualified institutional buyer within the meaning of Rule
144A under the Securities Act of 1933, as amended (the
"Securities Act") purchasing for its own account or for the
account of a qualified institutional buyer to whom notice is
given that the resale, pledge or other transfer is being
made in reliance on Rule 144A;
[ ] in an offshore transaction in accordance with Rule 904 of
Regulation S under the Securities Act;
[ ] to an institution that is an "accredited investor" as
defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act that is acquiring the Security for investment
purposes and not for distribution (attach a copy of an
Accredited Investor Letter in the form provided by the
Company or Trustee signed by an authorized officer of the
transferee);
[ ] as otherwise permitted by the non-registration legend
appearing on this Security; or
[ ] as otherwise agreed by the Company or the Guarantor, as the
case may be, confirmed in writing to the Trustee, as
follows: [describe]
------------------------------------------------------------
------------------------------------------------------------
Dated:---------------------- ------------------------------
<PAGE>
EXHIBIT C
[FORM OF FACE OF EXCHANGE NOTE]
GLOBAL BEARER FORM
NO._______________ CUSIP NO.__________
TXU EASTERN FUNDING COMPANY
6.45% EXCHANGE SENIOR NOTES DUE MAY 15, 2005
TXU Eastern Funding Company, a corporation duly incorporated
and existing under the laws of England and Wales (herein referred
to as the "Company", which term includes any successor Person
under the Indenture), for value received, hereby promises to pay
to the bearer upon surrender hereof, the principal sum of
$650,000,000 Dollars on May 15, 2005, and to pay interest on said
principal sum semi-annually in arrears on May 15 and November 15
of each year (each an Interest Payment Date) at the rate of 6.45%
per annum until the principal hereof is paid or made available
for payment. Interest on the Securities of this series shall be
computed on the basis of a 360 day year consisting of twelve 30-
day months and for any period shorter than a full month, on the
basis of the actual number of days elapsed in such period.
Interest on the Securities of this series will accrue from ., to
the first Interest Payment Date (which shall be .), and
thereafter will accrue from the last Interest Payment Date to
which interest has been paid or duly provided for. In the event
that any Interest Payment Date is not a Business Day, then
payment of interest payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest
or other payment in respect of such delay) with the same force
and effect as if made on the Interest Payment Date. The interest
so payable, and punctually paid or duly provided for, on any
Interest Payment Date will be paid upon presentation to the
Paying Agent; the Paying Agent shall mark this Security in the
appropriate box on the Interest Payment Schedule included therein
to indicate that the interest payment has been made. Payments of
any Defaulted Interest will be paid to the bearer hereof at the
time of presentation.
Payment of the principal of (and premium, if any) and
interest on this Security will be made at the office or agency of
the Company maintained for that purpose in The City of New York,
the State of New York and, for so long as the Securities of this
series shall be listed on the Luxembourg Stock Exchange, in
Luxembourg, in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of
public and private debts.
Reference is hereby made to the further provisions of
this Security set forth on the reverse hereof, which further
provisions shall for all purposes have the same effect as if set
forth at this place.
Unless the certificate of authentication hereon has
been executed by the Trustee referred to on the reverse hereof by
manual signature, this Security shall not be entitled to any
benefit under the Indenture or be valid or obligatory for any
purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed.
TXU EASTERN FUNDING COMPANY
By:
-------------------------
<PAGE>
[FORM OF GUARANTEE]
TXU Eastern Holdings Limited, a corporation
incorporated under the laws of England and Wales (the
"Guarantor", which term includes any successor under the
Indenture (the "Indenture") referred to in the Security upon
which this Guarantee is endorsed), for value received, hereby
unconditionally and irrevocably guarantees to the Holder of the
Security upon which this Guarantee is endorsed, the due and
punctual payment of the principal of, and premium, if any, and
interest on such Security when and as the same shall become due
and payable, whether at the Stated Maturity, by declaration of
acceleration, call for redemption, or otherwise, in accordance
with the terms of such Security and of the Indenture, regardless
of any defense, right of set-off or counterclaim that the
Guarantor may have (except the defense of payment). In case of
the failure of TXU Eastern Funding Company, a corporation
incorporated under the laws of England and Wales (the "Company",
which term includes any successor under the Indenture),
punctually to make any such payment, the Guarantor hereby agrees
to cause such payment to be made punctually when and as the same
shall become due and payable, whether at the Stated Maturity or
by declaration of acceleration, call for redemption or otherwise,
and as if such payment were made by the Company. The Guarantor's
obligation to make a guarantee payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holder of
such Security or to a Paying Agent, or by causing the Company to
pay such amount to such Holder or a Paying Agent.
Except as provided pursuant to Section 608 of the
Indenture, this Guarantee is an unsecured and unsubordinated
obligation of the Guarantor and shall at all times rank at least
pari passu with each other Guarantee issued pursuant to the
Indenture and, except as permitted by Sections 608 and 806 of the
Indenture, will rank at least pari passu with all other unsecured
unsubordinated indebtedness of the Guarantor.
The Guarantor hereby agrees that its obligations
hereunder shall be absolute and unconditional irrespective of,
and shall be unaffected by, any invalidity, irregularity or
unenforceability of such Security or the Indenture, any failure
to enforce the provisions of such Security or the Indenture, any
extension of time for payment by the Company as provided by such
Security, or any waiver, modification or indulgence granted to
the Company with respect thereto, by the Holder of such Security
or the Trustee or any other circumstance which may otherwise
constitute a legal or equitable discharge or defense of a surety
or guarantor; provided, however, that notwithstanding the
foregoing, no such waiver, modification or indulgence shall,
without the consent of the Guarantor, increase the principal
amount of such Security, or increase the interest rate thereon,
or change any redemption provisions thereof (including any change
to increase any premium payable upon redemption thereof) or
change the Stated Maturity thereof.
The Guarantor hereby waives the benefits of diligence,
presentment, demand for payment, any requirement that the Trustee
or the Holder of such Security exhaust any right or take any
action against the Company or any other Person, filing of claims
with a court in the event of insolvency or bankruptcy of the
Company, any right to require a proceeding first against the
Company, protest or notice with respect to such Security or the
indebtedness evidenced thereby and all demands whatsoever, and
covenants that this Guarantee will not be discharged in respect
of such Security except by complete performance of the
obligations contained in such Security and in this Indenture and
in this Guarantee. This Guarantee shall constitute a guarantee
of payment and not of collection. The Guarantor hereby agrees
that, in the event of a default in payment of principal, or
premium, if any, or interest, if any, on such Security, whether
at its Stated Maturity, by declaration of acceleration, call for
redemption, or otherwise, legal proceedings may be instituted by
the Trustee on behalf of, or by, the Holder of such Security,
subject to the terms and conditions set forth in the Indenture,
directly against the Guarantor to enforce this Guarantee without
first proceeding against the Company. The Guarantor agrees that
if, after the occurrence and during the continuance of an Event
of Default, the Trustee or any of the Holders are prevented by
applicable law from exercising their respective rights to
accelerate the maturity of the Securities, to collect interest on
the Securities, or to enforce or exercise any other right or
remedy with respect to the Securities, the Guarantor will pay to
the Trustee for the account of the Holders, upon demand therefor,
the amount that would otherwise have been due and payable had
such rights been permitted to be exercised by the Trustee or any
of the Holders.
The obligations of the Guarantor hereunder with respect
to such Security shall be continuing and irrevocable until the
date upon which the entire principal of, premium, if any, and
interest and Additional Amounts, if any, on such Security has
been, or has been deemed pursuant to the provisions of Article
Seven of the Indenture to have been, paid in full or otherwise
discharged.
The Guarantor shall be subrogated to all rights of the
Holder of each Security upon which its Guarantee is endorsed
against the Company in respect of any amounts paid by the
Guarantor on account of such Security pursuant to the provisions
of its Guarantee or the Indenture; provided, however, that the
Guarantor shall not be entitled to enforce or to receive any
payments arising out of, or based upon, such right of subrogation
until the principal of, and premium, if any, and interest, if
any, and Additional Amounts, if any, on all Securities issued
under the Indenture shall have been paid in full.
This Guarantee shall remain in full force and effect
and continue notwithstanding any petition filed by or against the
Company for liquidation or reorganization, the Company becoming
insolvent or making an assignment for the benefit of creditors or
a receiver or trustee being appointed for all or any significant
part of the Company's assets, and shall, to the fullest extent
permitted by law, continue to be effective or reinstated, as the
case may be, if at any time payment of the Security upon which
this Guarantee is endorsed, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or
returned by the Holder of such Security, whether as a "voidable
preference," "fraudulent transfer," or otherwise, all as though
such payment or performance had not been made. In the event that
any payment, or any part thereof, is rescinded, reduced, restored
or returned on such Security, such Security shall, to the fullest
extent permitted by law, be reinstated and deemed paid only by
such amount paid and not so rescinded, reduced, restored or
returned.
This Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication of the Security
upon which this Guarantee is endorsed shall have been manually
executed by or on behalf of the Trustee under the Indenture.
All terms used in this Guarantee which are defined in
the Indenture shall have the meanings assigned to them in such
Indenture.
This Guarantee shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes
shall be governed by and construed in accordance with the laws of
the State of New York.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this
Guarantee to be executed as of the date first written above.
TXU EASTERN HOLDINGS LIMITED
By:
-------------------------
<PAGE>
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities of the series designated
therein and the Guarantee thereof referred to in the within-
mentioned Indenture.
THE BANK OF NEW YORK, as Trustee
By:
-----------------------------
Authorized Signatory
<PAGE>
[FORM OF REVERSE OF EXCHANGE NOTE]
This Security is one of a duly authorized issue of
securities of the Company (herein called the "Securities"),
issued and to be issued in one or more series under an Indenture
(for Unsecured Debt Securities), dated as of May 1, 1999 (herein,
together with any amendments thereto, called the "Indenture",
which term shall have the meaning assigned to it in such
instrument), between the Company and The Bank of New York, as
Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), and reference is hereby
made to the Indenture, including the Board Resolutions and
Officer's Certificate filed with the Trustee on May 13, 1999,
creating the series designated on the face hereof, for a
statement of the respective rights, limitations of rights, duties
and immunities thereunder of the Company, the Trustee and the
Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered. This
Security is one of the series designated on the face hereof.
The Securities of this series will be redeemable as a
whole at any time or in part, from time to time, at the option of
the Company, at a Redemption Price equal to the sum of (a) the
greater of (i) 100% of the principal amount of the Securities of
this series to be redeemed, and (ii) the sum of the present
values of the remaining scheduled payments of principal and
interest on such Securities from the Redemption Date to the
maturity date, computed by discounting such payments, in each
case, to the Redemption Date on a semi-annual basis (assuming a
360-day year consisting of twelve 30-day months) at the Treasury
Rate plus 20 basis points, plus (b) accrued interest on the
principal amount of such Securities to the Redemption Date plus
(c) any accrued Additional Amounts.
"Treasury Rate" means, with respect to any Redemption
Date, the rate per annum equal to the semi-annual equivalent
yield to maturity of the Comparable Treasury Issue, assuming a
price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable
Treasury Price for such Redemption Date.
"Comparable Treasury Issue" means the United States
Treasury security selected by an Independent Investment Banker as
having a maturity comparable to the remaining term of such
Securities of this series to be redeemed that would be utilized,
at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt
securities of comparable maturity to the remaining terms of such
Securities of this series.
"Independent Investment Banker" means one of the
Reference Treasury Dealers appointed by the Trustee after
consultation with the Company.
"Business Day," when used for purposes of calculating
the Redemption Price, shall mean a Business Day (as defined in
the Indenture) in New York City, New York.
"Comparable Treasury Price" means, with respect to any
Redemption Date, (i) the average of the bid and asked prices for
the Comparable Treasury Issue (expressed in each case as a
percentage of its principal amount) on the third Business Day
preceding such Redemption Date, as set forth in the daily
statistical release (or any successor release) published by the
Federal Reserve Bank of New York and designated "Composite 3:30
p.m. Quotations for US Government Securities" or (ii) if such
release (or any successor release) is not published or does not
contain such prices on such Business Day, the average of the
Reference Treasury Dealer Quotations actually obtained by the
Trustee for such Redemption Date.
"Reference Treasury Dealer Quotations" means, with
respect to each Reference Treasury Dealer and any Redemption
Date, the average, as determined by the Trustee, of the bid and
asked prices for the Comparable Treasury Issue (expressed in each
case as a percentage of its principal amount) quoted in writing
to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on
the third Business Day preceding such Redemption Date.
"Reference Treasury Dealer" means each of Lehman
Brothers Inc. and Morgan Stanley & Co. Incorporated and their
respective successors; provided, however, that if either of the
foregoing shall cease to be a primary US Government securities
dealer in New York City (a "Primary Treasury Dealer"), the
Company shall substitute therefor another Primary Treasury
Dealer.
Notwithstanding Section 404 of the Indenture, the
Trustee shall give the bearer of this Security notice of any
redemption hereof in such manner as the Trustee deems necessary
or desirable. So long as the Securities are listed on the
Luxembourg Stock Exchange and the rules of the Luxembourg Stock
Exchange so require, notices to Holders of the Securities will be
published in a leading daily newspaper having general circulation
in Luxembourg (which is expected to be the Luxemburger Wort).
Upon payment of the Redemption Price, on and after the
Redemption Date interest and any Additional Amounts will cease to
accrue on the Securities of this series or portions thereof
called for redemption.
The Company shall deliver to the Trustee before any
Redemption Date for the Securities of this series its calculation
of the Redemption Price applicable to such redemption. Except
with respect to the obligations of the Trustee expressly set
forth in the foregoing definitions of "Comparable Treasury Issue"
and "Comparable Treasury Price," the Trustee shall be under no
duty to inquire into, may presume the correctness of, and shall
be fully protected in acting upon the Company's calculation of
any Redemption Price of the Securities of this series.
In lieu of stating the Redemption Price, notices of
redemption of the Securities of this series shall state
substantially the following: "The Redemption Price of the
Securities of this series to be redeemed shall equal the sum of
(a) the greater of (i) 100% of the principal amount of such
Securities, and (ii) the sum of the present values of the
remaining scheduled payments of principal and interest thereon
from the Redemption Date to the maturity date, computed by
discounting such payments, in each case, to the Redemption Date
on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Rate (as defined in the
Indenture) plus 20 basis points plus accrued interest on the
principal amount hereof to the Redemption Date plus accrued
Additional Amounts, if any."
Except as provided herein, Article Four of the
Indenture shall apply to redemptions of the Securities of this
series.
If the Company or the Guarantor is required to pay
Additional Amounts with respect to Securities of this series, the
Company has the right to redeem this Security as set forth in the
Officer's Certificate described above.
The Indenture contains provisions for defeasance at any
time of the entire indebtedness of this Security upon compliance
with certain conditions set forth in the Indenture, including the
Officer's Certificate described above.
If an Event of Default with respect to Securities of
this series shall occur and be continuing, the principal of the
Securities of this series may be declared due and payable in the
manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as
therein provided, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the
Holders of the Securities of each series to be affected under the
Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the
Securities at the time Outstanding of all series to be affected.
The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Securities of
each series at the time Outstanding, on behalf of the Holders of
all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future
Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made
upon this Security.
As provided in and subject to the provisions of the
Indenture, the Holder of this Security shall not have the right
to institute any proceeding with respect to the Indenture or for
the appointment of a receiver or trustee or for any other remedy
thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with
respect to the Securities of this series, the Holders of a
majority in aggregate principal amount of the Securities of all
series at the time Outstanding in respect of which an Event of
Default shall have occurred and be continuing shall have made
written request to the Trustee to institute proceedings in
respect of such Event of Default as Trustee and offered the
Trustee reasonable indemnity, and the Trustee shall not have
received from the Holders of a majority in aggregate principal
amount of Securities of all series at the time Outstanding in
respect of which an Event of Default shall have occurred and be
continuing a direction inconsistent with such request, and shall
have failed to institute any such proceeding, for 60 days after
receipt of such notice, request and offer of indemnity. The
foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal
hereof or any premium or interest hereon on or after the
respective due dates expressed herein.
No reference herein to the Indenture and no provision
of this Security or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of and any premium and interest on this
Security at the times, place and rate, and in the coin or
currency, herein prescribed.
The Securities of this series are issuable only in
registered form without coupons in denominations of $10,000 and
in integral multiples of $1,000 in excess thereof. As provided
in the Indenture and subject to certain limitations therein set
forth, Securities of this series are exchangeable for a like
aggregate principal amount of Securities of this series and of
like tenor and of authorized denominations, as requested by the
Holder surrendering the same.
No service charge shall be made for any such
registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
The bearer of this Security shall be treated as the
owner of it for all purposes, subject to the terms of the
Indenture. As provided in the Indenture and subject to certain
limitations therein set forth, Securities of this series are
exchangeable for a like aggregate principal amount of Securities
of this series and of like tenor of a different authorized
denomination, as requested by the Holder surrendering the same.
All terms used in this Security which are defined in
the Indenture shall have the meanings assigned to them in the
Indenture and in the Officer's Certificate establishing the terms
of the Securities of this series.
INTEREST PAYMENT SCHEDULE
Instructions to Paying Agent: Mark the box across from the
appropriate Interest Payment Date when the interest payable on
such date has been paid.
Interest Payment Date (Mark When Interest is Paid)
--------------------- ----------------------------
November 15, 1999 [ ]
May 15, 2000 [ ]
November 15, 2000 [ ]
May 15, 2001 [ ]
November 15, 2001 [ ]
May 15, 2002 [ ]
November 15, 2002 [ ]
May 15, 2003 [ ]
November 15, 2003 [ ]
May 15, 2004 [ ]
November 15, 2004 [ ]
PRINCIPAL PAYMENT SCHEDULE
PRINCIPAL AMOUNT OF THIS GLOBAL BEARER SENIOR NOTE
The outstanding aggregate principal amount of this Global Bearer
Senior Note is initially as shown on the face of this Global
Bearer Senior Note and, pursuant thereto, by the latest entry
made by or on behalf of the Issuer in the third column below.
Reductions in the principal amount of this Global Bearer Senior
Note following, among other things, partial redemptions or
exchange of an interest in this Global Bearer Senior Note for
certificated Senior Notes of this series, and increases in the
principal amount of this Global Bearer Senior Note following
exchange of an interest in a Global Bearer Senior Note of the
Third Series for an interest in this Global Bearer Senior Note,
are entered in the second column below.
Outstanding
principal
amount of
this Global
Bearer
Senior Note
Amount of following
(reductio such Trustee's
n)/ (reduction)/ Authentication
Date increase increase Signature
---- -------- -------- ---------
------ -------- ----------- ------------
------ -------- ----------- ------------
------ -------- ----------- ------------
------ -------- ----------- ------------
------ -------- ----------- ------------
------ -------- ----------- ------------
------ -------- ----------- ------------
------ -------- ----------- ------------
------ -------- ----------- ------------
<PAGE>
EXHIBIT D
NO._______________ CUSIP NO.__________
[FORM OF FACE OF CERTIFICATED EXCHANGE NOTE]
TXU EASTERN FUNDING COMPANY
6.45% EXCHANGE SENIOR NOTES DUE MAY 15, 2005
TXU Eastern Funding Company, a corporation duly incorporated
and existing under the laws of England and Wales (herein referred
to as the "Company", which term includes any successor Person
under the Indenture), for value received, hereby promises to pay
to
or registered assigns, the principal sum of $650,000,000 Dollars
on May 15, 2005, and to pay interest on said principal sum semi-
annually in arrears on May 15 and November 15 of each year (each
an Interest Payment Date) at the rate of 6.45% per annum until
the principal hereof is paid or made available for payment.
Interest on the Securities of this series shall be computed on
the basis of a 360 day year consisting of twelve 30-day months
and for any period shorter than a full month, on the basis of the
actual number of days elapsed in such period. Interest on the
Securities of this series will accrue from ., to the first
Interest Payment Date (which shall be .), and thereafter will
accrue from the last Interest Payment Date to which interest has
been paid or duly provided for. In the event that any Interest
Payment Date is not a Business Day, then payment of interest
payable on such date will be made on the next succeeding day
which is a Business Day (and without any interest or other
payment in respect of such delay) with the same force and effect
as if made on the Interest Payment Date. The interest so payable,
and punctually paid or duly provided for, on any Interest Payment
Date will, as provided in such Indenture, be paid to the Person
in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the 15th
day of the calendar month next preceding such Interest Payment
Date. Any such interest not so punctually paid or duly provided
for will forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities
of this series not less than 10 days prior to such Special Record
Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on
which the Securities of this series may be listed, and upon such
notice as may be required by such exchange, all as more fully
provided in the Indenture referred to on the reverse hereof.
Payment of the principal of (and premium, if any) and
interest on this Security will be made at the office or agency of
the Company maintained for that purpose in The City of New York,
the State of New York and, for so long as this Security shall be
listed on the Luxembourg Stock Exchange, in Luxembourg, in such
coin or currency of the United States of America as at the time
of payment is legal tender for payment of public and private
debts, provided, however, that, at the option of the Company,
interest on this Security may be paid by check mailed to the
address of the person entitled thereto, as such address shall
appear on the Security Register.
Reference is hereby made to the further provisions of
this Security set forth on the reverse hereof, which further
provisions shall for all purposes have the same effect as if set
forth at this place.
Unless the certificate of authentication hereon has
been executed by the Trustee referred to on the reverse hereof by
manual signature, this Security shall not be entitled to any
benefit under the Indenture or be valid or obligatory for any
purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed.
TXU EASTERN FUNDING COMPANY
By:
-------------------------
<PAGE>
[FORM OF GUARANTEE]
TXU Eastern Holdings Limited, a corporation
incorporated under the laws of England and Wales (the
"Guarantor", which term includes any successor under the
Indenture (the "Indenture") referred to in the Security upon
which this Guarantee is endorsed), for value received, hereby
unconditionally and irrevocably guarantees to the Holder of the
Security upon which this Guarantee is endorsed, the due and
punctual payment of the principal of, and premium, if any, and
interest on such Security when and as the same shall become due
and payable, whether at the Stated Maturity, by declaration of
acceleration, call for redemption, or otherwise, in accordance
with the terms of such Security and of the Indenture, regardless
of any defense, right of set-off or counterclaim that the
Guarantor may have (except the defense of payment). In case of
the failure of TXU Eastern Funding Company, a corporation
incorporated under the laws of England and Wales (the "Company",
which term includes any successor under the Indenture),
punctually to make any such payment, the Guarantor hereby agrees
to cause such payment to be made punctually when and as the same
shall become due and payable, whether at the Stated Maturity or
by declaration of acceleration, call for redemption or otherwise,
and as if such payment were made by the Company. The Guarantor's
obligation to make a guarantee payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holder of
such Security or to a Paying Agent, or by causing the Company to
pay such amount to such Holder or a Paying Agent.
Except as provided pursuant to Section 608 of the
Indenture, this Guarantee is an unsecured and unsubordinated
obligation of the Guarantor and shall at all times rank at least
pari passu with each other Guarantee issued pursuant to the
Indenture and, except as permitted by Sections 608 and 806 of the
Indenture, will rank at least pari passu with all other unsecured
unsubordinated indebtedness of the Guarantor.
The Guarantor hereby agrees that its obligations
hereunder shall be absolute and unconditional irrespective of,
and shall be unaffected by, any invalidity, irregularity or
unenforceability of such Security or the Indenture, any failure
to enforce the provisions of such Security or the Indenture, any
extension of time for payment by the Company as provided by such
Security, or any waiver, modification or indulgence granted to
the Company with respect thereto, by the Holder of such Security
or the Trustee or any other circumstance which may otherwise
constitute a legal or equitable discharge or defense of a surety
or guarantor; provided, however, that notwithstanding the
foregoing, no such waiver, modification or indulgence shall,
without the consent of the Guarantor, increase the principal
amount of such Security, or increase the interest rate thereon,
or change any redemption provisions thereof (including any change
to increase any premium payable upon redemption thereof) or
change the Stated Maturity thereof.
The Guarantor hereby waives the benefits of diligence,
presentment, demand for payment, any requirement that the Trustee
or the Holder of such Security exhaust any right or take any
action against the Company or any other Person, filing of claims
with a court in the event of insolvency or bankruptcy of the
Company, any right to require a proceeding first against the
Company, protest or notice with respect to such Security or the
indebtedness evidenced thereby and all demands whatsoever, and
covenants that this Guarantee will not be discharged in respect
of such Security except by complete performance of the
obligations contained in such Security and in this Indenture and
in this Guarantee. This Guarantee shall constitute a guarantee
of payment and not of collection. The Guarantor hereby agrees
that, in the event of a default in payment of principal, or
premium, if any, or interest, if any, on such Security, whether
at its Stated Maturity, by declaration of acceleration, call for
redemption, or otherwise, legal proceedings may be instituted by
the Trustee on behalf of, or by, the Holder of such Security,
subject to the terms and conditions set forth in the Indenture,
directly against the Guarantor to enforce this Guarantee without
first proceeding against the Company. The Guarantor agrees that
if, after the occurrence and during the continuance of an Event
of Default, the Trustee or any of the Holders are prevented by
applicable law from exercising their respective rights to
accelerate the maturity of the Securities, to collect interest on
the Securities, or to enforce or exercise any other right or
remedy with respect to the Securities, the Guarantor will pay to
the Trustee for the account of the Holders, upon demand therefor,
the amount that would otherwise have been due and payable had
such rights been permitted to be exercised by the Trustee or any
of the Holders.
The obligations of the Guarantor hereunder with respect
to such Security shall be continuing and irrevocable until the
date upon which the entire principal of, premium, if any, and
interest and Additional Amounts, if any, on such Security has
been, or has been deemed pursuant to the provisions of Article
Seven of the Indenture to have been, paid in full or otherwise
discharged.
The Guarantor shall be subrogated to all rights of the
Holder of each Security upon which its Guarantee is endorsed
against the Company in respect of any amounts paid by the
Guarantor on account of such Security pursuant to the provisions
of its Guarantee or the Indenture; provided, however, that the
Guarantor shall not be entitled to enforce or to receive any
payments arising out of, or based upon, such right of subrogation
until the principal of, and premium, if any, and interest, if
any, and Additional Amounts, if any, on all Securities issued
under the Indenture shall have been paid in full.
This Guarantee shall remain in full force and effect
and continue notwithstanding any petition filed by or against the
Company for liquidation or reorganization, the Company becoming
insolvent or making an assignment for the benefit of creditors or
a receiver or trustee being appointed for all or any significant
part of the Company's assets, and shall, to the fullest extent
permitted by law, continue to be effective or reinstated, as the
case may be, if at any time payment of the Security upon which
this Guarantee is endorsed, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or
returned by the Holder of such Security, whether as a "voidable
preference," "fraudulent transfer," or otherwise, all as though
such payment or performance had not been made. In the event that
any payment, or any part thereof, is rescinded, reduced, restored
or returned on such Security, such Security shall, to the fullest
extent permitted by law, be reinstated and deemed paid only by
such amount paid and not so rescinded, reduced, restored or
returned.
This Guarantee shall not be valid or obligatory for any
purpose until the certificate of authentication of the Security
upon which this Guarantee is endorsed shall have been manually
executed by or on behalf of the Trustee under the Indenture.
All terms used in this Guarantee which are defined in
the Indenture shall have the meanings assigned to them in such
Indenture.
This Guarantee shall be deemed to be a contract made
under the laws of the State of New York, and for all purposes
shall be governed by and construed in accordance with the laws of
the State of New York.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this
Guarantee to be executed as of the date first written above.
TXU EASTERN HOLDINGS LIMITED
By:
-------------------------
<PAGE>
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities of the series designated
therein and the Guarantee thereof referred to in the within-
mentioned Indenture.
THE BANK OF NEW YORK, as Trustee
By:
-----------------------------
Authorized Signatory
<PAGE>
[FORM OF REVERSE OF CERTIFICATED EXCHANGE NOTE]
This Security is one of a duly authorized issue of
securities of the Company (herein called the "Securities"),
issued and to be issued in one or more series under an Indenture
(for Unsecured Debt Securities), dated as of May 1, 1999 (herein,
together with any amendments thereto, called the "Indenture",
which term shall have the meaning assigned to it in such
instrument), between the Company and The Bank of New York, as
Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), and reference is hereby
made to the Indenture, including the Board Resolutions and
Officer's Certificate filed with the Trustee on May 13, 1999,
creating the series designated on the face hereof, for a
statement of the respective rights, limitations of rights, duties
and immunities thereunder of the Company, the Trustee and the
Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered. This
Security is one of the series designated on the face hereof.
The Securities of this series will be redeemable as a
whole at any time or in part, from time to time, at the option of
the Company, at a Redemption Price equal to the sum of (a) the
greater of (i) 100% of the principal amount of the Securities of
this series to be redeemed, and (ii) the sum of the present
values of the remaining scheduled payments of principal and
interest on such Securities from the Redemption Date to the
maturity date, computed by discounting such payments, in each
case, to the Redemption Date on a semi-annual basis (assuming a
360-day year consisting of twelve 30-day months) at the Treasury
Rate plus 20 basis points, plus (b) accrued interest on the
principal amount of such Securities to the Redemption Date plus
(c) any accrued Additional Amounts.
"Treasury Rate" means, with respect to any Redemption
Date, the rate per annum equal to the semi-annual equivalent
yield to maturity of the Comparable Treasury Issue, assuming a
price for the Comparable Treasury Issue (expressed as a
percentage of its principal amount) equal to the Comparable
Treasury Price for such Redemption Date.
"Comparable Treasury Issue" means the United States
Treasury security selected by an Independent Investment Banker as
having a maturity comparable to the remaining term of such
Securities of this series to be redeemed that would be utilized,
at the time of selection and in accordance with customary
financial practice, in pricing new issues of corporate debt
securities of comparable maturity to the remaining terms of such
Securities of this series.
"Independent Investment Banker" means one of the
Reference Treasury Dealers appointed by the Trustee after
consultation with the Company.
"Business Day," when used for purposes of calculating
the Redemption Price, shall mean a Business Day (as defined in
the Indenture) in New York City, New York.
"Comparable Treasury Price" means, with respect to any
Redemption Date, (i) the average of the bid and asked prices for
the Comparable Treasury Issue (expressed in each case as a
percentage of its principal amount) on the third Business Day
preceding such Redemption Date, as set forth in the daily
statistical release (or any successor release) published by the
Federal Reserve Bank of New York and designated "Composite 3:30
p.m. Quotations for US Government Securities" or (ii) if such
release (or any successor release) is not published or does not
contain such prices on such Business Day, the average of the
Reference Treasury Dealer Quotations actually obtained by the
Trustee for such Redemption Date.
"Reference Treasury Dealer Quotations" means, with
respect to each Reference Treasury Dealer and any Redemption
Date, the average, as determined by the Trustee, of the bid and
asked prices for the Comparable Treasury Issue (expressed in each
case as a percentage of its principal amount) quoted in writing
to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on
the third Business Day preceding such Redemption Date.
"Reference Treasury Dealer" means each of Lehman
Brothers Inc. and Morgan Stanley & Co. Incorporated and their
respective successors; provided, however, that if either of the
foregoing shall cease to be a primary US Government securities
dealer in New York City (a "Primary Treasury Dealer"), the
Company shall substitute therefor another Primary Treasury
Dealer.
Notice of any redemption will be mailed at least 30
days but no more than 60 days before the Redemption Date to each
Holder of the Securities of this series to be redeemed.
Upon payment of the Redemption Price, on and after the
Redemption Date interest and any Additional Amounts will cease to
accrue on the Securities of this series or portions thereof
called for redemption.
The Company shall deliver to the Trustee before any
Redemption Date for the Securities of this series its calculation
of the Redemption Price applicable to such redemption. Except
with respect to the obligations of the Trustee expressly set
forth in the foregoing definitions of "Comparable Treasury Issue"
and "Comparable Treasury Price," the Trustee shall be under no
duty to inquire into, may presume the correctness of, and shall
be fully protected in acting upon the Company's calculation of
any Redemption Price of the Securities of this series.
In lieu of stating the Redemption Price, notices of
redemption of the Securities of this series shall state
substantially the following: "The Redemption Price of the
Securities of this series to be redeemed shall equal the sum of
(a) the greater of (i) 100% of the principal amount of such
Securities, and (ii) the sum of the present values of the
remaining scheduled payments of principal and interest thereon
from the Redemption Date to the maturity date, computed by
discounting such payments, in each case, to the Redemption Date
on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Rate (as defined in the
Indenture) plus 20 basis points plus accrued interest on the
principal amount hereof to the Redemption Date plus accrued
Additional Amounts, if any."
Except as provided herein, Article Four of the
Indenture shall apply to redemptions of the Securities of this
series.
If the Company or the Guarantor is required to pay
Additional Amounts with respect to Securities of this series, the
Company has the right to redeem this Security as set forth in the
Officer's Certificate described above.
The Indenture contains provisions for defeasance at any
time of the entire indebtedness of this Security upon compliance
with certain conditions set forth in the Indenture, including the
Officer's Certificate described above.
If an Event of Default with respect to Securities of
this series shall occur and be continuing, the principal of the
Securities of this series may be declared due and payable in the
manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as
therein provided, the amendment thereof and the modification of
the rights and obligations of the Company and the rights of the
Holders of the Securities of each series to be affected under the
Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the
Securities at the time Outstanding of all series to be affected.
The Indenture also contains provisions permitting the Holders of
specified percentages in principal amount of the Securities of
each series at the time Outstanding, on behalf of the Holders of
all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past
defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future
Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made
upon this Security.
As provided in and subject to the provisions of the
Indenture, the Holder of this Security shall not have the right
to institute any proceeding with respect to the Indenture or for
the appointment of a receiver or trustee or for any other remedy
thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with
respect to the Securities of this series, the Holders of a
majority in aggregate principal amount of the Securities of all
series at the time Outstanding in respect of which an Event of
Default shall have occurred and be continuing shall have made
written request to the Trustee to institute proceedings in
respect of such Event of Default as Trustee and offered the
Trustee reasonable indemnity, and the Trustee shall not have
received from the Holders of a majority in aggregate principal
amount of Securities of all series at the time Outstanding in
respect of which an Event of Default shall have occurred and be
continuing a direction inconsistent with such request, and shall
have failed to institute any such proceeding, for 60 days after
receipt of such notice, request and offer of indemnity. The
foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal
hereof or any premium or interest hereon on or after the
respective due dates expressed herein.
No reference herein to the Indenture and no provision
of this Security or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of and any premium and interest on this
Security at the times, place and rate, and in the coin or
currency, herein prescribed.
The Securities of this series are issuable only in
registered form without coupons in denominations of $10,000 and
in integral multiples of $1,000 in excess thereof. As provided
in the Indenture and subject to certain limitations therein set
forth, Securities of this series are exchangeable for a like
aggregate principal amount of Securities of this series and of
like tenor and of authorized denominations, as requested by the
Holder surrendering the same.
No service charge shall be made for any such
registration of transfer or exchange, but the Company may require
payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
The Company, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name this Security
is registered as the absolute owner hereof for all purposes,
whether or not this Security be overdue, and neither the Company,
the Trustee nor any such agent shall be affected by notice to the
contrary.
All terms used in this Security which are defined in
the Indenture shall have the meanings assigned to them in the
Indenture and in the Officer's Certificate establishing the terms
of the Securities of this series.
<PAGE>
FOR VALUE RECEIVED, the undersigned sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
OF ASSIGNEE
[----------------------------]
[ ]
[----------------------------] ------------------------------
Name and address of assignee
must be printed or
typewritten.
-----------------------------------------------------------------
the within Security of the Company and does hereby irrevocably
constitute and appoint
-----------------------------------------------------------------
to transfer the said Security on the books of the within-named
Company, with full power of substitution in the premises.
-----------------------------------------------------------
-----------------------------------------------------------
Dated:-------------------- -----------------------------
<PAGE>
EXHIBIT E
[CERTIFICATE OF TRANSFER]
TXU EASTERN FUNDING COMPANY
6.45% Senior Notes due May 15, 2005
FOR VALUE RECEIVED, the undersigned sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[----------------------------]
[ ]
[----------------------------] ------------------------------
Name and address of assignee
must be printed or
typewritten.
$----------------------------------------------------------------
principal amount of beneficial interest in the referred Security
of the Company and does hereby irrevocably constitute and appoint
-----------------------------------------------------------------
to transfer the said beneficial interest in such Security, with
full power of substitution in the premises.
The undersigned certifies that said beneficial interest in such
Security is being resold, pledged or otherwise transferred as
follows: (check one)
[ ] to the Company or the Guarantor;
[ ] to a Person whom the undersigned reasonably believes is a
Qualified Institutional Buyer within the meaning of Rule
144A under the Securities Act of 1933, as amended (the
"Securities Act") purchasing for its own account or for the
account of a Qualified Institutional Buyer to whom notice is
given that the resale, pledge or other transfer is being
made in reliance on Rule 144A;
[ ] in an offshore transaction in accordance with Rule 904 of
Regulation S under the Securities Act;
[ ] to an institution that is an "accredited investor" as
defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act that is acquiring said beneficial interest in
such Security for investment purposes and not for
distribution (attach a copy of an Accredited Investor Letter
in the form provided by the Company or the Trustee signed by
an authorized officer of the transferee);
[ ] as otherwise permitted by the non-registration legend; or
[ ] as otherwise agreed by the Company or the Guarantor, as the
case may be, confirmed in writing to the Trustee, as
follows: [describe]
------------------------------------------------------------
------------------------------------------------------------
Dated:---------------------- ------------------------------
TXU EASTERN FUNDING COMPANY
TXU EASTERN HOLDINGS LIMITED
OFFICER'S CERTIFICATE
Kirk R. Oliver, an authorized attorney of TXU Eastern Funding Company, a
private unlimited company duly incorporated and existing under the laws of
England and Wales (the "Company"), and Michael J. McNally, a Director of the
Company, pursuant to the authority granted in the Board Resolutions of the
Company dated February 19, 1999, and Sections 201, 301, 1601 and 1602 of the
Indenture defined herein, and Kirk R. Oliver, an authorized attorney of TXU
Eastern Holdings Limited, a private limited company duly incorporated and
existing under the laws of England and Wales (the "Guarantor"), and Michael J.
McNally, a Director of the Guarantor, pursuant to the authority granted in the
Board Resolutions of the Guarantor, dated February 19, 1999 and Section 201 of
the Indenture defined herein, do hereby certify to The Bank of New York (the
"Trustee"), as Trustee under the Indenture of the Company (For Unsecured Debt
Securities) dated as of May 1, 1999 (the "Indenture") that:
1. The securities of the fifth series to be issued under the Indenture shall
be designated "6.75% Senior Notes due May 15, 2009" (the "Senior Notes of
the Fifth Series"). The Senior Notes of the Fifth Series will be
unconditionally guaranteed by the Guarantor as to payment of principal,
premium, if any, and interest and Additional Amounts, if any. The
securities of the sixth series to be issued under the Indenture shall be
designated "6.75% Exchange Senior Notes due May 15, 2009" (the "Senior
Notes of the Sixth Series", and together with the Senior Notes of the Fifth
Series, the "Senior Notes of the Fifth and Sixth Series"). (The term
"Senior Notes of Fifth or Sixth Series" shall refer to either Senior Notes
of the Fifth Series or Senior Notes of the Sixth Series, except as
otherwise noted.) All capitalized terms used in this certificate which are
not defined herein but are defined in Exhibit A, Exhibit B, Exhibit C or
Exhibit D shall have the meanings therein; all capitalized terms used in
this certificate or Exhibit A, Exhibit B, Exhibit C or Exhibit D which are
not defined herein or therein but are defined in the Indenture shall have
the meanings set forth in the Indenture.
2. The Senior Notes of the Fifth Series initially shall be issued in
substantially the form thereof set forth in Exhibit A hereto. The Senior
Notes of the Fifth Series shall have such terms and provisions as are
provided herein, in the Indenture and in the forms thereof set forth in
Exhibits A or B hereto, whichever is applicable, and shall be issued in
substantially such form. The Senior Notes of the Sixth Series shall have
such terms and provisions as are provided herein, in the Indenture and in
the forms thereof set forth in Exhibits C or D hereto, whichever is
applicable, and shall be issued in substantially such form.
3. The Senior Notes of the Fifth and Sixth Series shall mature and the
principal shall be due and payable together with all accrued and unpaid
interest thereon on May 15, 2009.
4. The Senior Notes of the Fifth and Sixth Series shall be issued in the
denominations of $10,000 and in integral multiples of $1,000 in excess
thereof; except that Senior Notes of the Fifth Series issued or transferred
to institutional "accredited investors," as defined in Rule 501(a)(1), (2),
(3) or (7) of Regulation D under the Securities Act ("IAIs") will be in a
minimum principal amount of $250,000.
5. The Senior Notes of the Fifth and Sixth Series shall bear interest as
provided in Exhibit A, Exhibit B, Exhibit C or Exhibit D, as applicable.
6. Each installment of interest on a Senior Note of the Fifth and Sixth Series
shall be payable on the dates specified in Exhibit A, Exhibit B, Exhibit C
or Exhibit D, as applicable.
7. The principal of (and premium, if any, on) and each installment of interest
on and any other amounts payable on the Senior Notes of the Fifth and Sixth
Series shall be payable at, and registration and registration of transfers
and exchanges in respect of the Senior Notes of the Fifth and Sixth Series
may be effected at, the office or agency of the Company in The City of New
York and, for so long as the Senior Notes of the Fifth and Sixth Series are
listed on the Luxembourg Stock Exchange, at the agency of the Company in
Luxembourg; provided that, in the case of certificated Senior Notes of the
Fifth or Sixth Series, payment of interest may be made at the option of the
Company by check mailed to the address of the Persons entitled thereto,
except that payment of interest, if any, in respect of any certificated
registered Senior Notes of the Fifth or Sixth Series may also be made, in
the case of a Holder of an aggregate principal amount in excess of
$50,000,000, by wire transfer to a U.S. Dollar account maintained by the
Holder with a bank in the United States; provided that such Holder elects
payment by wire transfer by giving written notice to the Trustee or a
Paying Agent to such effect designating such account no later than 15 days
immediately preceding the relevant due date for payment (or such other date
as the Trustee may accept in its discretion). In the case of Senior Notes
of the Fifth and Sixth Series issued in global bearer form, interest shall
be paid upon presentation of the applicable Senior Note of such Series to a
Paying Agent; the Paying Agent shall mark the original Senior Note of such
Series in the appropriate box on the interest payment schedule included
therein to indicate that the interest payment has been made.
8. Notices and demands to or upon the Company or the Guarantor in respect of
the Senior Notes of the Fifth and Sixth Series may be served at the office
or agency of the Company in The City of New York.
9. The Corporate Trust Office of the Trustee will initially be the agency of
the Company in The City of New York for payments, registration and
registration of transfers and exchanges and service of notices and demands
with respect to the Senior Notes of the Fifth and Sixth Series and the
Company hereby appoints the Trustee as its agent for all such purposes, and
the Corporate Trust Office of Kredietbank SA Luxembourgeoise
("Kredietbank") at 43, Boulevard Royal L-2955, Luxembourg, initially will
be the agency of the Company in Luxembourg; provided, however, that the
Company reserves the right to change, by one or more Officer's
Certificates, any such office or agency and such agent, provided the
Company will always have a paying agent location in The City of New York
and, for so long as any Senior Notes of the Fifth or Sixth Series are
listed on the Luxembourg Stock Exchange, in Luxembourg. The Trustee
initially will be the Security Registrar and the Paying Agent for the
Senior Notes of the Fifth and Sixth Series.
10. The following constitute additional Events of Default with respect to the
Senior Notes of the Fifth and Sixth Series:
(a) The entry by a court having jurisdiction in the premises of (1) a
decree or order for relief in respect of a Principal Subsidiary of the
Guarantor in an involuntary case or proceeding under any applicable
bankruptcy, insolvency, or other similar law or (2) a decree or order
adjudging a Principal Subsidiary of the Guarantor a bankrupt or in-
solvent, or approving as properly filed a petition by one or more
Persons other than a Principal Subsidiary of the Guarantor seeking
arrangement, adjustment or composition of or in respect of a Principal
Subsidiary of the Guarantor under any applicable bankruptcy,
insolvency, or other similar law, or appointing a custodian, receiver,
liquidator, administrator, assignee, trustee, sequestrator or other
similar official for a Principal Subsidiary of the Guarantor or for
any substantial part of its property, or ordering the winding up or
liquidation of its affairs (other than for the purpose of a solvent
amalgamation, reorganization or similar transaction not involving
disposal of all or substantially all of its assets for the benefit of
creditors other than the Guarantor or its Subsidiaries), and any such
decree or order for relief or any such other decree or order shall
have remained unstayed and in effect for a period of 90 consecutive
days;
(b) The commencement by a Principal Subsidiary of the Guarantor of a
voluntary case or proceeding under any applicable bankruptcy,
insolvency, or other similar law or of any other case or proceeding to
be adjudicated a bankrupt or insolvent, or the consent by a Principal
Subsidiary of the Guarantor to the entry of a decree or order for
relief in respect of such Principal Subsidiary of the Guarantor in a
case or proceeding under any applicable bankruptcy, insolvency, or
other similar law or to the commencement of any bankruptcy or
insolvency case or proceeding against such Principal Subsidiary of the
Guarantor, or the filing by a Principal Subsidiary of the Guarantor of
a petition or answer or consent seeking relief under any applicable
bankruptcy, insolvency, or other similar law, or the consent by a
Principal Subsidiary of the Guarantor to the filing of such petition
or to the appointment of or taking possession by a custodian,
receiver, liquidator, administrator, assignee, trustee, sequestrator
or similar official of such Principal Subsidiary of the Guarantor or
of any substantial part of its property, or the consent by a Principal
Subsidiary of the Guarantor to the winding up or liquidation of its
affairs (other than for the purpose of a solvent amalgamation,
reorganization or similar transaction not involving disposal of all or
substantially all of its assets for the benefit of creditors other
than the Guarantor or its Subsidiaries) or the making by a Principal
Subsidiary of the Guarantor of an assignment for the benefit of
creditors, or the admission by a Principal Subsidiary of the Guarantor
in writing of inability to pay its debts generally as they become due,
or the authorization of such action by the Board of Directors of such
Principal Subsidiary of the Guarantor;
(c) Default in the payment when due of indebtedness for money borrowed
exceeding $50,000,000 of the Company, the Guarantor or any Principal
Subsidiary of the Guarantor; and
(d) Failure of the Company or the Guarantor to pay Additional Amounts (as
defined herein) on any Note of the Fifth or Sixth Series within 30
days after it is due.
For the purposes of (a), (b) and (c) above, a "Principal Subsidiary" means
a Subsidiary of the Guarantor whose gross assets are 25% or more of the
Guarantor's consolidated gross assets or whose gross revenues are 25% or
more of the Guarantor's consolidated gross revenues.
11. The Senior Notes of the Fifth Series will be redeemable as provided in the
forms thereof attached hereto as Exhibit A or Exhibit B, as applicable; the
Senior Notes of the Sixth Series will be redeemable as provided in the
forms thereof attached hereto as Exhibit C or Exhibit D, as applicable.
12. Notwithstanding Section 106 of the Indenture, notice to a Holder of Senior
Notes of the Fifth or Sixth Series in bearer, global form shall be given
sufficiently if given to such Holder in writing by the Trustee, if the
Trustee knows the identity of such Holder, or in such other manner as the
Trustee deems necessary or desirable; provided, however, that so long as
the Senior Notes of the Fifth and Sixth Series are listed on the Luxembourg
Stock Exchange and the rules of the Luxembourg Stock Exchange so require,
notices to Holders of the Senior Notes of the Fifth and Sixth Series will
be published in a leading daily newspaper having general circulation in
Luxembourg (which is expected to be the Luxemburger Wort).
13. The Senior Notes of the Fifth Series will be initially issued pursuant to
Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act"), as one or more global Senior Notes of the Fifth Series in bearer
form and shall be issued to the Book-Entry Depositary (as defined in the
Deposit Agreement by and between The Bank of New York, as Book-Entry
Depositary, and TXU Eastern Funding Company, as Issuer, dated as of May 13,
1999 (the "Deposit Agreement")). The Senior Notes of the Fifth Series shall
contain restrictions on transfer, substantially as described in the forms
set forth in Exhibit A or Exhibit B hereto. Each Senior Note of the Fifth
Series, whether in a global form or in a certificated form, shall bear the
non-registration legend and the registration rights legend in substantially
the form thereof set forth in Exhibit A or Exhibit B hereto, unless
otherwise agreed by the Company, such agreement to be confirmed in writing
to the Trustee. Nothing in the Indenture, the Senior Notes of the Fifth
Series or this certificate shall be construed to require the Company to
register any Senior Notes of the Fifth Series under the Securities Act,
unless otherwise expressly agreed by the Company, confirmed in writing to
the Trustee, or to make any transfer of such Senior Notes of the Fifth
Series in violation of applicable law; provided, however, that the Company
will enter into a registration rights agreement (the "Registration Rights
Agreement") with the initial purchasers of the Senior Notes of the Fifth
Series, confirmed in writing to the Trustee, pursuant to which, among other
things, the Senior Notes of the Fifth Series may be exchanged for the
Senior Notes of the Sixth Series registered under the Securities Act or,
failing such registration, the Senior Notes of the Fifth Series will be
registered under the Securities Act.
14. It is contemplated that the Book-Entry Depositary will issue to The
Depository Trust Company ("DTC"), New York, New York, one or more
Book-Entry Interests (as defined in the Deposit Agreement), which together
will represent a 100% interest in the global Senior Notes of the Fifth or
Sixth Series. The Trustee, the Security Registrar and the Company will have
no responsibility under the Indenture for transfers of beneficial interests
in the Senior Notes of the Fifth and Sixth Series.
In connection with any transfer of beneficial interests in the Senior Notes
of the Fifth Series, the Trustee, the Security Registrar and the Company
shall be under no duty to inquire into, may conclusively presume the
correctness of, and shall be fully protected in relying upon the
certificates and other information (in the forms attached hereto as Exhibit
E, for use in connection with the transfer of beneficial interests in the
Senior Notes of the Fifth Series, or in the form attached at the rear of
Exhibit B, for use in connection with the transfer of Senior Notes of the
Fifth Series in certificated form, or otherwise) received from the Holders
and any transferees of any beneficial interests in the Senior Notes of the
Fifth Series or certificated Senior Notes of the Fifth Series regarding the
validity, legality and due authorization of any such transfer, the
eligibility of the transferee to receive such beneficial interests in such
Senior Note and any other facts and circumstances related to such transfer.
15. No service charge shall be made for the registration of transfer or
exchange of the Senior Notes of the Fifth and Sixth Series; provided,
however, that the Company may require payment of a sum sufficient to cover
any tax or other governmental charge that may be imposed in connection with
the exchange or transfer.
16. Additional Amounts. All payments of principal and interest (including
Additional Interest, as defined in the Registration Rights Agreement, and
payments of discount and premium, if any) with respect to the Senior Notes
of the Fifth and Sixth Series and all payments made pursuant to the
Guarantee shall be made free and clear of, and without withholding or
deduction for or on account of, any present or future taxes, duties,
assessments or governmental charges of whatever nature imposed, levied,
collected, withheld or assessed by or within any supranational federation
to which a Jurisdiction of Incorporation belongs or any Jurisdiction of
Incorporation (or any political subdivision or taxing authority thereof or
therein) or any jurisdiction in which the Company or the Guarantor is
managed or has a place of business (each, a "Taxing Jurisdiction") or by or
within any political subdivision thereof or any authority therein or
thereof having power to tax, unless such withholding or deduction is
required by law. In the event of any such withholding or deduction
("Gross-Up Taxes"), the Company or the Guarantor, as the case may be, shall
pay to the Holder of such Senior Notes of the Fifth or Sixth Series such
additional amount ("Additional Amount") as shall be necessary in order that
the amount received by such Holder after withholding or deduction shall
equal the amount that would otherwise have been due to such Holder in the
absence of such withholding or deduction, except that no such Additional
Amounts shall be payable:
(A) to, or to a Person on behalf of, a Holder who is liable for such
Gross-Up Taxes with respect to the Senior Notes of the Fifth or Sixth
Series or the Guarantee, by reason of such Holder having some connection
with the relevant Taxing Jurisdiction (including being a citizen or
resident or national of, or carrying on a business or maintaining a
permanent establishment in, or being physically present in, such Taxing
Jurisdiction) other than the mere holding of a Senior Note of the Fifth or
Sixth Series or the receipt of principal and interest (including payments
of discount and premium, if any) in respect thereof or in respect of the
Guarantee;
(B) to, or to a Person on behalf of, a Holder who presents a Senior
Note of the Fifth or Sixth Series (whenever presentation is required) for
payment more than 30 days after the date on which payment first becomes due
except to the extent that such Holder would have been entitled to such
Additional Amounts on presenting such Senior Note of the Fifth or Sixth
Series for payment on the last day of such period of 30 days;
(C) to, or to a Person on behalf of, a Holder who presents a Senior
Note of the Fifth or Sixth Series (when presentation is required) other
than at a Place of Payment in The City of New York or, so long as the
Senior Notes of the Fifth or Sixth Series are listed on the Luxembourg
Stock Exchange, in Luxembourg;
(D) to, or to a Person on behalf of, a Holder who would not be liable
or subject to the withholding or deduction by making a declaration of
non-residence or similar claim for exemption to the relevant tax authority;
or
(E) to, or to a Person on behalf of, a Holder of a Senior Note of the
Fifth or Sixth Series that is issued in certificated form following and
during the continuance of an Event of Default if such Holder (or any
predecessor Holder) was one of the beneficial owners requesting that such
certificated Senior Notes of the Fifth or Sixth Series be so issued.
Such Additional Amounts will also not be payable where, had the beneficial
owner of the Senior Note of the Fifth or Sixth Series (or any interest
therein) been the Holder of the Senior Note of the Fifth or Sixth Series,
it would not have been entitled to payment of Additional Amounts by reason
of any one or more of clauses (A) through (E) above. If the Company or the
Guarantor, as applicable, shall determine that Additional Amounts will not
be payable because of the immediately preceding sentence, the Company or
the Guarantor, as applicable, will inform such Holder promptly after making
such determination setting forth the reason(s) therefor.
17. Special Redemption. If (a) the Company or the Guarantor certifies to the
Trustee prior to the giving of a notice as provided below that it has or
will become obligated to pay Additional Amounts with respect to the Senior
Notes of the Fifth or Sixth Series as a result of either (x) any change in,
or amendment to, or clarification of, or announced change to occur in the
future in, the laws or regulations of the Taxing Jurisdiction or any
political subdivision or any authority or agency thereof or therein having
power to tax or levy duties, or any change in the application or
interpretation of such laws or regulations, which change or amendment
becomes effective on or after the date of the offering memorandum or (y)
the issuance of certificated registered Senior Notes of such Series
pursuant to either (i) an Optional Certificated Security Request, as
defined in the Deposit Agreement, (ii) the unwillingness or inability of
DTC to continue to hold the Book-Entry Interests with respect to the global
Senior Notes of such Series or interests therein or DTC's ceasing to be a
"clearing agency" registered under the United States Securities Exchange
Act of 1934, as amended, and, in either case, a successor is not appointed
by the Company within 120 days, or (iii) the unwillingness or inability of
the Book-Entry Depositary to continue to act as such and a successor is not
appointed by the Company within 120 days, and (b) such obligation cannot be
avoided by the Company or the Guarantor taking reasonable measures
available to it, and, prior to the giving of a notice of redemption as
hereinafter in this paragraph provided, the Company or the Guarantor
delivers to the Trustee the certificate referred to in the last sentence of
this paragraph, then the Company shall have the right, at its option, upon
not less than 30 days nor more than 60 days' prior written notice of
redemption to the Holders of Senior Notes of such Series, to redeem the
Senior Notes of such Series, in whole but not in part, at the principal
amount thereof plus accrued and unpaid interest thereon, and accrued
Additional Amounts with respect thereto, if any, provided that no such
notice of redemption shall be given earlier than 90 days prior to the
earliest date on which the Guarantor or the Company would be obligated to
pay any such Additional Amounts with respect to such Series. Prior to the
mailing of any notice of redemption pursuant to this paragraph, the Company
shall deliver to the Trustee a certificate signed by an officer of the
Company stating that the obligation referred to in (a) above cannot be
avoided by the Guarantor or the Company taking reasonable measures
available to it, and the Trustee shall accept, and shall be fully protected
in relying upon, such certificate as sufficient evidence of the condition
precedent set out in (b) above, in which event it shall be conclusive and
binding on the Holders.
18. If the Company shall make any deposit of money and/or Eligible Obligations
with respect to any Senior Notes of the Fifth and Sixth Series, or any
portion of the principal amount thereof, as contemplated by Section 701 of
the Indenture, the Company shall not deliver an Officer's Certificate
described in clause (z) in the first paragraph of said Section 701 unless
the Company shall also deliver to the Trustee, together with such Officer's
Certificate, either:
(A) an instrument wherein the Company, notwithstanding the
satisfaction and discharge of its indebtedness in respect of the Senior
Notes of the Fifth and Sixth Series, shall assume the obligation (which
shall be absolute and unconditional) to irrevocably deposit with the
Trustee or Paying Agent such additional sums of money, if any, or
additional Eligible Obligations (meeting the requirements of Section 701),
if any, or any combination thereof, at such time or times, as shall be
necessary, together with the money and/or Eligible Obligations theretofore
so deposited, to pay when due the principal of and premium, if any, and
interest due and to become due and Additional Amounts, if any, due and
known to become due on such Senior Notes of the Fifth and Sixth Series or
portions thereof, all in accordance with and subject to the provisions of
said Section 701; provided, however, that such instrument may state that
the obligation of the Company to make additional deposits as aforesaid
shall be subject to the delivery to the Company by the Trustee of a notice
asserting the deficiency accompanied by an opinion of an independent public
accountant of nationally recognized standing, selected by the Trustee,
showing the calculation thereof; or
(B) an Opinion of Counsel to the effect that, as a result of a change
in law occurring after the date of this certificate, the Holders of such
Senior Notes of the Fifth and Sixth Series, or portions of the principal
amount thereof, will not recognize income, gain or loss for United States
federal income tax purposes as a result of the satisfaction and discharge
of the Company's indebtedness in respect thereof and will be subject to
United States federal income tax on the same amounts, at the same times and
in the same manner as if such satisfaction and discharge had not been
effected.
19. The Company reserves the right to require legends on Senior Notes of the
Fifth Series as it may determine are necessary to ensure compliance with
the securities laws of the US and the states therein and any other
applicable laws.
20. Each of the undersigned has read all of the covenants and conditions
contained in the Indenture (including the definitions in the Indenture
relating thereto) relating to the issuance of the Senior Notes of the Fifth
and Sixth Series and the Guarantees endorsed thereon and in respect of
compliance with which this certificate is made.
21. The statements contained in this certificate are based upon the familiarity
of each of the undersigned with the Indenture, the documents accompanying
this certificate, and upon discussions by each of the undersigned with
officers and employees of the Company and the Guarantor familiar with the
matters set forth herein.
22. In the opinion of each of the undersigned, he has made such examination or
investigation as is necessary to enable him to express an informed opinion
whether or not such covenants and conditions have been complied with.
23. In the opinion of each of the undersigned, such conditions and covenants
and conditions precedent, if any (including any covenants compliance with
which constitutes a condition precedent) to the authentication and delivery
of the Senior Notes of the Fifth Series and the Guarantees to be endorsed
thereon requested in the accompanying Company Order and Guarantor Order and
the establishment of the Senior Notes of the Sixth Series have been
complied with.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Officer's
Certificate as of this 13th day of May, 1999.
/s/ Kirk R. Oliver
--------------------------
Name: Kirk R. Oliver
Title: Authorized Attorney
/s/ Michael J. McNally
--------------------------
Name: Michael J. McNally
Title: Director
/s/ Kirk R. Oliver
--------------------------
Name: Kirk R. Oliver
Title: Authorized Attorney
/s/ Michael J. McNally
--------------------------
Name: Michael J. McNally
Title: Director
<PAGE>
EXHIBIT A
[non-registration legend]
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR WITH ANY SECURITIES REGULATORY AUTHORITY OF
ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED OTHER THAN (A) (1) TO TXU EASTERN FUNDING
COMPANY OR TXU EASTERN HOLDINGS LIMITED, (2) IN A TRANSACTION ENTITLED TO AN
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT, (3)
SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS
A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (4) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE
904 OF REGULATION S UNDER THE SECURITIES ACT, (5) TO AN INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT, IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, AND
THAT IS ACQUIRING THE SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION
OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
AND (B) IN EACH CASE IN ACCORDANCE WITH ALL THE APPLICABLE SECURITIES LAWS OF
THE STATES OF THE UNITED STATES"
[registration rights legend]
The Holder of this Security, by acceptance hereof, will be deemed to have
agreed to be bound by the provisions of the Registration Rights Agreement dated
May 13, 1999, among the Company, the Guarantor and the initial purchasers of
this Security.
[FORM OF FACE OF SENIOR NOTE]
GLOBAL BEARER FORM
NO.__ CUSIP NO. __
TXU EASTERN FUNDING COMPANY
6.75% SENIOR NOTES DUE MAY 15, 2009
TXU Eastern Funding Company, a corporation duly incorporated and existing
under the laws of England and Wales (herein referred to as the "Company", which
term includes any successor Person under the Indenture), for value received,
hereby promises to pay to the bearer upon surrender hereof the principal sum of
$500,000,000 Dollars on May 15, 2009, and to pay interest on said principal sum
semi-annually in arrears on May 15 and November 15 of each year (each an
Interest Payment Date) at the rate of 6.75% per annum until the principal hereof
is paid or made available for payment. Interest on the Securities of this series
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months and for any period shorter than a full month, on the basis of the actual
number of days elapsed in such period. Interest on the Securities of this series
will accrue from May 13, 1999, to the first Interest Payment Date (which shall
be November 15, 1999), and thereafter will accrue from the last Interest Payment
Date to which interest has been paid or duly provided for. In the event that any
Interest Payment Date is not a Business Day, then payment of interest payable on
such date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of such delay) with the same
force and effect as if made on the Interest Payment Date. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment Date
will be paid upon presentation to any Paying Agent; such Paying Agent shall mark
this Security in the appropriate box on the Interest Payment Schedule included
therein to indicate that the interest payment has been made. Payments of any
Defaulted Interest will be paid to the bearer hereof at the time of
presentation.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in The City of New York, the State of New York and, for so long as the
Securities of this series shall be listed on the Luxembourg Stock Exchange, in
Luxembourg, in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
TXU EASTERN FUNDING COMPANY
By: _______________________
<PAGE>
[FORM OF GUARANTEE]
TXU Eastern Holdings Limited, a corporation incorporated under the laws of
England and Wales (the "Guarantor", which term includes any successor under the
Indenture (the "Indenture") referred to in the Security upon which this
Guarantee is endorsed), for value received, hereby unconditionally and
irrevocably guarantees to the Holder of the Security upon which this Guarantee
is endorsed, the due and punctual payment of the principal of, and premium, if
any, and interest and Additional Amounts, if any, on such Security when and as
the same shall become due and payable, whether at the Stated Maturity, by
declaration of acceleration, call for redemption, or otherwise, in accordance
with the terms of such Security and of the Indenture, regardless of any defense,
right of set-off or counterclaim that the Guarantor may have (except the defense
of payment). In case of the failure of TXU Eastern Funding Company, a
corporation incorporated under the laws of England and Wales (the "Company",
which term includes any successor under the Indenture), punctually to make any
such payment, the Guarantor hereby agrees to cause such payment to be made
punctually when and as the same shall become due and payable, whether at the
Stated Maturity or by declaration of acceleration, call for redemption or
otherwise, and as if such payment were made by the Company. The Guarantor's
obligation to make a guarantee payment may be satisfied by direct payment of the
required amounts by the Guarantor to the Holder of such Security or to a Paying
Agent, or by causing the Company to pay such amount to such Holder or a Paying
Agent.
Except as provided pursuant to Section 608 of the Indenture, this Guarantee
is an unsecured and unsubordinated obligation of the Guarantor and shall at all
times rank at least pari passu with each other Guarantee issued pursuant to the
Indenture and, except as permitted by Sections 608 and 806 of the Indenture,
will rank at least pari passu with all other unsecured unsubordinated
indebtedness of the Guarantor.
The Guarantor hereby agrees that its obligations hereunder shall be
absolute and unconditional irrespective of, and shall be unaffected by, any
invalidity, irregularity or unenforceability of such Security or the Indenture,
any failure to enforce the provisions of such Security or the Indenture, any
extension of time for payment or performance by the Company as provided by such
Security or the Indenture, or any waiver, modification or indulgence granted to
the Company with respect thereto, by the Holder of such Security or the Trustee
or any other circumstance which may otherwise constitute a legal or equitable
discharge or defense of a surety or guarantor; provided, however, that
notwithstanding the foregoing, no such waiver, modification or indulgence shall,
without the consent of the Guarantor, increase the principal amount of such
Security, or increase the interest rate thereon, or change any redemption
provisions thereof (including any change to increase any premium payable upon
redemption thereof) or change the Stated Maturity thereof.
The Guarantor hereby waives the benefits of diligence, presentment, demand
for payment, any requirement that the Trustee or the Holder of such Security
exhaust any right or take any action against the Company or any other Person,
filing of claims with a court in the event of insolvency or bankruptcy of the
Company, any right to require a proceeding first against the Company, protest or
notice with respect to such Security or the indebtedness evidenced thereby and
all demands whatsoever, and covenants that this Guarantee will not be discharged
in respect of such Security except by complete performance of the obligations
contained in such Security and in this Indenture and in this Guarantee. This
Guarantee shall constitute a guarantee of payment and not of collection. The
Guarantor hereby agrees that, in the event of a default in payment of principal,
or premium, if any, or interest, if any, on such Security, whether at its Stated
Maturity, by declaration of acceleration, call for redemption, or otherwise,
legal proceedings may be instituted by the Trustee on behalf of, or by, the
Holder of such Security, subject to the terms and conditions set forth in the
Indenture, directly against the Guarantor to enforce this Guarantee without
first proceeding against the Company. The Guarantor agrees that if, after the
occurrence and during the continuance of an Event of Default, the Trustee or any
of the Holders are prevented by applicable law from exercising their respective
rights to accelerate the maturity of the Securities, to collect interest on the
Securities, or to enforce or exercise any other right or remedy with respect to
the Securities, the Guarantor will pay to the Trustee for the account of the
Holders, upon demand therefor, the amount that would otherwise have been due and
payable had such rights been permitted to be exercised by the Trustee or any of
the Holders.
The obligations of the Guarantor hereunder with respect to such Security
shall be continuing and irrevocable until the date upon which the entire
principal of, premium, if any, and interest and Additional Amounts, if any, on
such Security has been, or has been deemed pursuant to the provisions of Article
Seven of the Indenture to have been, paid in full or otherwise discharged.
The Guarantor shall be subrogated to all rights of the Holder of each
Security upon which its Guarantee is endorsed against the Company in respect of
any amounts paid by the Guarantor on account of such Security pursuant to the
provisions of its Guarantee or the Indenture; provided, however, that the
Guarantor shall not be entitled to enforce or to receive any payments arising
out of, or based upon, such right of subrogation until the principal of, and
premium, if any, and interest, if any, and Additional Amounts, if any, on all
Securities issued under the Indenture shall have been paid in full.
This Guarantee shall remain in full force and effect and continue
notwithstanding any petition filed by or against the Company for liquidation or
reorganization, the Company becoming insolvent or making an assignment for the
benefit of creditors or a receiver or trustee being appointed for all or any
significant part of the Company's assets, and shall, to the fullest extent
permitted by law, continue to be effective or reinstated, as the case may be, if
at any time payment of the Security upon which this Guarantee is endorsed, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by the Holder of such Security, whether as a "voidable
preference," "fraudulent transfer," or otherwise, all as though such payment or
performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned on such Security, such
Security shall, to the fullest extent permitted by law, be reinstated and deemed
paid only by such amount paid and not so rescinded, reduced, restored or
returned.
This Guarantee shall not be valid or obligatory for any purpose until the
certificate of authentication of the Security upon which this Guarantee is
endorsed shall have been manually executed by or on behalf of the Trustee under
the Indenture.
All terms used in this Guarantee which are defined in the Indenture shall
have the meanings assigned to them in such Indenture.
This Guarantee shall be deemed to be a contract made under the laws of the
State of New York, and for all purposes shall be governed by and construed in
accordance with the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be executed
as of the date first written above.
TXU EASTERN HOLDINGS LIMITED
By: ______________________
<PAGE>
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities of the series designated therein and the
Guarantee thereof referred to in the within-mentioned Indenture.
THE BANK OF NEW YORK, as Trustee
By:______________________________
Authorized Signatory
<PAGE>
[FORM OF REVERSE OF SENIOR NOTE]
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture (For Unsecured Debt Securities), dated as of May 1,
1999 (herein, together with any amendments thereto, called the "Indenture",
which term shall have the meaning assigned to it in such instrument), among the
Company, TXU Eastern Holdings Limited, as Guarantor (herein called the
"Guarantor," which term includes any successor under the Indenture) and The Bank
of New York, as Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), and reference is hereby made to the
Indenture, including the Board Resolutions and Officer's Certificate filed with
the Trustee on May 13, 1999, creating the series designated on the face hereof,
for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, the Guarantor, the Trustee and the Holders
of the Securities and of the terms upon which the Securities are, and are to be,
authenticated and delivered. This Security is one of the series designated on
the face hereof.
The Securities of this series will be redeemable as a whole at any time or
in part, from time to time, at the option of the Company, at a Redemption Price
equal to the sum of (a) the greater of (i) 100% of the principal amount of the
Securities of this series to be redeemed, and (ii) the sum of the present values
of the remaining scheduled payments of principal and interest on such Securities
from the Redemption Date to the maturity date, computed by discounting such
payments, in each case, to the Redemption Date on a semi-annual basis (assuming
a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 25
basis points, plus (b) accrued interest on the principal amount of such
Securities to the Redemption Date plus (c) any accrued Additional Amounts.
"Treasury Rate" means, with respect to any Redemption Date, the rate per
annum equal to the semi-annual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such Redemption Date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of such Securities of this series to be redeemed that would
be utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining terms of such Securities of this series.
"Independent Investment Banker" means one of the Reference Treasury Dealers
appointed by the Trustee after consultation with the Company.
"Business Day," when used for purposes of calculating the Redemption Price,
shall mean a Business Day (as defined in the Indenture) in New York City, New
York.
"Comparable Treasury Price" means, with respect to any Redemption Date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such Redemption Date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for US
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, the average of
the Reference Treasury Dealer Quotations actually obtained by the Trustee for
such Redemption Date.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day preceding such Redemption Date.
"Reference Treasury Dealer" means each of Lehman Brothers Inc. and Morgan
Stanley & Co. Incorporated and their respective successors; provided, however,
that if either of the foregoing shall cease to be a primary US Government
securities dealer in New York City (a "Primary Treasury Dealer"), the Company
shall substitute therefor another Primary Treasury Dealer.
Notwithstanding Section 404 of the Indenture, the Trustee shall give the
bearer of this Security notice of any redemption hereof in such manner as the
Trustee deems necessary or desirable. So long as the Securities are listed on
the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so
require, notices to Holders of the Securities will be published in a leading
daily newspaper having general circulation in Luxembourg (which is expected to
be the Luxemburger Wort).
Upon payment of the Redemption Price, on and after the Redemption Date
interest and any Additional Amounts will cease to accrue on the Securities of
this series or portions thereof called for redemption.
The Company shall deliver to the Trustee before any Redemption Date for the
Securities of this series its calculation of the Redemption Price applicable to
such redemption. Except with respect to the obligations of the Trustee expressly
set forth in the foregoing definitions of "Comparable Treasury Issue" and
"Comparable Treasury Price," the Trustee shall be under no duty to inquire into,
may presume the correctness of, and shall be fully protected in acting upon the
Company's calculation of any Redemption Price of the Securities of this series.
In lieu of stating the Redemption Price, notices of redemption of the
Securities of this series shall state substantially the following: "The
Redemption Price of the Notes of the Securities of this series to be redeemed
shall equal the sum of (a) the greater of (i) 100% of the principal amount of
such Securities, and (ii) the sum of the present values of the remaining
scheduled payments of principal and interest thereon from the Redemption Date to
the maturity date, computed by discounting such payments, in each case, to the
Redemption Date on a semiannual basis (assuming a 360-day year consisting of
twelve 30-day months) at the Treasury Rate (as defined in the Indenture) plus 25
basis points plus accrued interest on the principal amount hereof to the
Redemption Date plus accrued Additional Amounts, if any."
Except as provided herein, Article Four of the Indenture shall apply to
redemptions of the Securities of this series.
If the Company or the Guarantor is required to pay Additional Amounts with
respect to Securities of this series, the Company has the right to redeem this
Security as set forth in the Officer's Certificate described above.
The Indenture contains provisions for defeasance at any time of the entire
indebtedness of this Security upon compliance with certain conditions set forth
in the Indenture including the Officer's Certificate described above.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the Securities at
the time Outstanding of all series to be affected. The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding, on behalf of the
Holders of all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of a majority in aggregate principal
amount of the Securities of all series at the time Outstanding in respect of
which an Event of Default shall have occurred and be continuing shall have made
written request to the Trustee to institute proceedings in respect of such Event
of Default as Trustee and offered the Trustee reasonable indemnity, and the
Trustee shall not have received from the Holders of a majority in aggregate
principal amount of Securities of all series at the time Outstanding in respect
of which an Event of Default shall have occurred and be continuing a direction
inconsistent with such request, and shall have failed to institute any such
proceeding, for 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal hereof or any
premium or interest hereon on or after the respective due dates expressed
herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Security at the times, place and rate, and in the coin or currency,
herein prescribed.
The Indenture contains terms, provisions and conditions relating to the
consolidation or merger of the Company or the Guarantor with or into, and the
conveyance or other transfer, or lease, of assets to another Person and to the
release and discharge of the Company or the Guarantor, as the case may be, in
certain circumstances from such obligations.
The Securities of this series are issuable only in registered form without
coupons in denominations of $10,000 and in integral multiples of $1,000 in
excess thereof; except that Securities of this series issued or transferred to
institutional "accredited investors," as defined in Rule 501(a)(1), (2), (3) or
(7) of Regulation D of the Securities Act, will be in a minimum principal amount
of $250,000. As provided in the Indenture and subject to certain limitations
therein set forth, Securities of this series are exchangeable for a like
aggregate principal amount of Securities of this series and of like tenor and of
authorized denominations, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
The bearer of this Security shall be treated as the owner of it for all
purposes, subject to the terms of the Indenture. As provided in the Indenture
and subject to certain limitations therein set forth, Securities of this series
are exchangeable for a like aggregate principal amount of Securities of this
series and of like tenor of a different authorized denomination, as requested by
the Holder surrendering the same.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture and in the Officer's
Certificate establishing the terms of the Securities of this series.
INTEREST PAYMENT SCHEDULE
Instructions to Paying Agent: Mark the box across from the appropriate
Interest Payment Date when the interest payable on such date has been paid.
Interest Payment Date (Mark When Interest is Paid)
November 15, 1999 |_|
May 15, 2000 |_|
November 15, 2000 |_|
May 15, 2001 |_|
November 15, 2001 |_|
May 15, 2002 |_|
November 15, 2002 |_|
May 15, 2003 |_|
November 15, 2003 |_|
May 15, 2004 |_|
November 15, 2004 |_|
May 15, 2005 |_|
November 15, 2005 |_|
May 15, 2006 |_|
November 15, 2006 |_|
May 15, 2007 |_|
November 15, 2007 |_|
May 15, 2008 |_|
November 15, 2008 |_|
PRINCIPAL PAYMENT SCHEDULE
PRINCIPAL AMOUNT OF THIS GLOBAL BEARER SENIOR NOTE
The outstanding aggregate principal amount of this Global Bearer Senior Note is
initially as shown on the face of this Global Bearer Senior Note and, pursuant
thereto, by the latest entry made by or on behalf of the Issuer in the third
column below. Reductions in the principal amount of this Global Bearer Senior
Note following, among other things, partial redemptions, exchange of an interest
in this Global Bearer Senior Note for certificated Senior Notes of this series,
exchange of an interest in this Global Bearer Senior Note for an interest in a
Global Bearer Senior Note of the Sixth Series, or exchange of an interest in
this Global Bearer Senior Note for an interest in another Global Bearer Senior
Note of this series of Securities, and increases in the principal amount of this
Global Bearer Senior Note following exchange of an interest in another Global
Bearer Senior Note of this series for an interest in this Global Bearer Senior
Note, are entered in the second column below.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
OUTSTANDING
PRINCIPAL AMOUNT
OF THIS GLOBAL
BEARER SENIOR
AMOUNT OF NOTE FOLLOWING TRUSTEE'S
(REDUCTION)/ SUCH (REDUCTION)/ AUTHENTICATION
DATE INCREASE INCREASE SIGNATURE
- ---------------- --------------- -------------- ---------------
- ---------------- --------------- -------------- ---------------
- ---------------- --------------- -------------- ---------------
- ---------------- --------------- -------------- ---------------
- ---------------- --------------- -------------- ---------------
- ---------------- --------------- -------------- ---------------
- ---------------- --------------- -------------- ---------------
- ---------------- --------------- -------------- ---------------
- ---------------- --------------- -------------- ---------------
</TABLE>
<PAGE>
EXHIBIT B
[non-registration legend]
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR WITH ANY SECURITIES REGULATORY AUTHORITY OF
ANY STATE OR OTHER JURISDICTION OF THE UNITED STATES AND MAY NOT BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED OTHER THAN (A) (1) TO TXU EASTERN FUNDING
COMPANY OR TXU EASTERN HOLDINGS LIMITED, (2) IN A TRANSACTION ENTITLED TO AN
EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT, (3)
SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS
A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (4) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE
904 OF REGULATION S UNDER THE SECURITIES ACT, (5) TO AN INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT, IN A MINIMUM PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, AND
THAT IS ACQUIRING THE SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION
OR (6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT,
AND (B) IN EACH CASE IN ACCORDANCE WITH ALL THE APPLICABLE SECURITIES LAWS OF
THE STATES OF THE UNITED STATES"
[registration rights legend]
The Holder of this Security, by acceptance hereof, will be deemed to have
agreed to be bound by the provisions of the Registration Rights Agreement dated
May 13, 1999, among the Company, the Guarantor and the initial purchasers of
this Security.
NO. ___ CUSIP NO. ___
[FORM OF FACE OF CERTIFICATED SENIOR NOTE]
TXU EASTERN FUNDING COMPANY
6.75% SENIOR NOTES DUE MAY 15, 2009
TXU Eastern Funding Company, a corporation duly incorporated and existing
under the laws of England and Wales (herein referred to as the "Company", which
term includes any successor Person under the Indenture), for value received,
hereby promises to pay to or registered assigns, the principal sum of
$500,000,000 Dollars on May 15, 2009, and to pay interest on said principal sum
semi-annually in arrears on May 15 and November 15 of each year (each an
Interest Payment Date) at the rate of 6.75% per annum until the principal hereof
is paid or made available for payment. Interest on the Securities of this series
shall be computed on the basis of a 360-day year consisting of twelve 30-day
months and for any period shorter than a full month, on the basis of the actual
number of days elapsed in such period. Interest on the Securities of this series
will accrue from May 13, 1999, to the first Interest Payment Date (which shall
be November 15, 1999), and thereafter will accrue from the last Interest Payment
Date to which interest has been paid or duly provided for. In the event that any
Interest Payment Date is not a Business Day, then payment of interest payable on
such date will be made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of such delay) with the same
force and effect as if made on the Interest Payment Date. The interest so
payable, and punctually paid or duly provided for, on any Interest Payment Date
will, as provided in such Indenture, be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest, which shall be the 15th
day of the calendar month next preceding such Interest Payment Date. Any such
interest not so punctually paid or duly provided for will forthwith cease to be
payable to the Holder on such Regular Record Date and may either be paid to the
Person in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice whereof shall be
given to Holders of Securities of this series not less than 10 days prior to
such Special Record Date, or be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which the
Securities of this series may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in the Indenture referred to on the
reverse hereof.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in The City of New York, the State of New York and, for so long as this
Security shall be listed on the Luxembourg Stock Exchange, in Luxembourg, in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
TXU EASTERN FUNDING COMPANY
By: _______________________
<PAGE>
[FORM OF GUARANTEE]
TXU Eastern Holdings Limited, a corporation incorporated under the laws of
England and Wales (the "Guarantor", which term includes any successor under the
Indenture (the "Indenture") referred to in the Security upon which this
Guarantee is endorsed), for value received, hereby unconditionally and
irrevocably guarantees to the Holder of the Security upon which this Guarantee
is endorsed, the due and punctual payment of the principal of, and premium, if
any, and interest on such Security when and as the same shall become due and
payable, whether at the Stated Maturity, by declaration of acceleration, call
for redemption, or otherwise, in accordance with the terms of such Security and
of the Indenture, regardless of any defense, right of set-off or counterclaim
that the Guarantor may have (except the defense of payment). In case of the
failure of TXU Eastern Funding Company, a corporation incorporated under the
laws of England and Wales (the "Company", which term includes any successor
under the Indenture), punctually to make any such payment, the Guarantor hereby
agrees to cause such payment to be made punctually when and as the same shall
become due and payable, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise, and as if such payment were made
by the Company. The Guarantor's obligation to make a guarantee payment may be
satisfied by direct payment of the required amounts by the Guarantor to the
Holder of such Security or to a Paying Agent, or by causing the Company to pay
such amount to such Holder or a Paying Agent.
Except as provided pursuant to Section 608 of the Indenture, this Guarantee
is an unsecured and unsubordinated obligation of the Guarantor and shall at all
times rank at least pari passu with each other Guarantee issued pursuant to the
Indenture and, except as permitted by Sections 608 and 806 of the Indenture,
will rank at least pari passu with all other unsecured unsubordinated
indebtedness of the Guarantor.
The Guarantor hereby agrees that its obligations hereunder shall be
absolute and unconditional irrespective of, and shall be unaffected by, any
invalidity, irregularity or unenforceability of such Security or the Indenture,
any failure to enforce the provisions of such Security or the Indenture, any
extension of time for payment or performance by the Company as provided by such
Security or the Indenture, or any waiver, modification or indulgence granted to
the Company with respect thereto, by the Holder of such Security or the Trustee
or any other circumstance which may otherwise constitute a legal or equitable
discharge or defense of a surety or guarantor; provided, however, that
notwithstanding the foregoing, no such waiver, modification or indulgence shall,
without the consent of the Guarantor, increase the principal amount of such
Security, or increase the interest rate thereon, or change any redemption
provisions thereof (including any change to increase any premium payable upon
redemption thereof) or change the Stated Maturity thereof.
The Guarantor hereby waives the benefits of diligence, presentment, demand
for payment, any requirement that the Trustee or the Holder of such Security
exhaust any right or take any action against the Company or any other Person,
filing of claims with a court in the event of insolvency or bankruptcy of the
Company, any right to require a proceeding first against the Company, protest or
notice with respect to such Security or the indebtedness evidenced thereby and
all demands whatsoever, and covenants that this Guarantee will not be discharged
in respect of such Security except by complete performance of the obligations
contained in such Security and in this Indenture and in this Guarantee. This
Guarantee shall constitute a guarantee of payment and not of collection. The
Guarantor hereby agrees that, in the event of a default in payment of principal,
or premium, if any, or interest, if any, on such Security, whether at its Stated
Maturity, by declaration of acceleration, call for redemption, or otherwise,
legal proceedings may be instituted by the Trustee on behalf of, or by, the
Holder of such Security, subject to the terms and conditions set forth in the
Indenture, directly against the Guarantor to enforce this Guarantee without
first proceeding against the Company. The Guarantor agrees that if, after the
occurrence and during the continuance of an Event of Default, the Trustee or any
of the Holders are prevented by applicable law from exercising their respective
rights to accelerate the maturity of the Securities, to collect interest on the
Securities, the Guarantor will pay to the Trustee for the account of the
Holders, upon demand therefor, the amount that would otherwise have been due and
payable had such rights and remedies been permitted to be exercised by the
Trustee or any of the Holders.
The obligations of the Guarantor hereunder with respect to such Security
shall be continuing and irrevocable until the date upon which the entire
principal of, premium, if any, and interest and Additional Amounts, if any, on
such Security has been, or has been deemed pursuant to the provisions of Article
Seven of the Indenture to have been, paid in full or otherwise discharged.
The Guarantor shall be subrogated to all rights of the Holder of each
Security upon which its Guarantee is endorsed against the Company in respect of
any amounts paid by the Guarantor on account of such Security pursuant to the
provisions of its Guarantee or the Indenture; provided, however, that the
Guarantor shall not be entitled to enforce or to receive any payments arising
out of, or based upon, such right of subrogation until the principal of, and
premium, if any, and interest, if any, and Additional Amounts, if any, on all
Securities issued under the Indenture shall have been paid in full.
This Guarantee shall remain in full force and effect and continue
notwithstanding any petition filed by or against the Company for liquidation or
reorganization, the Company becoming insolvent or making an assignment for the
benefit of creditors or a receiver or trustee being appointed for all or any
significant part of the Company's assets, and shall, to the fullest extent
permitted by law, continue to be effective or reinstated, as the case may be, if
at any time payment of the Security upon which this Guarantee is endorsed, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by the Holder of such Security, whether as a "voidable
preference," "fraudulent transfer," or otherwise, all as though such payment or
performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned on such Security, such
Security shall, to the fullest extent permitted by law, be reinstated and deemed
paid only by such amount paid and not so rescinded, reduced, restored or
returned.
This Guarantee shall not be valid or obligatory for any purpose until the
certificate of authentication of the Security upon which this Guarantee is
endorsed shall have been manually executed by or on behalf of the Trustee under
the Indenture.
All terms used in this Guarantee which are defined in the Indenture shall
have the meanings assigned to them in such Indenture.
This Guarantee shall be deemed to be a contract made under the laws of the
State of New York, and for all purposes shall be governed by and construed in
accordance with the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be executed
as of the date first written above.
TXU EASTERN HOLDINGS LIMITED
By: ________________________
<PAGE>
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities of the series designated therein and the
Guarantee thereof referred to in the within-mentioned Indenture.
THE BANK OF NEW YORK, as Trustee
By:________________________________
Authorized Signatory
<PAGE>
[FORM OF REVERSE OF CERTIFICATED SENIOR NOTE]
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture (For Unsecured Debt Securities), dated as of May 1,
1999 (herein, together with any amendments thereto, called the "Indenture",
which term shall have the meaning assigned to it in such instrument), among the
Company, TXU Eastern Holdings Limited, as Guarantor (herein called the
"Guarantor," which term includes any successor under the Indenture) and The Bank
of New York, as Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), and reference is hereby made to the
Indenture, including the Board Resolutions and Officer's Certificate filed with
the Trustee on May 13, 1999, creating the series designated on the face hereof,
for a statement of the respective rights, limitations of rights, duties and
immunities thereunder of the Company, the Guarantor, the Trustee and the Holders
of the Securities and of the terms upon which the Securities are, and are to be,
authenticated and delivered. This Security is one of the series designated on
the face hereof.
Each purchaser of this Security represents and agrees as follows:
(1) it is acquiring the Security for its own account or for an account
with respect to which it exercises sole investment discretion, and that it
or such account, as the case may be, is a Qualified Institutional Buyer (as
defined under the United States Securities Act of 1933, as amended (the
"Securities Act")), a foreign purchaser outside the United States or an
institutional "accredited investor" acquiring the Security for investment
purposes and not for distribution;
(2) it acknowledges that the offer and sale of the Security have not
been registered under the Securities Act and such Security may not be
resold except as permitted below;
(3) it understands and agrees that such Security is being offered only
in a transaction not involving any public offering within the meaning of
the Securities Act, and that (A) if it decides to resell, pledge or
otherwise transfer the Security, the Security may be resold, pledged or
transferred only (i) to the Company or the Guarantor, (ii) in a transaction
entitled to an exemption from registration provided by Rule 144 under the
Securities Act ("Rule 144"), (iii) so long as such Security is eligible for
resale pursuant to Rule 144A under the Securities Act ("Rule 144A"), to a
person whom the seller reasonably believes is a Qualified Institutional
Buyer that purchases for its own account or for the account of a Qualified
Institutional Buyer to whom notice is given that the resale, pledge or
transfer is being made in reliance on Rule 144A, (iv) in an offshore
transaction in accordance with Rule 904 of Regulation S of the Securities
Act, (v) to an institutional "accredited investor" as defined in Rule
501(a)(1), (2), (3), or (7) of Regulation D under the Securities Act
acquiring the Security, in a minimum principal amount of $250,000, for
investment purposes and not for distribution (an "IAI Purchaser"), and (vi)
pursuant to an effective registration statement under the Securities Act,
and (B) it will, and each subsequent holder is required to, notify any
purchaser of the Security from it of the resale restrictions referred to in
(A) above, if then applicable. Before any Security may be offered, sold,
pledged or otherwise transferred by a Qualified Institutional Buyer to a
person who is not a Qualified Institutional Buyer or by a purchaser who
purchases the Security in an offshore transaction in accordance with Rule
904 of Regulation S of the Securities Act (a "Regulation S Purchaser") to a
person who is not a Regulation S Purchaser, the transferee must provide the
Trustee with a written certification as to the compliance with the transfer
restrictions referred to above. If any resale or other transfer of the
Security is proposed to be made pursuant to clause (v) above, the
transferor shall deliver a letter from the transferee (the form of which
may be obtained from the Company or the Trustee) to the Company, the
Guarantor and the Trustee, which shall provide among other things, that the
transferee is an institutional "accredited investor" that is acquiring such
Security for investment purposes and not for distribution in violation of
the Securities Act. Each purchaser of this Security acknowledges that the
Company, the Guarantor and the Trustee reserve the right prior to any
offer, sale or other transfer of such Security pursuant to clauses (ii),
(iv) or (v) above to require the delivery of an opinion of counsel,
certifications and/or other information satisfactory to the Company, the
Guarantor and the Trustee that the proposed sale complies with the
foregoing restrictions. An IAI Purchaser may not transfer its Interest in
an Initial Senior Note to another IAI Purchaser;
(4) it (i) is able to fend for itself in the transactions contemplated
by the offering memorandum dated May 6, 1999; (ii) has such knowledge and
experience in financial and business matters as to be capable of evaluating
the merits and risks of its prospective investment in Security; (iii) has
the ability to bear the economic risks of its prospective investment and
can afford the complete loss of such investment; and (iv) acknowledges that
it may be required to bear the financial risks of this investment for an
indefinite period of time;
(5) if it is (i) a purchaser in a sale that occurs outside the U.S.
within the meaning of Regulation S of the Securities Act, or (ii) a
"distributor," "dealer" or person "receiving a selling concession, fee or
other remuneration" in respect of Securities sold, prior to the expiration
of the Restricted Period (as defined below), it acknowledges that until the
expiration of the Restricted Period any offer or sale of the Security shall
not be made by it to a U.S. person or for the account or benefit of a U.S.
person within the meaning of Rule 902(k) of the Securities Act, except
offers or sales made pursuant to Rule 144A. The "Restricted Period" means,
with respect to the Security, the 40-day period following the later of (i)
the date on which such Securities are first offered to persons other than
distributors (as defined in Regulation S) and (ii) the original issue date
of such Securities;
(6) if it is a foreign purchaser, it acknowledges that, until the
expiration of the Restricted Period, it may not, directly or indirectly,
reoffer, resell, pledge or otherwise transfer a Security or any interest
therein except to a person who certifies in writing to the Trustee that
such transfer satisfies, as applicable, the requirements of the legend on
the Security and that none of the Securities will be accepted for
registration of any transfer prior to the end of the Restricted Period
unless the transferee has first complied with the certification
requirements described in this paragraph;
(7) it acknowledges that no part of the funds to be used to purchase
the Security to be purchased by such purchaser constitutes assets which are
directly or indirectly the assets of any employee benefit plan such the use
of such assets constitutes a non-exempt prohibited transaction under the
U.S. Employee Retirement Income Security Act of 1974, as amended (ERISA),
or the U.S. Internal Revenue Code of 1986, as amended. As used in this
paragraph, the term "employee benefit plan" shall have the meaning assigned
to such term in Section 3 of ERISA;
(8) it understands that the Company, the Guarantor, the initial
purchasers, the Trustee, the Paying Agents and others will rely upon the
truth and accuracy of the foregoing acknowledgements, representations and
agreements and agrees that if any of the acknowledgements, representations
and warranties deemed to have been made by it by its purchase of the
Security are no longer accurate, it shall promptly notify the Company, the
Guarantor and the initial purchasers. If it is acquiring the Security as a
fiduciary or agent for one or more investor accounts, it represents that it
has sole investment discretion with respect to each such account and it has
full power to make the foregoing acknowledgements, representations and
agreements on behalf of such account.
The Securities of this series will be redeemable as a whole at any time or
in part, from time to time, at the option of the Company, at a Redemption Price
equal to the sum of (a) the greater of (i) 100% of the principal amount of the
Securities of this series to be redeemed, and (ii) the sum of the present values
of the remaining scheduled payments of principal and interest on such Securities
from the Redemption Date to the maturity date, computed by discounting such
payments, in each case, to the Redemption Date on a semi-annual basis (assuming
a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 25
basis points, plus (b) accrued interest on the principal amount of such
Securities to the Redemption Date plus (c) any accrued Additional Amounts.
"Treasury Rate" means, with respect to any Redemption Date, the rate per
annum equal to the semi-annual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such Redemption Date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of such Securities of this series to be redeemed that would
be utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining terms of such Securities of this series.
"Independent Investment Banker" means one of the Reference Treasury Dealers
appointed by the Trustee after consultation with the Company.
"Business Day," when used for purposes of calculating the Redemption Price,
shall mean a Business Day (as defined in the Indenture) in New York City, New
York.
"Comparable Treasury Price" means, with respect to any Redemption Date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such Redemption Date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for US
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, the average of
the Reference Treasury Dealer Quotations actually obtained by the Trustee for
such Redemption Date.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day preceding such Redemption Date.
"Reference Treasury Dealer" means each of Lehman Brothers Inc. and Morgan
Stanley & Co. Incorporated and their respective successors; provided, however,
that if either of the foregoing shall cease to be a primary US Government
securities dealer in New York City (a "Primary Treasury Dealer"), the Company
shall substitute therefor another Primary Treasury Dealer.
Notice of any redemption will be mailed at least 30 days but no more than
60 days before the Redemption Date to each Holder of the Securities of this
series to be redeemed.
Upon payment of the Redemption Price, on and after the Redemption Date
interest and any Additional Amounts will cease to accrue on the Securities of
this series or portions thereof called for redemption.
The Company shall deliver to the Trustee before any Redemption Date for the
Securities of this series its calculation of the Redemption Price applicable to
such redemption. Except with respect to the obligations of the Trustee expressly
set forth in the foregoing definitions of "Comparable Treasury Issue" and
"Comparable Treasury Price," the Trustee shall be under no duty to inquire into,
may presume the correctness of, and shall be fully protected in acting upon the
Company's calculation of any Redemption Price of the Securities of this series.
In lieu of stating the Redemption Price, notices of redemption of the
Securities of this series shall state substantially the following: "The
Redemption Price of the Securities of this series to be redeemed shall equal the
sum of (a) the greater of (i) 100% of the principal amount of such Securities,
and (ii) the sum of the present values of the remaining scheduled payments of
principal and interest thereon from the Redemption Date to the maturity date,
computed by discounting such payments, in each case, to the Redemption Date on a
semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at
the Treasury Rate (as defined in the Indenture) plus 25 basis points plus
accrued interest on the principal amount hereof to the Redemption Date plus
accrued Additional Amounts, if any."
Except as provided herein, Article Four of the Indenture shall apply to
redemptions of the Securities of this series.
If the Company or the Guarantor is required to pay Additional Amounts with
respect to Securities of this series, the Company has the right to redeem this
Security as set forth in the Officer's Certificate described above.
The Indenture contains provisions for defeasance at any time of the entire
indebtedness of this Security upon compliance with certain conditions set forth
in the Indenture including the Officer's Certificate described above.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the Securities at
the time Outstanding of all series to be affected. The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding, on behalf of the
Holders of all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of a majority in aggregate principal
amount of the Securities of all series at the time Outstanding in respect of
which an Event of Default shall have occurred and be continuing shall have made
written request to the Trustee to institute proceedings in respect of such Event
of Default as Trustee and offered the Trustee reasonable indemnity, and the
Trustee shall not have received from the Holders of a majority in aggregate
principal amount of Securities of all series at the time Outstanding in respect
of which an Event of Default shall have occurred and be continuing a direction
inconsistent with such request, and shall have failed to institute any such
proceeding, for 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal hereof or any
premium or interest hereon on or after the respective due dates expressed
herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Security at the times, place and rate, and in the coin or currency,
herein prescribed.
The Indenture contains terms, provisions and conditions relating to the
consolidation or merger of the Company or the Guarantor with or into, and the
conveyance or other transfer, or lease, of assets to another Person and to the
release and discharge of the Company or the Guarantor, as the case may be, in
certain circumstances from such obligations.
The Securities of this series are issuable only in registered form without
coupons in denominations of $10,000 and in integral multiples of $1,000 in
excess thereof; except that Securities of this series issued or transferred to
institutional "accredited investors," as defined in Rule 501(a)(1), (2), (3) or
(7) of Regulation D of the Securities Act, will be in a minimum principal amount
of $250,000. As provided in the Indenture and subject to certain limitations
therein set forth, Securities of this series are exchangeable for a like
aggregate principal amount of Securities of this series and of like tenor and of
authorized denominations, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name this Security is registered as the absolute owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture and in the Officer's
Certificate establishing the terms of the Securities of this series.
<PAGE>
[CERTIFICATE OF TRANSFER]
6.75% SENIOR NOTES DUE MAY 15, 2009
FOR VALUE RECEIVED, the undersigned sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
Name and address of assignee must be printed or typewritten.
________________________________________________________________________________
the within Security of the Company and does hereby irrevocably constitute and
appoint
________________________________________________________________________________
to transfer the said Security on the books of the within-named Company, with
full power of substitution in the premises.
The undersigned certifies that said Security is being resold, pledged or
otherwise transferred as follows: (check one)
|_| to the Company or the Guarantor;
|_| to a Person whom the undersigned reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act") purchasing
for its own account or for the account of a qualified institutional
buyer to whom notice is given that the resale, pledge or other transfer
is being made in reliance on Rule 144A;
|_| in an offshore transaction in accordance with Rule 904 of Regulation S
under the Securities Act;
|_| to an institution that is an "accredited investor" as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act that is acquiring
the Security for investment purposes and not for distribution (attach a
copy of an Accredited Investor Letter in the form provided by the
Company or Trustee signed by an authorized officer of the transferee);
|_| as otherwise permitted by the non-registration legend appearing on this
Security; or
|_| as otherwise agreed by the Company or the Guarantor, as the case may
be, confirmed in writing to the Trustee, as follows: [describe]
_______________________________________________________________________
_______________________________________________________________________
Dated: _____________________ _____________________________
<PAGE>
EXHIBIT C
[FORM OF FACE OF EXCHANGE NOTE]
GLOBAL BEARER FORM
NO._______________ CUSIP NO.__________
TXU EASTERN FUNDING COMPANY
6.75% EXCHANGE SENIOR NOTES DUE MAY 15, 2009
TXU Eastern Funding Company, a corporation duly incorporated and existing
under the laws of England and Wales (herein referred to as the "Company", which
term includes any successor Person under the Indenture), for value received,
hereby promises to pay to the bearer upon surrender hereof, the principal sum of
$500,000,000 Dollars on May 15, 2009, and to pay interest on said principal sum
semi-annually in arrears on May 15 and November 15 of each year (each an
Interest Payment Date) at the rate of 6.75% per annum until the principal hereof
is paid or made available for payment. Interest on the Securities of this series
shall be computed on the basis of a 360 day year consisting of twelve 30-day
months and for any period shorter than a full month, on the basis of the actual
number of days elapsed in such period. Interest on the Securities of this series
will accrue from __, to the first Interest Payment Date (which shall be __), and
thereafter will accrue from the last Interest Payment Date to which interest has
been paid or duly provided for. In the event that any Interest Payment Date is
not a Business Day, then payment of interest payable on such date will be made
on the next succeeding day which is a Business Day (and without any interest or
other payment in respect of such delay) with the same force and effect as if
made on the Interest Payment Date. The interest so payable, and punctually paid
or duly provided for, on any Interest Payment Date will be paid upon
presentation to the Paying Agent; the Paying Agent shall mark this Security in
the appropriate box on the Interest Payment Schedule included therein to
indicate that the interest payment has been made. Payments of any Defaulted
Interest will be paid to the bearer hereof at the time of presentation.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in The City of New York, the State of New York and, for so long as the
Securities of this series shall be listed on the Luxembourg Stock Exchange, in
Luxembourg, in such coin or currency of the United States of America as at the
time of payment is legal tender for payment of public and private debts.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
TXU EASTERN FUNDING COMPANY
By:________________________
<PAGE>
[FORM OF GUARANTEE]
TXU Eastern Holdings Limited, a corporation incorporated under the laws of
England and Wales (the "Guarantor", which term includes any successor under the
Indenture (the "Indenture") referred to in the Security upon which this
Guarantee is endorsed), for value received, hereby unconditionally and
irrevocably guarantees to the Holder of the Security upon which this Guarantee
is endorsed, the due and punctual payment of the principal of, and premium, if
any, and interest on such Security when and as the same shall become due and
payable, whether at the Stated Maturity, by declaration of acceleration, call
for redemption, or otherwise, in accordance with the terms of such Security and
of the Indenture, regardless of any defense, right of set-off or counterclaim
that the Guarantor may have (except the defense of payment). In case of the
failure of TXU Eastern Funding Company, a corporation incorporated under the
laws of England and Wales (the "Company", which term includes any successor
under the Indenture), punctually to make any such payment, the Guarantor hereby
agrees to cause such payment to be made punctually when and as the same shall
become due and payable, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise, and as if such payment were made
by the Company. The Guarantor's obligation to make a guarantee payment may be
satisfied by direct payment of the required amounts by the Guarantor to the
Holder of such Security or to a Paying Agent, or by causing the Company to pay
such amount to such Holder or a Paying Agent.
Except as provided pursuant to Section 608 of the Indenture, this Guarantee
is an unsecured and unsubordinated obligation of the Guarantor and shall at all
times rank at least pari passu with each other Guarantee issued pursuant to the
Indenture and, except as permitted by Sections 608 and 806 of the Indenture,
will rank at least pari passu with all other unsecured unsubordinated
indebtedness of the Guarantor.
The Guarantor hereby agrees that its obligations hereunder shall be
absolute and unconditional irrespective of, and shall be unaffected by, any
invalidity, irregularity or unenforceability of such Security or the Indenture,
any failure to enforce the provisions of such Security or the Indenture, any
extension of time for payment by the Company as provided by such Security, or
any waiver, modification or indulgence granted to the Company with respect
thereto, by the Holder of such Security or the Trustee or any other circumstance
which may otherwise constitute a legal or equitable discharge or defense of a
surety or guarantor; provided, however, that notwithstanding the foregoing, no
such waiver, modification or indulgence shall, without the consent of the
Guarantor, increase the principal amount of such Security, or increase the
interest rate thereon, or change any redemption provisions thereof (including
any change to increase any premium payable upon redemption thereof) or change
the Stated Maturity thereof.
The Guarantor hereby waives the benefits of diligence, presentment, demand
for payment, any requirement that the Trustee or the Holder of such Security
exhaust any right or take any action against the Company or any other Person,
filing of claims with a court in the event of insolvency or bankruptcy of the
Company, any right to require a proceeding first against the Company, protest or
notice with respect to such Security or the indebtedness evidenced thereby and
all demands whatsoever, and covenants that this Guarantee will not be discharged
in respect of such Security except by complete performance of the obligations
contained in such Security and in this Indenture and in this Guarantee. This
Guarantee shall constitute a guarantee of payment and not of collection. The
Guarantor hereby agrees that, in the event of a default in payment of principal,
or premium, if any, or interest, if any, on such Security, whether at its Stated
Maturity, by declaration of acceleration, call for redemption, or otherwise,
legal proceedings may be instituted by the Trustee on behalf of, or by, the
Holder of such Security, subject to the terms and conditions set forth in the
Indenture, directly against the Guarantor to enforce this Guarantee without
first proceeding against the Company. The Guarantor agrees that if, after the
occurrence and during the continuance of an Event of Default, the Trustee or any
of the Holders are prevented by applicable law from exercising their respective
rights to accelerate the maturity of the Securities, to collect interest on the
Securities, or to enforce or exercise any other right or remedy with respect to
the Securities, the Guarantor will pay to the Trustee for the account of the
Holders, upon demand therefor, the amount that would otherwise have been due and
payable had such rights been permitted to be exercised by the Trustee or any of
the Holders.
The obligations of the Guarantor hereunder with respect to such Security
shall be continuing and irrevocable until the date upon which the entire
principal of, premium, if any, and interest and Additional Amounts, if any, on
such Security has been, or has been deemed pursuant to the provisions of Article
Seven of the Indenture to have been, paid in full or otherwise discharged.
The Guarantor shall be subrogated to all rights of the Holder of each
Security upon which its Guarantee is endorsed against the Company in respect of
any amounts paid by the Guarantor on account of such Security pursuant to the
provisions of its Guarantee or the Indenture; provided, however, that the
Guarantor shall not be entitled to enforce or to receive any payments arising
out of, or based upon, such right of subrogation until the principal of, and
premium, if any, and interest, if any, and Additional Amounts, if any, on all
Securities issued under the Indenture shall have been paid in full.
This Guarantee shall remain in full force and effect and continue
notwithstanding any petition filed by or against the Company for liquidation or
reorganization, the Company becoming insolvent or making an assignment for the
benefit of creditors or a receiver or trustee being appointed for all or any
significant part of the Company's assets, and shall, to the fullest extent
permitted by law, continue to be effective or reinstated, as the case may be, if
at any time payment of the Security upon which this Guarantee is endorsed, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by the Holder of such Security, whether as a "voidable
preference," "fraudulent transfer," or otherwise, all as though such payment or
performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned on such Security, such
Security shall, to the fullest extent permitted by law, be reinstated and deemed
paid only by such amount paid and not so rescinded, reduced, restored or
returned.
This Guarantee shall not be valid or obligatory for any purpose until the
certificate of authentication of the Security upon which this Guarantee is
endorsed shall have been manually executed by or on behalf of the Trustee under
the Indenture.
All terms used in this Guarantee which are defined in the Indenture shall
have the meanings assigned to them in such Indenture.
This Guarantee shall be deemed to be a contract made under the laws of the
State of New York, and for all purposes shall be governed by and construed in
accordance with the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be executed
as of the date first written above.
TXU EASTERN HOLDINGS LIMITED
By: ________________________
<PAGE>
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities of the series designated therein and the
Guarantee thereof referred to in the within-mentioned Indenture.
THE BANK OF NEW YORK, as Trustee
By:_____________________________
Authorized Signatory
<PAGE>
[FORM OF REVERSE OF EXCHANGE NOTE]
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture (for Unsecured Debt Securities), dated as of May 1,
1999 (herein, together with any amendments thereto, called the "Indenture",
which term shall have the meaning assigned to it in such instrument), between
the Company and The Bank of New York, as Trustee (herein called the "Trustee",
which term includes any successor trustee under the Indenture), and reference is
hereby made to the Indenture, including the Board Resolutions and Officer's
Certificate filed with the Trustee on May 13, 1999, creating the series
designated on the face hereof, for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Trustee and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered. This Security is one
of the series designated on the face hereof.
The Securities of this series will be redeemable as a whole at any time or
in part, from time to time, at the option of the Company, at a Redemption Price
equal to the sum of (a) the greater of (i) 100% of the principal amount of the
Securities of this series to be redeemed, and (ii) the sum of the present values
of the remaining scheduled payments of principal and interest on such Securities
from the Redemption Date to the maturity date, computed by discounting such
payments, in each case, to the Redemption Date on a semi-annual basis (assuming
a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 25
basis points, plus (b) accrued interest on the principal amount of such
Securities to the Redemption Date plus (c) any accrued Additional Amounts.
"Treasury Rate" means, with respect to any Redemption Date, the rate per
annum equal to the semi-annual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such Redemption Date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of such Securities of this series to be redeemed that would
be utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining terms of such Securities of this series.
"Independent Investment Banker" means one of the Reference Treasury Dealers
appointed by the Trustee after consultation with the Company.
"Business Day," when used for purposes of calculating the Redemption Price,
shall mean a Business Day (as defined in the Indenture) in New York City, New
York.
"Comparable Treasury Price" means, with respect to any Redemption Date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such Redemption Date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for US
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, the average of
the Reference Treasury Dealer Quotations actually obtained by the Trustee for
such Redemption Date.
<PAGE>
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day preceding such Redemption Date.
"Reference Treasury Dealer" means each of Lehman Brothers Inc. and Morgan
Stanley & Co. Incorporated and their respective successors; provided, however,
that if either of the foregoing shall cease to be a primary US Government
securities dealer in New York City (a "Primary Treasury Dealer"), the Company
shall substitute therefor another Primary Treasury Dealer.
Notwithstanding Section 404 of the Indenture, the Trustee shall give the
bearer of this Security notice of any redemption hereof in such manner as the
Trustee deems necessary or desirable. So long as the Securities are listed on
the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so
require, notices to Holders of the Securities will be published in a leading
daily newspaper having general circulation in Luxembourg (which is expected to
be the Luxemburger Wort).
Upon payment of the Redemption Price, on and after the Redemption Date
interest and any Additional Amounts will cease to accrue on the Securities of
this series or portions thereof called for redemption.
The Company shall deliver to the Trustee before any Redemption Date for the
Securities of this series its calculation of the Redemption Price applicable to
such redemption. Except with respect to the obligations of the Trustee expressly
set forth in the foregoing definitions of "Comparable Treasury Issue" and
"Comparable Treasury Price," the Trustee shall be under no duty to inquire into,
may presume the correctness of, and shall be fully protected in acting upon the
Company's calculation of any Redemption Price of the Securities of this series.
In lieu of stating the Redemption Price, notices of redemption of the
Securities of this series shall state substantially the following: "The
Redemption Price of the Securities of this series to be redeemed shall equal the
sum of (a) the greater of (i) 100% of the principal amount of such Securities,
and (ii) the sum of the present values of the remaining scheduled payments of
principal and interest thereon from the Redemption Date to the maturity date,
computed by discounting such payments, in each case, to the Redemption Date on a
semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at
the Treasury Rate (as defined in the Indenture) plus 25 basis points plus
accrued interest on the principal amount hereof to the Redemption Date plus
accrued Additional Amounts, if any."
Except as provided herein, Article Four of the Indenture shall apply to
redemptions of the Securities of this series.
If the Company or the Guarantor is required to pay Additional Amounts with
respect to Securities of this series, the Company has the right to redeem this
Security as set forth in the Officer's Certificate described above.
The Indenture contains provisions for defeasance at any time of the entire
indebtedness of this Security upon compliance with certain conditions set forth
in the Indenture, including the Officer's Certificate described above.
<PAGE>
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the Securities at
the time Outstanding of all series to be affected. The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding, on behalf of the
Holders of all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of a majority in aggregate principal
amount of the Securities of all series at the time Outstanding in respect of
which an Event of Default shall have occurred and be continuing shall have made
written request to the Trustee to institute proceedings in respect of such Event
of Default as Trustee and offered the Trustee reasonable indemnity, and the
Trustee shall not have received from the Holders of a majority in aggregate
principal amount of Securities of all series at the time Outstanding in respect
of which an Event of Default shall have occurred and be continuing a direction
inconsistent with such request, and shall have failed to institute any such
proceeding, for 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal hereof or any
premium or interest hereon on or after the respective due dates expressed
herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Security at the times, place and rate, and in the coin or currency,
herein prescribed.
The Securities of this series are issuable only in registered form without
coupons in denominations of $10,000 and in integral multiples of $1,000 in
excess thereof. As provided in the Indenture and subject to certain limitations
therein set forth, Securities of this series are exchangeable for a like
aggregate principal amount of Securities of this series and of like tenor and of
authorized denominations, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
The bearer of this Security shall be treated as the owner of it for all
purposes, subject to the terms of the Indenture. As provided in the Indenture
and subject to certain limitations therein set forth, Securities of this series
are exchangeable for a like aggregate principal amount of Securities of this
series and of like tenor of a different authorized denomination, as requested by
the Holder surrendering the same.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture and in the Officer's
Certificate establishing the terms of the Securities of this series.
INTEREST PAYMENT SCHEDULE
Instructions to Paying Agent: Mark the box across from the appropriate
Interest Payment Date when the interest payable on such date has been paid.
Interest Payment Date (Mark When Interest is Paid)
November 15, 1999 |_|
May 15, 2000 |_|
November 15, 2000 |_|
May 15, 2001 |_|
November 15, 2001 |_|
May 15, 2002 |_|
November 15, 2002 |_|
May 15, 2003 |_|
November 15, 2003 |_|
May 15, 2004 |_|
November 15, 2004 |_|
May 15, 2005 |_|
November 15, 2005 |_|
May 15, 2006 |_|
November 15, 2006 |_|
May 15, 2007 |_|
November 15, 2007 |_|
May 15, 2008 |_|
November 15, 2008 |_|
<PAGE>
PRINCIPAL PAYMENT SCHEDULE
PRINCIPAL AMOUNT OF THIS GLOBAL BEARER SENIOR NOTE
The outstanding aggregate principal amount of this Global Bearer Senior Note is
initially as shown on the face of this Global Bearer Senior Note and, pursuant
thereto, by the latest entry made by or on behalf of the Issuer in the third
column below. Reductions in the principal amount of this Global Bearer Senior
Note following, among other things, partial redemptions or exchange of an
interest in this Global Bearer Senior Note for certificated Senior Notes of this
series, and increases in the principal amount of this Global Bearer Senior Note
following exchange of an interest in a Global Bearer Senior Note of the Fifth
Series for an interest in this Global Bearer Senior Note, are entered in the
second column below.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
OUTSTANDING
PRINCIPAL AMOUNT
OF THIS GLOBAL
BEARER SENIOR
AMOUNT OF NOTE FOLLOWING TRUSTEE'S
(REDUCTION)/ SUCH (REDUCTION)/ AUTHENTICATION
DATE INCREASE INCREASE SIGNATURE
- -------------- -------------- -------------- -----------------
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</TABLE>
<PAGE>
EXHIBIT D
NO._______________ CUSIP NO.__________
[FORM OF FACE OF CERTIFICATED EXCHANGE NOTE]
TXU EASTERN FUNDING COMPANY
6.75% EXCHANGE SENIOR NOTES DUE MAY 15, 2009
TXU Eastern Funding Company, a corporation duly incorporated and existing
under the laws of England and Wales (herein referred to as the "Company", which
term includes any successor Person under the Indenture), for value received,
hereby promises to pay to
or registered assigns, the principal sum of $500,000,000 Dollars on May 15,
2009, and to pay interest on said principal sum semi-annually in arrears on May
15 and November 15 of each year (each an Interest Payment Date) at the rate of
6.75% per annum until the principal hereof is paid or made available for
payment. Interest on the Securities of this series shall be computed on the
basis of a 360 day year consisting of twelve 30-day months and for any period
shorter than a full month, on the basis of the actual number of days elapsed in
such period. Interest on the Securities of this series will accrue from __, to
the first Interest Payment Date (which shall be __), and thereafter will accrue
from the last Interest Payment Date to which interest has been paid or duly
provided for. In the event that any Interest Payment Date is not a Business Day,
then payment of interest payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of such delay) with the same force and effect as if made on
the Interest Payment Date. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in such Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the 15th day of the
calendar month next preceding such Interest Payment Date. Any such interest not
so punctually paid or duly provided for will forthwith cease to be payable to
the Holder on such Regular Record Date and may either be paid to the Person in
whose name this Security (or one or more Predecessor Securities) is registered
at the close of business on a Special Record Date for the payment of such
Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to
Holders of Securities of this series not less than 10 days prior to such Special
Record Date, or be paid at any time in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Securities of this
series may be listed, and upon such notice as may be required by such exchange,
all as more fully provided in the Indenture referred to on the reverse hereof.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in The City of New York, the State of New York and, for so long as this
Security shall be listed on the Luxembourg Stock Exchange, in Luxembourg, in
such coin or currency of the United States of America as at the time of payment
is legal tender for payment of public and private debts, provided, however,
that, at the option of the Company, interest on this Security may be paid by
check mailed to the address of the person entitled thereto, as such address
shall appear on the Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
TXU EASTERN FUNDING COMPANY
By:_________________________
<PAGE>
[FORM OF GUARANTEE]
TXU Eastern Holdings Limited, a corporation incorporated under the laws of
England and Wales (the "Guarantor", which term includes any successor under the
Indenture (the "Indenture") referred to in the Security upon which this
Guarantee is endorsed), for value received, hereby unconditionally and
irrevocably guarantees to the Holder of the Security upon which this Guarantee
is endorsed, the due and punctual payment of the principal of, and premium, if
any, and interest on such Security when and as the same shall become due and
payable, whether at the Stated Maturity, by declaration of acceleration, call
for redemption, or otherwise, in accordance with the terms of such Security and
of the Indenture, regardless of any defense, right of set-off or counterclaim
that the Guarantor may have (except the defense of payment). In case of the
failure of TXU Eastern Funding Company, a corporation incorporated under the
laws of England and Wales (the "Company", which term includes any successor
under the Indenture), punctually to make any such payment, the Guarantor hereby
agrees to cause such payment to be made punctually when and as the same shall
become due and payable, whether at the Stated Maturity or by declaration of
acceleration, call for redemption or otherwise, and as if such payment were made
by the Company. The Guarantor's obligation to make a guarantee payment may be
satisfied by direct payment of the required amounts by the Guarantor to the
Holder of such Security or to a Paying Agent, or by causing the Company to pay
such amount to such Holder or a Paying Agent.
Except as provided pursuant to Section 608 of the Indenture, this Guarantee
is an unsecured and unsubordinated obligation of the Guarantor and shall at all
times rank at least pari passu with each other Guarantee issued pursuant to the
Indenture and, except as permitted by Sections 608 and 806 of the Indenture,
will rank at least pari passu with all other unsecured unsubordinated
indebtedness of the Guarantor.
The Guarantor hereby agrees that its obligations hereunder shall be
absolute and unconditional irrespective of, and shall be unaffected by, any
invalidity, irregularity or unenforceability of such Security or the Indenture,
any failure to enforce the provisions of such Security or the Indenture, any
extension of time for payment by the Company as provided by such Security, or
any waiver, modification or indulgence granted to the Company with respect
thereto, by the Holder of such Security or the Trustee or any other circumstance
which may otherwise constitute a legal or equitable discharge or defense of a
surety or guarantor; provided, however, that notwithstanding the foregoing, no
such waiver, modification or indulgence shall, without the consent of the
Guarantor, increase the principal amount of such Security, or increase the
interest rate thereon, or change any redemption provisions thereof (including
any change to increase any premium payable upon redemption thereof) or change
the Stated Maturity thereof.
The Guarantor hereby waives the benefits of diligence, presentment, demand
for payment, any requirement that the Trustee or the Holder of such Security
exhaust any right or take any action against the Company or any other Person,
filing of claims with a court in the event of insolvency or bankruptcy of the
Company, any right to require a proceeding first against the Company, protest or
notice with respect to such Security or the indebtedness evidenced thereby and
all demands whatsoever, and covenants that this Guarantee will not be discharged
in respect of such Security except by complete performance of the obligations
contained in such Security and in this Indenture and in this Guarantee. This
Guarantee shall constitute a guarantee of payment and not of collection. The
Guarantor hereby agrees that, in the event of a default in payment of principal,
or premium, if any, or interest, if any, on such Security, whether at its Stated
Maturity, by declaration of acceleration, call for redemption, or otherwise,
legal proceedings may be instituted by the Trustee on behalf of, or by, the
Holder of such Security, subject to the terms and conditions set forth in the
Indenture, directly against the Guarantor to enforce this Guarantee without
first proceeding against the Company. The Guarantor agrees that if, after the
occurrence and during the continuance of an Event of Default, the Trustee or any
of the Holders are prevented by applicable law from exercising their respective
rights to accelerate the maturity of the Securities, to collect interest on the
Securities, or to enforce or exercise any other right or remedy with respect to
the Securities, the Guarantor will pay to the Trustee for the account of the
Holders, upon demand therefor, the amount that would otherwise have been due and
payable had such rights been permitted to be exercised by the Trustee or any of
the Holders.
The obligations of the Guarantor hereunder with respect to such Security
shall be continuing and irrevocable until the date upon which the entire
principal of, premium, if any, and interest and Additional Amounts, if any, on
such Security has been, or has been deemed pursuant to the provisions of Article
Seven of the Indenture to have been, paid in full or otherwise discharged.
The Guarantor shall be subrogated to all rights of the Holder of each
Security upon which its Guarantee is endorsed against the Company in respect of
any amounts paid by the Guarantor on account of such Security pursuant to the
provisions of its Guarantee or the Indenture; provided, however, that the
Guarantor shall not be entitled to enforce or to receive any payments arising
out of, or based upon, such right of subrogation until the principal of, and
premium, if any, and interest, if any, and Additional Amounts, if any, on all
Securities issued under the Indenture shall have been paid in full.
This Guarantee shall remain in full force and effect and continue
notwithstanding any petition filed by or against the Company for liquidation or
reorganization, the Company becoming insolvent or making an assignment for the
benefit of creditors or a receiver or trustee being appointed for all or any
significant part of the Company's assets, and shall, to the fullest extent
permitted by law, continue to be effective or reinstated, as the case may be, if
at any time payment of the Security upon which this Guarantee is endorsed, is,
pursuant to applicable law, rescinded or reduced in amount, or must otherwise be
restored or returned by the Holder of such Security, whether as a "voidable
preference," "fraudulent transfer," or otherwise, all as though such payment or
performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned on such Security, such
Security shall, to the fullest extent permitted by law, be reinstated and deemed
paid only by such amount paid and not so rescinded, reduced, restored or
returned.
This Guarantee shall not be valid or obligatory for any purpose until the
certificate of authentication of the Security upon which this Guarantee is
endorsed shall have been manually executed by or on behalf of the Trustee under
the Indenture.
All terms used in this Guarantee which are defined in the Indenture shall
have the meanings assigned to them in such Indenture.
This Guarantee shall be deemed to be a contract made under the laws of the
State of New York, and for all purposes shall be governed by and construed in
accordance with the laws of the State of New York.
<PAGE>
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be executed
as of the date first written above.
TXU EASTERN HOLDINGS LIMITED
By: ________________________
<PAGE>
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities of the series designated therein and the
Guarantee thereof referred to in the within-mentioned Indenture.
THE BANK OF NEW YORK, as Trustee
By:______________________________
Authorized Signatory
<PAGE>
[FORM OF REVERSE OF CERTIFICATED EXCHANGE NOTE]
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture (for Unsecured Debt Securities), dated as of May 1,
1999 (herein, together with any amendments thereto, called the "Indenture",
which term shall have the meaning assigned to it in such instrument), between
the Company and The Bank of New York, as Trustee (herein called the "Trustee",
which term includes any successor trustee under the Indenture), and reference is
hereby made to the Indenture, including the Board Resolutions and Officer's
Certificate filed with the Trustee on May 13, 1999, creating the series
designated on the face hereof, for a statement of the respective rights,
limitations of rights, duties and immunities thereunder of the Company, the
Trustee and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered. This Security is one
of the series designated on the face hereof.
The Securities of this series will be redeemable as a whole at any time or
in part, from time to time, at the option of the Company, at a Redemption Price
equal to the sum of (a) the greater of (i) 100% of the principal amount of the
Securities of this series to be redeemed, and (ii) the sum of the present values
of the remaining scheduled payments of principal and interest on such Securities
from the Redemption Date to the maturity date, computed by discounting such
payments, in each case, to the Redemption Date on a semi-annual basis (assuming
a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 25
basis points, plus (b) accrued interest on the principal amount of such
Securities to the Redemption Date plus (c) any accrued Additional Amounts.
"Treasury Rate" means, with respect to any Redemption Date, the rate per
annum equal to the semi-annual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such Redemption Date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of such Securities of this series to be redeemed that would
be utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining terms of such Securities of this series.
"Independent Investment Banker" means one of the Reference Treasury Dealers
appointed by the Trustee after consultation with the Company.
"Business Day," when used for purposes of calculating the Redemption Price,
shall mean a Business Day (as defined in the Indenture) in New York City, New
York.
"Comparable Treasury Price" means, with respect to any Redemption Date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such Redemption Date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for US
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, the average of
the Reference Treasury Dealer Quotations actually obtained by the Trustee for
such Redemption Date.
<PAGE>
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date, the average, as determined by
the Trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) quoted in
writing to the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day preceding such Redemption Date.
"Reference Treasury Dealer" means each of Lehman Brothers Inc. and Morgan
Stanley & Co. Incorporated and their respective successors; provided, however,
that if either of the foregoing shall cease to be a primary US Government
securities dealer in New York City (a "Primary Treasury Dealer"), the Company
shall substitute therefor another Primary Treasury Dealer.
Notice of any redemption will be mailed at least 30 days but no more than
60 days before the Redemption Date to each Holder of the Securities of this
series to be redeemed.
Upon payment of the Redemption Price, on and after the Redemption Date
interest and any Additional Amounts will cease to accrue on the Securities of
this series or portions thereof called for redemption.
The Company shall deliver to the Trustee before any Redemption Date for the
Securities of this series its calculation of the Redemption Price applicable to
such redemption. Except with respect to the obligations of the Trustee expressly
set forth in the foregoing definitions of "Comparable Treasury Issue" and
"Comparable Treasury Price," the Trustee shall be under no duty to inquire into,
may presume the correctness of, and shall be fully protected in acting upon the
Company's calculation of any Redemption Price of the Securities of this series.
In lieu of stating the Redemption Price, notices of redemption of the
Securities of this series shall state substantially the following: "The
Redemption Price of the Securities of this series to be redeemed shall equal the
sum of (a) the greater of (i) 100% of the principal amount of such Securities,
and (ii) the sum of the present values of the remaining scheduled payments of
principal and interest thereon from the Redemption Date to the maturity date,
computed by discounting such payments, in each case, to the Redemption Date on a
semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at
the Treasury Rate (as defined in the Indenture) plus 25 basis points plus
accrued interest on the principal amount hereof to the Redemption Date plus
accrued Additional Amounts, if any."
Except as provided herein, Article Four of the Indenture shall apply to
redemptions of the Securities of this series.
If the Company or the Guarantor is required to pay Additional Amounts with
respect to Securities of this series, the Company has the right to redeem this
Security as set forth in the Officer's Certificate described above.
The Indenture contains provisions for defeasance at any time of the entire
indebtedness of this Security upon compliance with certain conditions set forth
in the Indenture, including the Officer's Certificate described above.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture.
<PAGE>
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of a majority in principal amount of the Securities at
the time Outstanding of all series to be affected. The Indenture also contains
provisions permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding, on behalf of the
Holders of all Securities of such series, to waive compliance by the Company
with certain provisions of the Indenture and certain past defaults under the
Indenture and their consequences. Any such consent or waiver by the Holder of
this Security shall be conclusive and binding upon such Holder and upon all
future Holders of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof, whether or not
notation of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the Indenture, the Holder
of this Security shall not have the right to institute any proceeding with
respect to the Indenture or for the appointment of a receiver or trustee or for
any other remedy thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of a majority in aggregate principal
amount of the Securities of all series at the time Outstanding in respect of
which an Event of Default shall have occurred and be continuing shall have made
written request to the Trustee to institute proceedings in respect of such Event
of Default as Trustee and offered the Trustee reasonable indemnity, and the
Trustee shall not have received from the Holders of a majority in aggregate
principal amount of Securities of all series at the time Outstanding in respect
of which an Event of Default shall have occurred and be continuing a direction
inconsistent with such request, and shall have failed to institute any such
proceeding, for 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal hereof or any
premium or interest hereon on or after the respective due dates expressed
herein.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and any premium and interest
on this Security at the times, place and rate, and in the coin or currency,
herein prescribed.
The Securities of this series are issuable only in registered form without
coupons in denominations of $10,000 and in integral multiples of $1,000 in
excess thereof. As provided in the Indenture and subject to certain limitations
therein set forth, Securities of this series are exchangeable for a like
aggregate principal amount of Securities of this series and of like tenor and of
authorized denominations, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
The Company, the Trustee and any agent of the Company or the Trustee may
treat the Person in whose name this Security is registered as the absolute owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.
<PAGE>
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture and in the Officer's
Certificate establishing the terms of the Securities of this series.
<PAGE>
FOR VALUE RECEIVED, the undersigned sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
Name and address of assignee must be printed or typewritten.
________________________________________________________________________________
the within Security of the Company and does hereby irrevocably constitute and
appoint
________________________________________________________________________________
to transfer the said Security on the books of the within-named Company, with
full power of substitution in the premises.
_______________________________________________________________________
_______________________________________________________________________
Dated: ___________________ ______________________________
<PAGE>
EXHIBIT E
[CERTIFICATE OF TRANSFER]
TXU EASTERN FUNDING COMPANY
6.75% SENIOR NOTES DUE MAY 15, 2009
FOR VALUE RECEIVED, the undersigned sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
________________________________________________________________________________
Name and address of assignee must be printed or typewritten.
________________________________________________________________________________
principal amount of beneficial interest in the referred Security of the Company
and does hereby irrevocably constitute and appoint
________________________________________________________________________________
to transfer the said beneficial interest in such Security, with full power of
substitution in the premises.
The undersigned certifies that said beneficial interest in such Security is
being resold, pledged or otherwise transferred as follows: (check one)
|_| to the Company or the Guarantor;
|_| to a Person whom the undersigned reasonably believes is a Qualified
Institutional Buyer within the meaning of Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act") purchasing
for its own account or for the account of a Qualified Institutional
Buyer to whom notice is given that the resale, pledge or other transfer
is being made in reliance on Rule 144A;
|_| in an offshore transaction in accordance with Rule 904 of Regulation S
under the Securities Act;
|_| to an institution that is an "accredited investor" as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act that is acquiring
said beneficial interest in such Security for investment purposes and
not for distribution (attach a copy of an Accredited Investor Letter in
the form provided by the Company or the Trustee signed by an authorized
officer of the transferee);
|_| as otherwise permitted by the non-registration legend; or
|_| as otherwise agreed by the Company or the Guarantor, as the case may
be, confirmed in writing to the Trustee, as follows: [describe]
_______________________________________________________________________
_______________________________________________________________________
Dated: _________________ _______________________
REGISTRATION RIGHTS AGREEMENT
Dated May 13, 1999
among
TXU EASTERN FUNDING COMPANY,
TXU EASTERN HOLDINGS LIMITED
and
LEHMAN BROTHERS INC.
MORGAN STANLEY & CO. INCORPORATED
ABN AMRO INCORPORATED
BNY CAPITAL MARKETS, INC.
CHASE SECURITIES INC.
CREDIT SUISSE FIRST BOSTON CORPORATION
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
NATIONSBANC MONTGOMERY SECURITIES LLC
SALOMON SMITH BARNEY INC. and
WARBURG DILLON READ LLC
________________
as Initial Purchasers
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is
made and entered into as of May 13, 1999 among TXU EASTERN
FUNDING COMPANY ("TXU Funding") and TXU EASTERN HOLDINGS LIMITED
("TXU Holdings") and LEHMAN BROTHERS INC. , MORGAN STANLEY & CO.
INCORPORATED, ABN AMRO INCORPORATED, BNY CAPITAL MARKETS, INC.,
CHASE SECURITIES INC., CREDIT SUISSE FIRST BOSTON CORPORATION,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED, NATIONSBANC
MONTGOMERY SECURITIES LLC, SALOMON SMITH BARNEY INC. and WARBURG
DILLON READ LLC (collectively, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase
Agreement dated May 6, 1999 (the "Purchase Agreement"), among TXU
Funding, as issuer, and TXU Holdings, as guarantor, of the 6.15%
Senior Notes due May 15, 2002 ("6.15% Notes"), the 6.45% Senior
Notes due May 15, 2005 ("6.45% Notes") and the 6.75% Senior Notes
due May 15, 2009 ("6.75% Notes", and together with the
6.15% Notes and the 6.45% Notes, the "Notes"), and the Initial
Purchasers, which provides for, among other things, the sale by
TXU Funding to the Initial Purchasers of $350,000,000, principal
amount of the 6.15% Notes, $650,000,000 principal amount of the
6.45% Notes and $500,000,000 principal amount of the 6.75% Notes
and the guarantee of the Notes by TXU Holdings. In order to
induce the Initial Purchasers to enter into the Purchase
Agreement, TXU Holdings and TXU Funding have agreed to provide to
the Initial Purchasers and their direct and indirect transferees
the registration rights set forth in this Agreement.
The execution and delivery of this Agreement is a condition to
the closing under the Purchase Agreement.
In consideration of the foregoing, the parties hereto agree
as follows:
1. Definitions.
-----------
As used in this Agreement, the following capitalized
defined terms shall have the following meanings:
"Additional Interest" shall have the meaning set forth in
-------------------
Section 2(e) hereof.
"Advice" shall have the meaning set forth in the last
------
paragraph of Section 3 hereof.
"Applicable Period" shall have the meaning set forth in
-----------------
Section 3(t) hereof.
"Business Day" shall mean a day other than (i) a Saturday or
------------
a Sunday, (ii) a day on which banks in New York, New York are
authorized or obligated by law or executive order to remain
closed or (iii) a day on which the Trustee s principal corporate
trust office is closed for business.
"Closing Date" shall mean the Closing Date as defined in the
------------
Purchase Agreement.
"Depositary" shall mean (i) with respect to Notes and/or
----------
Exchange Notes in bearer form, The Bank of New York, as book-
entry depositary pursuant to the Deposit Agreement between The
Bank of New York and TXU Funding, dated May 13, 1999, or any
other book-entry depositary appointed in accordance with such
Deposit Agreement; and (ii) with respect to Notes and/or Exchange
Notes in registered form, The Depository Trust Company, or any
other depositary appointed by TXU Funding; provided, however,
that such depositary must have an address in the Borough of
Manhattan, in The City of New York.
"Effectiveness Period" shall have the meaning set forth in
--------------------
Section 2(b) hereof.
"Eligible Holder" shall have the meaning set forth in
---------------
Section 2(a) hereof.
"Exchange Act" shall mean the Securities Exchange Act of
------------
1934, as amended from time to time.
"Exchange Note Guarantees" shall mean the unconditional
------------------------
guarantees by TXU Holdings of the principal, premium, if any, and
interest on the Exchange Notes when due.
"Exchange Notes" shall mean the 6.15% Exchange Senior Notes
--------------
due May 15, 2002, the 6.45% Exchange Senior Notes due May 15,
2005 and the 6.75% Exchange Senior Notes due May 15,
2009 containing terms identical, to, respectively, the
6.15% Notes, the 6.45% Notes and the 6.75% Notes (except that
they will not contain registration rights or terms with respect
to the transfer restrictions under the Securities Act and will
not provide for any Additional Interest to be payable with
respect thereto). The Exchange Notes will be guaranteed by the
Exchange Note Guarantees.
"Exchange Offer" shall mean the offer by TXU Funding to the
--------------
Holders to exchange the Registrable Securities for a like
principal amount of Exchange Notes pursuant to Section 2(a)
hereof.
"Exchange Offer Registration" shall mean a registration
---------------------------
under the Securities Act effected pursuant to Section 2(a)
hereof.
"Exchange Offer Registration Statement" shall mean an
-------------------------------------
exchange offer registration statement on Form F-4 (or, if
applicable, on another appropriate form), and all amendments and
supplements to such registration statement, in each case
including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
"Exchange Period" shall have the meaning set forth in
---------------
Section 2(a) hereof.
"Guarantees" shall mean the unconditional guarantees by TXU
----------
Holdings of the principal, premium, if any, and interest on the
Notes when due.
"Holder" shall mean the Initial Purchasers, for so long as
------
they own beneficial interests in any Registrable Securities, and
each of their respective successors, assigns and direct and
indirect transferees who become owners of beneficial interests in
Registrable Securities in bearer form or registered owners of
Registrable Securities under the Indenture.
"Indenture" shall mean the Indenture (for Unsecured Debt
---------
Securities) relating to the Notes and the Exchange Notes dated as
of May 1, 1999 among TXU Funding, as issuer, TXU Holdings, as
guarantor of the Notes and the Exchange Notes, and The Bank of
New York, as Trustee, as the same may be amended from time to
time in accordance with the terms thereof.
"Initial Purchasers" shall have the meaning set forth in the
------------------
preamble of this Agreement.
"Inspectors" shall have the meaning set forth in Section
----------
3(n) hereof.
"Issue Date" shall mean the date of original issuance of the
----------
Notes.
"Majority Holders" shall mean the Holders of a majority of
----------------
the aggregate principal amount of outstanding Notes.
"Notes" shall have the meaning set forth in the preamble to
-----
this Agreement.
"Participating Broker-Dealer" shall have the meaning set
---------------------------
forth in Section 3(t) hereof.
"Person" shall mean an individual, partnership, corporation,
------
trust or unincorporated organization, limited liability company,
or a government or agency or political subdivision thereof.
"Predecessor Company" shall mean Eastern Group, plc.
-------------------
"Prospectus" shall mean the prospectus included in a
----------
Registration Statement, including any preliminary prospectus, and
any such prospectus as amended or supplemented by any prospectus
supplement, including a prospectus supplement with respect to the
terms of the offering of any portion of the Registrable
Securities covered by a Shelf Registration Statement, and by all
other amendments and supplements to a prospectus, including post-
effective amendments, and in each case including all material
incorporated by reference therein.
"Purchase Agreement" shall have the meaning set forth in the
------------------
preamble of this Agreement.
"Records" shall have the meaning set forth in Section 3(n)
-------
hereof.
"Registrable Securities" shall mean the Notes and the
----------------------
Guarantees; provided, however, that Notes and the Guarantees with
respect to such Notes shall cease to be Registrable Securities
when (i) a Registration Statement with respect to the Exchange
Notes and the Exchange Note Guarantees shall have been declared
effective under the Securities Act and the Notes shall have been
disposed of pursuant to such Registration Statement, (ii) the
Notes shall have been sold to the public pursuant to Rule 144(k)
(or any similar provision then in force, but not Rule 144A) under
the Securities Act, (iii) the Notes shall have ceased to be
outstanding, (iv) the Notes and the Guarantees shall have been
exchanged for Exchange Notes and the Exchange Note Guarantees
upon consummation of the Exchange Offer and are thereafter freely
tradable by the holder thereof (other than an affiliate of TXU
Funding or TXU Holdings) or (v) two years (or such shorter period
as may hereafter be provided in Rule 144(k) under the Securities
Act (or similar rule)) have elapsed since the date of original
issuances of the Notes.
"Registration Expenses" shall mean any and all expenses
---------------------
incident to performance of or compliance by TXU Funding and TXU
Holdings with this Agreement, including, without limitation: (i)
all SEC or National Association of Securities Dealers, Inc. (the
"NASD") registration and filing fees; (ii) all fees and expenses
incurred in connection with compliance with state securities or
blue sky laws (including reasonable fees and disbursements of
counsel for any underwriters or Holders in connection with blue
sky qualification of any of the Exchange Notes or Registrable
Securities) and compliance with the rules of the NASD in an
amount not exceeding $15,000 in the aggregate, (iii) all expenses
of any Persons in preparing or assisting in preparing, word
processing, printing and distributing any Registration Statement,
any Prospectus and any amendments or supplements thereto, and in
preparing or assisting in preparing, printing and distributing
any Registration Statement, any Prospectus and any amendments or
supplements thereto, and in preparing or assisting in preparing,
printing and distributing any underwriting agreements, securities
sales agreements and other documents relating to the performance
of and compliance with this Agreement, (iv) all rating agency
fees, (v) the fees and disbursements of counsel for TXU Funding
and TXU Holdings, of Winthrop, Stimson, Putnam & Roberts, as
counsel for the Holders hereunder in connection with the Exchange
Offer, and of the independent certified public accountants of TXU
Funding and TXU Holdings and the predecessor of TXU Holdings,
including the expenses of any "cold comfort" letters required by
or incident to such performance and compliance, (vi) the fees and
expenses of the Trustee, and any paying agent, exchange agent or
custodian, (vii) all fees and expenses incurred in connection
with the listing, if any, of any of the Registrable Securities or
the Exchange Notes on any securities exchange or exchanges and
(viii) the reasonable fees and expenses of any special experts
retained by TXU Funding or TXU Holdings in connection with any
Registration Statement.
"Registration Statement" shall mean any registration
----------------------
statement of TXU Funding and TXU Holdings which covers any of the
Exchange Notes or Registrable Securities pursuant to the
provisions of this Agreement, and all amendments and supplements
to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by
reference therein.
"Rule 144(k) Period" shall mean the period of two years (or
------------------
such shorter period as may hereafter be provided in Rule 144(k)
under the Securities Act (or similar successor rule)) commencing
on the Issue Date.
"SEC" shall mean the Securities and Exchange Commission.
---
"Securities Act" shall mean the Securities Act of 1933, as
--------------
amended from time to time.
"Shelf Registration" shall mean a registration effected
------------------
pursuant to Section 2(b) hereof.
"Shelf Registration Event" shall have the meaning set forth
------------------------
in Section 2(b) hereof.
"Shelf Registration Event Date" shall have the meaning set
-----------------------------
forth in Section 2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf"
----------------------------
registration statement of TXU Funding and TXU Holdings pursuant
to the provisions of Section 2(b) hereof which covers all of the
Registrable Securities, on an appropriate form under Rule 415
under the Securities Act, or any similar rule that may be adopted
by the SEC, and all amendments and supplements to such
registration statement, including post-effective amendments, in
each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference
therein.
"TIA" shall mean the Trust Indenture Act of 1939, as amended
---
from time to time.
"Trustee" shall mean The Bank of New York, and any successor
-------
thereto, as trustee under the Indenture.
"TXU Funding" shall have the meaning set forth in the
-----------
preamble to this Agreement and also includes TXU Funding's
successors and permitted assigns.
"TXU Holdings" shall have the meaning set forth in the
------------
preamble to this Agreement and also includes TXU Holdings'
successors and permitted assigns.
2. Registration Under the Securities Act.
-------------------------------------
(a) Exchange Offer.
--------------
To the extent not prohibited by any applicable law or
applicable interpretation of the staff of the SEC, TXU Holdings
shall, for the benefit of the Holders, at TXU Holdings cost, (i)
cause to be filed with the SEC an Exchange Offer Registration
Statement on an appropriate form under the Securities Act
covering the Exchange Offer, (ii) use its reasonable best efforts
to cause such Exchange Offer Registration Statement to be
declared effective under the Securities Act by the SEC not later
than the date which is 180 days after the Issue Date, and (iii)
use its reasonable best efforts to keep such Exchange Offer
Registration Statement effective for not less than 30 calendar
days (or longer if required by applicable law) after the date
notice of the Exchange Offer is mailed to the Holders. Upon the
effectiveness of the Exchange Offer Registration Statement, TXU
Funding shall promptly commence the Exchange Offer, it being the
objective of such Exchange Offer to enable each Holder electing
to exchange Registrable Securities for a like principal amount of
Exchange Notes (assuming that such Holder is not an affiliate of
TXU Funding or TXU Holdings within the meaning of Rule 405 under
the Securities Act and is not a broker-dealer tendering
Registrable Securities acquired directly from TXU Funding for its
own account, acquires the Exchange Securities in the ordinary
course of such Holder's business and has no arrangements or
understandings with any Person to participate in the Exchange
Offer for the purpose of distributing the Exchange Securities)
(any Holder meeting all such requirements, hereinafter an
"Eligible Holder"), and to transfer such Exchange Securities from
and after their receipt without any limitations or restrictions
under the Securities Act and under state securities or blue sky
laws.
In connection with the Exchange Offer, TXU Funding and
TXU Holdings shall:
(i) mail to each Holder a copy of the Prospectus
forming part of the Exchange Offer Registration Statement,
together with an appropriate letter of transmittal and
related documents (together, the "Notice");
(ii) use their reasonable best efforts to keep the
Exchange Offer open for acceptance for a period of not less
than 30 days after the date Notice thereof is mailed to the
Holders (or longer if required by applicable law) (such
period referred to herein as the "Exchange Period");
(iii) utilize the services of the Depositary for
the Exchange Offer;
(iv) permit Holders to withdraw, at any time prior to
the close of business, New York time, on the last Business
Day of the Exchange Period, any Notes tendered for exchange
by sending to the institution specified in the Notice, a
telegram, telex, facsimile transmission or letter, received
before aforesaid time, setting forth the name of such
Holder, the principal amount of Notes delivered for
exchange, and a statement that such Holder is withdrawing
his election to have such Notes exchanged;
(v) notify each Holder by means of the Notice that any
Note not tendered by such Holder in the Exchange Offer will
remain outstanding and continue to accrue interest, but will
not retain any rights under this Agreement (except in the
case of the Initial Purchasers and Participating Broker-
Dealers as provided herein); and
(vi) otherwise comply in all respects with all
applicable laws relating to the Exchange Offer.
As soon as practicable after the close of the Exchange
Offer, TXU Funding shall:
(i) accept for exchange all Notes or portions thereof
tendered and not validly withdrawn pursuant to the Exchange
Offer;
(ii) deliver, or cause to be delivered, to the Trustee
for cancellation all Notes or portions thereof so accepted
for exchange by TXU Funding; and
(iii) issue, and cause the Trustee to promptly
authenticate and deliver to the Depositary (or if, the
Exchange Notes are in certificated form, each Holder),
Exchange Notes equal in principal amount to the principal
amount of the Notes surrendered by such Holder.
Interest on each Exchange Note issued pursuant to the
Registered Exchange Offer will accrue from the last date on which
interest was paid on the Note surrendered in exchange therefor
or, if no interest has been paid on such Note, from the Issue
Date. To the extent not prohibited by any law or applicable
interpretation of the staff of the SEC, TXU Funding and TXU
Holdings shall use their reasonable best efforts to complete the
Exchange Offer as provided above, and shall comply with the
applicable requirements of the Securities Act, the Exchange Act
and other applicable laws in connection with the Exchange Offer.
The Exchange Offer shall not be subject to any conditions, other
than that the Exchange Offer does not violate applicable law or
any applicable interpretation of the staff of the SEC and that
each Holder tendering Notes for exchange shall be an Eligible
Holder. Each Holder of Registrable Securities who wishes to
exchange such Registrable Securities for Exchange Notes in the
Exchange Offer will be required to make certain customary
representations in connection therewith, including
representations that (i) it is not an affiliate of TXU Funding or
TXU Holdings, (ii) the Exchange Notes to be received by it were
acquired in the ordinary course of its business and (iii) at the
time of the Exchange Offer, it has no arrangement with any person
to participate in the distribution (within the meaning of the
Securities Act) of the Exchange Notes. Each Holder hereby
acknowledges and agrees that any Participating Broker-Dealer and
any such Holder using the Exchange Offer to participate in a
distribution of the Exchange Notes: (1) could not under SEC
policy as in effect on the date of this Agreement rely on the
position of the SEC enunciated in Morgan Stanley and Co., Inc.
(available June 5, 1991) and Exxon Capital Holdings Corporation
(available May 13, 1988), as interpreted in the SEC's letter to
Shearman & Sterling dated July 2, 1993, and similar no-action
letters (including any no-action letter obtained based on the
representations in clause (i) above), and (2) must comply with
the registration and prospectus delivery requirements of the
Securities Act in connection with the secondary resale
transaction and that such a secondary resale transaction should
be covered by an effective registration statement containing the
selling security holder information required by Item 507 and 508,
as applicable, of Regulation S-K, the SEC standard instructions
for filing forms under the Securities Act, if the resales are of
Exchange Notes obtained by such Holder in exchange for Notes
acquired by such Holder directly from TXU Funding.
Upon consummation of the Exchange Offer in accordance
with this Section 2(a), the provisions of this Agreement shall
continue to apply, mutatis mutandis, solely with respect to
Registrable Securities that are Exchange Notes held by
Participating Broker-Dealers, and TXU Funding and TXU Holdings
shall have no further obligation to register the Registrable
Securities (other than pursuant to Section 2(b)(iii)) pursuant to
Section 2(b) of this Agreement.
(b) Shelf Registration.
------------------
In the event that (i) TXU Funding is not permitted to
effect the Exchange Offer because of any change in law or in
currently prevailing interpretations of the staff of the SEC,
(ii) the Exchange Offer Registration Statement is not declared
effective within 180 days of the Issue Date, or (iii) (1) any
Initial Purchaser is not permitted, in the reasonable opinion of
Winthrop, Stimson, Putnam & Roberts, pursuant to applicable law
or applicable interpretations of the staff of the SEC, to
participate in the Exchange Offer and thereby receive securities
that are freely tradeable without restriction under the
Securities Act and applicable blue sky or state securities laws,
(2) such Initial Purchaser requests registration of Registrable
Securities held by such Initial Purchaser and (3) such Initial
Purchaser's request is received by TXU Holdings no later than the
later of (A) the date of filing of the Exchange Offer
Registration Statement and (B) 120 days following the Issue Date
(any of the events specified in (i) (iii) being a "Shelf
Registration Event" and the date of occurrence thereof, the
"Shelf Registration Event Date"), TXU Holdings shall promptly
deliver to the Holders and the Trustee written notice thereof
and, at its cost, file as promptly as practicable after such
Shelf Registration Event Date, and, in any event, within 45 days
after such Shelf Registration Event Date (which shall be no
earlier than 90 days after the Closing Date) a Shelf Registration
Statement providing for the sale by the Holders of all of the
Registrable Securities, and shall use its reasonable best efforts
to have such Shelf Registration Statement declared effective by
the SEC as soon as practicable; provided, however that if the
Shelf Registration Event is pursuant to clause (iii), TXU Funding
and TXU Holdings may register such Registrable Securities
together with the Exchange Offer Registration Statement, filed
pursuant to Section 2(a), and the requirements as to timing
applicable thereto. No Holder of Registrable Securities shall be
entitled to include any of its Registrable Securities in any
Shelf Registration pursuant to this Agreement unless and until
such Holder agrees in writing to be bound by all of the
provisions of this Agreement applicable to such Holder and
furnishes to TXU Holdings in writing, within 15 days after
receipt of a request therefor, such information as TXU Holdings
may, after conferring with counsel with regard to information
relating to Holders that would be required by the SEC to be
included in such Shelf Registration Statement or Prospectus
included therein, reasonably request for inclusion in any Shelf
Registration Statement or Prospectus included therein. Each
Holder as to which any Shelf Registration is being effected
agrees promptly to furnish to TXU Holdings all information with
respect to such Holder necessary to make the information
previously furnished to TXU Holdings by such Holder not
materially misleading.
TXU Funding and TXU Holdings agree to use their
reasonable best efforts to keep the Shelf Registration Statement
continuously effective for the Rule 144(k) Period (subject to
extension pursuant to the last paragraph of Section 3 hereof) or
for such shorter period which will terminate when all of the
securities covered by the Shelf Registration Statement have been
sold pursuant to the Shelf Registration Statement or cease to be
Registrable Securities (the "Effectiveness Period"). TXU Funding
and TXU Holdings shall not permit any securities other than
Registrable Securities to be included in the Shelf Registration.
TXU Holdings will, in the event a Shelf Registration Statement is
declared effective, provide to each Holder a reasonable number of
copies of the Prospectus which is a part of the Shelf
Registration Statement and notify each such Holder when the Shelf
Registration has become effective. TXU Funding and TXU Holdings
further agree, if necessary, to supplement or amend the Shelf
Registration Statement, if required by the rules, regulations or
instructions applicable to the registration form used by TXU
Funding and TXU Holdings for such Shelf Registration Statement or
by the Securities Act or by any other rules and regulations
thereunder for shelf registrations, and TXU Holdings agrees to
furnish to the Holders of Registrable Securities copies of any
such supplement or amendment promptly after its being used or
filed with the SEC.
(c) Expenses.
--------
TXU Funding and TXU Holdings shall pay all Registration
Expenses in connection with the registration pursuant to Section
2(a) or 2(b) hereof. Except as provided herein, each Holder
shall pay all expenses of its counsel, underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or
disposition of such Holder's Registrable Securities pursuant to
the Shelf Registration Statement.
(d) Effective Registration Statement.
--------------------------------
An Exchange Offer Registration Statement pursuant to
Section 2(a) hereof or a Shelf Registration Statement pursuant to
Section 2(b) hereof (or a combination of the two) will not be
deemed to have become effective unless it has been declared
effective by the SEC; provided, however, that if, after it has
been declared effective, the offering of Registrable Securities
pursuant to a Shelf Registration Statement is interfered with by
any stop order, injunction or other order or requirement of the
SEC or any other governmental agency or court, such Registration
Statement will be deemed not to have been effective during the
period of such interference, until the offering of Registrable
Securities pursuant to such Registration Statement may legally
resume. TXU Funding and TXU Holdings will be deemed not to have
used their reasonable best efforts to cause the Exchange Offer
Registration Statement or the Shelf Registration Statement, as
the case may be, to become, or to remain, effective during the
requisite period if either voluntarily takes any action that
would result in any such Registration Statement not being
declared effective or in the Holders of Registrable Securities
covered thereby not being able to exchange or offer and sell such
Registrable Securities during that period unless such action is
required by applicable law.
(e) Additional Interest.
-------------------
In the event that:
(i) notwithstanding that TXU Funding has consummated
or will consummate an Exchange Offer, TXU Funding and TXU
Holdings are required to file a Shelf Registration Statement
and such Shelf Registration Statement is not filed on or
prior to the date required by Section 2(b) hereof, then
commencing on the day after the applicable required filing
date, additional interest shall accrue on the principal
amount of the Notes ("Additional Interest") at a rate of
.25% per annum; or
(ii) (A) the Exchange Offer Registration Statement is
not declared effective by the SEC on or prior to the 180th
day after the Issue Date or (B) whether or not TXU Funding
has consummated or will consummate an Exchange Offer, TXU
Funding and TXU Holdings are required to file a Shelf
Registration Statement and such Shelf Registration Statement
is not declared effective by the SEC on or prior to the 30th
day after the date such Shelf Registration Statement was
required to be filed, then, commencing on the 181st day
after the Issue Date or the 31st day after the applicable
required filing date, as the case may be, Additional
Interest shall accrue on the principal amount of the Notes
at a rate of .25% per annum; or
(iii) (A) TXU Funding has not exchanged the
Exchange Notes for the Notes validly tendered, in accordance
with the terms of the Exchange Offer, on or prior to the
40th day after the date on which the Exchange Offer
Registration Statement was declared effective or (B) the
Shelf Registration Statement has been declared effective and
such Shelf Registration Statement ceases to be effective at
any time prior to the expiration of the Rule 144(k) Period
(other than after such time as all Notes have been disposed
of thereunder or otherwise cease to be Registrable
Securities), then Additional Interest shall accrue on the
principal amount of Notes, at a rate of .25% per annum,
commencing on the 41st day after the date on which the
Exchange Offer Registration Statement was declared effective
or the day such Shelf Registration Statement ceases to be
effective, as the case may be;
provided, however, that the Additional Interest rate on the Notes
may not exceed in the aggregate .25% per annum; provided further,
however, that (1) upon the filing of the Shelf Registration
Statement (in the case of clause (i) above), (2) upon the
effectiveness of the Exchange Offer Registration Statement or a
Shelf Registration Statement (in the case of clause (ii) above),
(3) upon the exchange of Exchange Notes for all Notes tendered
(in the case of clause (iii)(A) above), or upon the effectiveness
of the Shelf Registration Statement which had ceased to remain
effective (in the case of clause (iii) (B) above), or (4) upon
the expiration of the Rule 144(k) Period, Additional Interest on
the Notes as a result of such clause (or the relevant subclause
thereof), as the case may be, shall cease to accrue.
Any amounts of Additional Interest due pursuant to Section
2(e)(i), (ii) or (iii) above will be payable in cash on the
relevant payment dates for the payment of interest pursuant to
the Indenture.
(f) Specific Enforcement.
--------------------
Without limiting the remedies available to the Holders,
TXU Funding and TXU Holdings acknowledge that any failure of TXU
Funding or TXU Holdings to comply with their obligations under
Section 2(a) and Section 2(b) hereof may result in material
irreparable injury to the Holders for which there is no adequate
remedy at law, that it would not be possible to measure damages
for such injuries precisely and that, in the event of any such
failure, any Holder may obtain such relief as may be required to
specifically enforce the obligations of TXU Funding or TXU
Holdings under Section 2(a) and Section 2(b) hereof.
3. Registration Procedures.
-----------------------
In connection with the obligations of TXU Funding and
TXU Holdings with respect to the Registration Statements pursuant
to Sections 2(a) and 2(b) hereof, TXU Funding and TXU Holdings
shall:
(a) prepare and file with the SEC a Registration
Statement or Registration Statements as prescribed by Sections
2(a) and 2(b) hereof within (in the case of Section 2(b) hereof)
the relevant time period specified and on the appropriate form(s)
under the Securities Act, which form(s) (i) shall be selected by
TXU Funding and TXU Holdings, (ii) shall, in the case of a Shelf
Registration, be available for the sale of the Registrable
Securities by the selling Holders thereof and (iii) shall comply
as to form in all material respects with the requirements of the
applicable form and include all financial statements required by
the SEC to be filed therewith; and use its reasonable best
efforts to cause such Registration Statement(s) to become
effective and remain effective in accordance with Section 2
hereof; provided, however, that if (1) such filing is pursuant to
Section 2(b), or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2(a) is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes, before filing any
Registration Statement or Prospectus or any amendments or
supplements thereto, TXU Funding and TXU Holdings shall furnish
to and afford the Holders of the Registrable Securities and each
such Participating Broker-Dealer, as the case may be, covered by
such Registration Statement, their counsel and the managing
underwriters, if any, a reasonable opportunity to review copies
of all such documents (including copies of any documents to be
incorporated by reference therein and all exhibits thereto)
proposed to be filed. Neither TXU Funding nor TXU Holdings shall
file any Registration Statement or Prospectus or any amendments
or supplements thereto in respect of which the Holders must be
afforded an opportunity to review prior to the filing of such
document if the Majority Holders or such Participating Broker-
Dealer, as the case may be, their counsel or the managing
underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and
post-effective amendments to each Registration Statement as may
be necessary to keep such Registration Statement effective for
the Effectiveness Period or the Applicable Period, as the case
may be, and cause each Prospectus to be supplemented, if so
determined by TXU Funding or TXU Holdings or requested by the
SEC, by any required prospectus supplement and as so supplemented
to be filed pursuant to Rule 424 (or any similar provision then
in force) under the Securities Act, and comply with the
provisions of the Securities Act, the Exchange Act and the rules
and regulations promulgated thereunder applicable to it with
respect to the disposition of all securities covered by each
Registration Statement during the Effectiveness Period or the
Applicable Period, as the case may be, in accordance with the
intended method or methods of distribution by the selling Holders
thereof described in this Agreement (including sales by any
Participating Broker-Dealer);
(c) in the case of a Shelf Registration, (i) notify
each Holder of Registrable Securities included in the Shelf
Registration Statement, at least three Business Days prior to
filing, that a Shelf Registration Statement with respect to the
Registrable Securities is being filed and advise such Holder that
the distribution of Registrable Securities will be made in
accordance with the method selected by the Majority Holders, (ii)
furnish to each Holder of Registrable Securities included in the
Shelf Registration Statement and to each underwriter of an
underwritten offering of Registrable Securities, if any, without
charge, as many copies of each Prospectus, including each
preliminary Prospectus, and any amendment or supplement thereto
and such other documents as such Holder or underwriter may
reasonably request, in order to facilitate the public sale or
other disposition of the Registrable Securities, (iii) consent to
the use of the Prospectus or any amendment or supplement thereto
by each of the selling Holders of Registrable Securities included
in the Shelf Registration Statement in connection with the
offering and sale of the Registrable Securities covered by the
Prospectus or any amendment or supplement thereto and (iv)
furnish to each Holder of Registrable Securities either a summary
of the terms of this Agreement or a copy of this Agreement;
(d) in the case of a Shelf Registration, to register
or qualify the Registrable Securities under all applicable state
securities or "blue sky" laws of such jurisdictions by the time
the applicable Registration Statement is declared effective by
the SEC as any Holder of Registrable Securities covered by a
Registration Statement and each underwriter of an underwritten
offering of Registrable Securities shall reasonably request in
writing in advance of such date of effectiveness; provided,
however, that neither TXU Funding or TXU Holdings shall be
required to (i) qualify as a foreign corporation or as a dealer
in securities in any jurisdiction where it would not otherwise be
required to qualify but for this Section 3(d), (ii) file any
general consent to service of process in any jurisdiction where
it would not otherwise be subject to such service of process or
(iii) file annual reports or comply with any other requirements
deemed in its reasonable judgment to be unduly burdensome;
(e) in the case of (1) a Shelf Registration or (2)
Participating Broker-Dealers from whom TXU Funding and TXU
Holdings has received prior written notice that they will be
utilizing the Prospectus contained in the Exchange Offer
Registration Statement as provided in Section 3(t) hereof, are
seeking to sell Exchange Notes and are required to deliver
Prospectuses, promptly notify each Holder of Registrable
Securities, or each such Participating Broker-Dealer, as the case
may be, their counsel and the managing underwriters, if any, and
promptly confirm such notice in writing (i) when a Registration
Statement has become effective and when any post-effective
amendments and supplements thereto become effective, (ii) of any
request by the SEC or any state securities authority for
amendments and supplements to a Registration Statement or
Prospectus or for additional information after the Registration
Statement has become effective, (iii) of the issuance by the SEC
or any state securities authority of any stop order suspending
the effectiveness of a Registration Statement or the
qualification of the Registrable Securities or the Exchange Notes
to be offered or sold by any Participating Broker-Dealer in any
jurisdiction described in paragraph 3(d) hereof or the initiation
of any proceedings for that purpose, (iv) in the case of a Shelf
Registration, if, between the effective date of a Registration
Statement and the closing of any sale of Registrable Securities
covered thereby, the representations and warranties of TXU
Funding or TXU Holdings contained in any purchase agreement,
securities sales agreement or other similar agreement, if any,
cease to be true and correct in all material respects, (v) of the
happening of any event or the failure of any event to occur or
the discovery of any facts or otherwise, during the Effectiveness
Period which makes any statement made in such Registration
Statement or the related Prospectus untrue in any material
respect or which causes such Registration Statement or Prospectus
to omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were
made, not misleading and (vi) when TXU Funding or TXU Holdings
reasonably determines that a post-effective amendment to the
Registration Statement would be appropriate;
(f) make every reasonable effort to obtain the
withdrawal of any order suspending the effectiveness of a
Registration Statement at the earliest possible moment;
(g) in the case of a Shelf Registration, furnish to
each Holder of Registrable Securities included within the
coverage of such Shelf Registration Statement, without charge, at
least one conformed copy of each Registration Statement relating
to such Shelf Registration and any post-effective amendment
thereto (without documents incorporated therein by reference or
exhibits thereto, unless requested);
(h) in the case of a Shelf Registration, cooperate
with the selling Holders of Registrable Securities to facilitate
the timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any restrictive
legends and in such denominations (consistent with the provisions
of the Indenture) and registered in such names as the selling
Holders or the underwriters, if any, may reasonably request at
least two Business Days prior to the closing of any sale of
Registrable Securities pursuant to such Shelf Registration
Statement;
(i) in the case of a Shelf Registration or an Exchange
Offer Registration, upon the occurrence of any circumstance
contemplated by Section 3(e)(ii), 3(e)(iii), 3(e)(v) or 3(e)(vi)
hereof, prepare a supplement or post-effective amendment to a
Registration Statement or the related Prospectus or any document
incorporated therein by reference or file any other required
document so that, as thereafter delivered to the purchasers of
the Registrable Securities, such Prospectus will not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading and
notify each Holder to suspend use of the Prospectus as promptly
as practicable after the occurrence of such an event, and each
Holder hereby agrees to suspend use of the Prospectus until TXU
Funding and TXU Holdings have amended or supplemented the
Prospectus to correct such misstatement or omission;
(j) in the case of a Shelf Registration, a reasonable
time prior to the filing of any document which is to be
incorporated by reference into a Registration Statement or a
Prospectus after the initial filing of a Registration Statement,
provide a reasonable number of copies of such document to the
Holders and make such of the representatives of TXU Funding and
TXU Holdings as shall be reasonably requested by the Holders of
Registrable Securities or the Initial Purchasers on behalf of
such Holders available for reasonable discussion of such
document;
(k) obtain a CUSIP number for all Exchange Notes, no
later than the effective date of a Registration Statement, and
provide the Trustee with printed certificates for the Exchange
Notes or the Registrable Securities, as the case may be, in a
form eligible for deposit with the Depositary;
(l) cause the Indenture and the Deposit Agreement, if
required by the TIA, to be qualified under the TIA in connection
with the registration of the Exchange Notes or Registrable
Securities, as the case may be, and effect such changes to such
documents as may be required for them to be so qualified in
accordance with the terms of the TIA and execute, and use its
reasonable best efforts to cause the Trustee to execute, all
documents as may be required to effect such changes, and all
other forms and documents required to be filed with the SEC to
enable such documents to be so qualified in a timely manner;
(m) in the case of a Shelf Registration, enter into
such agreements (including underwriting agreements) as are
customary in underwritten offerings and consistent with the terms
of the Purchase Agreement and take all such other appropriate
actions as are reasonably requested in order to expedite or
facilitate the registration or the disposition of such
Registrable Securities, and in such connection, whether or not an
underwriting agreement is entered into and whether or not the
registration is with respect to an underwritten offering, if
requested by (x) any Initial Purchaser, in the case where an
Initial Purchaser holds Registrable Securities acquired by it as
part of its initial distribution and (y) other Holders of Notes
covered thereby: (i) make such representations and warranties to
Holders of such Registrable Securities and the underwriters (if
any), with respect to the business of TXU Funding and TXU
Holdings and their subsidiaries as then conducted and the
Registration Statement, Prospectus and documents, if any,
incorporated or deemed to be incorporated by reference therein,
in each case, as are customarily made by issuers to underwriters
in underwritten offerings, and confirm the same if and when
requested; (ii) obtain opinions of counsel to TXU Funding and TXU
Holdings and updates thereof (which may be in the form of a
reliance letter) in form and substance reasonably satisfactory to
the managing underwriters (if any) and the Holders of a majority
in principal amount of the Registrable Securities being sold,
addressed to each selling Holder and the underwriters (if any)
covering the matters customarily covered in opinions requested in
underwritten offerings and such other matters as may be
reasonably requested by such underwriters (it being agreed that
the matters to be covered by such opinions may be subject to
customary qualifications and exceptions); (iii) obtain "cold
comfort" letters and updates thereof in form and substance
reasonably satisfactory to the managing underwriters (if any)
from the independent certified public accountants of TXU Funding,
TXU Holdings and the Predecessor Company (and, if necessary, any
other independent certified public accountants of any subsidiary
of TXU Funding and TXU Holdings or of any business acquired by
TXU Funding or TXU Holdings for which financial statements and
financial data are, or are required to be, included in the
Registration Statement), addressed to each of such underwriters,
such letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters in connection
with underwritten offerings and such other matters as reasonably
requested by such underwriters in accordance with Statement on
Auditing Standards No. 72 and (iv) if an underwriting agreement
is entered into, the same shall contain indemnification
provisions and procedures no less favorable than those set forth
in Section 4 hereof (or such other provisions and procedures
acceptable to Holders of a majority in aggregate principal amount
of Registrable Securities covered by such Registration Statement
and the managing underwriters or agents) with respect to all
parties to be indemnified pursuant to said Section (including,
without limitation, such underwriters and selling Holders). The
above shall be done at each closing under such underwriting
agreement or, as and to the extent required thereunder and as
consistent with the terms of, the Purchase Agreement;
(n) if (1) a Shelf Registration is filed pursuant to
Section 2(b) or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2(a) is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, make reasonably available for inspection by
any selling Holder of such Registrable Securities being sold, or
each such Participating Broker-Dealer, as the case may be, any
underwriter participating in any such disposition of Registrable
Securities, if any, and any attorney, accountant or other agent
retained by any such selling Holder or each such Participating
Broker-Dealer, as the case may be, or underwriter (collectively,
the "Inspectors"), at the offices where normally kept, during
reasonable business hours, all financial and other records,
pertinent corporate documents and properties of TXU Funding and
TXU Holdings and the Predecessor Company and their subsidiaries
(collectively, the "Records") as shall be reasonably necessary to
enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and employees
of TXU Funding, TXU Holdings and their subsidiaries to supply all
relevant information in each case reasonably requested by any
such Inspector in connection with such Registration Statement;
provided, however, that the foregoing inspection and information
gathering shall be coordinated on behalf of all such parties by
TXU Holdings-designated Holders' counsel, at the expense of such
parties as described in Section 2(c) hereof. Records of TXU
Funding and its subsidiaries or TXU Holdings and the Predecessor
Company and their subsidiaries, which TXU Funding or TXU
Holdings, respectively, determines, in good faith, to be
confidential and any records which it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless (i)
the disclosure of such Records is necessary to avoid or correct a
material misstatement or omission in such Registration Statement,
provided that TXU Holdings shall be consulted prior to any such
disclosure, (ii) the release of such Records is ordered pursuant
to a subpoena or other order from a court of competent
jurisdiction or is necessary in connection with any action, suit
or proceeding or (iii) the information in such Records has been
made available to the public. Each selling Holder of such
Registrable Securities and each such Participating Broker-Dealer
will be required to agree in writing that information obtained by
it or any Inspector retained by it as a result of such
inspections shall be deemed confidential and shall not be used by
it or any Inspector retained by it as the basis for any market
transactions in the securities of TXU Funding or TXU Holdings
unless and until such is made generally available to the public.
Each selling Holder of such Registrable Securities and each such
Participating Broker-Dealer will be required to further agree in
writing that it will, upon learning that disclosure of such
Records is sought in a court of competent jurisdiction, give
notice to TXU Holdings and allow TXU Holdings at its expense to
undertake appropriate action to prevent disclosure of the Records
deemed confidential;
(o) comply with all applicable rules and regulations
of the SEC so long as any provision of this Agreement shall be
applicable and make generally available to their security holders
earning statements satisfying the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder (or any similar rule
promulgated under the Securities Act), with such adjustments as
are necessary to reflect the transactions in August 1998 in
connection with the purchase by Texas Utilities Company of the
predecessors of TXU Holdings, no later than 60 days after the end
of any 12-month period (or 120 days after the end of any 12-month
period if such period is a fiscal year) (i) commencing at the end
of any fiscal quarter in which Registrable Securities are sold to
underwriters in a firm commitment or best efforts underwritten
offering and (ii) if not sold to underwriters in such an
offering, commencing on the first day of the first fiscal quarter
of TXU Funding or TXU Holdings, as the case may be, after the
effective date of a Registration Statement, which statements
shall cover said 12-month periods;
(p) upon consummation of an Exchange Offer, if
requested by the Trustee, obtain an opinion of counsel to TXU
Funding and TXU Holdings addressed to the Trustee for the benefit
of all Holders of Registrable Securities participating in the
Exchange Offer and which includes an opinion that (i) TXU Funding
has duly authorized, executed and delivered the Exchange Notes,
(ii) each of the Exchange Notes constitutes a legal, valid and
binding obligation of TXU Funding, enforceable against TXU
Funding in accordance with its terms (with customary exceptions),
(iii) TXU Holdings has duly authorized, executed and delivered
the Exchange Note Guarantees, (iv) the Exchange Note Guarantees
constitute the legal, valid and binding obligation of TXU
Holdings, enforceable against TXU Holdings in accordance with its
terms (with customary exceptions); and (v) the Indenture has been
duly qualified under the TIA and the Deposit Agreement has been
duly qualified under the TIA, or no such qualification is
required by the TIA;
(q) if an Exchange Offer is to be consummated, upon
delivery of the Registrable Securities by Holders to TXU Funding
(or to such other Person as directed by TXU Funding), in exchange
for the Exchange Notes and the Exchange Note Guarantees, mark, or
cause to be marked, on such Registrable Securities delivered by
such Holders that such Registrable Securities are being canceled
in exchange for the Exchange Notes and the Exchange Note
Guarantees, and in no event shall such Registrable Securities be
marked as paid or otherwise satisfied;
(r) cooperate with each seller of Registrable
Securities covered by any Registration Statement and each
underwriter, if any, participating in the disposition of such
Registrable Securities covered by a Registration Statement
contemplated hereby;
(s) use its reasonable best efforts to take all other
steps necessary to effect the registration of the Registrable
Securities covered by a Registration Statement contemplated
hereby;
(t) (A) in the case of the Exchange Offer Registration
Statement (i) (a) indicate in a "Plan of Distribution" section
contained in the Prospectus contained in the Exchange Offer
Registration Statement that any broker or dealer registered under
the Exchange Act who holds Notes that are Registrable Securities
and that were acquired for its own account as a result of market-
making activities or other trading activities (other than
Registrable Securities acquired directly from TXU Funding) (such
broker or dealer, a "Participating Broker-Dealer"), may exchange
such Notes pursuant to the Exchange Offer; however, such
Participating Broker-Dealer may be deemed to be an "underwriter"
within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities
Act in connection with any resales of the Exchange Notes received
by such Participating Broker-Dealer in the Exchange Offer, which
prospectus delivery requirement may be satisfied by the delivery
by such Participating Broker-Dealer of the Prospectus contained
in the Exchange Offer Registration Statement and (b) include in
such "Plan of Distribution" section all other information with
respect to such resales by Participating Broker-Dealers that the
SEC may require in order to permit such resales pursuant thereto,
but such "Plan of Distribution" shall not name any such
Participating Broker-Dealer or disclose the amount of Exchange
Notes held by any such Participating Broker-Dealer except to the
extent required by the Commission as a result of a change in
policy announced after the date of this Agreement, (ii) furnish
to each Participating Broker-Dealer who has delivered to TXU
Funding and TXU Holdings the notice referred to in Section 3(e),
without charge, as many copies of each Prospectus included in the
Exchange Offer Registration Statement, including any preliminary
prospectus, and any amendment or supplement thereto, as such
Participating Broker-Dealer may reasonably request (TXU Funding
and TXU Holdings hereby consent to the use of the Prospectus
forming part of the Exchange Offer Registration Statement or any
amendment or supplement thereto by any Person subject to the
prospectus delivery requirements of the Securities Act, including
all Participating Broker-Dealers, in connection with the sale or
transfer of the Exchange Notes covered by the Prospectus or any
amendment or supplement thereto), (iii) use its reasonable best
efforts to keep the Exchange Offer Registration Statement
effective and to amend and supplement the Prospectus contained
therein in order to permit such Prospectus to be lawfully
delivered by all Persons subject to the prospectus delivery
requirements of the Securities Act for such period of time as
such Persons must comply with such requirements under the
Securities Act and applicable rules and regulations in order to
resell the Exchange Notes; provided, however, that such period
shall not be required to exceed 90 days (or such longer period if
extended pursuant to the last sentence of Section 3 hereof) (the
"Applicable Period") and (iv) include in the transmittal letter
or similar documentation to be executed by an exchange offeree in
order to participate in the Exchange Offer (x) the following
provision:
"If the exchange offeree is a broker-dealer
holding Registrable Securities acquired for its
own account as a result of market-making
activities or other trading activities, it will
deliver a prospectus meeting the requirements of
the Securities Act in connection with any resale
of Exchange Notes received in respect of such
Registrable Securities pursuant to the Exchange
Offer,"
and (y) a statement to the effect that by a Participating Broker-
Dealer making the acknowledgement described in clause (x) and by
delivering a Prospectus in connection with the exchange of
Registrable Securities, the Participating Broker-Dealer will not
be deemed to admit that it is an underwriter within the meaning
of the Securities Act; and
(B) in the case of any Exchange Offer Registration
Statement, deliver to the Initial Purchasers or to another
representative of the Participating Broker-Dealers, if requested
by any such Initial Purchasers or such other representative of
the Participating Broker-Dealers, on behalf of the Participating
Broker-Dealers upon consummation of the Exchange Offer (i) an
opinion of counsel in form and substance reasonably satisfactory
to the Initial Purchasers or such other representative of the
Participating Broker-Dealers, covering the matters customarily
covered in opinions requested in connection with Exchange Offer
Registration Statements and such other matters as may be
reasonably requested (it being agreed that the matters to be
covered by such opinion may be subject to customary
qualifications and exceptions), (ii) an officer's certificate
containing certifications substantially similar to those set
forth in certificates delivered pursuant to Section 8 of the
Purchase Agreement and such additional certifications as are
customarily delivered in a public offering of debt securities and
(iii) as well as upon the effectiveness of the Exchange Offer
Registration Statement, a comfort letter, in each case, in
customary form as permitted by Statement on Auditing Standards
No. 72 and with such variations necessary to reflect the
transactions in August 1998 in connection with the purchase by
Texas Utilities of the predecessors of TXU Holdings. Each of the
foregoing shall be consistent with the terms of the Purchase
Agreement.
TXU Funding and TXU Holdings may require each seller of
Registrable Securities as to which any registration is being
effected to furnish to TXU Funding and TXU Holdings such
information regarding such seller as may be required by the Staff
of the SEC to be included in a Registration Statement. TXU
Funding and TXU Holdings may exclude from such registration the
Registrable Securities of any seller who unreasonably fails to
furnish such information within a reasonable time after receiving
such request. Neither TXU Funding nor TXU Holdings shall have
any obligation to register under the Securities Act the
Registrable Securities of a seller who so fails to furnish such
information.
In the case of (1) a Shelf Registration Statement or
(2) Participating Broker-Dealers who have notified TXU Funding
and TXU Holdings that they will be utilizing the Prospectus
contained in the Exchange Offer Registration Statement as
provided in Section 3(t) hereof, are seeking to sell Exchange
Notes and are required to deliver Prospectuses, each Holder
agrees that, upon receipt of any notice from TXU Funding or TXU
Holdings of the happening of any event of the kind described in
Section 3(e)(ii), 3(e)(iii), 3(e)(v) or 3(e)(vi) hereof, such
Holder will forthwith discontinue disposition of Registrable
Securities pursuant to a Registration Statement until such
Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 3(i) hereof or until it is
advised in writing (the "Advice") by TXU Funding or TXU Holdings
that the use of the applicable Prospectus may be resumed, and, if
so directed by TXU Funding or TXU Holdings, such Holder will
deliver to TXU Funding (at TXU Holding's expense) all copies in
such Holder's possession, other than permanent file copies then
in such Holder's possession, of the Prospectus covering such
Registrable Securities or Exchange Notes, as the case may be,
current at the time of receipt of such notice. If TXU Funding or
TXU Holdings shall give any such notice to suspend the
disposition of Registrable Securities or Exchange Notes, as the
case may be, pursuant to a Registration Statement, TXU Funding
and TXU Holdings shall file and use its best efforts to have
declared effective (if an amendment) as soon as practicable an
amendment or supplement to the Registration Statement and shall
extend the period during which such Registration Statement shall
be maintained effective pursuant to this Agreement by the number
of days in the period from and including the date of the giving
of such notice to and including the date when TXU Funding and TXU
Holdings shall have made available to the Holders (x) copies of
the supplemented or amended Prospectus necessary to resume such
dispositions or (y) the Advice.
4. Indemnification.
---------------
(a) In connection with any Registration Statement, TXU
Funding and TXU Holdings shall indemnify and hold harmless each
Initial Purchaser, each Holder, each underwriter who participates
in an offering of the Registrable Securities, each Participating
Broker-Dealer, and each Person, if any, who controls any of such
parties within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act (each an "Indemnified Party") from
and against any and all losses, claims, damages or liabilities,
joint or several, to which they or any of them may become subject
under the Securities Act or any other statute or common law and
shall reimburse each such Indemnified Party for any legal or
other expenses (including, to the extent hereinafter provided,
reasonable counsel fees) incurred by them in connection with
investigating any such losses, claims, damages or liabilities or
in connection with defending any actions, insofar as such losses,
claims, damages, liabilities, expenses or actions arise out of or
are based upon any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus or
Prospectus, or in a Registration Statement, or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; provided, however, that the indemnity agreement
contained in this Section 4 as to any Indemnified Party shall not
apply to any such losses, claims, damages, liabilities, expenses
or actions arising out of, or based upon, any such untrue
statement or alleged untrue statement, or any such omission or
alleged omission, if such statement or omission was made in
reliance upon and in conformity with information furnished in
writing to TXU Funding or TXU Holdings by such Indemnified Party
for use in connection with the preparation of the Registration
Statement or the related Prospectus or any amendment or
supplement to either thereof, or arising out of, or based upon,
statements in or omissions from the part of the Registration
Statement which shall constitute the Statement of Eligibility and
Qualification of the Trustee under the TIA; and provided further,
that the indemnity agreement contained in this Section 4 with
respect to the related Prospectus or any amendment or supplement
thereto, (if TXU Funding and TXU Holdings shall have furnished
any amendment or supplement thereto) shall not inure to the
benefit of any Indemnified Party on account of any such losses,
claims, damages, liabilities, expenses or actions arising from
the sale of Registrable Securities to any person if a copy of the
related Prospectus (exclusive of any documents incorporated by
reference) shall not have been given or sent to such person by or
on behalf of such Indemnified Party with or prior to the written
confirmation of the sale involved unless, with respect to the
delivery of any amendment or supplement to the Prospectus, the
alleged omission or alleged untrue statement was not corrected in
such amendment or supplement at the time of such written
confirmation. The indemnity agreement of TXU Funding and TXU
Holdings contained in this Section 4 shall remain operative and
in full force and effect regardless of any termination of this
Agreement or of any investigation made by or on behalf of any
Indemnified Party, and shall survive the registration of the
Registrable Securities.
(b) Each Holder shall indemnify, defend and hold
harmless TXU Funding and TXU Holdings and any underwriter and
other selling Holder, and their respective officers and
directors, and each person who controls TXU Funding or TXU
Holdings or any underwriter or any other selling Holder within
the meaning of Section 15 of the Securities Act, from and against
any and all losses, claims, damages or liabilities, joint or
several, to which they or any of them may become subject under
the Securities Act or any other statute or common law and shall
reimburse each of them for any legal or other expenses
(including, to the extent hereinafter provided, reasonable
counsel fees) incurred by them in connection with investigating
any such losses, claims, damages or liabilities or in connection
with defending any actions, insofar as such losses, claims,
damages, liabilities, expenses or actions arise out of or are
based upon any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement or the
related Prospectus, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon and in conformity
with information furnished in writing to TXU Funding or TXU
Holdings by or on behalf of such Holder, for use in connection
with the preparation of the Registration Statement or the related
Prospectus or any amendment or supplement to either thereof. The
indemnity agreement of the respective Holders contained in this
Section 4 shall remain operative and in full force and effect
regardless of any termination of this Agreement or of any
investigation made by or on behalf of TXU Funding or TXU
Holdings, any underwriter, or any other selling Holder, or their
respective directors or officers, or any such controlling person,
and shall survive the registration of the Registrable Securities;
provided, however, that, no such Holder shall be liable for any
claims hereunder in excess of the amount of net proceeds received
by such Holder from the sale of Registrable Securities pursuant
to a Registration Statement.
(c) TXU Funding, TXU Holdings and the Holders each
shall, upon the receipt of notice of the commencement of any
action against it or any person controlling it as aforesaid, in
respect of which indemnity may be sought on account of any
indemnity agreement contained herein, promptly give written
notice of the commencement thereof to the party or parties
against whom indemnity shall be sought hereunder, but the
omission so to notify such indemnifying party or parties of any
such action shall not relieve such indemnifying party or parties
from any liabilities which it or they may have to the indemnified
party otherwise than on account of such indemnity agreement. In
case such notice of any such action shall be so given, such
indemnifying party shall be entitled to participate at its own
expense in the defense, or, if it so elects, to assume (in
conjunction with any other indemnifying parties) the defense of
such action, in which event such defense shall be conducted by
counsel chosen by such indemnifying party or parties and
satisfactory to the indemnified party or parties who shall be
defendant or defendants in such action, and such defendant or
defendants shall bear the fees and expenses of any additional
counsel retained by them; but if the indemnifying party shall
elect not to assume the defense of such action, such indemnifying
party will reimburse such indemnified party or parties for the
reasonable fees and expenses of any counsel retained by them;
provided, however, if the defendants in any such action include
both the indemnified party and the indemnifying party and counsel
for the indemnifying party shall have reasonably concluded that
there may be a conflict of interest involved in the
representation by such counsel of both the indemnifying party and
the indemnified party, the indemnified party or parties shall
have the right to select separate counsel, satisfactory to the
indemnifying party, to participate in the defense of such action
on behalf of such indemnified party or parties (it being
understood, however, that the indemnifying party shall not be
liable for the expenses of more than one separate counsel
representing the indemnified parties who are parties to such
action). Each of the parties agrees that without the other
party's prior written consent, which consent shall not be
unreasonably withheld, it will not settle, compromise or consent
to the entry of any judgment in any claim in respect of which
indemnification may be sought under the indemnification provision
of this Agreement, unless such settlement, compromise or consent
(i) includes an unconditional release of such other party from
all liability arising out of such claim and (ii) does not include
a statement as to or an admission of fault, culpability or a
failure to act by or on behalf of such other party.
(d) If the indemnification provided for in (a) or (b)
above shall be unenforceable under applicable law by an
indemnified party, each indemnifying party agrees to contribute
to such indemnified party with respect to any and all losses,
claims, damages, liabilities and expenses for which each such
indemnification provided for in (a) or (b) above shall be
unenforceable, in such proportion as shall be appropriate to
reflect the (i) relative fault of each indemnifying party on the
one hand and the indemnified party on the other in connection
with the statement or omissions which have resulted in such
losses, claims, damages, liabilities and expenses, the relative
benefits received by each indemnifying party on the one hand and
the indemnified party on the other hand from the offering of the
Registrable Securities pursuant to this Agreement, and any other
relevant equitable considerations; provided, however, that no
indemnified party guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution from any indemnifying party not guilty
of such fraudulent misrepresentation. Relative fault shall be
determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by such indemnifying party or the
indemnified party and each such party's relative intent,
knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. TXU Funding, TXU
Holdings and each of the Holders agree that it would not be just
and equitable if contributions pursuant to this paragraph (d)
were to be determined by pro rata allocation (even if the Holders
were treated as one entity for such purpose) or by any other
method of allocation which does not taken account of the
equitable consideration referred to above. Notwithstanding the
provisions of this Section 4, no Holder shall be required to
contribute in excess of the amount equal to the excess of (i) the
net proceeds received by such Holder from the sale of Registrable
Securities by it to Eligible Holders, over (ii) the amount of any
damages which such Holder has otherwise been required to pay by
reason of any such untrue or alleged untrue statement or omission
or alleged omission. The obligations of each Holder to
contribute pursuant to this Section 4 are several and not joint
and shall not exceed the same proportion of all contributions of
Holders required hereunder as such Holder's Registrable
Securities sold pursuant to the Registration Statement is of the
total amount of Registrable Securities sold pursuant to the
Registration Statement.
5. Participation in Underwritten Registrations.
-------------------------------------------
No Holder may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such
Holder's Registrable Securities on the basis provided in any
underwriting arrangements approved by the Persons entitled
hereunder to approve such arrangements and (b) completes and
executes all reasonable questionnaires, powers of attorney,
indemnities, underwriting agreements, lock-up letters and other
documents reasonably required under the terms of such
underwriting arrangements.
6. Selection of Underwriters.
-------------------------
The Holders of Registrable Securities covered by the
Shelf Registration Statement who desire to do so may sell the
securities covered by such Shelf Registration in an underwritten
offering. In any such underwritten offering, the underwriter or
underwriters and manager or managers that will administer the
offering will be selected by the Holders of a majority in
aggregate principal amount of the Registrable Securities included
in such offering; provided, however, that such underwriters and
managers must be reasonably satisfactory to TXU Funding and TXU
Holdings.
7. Miscellaneous.
-------------
(a) Rule 144 and Rule 144A. For so long as TXU
----------------------
Funding or TXU Holdings is subject to the reporting requirements
of Section 13 or 15 of the Exchange Act and any Registrable
Securities remain outstanding, each of TXU Funding and TXU
Holdings will file the reports required to be filed by it under
the Securities Act and Section 13(a) or 15(d) of the Exchange Act
and the rules and regulations adopted by the SEC thereunder. If
either TXU Funding or TXU Holdings ceases to be so required to
file such reports, it will, upon the request of any Holder of
Registrable Securities (a) make publicly available such
information as is necessary to permit sales of their securities
pursuant to Rule 144 under the Securities Act, (b) deliver such
information to prospective purchasers as is necessary to permit
sales of their securities pursuant to Rule 144A under the
Securities Act and take such further action as any Holder of
Registrable Securities may reasonably request and (c) take such
further action that is reasonable in the circumstances, in each
case, to the extent required from time to time to enable such
Holder to sell its Registrable Securities without registration
under the Securities Act within the limitation of the exemptions
provided by (i) Rule 144 under the Securities Act, as such rule
may be amended from time to time, (ii) Rule 144A under the
Securities Act, as such rule may be amended from time to time or
(iii) any similar rules or regulations hereafter adopted by the
SEC. Upon the request of any Holder of Registrable Securities,
TXU Funding or TXU Holdings, as the case may be, will deliver to
such Holder a written statement as to whether it has complied
with such requirements.
(b) No Inconsistent Agreements. Neither TXU Funding
--------------------------
nor TXU Holdings as entered into nor will TXU Funding or TXU
Holdings on or after the date of this Agreement enter into any
agreement which is inconsistent with the rights granted to the
Holders of Registrable Securities in this Agreement or otherwise
conflicts with the provisions hereof. The rights granted to the
Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to the holders of TXU
Funding's or TXU Holdings' other issued and outstanding
securities under any such agreements.
(c) Amendments and Waivers. The provisions of this
----------------------
Agreement, including the provisions of this sentence, may not be
amended, modified or supplemented, and waivers of consents to
departures from the provisions hereof may not be given unless TXU
Funding and TXU Holdings have obtained the written consent of
Holders of at least a majority in aggregate principal amount of
the outstanding Registrable Securities affected by such
amendment, modification, supplement, waiver or departure;
provided no departure with respect to the provisions of Section 4
hereof shall be effective as against any Holder of Registrable
Securities without the consent of such Holder. Notwithstanding
the foregoing sentence, (i) this Agreement may be amended,
without the consent of any Holder of Registrable Securities, by
written agreement signed by TXU Funding, TXU Holdings and the
Trustee, to cure any ambiguity, correct or supplement any
provision of this Agreement that may be defective or inconsistent
with any other provision of this Agreement or to make any other
provisions with respect to matters or questions arising under
this Agreement which shall not be inconsistent with other
provisions of this Agreement and shall not adversely affect the
interests of the Holders in any material respect, (ii) without
the consent of any Holder of Registrable Securities, this
Agreement may be amended, modified or supplemented, and waivers
and consents to departures from the provisions hereof may be
given, by written agreement signed by TXU Funding, TXU Holdings
and the Trustee to the extent that any such amendment,
modification, supplement, waiver or consent is, in their
reasonable judgment, necessary or appropriate to comply with
applicable law (including any interpretation of the Staff of the
SEC) or any change therein and (iii) to the extent any provision
of this Agreement relates to the Initial Purchasers, such
provision may be amended, modified or supplemented, and waivers
or consents to departures from such provisions may be given, by
written agreement signed by TXU Funding, TXU Holdings and the
Trustee.
(d) Notices. All notices and other communications
-------
provided for or permitted hereunder shall be made in writing by
hand-delivery, registered first-class mail, telecopier, or any
courier guaranteeing overnight delivery (i) if to a Holder, at
the most current address given by such Holder to TXU Funding by
means of a notice given in accordance with the provisions of this
Section 7(d), which address initially is, with respect to the
Initial Purchasers, the address set forth in the Purchase
Agreement and (ii) if to TXU Funding or TXU Holdings, initially
at TXU Funding' or TXU Holdings'address set forth in the Purchase
Agreement and thereafter at such other address, notice of which
is given in accordance with the provisions of this Section 7(d).
All such notices and communications shall be deemed to
have been duly given: at the time delivered by hand, if
personally delivered; five Business Days after being deposited in
the mail, postage prepaid, if mailed; when receipt is
acknowledged, if telecopied; and on the next Business Day, if
timely delivered to an air courier guaranteeing overnight
delivery.
Copies of all such notices, demands, or other
communications shall be concurrently delivered by the Person
giving the same to the Trustee, at the address specified in the
Indenture.
(e) Successors and Assigns. This Agreement shall
----------------------
inure to the benefit of and be binding upon the successors,
assigns and transferees of the Initial Purchasers, including,
without limitation and without the need for an express
assignment, subsequent Holders; provided, however, that nothing
herein shall be deemed to permit any assignment, transfer or
other disposition of Registrable Securities in violation of the
terms of the Purchase Agreement or the Indenture. If any
transferee of any Holder shall acquire Registrable Securities, in
any manner, whether by operation of law or otherwise, such
Registrable Securities shall be held subject to all of the terms
of this Agreement, and by taking and holding such Registrable
Securities, such Person shall be conclusively deemed to have
agreed to be bound by and to perform all of the terms and
provisions of this Agreement and such Person shall be entitled to
receive the benefits hereof.
(f) Third Party Beneficiary. Each of the Initial
-----------------------
Purchasers shall be a third party beneficiary of the agreements
made hereunder among TXU Funding, TXU Holdings and the Holders
and shall have the right to enforce such agreements directly to
the extent it deems such enforcement necessary or advisable to
protect its rights or the rights of Holders hereunder.
(g) Consent to Jurisdiction; Appointment of Agent to
----------------------- -------------------------
Process. Accept Service of Each of TXU Funding and TXU Holdings
-------
irrevocably submits to the non-exclusive jurisdiction of any
federal or state court in the City, County and State of New York,
United States of America, in any legal suit, action or proceeding
based on or arising under this Agreement and agrees that all
claims in respect of such suit or proceeding may be determined in
any such court. Each of TXU Funding and TXU Holdings irrevocably
waives the defense of an inconvenient forum or objections to
personal jurisdiction with respect to the maintenance of such
legal suit, action or proceeding. To the extent permitted by
law, each of TXU Funding and TXU Holdings hereby waives any
objection to the enforcement by any competent court in the United
Kingdom of, and to the relitigation before any competent court in
the United Kingdom in connection with, any judgment validly
obtained in any such court in New York on the basis of any such
legal suit, action or proceeding. Each of TXU Funding and TXU
Holdings has appointed Thelen Reid & Priest LLP (the "Process
Agent") as its authorized agent upon whom process may be served
in any such legal suit, action or proceeding. Such appointment
shall be irrevocable. The Process Agent has agreed to act as
said agent for service of process and each of TXU Funding and TXU
Holdings agrees to take any and all action including the filing
of any and all documents and instruments, that may be necessary
to continue such appointment in full force and effect as
aforesaid. Each of TXU Funding and TXU Holdings further agrees
that service of process upon the Process Agent and written notice
of said service to each of TXU Funding and TXU Holdings shall be
deemed in every respect effective service of process upon each of
TXU Funding and TXU Holdings in any such legal suit, action or
proceeding. Nothing herein shall affect the right of any Initial
Purchaser or any person controlling any Initial Purchaser to
serve process in any other manner permitted by law. The
provisions of this subsection (g) shall remain operative and in
full force and effect regardless of any termination of this
Agreement, in whole or in part.
(h) Waiver of Immunities. To the extent that TXU
--------------------
Funding, TXU Holdings or any of their respective properties,
assets or revenues may have or may hereafter become entitled to,
or have attributed to it, any right of immunity, on the grounds
of sovereignty or otherwise, from any legal action, suit or
proceeding, from the giving of any relief in any thereof, from
set-off or counterclaim, from the jurisdiction of any court, from
service or process, from attachment upon or prior to judgment,
from attachment in aid of execution of judgment, or from
execution of judgment, or other legal process or proceeding for
the giving of any relief or for the enforcement of any judgment,
in any jurisdiction in which proceedings may at any time be
commenced, with respect to its obligations, liabilities or any
other matter under or arising out of or in connection with the
Notes, the Guarantees, the Exchange Notes, the Exchange
Guarantees, the Deposit Agreement, the Indenture or this
Agreement, each of TXU Funding and TXU Holdings hereby
irrevocably and unconditionally waives and agrees not to plead or
claim, any such immunity and consents to such relief and
enforcement. Nothing in this subsection (h) shall be deemed to
waive any defense (other than any such immunity) available to
either TXU Funding or TXU Holdings. The provisions of this
subsection (h) shall remain operative and in full force and
effect regardless of any termination of this Agreement, in whole
or in part.
(i) Foreign Taxes. (a) All payments by TXU Funding or
-------------
TXU Holdings to the Holders hereunder shall be made free and
clear of, and without withholding or deduction 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 jurisdiction in which TXU Funding or TXU Holdings is managed
or has a place of business or in which TXU Funding or TXU
Holdings has a branch or office from which payment is made or
deemed to be made (each, a "Taxing Jurisdiction"), unless such
withholding or deduction is required by law. In the event of any
such withholding or deduction ("Foreign Taxes"), TXU Funding or
TXU Holdings shall pay to each Holder such additional amount as
shall be necessary in order that the amount received by such
Holder after withholding or deduction shall equal the amount that
would otherwise have been due to such Holder in the absence of
such withholding or deduction, except that no such amounts shall
be payable under this subsection (i) for:
(A) any such tax imposed by reason of any Holder
having some connection with the relevant Taxing
Jurisdiction (including being a citizen or
resident or national of, or carrying on a business
or maintaining a permanent establishment in, such
Taxing Jurisdiction) other than its participation
as an Initial Purchaser hereunder; and
(B) any income or franchise tax on the overall net
income of any Holder imposed by the United States
or by the State of New York or any political
subdivision of the United States or of the State
of New York.
(b) In the event any Initial Purchaser obtains any
actual payment of refund, credit, allowance, remission or other
deduction of, against or from income or taxable income otherwise
determined or taxes otherwise payable to which it may be entitled
from the relevant Taxing Jurisdiction in respect of any Foreign
Taxes paid on the Initial Purchaser's behalf by TXU Funding or
TXU Holdings or for which the Initial Purchaser has received
reimbursement from TXU Funding or TXU Holdings, the Initial
Purchaser shall, to the extent it can do so without prejudice to
the retention of the amount so realized (after taking into
account any net additional taxes paid in connection with the
realization thereof), notify TXU Funding or TXU Holdings, as the
case may be and pay TXU Funding or TXU Holdings, as the case may
be (to the extent that the same shall not already have been taken
into account in computing any amount previously paid by TXU
Funding or TXU Holdings or the amount of any reimbursement
previously received by the Initial Purchaser) promptly after the
realization thereof an amount which is equal to the net amount
thereof (or, in the event of a deduction from taxable income, the
tax benefit generated thereby, if less than such deduction) plus
any additional tax savings resulting from the payment pursuant to
this sentence, provided that the aggregate of all such payments
shall not exceed the aggregate of all amounts paid by the Company
in respect of such Foreign Taxes.
The provisions of this subsection (i) shall remain operative and
in full force and effect regardless of any termination of this
Agreement, in whole or in part.
(j) Luxembourg Stock Exchange Provisions. (i) TXU
------------------------------------
Funding and TXU Holdings will use their reasonable best efforts
to list the Exchange Notes on the Luxembourg Stock Exchange and
(ii) as long as the Notes or Exchange Notes, as applicable, are
listed on the Luxembourg Stock Exchange and the rules of such
Exchange so require:
(A) The exchange of the Notes for the Exchange
Notes pursuant to the Exchange Offer may be
effected through the Paying Agent in
Luxembourg.
(B) TXU Funding and TXU Holdings will provide
such Paying Agent with all documentation with
respect to the Exchange Offer, and
(C) TXU Funding and TXU Holdings will cause the
publication of a notice in a leading
newspaper having general circulation in
Luxembourg (i) prior to the Exchange Offer,
indicating the procedures to be followed
pursuant to the Exchange Offer, (ii)
subsequent to the Exchange Offer, indicating
the results thereof, (iii) of the payment of
any Additional Interest and (iv) noting any
increase in the interest rate on the Exchange
Notes.
(k) Counterparts. This Agreement may be executed in
------------
any number of counterparts and by the parties hereto in separate
counterparts, each of which when so executed shall be deemed to
be an original and all of which taken together shall constitute
one and the same agreement.
(l) Headings. The headings in this Agreement are for
--------
convenience of reference only and shall not limit or otherwise
affect the meaning hereof.
(m) GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO
-------------
HAVE BEEN MADE IN THE STATE OF NEW YORK. THE VALIDITY AND
INTERPRETATION OF THIS AGREEMENT, AND THE TERMS AND CONDITIONS
SET FORTH HEREIN, SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS. EACH OF
THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE
COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(n) Severability. In the event that any one or more
------------
of the provisions contained herein, or the application thereof in
any circumstance, is held invalid, illegal or unenforceable, the
validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions contained
herein shall not be affected or impaired thereby.
(o) Securities Held by TXU Funding, TXU Holdings or
-----------------------------------------------
their Affiliates. Whenever the consent or approval of Holders of
----------------
a specified percentage of Registrable Securities is required
hereunder, Registrable Securities held by TXU Funding, TXU
Holdings or any of their affiliates (as such term is defined in
Rule 405 under the Securities Act) shall not be counted in
determining whether such consent or approval was given by the
Holders of such required percentage.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed
this Agreement as of the date first written above.
TXU EASTERN FUNDING COMPANY
By: /s/ Kirk R. Oliver
-----------------------------
Name: Kirk R. Oliver
Title: Authorized Attorney
TXU EASTERN HOLDINGS LIMITED
By: /s/ Kirk R. Oliver
------------------------------
Name: Kirk R. Oliver
Title: Authorized Attorney
Accepted and delivered as of
the date first above written
LEHMAN BROTHERS INC.
on behalf of the Initial Purchasers
By: /s/ James W. Merli
-----------------------------
Name: James W. Merli
Title: Managing Director
DEPOSIT AGREEMENT
BETWEEN
THE BANK OF NEW YORK, as Book-Entry Depositary
and
TXU EASTERN FUNDING COMPANY, Issuer
Dated as of May 13, 1999
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
Definitions and Other General Provisions
Section 1.01. Definitions . . . . . . . . . . . . . . . . . 1
Section 1.02. Rules of Construction . . . . . . . . . . . . 4
ARTICLE II
Book-Entry Interests
Section 2.01. Deposit of the Global Senior Notes . . . . . . 4
Section 2.02. Book-Entry System . . . . . . . . . . . . . . 5
Section 2.03. Registration of Transfer of the Book-Entry
Interests . . . . . . . . . . . . . . . . . 7
Section 2.04. Transfer or Exchange of Global Senior Notes . 9
Section 2.05. Issuance of Certificated Registered Senior
Notes in Respect of the Senior Notes . . . . 10
Section 2.06. Redemption of the Senior Notes . . . . . . . . 11
Section 2.07. Cancellation . . . . . . . . . . . . . . . . . 11
Section 2.08. Payments in Respect of the Book-Entry
Interests and the Global Senior Notes . . . 11
Section 2.09. Change in Principal Amount of Global
Senior Notes . . . . . . . . . . . . . . . . 12
Section 2.10. Record Date . . . . . . . . . . . . . . . . . 12
Section 2.11. Action in Respect of the Book-Entry
Interests or the Global Senior Notes . . . . 12
Section 2.12. Reports and Notices . . . . . . . . . . . . . 13
Section 2.13. Additional Amounts . . . . . . . . . . . . . . 13
Section 2.14. Changes Affecting Global Senior Notes . . . . 13
ARTICLE III
The Book-Entry Depositary
Section 3.01. Certain Duties and Responsibilities . . . . . 13
Section 3.02. Events of Default . . . . . . . . . . . . . . 14
Section 3.03. Certain Rights of Book-Entry Depositary . . . 14
Section 3.04. Not Responsible for Recitals or Issuance
of Senior Notes . . . . . . . . . . . . . . 15
Section 3.05. Money Held in Trust . . . . . . . . . . . . . 15
Section 3.06. Compensation and Reimbursement . . . . . . . . 16
Section 3.07. Book-Entry Depositary Required; Eligibility . 16
Section 3.08. Resignation and Removal; Appointment
of Successor . . . . . . . . . . . . . . . . 17
Section 3.09. Acceptance of Appointment by Successor . . . . 18
Section 3.10. Merger, Conversion, Consolidation or
Succession to Business . . . . . . . . . . . 19
Section 3.11. Letters of Representations . . . . . . . . . . 19
i
<PAGE>
ARTICLE IV
Miscellaneous Provisions
Section 4.01. Notices to Book-Entry Depositary or Issuer . . 19
Section 4.02. Notice to DTC; Waiver . . . . . . . . . . . . 20
Section 4.03. Effect of Headings and Table of Contents . . . 20
Section 4.04. Successors and Assigns . . . . . . . . . . . . 20
Section 4.05. Separability Clause . . . . . . . . . . . . . 20
Section 4.06. Benefits of Agreement . . . . . . . . . . . . 20
Section 4.07. GOVERNING LAW . . . . . . . . . . . . . . . . 20
Section 4.08. Jurisdiction . . . . . . . . . . . . . . . . . 21
Section 4.09. Counterparts . . . . . . . . . . . . . . . . . 21
Section 4.10. Inspection of Agreement . . . . . . . . . . . 21
Section 4.11. Satisfaction and Discharge . . . . . . . . . . 21
Section 4.12. Amendments . . . . . . . . . . . . . . . . . . 22
Section 4.13. Book-Entry Depositary To Sign Amendments . . . 22
ii
<PAGE>
DEPOSIT AGREEMENT
This Deposit Agreement (as the same may be amended from time
to time in accordance with the provisions hereof, the "Deposit
Agreement"), dated as of May 13, 1999, is among The Bank of New
York, a New York banking corporation, as book-entry depositary
with respect to the Global Senior Notes hereunder (the
"Book-Entry Depositary"), TXU Eastern Funding Company, a private
unlimited company incorporated under the laws of England and
Wales (the "Issuer"), and the holders and beneficial owners from
time to time of interests in the Book-Entry Interests.
ARTICLE I
DEFINITIONS AND OTHER GENERAL PROVISIONS
Section 1.01. Definitions.
Terms not defined herein have the meanings ascribed to them
in the Indenture. The following terms, as used herein, have the
following meanings:
"Book-Entry Depositary" means the party named as such in
this Agreement or its nominee or the custodian of either until a
successor shall have become such pursuant to Section 3.08 hereof,
and thereafter "Book-Entry Depositary" shall mean such successor
or its nominee or the custodian of either.
"Book-Entry Interests" means the certificateless depositary
interests that shall at all times, prior to any issuance of
Certificated Registered Senior Notes in respect thereof,
represent the right to receive 100% of the principal, premium (if
any) and interest on the underlying Senior Notes from time to
time received by the Book-Entry Depositary.
"Book-Entry Register" has the meaning ascribed thereto in
Section 2.03 hereof.
"Corporate Trust Office" means the office of the Book-Entry
Depositary in The City of New York, at which at any particular
time its corporate trust business shall be principally
administered, which at the date hereof is located at 101 Barclay
Street, New York, NY 10286, Attn: Corporate Trust Division,
Corporate Finance Group.
"Certificated Registered Senior Notes" means Senior Notes
issued by the Issuer pursuant to the Indenture substantially in a
form therefor included as an exhibit to the Officer's Certificate
and registered in the names of the beneficial owners thereof.
"DTC" means The Depository Trust Company, New York, New York
or any successor depositary with respect to the Book-Entry
Interests as recorded on the Book-Entry Register.
"Exchange Act" means the United States Securities Exchange
Act of 1934, as amended.
"Exchange Senior Notes" means any 6.15% Exchange Senior
Notes due May 15, 2002, 6.45% Exchange Senior Notes due May 15,
2005, and 6.75% Exchange Senior Notes due May 15, 2009 of the
Issuer issued in exchange for Initial Senior Notes pursuant to
the Registration Rights Agreement.
"Global Senior Notes" means Senior Notes in bearer form
issued by the Issuer to the Book-Entry Depositary pursuant to the
Indenture, substantially in the form included therefor as an
exhibit to the Officer's Certificate.
"Guarantor" means TXU Eastern Holdings Limited, a private
limited company incorporated under the laws of England and Wales.
"IAI Global Senior Notes" means those Global Senior Notes in
which Interests may be purchased by institutional "accredited
investors" as defined under Rule 501(a)(1), (2), (3) or (7) of
Regulation D of the Securities Act.
"IAI Purchaser" means an institutional "accredited investor"
who is not a Qualified Institutional Buyer who purchases an
Interest in an IAI Global Senior Note pursuant to Rule 501(a)(1),
(2), (3) or (7) of Regulation D under the Securities Act for
investment purposes and not for distribution in violation of the
Securities Act.
"Indenture" means the Indenture dated as of May 1, 1999,
among the Issuer, the Guarantor, and The Bank of New York, as
Trustee, relating to the Senior Notes as originally executed or
as it may from time to time be supplemented or amended including
by Officer's Certificate and, for all purposes to the extent
applicable, the provisions of the Trust Indenture Act that are
deemed to be a part of and govern such instrument.
"Indirect Participant" has the meaning specified in Section
2.02 herein.
"Initial Purchasers" means Lehman Brothers Inc., Morgan
Stanley & Co. Incorporated, ABN AMRO Incorporated, BNY Capital
Markets, Inc., Chase Securities Inc., Credit Suisse First Boston
Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
NationsBanc Montgomery Securities LLC, Salomon Smith Barney Inc.
and Warburg Dillon Read LLC.
"Initial Senior Notes" means the 6.15% Senior Notes due May
15, 2002, the 6.45% Senior Notes due May 15, 2005, and the 6.75%
Senior Notes due May 15, 2009 of the Issuer.
"Interests" means beneficial interests in the Book-Entry
Interests that will be shown on records maintained by DTC or its
direct or indirect Participants.
"Issuer" means the party named as such in this Agreement
until a successor replaces it pursuant to the applicable
provisions of the Indenture and, thereafter, means such
successor.
"Issuer Order" means a written request or order signed in
the name of the Issuer by any officer of the Issuer or other
person duly authorized by the Board of Directors, and delivered
to the Book-Entry Depositary.
"Jurisdiction of Incorporation" means each jurisdiction in
which the Issuer or the Guarantor, as the case requires, is
incorporated or organized.
"Letters of Representations" means the Letters of
Representations to DTC relating to the Initial Senior Notes, each
dated May 13, 1999, from the Book-Entry Depositary and the
Issuer.
"Officer's Certificate" means the certificates signed in the
name of the Issuer by an officer or director of the Issuer or by
any other person duly authorized by the Board of Directors of the
Issuer and signed in the name of the Guarantor by an officer or
director of the Guarantor or by any other person duly authorized
by the Board of Directors of the Guarantor, each dated as of May
13, 1999 and establishing certain terms of the Senior Notes.
"officer's certificate" means a certificate signed in the
name of the Issuer by an Authorized Officer of the Issuer and
delivered to the Trustee or the Book-Entry Depositary, as the
case requires.
"144A Global Senior Notes" means those Global Senior Notes
in which Interests may be purchased by Qualified Institutional
Buyers under Rule 144A of the Securities Act.
"Opinion of Counsel" means a written opinion from legal
counsel, who may be an employee of or regular counsel for the
Issuer or may be other counsel reasonably acceptable to the
Book-Entry Depositary.
"Participant" has the meaning specified in Section 2.02
herein.
"Qualified Institutional Buyer" means a qualified
institutional buyer as defined in Rule 144A of the Securities Act
who purchases an Interest in a 144A Global Senior Note under Rule
144A.
"Registered Holder" means, with respect to any Book-Entry
Interest, the Person in whose name such Book-Entry Interest is
registered on the Book-Entry Register maintained by the
Book-Entry Depositary.
"Registration Rights Agreement" means the agreement, dated
May 13, 1999, among the Guarantor, the Issuer and the Initial
Purchasers of the Initial Senior Notes whereby, among other
things, the Guarantor and the Issuer have agreed to file a
registration statement with the US Securities and Exchange
Commission relating to an exchange offer pursuant to which
Exchange Senior Notes would be offered in exchange for Initial
Senior Notes.
"Reg S Global Senior Notes" means those Global Senior Notes
in which Interests may be purchased by foreign purchasers under
Regulation S of the Securities Act.
"Regulation S Purchaser" or "foreign purchaser" means a
person or entity residing outside of the United States who
purchases an Interest in a Reg S Global Senior Note pursuant to
Rule 904 of Regulation S of the Securities Act.
"Responsible Officer", when used with respect to the
Book-Entry Depositary, means any authorized officer of the
Book-Entry Depositary including any vice president, assistant
vice president, assistant secretary, treasurer, assistant
treasurer, or any other officer of the Book-Entry Depositary who
customarily performs functions similar to those performed by the
Persons who at the time shall be such officers, respectively, or
to whom any depositary matter is referred because of such
officer's knowledge of and familiarity with the particular
subject.
"Securities Act" means the United States Securities Act of
1933, as amended.
"Senior Notes" means the Initial Senior Notes and, upon
their issuance in accordance with the Registration Rights
Agreement, the Exchange Senior Notes.
"Taxing Jurisdiction" means (i) any supranational federation
to which a Jurisdiction of Incorporation belongs or (ii) any
Jurisdiction of Incorporation (or any political subdivision or
taxing authority thereof or therein) or any jurisdiction in which
the Issuer or the Guarantor is incorporated or in which the
Issuer or the Guarantor is managed and controlled or has a place
of business.
"Trustee" means The Bank of New York and its successors and
assigns, as trustee under the Indenture.
Section 1.02. Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) "or" is not exclusive;
(c) "including" means including without limitation; and
(d) words in the singular include the plural and words in
the plural include the singular.
ARTICLE II
BOOK-ENTRY INTERESTS
Section 2.01. Deposit of the Global Senior Notes.
(a) The Book-Entry Depositary hereby accepts custody of the
Global Senior Notes and shall act as Book-Entry Depositary in
accordance with the terms of this Agreement. The Book-Entry
Depositary shall hold such Global Senior Notes at its Corporate
Trust Office in The City of New York, at the office of the paying
agent in Luxembourg or at such place as it shall determine with
the consent of the Issuer and shall issue the Book-Entry
Interests to DTC or its nominee in accordance with the Letters of
Representations.
(b) The 144A Global Senior Notes are identified by the
following CUSIP numbers:
6.15% Senior Notes due May 15, 2002 - 873169AA4
6.45% Senior Notes due May 15, 2005 - 873169AD8
6.75% Senior Notes due May 15, 2009 - 873169AG1
(c) The Reg S Global Senior Notes are identified by the
following CUSIP numbers:
6.15% Senior Notes due May 15, 2002 - G9143JAA8
6.45% Senior Notes due May 15, 2005 - G9143JAB6
6.75% Senior Notes due May 15, 2009 - G9143JAC4
(d) The IAI Global Senior Notes are identified by the
following CUSIP numbers:
6.15% Senior Notes due May 15, 2002 - 873169AB2
6.45% Senior Notes due May 15, 2005 - 873169AE6
6.75% Senior Notes due May 15, 2009 - 873169AH9
Section 2.02. Book-Entry System.
(a) Upon acceptance by DTC of the Book-Entry Interests for
entry into its book-entry settlement system in accordance with
the terms of the Letters of Representations, Interests in the
Book-Entry Interests will be recorded on and traded through DTC's
book-entry system, and beneficial ownership of such Interests
shall be shown in, and the transfer of such ownership shall be
effected only through, records maintained by (i) DTC or (ii)
institutions that have accounts with DTC ("Participants") or
(iii) institutions that have accounts directly or indirectly with
Participants ("Indirect Participants"). Interests shall be
transferable only as units representing authorized denominations
of the Senior Notes.
(b) The Book-Entry Interests shall be issuable only to DTC
or successors of DTC or their respective nominees. Except as
provided in Section 2.05, no beneficial owner of Interests shall
be entitled to receive a Certificated Registered Senior Note, and
such beneficial owner's Interests shall be reflected only in
accordance with the procedures of DTC as set forth in the Letters
of Representations.
(c) Transfers of the Book-Entry Interests and Interests
with respect to Initial Senior Notes shall be subject to the
restrictions on transfer provided in the legend set forth on the
face of the Global Senior Notes relating thereto. Such
restrictions will not apply to Book-Entry Interests and Interests
with respect to Exchange Senior Notes.
In addition, each purchaser of an Interest in the Initial
Senior Notes, by accepting such Interest, will be deemed to have
represented and agreed as follows:
(1) it is acquiring the Interest in the Initial Senior
Notes for its own account or for an account with respect to
which it exercises sole investment discretion, and that it
or such account, as the case may be, is a Qualified
Institutional Buyer, a foreign purchaser outside the US or
an institutional "accredited investor" acquiring the
beneficial interests in the senior notes for investment
purposes and not for distribution;
(2) it acknowledges that the offer and sale of the
Interests in the Initial Senior Notes have not been
registered under the Securities Act and such Interests may
not be resold except as permitted below;
(3) it understands and agrees that such Interests in
the Initial Senior Notes are being offered only in a
transaction not involving any public offering within the
meaning of the Securities Act, and that (A) if it decides to
resell, pledge or otherwise transfer such Interests in the
Initial Senior Notes to which the legend set forth below
applies, such Interests in the Initial Senior Notes may be
resold, pledged or transferred only (i) to the Issuer or the
Guarantor, (ii) in a transaction entitled to an exemption
from registration provided by Rule 144 under the Securities
Act, (iii) so long as such security is eligible for resale
pursuant to Rule 144A, to a person whom the seller
reasonably believes is a Qualified Institutional Buyer that
purchases for its own account or for the account of a
Qualified Institutional Buyer to whom notice is given that
the resale, pledge or transfer is being made in reliance on
Rule 144A, (iv) in an offshore transaction in accordance
with Rule 904 of Regulation S of the Securities Act, (v) to
an institutional "accredited investor" as defined in Rule
501(a)(1), (2), (3), or (7) of Regulation D under the
Securities Act acquiring the Interest in the Initial Senior
Notes, in a minimum principal amount of $250,000, for
investment purposes and not for distribution, or (vi)
pursuant to an effective registration statement under the
Securities Act, and (B) the purchaser will, and each
subsequent holder is required to, notify any purchaser of
Interests in Initial Senior Notes from it of the resale
restrictions referred to in (A) above, if then applicable.
Before any Interest in an Initial Senior Note may be
offered, sold, pledged or otherwise transferred by a
Qualified Institutional Buyer to a person who is not a
Qualified Institutional Buyer or by a Regulation S Purchaser
to a person who is not a Regulation S Purchaser, the
transferee and/or the transferor must provide the Trustee
with written certification (the form of which certification
is substantially in the form of Exhibit A to this Agreement
and which may be obtained from the Book-Entry Depositary) as
to the compliance with the transfer restrictions referred to
above. If any resale or other transfer of an Interest in
the Initial Senior Notes is proposed to be made pursuant to
clause (v) above, the transferor shall deliver a letter from
the transferee substantially in the form of Exhibit B to
this Agreement to the Issuer, the Guarantor and to the
Trustee, which shall provide, among other things, that the
transferee is an institutional "accredited investor" that is
acquiring such beneficial interest for investment purposes
and not for distribution in violation of the Securities Act.
Each purchaser of an Interest in the Initial Senior Notes
acknowledges that the Issuer, the Guarantor and the Trustee
reserve the right prior to any offer, sale or other transfer
of such Interest in the Initial Senior Notes pursuant to
clauses (ii), (iv) or (v) above to require the delivery of
an Opinion of Counsel, certifications and/or other
information satisfactory to the Issuer, the Guarantor and
the Trustee that the proposed sale complies with the
foregoing restrictions. An IAI Purchaser may not transfer
its Interest in an Initial Senior Note to another IAI
Purchaser.;
(4) it understands that the following legend will be
placed on the Initial Senior Notes unless otherwise agreed
by the Issuer:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR WITH ANY
SECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER
JURISDICTION OF THE UNITED STATES AND MAY NOT BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED OTHER THAN (A) (1) TO TXU
EASTERN FUNDING COMPANY OR TXU EASTERN HOLDINGS LIMITED, (2)
IN A TRANSACTION ENTITLED TO AN EXEMPTION FROM REGISTRATION
PROVIDED BY RULE 144 UNDER THE SECURITIES ACT, (3) SO LONG
AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE
144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON
WHOM THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT
THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (4) IN AN OFFSHORE TRANSACTION IN
ACCORDANCE WITH RULE 904 OF REGULATION S UNDER THE
SECURITIES ACT, (5) TO AN INSTITUTION THAT IS AN "ACCREDITED
INVESTOR" AS DEFINED IN RULE 501(a)(1), (2), (3) OR (7)
UNDER THE SECURITIES ACT, IN A MINIMUM PRINCIPAL AMOUNT OF
THE SECURITIES OF $250,000, AND THAT IS ACQUIRING THE
SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR
(6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, AND (B) IN EACH CASE IN ACCORDANCE WITH
ALL THE APPLICABLE SECURITIES LAWS OF THE STATES OF THE
UNITED STATES";
(5) it (i) is able to fend for itself in the
transactions contemplated by the offering memorandum dated
May 6, 1999; (ii) has such knowledge and experience in
financial and business matters as to be capable of
evaluating the merits and risks of its prospective
investment in such Interest in the Initial Senior Notes;
(iii) has the ability to bear the economic risks of its
prospective investment and can afford the complete loss of
such investment; and (iv) acknowledges that it may be
required to bear the financial risks of this investment for
an indefinite period of time;
(6) if it is (i) a purchaser in a sale that occurs
outside the US within the meaning of Regulation S of the
Securities Act, or (ii) a "distributor," "dealer" or person
"receiving a selling concession, fee or other remuneration"
in respect of securities sold, prior to the expiration of
the Restricted Period (as defined below), it acknowledges
that until the expiration of the Restricted Period any offer
or sale of such Interest in the Initial Senior Notes shall
not be made by it to a US person or for the account or
benefit of a US person within the meaning of Rule 902(k) of
Regulation S of the Securities Act, except offers or sales
made pursuant to Rule 144A. The "Restricted Period" means,
with respect to Interests in the Initial Senior Notes, the
40-day period following the later of (i) the date on which
such Interests in Initial Senior Notes are first offered to
persons other than distributors (as defined in Regulation S)
and (ii) the original issue date of such Interests in
Initial Senior Notes;
(7) if it is a foreign purchaser, it acknowledges
that, until the expiration of the Restricted Period, it may
not, directly or indirectly, reoffer, resell, pledge or
otherwise transfer an Interest in the Initial Senior Notes
or any interest therein except to a person who certifies in
writing to the Trustee that such transfer satisfies, as
applicable, the requirements of the legend described above
and that none of the Interests in the Initial Senior Notes
will be accepted for registration of any transfer prior to
the end of the Restricted Period unless the transferee has
first complied with the certification requirements described
in this paragraph;
(8) it acknowledges that no part of the funds to be
used to purchase the Interest in the Initial Senior Notes to
be purchased by such purchaser constitutes assets which are
directly or indirectly the assets of any employee benefit
plan such that the use of such assets constitutes a non-
exempt prohibited transaction under the US Employee
Retirement Income Security Act of 1974, as amended (ERISA),
or the US Internal Revenue Code of 1986, as amended. As
used in this paragraph, the term "employee benefit plan"
shall have the meaning assigned to such term in Section 3 of
ERISA;
(9) it understands that the Issuer, the Guarantor, the
Initial Purchasers, the Trustee, the Paying Agents and
others will rely upon the truth and accuracy of the
foregoing acknowledgments, representations and agreements
and agrees that if any of the acknowledgments,
representations and warranties deemed to have been made by
it by its purchase of an Interest in the Initial Senior
Notes are no longer accurate, it shall promptly notify the
Issuer, the Guarantor and the Initial Purchasers. If it is
acquiring an Interest in the Initial Senior Notes as a
fiduciary or agent for one or more investor accounts, it
represents that it has sole investment discretion with
respect to each such account and it has full power to make
the foregoing acknowledgments, representations and
agreements on behalf of such account.
If the Issuer issues certificated Initial Senior Notes in
respect of the Initial Senior Notes in exchange for Interests in
the Initial Senior Notes, then all of the above agreements,
representations and warranties will apply to the certificated
Initial Senior Notes.
Section 2.03. Registration of Transfer of the Book-Entry
Interests.
(a) The Book-Entry Depositary agrees to maintain at the
Book-Entry Depositary's Corporate Trust Office the Book-Entry
Register in which the Book-Entry Depositary shall (i) record Cede
& Co., as nominee of DTC, as the initial registered owner of the
Book-Entry Interests and (ii) record the registration and
transfer of the Book-Entry Interests. The Book-Entry Depositary
shall maintain a place of transfer at its Corporate Trust Office
in The City of New York. The Book-Entry Depositary shall not
recognize any transfer of the Book-Entry Interests unless and
until such transfer is recorded on the Book-Entry Register. The
Book-Entry Depositary shall not constitute the agent of the
Issuer for any other purpose and, in particular, it shall not
constitute the agent of the Issuer in relation to any payments it
may make to DTC in respect of the Book-Entry Interests or be
authorized to undertake any obligations on behalf of the Issuer.
(b) The foregoing paragraph shall not (i) impose an
obligation on the Book-Entry Depositary to record the ownership
interests in or transfers of Interests held by Participants or
their successors or Indirect Participants or (ii) restrict
transfers of such Interests held by Participants or Indirect
Participants. The Book-Entry Depositary shall treat DTC or its
nominee as the absolute owner of the Book-Entry Interests for all
purposes whatsoever and shall not be bound or affected by any
notice to the contrary, other than an order enforceable against
the Book-Entry Depositary.
(c) Unless and until Global Senior Notes are exchanged for
Certificated Registered Senior Notes pursuant to Section 2.05,
the Book-Entry Depositary may not register the transfer of the
Book-Entry Interests except: (i) by DTC to its nominee; (ii) by
a nominee of DTC to DTC or to another nominee of DTC; (iii) by
DTC or any nominee to a successor depositary or a nominee of such
successor depositary; or (iv) from one Book-Entry Interest to
another Book-Entry Interest owned by DTC or its nominee. The
transfers described in clauses (i), (ii) and (iii) of this
paragraph shall only be made as a whole.
(d) The Book-Entry Depositary shall register the transfer
of a Book-Entry Interest in a Reg S Global Senior Note or an IAI
Global Senior Note to a Book-Entry Interest in a corresponding
144A Global Senior Note upon receipt of the following:
(1) instructions from DTC to make the transfer in a
specified principal amount and identifying the transferor of
the corresponding Interest;
(2) a written certification by the transferor of the
Interest to the effect that the transfer of the Interest is
being made to a Person whom the transferor reasonably
believes is a Qualified Institutional Buyer within the
meaning of Rule 144A under the Securities Act purchasing for
its own account or for the account of a Qualified
Institutional Buyer to whom notice is given that the resale,
pledge or other transfer is being made in reliance on Rule
144A (which may be in the form of Exhibit A hereto); and
(3) until the expiration of the Restricted Period, if
the transferor of the Interest is a foreign purchaser, the
written certification described in Section 2.02(c)(7)
hereof.
(e) The Book-Entry Depositary shall register the transfer
of a Book-Entry Interest in a 144A Global Senior Note or a Reg S
Global Senior Note to a Book-Entry Interest in a corresponding
IAI Global Senior Note upon receipt of the following:
(1) instructions from DTC to make the transfer in a
specified principal amount and identifying the transferor
and transferee of the corresponding Interest;
(2) a written certification by the transferor of the
Interest that the transfer of the Interest is being made to
an institution that is an "accredited investor" as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act
and that is acquiring such Interest for investment purposes
and not for distribution (which may be in the form of
Exhibit A hereto);
(3) a letter signed by the transferee of the Interest
substantially in the form of Exhibit B hereto or
confirmation from the Company, the Guarantor and the Trustee
that such a letter has been delivered to them; and
(4) such other opinion of counsel, certifications and
other information as the Company, the Guarantor or the
Trustee may request.
Interests in IAI Global Senior Notes may not be transferred
to another IAI Purchaser.
(f) The Book-Entry Depositary shall register the transfer
of a Book-Entry Interest in a 144A Global Senior Note or an IAI
Global Senior Note to a Book-Entry Interest in a corresponding
Reg S Global Senior Note upon receipt of the following:
(1) instructions from DTC to make the transfer in a
specified principal amount and identifying the transferor of
the corresponding Interest;
(2) a written certification by the transferor of the
Interest that the transfer of the Interest is being made in
an offshore transaction in accordance with Rule 904 of
Regulation S under the Securities Act or (if available) Rule
144 under the Securities Act (which may be in the form of
Exhibit A hereto); and
(3) such other opinion of counsel, certifications and
other information as the Company, the Guarantor or the
Trustee may request.
(g) The authorized denominations for transfers of Book-
Entry Interests and Interests shall be a minimum principal amount
of $10,000 and additional multiples of $1,000 for principal
amounts over $10,000 except that each transfer of a Book-Entry
Interest in an IAI Global Senior Note shall be in a minimum
principal amount of $250,000 and additional multiples of $1,000
for principal amounts over $250,000.
Section 2.04. Transfer or Exchange of Global Senior Notes.
(a) The Book-Entry Depositary shall hold the Global Senior
Notes in custody for the benefit of DTC. Subject to this Section
and Section 3.08, the Book-Entry Depositary shall not transfer or
lend the Global Senior Notes or any interest therein, except that
the Global Senior Notes, as a whole and with the Issuer's
consent, may be transferred (i) by the Book-Entry Depositary to a
nominee of the Book-Entry Depositary; (ii) by a nominee of the
Book-Entry Depositary to another nominee of the Book-Entry
Depositary; or (iii) by the Book-Entry Depositary or any such
nominee to a successor Book-Entry Depositary or a nominee of such
successor Book-Entry Depositary. Notwithstanding the foregoing,
the Book-Entry Depositary may not under any circumstances
surrender or deliver the Global Senior Notes to DTC.
(b) The Book-Entry Depositary shall, upon the request of
the Issuer or the Trustee, exchange Global Senior Notes with
respect to Initial Senior Notes for Global Senior Notes with
respect to the corresponding Exchange Senior Notes, consistent
with the terms of the Indenture upon consummation of the
transactions contemplated by the Registration Rights Agreement.
(c) Upon the registration of a transfer of a specified
principal amount from one Book-Entry Interest to another Book-
Entry Interest as provided in Section 2.03, the Book-Entry
Depositary shall deliver the corresponding Global Senior Notes to
the Trustee for an endorsement on the reverse of the Global
Senior Notes to reflect the adjusted principal amounts or in
exchange for replacement Global Senior Notes in the necessary
adjusted principal amounts to reflect such transfer.
(d) Upon the date specified in a written notice of
redemption of all or part of one or more Global Senior Notes
delivered to the Book-Entry Depositary by or on behalf of the
Issuer, the Book-Entry Depositary shall present such Global
Senior Notes to the Trustee or other Paying Agent for payment of
the amounts specified in such notice and, if such Global Senior
Notes are to be redeemed in part, for one or more replacement
Global Senior Notes in the principal amount not redeemed.
Section 2.05. Issuance of Certificated Registered Senior Notes
in Respect of the Senior Notes.
Except as provided in this Section 2.05, no beneficial owner
of Interests shall be entitled to receive Certificated Registered
Senior Notes.
The Book-Entry Depositary will promptly notify the Trustee
and request in writing that the Issuer issue and the Trustee
authenticate and deliver Certificated Registered Senior Notes in
exchange for Global Senior Notes with respect to the Senior
Notes, as a whole but not in part, in such names and authorized
denominations as the Book-Entry Depositary shall specify, if:
(i) DTC notifies the Issuer and the Book-Entry Depositary that it
is unwilling or unable to continue to hold the Book-Entry
Interests related to such Global Senior Notes or DTC at any time
ceases to be a "clearing agency" registered as such under the
Exchange Act and, in either case, a successor is not appointed by
the Issuer within 120 days; (ii) the Book-Entry Depositary
notifies the Issuer under Section 3.08 hereof that it is
unwilling or unable to continue as Book-Entry Depositary and no
successor Book-Entry Depositary is appointed within 120 days; or
(iii) the Issuer in its sole discretion executes and delivers to
the Trustee an officer's certificate providing that the related
Global Senior Notes shall be so exchangeable for Certificated
Registered Senior Notes. The Book-Entry Depositary agrees that
in such event it will promptly surrender the related Global
Senior Notes held by it to the Trustee in connection with such
exchange and request in writing that the Issuer execute and the
Trustee authenticate and deliver without charge Certificated
Registered Senior Notes, having the same interest rate, if any,
and maturity and having the same terms as the Interests of the
requesting owner, in authorized denominations of $10,000 and
additional multiples of $1,000 for principal amounts over $10,000
thereof (except that Certificated Registered Senior Notes issued
to owners of Interests in an IAI Global Senior Note shall not be
issued in a principal amount of less than $250,000) and of an
aggregate principal amount equal to such owner's Interests and
that such Global Senior Notes will be canceled upon issuance of
such Certificated Registered Senior Notes.
The Global Senior Notes shall also be exchangeable, in whole
or in part, for Certificated Registered Senior Notes if there
shall have occurred and be continuing an Event of Default with
respect to one or more series of the Senior Notes. In such
circumstances, beneficial owners of Interests relating to the
Global Senior Notes may request in writing through DTC's
procedures that their Interests be exchanged for one or more
Certificated Registered Senior Notes (an "Optional Certificated
Security Request"). Upon receipt of any such written request,
the Book-Entry Depositary shall (i) promptly surrender the
relevant Global Senior Note to the Trustee and request in writing
that the Trustee authenticate and deliver without charge
Certificated Registered Senior Notes, having the same interest
rate, if any, and maturity and having the same terms as the
Interests of the requesting owner, in authorized denominations of
$10,000 and additional multiples of $1,000 for principal amounts
in excess of $10,000 thereof (except that Certificated Registered
Senior Notes issued to owners of Interests in an IAI Global
Senior Note shall not be issued in a principal amount of less
than $250,000 and additional multiples of $1,000 for principal
amounts over $250,000) and of an aggregate principal amount equal
to such owner's Interests; and (ii) if the Global Senior Note is
being exchanged (x) as a whole, then the surrendered Global
Senior Note shall be canceled by the Trustee, or (y) in part,
then the principal amount of the surrendered Global Senior Note
shall be reduced by an endorsement on the reverse of the Global
Senior Note or in exchange for a substitute Global Senior Note in
the reduced principal amount. In no event will the owner of an
Interest be entitled to receive Certificated Registered Senior
Notes in bearer form.
All costs (taxes, governmental charges or otherwise) related
to the issuance of Certificated Registered Senior Notes will be
borne by the Issuer subject to any exceptions set forth in the
Indenture.
Section 2.06. Redemption of the Senior Notes.
In the event that the Issuer exercises any right to redeem
the Senior Notes in whole or in part, the Book-Entry Depositary,
as holder of Global Senior Notes, shall, upon notice from the
Issuer or the Trustee, as the case may be, surrender the Global
Senior Notes at a place of payment or such other place as the
Issuer may designate, and deliver such Global Senior Notes to the
Trustee for cancellation or for reduction of principal amount by
an endorsement on the reverse thereof or in exchange for a
substitute Global Senior Note, as the case may be.
Section 2.07. Cancellation.
If the Global Senior Notes are surrendered for payment, for
redemption in whole or for exchange in whole for Certificated
Registered Notes to any Person other than the Trustee, such
Global Senior Notes shall be surrendered to the Security
Registrar for cancellation.
Section 2.08. Payments in Respect of the Book-Entry Interests
and the Global Senior Notes.
(a) Whenever the Book-Entry Depositary, as holder of the
Global Senior Notes, shall receive from the Trustee (or other
paying agent under the Indenture) any payment on the Global
Senior Notes, such payments shall be distributed promptly to DTC
on the payment date for the Global Senior Notes. The Book-Entry
Depositary shall maintain a place of payment at its Corporate
Trust Office in The City of New York. The payment date for the
Book-Entry Interests for payment of any principal or interest
shall be the same date as the payment date for the related Global
Senior Notes. So long as DTC or its nominee is the registered
owner of the Book-Entry Interests, such payments shall be made in
accordance with the Letters of Representations.
(b) The Book-Entry Depositary will forward to the Issuer or
its agents such information from its records as the Issuer may
reasonably request in writing to enable the Issuer or its agents
to file necessary reports with governmental agencies, and the
Book-Entry Depositary, the Issuer or their agents may (but shall
not be required to) file any such reports necessary to obtain
benefits under any applicable tax treaties for DTC or the
beneficial owners of Interests.
(c) Notwithstanding any other provisions of this Agreement,
the Book-Entry Depositary shall be required to pay to DTC only
amounts (including Additional Amounts) received by the Book-Entry
Depositary from the Issuer under the Global Senior Notes or the
Guarantor pursuant to the Guarantee.
(d) Neither the Issuer, the Guarantor nor any agent of the
Issuer or the Guarantor (including but not limited to any paying
agent) will have any responsibility or liability for any aspect
relating to payments (including payments of Additional Amounts,
if any) made or to be made by the Book-Entry Depositary to DTC in
respect of the Global Senior Notes or the Book-Entry Interests.
None of the Issuer, the Guarantor, the Trustee, the Book-Entry
Depositary or any agent of any of the foregoing will have any
responsibility or liability for any aspect relating to payments
(including payments of Additional Amounts, if any) made or to be
made by DTC on account of a Participant's or Indirect
Participant's ownership of an Interest or for maintaining,
supervising or reviewing any records relating to a Participant's
Interests.
Section 2.09. Change in Principal Amount of Global Senior Notes.
Whenever the principal amount at maturity of the Global
Senior Notes held by the Book-Entry Depositary is changed by the
Trustee as a result of partial redemption or otherwise, the
Book-Entry Depositary shall record on the Book-Entry Register a
corresponding change in the principal amount of the related
Book-Entry Interests and notify DTC of such corresponding change
in accordance with the Letters of Representations.
Section 2.10. Record Date.
Whenever the Book-Entry Depositary shall receive notice of
any action to be taken in respect of the Book-Entry Interests or
Global Senior Notes, or whenever the Book-Entry Depositary
otherwise deems it appropriate in respect of any other matter,
the Book-Entry Depositary shall fix a record date to determine
who shall be entitled to take any such action or to act in
respect of any such matter.
Subject to the provisions of this Agreement, only DTC shall
be entitled to receive any such payment, to give instructions as
to such action or to act in respect of any such matter.
Section 2.11. Action in Respect of the Book-Entry Interests or
the Global Senior Notes.
(a) Not later than 10 days from receipt by the Book-Entry
Depositary of notice of any solicitation of consents or request
for a waiver or other action with respect to the Book-Entry
Interests or the Global Senior Notes under this Agreement or the
Indenture, the Book-Entry Depositary shall mail to DTC a notice
containing (i) such information as is contained in such notice,
(ii) a statement of the record date with respect to such consent,
waiver or other action, (iii) a statement that, on or prior to a
specified date (which specified date may be set no later than 180
days after the record date) (the "Expiration Date"), DTC will be
entitled, subject to the provisions of or governing the
Book-Entry Interests or Global Senior Notes, as the case may be,
to instruct the Book-Entry Depositary as to such consent, waiver
or such action, and (iv) a statement specifying the manner in
which such instructions may be given. Upon receipt by the
Book-Entry Depositary of instructions from DTC on or prior to the
Expiration Date and in the specified manner, the Book-Entry
Depositary shall endeavor (insofar as practicable and permitted
under the provisions of or governing the Book-Entry Interests or
Global Senior Notes, as the case may be), to take such measures
regarding the requested consent, waiver or other action in
respect of such Book-Entry Interests or Global Senior Notes, as
the case may be, as shall be in accordance with DTC's
instructions subject to Section 3.03(f). The Book-Entry
Depositary shall not itself exercise any discretion in the
granting of consents or waivers or the taking of any other action
in respect of the Book-Entry Interests or Global Senior Notes, as
the case may be.
(b) DTC may direct the time, method and place of conducting
any proceeding for any remedy available to the Book-Entry
Depositary or of exercising any rights or duties conferred on the
Book-Entry Depositary. However, the Book-Entry Depositary will
not exercise any discretion in the granting of consents or the
taking of any other action in respect of the Book-Entry Interests
or the Global Senior Notes but it may refuse to follow any
direction that conflicts with law or this Agreement or the
Indenture or the Senior Notes, subject to Section 3.01 hereof,
that the Book-Entry Depositary determines would involve it in
personal liability.
Section 2.12. Reports and Notices.
The Book-Entry Depositary shall promptly (and in no event
later than 10 days from receipt) send to DTC a copy of any
notices, reports and other communications received by it relating
to the Issuer, the Senior Notes or the Book-Entry Interests.
Section 2.13. Additional Amounts.
The Book-Entry Depositary shall pay to DTC any Additional
Amounts, as defined in the Officer's Certificate, that have been
paid by the Issuer or the Guarantor to the Book-Entry Depositary.
At least 10 days prior to the first interest payment date,
and at least 10 days prior to each succeeding interest payment
date if there has been any change with respect to the matters set
forth in the below-mentioned officer's certificate, the Issuer
will furnish the Book-Entry Depositary with an officer's
certificate instructing the Book-Entry Depositary whether such
payment of principal, premium, if any, or interest on such
Book-Entry Interests shall be made to DTC without deduction or
withholding for or on account of any Gross-Up Taxes. If any such
deduction or withholding shall be required, prior to such
interest payment date the Issuer will furnish the Book-Entry
Depositary with an officer's certificate that specifies the
amount required to be deducted or withheld on such payment. The
Issuer shall indemnify the Book-Entry Depositary, its officers,
directors and employees for, and hold it and them harmless
against, any loss, liability or expense reasonably incurred
without negligence, willful misconduct or bad faith on its part
arising out of or in connection with actions taken or omitted by
it in reliance on any officer's certificate furnished to it
pursuant to this Section 2.13.
Section 2.14. Changes Affecting Global Senior Notes.
Upon any reclassification of the Global Senior Notes, or
upon any recapitalization, reorganization, merger or
consolidation or sale of assets affecting the Issuer or to which
it is a party, or upon an exchange of the Global Senior Notes
pursuant to the Indenture, any securities that shall be received
by the Book-Entry Depositary in exchange for, in conversion of or
in respect of the Global Senior Notes shall be treated as new
Global Senior Notes under this Agreement and the Book-Entry
Interests shall thenceforth represent beneficial interests in
such new Global Senior Notes so received.
ARTICLE III
THE BOOK-ENTRY DEPOSITARY
Section 3.01. Certain Duties and Responsibilities.
(a) The Book-Entry Depositary undertakes to perform such
duties and only such duties as are specifically set forth in this
Agreement and no implied covenants or obligations shall be read
into this Agreement against the Book-Entry Depositary.
(b) In the absence of bad faith on its part, the Book-Entry
Depositary 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 Book-Entry
Depositary and conforming to the requirements of this Agreement,
but in the case of any such certificates or opinions which by any
provision hereof are specifically required to be furnished to the
Book-Entry Depositary, the Book-Entry Depositary shall examine
the same to determine whether or not they conform to the
requirements of this Agreement.
(c) No provision of this Agreement shall be construed to
relieve the Book-Entry Depositary from liability for its own
negligent action, its own negligent failure to act or its own
willful misconduct, except that:
(i) the Book-Entry Depositary shall not be liable for
any error of judgment made in good faith by a Responsible
Officer of the Book-Entry Depositary, unless the Book-Entry
Depositary was negligent in ascertaining the pertinent
facts; and
(ii) the Book-Entry Depositary 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 DTC relating
to the time, method and place of conducting any proceeding
for any remedy available to the Book-Entry Depositary, or
exercising any power conferred upon the Book-Entry
Depositary, under this Agreement or the Indenture.
(d) No provision of this Agreement shall require the
Book-Entry Depositary to spend or risk its own funds or otherwise
incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk
or liability satisfactory to the Book-Entry Depositary has not
been reasonably assured to it.
(e) Whether or not therein expressly so provided, every
provision of this Agreement relating to the conduct or affecting
the liability of or affording protection to the Book-Entry
Depositary shall be subject to the provisions of this Section
3.01.
Section 3.02. Events of Default.
Upon the occurrence of any Event of Default or in connection
with any other right of the holder of the Global Senior Notes
under the Indenture, and if requested by notice in writing by the
Registered Holder, the Book-Entry Depositary shall take such
action as shall be requested in such notice in respect of the
Global Senior Notes.
Section 3.03. Certain Rights of Book-Entry Depositary.
Subject to the provisions of Section 3.01 hereof:
(a) the Book-Entry Depositary may rely and shall be
protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(b) any request or direction of the Issuer mentioned herein
shall be sufficiently evidenced by an officer's certificate or
Issuer Order or as otherwise expressly provided herein and any
resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;
(c) the Book-Entry Depositary may consult with counsel, and
may rely upon the written advice of such counsel or any Opinion
of Counsel and shall be protected in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(d) the Book-Entry Depositary shall not be bound to make
any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document,
but the Book-Entry Depositary, in its discretion, may make such
further inquiry or investigation into such facts or matters as it
may see fit, and, if the Book-Entry Depositary shall determine to
make such further inquiry or investigation, it shall be entitled
upon reasonable prior request and during normal business hours to
examine the books, records and premises of the Issuer, personally
or by agent or attorney;
(e) the Book-Entry Depositary may execute any of the rights
hereunder or perform any duties hereunder either directly or by
or through agents or attorneys, but the Book-Entry Depositary
shall be responsible for any misconduct or negligence on the part
of any such agent or attorney appointed by it hereunder;
(f) the Book-Entry Depositary shall be under no obligation
to expend or risk its own funds or to exercise, at the request or
direction of DTC, any of the rights or powers vested in it by
this Agreement or the Indenture unless DTC shall have offered to
the Book-Entry Depositary security or indemnity satisfactory to
the Book-Entry Depositary against the costs, expenses and
liabilities that might be incurred by it in compliance with such
request or direction;
(g) whenever in the administration of its duties under this
Agreement the Book-Entry Depositary shall deem it desirable that
a matter be proved or established prior to taking or suffering or
omitting any action hereunder, the Book-Entry Depositary (unless
other evidence be herein specifically prescribed) may, in the
absence of negligence or bad faith on its part, rely upon an
officer's certificate.
Section 3.04. Not Responsible for Recitals or Issuance of Senior
Notes.
The recitals contained in the Indenture and in the Senior
Notes, except the Trustee's certificates of authentication, shall
be taken as the statements of the Issuer, and the Guarantor, as
the case may be, and the Book-Entry Depositary assumes no
responsibility for their correctness. The Book-Entry Depositary
makes no representations as to the validity or sufficiency of
this Agreement, the Indenture or of the Senior Notes. The
Book-Entry Depositary shall not be accountable for the use or
application by the Issuer of the proceeds with respect to the
Senior Notes.
Section 3.05. Money Held in Trust.
Money held by the Book-Entry Depositary in trust hereunder
need not be segregated from other funds held by the Book-Entry
Depositary, except to the extent required by law. The Book-Entry
Depositary shall be under no obligation to invest or pay interest
on any money received by it hereunder, except as otherwise agreed
in writing with the Issuer. Any interest accrued on funds
deposited with the Book-Entry Depositary under this Agreement
shall be paid to the Issuer from time to time and DTC shall have
no claim to any such interest.
Section 3.06. Compensation and Reimbursement.
The Issuer agrees:
(a) to pay to the Book-Entry Depositary from time to time
such compensation as is agreed upon in writing for services
rendered by it hereunder;
(b) except as otherwise expressly provided herein, to
reimburse the Book-Entry Depositary upon its request for all
reasonable expenses, disbursements and advances incurred or made
by the Book-Entry Depositary in accordance with any provision of
this Agreement (including the reasonable compensation and the
reasonable expenses and disbursements of its agents and counsel,
which compensation, expenses and disbursements shall be set forth
in sufficient written detail to the satisfaction of the Issuer),
except any such expense, disbursement or advance as may be
attributable to its or their negligence, willful misconduct or
bad faith; and
(c) to indemnify the Book-Entry Depositary for, and to hold
it harmless against, any loss, liability or expense incurred
without negligence, bad faith or willful misconduct on its part
arising out of or in connection with the acceptance or
administration of this Agreement and its duties hereunder,
including the costs and expenses of defending itself against any
claim of liability in connection with the exercise or performance
of any of its powers or duties hereunder. The Indemnity provided
by this Section 3.06(c) shall survive the satisfaction and
discharge of this Agreement pursuant to Section 4.11 hereof and
the termination of this Agreement for any reason.
In case any claim shall be made or action brought against
the Book-Entry Depositary for any reason for which indemnity may
be sought against the Issuer in accordance with paragraph (c)
above, the Book-Entry Depositary shall promptly notify the Issuer
in writing setting forth the particulars of such claim or action
and the Issuer may assume the defense thereof. In the event that
the Issuer elects to assume such defense and select such counsel,
the Book-Entry Depositary shall have the rights to employ its own
counsel, but, in any such case, the fees and expenses of such
counsel shall be at the expense of the Book-Entry Depositary,
unless (i) the Issuer agreed in writing to pay such fees and
expenses or (ii) the named parties to any such action (including
any impleaded parties) include both the Book-Entry Depositary and
the Issuer and the Book-Entry Depositary shall have been advised
by its counsel that a conflict of interest between the Book-Entry
Depositary and the Issuer may arise (and Issuer's counsel shall
have concurred with such advise) and for this reason it is not
desirable for the Issuer's counsel to represent both the
Book-Entry Depositary and the Issuer (it being understood,
however, that the Issuer shall not, in connection with any one
such action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for reasonable fees and
expenses of more than one separate firm of attorneys for the
Book-Entry Depositary (plus any local counsel retained by the
Book-Entry Depositary in their reasonable judgement), which firm
shall be designated in writing by the Book-Entry Depositary).
The Book-Entry Depositary agrees to give all assistance
reasonably required in connection with the conduct of any such
claim or action.
Section 3.07. Book-Entry Depositary Required; Eligibility.
At all times when there is a Book-Entry Depositary
hereunder, such Book-Entry Depositary shall be a corporation
organized and doing business under the laws of the United States
of America, any state thereof or the District of Columbia,
having, together with its parents, a combined capital and surplus
of at least $50,000,000, subject to supervision or examination by
Federal, state or District of Columbia authority and willing to
act on reasonable terms. Such corporation shall have its
principal place of business in the Borough of Manhattan, The City
of New York, if there be such a corporation in such location
willing to act upon reasonable and customary terms and
conditions. If such corporation, or its parent, publishes
reports of condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority,
then for the purposes of this Section 3.07, the combined capital
and surplus of such corporation shall be deemed to be its
combined capital and surplus as set forth in its most recent
report of condition so published.
The Book-Entry Depositary hereunder shall at all times be
the Trustee under the Indenture, subject to receipt of an Opinion
of Counsel that the same Person is precluded by law from acting
in such capacities. If at any time the Book-Entry Depositary
shall cease to be eligible in accordance with the provisions of
this Section 3.07, it shall resign immediately in the manner and
with the effect hereinafter specified in this Article.
Section 3.08. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Book-Entry Depositary
and no appointment of a successor Book-Entry Depositary pursuant
to this Article shall become effective until (i) the acceptance
of appointment by the successor Book-Entry Depositary in
accordance with the applicable requirements of Section 3.09
hereof or (ii) the issuance of Certificated Registered Senior
Notes for all Global Senior Notes in accordance with Section 2.05
hereof and the Indenture.
(b) The Book-Entry Depositary may at any time resign as
Book-Entry Depositary with respect to the Global Senior Notes by
giving written notice thereof to the Issuer and DTC, in
accordance with Section 4.01 and Section 4.02 hereof, 60 days
prior to the effective date of such resignation. The Book-Entry
Depositary may be removed at any time upon 90 days' notice by the
filing with it of an instrument in writing signed on behalf of
the Issuer and specifying such removal and the date when it is
intended to become effective. If the instrument of acceptance by
a successor Book-Entry Depositary required by Section 3.09 hereof
shall not have been delivered to the Book-Entry Depositary within
30 days after the giving of such notice of resignation or
removal, the resigning Book-Entry Depositary may petition any
court of competent jurisdiction for the appointment of a
successor Book-Entry Depositary.
(c) If at any time:
(i) the Book-Entry Depositary shall cease to be
eligible under Section 3.07 hereof, or shall cease to be
eligible as Trustee under the Indenture, and shall fail to
resign after written request therefor by the Issuer or by
DTC, or
(ii) the Book-Entry Depositary shall become incapable
of acting with respect to the Book-Entry Interests or shall
be adjudged a bankrupt or insolvent, or a receiver or
liquidator of the Book-Entry Depositary or of its property
shall be appointed or any public officer shall take charge
or control of the Book-Entry Depositary or of its property
or affairs for the purpose of rehabilitation, conservation
or liquidation,
then, in any such case, (i) the Issuer, by Board Resolution, may
remove the Book-Entry Depositary and appoint a successor
Book-Entry Depositary, and (ii) if the Issuer shall fail to
remove such Book-Entry Depositary and appoint a successor
Book-Entry Depositary within 30 days of any such event, then DTC
may, on behalf of itself and all others similarly situated,
petition any court of competent jurisdiction for the removal of
the Book-Entry Depositary or Book-Entry Depositaries and the
appointment of a successor Book-Entry Depositary, unless
Certificated Registered Senior Notes have been issued in
accordance with the Indenture.
(d) If the Book-Entry Depositary shall resign, be removed
or become incapable of acting, or if a vacancy shall occur in the
office of Book-Entry Depositary for any cause, the Issuer, by
Board Resolution, shall promptly appoint a successor Book-Entry
Depositary (other than the Issuer) and shall comply with the
applicable requirements of Section 3.09 hereof. If no successor
Book-Entry Depositary with respect to the Global Senior Notes
shall have been so appointed by the Issuer and accepted
appointment in the manner required by Section 3.09 within 120
days of any such resignation, removal, incapacity or vacancy,
then DTC may request that Certificated Registered Senior Notes in
such names and denominations as DTC shall instruct in writing
with respect to such Global Senior Notes be issued. The
Book-Entry Depositary will thereupon surrender such Global Senior
Notes to the Trustee for cancellation and the Trustee shall
distribute such Certificated Registered Senior Notes in
accordance with the instructions of DTC.
(e) The Issuer shall give, or shall cause such successor
Book-Entry Depositary at the expense of the Issuer to give,
notice of each resignation and each removal of a Book-Entry
Depositary and each appointment of a successor Book-Entry
Depositary to DTC in accordance with Section 4.02 hereof.
Each notice shall include the name of the successor
Book-Entry Depositary and the address of its Corporate Trust
Office.
Section 3.09. Acceptance of Appointment by Successor.
(a) In case of the appointment hereunder of a successor
Book-Entry Depositary, every such successor Book-Entry Depositary
so appointed shall execute, acknowledge and deliver to the Issuer
and to the retiring Book-Entry Depositary an instrument accepting
such appointment, and thereupon the resignation or removal of the
retiring Book-Entry Depositary shall become effective and such
successor Book-Entry Depositary, without any further act, deed or
conveyance, shall become vested with all the rights, powers,
agencies and duties of the retiring Book-Entry Depositary, with
like effect as if originally named as Book-Entry Depositary
hereunder; but, on the request of the Issuer or the successor
Book-Entry Depositary, such retiring Book-Entry Depositary shall
(i) execute and deliver an instrument transferring to such
successor Book-Entry Depositary all the rights and powers of the
retiring Book-Entry Depositary and (ii) duly assign, transfer and
deliver to such successor Book-Entry Depositary all property and
money held by such retiring Book-Entry Depositary hereunder. Any
retiring Book-Entry Depositary shall, nonetheless, retain a prior
claim upon all property or funds held or collected by such
Book-Entry Depositary to secure any amounts then due it pursuant
to Section 3.06 hereof except to the extent that such prior claim
and security would breach or constitute a default under the
Indenture or Senior Notes.
(b) Upon request of any such successor Book-Entry
Depositary, the Issuer shall execute any and all instruments for
more fully and certainly vesting in and confirming to such
successor Book-Entry Depositary all such rights, powers and
agencies referred to in paragraph (a) of this Section 3.09.
(c) No successor Book-Entry Depositary shall accept its
appointment unless at the time of such acceptance such successor
Book-Entry Depositary shall be eligible under this Article.
(d) Upon acceptance of appointment by any successor
Book-Entry Depositary as provided in this Section 3.09, the
Issuer shall give notice thereof to DTC in accordance with
Section 4.02 hereof. If the acceptance of appointment is
substantially contemporaneous with the resignation of the
Book-Entry Depositary, then the notice called for by the
preceding sentence may be combined with the notice called for by
Section 3.08(b) hereof. If the Issuer fails to give such notice
within 10 days after acceptance of appointment by the successor
Book-Entry Depositary, the successor Book-Entry Depositary shall
cause such notice to be given at the expense of the Issuer.
Section 3.10. Merger, Conversion, Consolidation or Succession to
Business.
Any Person into which the Book-Entry Depositary may be
merged or converted or with which it may be consolidated, or any
Person resulting from any merger, conversion or consolidation to
which the Book-Entry Depositary shall be a party, or any
corporation succeeding to all or substantially all the corporate
trust business of the Book-Entry Depositary, shall be the
successor of the Book-Entry Depositary hereunder, without the
execution or filing of any paper or any further act on the part
of any of the parties hereto.
Section 3.11. Letters of Representations.
The Book-Entry Depositary agrees to comply with all of the
provisions set forth in the Letters of Representations so long as
DTC is the holder of the Book-Entry Interests.
In connection with the issuance of Book-Entry Interests to
DTC, the Book-Entry Depositary and the Issuer will sign Letters
of Representations with DTC, which will contain the DTC standard
riders for Rule 144A, Regulation S and ERISA-restricted
securities. Further, the Letters of Representations require the
Book-Entry Depositary to confirm to DTC the amount of the
Security (such term as used in this section shall have the
meaning set forth in the Letters of Representations) registered
in the name of its nominee, Cede & Co., on a daily or other
periodic basis in accordance with the provisions of the FAST
Balance Certificate Agreement currently in effect between The
Bank of New York and DTC. In such Letters of Representations,
the Book-Entry Depositary agrees that each such confirmation by
the Book-Entry Depositary shall be deemed to be a statement that
there are no liens, restrictions or adverse claims of the Issuer
to which the Security is or may be subject. Within the context
of the Letters of Representations, and as such terms are used in
the Letters of Representations, the Issuer confirms that such
statement, at the date hereof, is, and at the time of each such
confirmation will be, true and will promptly notify the Book-
Entry Depositary if such statement should cease to be true.
ARTICLE IV
MISCELLANEOUS PROVISIONS
Section 4.01. Notices to Book-Entry Depositary or Issuer.
Any request, demand, authorization, direction, notice,
consent, or waiver or other document provided or permitted by
this Agreement to be made upon, given or furnished to, or filed
with, the Book-Entry Depositary by DTC, by the Trustee or the
Issuer or the Guarantor shall be sufficient for every purpose
hereunder (unless otherwise herein expressly provided) if made,
given, furnished or filed in writing and personally delivered or
mailed, first-class postage prepaid, to the Book-Entry Depositary
at its Corporate Trust Office, Attention: Corporate Trust
Division, Corporate Finance Group, or at any other address
previously furnished in writing by the Book-Entry Depositary to
DTC, the Trustee, the Guarantor and the Issuer, or the Issuer, by
the Book-Entry Depositary or by DTC shall be sufficient for every
purpose hereunder (unless otherwise herein expressly provided) if
made, given, furnished or filed in writing and personally
delivered or mailed, first-class postage prepaid to TXU Eastern
Funding Company, c/o Crown House, 51 Aldwych, London, WC2B 4AX,
England, Attention: Treasurer or at any other address previously
furnished in writing to the Book-Entry Depositary by the Issuer.
Section 4.02. Notice to DTC; Waiver.
Where this Agreement provides for notice to DTC of any
event, such notice shall be sufficiently given (unless otherwise
herein expressly provided or as provided in the Letters of
Representations) if in writing and mailed, first-class postage
prepaid, to DTC at the address notified to the Book-Entry
Depositary, in each case not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such
notice. Where this Agreement provides for notice in any manner,
such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such
waiver shall be the equivalent of such notice. Waivers of notice
by DTC shall be filed with the Book-Entry Depositary, but such
filing shall not be a condition precedent to the validity of any
action taken in reliance upon such waiver.
In case by reason of the suspension of regular mail service
or by reason of any other cause it shall be impracticable to give
such notice by mail, then such notification as shall be made with
the approval of the Book-Entry Depositary shall constitute a
sufficient notification for every purpose hereunder.
Section 4.03. Effect of Headings and Table of Contents.
The Article and Section headings herein are for convenience
only and shall not affect the construction hereof.
Section 4.04. Successors and Assigns.
All covenants and agreements in this Agreement and the
Senior Notes by the Issuer shall bind its successors and assigns,
whether so expressed or not.
Section 4.05. Separability Clause.
In case any provision in this Agreement or in the Senior
Notes shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions hereof
and thereof shall not in any way be affected or impaired thereby.
Section 4.06. Benefits of Agreement.
Nothing in this Agreement, the Senior Notes or the
Indenture, express or implied, shall give to any Person, other
than the parties hereto and their successors hereunder, any
benefits or any legal or equitable right, remedy or claim under
this Agreement, provided that DTC and the beneficial owners of
Interests shall be intended third-party beneficiaries of this
Agreement. DTC and beneficial owners from time to time of
Interests in the Book-Entry Interests shall be parties to this
Agreement and shall be bound by all of the terms and conditions
hereof and of the Indenture and the Senior Notes, by their
acceptance of delivery of the Interests or beneficial interests
therein.
Section 4.07. GOVERNING LAW.
THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE
EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION
WOULD BE REQUIRED THEREBY.
Section 4.08. Jurisdiction.
(a) The Issuer agrees that any legal suit, action or
proceeding against the Issuer brought by the Book-Entry
Depositary arising out of or based upon this Agreement may be
instituted in any state or Federal court in the Borough of
Manhattan, The City of New York, and waives any objection which
it may now or hereafter have to the laying of venue of any such
proceeding and, until the satisfaction and discharge of this
Agreement pursuant to Section 4.11 hereof, irrevocably submits to
the nonexclusive jurisdiction of such courts in any suit, action
or proceeding.
(b) The Issuer has appointed Thelen Reid & Priest LLP at 40
West 57th Street, New York, New York 10019, as its authorized
agent (the "Authorized Agent") upon whom process may be served in
any legal suit, action or proceeding arising out of or based upon
this Agreement which may be instituted in the Supreme Court of
New York, New York County or the United States District Court for
the Southern District of New York by DTC or the Book-Entry
Depositary, and expressly accepts the nonexclusive jurisdiction
of any such court in respect of any such action. Such
appointment shall be irrevocable. Service of process upon the
Authorized Agent shall be deemed, in every respect, effective
service of process upon the Issuer. Notwithstanding the
foregoing, any action based on this Agreement may be instituted
by the Book-Entry Depositary in any competent court in England or
Wales.
(c) To the extent that the Issuer may in any jurisdiction
claim for itself or its assets immunity (to the extent such
immunity may now or hereafter exist, whether on the grounds of
sovereign immunity or otherwise) from suit, execution, attachment
(whether in aid of execution, before judgment or otherwise) or
other legal process (whether through service or notice or
otherwise), and to the extent that in any such jurisdiction there
may be attributed to itself or its assets such immunity (whether
or not claimed), the Issuer irrevocably agrees with respect to
any matter arising under this Deposit Agreement for the benefit
of the Registered Holder from time to time of the Book-Entry
Interests, not to claim, and irrevocably waives, such immunity to
the full extent permitted by the laws of such jurisdiction.
Section 4.09. Counterparts.
This Agreement may be executed in any number of counterparts
by the parties hereto on separate counterparts, each of which,
when so executed and delivered, shall be deemed an original, but
all such counterparts shall together constitute one and the same
instrument.
Section 4.10. Inspection of Agreement.
A copy of this Agreement shall be available at all
reasonable times during normal business hours at the Corporate
Trust Office of the Book-Entry Depositary for inspection by DTC.
Section 4.11. Satisfaction and Discharge.
This Agreement upon Issuer Order shall cease to be of
further effect, and the Book-Entry Depositary, at the expense of
the Issuer shall execute proper instruments acknowledging
satisfaction and discharge of this Agreement, when (i) either (a)
the Indenture has been satisfied and discharged pursuant to the
provisions thereof or (b) Certificated Registered Senior Notes
have been issued and all of the Global Senior Notes have been
canceled in accordance with the provisions of Section 2.07 and
the Indenture, (ii) the Issuer has paid or caused to be paid all
sums payable hereunder by the Issuer and (iii) the Issuer has
delivered to the Book-Entry Depositary an officer's certificate
and an Opinion of Counsel, stating that all conditions precedent
herein provided relating to the satisfaction and discharge of
this Agreement have been complied with.
Section 4.12. Amendments.
The Issuer and the Book-Entry Depositary may amend this
Agreement without the consent of DTC or beneficial owners of
Interests in the Senior Notes:
(a) to cure any formal defect, omission, inconsistency or
ambiguity herein;
(b) to add to the covenants and agreements of the Issuer or
the Book-Entry Depositary;
(c) to effect the assignment of the Book-Entry Depositary's
rights and duties to a qualified successor as provided herein;
(d) to comply with any requirements of the Securities Act,
the Exchange Act, the Investment Company Act of 1940, as amended,
the Trust Indenture Act, or any other applicable securities laws;
(e) to modify this Agreement in connection with an
amendment to the Indenture that does not require the consent of
DTC; or
(f) to modify, alter, amend or supplement this Agreement in
any other respect not inconsistent with this Agreement which, in
the opinion of counsel acceptable to the Issuer, is not
materially adverse to DTC or the beneficial owners of Interests.
The Issuer and the Book-Entry Depositary, with the consent
of DTC, can make such changes as are necessary to effect and
implement a substitution of a successor depositary for DTC.
Except as set forth in this Section 4.12, no amendment which
materially adversely affects DTC or beneficial owners of
Interests may be made to this Agreement without the consent of
DTC or such beneficial owner.
Section 4.13. Book-Entry Depositary To Sign Amendments.
The Book-Entry Depositary shall sign any amendment
authorized pursuant to Section 4.12 hereof if the amendment does
not materially adversely affect the rights, duties, liabilities
or immunities of the Book-Entry Depositary. If it does, the
Book-Entry Depositary may, but need not sign it.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement
to be duly executed as of the date first written above.
TXU EASTERN FUNDING COMPANY
By: /s/ Kirk R. Oliver
--------------------------
Name: Kirk R. Oliver
Title: Authorized Attorney
TXU EASTERN FUNDING COMPANY
By: /s/ Michael J. McNally
-------------------------
Name: Michael J. McNally
Title: Director
THE BANK OF NEW YORK,
as Book-Entry Depositary
By: /s/ Walter N. Gitlin
-------------------------
Name: Walter N. Gitlin
Title: Vice President
<PAGE>
EXHIBIT A
[CERTIFICATE OF TRANSFER]
TXU EASTERN FUNDING COMPANY
. % NOTES DUE .
FOR VALUE RECEIVED, the undersigned sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
-----------------------------------
Name and address of assignee
must be printed or typewritten.
$
---------------------------------------------------------------
principal amount of beneficial interest in the referred Security
of the Company and does hereby irrevocably constitute and appoint
-----------------------------------------------------------------
to transfer the said beneficial interest in such Security, with
full power of substitution in the premises.
The undersigned certifies that said beneficial interest in such
Security is being resold, pledged or otherwise transferred as
follows: (check one)
[ ] to the Company or the Guarantor;
[ ] to a Person whom the undersigned reasonably believes is a
Qualified Institutional Buyer within the meaning of Rule
144A under the Securities Act of 1933, as amended (the
"Securities Act") purchasing for its own account or for the
account of a Qualified Institutional Buyer to whom notice is
given that the resale, pledge or other transfer is being
made in reliance on Rule 144A;
[ ] in an offshore transaction in accordance with Rule 904 of
Regulation S under the Securities Act;
[ ] to an institution that is an "accredited investor" as
defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act that is acquiring said beneficial interest in
such Security for investment purposes and not for
distribution (attach a copy of an Accredited Investor Letter
in the form provided by the Company or the Trustee signed by
an authorized officer of the transferee);
[ ] as otherwise permitted by the non-registration legend; or
[ ] as otherwise agreed by the Company or the Guarantor, as the
case may be, confirmed in writing to the Trustee, as
follows: [describe]
-----------------------------------------------------------------
-----------------------------------------------------------------
Dated:
------------------------ ------------------------------
<PAGE>
EXHIBIT B
ACCREDITED INVESTOR LETTER
Ladies and Gentlemen:
In connection with our proposed purchase of a beneficial
interest in the % Senior Notes due (the "Senior
Notes") issued by TXU Eastern Funding Company ("Issuer") and
guaranteed by TXU Eastern Holdings Limited ("Guarantor") under an
Indenture dated as of May 1, 1999 among the Issuer, the Guarantor
and the Bank of New York, as trustee ("Trustee"), we confirm and
certify that:
1. We have received a copy of the Offering
Memorandum (the "Offering Memorandum") relating to the
Senior Notes and such other information as we deem necessary
in order to make our investment decision. We acknowledge
that we have read and agree to the matters stated under the
caption NOTICE TO INVESTORS in such Offering Memorandum, and
the restrictions on duplication or circulation of, or
disclosure relating to, such Offering Memorandum.
2. We understand that any subsequent transfer of
beneficial interests in the Senior Notes is subject to
certain restrictions and conditions set forth in the
Indenture relating to Senior Notes (the "Indenture") and
that any subsequent transfer of beneficial interests in the
Senior Notes is subject to certain restrictions and
conditions set forth under NOTICE TO INVESTORS in the
Offering Memorandum, and the undersigned agrees to be bound
by, and not to resell, pledge or otherwise transfer
beneficial interests in the Senior Notes except in
compliance with such restrictions and conditions and the US
Securities Act of 1933, as amended ("Securities Act").
3. We understand that the offer and sale of
beneficial interests in the Senior Notes have not been
registered under the Securities Act, and that beneficial
interests in the Senior Notes may not be offered or sold
except as permitted in the following sentence. We agree, on
our own behalf and on behalf of any accounts for which we
are acting as hereinafter stated, that if we sell any
beneficial interests in Senior Notes, we will do so only (A)
to the Issuer or Guarantor, (B) in accordance with Rule 144A
under the Securities Act to a person whom we reasonably
believe is a "qualified institutional buyer" (as defined
therein), (C) outside the United States in accordance with
Rule 904 of Regulation S under the Securities Act, (D)
pursuant to the exemption from registration provided by Rule
144 under the Securities Act (if available), or (E) pursuant
to an effective registration statement under the Securities
Act, and we further agree to provide to any person
purchasing any of the Senior Notes from us a notice advising
such purchaser that resales of beneficial interests in the
Senior Notes are restricted as stated herein.
4. We understand that, on any proposed resale of any
beneficial interests in Senior Notes pursuant to Rule 144 or
Regulation S under the Securities Act, we will be required
to furnish to the Trustee, Guarantor and Issuer such
certifications, opinion of counsel or other information as
the Trustee, Guarantor and Issuer may reasonably require to
confirm that the proposed sale complies with the foregoing
restrictions. We further understand that the Senior Notes
in which we purchase a beneficial interest will bear a
legend to the foregoing effect.
<PAGE>
5. We are an institutional "accredited investor" (as
defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D
under the Securities Act) and have such knowledge and
experience in financial and business matters as to be
capable of evaluating the merits and risks of our investment
in the beneficial interests in Senior Notes, and we and any
accounts for which are acting are each able to bear the
economic risk of our or its investment.
6. We are acquiring the beneficial interests in
Senior Notes purchased by us for our own account or for one
or more accounts (each of which is an institutional
"accredited investor") as to each of which we exercise sole
investment discretion for investment purposes and not for
distribution in violation of the Securities Act.
7. No part of the funds to be used to purchase the
beneficial interests in Senior Notes to be purchased by us
constitutes assets which are directly or indirectly the
assets of any employee benefit plan such that the use of
such assets constitutes a non-exempt prohibited transaction
under the US Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or the US Internal Revenue Code
of 1986, as amended. As used in this paragraph, the term
"employee benefit plan" shall have the meaning assigned to
such terms in Section 3 of ERISA.
You, the Issuer, the Guarantor and the Trustee are entitled
to rely upon this letter and are irrevocably authorized to
produce this letter or a copy hereof to any interested party in
any administrative or legal proceeding or official inquiry with
respect to the matters covered hereby.
Very truly yours,
By:
---------------------------
Name:
Title:
Exhibit 4(g)
LETTER OF TRANSMITTAL
OFFER TO EXCHANGE ANY OR ALL OF ITS
6.15% SENIOR NOTES DUE MAY 15, 2002,
FOR
6.15% EXCHANGE SENIOR NOTES DUE MAY 15, 2002
6.45% SENIOR NOTES DUE MAY 15, 2005
FOR
6.45% EXCHANGE SENIOR NOTES DUE MAY 15, 2005
AND
6.75% SENIOR NOTES DUE MAY 15, 2009
FOR
6.75% EXCHANGE SENIOR NOTES DUE MAY 15, 2009
OF
TXU EASTERN FUNDING COMPANY
GUARANTEED BY TXU EASTERN HOLDINGS LIMITED
---------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON ________, 1999 UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS
MAY BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE
EXPIRATION DATE.
---------------------------------------------------------------------
Information about the Exchange Offer can be obtained from:
The Bank of New York, Exchange Agent at
101 Barclay Street, 7E
New York, New York 10286
Attention: Reorganization Section,
Gertrude Jean Pierre
or from a Securities Intermediary
All Tenders of Senior Notes should be delivered according to the
instructions of the tenderer's Securities Intermediary and this Letter of
Transmittal.
The instructions accompanying this Letter of Transmittal should be read
carefully before this Letter of Transmittal is completed.
The undersigned acknowledges that he or she has received and reviewed the
Prospectus dated _____, 1999 (the "Prospectus") of TXU Eastern Funding Company
(the "Issuer") and TXU Eastern Holdings Limited (the "Guarantor") and this
Letter of Transmittal (the "Letter of Transmittal"), which together constitute
the offer (the "Exchange Offer") by the Issuer and the Guarantor to exchange (i)
any and all of the Issuer's outstanding $350,000,000 principal amount of 6.15%
Senior Notes due May 15, 2002 ("6.15% Senior Notes") for an equal principal
amount of its 6.15% Exchange Senior Notes due May 15, 2002 ("6.15% Exchange
Notes"), (ii) any and all of the Issuer's outstanding $650,000,000 principal
amount of 6.45% Senior Notes due May 15, 2005 ("6.45% Senior Notes") for an
equal principal amount of its 6.45% Exchange Senior Notes due May 15, 2005
("6.45% Exchange Notes") and (iii) any and all of the Issuer's outstanding
$500,000,000 principal amount of 6.75% Senior Notes due May 15, 2009 ("6.75%
Senior Notes") for an equal principal amount of its 6.75% Exchange Senior Notes
due May 15, 2009 ("6.75% Exchange Notes"). Hereinafter the 6.15% Exchange Notes,
the 6.45% Exchange Notes and the 6.75% Exchange Notes are referred to together
as the New Notes, and the 6.15% Senior Notes, the 6.45% Senior Notes and the
6.75% Senior Notes are referred to together as the Old Notes. In this Letter of
Transmittal, references to the Old Notes or to any series of the Old Notes and
to the New Notes or to any series of the New Notes will mean beneficial
interests in the book-entry interests that The Depository Trust Company ("DTC")
has in such notes, and references to owners shall be to owners of those
beneficial interests. The global notes representing the New Notes have been
registered under the Securities Act of 1933, as amended (the "Securities Act"),
pursuant to a Registration Statement of which the Prospectus is a part. Old
Notes may be tendered only in the principal amount of $10,000 and integral
multiples of $1,000 in excess thereof. Other capitalized terms used but not
defined herein have the meanings given to them in the Prospectus.
An Agent's Message (as defined below) shall be used for tenders of Old
Notes to be made by book-entry transfer into the account of The Bank of New
York, as Exchange Agent (the "Exchange Agent"), at DTC (the "Book-Entry Transfer
Facility") pursuant to the procedures set forth in the EXCHANGE
OFFER--"Book-Entry Transfer" section of the Prospectus. Confirmation of the
book-entry tender of Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility (a "Book-Entry Confirmation") must be received by
the Exchange Agent on or prior to the Expiration Date. See Instruction 1.
Delivery of documents to the Book-Entry Transfer Facility does not constitute
delivery to the Exchange Agent.
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility and received by the Exchange Agent and forming a part of a
Book-Entry Confirmation, which states that such Book- Entry Transfer Facility
has received an express acknowledgment from the participant in such Book-Entry
Facility tendering the Old Notes which are the subject of such Book-Entry
Confirmation, that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that the Issuer and the Guarantor may
enforce such agreement against such participant.
The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Owners who wish to tender their Old Notes must so
indicate as instructed by their Securities Intermediaries.
<PAGE>
COMPLETE IF REQUESTED BY YOUR SECURITIES INTERMEDIARY
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THESE BOXES
- --------------------------------------------------------------------------------
DESCRIPTION OF 6.15% SENIOR NOTES
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
TENDERED
(MUST BE IN
NAMES AND ADDRESS(ES) OF AGGREGATE THE AMOUNT OF $10,000 OR
OWNER(S) PRINCIPAL MULTIPLES OF
(PLEASE FILL IN, IF BLANK) AMOUNT $1,000 IN EXCESS THEREOF)*
- -------------------------------------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
------------------------------------------------
TOTAL
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Unless indicated in the column labeled "Principal Amount Tendered," any
tendering owner of 6.15% Senior Notes will be deemed to have tendered the
entire aggregate principal amount represented by the column labeled
"Aggregate Principal Amount."
If the space provided above is inadequate, list the principal amounts on a
separate signed schedule and affix the list to this Letter of Transmittal.
The minimum permitted tender is $10,000 in principal amount of 6.15% Senior
Notes. All other tenders must be in integral multiples of $1,000 in excess
of $10,000.
- --------------------------------------------------------------------------------
|_| CHECK HERE IF 6.15% SENIOR NOTES ARE BEING TENDERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS HEREINAFTER DEFINED)
ONLY):
Name of Tendering Institution______________________________________________
DTC Book-Entry Account Number______________________________________________
Transaction Code Number____________________________________________________
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS TO SECURITIES INTERMEDIARY
(See Instructions 4, 5 and 6)
To be completed ONLY if 6.15% Senior Notes tendered by book-entry which are not
exchanged are to be returned by credit to an account maintained at The
Depository Trust Company ("DTC") other than the account from which they were
tendered.
Credit 6.15% Senior Notes not exchanged and tendered by book-entry to the DTC
account set forth below:
___________________________
DTC Account Number
Name____________________________________________________________________________
(Please Print)
Address_________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
________________________________________________________________________________
(Tax Identification or Social Security No.)
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
DESCRIPTION OF 6.45% SENIOR NOTES
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
TENDERED
(MUST BE IN THE
AMOUNT OF $10,000
OR
NAMES AND ADDRESS(ES) OF AGGREGATE MULTIPLES OF
OWNER(S) PRINCIPAL $1,000 IN EXCESS
(PLEASE FILL IN, IF BLANK) AMOUNT THEREOF)*
- --------------------------------------------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
---------------------------------------------
TOTAL
- --------------------------------------------------------------------------------
* Unless indicated in the column labeled "Principal Amount Tendered," any
tendering owner of 6.45% Senior Notes will be deemed to have tendered the
entire aggregate principal amount represented by the column labeled
"Aggregate Principal Amount."
If the space provided above is inadequate, list the principal amounts on a
separate signed schedule and affix the list to this Letter of Transmittal.
The minimum permitted tender is $10,000 in principal amount of 6.45% Senior
Notes due. All other tenders must be in integral multiples of $1,000 in
excess of $10,000.
- --------------------------------------------------------------------------------
|_| CHECK HERE IF 6.45% SENIOR NOTES ARE BEING TENDERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS HEREINAFTER DEFINED)
ONLY):
Name of Tendering Institution______________________________________________
DTC Book-Entry Account Number______________________________________________
Transaction Code Number____________________________________________________
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS TO SECURITIES INTERMEDIARY
(See Instructions 4, 5 and 6)
To be completed ONLY if 6.45% Senior Notes tendered by book-entry which are not
exchanged are to be returned by credit to an account maintained at The
Depository Trust Company ("DTC") other than the account from which they were
tendered.
Credit 6.45% Senior Notes not exchanged and tendered by book-entry to the DTC
account set forth below:
___________________________
DTC Account Number
Name____________________________________________________________________________
(Please Print)
Address_________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
________________________________________________________________________________
(Tax Identification or Social Security No.)
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
DESCRIPTION OF 6.75% SENIOR NOTES
- --------------------------------------------------------------------------------
PRINCIPAL
AMOUNT
TENDERED
(MUST BE IN THE
AMOUNT OF $10,000
OR
NAMES AND ADDRESS(ES) OF AGGREGATE MULTIPLES OF
OWNER(S) PRINCIPAL $1,000 IN EXCESS
(PLEASE FILL IN, IF BLANK) AMOUNT THEREOF)*
- -------------------------------------------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
--------------------------------------------
TOTAL
- -------------------------------------------------------------------------------
* Unless indicated in the column labeled "Principal Amount Tendered," any
tendering owner of 6.75% Senior Notes will be deemed to have tendered the
entire aggregate principal amount represented by the column labeled
"Aggregate Principal Amount."
If the space provided above is inadequate, list the principal amounts on a
separate signed schedule and affix the list to this Letter of Transmittal.
The minimum permitted tender is $10,000 in principal amount of 6.75% Senior
Notes due. All other tenders must be in integral multiples of $1,000 in
excess of $10,000.
- --------------------------------------------------------------------------------
|_| CHECK HERE IF 6.75% SENIOR NOTES ARE BEING TENDERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND COMPLETE
THE FOLLOWING (FOR USE BY ELIGIBLE INSTITUTIONS (AS HEREINAFTER DEFINED)
ONLY):
Name of Tendering Institution______________________________________________
DTC Book-Entry Account Number______________________________________________
Transaction Code Number____________________________________________________
<PAGE>
- --------------------------------------------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS TO SECURITIES INTERMEDIARY
(See Instructions 4, 5 and 6)
To be completed ONLY if 6.75% Senior Notes tendered by book-entry which are not
exchanged are to be returned by credit to an account maintained at The
Depository Trust Company ("DTC") other than the account from which they were
tendered.
Credit 6.75% Senior Notes not exchanged and tendered by book-entry to the DTC
account set forth below:
___________________________
DTC Account Number
Name____________________________________________________________________________
(Please Print)
Address_________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
________________________________________________________________________________
(Tax Identification or Social Security No.)
- --------------------------------------------------------------------------------
<PAGE>
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby instructs its Securities Intermediary to tender to the Issuer and the
Guarantor through its account at DTC the principal amount of Old Notes indicated
above. Subject to and effective upon the acceptance for exchange of the
principal amount of Old Notes tendered in accordance with this Letter of
Transmittal, the undersigned sells, assigns and transfers to, or upon the order
of, the Issuer all right, title and interest in and to the Old Notes tendered
hereby. The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent its agent and attorney-in-fact (with full knowledge that the Exchange
Agent also acts as the agent of the Issuer and the Guarantor) with respect to
the tendered Old Notes with full power of substitution to transfer ownership of
such Old Notes on the account books maintained by DTC to the Issuer and the
Guarantor, deliver all accompanying evidences of transfer and authenticity to,
or upon the order of, the Issuer and the Guarantor and receive all benefits and
otherwise exercise all rights in Old Notes, all in accordance with the terms of
the Exchange Offer. The power of attorney granted in this paragraph shall be
deemed to be irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that it has full power and
authority to tender, sell, assign and transfer the Old Notes tendered hereby and
that the Issuer will acquire good and unencumbered title thereto, free and clear
of all liens, restrictions, charges and encumbrances and not subject to any
adverse claim, when the same are acquired by the Issuer. The undersigned hereby
further represents that (i) any New Notes acquired in exchange for Old Notes
tendered hereby will have been acquired in the ordinary course of business of
the person receiving such New Notes, whether or not that person is the
undersigned, (ii) neither the undersigned nor any such other person is engaging
in or intends to engage in a distribution of the New Notes, (iii) neither the
owner nor any such other person has an arrangement or understanding with any
person to participate in the distribution of such New Notes and (iv) neither the
owner nor any such other person is an "affiliate," as defined in Rule 405 under
the Securities Act, of the Issuer or the Guarantor.
The undersigned also acknowledges that this Exchange Offer is being made in
reliance upon interpretations contained in letters issued to third parties by
the staff of the Securities and Exchange Commission (the "SEC") that the New
Notes issued in exchange for the Old Notes pursuant to the Exchange Offer may be
offered for resale, resold and otherwise transferred by owners thereof (other
than any such owner that is an "affiliate" of the Issuer or the Guarantor within
the meaning of Rule 405 under the Securities Act), without compliance with the
registration and prospectus delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary course of such owners' business
and such owners are not engaging in and do not intend to engage in a
distribution of the New Notes and have no arrangement or understanding with any
person to participate in a distribution of such New Notes. If the undersigned is
not a broker-dealer, the undersigned represents that it is not engaged in, and
does not intend to engage in, a distribution of New Notes. If the undersigned is
a broker-dealer that will receive New Notes for its own account in exchange for
Old Notes that were acquired as a result of market-making activities or other
trading activities, it acknowledges that it will deliver a prospectus in
connection with any resale of such New Notes; however, by so acknowledging and
by delivering a prospectus, the undersigned will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Issuer and the Guarantor to be
necessary or desirable to complete the assignment, transfer and purchase of the
Old Notes tendered hereby.
If any Old Notes tendered in book-entry form are not accepted for exchange
pursuant to the Exchange Offer for any reason, such unaccepted Old Notes will be
returned by credit to the tendering account or to a different account as may be
indicated herein under "Special Issuance Instructions" as promptly as
practicable after the Expiration Date. The undersigned recognizes that "Special
Issuance Instructions" to transfer any Old Notes from the name of the owner
thereof are instructions to his Securities Intermediary and the Issuer and the
Guarantor have no obligations with respect thereto.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
<PAGE>
The undersigned acknowledges that for purposes of the Exchange Offer, the
Issuer and the Guarantor shall be deemed to have accepted validly tendered Old
Notes when, as and if the Issuer and the Guarantor have given oral or written
notice thereof to the Exchange Agent.
The undersigned has read and agrees to all the terms of the Exchange Offer.
The undersigned understands that tenders of Old Notes pursuant to the procedures
described under the caption EXCHANGE OFFER--"Procedures for Tendering" in the
Prospectus and in the instructions hereto will constitute a binding agreement
between the undersigned and the Issuer and the Guarantor upon the terms and
subject to the conditions of the Exchange Offer.
<PAGE>
PLEASE SIGN HERE ON INSTRUCTIONS OF SECURITIES INTERMEDIARY
X ___________________________ ____________________
Date
X ___________________________ ____________________
Signature(s) of Owner(s) Date
or Authorized Signatory
Area Code and Telephone Number:____________________
The above lines must be signed by owner(s) using this Letter of Transmittal
to instruct his or her Securities Intermediary. If signature is by trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, then such person
must (i) set forth his or her full title below and (ii) unless waived by the
Securities Intermediary, submit evidence satisfactory to the Securities
Intermediary of such person's authority so to act. See Instruction 4 regarding
the completion of this Letter of Transmittal, printed below.
Name(s):________________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity:_______________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________
(Include Zip Code)
Signature(s) Guaranteed by an Eligible Institution (as
hereinafter defined): (If required by Instruction 4)
______________________________________________________________
(Name of Eligible Institution Guaranteeing Signatures)
By____________________________________________________________
(Authorized Signature)
____________________________________________________________
(Printed Name)
____________________________________________________________
(Title)
Dated:____________________, 1999
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OLD NOTES. A confirmation of
a book-entry tender (a "Book-Entry Confirmation") of the Old Notes described in
this Letter of Transmittal must be received by the Exchange Agent at its address
set forth herein prior to 5:00 p.m., New York City time, on the Expiration Date.
The method of delivery of this Letter of Transmittal to an owner's Securities
Intermediary is at the election and risk of the owner; and delivery of a
Book-Entry Confirmation will be deemed made only when actually received or
confirmed by the Exchange Agent. In all cases, sufficient time should be allowed
to assure delivery to the Exchange Agent before the Expiration Date. No Letter
of Transmittal should be sent to the Issuer.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Issuer and the Guarantor in their sole discretion,
which determination will be final and binding. The Issuer and the Guarantor
reserve the absolute right to reject any and all Old Notes of either series not
properly tendered or any Old Notes the Issuer's and the Guarantor's acceptance
of which would, in the opinion of counsel for the Issuer and the Guarantor, be
unlawful. The Issuer and the Guarantor also reserve the right to waive any
irregularities or conditions of tender as to particular Old Notes. The Issuer's
and the Guarantor's interpretation of the terms and conditions of the Exchange
Offer (including the instructions in this Letter of Transmittal) shall be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Issuer and the Guarantor shall determine. Neither the Issuer, the Guarantor, the
Exchange Agent nor any other person shall be under any duty to give notification
of defects or irregularities with respect to tenders of Old Notes, nor shall any
of them incur any liability for failure to give such notification. Tenders of
Old Notes will not be deemed to have been made until such defects or
irregularities have been cured or waived. Any Old Notes received by the Exchange
Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned by credit to the
tendering account, unless otherwise provided in this Letter of Transmittal, as
soon as practicable following the Expiration Date.
2. TENDER BY OWNER. Any owner of Old Notes who wishes to tender should
execute and deliver this Letter of Transmittal or otherwise instruct his or her
Securities Intermediary to tender his Old Notes for exchange.
3. PARTIAL TENDERS. Tenders of Old Notes will be accepted only in the
principal amount of $10,000 and integral multiples of $1,000. If less than the
entire principal amount of any owner's Old Notes is tendered, the tendering
owner should fill in the principal amount tendered in the third column of the
box entitled "Description of 6.15% Senior Notes," "Description of 6.45% Senior
Notes" or "Description of 6.75% Senior Notes" above, as the case may be.
4. SIGNATURES ON THE LETTER OF TRANSMITTAL. If this Letter of Transmittal
(or facsimile hereof) or any Old Notes or assignments are signed by trustees,
executors, administrators, guardians, attorneys-in-fact, or officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and, unless waived by the Issuer and
the Guarantor, evidence satisfactory to the Issuer and the Guarantor of their
authority so to act must be submitted with this Letter of Transmittal.
Except as otherwise provided below, all signatures on this Letter of
Transmittal must be guaranteed by a member firm of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
a commercial bank or trust company having an office or correspondent in the
United States or an "eligible guarantor institution" within the meaning of Rule
17Ad-15 under the Securities Exchange Act of 1934 (an "Eligible Institution").
Signatures on this Letter of Transmittal need not be guaranteed if such Old
Notes are tendered for the account of an Eligible Institution.
5. SPECIAL ISSUANCE INSTRUCTIONS. Tendering owners of Old Notes should
indicate, in the applicable box or boxes, the name and address to which New
Notes or substitute Old Notes for principal amounts not tendered or not accepted
for exchange are to be credited, if different from the name and address of the
person signing this Letter of Transmittal. In the case of issuance in a
different name, the taxpayer identification or social security number of the
person named must also be indicated.
6. TRANSFER TAXES. The Issuer and the Guarantor will pay all transfer
taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange
Offer. If a transfer tax is imposed for any reason other than the exchange of
Old Notes pursuant to the Exchange Offer, then the amount of any such transfer
taxes (whether imposed on the owner or on any other persons) will be payable by
the tendering owner. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with this Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering owner.
7. WAIVER OF CONDITIONS. The Issuer and the Guarantor reserve the absolute
right to amend, waive or modify specified conditions in the Exchange Offer in
the case of any Old Notes tendered.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the Prospectus or this Letter
of Transmittal may be directed to the Exchange Agent at the address specified in
the Prospectus. Owners may also contact their broker, dealer, commercial bank,
trust company, nominee or other Securities Intermediary for assistance
concerning the Exchange Offer.
9. IMPORTANT TAX INFORMATION. Owners who are US taxpayers and who have not
previously furnished a taxpayer identification number to the Paying Agent for
the Old Notes, should furnish such information to the Exchange Agent on
Substitute Form W-9. A copy of such form may be obtained from the Exchange
Agent.
(DO NOT WRITE IN SPACE BELOW)
=====================================
OLD NOTES OLD NOTES
TENDERED ACCEPTED
-------------------------------------
-------------------------------------
=====================================
Delivery Prepared by_____________ Checked By_____________ Date_____________
<PAGE>
GUARANTEE
The undersigned, a member of a registered national securities exchange, or
a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an officer or correspondent in the
United States, hereby guarantees that timely confirmation of the book-entry
transfer of such Old Notes into the Exchange Agent's account at Depository Trust
Company pursuant to the procedures set forth in the EXCHANGE OFFER--"Guaranteed
Delivery Procedures" section of the Prospectus, together with a properly
completed and duly executed Letter of Transmittal (or a manually signed
facsimile thereof) with any required signature guarantee and any other documents
required by the Letter of Transmittal, will be received by the Exchange Agent at
the address set forth above, no later than five New York Stock Exchange trading
days after the Expiration Date.
_______________________________________ ______________________________
Name of Firm Authorized Signature
_______________________________________ ______________________________
Address Title
_______________________________________
Zip Code Name:_________________________
(Please Type or Print)
Area Code and Tel. No._________________ Dated:________________________
Exhibit 5(a)
July 2, 1999
TXU Eastern Funding Company
Crown House
51 Aldwych
London, England
WC2B 4AX
TXU Eastern Holdings Limited
Crown House
51 Aldwych
London, England
WC2B 4AX
Ladies and Gentlemen:
Reference is made to the proposed exchange (Exchange Offer) by TXU Eastern
Funding Company, a private unlimited company incorporated under the laws of
England and Wales (Issuer), and TXU Eastern Holdings Limited, a private limited
company incorporated under the laws of England and Wales (Guarantor), of any and
all of the Issuer's outstanding 6.15% Senior Notes due May 15, 2002 (Old 6.15%
Notes) for an equal principal amount of the Issuer's 6.15% Exchange Senior Notes
due May 15, 2002 (New 6.15% Notes), any and all of the Issuer's outstanding
6.45% Senior Notes due May 15, 2005 (Old 6.45% Notes) for an equal principal
amount of the Issuer's 6.45% Exchange Senior Notes due May 15, 2005 (New 6.45%
Notes) and any and all of the Issuer's outstanding 6.75% Senior Notes due May
15, 2009 (Old 6.75% Notes and, together with the Old 6.15% Notes and the Old
6.45% Notes, the Old Notes) for an equal principal amount of the Issuer's 6.75%
Exchange Senior Notes due May 15, 2009 (New 6.75% Notes and, together with the
New 6.15% Notes and the New 6.45% Notes, the New Notes), all of such New Notes,
when issued, to be guaranteed by the Guarantor, all as contemplated in the
registration statement on Form S-4 (Registration Statement) to be filed by the
Issuer and the Guarantor, on or about the date hereof, with the Securities and
Exchange Commission under the Securities Act of 1933, as amended. I am General
Counselor to the Issuer and the Guarantor.
<PAGE>
TXU Eastern Funding Company -2- July 2, 1999
TXU Eastern Holdings Limited
In relation to the Exchange Offer, I am of the opinion that:
1. The Issuer is a company duly incorporated and validly
existing under the laws of England and Wales.
2. The Guarantor is a company duly incorporated and
validly existing under the laws of England and Wales.
3. All requisite action necessary to make the New Notes
valid, legal and binding obligations of the Issuer
and the guarantees relating to the New Notes valid,
legal and binding obligations of the Guarantor shall
have been taken when the Exchange Offer shall have
been completed and any Old Notes validly tendered
pursuant thereto shall have been exchanged for the
New Notes as contemplated in the Registration
Statement.
I express no opinion as to any laws other than the laws of England in force
at the date of this opinion. As to all matters of New York law, I have relied,
with your consent, upon the opinion of even date herewith addressed to you by
Thelen Reid & Priest LLP, special United States counsel to the Issuer and the
Guarantor.
I hereby consent to the use of my name in the Registration Statement and to
the use of this opinion as an exhibit thereto.
Yours faithfully,
/s/ E J Lean
E J Lean
General Counsel
Exhibit 5(b)
WORSHAM, FORSYTHE & WOOLDRIDGE, L.L.P.
ENERGY PLAZA
1601 BRYAN STREET
DALLAS, TEXAS 75201
Exhibit 5(b)
July 2, 1999
TXU Eastern Funding Company
Crown House
51 Aldwych
London, England
WC2B 4AX
TXU Eastern Holdings Limited
Crown House
51 Aldwych
London, England
WC2B 4AX
Ladies and Gentlemen:
Reference is made to the proposed exchange (Exchange Offer) by TXU Eastern
Funding Company, a private unlimited company incorporated under the laws of
England and Wales (Issuer), and TXU Eastern Holdings Limited, a private limited
company incorporated under the laws of England and Wales (Guarantor), of any and
all of the Issuer's outstanding 6.15% Senior Notes due May 15, 2002 (Old 6.15%
Notes) for an equal principal amount of the Issuer's 6.15% Exchange Senior Notes
due May 15, 2002 (New 6.15% Notes), any and all of the Issuer's outstanding
6.45% Senior Notes due May 15, 2005 (Old 6.45% Notes) for an equal principal
amount of the Issuer's 6.45% Exchange Senior Notes due May 15, 2005 (New 6.45%
Notes) and any and all of the Issuer's outstanding 6.75% Senior Notes due May
15, 2009 (Old 6.75% Notes and, together with the Old 6.15% Notes and the Old
6.45% Notes, the Old Notes) for an equal principal amount of the Issuer's 6.75%
Exchange Senior Notes due May 15, 2009 (New 6.75% Notes and, together with the
New 6.15% Notes and the New 6.45% Notes, the New Notes), all of such New Notes,
when issued, to be guaranteed by the Guarantor, all as contemplated in the
registration statement on Form S-4 (Registration Statement) to be filed by the
Issuer and the Guarantor, on or about the date hereof, with the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
<PAGE>
TXU Eastern Funding Company -2- July 2, 1999
TXU Eastern Holdings Limited
In relation to the Exchange Offer, we are of the opinion that all requisite
action necessary to make the New Notes valid, legal and binding obligations of
the Issuer and the guarantees relating to the New Notes valid, legal and binding
obligations of the Guarantor shall have been taken when the Exchange Offer shall
have been completed and any Old Notes validly tendered pursuant thereto shall
have been exchanged for the New Notes as contemplated in the Registration
Statement.
We are members of the State Bar of Texas and do not hold ourselves out as
experts on the laws of England or on the laws of New York. Accordingly, in
rendering this opinion, we have relied, with your consent, as to all matters of
English law, upon the opinions of even date herewith addressed to you by E.J.
Lean, general counsel for the Issuer and the Guarantor, and as to all matters of
New York law, upon the opinion of even date herewith addressed to you by Thelen
Reid & Priest LLP, special United States counsel to the Issuer and the
Guarantor.
We hereby consent to the use of our name in the Registration Statement and
to the use of this opinion as an exhibit thereto.
Very truly yours,
Worsham, Forsythe & Wooldridge, L.L.P.
By: /s/ Tim Mack
----------------------------------
A Partner
<PAGE>
Exhibit 5(c) and 8(a)
(212) 603-2000
New York, New York
July 2, 1999
TXU Eastern Funding Company
Crown House
51 Aldwych
London, England
WC2B 4AX
TXU Eastern Holdings Limited
Crown House
51 Aldwych
London, England
WC2B 4AX
Ladies and Gentlemen:
Reference is made to the proposed exchange (Exchange Offer) by TXU Eastern
Funding Company, a private unlimited company incorporated under the laws of
England and Wales (Issuer), and TXU Eastern Holdings Limited, a private limited
company incorporated under the laws of England and Wales (Guarantor), of any and
all of the Issuer's outstanding 6.15% Senior Notes due May 15, 2002 (Old 6.15%
Notes) for an equal principal amount of the Issuer's 6.15% Exchange Senior Notes
due May 15, 2002 (New 6.15% Notes), any and all of the Issuer's outstanding
6.45% Senior Notes due May 15, 2005 (Old 6.45% Notes) for an equal principal
amount of the Issuer's 6.45% Exchange Senior Notes due May 15, 2005 (New 6.45%
Notes) and any and all of the Issuer's outstanding 6.75% Senior Notes due May
15, 2009 (Old 6.75% Notes and, together with the Old 6.15% Notes and the Old
6.45% Notes, the Old Notes) for an equal principal amount of the Issuer's 6.75%
Exchange Senior Notes due May 15, 2009 (New 6.75% Notes and, together with the
New 6.15% Notes and the New 6.45% Notes, the New Notes), all of such New Notes,
when issued, to be guaranteed by the Guarantor, all as contemplated in the
registration statement on Form S-4 (Registration Statement) to be filed by the
Issuer and the Guarantor, on or about the date hereof, with the Securities and
Exchange Commission under the Securities Act of 1933, as amended.
<PAGE>
TXU Eastern Funding Company -2- July 2, 1999
TXU Eastern Holdings Limited
In relation to the Exchange Offer, we are of the opinion that all requisite
action necessary to make the New Notes valid, legal and binding obligations of
the Issuer and the guarantees relating to the New Notes valid, legal and binding
obligations of the Guarantor shall have been taken when the Exchange Offer shall
have been completed and any Old Notes validly tendered pursuant thereto shall
have been exchanged for the New Notes as contemplated in the Registration
Statement.
We are members of the New York Bar and do not hold ourselves out as experts
on the laws of England. Accordingly, in rendering this opinion, we have relied,
with your consent, as to all matters of English law, upon the opinions of even
date herewith addressed to you by E.J. Lean, general counsel for the Issuer and
the Guarantor.
We confirm our opinion as set forth under the caption CERTAIN INCOME TAX
CONSIDERATIONS --"US Income Tax Considerations" in the prospectus constituting a
part of the Registration Statement.
We hereby consent to the use of our name in the Registration Statement and
to the use of this opinion as an exhibit thereto.
Very truly yours,
/s/ Thelen Reid & Priest LLP
Thelen Reid & Priest LLP
EXHIBIT 12(A)
TXU EASTERN HOLDINGS LIMITED
(SUCCESSOR COMPANY)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(L MILLION, EXCEPT RATIOS)
PERIOD FROM PERIOD FROM
FORMATION FORMATION
THROUGH THROUGH
DECEMBER 31, MARCH 31,
1998 1999
-------------- ------------
EARNINGS:
Net income/(loss) 77 126
Add: Minority income 11 21
Income tax expense 67 106
Fixed charges (see 281 369
detail below)
Less: Interest capitalized (4) (5)
---------- ---------
Total earnings 432 617
---------- ---------
FIXED CHARGES:
Interest expense 269 356
Add: Interest capitalized 4 5
Rentals representative 8 8
of the interest factor ---------- ---------
Total fixed charges 281 369
---------- ---------
RATIO OF EARNINGS TO FIXED 1.5 1.7
CHARGES ========== =========
EXHIBIT 12(B)
EASTERN GROUP PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(US GAAP BASIS)
(L MILLION, EXCEPT RATIOS)
PERIOD FROM
APRIL 1,
YEAR ENDED YEAR ENDED 1998
MARCH 31, MARCH 31, THROUGH MAY
1997 1998 18, 1998
---------- ---------- -----------
EARNINGS:
Net income/(loss) (90) (38) (21)
Add: Minority income 1 0 0
Income tax expense 304 189 (5)
Fixed charges (see 140 204 28
detail below)
Less: Interest (11) 0 0
capitalized --------- -------- -------
Total earnings 344 355 2
--------- -------- -------
FIXED CHARGES:
Interest expense 128 202 28
Add: Interest 11 0 0
capitalized
Rentals 1 2 0
representative --------- -------- -------
of the interest
factor
Total fixed charges 140 204 28
--------- ------- -------
RATIO OF EARNINGS TO 2.5 1.7 0.1(a)
FIXED CHARGES ========= ======= =======
(a) For the period from April 1, 1998 through May 18, 1998, fixed
charges exceeded earnings by L26 million.
EXHIBIT 12(C)
EASTERN GROUP PLC AND SUBSIDIARIES
(PREDECESSOR COMPANY)
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(UK GAAP BASIS)
(L MILLION, EXCEPT RATIOS)
YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 31, MARCH 31, MARCH 31, MARCH 31,
1995 1996 1997 1998
---------- ---------- ---------- ----------
EARNINGS:
Net income/(loss) 141 221 265 49
Add: Minority income 0 0 0 0
Income tax expense 63 37 54 213
Fixed charges (see 42 64 97 162
detail below)
Less: Interest (1) (6) (10) 0
capitalized -------- -------- ------- -------
Total earnings 245 316 406 424
-------- -------- ------- -------
FIXED CHARGES:
Interest expense 41 57 86 161
Add: Interest 0 6 10 0
capitalized
Rentals 1 1 1 1
representative -------- -------- ------- -------
of the interest
factor
Total fixed charges 42 64 97 162
-------- ------- ------- -------
RATIO OF EARNINGS TO 5.8 4.9 4.2 2.6
FIXED CHARGES ======== ======= ======= =======
MATERIAL SUBSIDIARIES OF THE TXUEH GROUP
Eastern Group plc
Eastern Electricity plc
EASTERN GENERATION LIMITED
Anglian Power Generators Limited
Eastern Generation Services Limited
Eastern Generation Research limited
Eastern Merchant Generation Limited
Eastern Merchant Properties Limited
Eastern Renewable Generation Limited
Eastern Gas Generation Maintenance Limited
Peterborough Power Limited
Shotton Combined Heat Limited
Nedalo (UK) Ltd
BG Cogen Limited
Citigen (London) Limited
Eastern Group Finance Limited
EASTERN POWER AND ENERGY TRADING LIMITED
Eastern Natural Gas (Trading) Limited
Eastern Natural Gas (Offshore) Limited
Eastern Ten Limited
Eastern Power and Energy Trading Poland Sp zoo
PRICEWATERHOUSECOOPERS
----------------------------------------------------------------
PricewaterhouseCoopers
No. 1 London Bridge
London SE1 9QL
Telephone +44 (0) 171-939 3000
Facsimile +44 (0) 171-403 5365
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in this Registration Statement on
Form S-4 of TXU Eastern Funding Company and TXU Eastern Holdings
Limited of our reports (i) dated June 30, 1999 relating to the
financial statements of TXU Eastern Holdings Limited; (ii) dated
April 26, 1999 relating to the financial statements of Eastern
Group plc; and (iii) dated April 26, 1999 relating to the
financial statements of Energy Group Overseas BV, which appear in
such Registration Statement. We also consent to the references
to us under the headings "Independent Accountants" and "Selected
Financial Data" in such Registration Statement.
PricewaterhouseCoopers
London, England
June 30, 1999
EXHIBIT 23(e)
CONSENT OF COUNSEL TO
TXU EASTERN HOLDINGS LIMITED
AND
TXU EASTERN FUNDING COMPANY
("the Registrants")
We hereby consent to the use of our name as counsel in the Registration
Statement on Form S-4 filed by the Registrants with the Securities and Exchange
Commission, under the Securities Act of 1933, on or about the date hereof.
NORTON ROSE
By /s/ Norton Rose
----------------
July 2, 1999
London, England
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A
TRUSTEE PURSUANT TO SECTION 305(b)(2)
-----------
-----------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(Jurisdiction of (I.R.S. Employer
incorporation if not a Identification No.)
U.S. national bank)
One Wall Street 10286
New York, New York (Zip code)
(Address of principal
executive offices)
-----------------
TXU EASTERN FUNDING COMPANY
(Exact name of obligor as specified in its charter)
England and Wales 98-0203668
(State or other (I.R.S. Employer
jurisdiction of incorporation Identification No.)
or organization)
Crown House WC2B 4Ax
51 Aldwych (Zip code)
London, England
(Address of principal
executive offices)
-----------------
<PAGE>
TXU EASTERN HOLDINGS LIMITED
(Exact name of obligor as specified in its charter)
England and Wales 98-0188080
(State or other (I.R.S. Employer
jurisdiction of incorporation Identification No.)
or organization)
Crown House WC2B 4AX
51 Aldwych (Zip code)
London, England
(Address of principal
executive offices)
-----------------
6.15% EXCHANGE SENIOR NOTES DUE MAY 15, 2002
6.45% EXCHANGE SENIOR NOTES DUE MAY 15, 2005
6.75% EXCHANGE SENIOR NOTES DUE MAY 15, 2009
(Title of the indenture securities)
<PAGE>
ITEM 1. GENERAL INFORMATION.<*>
Furnish the following information as to the Trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
Superintendent of Banks 2 Rector Street,
of the State of New York New York, N.Y 10006
and Albany, N.Y. 12203
Federal Reserve Bank of New 33 Liberty Plaza,
York New York, N.Y. 10045
Federal Deposit Insurance 550 17th Street, N.W.,
Corporation Washington, D.C. 20429
New York Clearing House New York, N.Y. 10005
Association
(b) Whether it is authorized to exercise corporate
trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the trustee, describe
each such affiliation.
None. (See Note on page 2.)
ITEM 16. LIST OF EXHIBITS.
Exhibits identified in parentheses below, on file with
the Commission, are incorporated herein by reference as an
exhibit hereto, pursuant to Rule 7a-29 under the Trust Indenture
Act of 1939 (the "Act") and 17 C.F.R. S.229.10(d).
1. - A copy of the Organization Certificate of The
Bank of New York (formerly Irving Trust
Company) as now in effect, which contains the
authority to commence business and a grant of
powers to exercise corporate trust powers.
(Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-
6215, Exhibits 1a and 1b to Form T-1 filed
with Registration Statement No. 33-21672 and
Exhibit 1 to Form T-1 filed with Registration
Statement No. 33-29637.)
4. - A copy of the existing By-laws of the
Trustee. (Exhibit 4 to Form T-1 filed with
Registration Statement No. 33-31019.)
6. - The consent of the Trustee required by
Section 321(b) of the Act. (Exhibit 6 to
Form T-1 filed with Registration Statement
No. 33-44051.)
7. - A copy of the latest report of condition of
the Trustee published pursuant to law or to
the requirements of its supervising or
examining authority.
-----------------
* Pursuant to General Instruction B, the Trustee has responded
only to Items 1, 2 and 16 of this form since to the best of the
knowledge of the Trustee the obligor is not in default under any
indenture under which the Trustee is a trustee.
<PAGE>
NOTE
Inasmuch as this Form T-1 is being filed prior to the
ascertainment by the Trustee of all facts on which to base a
responsive answer to Item 2, the answer to said Item is based on
incomplete information.
Item 2 may, however, be considered as correct unless
amended by an amendment to this Form T-1.
SIGNATURE
Pursuant to the requirements of the Act, the Trustee,
The Bank of New York, a corporation organized and existing under
the laws of the State of New York, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned,
thereunto duly authorized, all in The City of New York, and State
of New York, on the 24th day of June, 1999.
THE BANK OF NEW YORK
By: /s/ WALTER N. GITLIN
---------------------------
Walter N. Gitlin
Vice President
<PAGE>
EXHIBIT 7
(Page 1 of 3)
Consolidated Report of Condition of
THE BANK OF NEW YORK
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries, a member of the
Federal Reserve System, at the close of business March 31, 1999,
published in accordance with a call made by the Federal Reserve
Bank of this District pursuant to the provisions of the Federal
Reserve Act.
Dollar Amounts
ASSETS in Thousands
------ --------------
Cash and balances due from
depository institutions:
Noninterest-bearing balances
and currency and coin . . . . . . . . . . . . . $ 4,508,742
Interest-bearing balances . . . . . . . . . . . . 4,425,071
Securities:
Held-to-maturity securities . . . . . . . . . . . 836,304
Available-for-sale securities . . . . . . . . . . 4,047,851
Federal funds sold and Securities
purchased under agreements to resell . . . . . 1,743,269
Loans and lease financing
receivables:
Loans and leases, net of unearned
income . . . . . . . . . . . . . . 39,349,679
LESS: Allowance for loan and
lease losses . . . . . . . . . . . 603,025
LESS: Allocated transfer risk
reserve . . . . . . . . . . . . . 15,906
Loans and leases, net of unearned
income, allowance, and reserve . . . . . . . . 38,730,748
Trading Assets . . . . . . . . . . . . . . . . . . 1,571,372
Premises and fixed assets (including
capitalized leases) . . . . . . . . . . . . . . . 685,674
Other real estate owned . . . . . . . . . . . . . . 10,331
Investments in unconsolidated subsid-
iaries and associated companies . . . . . . . . . 182,449
Customers' liability to this bank on
acceptances outstanding . . . . . . . . . . . . 1,184,822
Intangible assets . . . . . . . . . . . . . . . . . 1,129,636
Other assets . . . . . . . . . . . . . . . . . . . 2,632,309
----------
Total assets . . . . . . . . . . . . . . . . . . . $61,688,578
==========
<PAGE>
EXHIBIT 7
(Page 2 of 3)
LIABILITIES
-----------
Deposits:
In domestic offices . . . . . . . . . . . . . . . $25,731,036
Noninterest-bearing . . . . . . . . 10,252,589
Interest-bearing . . . . . . . . . 15,478,447
In foreign offices, Edge and
Agreement subsidiaries, and IBFs . . . . . . . . 18,756,302
Noninterest-bearing . . . . . . . . 111,386
Interest-bearing . . . . . . . . . 18,644,916
Federal funds purchased and Securities
sold under agreements to repurchase . . . . . . 3,276,362
Demand notes issued to the U.S.
Treasury . . . . . . . . . . . . . . . . . . . . 230,671
Trading liabilities . . . . . . . . . . . . . . . . 1,554,493
Other borrowed money:
With remaining maturity of one year or less . . . 1,154,502
With remaining maturity of more than
one year through three years . . . . . . . . . 465
With remaining maturity of more than
three years . . . . . . . . . . . . . . . . . . 31,080
Bank's liability on acceptances
executed and outstanding . . . . . . . . . . . . 1,185,364
Subordinated notes and debentures . . . . . . . . . 1,308,000
Other liabilities . . . . . . . . . . . . . . . . . 2,743,590
----------
Total liabilities . . . . . . . . . . . . . . . . . 55,971,865
----------
EQUITY CAPITAL
--------------
Common stock . . . . . . . . . . . . . . . . . . . 1,135,284
Surplus . . . . . . . . . . . . . . . . . . . . . . 764,443
Undivided profits and capital
reserves . . . . . . . . . . . . . . . . . . . . 3,807,697
Net unrealized holding gains (losses)
on available-for-sale securities . . . . . . . . 44,106
Cumulative foreign currency
translation adjustments . . . . . . . . . . . . . (34,817)
----------
Total equity capital . . . . . . . . . . . . . . . 5,716,713
----------
Total liabilities and equity capital . . . . . . . $61,688,578
==========
<PAGE>
EXHIBIT 7
(Page 3 of 3)
I, Thomas J. Mastro, Senior Vice President and
Comptroller of the above-named bank do hereby declare that this
Report of Condition has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal
Reserve System and is true to the best of my knowledge and
belief.
Thomas J. Mastro
We, the undersigned directors, attest to the
correctness of this Report of Condition and declare that it has
been examined by us and to the best of our knowledge and belief
has been prepared in conformance with the instructions issued by
the Board of Governors of the Federal Reserve System and is true
and correct.
Thomas A. Renyi )
Alan R. Griffith ) Directors
Gerald L. Hassell )
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<ARTICLE> UT
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> FEB-05-1998
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,516
<OTHER-PROPERTY-AND-INVEST> 1,014
<TOTAL-CURRENT-ASSETS> 1,234
<TOTAL-DEFERRED-CHARGES> 3,819
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 8,583
<COMMON> 1,467
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 124
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,580
0
0
<LONG-TERM-DEBT-NET> 3,654
<SHORT-TERM-NOTES> 353
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 225
0
<CAPITAL-LEASE-OBLIGATIONS> 782
<LEASES-CURRENT> 261
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,727
<TOT-CAPITALIZATION-AND-LIAB> 8,583
<GROSS-OPERATING-REVENUE> 3,338
<INCOME-TAX-EXPENSE> 106
<OTHER-OPERATING-EXPENSES> 2,855
<TOTAL-OPERATING-EXPENSES> 2,855
<OPERATING-INCOME-LOSS> 483
<OTHER-INCOME-NET> 47
<INCOME-BEFORE-INTEREST-EXPEN> 530
<TOTAL-INTEREST-EXPENSE> 356
<NET-INCOME> 125
0
<EARNINGS-AVAILABLE-FOR-COMM> 125
<COMMON-STOCK-DIVIDENDS> 1
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 44
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
, 1999
EXCHANGE AGENT AGREEMENT
------------------------
The Bank of New York
Corporate Trust Administration
101 Barclay Street - 21st Floor
New York, New York 10286
Ladies and Gentlemen:
With TXU Eastern Holdings Limited, a private limited
company incorporated under the laws of England and Wales (the
"Guarantor"), TXU Eastern Funding Company, a private unlimited
company incorporated under the laws of England and Wales (the
"Company") proposes to make an offer (the "Exchange Offer") to
exchange equal principal amounts of up to $350,000,000
principal amount of its 6.15% Senior Notes due May 15, 2002,
up to $650,000,000 principal amount of its 6.45% Senior Notes
due May 15, 2005 and up to $500,000,000 principal amount of
its 6.75% Senior Notes due May 15, 2009 (collectively, the
"Old Notes") for equal principal amounts of, respectively, its
6.15% Exchange Senior Notes due May 15, 2002, its 6.45%
Exchange Senior Notes due May 15, 2005 and its 6.75% Exchange
Senior Notes due May 15, 2009 (collectively, the "New Notes")
which New Notes have been registered under the Securities Act
of 1933, as amended. The terms and conditions of the Exchange
Offer as currently contemplated are set forth in a prospectus,
dated ___________, 1998 (the "Prospectus"), proposed to be
distributed to all holders of the Old Notes. The Old Notes
and the New Notes are collectively referred to herein as the
"Notes". Unless the context requires otherwise, references
herein to the Notes, the Old Notes, the New Notes or any
series of the Notes will mean beneficial interests in the
book-entry interests that The Depositary Trust Company ("DTC")
has in such notes. Capitalized terms used herein and not
defined shall have the meanings ascribed to them in the
Prospectus or the Letter of Transmittal in the form or forms
to be delivered with the Prospectus to holders of the Old
Notes ("Letter of Transmittal").
The Company hereby appoints The Bank of New York to
act as exchange agent (the "Exchange Agent") in connection
with the Exchange Offer. References hereinafter to "you"
shall refer to The Bank of New York in its capacity as
Exchange Agent hereunder.
The Exchange Offer is expected to be commenced by
the Company on or about , 1999. The Letter of
Transmittal accompanying the Prospectus (or in the case of
book-entry securities, the ATOP system) is to be used by the
holders of the Old Notes to accept the Exchange Offer and
contains instructions with respect to the delivery of certifi-
cates for Old Notes tendered in connection therewith.
The Exchange Offer shall expire at 5:00 P.M., New
York City time, on , 1999 or on such later date or
time to which the Company or the Guarantor may extend the
Exchange Offer (the "Expiration Date"). Subject to the terms
and conditions set forth in the Prospectus, the Company and
the Guarantor expressly reserve the right to extend the
Exchange Offer from time to time and may extend the Exchange
Offer by the Company giving oral (confirmed in writing) or
written notice to you before 9:00 A.M., New York City time, on
the business day following the previously scheduled Expiration
Date.
The Company and the Guarantor expressly reserve the
right to amend, in any way not inconsistent with the
Registration Rights Agreement, or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not
theretofore accepted for exchange, upon the occurrence of any
of the conditions of the Exchange Offer specified in the
Prospectus under the caption "The Exchange Offer -- Condi-
tions." The Company will give oral (confirmed in writing) or
written notice of any amendment, termination or nonacceptance
to you as promptly as practicable.
In carrying out your duties as Exchange Agent, you
are to act in accordance with the following instructions:
1. You will perform such duties and only such du-
ties as are specifically set forth in the section of the Pro-
spectus captioned THE EXCHANGE OFFER and in the Letter of
Transmittal or as specifically set forth herein; provided,
--------
however, that in no way will your general duty to act in good
-------
faith and without gross negligence be discharged by the
foregoing.
2. You will establish an account with respect to
the Old Notes at The Depository Trust Company (the "Book-Entry
Transfer Facility") for purposes of the Exchange Offer within
two business days after the date of the Prospectus, and any
financial institution that is a participant in the Book-Entry
Transfer Facility's systems may make book-entry delivery of
the Old Notes by causing the Book-Entry Transfer Facility to
transfer such Old Notes into your account in accordance with
the Book-Entry Transfer Facility's procedure for such trans-
fer.
3. You are to examine each of the Letters of
Transmittal and confirmation of book-entry transfer into your
account at the Book-Entry Transfer Facility or certificates
for Old Notes and any other documents delivered or mailed to
you by or for holders of the Old Notes to ascertain whether:
(i) the Letters of Transmittal and any such other documents
are duly executed and properly completed in accordance with
instructions set forth therein and (ii) the Old Notes have
otherwise been properly tendered. Determination of all
questions as to validity, form, eligibility, acceptance and
withdrawal with respect to exchange of any Old Notes shall be
made by the Company and the Guarantor. In each case where the
Letter of Transmittal or any other document has been
improperly completed or executed or any of the certificates
for Old Notes are not in proper form for transfer or some
other irregularity in connection with the acceptance of the
Exchange Offer exists, you will endeavor to inform the
presenters of the need for fulfillment of all requirements and
to take any other action as may be necessary or advisable to
cause such irregularity to be corrected. However, you shall
not incur any liabilities under this agreement for failure to
give any such notification.
4. With the approval of a duly appointed Committee
of the Board of Directors or Attorney of the Company or the
Guarantor (such approval, if given orally, to be confirmed in
writing) or any other party designated by such person or
entity in writing, you are authorized to waive any
irregularities in connection with any tender of Old Notes
pursuant to the Exchange Offer.
5. Tenders of Old Notes may be made only as set
forth in the Letter of Transmittal and in the section of the
Prospectus captioned "The Exchange Offer -- Procedures for
Tendering", and Old Notes shall be considered properly
tendered only when tendered in accordance with the procedures
set forth therein. Notwithstanding the provisions of this
paragraph 5, Old Notes which a Director or a duly appointed
Attorney of the Company or the Guarantor shall approve as
having been properly tendered shall be considered to be
properly tendered (such approval, if given orally, shall be
confirmed in writing).
6. You shall advise the Company with respect to
any Old Notes received subsequent to the Expiration Date and
accept its instructions with respect to disposition of such
Old Notes.
7. You shall accept tenders:
a. in cases where the Old Notes are
registered in two or more names only if signed by all
named holders;
b. in cases where the signing person (as
indicated on the Letter of Transmittal) is acting in a
fiduciary or a representative capacity only when proper
evidence of his or her authority so to act is submitted;
and
c. from persons other than the registered
holder of Old Notes provided that customary transfer
requirements, including any applicable transfer taxes,
are fulfilled.
You shall accept partial tenders of Old Notes when so
indicated and as permitted in the applicable Letter of
Transmittal and effect appropriate book-entry transfer and
notify the Depositary and instruct DTC to credit the accounts
of appropriate securities intermediaries on behalf of the
tender or, if registered certificates have been issued,
deliver certificates for Old Notes to the transfer agent for
split-up and return certificates for any untendered Old Notes
or Old Notes that have not been accepted by the Company to the
holder (or such other person as may be designated in the
Letter of Transmittal) as promptly as practicable after
expiration or termination of the Exchange Offer.
8. Upon satisfaction or waiver of all of the con-
ditions to the Exchange Offer, the Company will notify you
(such notice if given orally, to be confirmed in writing) of
its acceptance, promptly after the Expiration Date, of all Old
Notes properly tendered and you, on behalf of the Company,
will cause a certificate in bearer form representing such New
Notes in exchange therefor to be issued as promptly as
possible to the Depositary in bearer form. On behalf of the
Company, you will exchange such Old Notes for New Notes and
cause such Old Notes to be canceled. Delivery of New Notes
will be made on behalf of the Company by you at the rate of
$1,000 principal amount of New Notes for each $1,000 principal
amount of the corresponding series of Old Notes tendered as
promptly as practicable after notice (such notice if given
orally, to be confirmed in writing) of acceptance of said Old
Notes by the Company; provided, however, that in all cases,
Old Notes tendered pursuant to the Exchange Offer will be
exchanged only after timely receipt by you of certificates for
such Old Notes (or confirmation of book-entry transfer into
your account at the Book-Entry Transfer Facility), a properly
completed and duly executed Letter of Transmittal (or
facsimile thereof) with any required signature guarantees and
any other required documents. You shall issue New Notes only
in denominations of $10,000 or any integral multiple of $1,000
in excess thereof.
9. Tenders pursuant to the Exchange Offer are ir-
revocable, except that, subject to the terms and upon the con-
ditions set forth in the Prospectus and the Letter of Trans-
mittal, Old Notes tendered pursuant to the Exchange Offer may
be withdrawn at any time prior to the Expiration Date in
accordance with the terms of the Exchange Offer.
10. The Company shall not be required to exchange
any Old Notes tendered if any of the conditions set forth in
the Exchange Offer are not met. Notice of any decision by the
Company not to exchange any Old Notes tendered shall be given
in a notice (and, if given orally, confirmed in writing) by
the Company to you.
11. If, pursuant to the Exchange Offer, the Company
does not accept for exchange all or part of the Old Notes ten-
dered because of an invalid tender, the occurrence of certain
other events set forth in the Prospectus under the caption
"The Exchange Offer -- Conditions" or otherwise, you shall as
soon as practicable after the expiration or termination of the
Exchange Offer return such certificates for unaccepted Old
Notes (or effect appropriate book-entry transfer), together
with any related required documents and the Letters of
Transmittal relating thereto that are in your possession, to
the persons who deposited such certificates (or effected such
book-entry transfer).
12. All certificates for reissued Old Notes, unac-
cepted Old Notes or for New Notes shall be forwarded by first-
class mail.
13. You are not authorized to pay or offer to pay
any concessions, commissions or solicitation fees to any bro-
ker, dealer, bank or other persons or to engage or utilize any
person to solicit tenders.
14. As Exchange Agent hereunder you:
a. shall have no duties or obligations other
than as provided in paragraph 1, those specifically set
forth herein or as may be subsequently agreed to in
writing by you and the Company;
b. will be regarded as making no representa-
tions and having no responsibilities as to the validity,
sufficiency, value or genuineness of any of the
certificates or the Old Notes represented thereby depos-
ited with you pursuant to the Exchange Offer, and will
not be required to and will make no representation as to
the validity, value or genuineness of the Exchange Offer;
c. shall not be obligated to take any legal
action hereunder which might in your reasonable judgment
involve any expense or liability, unless you shall have
been furnished with indemnity reasonably satisfactory to
you and any additional fees for taking such action as is
agreed by the parties heretofore;
d. may reasonably rely on and shall be
protected in acting in reliance upon any certificate,
instrument, opinion, notice, letter, telegram or other
document or security delivered to you and reasonably
believed by you to be genuine and to have been signed by
the proper party or parties;
e. may reasonably act upon any tender,
statement, request, comment, agreement or other instru-
ment whatsoever not only as to its due execution and
validity and effectiveness of its provisions, but also as
to the truth and accuracy of any information contained
therein, which you shall in good faith believe to be
genuine or to have been signed or represented by a proper
person or persons or persons acting in a fiduciary or
representative capacity;
f. may rely on and shall be protected in act-
ing upon written or oral instructions from any officer of
the Company or any other party designated by the Company;
g. may consult with your counsel with respect
to any questions relating to your duties and
responsibilities and the advice or opinion of such
counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or
omitted to be taken by you hereunder in good faith and in
accordance with the advice or opinion of such counsel;
and
h. shall not advise any person tendering Old
Notes pursuant to the Exchange Offer as to whether to
tender or refrain from tendering any portion of Old Notes
or as to the market value, decline or appreciation in
market value of any Old Notes that may or may not occur
as a result of the Exchange Offer or as to the market
value of the New Notes.
15. You shall take such action as may from time to
time be requested by the Company or its counsel (and such
other action as you may reasonably deem appropriate) to fur-
nish copies of the Prospectus, Letter of Transmittal and the
Notice of Guaranteed Delivery (as described in the Prospectus)
or such other forms as may be approved from time to time by
the Company, to all persons requesting such documents and to
accept and comply with telephone requests for information re-
lating to the Exchange Offer, provided that such information
shall relate only to the procedures for accepting (or with-
drawing from) the Exchange Offer. The Company will furnish
you with copies of such documents at your request. All other
requests for information relating to the Exchange Offer shall
be directed to the Company, Attention: Treasurer.
16. You shall advise by facsimile transmission or
telephone, and promptly thereafter confirm in writing to the
Treasurer of the Company and such other person or persons as
the Company may request, daily (and more frequently during the
week immediately preceding the Expiration Date and if
otherwise reasonably requested) up to and including the Expi-
ration Date, as to the principal amount of Old Notes which
have been tendered pursuant to the terms of the Exchange Offer
and the items received by you pursuant to the Exchange Offer
and this Agreement, (separately reporting and giving
cumulative totals as to items properly received and items
improperly received). In addition, you will also inform, and
cooperate in making available to, the Company or any such
other person or persons upon request made from time to time
prior to the Expiration Date of such other information in your
possession as it or he or she reasonably requests. Such
cooperation shall include, without limitation, the granting by
you to the Company and such person as the Company may request,
of access to those persons on your staff who are responsible
for receiving tenders, in order to ensure that immediately
prior to the Expiration Date the Company shall have received
information in sufficient detail to enable it to decide
whether to extend the Exchange Offer. You shall prepare a
final list of all persons whose tenders were accepted, the
aggregate principal amount of Old Notes tendered and the ag-
gregate principal amount of Old Notes accepted and deliver
said list to the Company.
17. Letters of Transmittal, book-entry
confirmations and Notices of Guaranteed Delivery shall be
stamped by you as to the date and the time of receipt thereof
and shall be preserved by you for a period of time at least
equal to the period of time you preserve other records
pertaining to the transfer of securities. You shall dispose
of unused Letters of Transmittal and other surplus materials
by returning them to the Company.
18. You hereby expressly waive any lien, encum-
brance or right of set-off whatsoever that you may have with
respect to funds deposited with you for the payment of trans-
fer taxes by reasons of amounts, if any, borrowed by the Com-
pany, or any of its subsidiaries or affiliates pursuant to any
loan or credit agreement with you or for compensation owed to
you hereunder.
19. For services rendered as Exchange Agent hereun-
der, you shall be entitled to such compensation as set forth
on Schedule I attached hereto.
20. You hereby acknowledge receipt of the Prospec-
tus and the Letter of Transmittal and further acknowledge that
you have examined each of them. Any inconsistency between
this Agreement, on the one hand, and the Prospectus and the
Letter of Transmittal (as they may be amended from time to
time), on the other hand, shall be resolved in favor of the
latter two documents, except with respect to the duties,
liabilities and indemnification of you as Exchange Agent,
which shall be controlled by this Agreement.
21. The Company covenants and agrees to indemnify
and hold you harmless in your capacity as Exchange Agent here-
under against any loss, liability, cost or expense, including
attorneys' fees and expenses, arising out of or in connection
with your acceptance or administration of this Agreement and
the performance of its duties hereunder, including without
limitation any act, omission, delay or refusal made by you in
reliance upon any signature, endorsement, assignment,
certificate, order, request, notice, instruction or other in-
strument or document reasonably believed by you to be valid,
genuine and sufficient and in accepting any tender or effect-
ing any transfer of Old Notes reasonably believed by you in
good faith to be authorized, and in delaying or refusing in
good faith to accept any tenders or effect any transfer of Old
Notes; provided, however, that the Company shall not be liable
for indemnification or otherwise for any loss, liability, cost
or expense to the extent arising out of your gross negligence
or willful misconduct. In no case shall the Company be liable
under this indemnity with respect to any claim against you
unless the Company shall be notified by you, by letter or by
facsimile confirmed by letter, of the written assertion of a
claim against you or of any other action commenced against
you, promptly after you shall have received any such written
assertion or notice of commencement of action. The Company
shall be entitled to participate at its own expense in the
defense of any such claim or other action, and, if the Company
so elects, the Company shall assume the defense of any suit
brought to enforce any such claim. In the event that the Com-
pany shall assume the defense of any such suit, the Company
shall not be liable for the fees and expenses of any ad-
ditional counsel thereafter retained by you so long as the
Company shall retain counsel satisfactory to you to defend
such suit, and so long as you shall have not determined, in
your reasonable judgment, that a conflict of interest exists
between you and the Company.
22. You shall arrange to comply with all require-
ments under the tax laws of the United States, including those
relating to missing Tax Identification Numbers, and shall file
any appropriate reports with the Internal Revenue Service.
The Company understands that you are required to deduct 31% on
payments to holders who have not supplied their correct Tax-
payer Identification Number or required certification. Such
funds will be turned over to the Internal Revenue Service in
accordance with applicable regulations.
23. You shall deliver or cause to be delivered, in
a timely manner to each governmental authority to which any
transfer taxes are payable in respect of the exchange of Old
Notes, your check in the amount of all transfer taxes so pay-
able, and the Company shall reimburse you for the amount of
any and all transfer taxes payable in respect of the exchange
of Old Notes; provided, however, that you shall reimburse the
Company for amounts refunded to you in respect of your payment
of any such transfer taxes, at such time as such refund is re-
ceived by you.
24. This Agreement and your appointment as Exchange
Agent hereunder shall be governed by and construed in
accordance with the laws of the State of New York applicable
to agreements made and to be performed entirely within such
state, and without regard to conflicts of law principles, and
shall inure to the benefit of, and the obligations created
hereby shall be binding upon, the successors and assigns of
each of the parties hereto.
25. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original
and all of which taken together shall constitute one and the
same agreement.
26. In case any provision of this Agreement shall
be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby so long as the
economic or legal substance of the agreements contained herein
is not affected in any manner adverse to any party. Upon such
determination that any terms or provisions or the application
thereof is invalid, illegal or unenforceable, the parties
hereto shall negotiate in good faith to modify this Agreement
so as to effect the original intent of the parties as closely
as possible in a mutually acceptable manner in order that the
agreements contained herein may be performed as originally
contemplated to the fullest extent possible.
27. This Agreement shall not be deemed or construed
to be modified, amended, rescinded, canceled or waived, in
whole or in part, except by a written instrument signed by a
duly authorized representative of the party to be charged.
This Agreement may not be modified orally.
28. Unless otherwise provided herein, all notices,
requests and other communications to any party hereunder shall
be in writing (including facsimile or similar writing) and
shall be given to such party, addressed to it, at its address
or telecopy number set forth below:
If to the Company:
TXU Eastern Funding Company
c/o TXU Corp
1601 Bryan Street
Dallas, Texas 75201
Facsimile: 214-812-2488
Attention: Kirk Oliver
Attorney
If to the Guarantor:
TXU Eastern Holdings Limited
c/o TXU Corp
1601 Bryan Street
Dallas, Texas 75201
Facsimile: 214-812-2488
Attention: Kirk Oliver
Attorney
If to the Exchange Agent:
The Bank of New York
101 Barclay Street
Floor 21 West
New York, New York 10286
Facsimile: (212) 815-5915
Attention: Corporate Trust
Administration
29. Unless terminated earlier by the parties
hereto, this Agreement shall terminate 90 days following the
Expiration Date. Notwithstanding the foregoing, Paragraphs
19, 21 and 23 shall survive the termination of this Agreement.
Upon any termination of this Agreement, you shall promptly
deliver to the Company any certificates for Notes, funds or
property then held by you as Exchange Agent under this
Agreement.
30. This Agreement shall be binding and effective
as of the date hereof.
Please acknowledge receipt of this Agreement and
confirm the arrangements herein provided by signing and re-
turning the enclosed copy.
TXU EASTERN FUNDING COMPANY
By:______________________
Name:
Title:
TXU EASTERN HOLDINGS LIMITED
By:______________________
Name:
Title:
Accepted as of the date
first above written:
THE BANK OF NEW YORK, as Exchange Agent
By:_____________________
Name:
Title:
<PAGE>
SCHEDULE I
FEES
THE BANK OF NEW YORK
EXCHANGE AGENT
TEXAS UTILITIES COMPANY
6.15% EXCHANGE SENIOR NOTES DUE MAY 15, 2002
6.45% EXCHANGE SENIOR NOTES DUE MAY 15, 2005
6.75% EXCHANGE SENIOR NOTES DUE MAY 15, 2009
