Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-707
KANSAS CITY POWER & LIGHT COMPANY
(Exact name of registrant as specified in its charter)
Missouri 44-0308720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1201 Walnut, Kansas City, Missouri 64106-2124
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (816) 556-2200
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes (X) No ( )
The number of shares outstanding of the registrant's Common stock at
November 9, 1998, was 61,898,020 shares.
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PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED BALANCE SHEETS
September 30 December 31
1998 1997
(thousands)
ASSETS
UTILITY PLANT, at original cost
Electric $3,552,745 $3,502,796
Less-accumulated depreciation 1,379,035 1,314,154
Net utility plant in service 2,173,710 2,188,642
Construction work in progress 102,814 93,264
Nuclear fuel, net of amortization of
$100,839 and $86,516 31,881 41,649
Total 2,308,405 2,323,555
REGULATORY ASSET - RECOVERABLE TAXES 123,000 123,000
INVESTMENTS AND NONUTILITY PROPERTY 331,623 345,126
CURRENT ASSETS
Cash and cash equivalents 82,481 74,098
Electric customer accounts receivable, net of
allowance for doubtful accounts
of $1,910 and $1,941 67,603 28,741
Other receivables 29,622 33,492
Fuel inventories, at average cost 17,333 13,824
Materials and supplies, at average cost 44,662 46,579
Deferred income taxes 3,831 648
Other 2,912 7,155
Total 248,444 204,537
DEFERRED CHARGES
Regulatory assets 27,416 30,017
Other deferred charges 30,518 31,798
Total 57,934 61,815
Total $3,069,406 $3,058,033
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see statements) $2,008,787 $2,051,489
CURRENT LIABILITIES
Notes payable to banks 6,741 1,243
Current maturities of long-term debt 36,287 74,180
Accounts payable 53,899 57,568
Accrued taxes 63,442 1,672
Accrued interest 18,531 22,360
Accrued payroll and vacations 22,608 23,409
Accrued refueling outage costs 9,832 1,664
Other 32,243 15,068
Total 243,583 197,164
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes 642,174 638,679
Deferred investment tax credits 59,824 63,257
Other 115,038 107,444
Total 817,036 809,380
COMMITMENTS AND CONTINGENCIES
Total $3,069,406 $3,058,033
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
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KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
September 30 December 31
1998 1997
(thousands)
COMMON STOCK EQUITY
Common stock-150,000,000 shares authorized
without par value-61,908,726 shares issued,
stated value $ 449,697 $ 449,697
Retained earnings (see statements) 461,430 428,452
Unrealized gain on securities available for sale 697 1,935
Capital stock premium and expense (1,674) (1,664)
Total 910,150 878,420
CUMULATIVE PREFERRED STOCK
$100 Par Value
3.80% - 100,000 shares issued 10,000 10,000
4.50% - 100,000 shares issued 10,000 10,000
4.20% - 70,000 shares issued 7,000 7,000
4.35% - 120,000 shares issued 12,000 12,000
No Par Value
4.37%* - 500,000 shares issued 50,000 50,000
$100 Par Value - Redeemable
4.00% 62 62
Total 89,062 89,062
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED
SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY KCPL
SUBORDINATED DEBENTURES 150,000 150,000
LONG-TERM DEBT (excluding current maturities)
General Mortgage Bonds
Medium-Term Notes due 1998-2008, 6.90% and
6.92% weighted-average rate 386,000 407,500
4.07%* Environmental Improvement Revenue
Refunding Bonds due 2012-23 158,768 158,768
Guaranty of Pollution Control Bonds
4.31% as of December 31, 1997, due 2015-17 0 196,500
Environmental Improvement Revenue Refunding Bonds
4.28%* Series A & B due 2015 106,500 0
4.50% Series C due 2017 50,000 0
4.35% Series D due 2017 40,000 0
Subsidiary Obligations
Affordable Housing Notes due 2000-06, 8.34%
and 8.48% weighted-average rate 54,775 61,207
Bank Credit Agreement due October 31, 1999,
6.87% and 6.67% weighted-average rate 61,000 107,500
Other Long-Term Notes 2,532 2,532
Total 859,575 934,007
Total $2,008,787 $2,051,489
* Variable rate securities, weighted-average rate as of September 30, 1998
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
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KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended September 30 1998 1997
(thousands)
ELECTRIC OPERATING REVENUES $313,462 $290,218
OPERATING EXPENSES
Operation
Fuel 41,039 39,832
Purchased power 31,273 17,219
Other 49,631 49,897
Maintenance 18,597 15,973
Depreciation 28,857 27,464
Income taxes 39,058 38,762
General taxes 27,934 27,648
Total 236,389 216,795
OPERATING INCOME 77,073 73,423
OTHER INCOME AND (DEDUCTIONS)
Allowance for equity funds
used during construction 912 779
Miscellaneous income 10,471 11,263
Miscellaneous deductions (22,633) (16,896)
Income taxes 10,804 8,596
Total (446) 3,742
INCOME BEFORE INTEREST CHARGES 76,627 77,165
INTEREST CHARGES
Long-term debt 14,056 15,261
Short-term debt 72 103
Miscellaneous 4,189 4,172
Allowance for borrowed funds
used during construction (575) (518)
Total 17,742 19,018
Net Income 58,885 58,147
Preferred Stock
Dividend Requirements 973 952
Earnings Available for
Common Stock $57,912 $57,195
Average Number of Common
Shares Outstanding 61,888 61,896
Basic and Diluted earnings
per Common Share $0.94 $0.92
Cash Dividends per
Common Share $0.415 $0.405
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
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KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Year to Date September 30 1998 1997
(thousands)
ELECTRIC OPERATING REVENUES $ 748,599 $ 700,382
OPERATING EXPENSES
Operation
Fuel 112,624 104,045
Purchased power 54,317 46,141
Other 143,320 141,358
Maintenance 50,842 52,553
Depreciation 86,238 83,037
Income taxes 70,854 61,128
General taxes 72,135 72,366
Deferred Wolf Creek costs amortization 0 1,368
Total 590,330 561,996
OPERATING INCOME 158,269 138,386
OTHER INCOME AND (DEDUCTIONS)
Allowance for equity funds
used during construction 2,735 1,772
Miscellaneous income 34,390 23,724
Miscellaneous deductions (60,385) (92,560)
Income taxes 31,168 48,691
Total 7,908 (18,373)
INCOME BEFORE INTEREST CHARGES 166,177 120,013
INTEREST CHARGES
Long-term debt 43,426 44,777
Short-term debt 239 1,273
Miscellaneous 12,521 8,710
Allowance for borrowed funds
used during construction (1,816) (1,891)
Total 54,370 52,869
Net Income 111,807 67,144
Preferred Stock
Dividend Requirements 2,930 2,866
Earnings Available for
Common Stock $108,877 $64,278
Average Number of Common
Shares Outstanding 61,878 61,896
Basic and Diluted earnings
per Common Share $1.76 $1.04
Cash Dividends per
Common Share $1.225 $1.215
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
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KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF INCOME
Twelve Months Ended September 30 1998 1997
(thousands)
ELECTRIC OPERATING REVENUES $944,160 $901,270
OPERATING EXPENSES
Operation
Fuel 143,088 140,415
Purchased power 67,423 57,810
Other 193,859 188,843
Maintenance 69,181 70,009
Depreciation 114,099 110,380
Income taxes 80,839 63,514
General taxes 93,066 94,345
Deferred Wolf Creek costs amortization 0 4,273
Total 761,555 729,589
OPERATING INCOME 182,605 171,681
OTHER INCOME AND (DEDUCTIONS)
Allowance for equity funds
used during construction 3,370 2,605
Miscellaneous income 48,178 23,724
Miscellaneous deductions (84,758) (99,154)
Income taxes 45,511 55,949
Total 12,301 (16,876)
INCOME BEFORE INTEREST CHARGES 194,906 154,805
INTEREST CHARGES
Long-term debt 58,947 58,990
Short-term debt 348 1,383
Miscellaneous 16,654 9,930
Allowance for borrowed funds
used during construction (2,266) (2,407)
Total 73,683 67,896
Net Income 121,223 86,909
Preferred Stock
Dividend Requirements 3,853 3,816
Earnings Available for
Common Stock $117,370 $83,093
Average Number of Common
Shares Outstanding 61,893 61,897
Basic and Diluted earnings
per Common Share $1.90 $1.34
Cash Dividends per
Common Share $1.63 $1.62
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
5
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KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year to Date September 30 1998 1997
(thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 111,807 $ 67,144
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation 86,238 83,037
Amortization of:
Nuclear fuel 14,323 15,211
Deferred Wolf Creek costs 0 1,368
Other 6,802 6,049
Deferred income taxes (net) 896 (10,168)
Investment tax credit amortization (3,433) (3,170)
Deferred merger costs 0 (5,712)
Kansas rate refund accrual 11,174 0
Allowance for equity funds used
during construction (2,735) (1,772)
Other operating activities (Note 2) 36,375 25,881
Net cash from operating activities 261,447 177,868
CASH FLOWS FROM INVESTING ACTIVITIES
Utility capital expenditures (71,941) (92,782)
Allowance for borrowed funds used
during construction (1,816) (1,891)
Purchases of investments (22,338) (98,500)
Purchases of nonutility property (13,686) (12,271)
Sale of KLT Power 53,033 0
Sale of streetlights 0 21,500
Other investing activities (7,924) (8,390)
Net cash from investing activities (64,672) (192,334)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of mandatorily reedemable
Preferred Securities 0 150,000
Issuance of long-term debt 10,405 66,292
Repayment of long-term debt (122,730) (26,787)
Net change in short-term borrowings 5,498 935
Dividends paid (78,829) (78,094)
Other financing activities (2,736) (9,413)
Net cash from financing activities (188,392) 102,933
NET CHANGE IN CASH AND CASH
EQUIVALENTS 8,383 88,467
CASH AND CASH EQUIVALENTS
AT BEGINNING OF YEAR 74,098 23,571
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $82,481 $112,038
CASH PAID DURING THE PERIOD FOR:
Interest (net of amount capitalized) $58,915 $56,562
Income taxes $468 $0
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
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KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Twelve Months Ended September 30 1998 1997
(thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 121,223 $ 86,909
Adjustments to reconcile net income
to net cash from operating activities:
Depreciation 114,099 110,380
Amortization of:
Nuclear fuel 15,948 20,421
Deferred Wolf Creek costs 0 4,273
Other 8,976 7,452
Deferred income taxes (net) 15,844 (19,438)
Investment tax credit amortization (4,113) (4,227)
Deferred storm costs 0 (8,885)
Deferred merger costs 5,712 (5,712)
Kansas rate refund accrual 11,174 0
Allowance for equity funds used
during construction (3,370) (2,605)
Other operating activities (Note 2) 6,570 8,580
Net cash from operating activities 292,063 197,148
CASH FLOWS FROM INVESTING ACTIVITIES
Utility capital expenditures (103,893) (117,105)
Allowance for borrowed funds used
during construction (2,266) (2,407)
Purchases of investments (31,441) (118,305)
Purchases of nonutility property (17,148) (17,286)
Sale of KLT Power 53,033 0
Sale of streetlights 0 21,500
Other investing activities (8,436) (4,876)
Net cash from investing activities (110,151) (238,479)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of mandatorily redeemable
Preferred Securities 0 150,000
Issuance of long-term debt 10,405 176,292
Repayment of long-term debt (124,775) (46,787)
Net change in short-term borrowings 5,806 (34,065)
Dividends paid (104,777) (104,096)
Other financing activities 1,872 (11,204)
Net cash from financing activities (211,469) 130,140
NET CHANGE IN CASH AND CASH
EQUIVALENTS (29,557) 88,809
CASH AND CASH EQUIVALENTS
AT BEGINNING OF PERIOD 112,038 23,229
CASH AND CASH EQUIVALENTS
AT END OF PERIOD $82,481 $112,038
CASH PAID DURING THE PERIOD FOR:
Interest (net of amount capitalized) $73,625 $63,459
Income taxes $22,853 $17,605
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
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<TABLE>
KANSAS CITY POWER & LIGHT COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Three Months Ended Year to Date Twelve Months Ended
September 30 September 30 September 30
1998 1997 1998 1997 1998 1997
(thousands)
<S> <C> <C> <C> <C> <C> <C>
Net income $ 58,885 $ 58,147 $ 111,807 $ 67,144 $ 121,223 $ 86,909
Other comprehensive income (loss),
net of tax:
Net unrealized gain (loss) on
securities available for sale (2,293) 84 (1,238) (1,315) (4,472) (1,769)
Comprehensive Income $ 56,592 $ 58,231 $ 110,569 $ 65,829 $ 116,751 $ 85,140
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Three Months Ended Year to Date Twelve Months Ended
September 30 September 30 September 30
1998 1997 1998 1997 1998 1997
(thousands)
Beginning Balance $ 429,216 $ 412,890 $ 428,452 $ 455,934 $ 444,984 $ 462,171
Net Income 58,885 58,147 111,807 67,144 121,223 86,909
488,101 471,037 540,259 523,078 566,207 549,080
Dividends Declared
Preferred stock - at required rates 981 986 3,022 2,892 3,903 3,827
Common stock 25,690 25,067 75,807 75,202 100,874 100,269
Ending Balance $ 461,430 $ 444,984 $ 461,430 $ 444,984 $ 461,430 $ 444,984
The accompanying Notes to Consolidated Financial Statements are an integral
part of these statements.
</TABLE>
8
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KANSAS CITY POWER & LIGHT COMPANY
Certain Forward-looking Information
Statements made in this report which are not based on historical
facts are forward-looking and, accordingly, involve risks and
uncertainties that could cause actual results to differ materially
from those discussed. Any forward-looking statements are intended to
be as of the date on which such a statement is made. In connection
with the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995, we are providing the following important factors
that could cause actual results to differ materially from provided
forward-looking information. These important factors include: (a) the
proposed Western Resources Inc. (Western Resources) merger (see Note 1
to the Consolidated Financial Statements); (b) future economic
conditions in the regional, national and international markets; (c)
state, federal and foreign regulation and possible additional
reductions in regulated electric rates; (d) weather conditions; (e)
financial market conditions, including, but not limited to changes in
interest rates; (f) inflation rates; (g) increased competition,
including, but not limited to, the deregulation of the United States
electric utility industry, and the entry of new competitors; (h)
ability to carry out marketing and sales plans; (i ) ability to
achieve generation planning goals and the occurrence of unplanned
generation outages; (j) nuclear operations; (k) ability to enter new
markets successfully and capitalize on growth opportunities in
nonregulated businesses; (l) unforeseen events that would prevent
correction of internal or external information systems for Year 2000
problems, and (m) adverse changes in applicable laws, regulations or
rules governing environmental (including air quality regulations), tax
or accounting matters. This list of factors may not be all inclusive
since it is not possible for us to predict all possible factors.
Notes to Consolidated Financial Statements
In management's opinion, the consolidated interim financial
statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the results of
operations for the interim periods presented. These statements and
notes should be read in connection with the financial statements and
related notes included in our 1997 annual report on Form 10-K.
1. AMENDED AND RESTATED PLAN OF MERGER WITH WESTERN RESOURCES
Western Resources, Inc. (Western Resources) delivered an
unsolicited exchange offer and an amended offer to KCPL's Board of
Directors during the second quarter of 1996. After careful
consideration, KCPL's Board of Directors rejected both offers. In
July 1996 Western Resources commenced an exchange offer for KCPL
Common Stock. In late 1996 KCPL began discussing a possible merger
with Western Resources leading to a February 7, 1997 agreement.
In December 1997 KCPL canceled its previously scheduled special
meeting of shareholders to vote on the transaction because Western
Resources advised KCPL that its investment bankers, Salomon Smith
Barney, had indicated that it was unlikely that Salomon would be in a
position to issue a fairness opinion for the merger transaction on the
basis of the February 7, 1997 agreement. During 1997 KCPL incurred and
deferred $7 million of merger-related costs that were expensed in
December 1997.
On March 18, 1998, KCPL and Western Resources entered into an
Amended and Restated Agreement and Plan of Merger (Amended Agreement).
This Amended Agreement provides for the combination of the regulated
electric utilities of KCPL and Western Resources into Westar Energy, a
new company, using purchase accounting. Westar Energy would be owned
approximately 80.1% by Western Resources and approximately 19.9% by
KCPL shareholders. At closing, KCPL shareholders would receive for
every share of KCPL Common Stock one share of Westar Energy
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Common Stock and a fraction of a share of Western Resources Common
Stock worth not less than $21.50 and not more than $26.50 pursuant to a
collar adjustment mechanism. The estimated trading value per share of
Westar Energy Common Stock to be issued to KCPL shareholders in
connection with the Amended Agreement was estimated to be in the range
of $10 to $11 per share (as stated in the Joint Proxy Statement dated
June 9, 1998). Since Westar Energy would be a newly formed entity
with no trading history, there can be no assurance that Westar Energy
would trade within the initial estimated range.
On July 30, 1998, KCPL's and Western Resources' shareholders
approved the Amended Agreement at special meetings of shareholders.
The transaction is subject to several closing conditions, including
approval by a number of regulatory and governmental agencies and
verification that no sales or use tax is payable in connection with
the proposed transactions. If the merger has not been closed by
December 31, 1999, either party may terminate the Amended Agreement as
long as they did not contribute to the delay. If Western Resources
Index Price is less than or equal to $29.78 five trading days prior to
closing, either party can terminate this Amended Agreement.
Applications for regulatory approvals of the Amended Agreement
have been filed with the Kansas Corporation Commission (KCC), the
Missouri Public Service Commission (MPSC) and the Federal Energy
Regulatory Commission (FERC). In the Kansas proceeding, the KCC set a
procedural schedule that requires the KCC Staff and intervenors to
file their testimony in the case by December 11, 1998. In the
Missouri proceeding, a number of parties to the case filed a joint
pleading on October 7, 1998, recommending a procedural schedule for
the case. In that pleading, the MPSC Staff indicated that, in
conjunction with the merger case, the MPSC Staff would review KCPL's
earnings. In the FERC proceeding, the FERC Staff, on August 24, 1998,
requested that the Companies amend their filing by providing
additional analyses using updated information. Such revised
information is in the process of being prepared. We cannot predict
the timing or outcome of the proceedings.
As part of the foregoing conditions, the obligation of Western
Resources to effect the merger is subject to the following:
(A) That the final orders are obtained from the various federal
and state regulators on terms and conditions which would not have a
material adverse effect on the benefits anticipated by Western
Resources in the merger. In many utility mergers state regulators
require a portion of savings from merger synergies to be allocated to
customers as a condition for their approval of a transaction. Western
Resources believes, and has discussed its position with KCPL, that in
light of the rate reductions associated with the merger and already
allocated to customers, any efforts by the relevant state regulators
to seek further rate reductions would give Western Resources the right
to trigger such condition. Western Resources and KCPL have each
already implemented rate reductions in Kansas and Missouri. KCPL has
(i) already implemented rate reductions to share anticipated merger
synergies with customers in Missouri from its previously planned
merger with UtiliCorp and (ii) entered into a stipulation in Kansas
which states that the Kansas Commission staff and the Citizen's
Utility Ratepayers Board will not request rate reductions or rate
refunds from Western Resources, KCPL or their affiliates sooner than
one year after consummation of the merger. Moreover, Western
Resources believes that the rate reductions it has begun to implement
in Kansas take into account synergies that are related to the merger.
However, there is no assurance that the state regulators will not
require Westar Energy to share additional merger-related synergies
with customers or require rate reductions for other reasons in
Missouri or Kansas as a condition to their approval of the merger or
that Western Resources will waive this condition and consummate the
merger if state regulators require additional rate reductions.
(B) That Western Resources will be reasonably satisfied that it
will be exempt from all of the provisions of the Public Utility
Holding Company Act of 1935 (1935 Act) other than Section 9(a)(2)
thereof. Western Resources seeks an exemption under section 3(a)(1)
of the 1935 Act pursuant to
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Rule 2. To qualify for an exemption under Section 3(a)(1) of the 1935 Act,
Westar Energy must be predominantly intrastate in character and carry on its
utility business substantially in the state in which both Westar Energy and
Western Resources are incorporated, Kansas. As a result of the merger, Westar
Energy will derive utility revenues from outside of the state of
Kansas in an amount at the high-end of the range of out-of-state
utility revenues of utility subsidiaries of holding companies that
currently are exempt from the 1935 Act pursuant to Section 3(a)(1) and
Rule 2. In the event that Western Resources determines prior to the
consummation of the merger that an exemption under Section 3(a)(1) of
the 1935 Act is not available, Western Resources must either (i) waive
this condition and become a registered holding company under the 1935
Act or (ii) determine to assert that this condition has not been
satisfied and choose not to consummate the merger. Although Western
Resources anticipates that after the merger it will qualify for an
exemption under Section 3(a)(1) of the 1935 Act pursuant to Rule 2,
there is no assurance that the SEC will not challenge Western
Resources' stated intention to file for an exemption pursuant to Rule
2 or that this condition will be satisfied.
The Amended Agreement allows the KCPL Board discretion to make
changes (including increases) in the KCPL Common Stock dividend
consistent with past practice exercising good business judgment. On
August 4, 1998, KCPL's Board approved an increase to the common stock
dividend raising it to an annualized dividend of $1.66 per share from
$1.62 per share. The Amended Agreement also requires KCPL to redeem
all outstanding shares of cumulative preferred stock prior to
consummation of the proposed transactions. If the Amended Agreement
is terminated under certain other circumstances and KCPL, within two
and one-half years following termination, agrees to consummate a
business combination with a third party that made a proposal to
combine prior to termination, a payment of $50 million will be due
Western Resources. Under certain circumstances, if KCPL determines
not to consummate its merger into Westar Energy due to its inability
to receive a favorable tax opinion from its legal counsel, it must pay
Western Resources $5 million. Western Resources will pay KCPL $5
million to $35 million if the Amended Agreement is terminated and all
closing conditions are satisfied other than conditions relating to
Western Resources receiving a favorable tax opinion from its legal
counsel, favorable statutory approvals or an exemption from the Public
Utility Holding Company Act of 1935.
2. CONSOLIDATED STATEMENTS OF CASH FLOWS - OTHER OPERATING ACTIVITIES
Year to Date Twelve Months
Ended
1998 1997 1998 1997
Cash flows affected by changes (thousands)
in:
Receivables $(34,992) $(16,478) $(17,541) $ (9,528)
Fuel inventories (3,509) 3,121 (1,377) 3,584
Materials and supplies 1,917 340 2,332 (505)
Accounts payable (3,669) (9,811) 8,092 (175)
Accrued taxes 61,770 44,369 630 (4,250)
Accrued interest (3,829) (3,192) 669 4,579
Wolf Creek refueling outage
accrual 8,168 5,097 (2,446) 7,731
Pension and postretirement
benefit obligations (1,478) (4,335) 612 (2,020)
Other 11,997 6,770 15,599 9,164
Total $ 36,375 $ 25,881 $ 6,570 $ 8,580
3. ACCOUNTING CHANGES
Change in Accounting Estimate
In 1998 KCPL adopted the American Institute of Certified Public
Accountants Statement of Position (SOP) 98-1 -- Accounting for the
Costs of Computer Software Developed or Obtained For
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Internal Use. KCPL was generally in conformance with this SOP prior to
adoption in regards to external direct costs and interest costs incurred in
the development of computer software for internal use. This SOP also
provides that once the capitalization criteria of the SOP have been
met, payroll and payroll-related costs for employees who are directly
associated with and who devote time to the internal-use computer
software project should be capitalized.
Costs capitalized in accordance with SOP 98-1 will be amortized
on a straight-line basis over estimated service lives of 5 to 10
years. The effect of adopting SOP 98-1 for the nine-months ended
September 30, 1998, is an increase of net income of approximately
$2,200,000 ($0.04 per share).
Comprehensive Income
In 1998 KCPL adopted Financial Accounting Standards Board
Statement No. 130 -- Reporting Comprehensive Income which establishes
standards for reporting of comprehensive income and its components.
4. SECURITIES AVAILABLE FOR SALE
Certain investments in equity securities are accounted for as
securities available for sale and adjusted to market value with
unrealized gains (or losses), net of deferred income taxes, reported
as a separate component of comprehensive income and common stock
equity.
The cost of securities available for sale held by KLT Inc. (KLT),
a wholly-owned subsidiary of KCPL, was $4.8 million as of September
30, 1998, and $5.1 million as of December 31, 1997. Unrealized
gains were $0.7 million net of $0.4 million deferred income taxes, at
September 30, 1998, decreasing from $1.9 million, net of $1.1 million
deferred income taxes, at December 31, 1997.
5. CAPITALIZATION
KCPL Financing I (Trust), a wholly-owned subsidiary of Kansas
City Power & Light Company, has previously issued $150,000,000 of 8.3%
preferred securities. The sole asset of the Trust is the $154,640,000
principal amount of 8.3% Junior Subordinated Deferrable Interest
Debentures, due 2037, issued by KCPL.
In August 1998 KCPL refinanced the full amount of its Guaranty of
Pollution Control Bonds with unsecured Environmental Improvement
Revenue Refunding Bonds. The maturity dates of the Bonds were not
extended.
From October 1 through November 9, 1998, KLT's borrowings under
its bank credit agreement increased $18 million.
6. INTANGIBLE ASSETS
The application of purchase accounting for certain investments
has resulted in about $19 million in goodwill recognition. These
amounts are included in Other deferred charges and Investments and
Nonutility Property on the consolidated balance sheets and are being
amortized over 10 to 40 years.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
STATUS OF MERGER
See Note 1 to the Consolidated Financial Statements as to the
current status of the merger agreement with Western Resources Inc.
(Western Resources) including the Amended and Restated Agreement and
Plan of Merger (Amended Merger Agreement) dated March 18, 1998. In
December 1996 the Federal Energy Regulatory Commission (FERC) issued a
statement concerning electric utility mergers. Under the statement,
companies must demonstrate that their merger does not adversely affect
competition or wholesale rates. As remedies, FERC may consider a
range of conditions including transmission upgrades, divestitures of
generating assets or formation of independent system operators.
REGULATION AND COMPETITION
As competition develops throughout the electric utility industry,
we are positioning Kansas City Power & Light Company (KCPL) to excel
in an open market. We are improving the efficiency of KCPL's core
utility operations, lowering prices and offering new services. In
particular, value-added services for large energy users can include
contracts for natural gas commodities.
Competition in the electric utility industry was accelerated with
the National Energy Policy Act of 1992. This Act gives FERC the
authority to require electric utilities to provide transmission line
access to independent power producers (IPPs) and other utilities
(wholesale wheeling). KCPL, already active in the wholesale wheeling
market, was one of the first utilities to receive FERC's approval of
an open-access tariff for wholesale wheeling transactions. In April
1996 FERC issued an order requiring all owners of transmission
facilities to adopt open-access tariffs and participate in wholesale
wheeling. We have made the necessary filings to comply with that
order.
FERC's April 1996 order has encouraged more movement toward
retail competition at the state level. An increasing number of states
have already adopted open access requirements for utilities' retail
electric service, allowing competing suppliers access to their retail
customers (retail wheeling). Many other states are actively
considering retail wheeling. In Kansas, the retail wheeling task
force proposed a restructuring bill that would implement retail
competition on July 1, 2001. Some of the key points included in the
proposed bill are: 1) the Kansas Corporation Commission (KCC) will
determine the amount of under-utilized assets (stranded costs) each
utility is allowed to recover and 2) a unit charge per kwh will be
assessed to all customers for recovery of competitive transition costs
(these costs include stranded costs, other regulatory assets, nuclear
decommissioning, etc.). In Missouri, a legislative committee has been
formed to study the issue. The retail wheeling task force formed by
the Missouri Public Service Commission (MPSC) issued its report in May
1998. The report identifies issues and various options for the
legislature to address. No retail wheeling bill was passed in either
the Kansas or Missouri legislatures in 1998.
Competition through retail wheeling could result in market-based
rates below current cost-based rates. This would provide growth
opportunities for low-cost producers and risks for higher-cost
producers, especially those with large industrial customers. Lower
rates and the loss of major customers could result in stranded costs
and place an unfair burden on the remaining customer base or
shareholders. Testimony filed in the merger case in Kansas for KCPL
indicated that stranded costs are approximately $1 billion. An
independent study prepared at the request of the KCC concluded that
there are no stranded costs. We cannot predict the extent that
stranded costs
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will be recoverable in future rates. If an adequate and fair provision for
recovery of these lost revenues is not provided, certain generating assets may
have to be evaluated for impairment and appropriate charges recorded against
earnings. In addition to lower profit margins, market-based rates could also
require generating assets to be depreciated over shorter useful lives,
increasing operating expenses.
Although Missouri and Kansas have not yet authorized retail
wheeling, we believe KCPL is positioned well to compete in an open
market with its diverse customer mix and pricing strategies. About
20% of KCPL's retail mwh sales are to industrial customers which is
below the utility industry average. KCPL has a flexible rate
structure with industrial rates that are competitively priced with
other companies in the region. In addition, long-term contracts are
in place or under negotiation for a large portion of KCPL's industrial
sales. Although there currently is no direct competition for retail
electric service within KCPL's service territory, it does exist within
the bulk power market, between alternative fuel suppliers and among
third-party energy management companies. Third-party energy
management companies are seeking to initiate relationships with large
users in an attempt to enhance their chances to directly supply
electricity if retail wheeling is authorized.
Increased competition could also force utilities to change
accounting methods. Financial Accounting Standards Board (FASB)
Statement No. 71 - Accounting for Certain Types of Regulation, applies
to regulated entities whose rates are designed to recover the costs of
providing service. An entity's operations could stop meeting the
requirements of FASB 71 for various reasons, including a change in
regulation or a change in the competitive environment for a company's
regulated services. For those operations no longer meeting the
requirements of regulatory accounting, regulatory assets would be
written off. KCPL's regulatory assets, totaling $150 million at
September 30, 1998, will be maintained as long as FASB 71 requirements
are met.
It is possible that competition could eventually have a
materially adverse affect on KCPL's results of operations and
financial position. Should competition eventually result in a
significant charge to equity, capital costs and requirements could
increase significantly.
NONREGULATED OPPORTUNITIES
KLT Inc. (KLT) is a wholly-owned subsidiary pursuing nonregulated
business ventures. On July 31, 1998, KLT sold 100% of the common
stock of KLT Power Inc., a wholly-owned subsidiary of KLT, resulting
in an after-tax gain of approximately $2.4 million. Remaining
ventures include investments in domestic and China power production,
energy services, oil and gas development and production,
telecommunications, telemetry technology and affordable housing
limited partnerships.
KCPL had a total equity investment in KLT of $119 million as of
September 30, 1998. KLT's net income for the nine-months ended
September 30, 1998, totaled $9.0 million compared to $2.7 million for
the nine-months ended September 30, 1997. KLT's consolidated assets
at September 30, 1998, totaled $302 million.
On May 29, 1998, Home Service Solutions Inc. (HSS), a wholly-
owned subsidiary of KCPL, entered into a stock purchase agreement to
obtain a 50% interest in R.S. Andrews Enterprises, Inc. (RSAE), a
consumer services company in Atlanta, Georgia. RSAE expects to make
future acquisitions in other key U.S. markets. On August 28, 1998,
HSS formed Worry Free, Inc. to acquire the Worry Free non-regulated
business from KCPL. As a residential service provider, Worry Free,
Inc. bundles financing, preventative maintenance and warranty services
for heating and
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air conditioning equipment. KCPL had a total equity investment in Home
Service Solutions Inc. of $21 million as of September 30, 1998.
The growth of KLT and the investment in RSAE by HSS account for
most of the increase in KCPL's consolidated investments and nonutility
property.
RESULTS OF OPERATIONS
Three-month Three months ended September 30, 1998,
period: compared with three months ended September
30, 1997
Nine-month Nine months ended September 30, 1998,
period: compared with nine months ended September 30,
1997
Twelve-month Twelve months ended September 30, 1998,
period: compared with twelve months ended September
30, 1997
EARNINGS OVERVIEW
Earnings Per Share (EPS)
For the Periods Ended September 30
Increase
excluding
Merger Merger
1998 1997 Increase Expenses Expenses
Three months $0.94 $0.92 $0.02 $(0.09) $0.11
ended
Nine months $1.76 $1.04 $0.72 $ 0.33 $0.39
ended
Twelve months $1.90 $1.34 $0.56 $ 0.26 $0.30
ended
EPS for all periods excluding merger expenses increased primarily
due to increases in retail sales because of warmer than normal weather
and continued load growth. Additionally, EPS for all periods
increased due to increased bulk power revenues. Partially offsetting
these increases to EPS are the effects of increased fuel production
costs and purchased power expenses as a result of outages at the
Hawthorn 5 and LaCygne 1 generating units (see the Fuel and Purchased
Power section).
Growth in subsidiary income increased EPS for the three-month
period by $0.07, the nine-month period by $0.10 and the twelve-month
period by $0.18. EPS for the three-month period was reduced by $0.04
because of the implementation of rate reductions approved by the KCC
effective January 1, 1998. EPS for the nine- and twelve-month periods
was reduced by $0.11 because of the KCC rate reductions. EPS for the
nine- and twelve-month periods was also reduced by increased interest
expense related to the mandatorily redeemable preferred securities and
increased depreciation expense.
Merger expenses for the three-months ended September 30, 1998,
were $5.8 million ($0.09 per share). Merger expenses for the nine-
months ended September 30, 1998, were $12.0 million ($0.19 per share).
During the nine-months ended September 30, 1997, KCPL paid $53 million
($0.52 per share) to UtiliCorp United Inc. (UtiliCorp) for terminating
the merger agreement with UtiliCorp and announcing an agreement to
combine with Western Resources. Merger expenses for the twelve-months
ended September 30, 1998, reduced EPS by $0.26. For the twelve-months
ended September 30, 1997, EPS was reduced by $0.52 for the payment to
UtiliCorp. Costs to
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implement the new merger structure with Western Resources announced March
18, 1998, are being expensed as incurred.
MEGAWATT-HOUR (MWH) SALES AND OPERATING REVENUES
Sales and revenue data:
(revenue change in millions)
Periods ended September 30, 1998 versus
September 30, 1997
Three Months Nine Months Twelve Months
Mwh Revenues Mwh Revenues Mwh Revenues
Increase (decrease)
Retail Sales:
Residential 13 % $ 14 11 % $ 27 11 % $ 31
Commercial 7 % 8 7 % 18 6 % 21
Industrial 2 % 2 5 % 4 3 % 4
Other 10 % - 10 % (4) 6 % (6)
KS rate refund
accrual (4) (11) (11)
Total Retail 8 % 20 8 % 34 7 % 39
Sales for Resale:
Bulk Power Sales (13)% 3 13 % 13 (11)% 2
Other 12 % - 13 % - 16 % -
Total 23 47 41
Other revenues - 1 2
Total Operating
Revenues $ 23 $ 48 $ 43
The KCC approved a settlement agreement, effective January 1,
1998, authorizing a $14.2 million revenue reduction and an increase in
depreciation expense of $2.8 million. When the KCC approves a new
rate design, which is expected to be implemented February 1, 1999,
KCPL will refund the amount that has accrued between January 1, 1998,
and the implementation date. Recorded revenues for the three-month
period are reduced by about $4 million and the nine- and twelve-month
periods are reduced by about $11 million as a result of an accrual
(recorded in Other in Current Liabilities on the Consolidated Balance
Sheet) for this rate refund.
Higher summer rates, which are in effect from June through
September, and seasonally higher mwh sales in September 1998 versus
December 1997 resulted in a higher customer accounts receivable
balance at September 30, 1998, compared with December 31, 1997.
Warmer than normal weather and continued load growth resulted in
an increase in retail mwh sales for all periods. Load growth consists
of higher usage-per-customer as well as the addition of new customers.
In addition, retail mwh sales during the nine- and twelve-months ended
September 30, 1997, reflected reduced sales to a major industrial
customer because of a strike by its employees.
For the three-month period, Other retail revenues remained
approximately the same and for the nine- and twelve-month periods
Other retail revenues decreased while Other retail mwh sales increased
for all periods. These differences are due to the sale of the public
streetlight system to the City of Kansas City, Missouri in August
1997. The rate per mwh paid by the city was reduced as a result of
the sale agreement, as the new rate is for electricity only. The city
has entered into a separate maintenance agreement with KCPL.
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On August 19, 1998, KCPL set a record peak demand for the
consumption of energy of 3,175 megawatts. This reflects the higher
than normal megawatt demand on the system during the summer of 1998.
KCPL has long-term sales contracts with certain major industrial
customers. These contracts are tailored to meet customers' needs in
exchange for their long-term commitment to purchase energy.
Bulk power sales vary with system requirements, generating unit
and purchased power availability, fuel costs and the requirements of
other electric systems. For all periods, the price per mwh of bulk
power sales increased and even resulted in increased revenues for the
three- and twelve-month periods even though mwh sales decreased.
Outages at the LaCygne 1 and 2 generating units in the second quarter
of 1997 contributed to lower bulk power sales in the nine- and twelve-
months ended September 30, 1997.
Total revenue per mwh sold varies with changes in rate tariffs,
the mix of mwh sales among customer classifications and the effect of
declining price per mwh as usage increases. An automatic fuel
adjustment provision is included only in sales that apply to less than
1% of revenues.
Future mwh sales and revenues per mwh will also be affected by
national and local economies, weather and customer conservation
efforts. Competition, including alternative sources of energy such as
natural gas, co-generation, IPPs and other electric utilities, may
also affect future sales and revenue.
FUEL AND PURCHASED POWER
Combined fuel and purchased power expenses for the three-month
period increased 27% while total mwh sales (total of retail and sales
for resale) increased 5%. Combined fuel and purchased power expenses
for the nine-month period increased 11% while total mwh sales
increased 9%. Combined fuel and purchased power expenses for the
twelve-month period increased 6% while total mwh sales increased 3%.
The differences are due mainly to additional replacement power
expenses incurred during the three-, nine- and twelve-months ended
September 30, 1998, due to outages at the Hawthorn 5 and LaCygne 1
generating units. Additionally, the per unit cost of generation
increased during all periods as a result of more generation from oil
and gas which are substantially higher in cost per MMBTU than coal or
nuclear. The price per unit of purchased power also increased during
all periods due to less purchased power availability and the
widespread use of market-based rates in the competitive wholesale
market. Partially offsetting these factors, the nine- and twelve-
months ended September 30, 1997, included additional replacement power
costs incurred during outages at the LaCygne generating units.
Nuclear fuel costs per MMBTU decreased 6% for the twelve-month
period. Nuclear fuel costs per MMBTU remain substantially less than
the MMBTU price of coal averaging 60% of the MMBTU price of coal for
the twelve-months ended September 30, 1998 and 1997. We expect this
relationship and the price of nuclear fuel to remain fairly constant
through the year 2001. For the twelve-months ended September 30,
1998, fossil plants represented about 76% of generation and the
nuclear plant about 24%. For the twelve-months ended September 30,
1997, fossil plants represented about 70% of generation and the
nuclear plant about 30%. The twelve-months ended September 30, 1998,
reflected a higher percentage of total generation by the fossil plants
due mainly to the fall 1997 refueling and maintenance outage at Wolf
Creek that lasted for 58 days in the fourth quarter of 1997.
Additionally, the outages at the LaCygne coal-fired generating units
in 1997
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reduced the percentage of total generation by the fossil plants for the
twelve-months ended September 30, 1997.
The MMBTU price of coal decreased 6% for the twelve-month period.
Our coal procurement strategies continue to provide coal costs well
below the regional average. We expect coal costs to remain fairly
consistent with current levels through 2001.
OTHER OPERATION AND MAINTENANCE EXPENSES
Combined other operation and maintenance expenses for all periods
increased. The three-month period increased due to increased
maintenance expenses resulting from outages at LaCygne 1 and Hawthorn
5 during the three-months ended September 30, 1998. Repairs to
Hawthorn 5 to fix the damage from a steam line rupture will be
reimbursed by insurance except for the deductible. Certain
maintenance projects originally scheduled for the 1999 spring outage
were rescheduled to be completed during this outage resulting in
higher maintenance expenses in 1998. Other operation expenses
increased for the nine-month period but were partially offset by
decreased maintenance expenses as outages at the LaCygne 1 and 2
generating units resulted in additional maintenance expenses in the
nine-months ended September 30, 1997. Combined other operation and
maintenance expenses for the twelve-month period increased due largely
to increases in other power supply expenses, Wolf Creek non-fuel
operations, customer service expenses and sales expenses.
We continue to emphasize new technologies, improved work
methodologies and cost control. We are continuously improving our
work processes to provide increased efficiencies and improved
operations. Through the use of cellular technology, a majority of
customer meters are read automatically.
DEPRECIATION
The increase in depreciation expense for all periods reflects the
implementation of the KCC settlement agreement and normal increases in
depreciation from capital additions.
TAXES
The increase in operating income taxes for all periods reflects
higher taxable operating income. Additionally, for the twelve-months
ended September 30, 1997, income taxes had been reduced to reflect
adjustments for the filing of the 1995 tax returns and the settlement
with the Internal Revenue Service regarding tax issues included in the
1985 through 1990 tax returns.
Components of general taxes:
Three Months Nine Months Twelve Months
Ended Ended Ended
September 30 September 30 September 30
1998 1997 1998 1997 1998 1997
(thousands)
Property $10,508 $11,235 $31,525 $33,704 $41,350 $44,125
Gross receipts 14,472 13,824 32,922 31,764 42,006 41,227
Other 2,954 2,589 7,688 6,898 9,710 8,993
Total $27,934 $27,648 $72,135 $72,366 $93,066 $94,345
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Property taxes decreased for all periods reflecting changes in
Kansas tax law which reduced the mill levy rates and because of
reductions in Missouri and Kansas property tax assessed valuations.
Gross receipts taxes increased for all periods reflecting higher
billed Missouri revenues.
OTHER INCOME AND (DEDUCTIONS)
Miscellaneous income for the nine- and twelve-month periods
increased because of increased revenues from non-utility and
subsidiary operations. The gain on the sale of 100% of the common
stock of KLT Power Inc., dividends on the investment in a fossil-fuel
generator in Argentina (prior to the sale of the investment), revenues
from an energy services subsidiary in which KLT obtained a controlling
interest during 1997 and increased oil and gas production contributed
to the increase in miscellaneous income from subsidiary operations for
the nine- and twelve-month periods.
Miscellaneous deductions for all periods included increased non-
utility expenses. Additionally, the nine- and twelve-month periods
increased because of increased subsidiary operating costs. Increased
gas operations and the inclusion of three small companies in which KLT
obtained controlling interests during 1997 are the primary activities
that contributed to the increase in subsidiary operating costs.
Miscellaneous deductions for the nine- and twelve-month periods
decreased primarily due to the $53 million payment to UtiliCorp in the
prior periods. During the nine-months ended September 30, 1998, $12
million of merger expenses were incurred related to the Amended Merger
Agreement with Western Resources. The twelve-months ended September
30, 1998, includes an additional $7 million of merger expenses related
to the original merger agreement with Western Resources.
Income taxes for all periods reflect the tax impact of the excess
of miscellaneous deductions over miscellaneous income. Additionally,
during the first nine months of 1998 and 1997 we accrued tax credits
of $19 million and $16 million, respectively, or three-fourths of the
total expected annual credits, related to affordable housing
partnership investments and oil and gas investments. Non-taxable
increases in the cash surrender value of corporate-owned life
insurance contracts and certain non-deductible expenses also affected
the relationship between net miscellaneous income and deductions and
income taxes.
INTEREST CHARGES
The increase in miscellaneous interest charges for the nine- and
twelve-month periods is primarily due to interest costs incurred on
the $150 million of 8.3% preferred securities issued in April 1997.
We use interest rate swap and cap agreements to limit the
volatility in interest expense on a portion of KLT's variable-rate,
bank credit agreement and KCPL's variable-rate, long-term debt.
Although these agreements are an integral part of our interest rate
management, their incremental effect on interest expense and cash
flows is not significant. We do not use derivative financial
instruments for speculative purposes.
WOLF CREEK
Wolf Creek is one of KCPL's principal generating units
representing about 16% of its accredited generating capacity. The
plant's operating performance has remained strong, contributing about
26% of the annual mwh generation while operating at an average
capacity of
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88% over the last three years. It has the lowest fuel cost per MMBTU of
any of KCPL's generating units.
The incremental operating, maintenance and replacement power
costs for planned outages are accrued evenly over the unit's operating
cycle, normally 18 months. As actual outage expenses are incurred,
the refueling liability and related deferred tax asset are reduced.
Wolf Creek's ninth refueling and maintenance outage, budgeted for
35 days, began in early October 1997 and was completed in December
1997 (58 days). The extended length of the ninth outage was caused by
several equipment problems. The extended length of the outage was the
primary reason for a $7 million increase in Wolf Creek related
replacement power and operating and maintenance expenses for the
twelve-month period. Wolf Creek's tenth refueling and maintenance
outage is scheduled for the spring of 1999 and is estimated to be a 40-
day outage.
Currently, no major equipment replacements are expected. An
extended shut-down of Wolf Creek could have a substantial adverse
effect on KCPL's business, financial condition and results of
operations. Higher replacement power and other costs would be
incurred as a result. Although not expected, an unscheduled plant
shut-down could be caused by actions of the Nuclear Regulatory
Commission reacting to safety concerns at the plant or other similar
nuclear units. If a long-term shut-down occurred, the state
regulatory commissions could consider reducing rates by excluding the
Wolf Creek investment from rate base.
Ownership and operation of a nuclear generating unit exposes KCPL
to risks regarding the cost of decommissioning the unit at the end of
its life and to potential retrospective assessments and property
losses in excess of insurance coverage.
ENVIRONMENTAL MATTERS
KCPL's policy is to act in an environmentally responsible manner
and use the latest technology available to avoid and treat
contamination. We continually conduct environmental audits designed
to ensure compliance with governmental regulations and detect
contamination. However, these regulations are constantly evolving;
governmental bodies may impose additional or more rigid environmental
regulations that could require substantial changes to operations or
facilities.
The Clean Air Act Amendments of 1990 contain two programs
significantly affecting the utility industry. KCPL has spent about $5
million for the installation of continuous emission monitoring
equipment to satisfy the requirements under the acid rain provision.
The other utility-related program calls for a study of certain air
toxic substances which has now been completed. Based on the
interpretation of this study, regulation of these substances,
including mercury, could be required. We cannot predict the
likelihood of any such regulations or compliance costs.
In July 1997 the United States Environmental Protection Agency
(EPA) published new air quality standards for particulate matter.
Additional regulations implementing these new particulate standards
have not been finalized. Without the implementation regulations, the
real impact of the standards on KCPL cannot be determined. However,
the impact on KCPL and other utilities that use fossil fuels could be
substantial. Under the new fine particulate regulations the EPA is in
the process of implementing a three-year study of fine particulate
emissions. Until this testing and review period has been completed,
KCPL cannot determine additional compliance costs, if any, associated
with the new particulate regulations.
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In 1997 the EPA also issued new proposed regulations on reducing
nitrogen oxide (NOx) emissions. Final regulations implementing
reductions in NOx emissions were announced by the EPA on September 24,
1998. These regulations require 22 states, including Missouri, to
submit plans for controlling NOx emissions by September 1999. The
regulations will require a significant reduction in NOx emissions from
1990 levels from KCPL's Missouri coal-fired plants by the year 2003.
In order to achieve these reductions, KCPL will incur significantly
higher capital costs or will purchase power or NOx emissions
allowances. It is possible that purchased power or emissions
allowances may be too costly or unavailable. Preliminary analysis of
the regulations indicate that selective catalytic reduction technology
will be required for some of the KCPL units, as well as other changes.
Currently, KCPL estimates that additional capital expenditures to
comply with these regulations could range from $90 to $150 million
over the period from 1999 to 2002. Operations and maintenance
expenses could also increase by more than $10 million per year,
beginning in 2003. We will continue to refine these preliminary
estimates and explore alternatives to comply with these new
regulations in order to minimize, to the extent possible, KCPL's
capital costs and operating expenses. The ultimate cost of these
regulations could be significantly different than the amounts
estimated above. KCPL will continue to question whether such
significant reductions in NOx emissions are economically justified.
The final resolution of this matter may require federal legislative
action or litigation.
At a December 1997 meeting in Kyoto, Japan, the Clinton
Administration supported changes to the International Global Climate
Change treaty which would require a seven percent reduction in United
States carbon dioxide (CO2) emissions below 1990 levels. President
Clinton has stated that this change in the treaty will not be
submitted to the U.S. Senate at this time where ratification is
uncertain. If future national restrictions on electric utility CO2
emissions are eventually required, the financial impact upon KCPL
could be substantial.
IMPACT OF THE YEAR 2000 ISSUE
The Year 2000 Issue is the result of computer programs using two
digits instead of four digits to define the applicable year. Computer
programs with date-sensitive software may recognize a date using "00"
as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations.
In our ongoing assessment of the Year 2000 Issue, we have been
examining KCPL's systems, processes and operations to ensure readiness
for the year 2000 and plan for the protection of the KCPL electric
system. We have determined that it is necessary to modify or replace
some of KCPL's hardware and internal software so that its systems will
properly utilize dates beyond December 31, 1999. We believe that with
the planned modifications and conversions of KCPL's hardware and
software, Year 2000 problems will be minimized. We are utilizing both
internal and external resources, as necessary, to address the Year
2000 Issue. We have substantially completed the inventory and
assessment phases of our Year 2000 project. The remediation and
testing phases of the project are in process and we expect to be
substantially complete with the remediation phase by July 1999 and
with the testing phase prior to the end of 1999. The monitoring phase
of our Year 2000 project will continue through at least the first
quarter of 2000.
For the past several years, KCPL has made approximately $39
million in capital investments for new and innovative technologies
that place it in a stronger competitive position for the future. We
believe all replacement systems will be Year 2000 ready. As a result,
the cost of the Year 2000 project has been lessened and is estimated
to be under $7 million of additional costs. These additional costs
are being expensed as incurred. However, there is no guarantee that
current cost
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estimates of the Year 2000 project will not be exceeded. Specific factors
that might cause costs to exceed estimates include, but are not limited to,
the availability and cost of appropriately trained personnel, the ability to
locate and correct all relevant computer codes, the ability to locate and
replace non-Year 2000 ready embedded microprocessors and similar
uncertainties.
A Nuclear Regulatory Commission (NRC) audit of the Wolf Creek
nuclear generating unit's Year 2000 program is scheduled for the week
beginning November 19, 1998. To date, we believe we are in compliance
with the NRC's Year 2000 regulations including being on schedule to
meet the July 1, 1999, deadline for a written response confirming Year
2000 state of readiness.
We have initiated formal communications with all of KCPL's large
suppliers and customers to evaluate KCPL's vulnerability to those
third parties' failure to remediate their own Year 2000 Issue.
However, there is no guarantee that third party systems on which
KCPL's systems rely will be timely converted, or that a failure to
convert, or a conversion that is incompatible with KCPL's systems,
would not have a material adverse effect on KCPL. Contingency plans
are being developed for critical suppliers to minimize the affect of
third party failures.
KCPL's electrical system is included in the Eastern
Interconnection that connects utilities throughout the United States
and Canada, east of the Rocky Mountains. The interconnection is
essential to the reliability, stability and operational integrity of
each connected electric utility. Failure of electric facilities due
to the millennium change could affect the interconnection and, if
severe, could result in electric service disruptions. KCPL could
encounter difficulties supplying electric service if other utilities
in the interconnected grid fail to achieve Year 2000 compliance.
Recognizing this risk, we are preparing operating contingency plans to
protect KCPL's customers and equipment. KCPL's existing emergency
procedures for start up after system blackout and its load reduction
and restoration procedures will be reviewed and updated. We are
evaluating the possibility of forming one or more "islands" to protect
a portion of KCPL's system from disruptions and if needed, to provide
electricity to assist in the restoration of its system. Alternatives
developed during contingency planning will be tested, where feasible,
prior to their use. Additionally, we are working with other electric
industry organizations, such as the Electric Power Research Institute,
to share Year 2000 information. KCPL will also be participating in
the operating contingency plans and drills developed by the Southwest
Power Pool and the North American Electric Reliability Council.
PROJECTED CONSTRUCTION EXPENDITURES
On November 3, 1998, KCPL's Board of Directors approved a plan to
increase generation capacity to help ensure that KCPL will be able to
meet future load demands of its customers. This plan could result in
approximately $58 million of additional capital expenditures in 1999
with additional costs in later years, unless we enter into operating
leases to obtain the capacity.
CAPITAL REQUIREMENTS AND LIQUIDITY
As of November 9, 1998, the liquid resources of KCPL included
cash flows from operations; $300 million of registered but unissued,
unsecured medium-term notes; $150 million of registered but unissued,
preferred securities and $281 million of unused bank lines of credit.
The unused lines consisted of KCPL's short-term bank lines of credit
of $210 million and KLT's bank credit agreement of $71 million.
KCPL continues to generate positive cash flows from operating
activities although individual components of working capital items
will vary with normal business cycles and operations including the
timing of receipts and payments. Cash from operating activities
increased for the nine- and
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twelve-month periods primarily due to increased net income during the current
periods, additional income taxes deferred and Kansas rate refund accrued but
not refundable until 1999. Additionally, the timing of the Wolf Creek outage
affects the refueling outage accrual, deferred income taxes and amortization
of nuclear fuel.
The increase in accrued taxes from December 31, 1997, to
September 30, 1998, mainly reflects the increase in taxable income
during the first nine months of 1998, refunds of federal and state
income taxes after the 1997 tax returns were filed and the timing of
income tax and property tax payments.
Coal inventory levels at the end of September 1998 are at
approximately 100% of targeted levels compared to 75% of targeted
levels at December 31, 1997.
Cash used for investing activities varies with the timing of
utility capital expenditures and purchases of investments and
nonutility properties. Cash used for investing activities decreased
for the nine- and twelve-month periods, partially due to $53 million
of proceeds from the July 31, 1998, sale of 100% of the common stock
of KLT Power Inc. Additionally, KLT made several large investments
during the first three months of 1997. Partially offsetting these
activities, the nine- and twelve-months ended September 30, 1997,
reflect $21.5 million of proceeds from the sale of streetlights to the
City of Kansas City, Missouri at a minimal gain.
Cash used for financing activities for the nine- and twelve-
months ended September 30, 1998, was primarily for repayment of long-
term debt by KCPL and KLT and for dividend payments by KCPL. The
proceeds from the sale of 100% of the common stock of KLT Power Inc.
were primarily used by KLT for repayment of borrowings under its bank
credit agreement. The majority of cash from financing activities for
the nine- and twelve-months ended September 30, 1997, was used to
repay short-term debt, pay merger expenses and finance additional
purchases of investments and nonutility properties by KLT. Financings
consisted of KCPL Financing 1, a wholly-owned subsidiary of KCPL,
issuance of $150 million of preferred securities and borrowings by KLT
on its bank credit agreement.
KCPL's common dividend payout ratio was 86% for the twelve-months
ended September 30, 1998, and 121% for the twelve-months ended
September 30, 1997. The ratio for the twelve-months ended September
30, 1997, is higher due mainly to the reduction in earnings because of
significant merger-related expenses.
We expect to meet day-to-day operations, utility construction
requirements and dividends with internally-generated funds.
Uncertainties affecting KCPL's ability to meet these requirements with
internally-generated funds include the effect of inflation on
operating expenses, the level of mwh sales, regulatory actions,
compliance with future environmental regulations and the availability
of generating units. The funds needed for the retirement of
$346 million of maturing debt through the year 2002 will be provided
from operations, refinancings or short-term debt. KCPL might issue
additional debt and/or additional equity to finance growth or take
advantage of new opportunities.
23
<PAGE>
PART II - OTHER INFORMATION
Item 3. Legal Proceedings
In Kansas City Power & Light Co. v. Western Resources,
Inc., et al . (previously discussed in the Company's Form
10-K for the year ended December 31, 1997), the United
States Court of Appeals for the Eight Circuit, on July 6,
1998, awarded approximately $500,000 in attorneys' fees and
related expenses to Manson, an intervenor. The Company and
Manson have both appealed the award. Manson has withdrawn
his original appeal filed on September 23, 1997. The
appeals regarding attorneys' fees are all that remain of this
litigation.
State of Missouri ex rel. Inter-City Beverage Co., Inc.,
et al. vs. The Public Service Commission of the State of
Missouri, et al.; and Jewish Community Campus of Greater
Kansas City, Inc. vs. Kansas State Corporation Commission et
al . (previously discussed in the Company's Form 10-Q for
the quarter ended March 31, 1998) were dismissed by the
Missouri Court of Appeals, Western District (transfer to the
Missouri Supreme Court was denied) and the Kansas Court of
Appeals respectively. Complainants in these two cases have
exhausted all judicial remedies.
Item 4. Submission of Matters to A Vote of Security Holders.
The Company held a Special Meeting of Shareholders on
July 30, 1998, to vote on matters relating to the proposed
merger of the Company, Western Resources, Inc., Kansas Gas
and Electric Company, NKC, Inc. (to be renamed Westar
Energy), and the merger of KCPL with and into Westar Energy.
At that meeting, votes cast with respect to the approval and
adoption of the Amended and Restated Agreement and Plan of
Merger dated as of March 18, 1998, were as follows:
FOR AGAINST ABSTAIN
46,005,335 2,444,476 531,913
With respect to the approval of granting discretionary
power to adjourn or postpone the Special Meeting to solicit
additional votes for Item 1, the votes case were as follows:
FOR AGAINST ABSTAIN
38,087,360 9,948,578 945,786
Item 5. Other Information
Shareholder Proposals. Shareholder proposals intended
to be presented at the KCPL 1999 Annual Meeting of
Shareholders must be received at the Corporate Secretary's
Office at the Company's principal office, 1201 Walnut, Kansas
City, Missouri 64106-2124, on or before December 11, 1998,
for consideration for inclusion in the proxy statement and
form of proxy relating to that meeting.
If a shareholder intends to bring a matter before the
1999 Annual Meeting, other than by submitting a proposal for
inclusion in the Company's proxy statement for that meeting,
the
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<PAGE>
shareholder must give timely notice according to the
Company's By-laws. To be timely, a shareholder's notice must
be received by the Corporate Secretary's Office at the
Company's principal office, 1201 Walnut, Kansas City,
Missouri 64106, not less than sixty (60) days nor more than
ninety (90) days prior to the date of the Annual Meeting;
provided, however, that in the event that less than seventy
(70) days' notice or prior public disclosure of the date of
the meeting is given to shareholders, notice by the
shareholder to be timely must be so received not later than
the close of business on the tenth (10th) day following the
day on which such notice of the date of the annual meeting
was mailed or such public disclosure of the date of the
annual meeting was made, whichever first occurs.
To be in proper written form, a shareholder's notice
must set forth as to each matter the shareholder proposes to
bring before the annual meeting (i) a brief description of
the business desired to be brought before the annual meeting
and the reasons for conducting such business at the annual
meeting, (ii) the shareholder's name and record address,
(iii) the class and number of shares of Company stock the
shareholder owns beneficially or of record, (iv) a
description of all arrangements or understandings between the
shareholder and any other person or persons (including their
names) in connection with the proposal of such business by
the shareholder, and any material interest of the shareholder
in such business, and (v) the shareholder's representation
that they intend to appear in person or by proxy at the
annual meeting to bring such business before the meeting.
New President. The Board of Directors of the Company on
November 3, 1998, elected Bernard J. Beaudoin as President
and member of the Board effective January 1, 1999.
Mr. Beaudoin, who joined the Company in 1980, is currently
Executive Vice President and Chief Financial Officer.
Item 6. Exhibits and Reports on Form 8-K.
Exhibits
Exhibit 10(a) Credit Agreement dated as of August 11, 1998,
among Kansas City Power & Light Company, Certain
Lenders, The First National Bank of Chicago and
NationsBank, N.A.
Exhibit 10(b) Railcar Lease dated as of September 8, 1998,
with CCG Trust Corporation.
Exhibit 27 Financial Data Schedule (for the nine months
ended September 30, 1998).
Reports on Form 8-K
No reports on Form 8-K were filed with the Securities
and Exchange Commission for the quarter ended September 30,
1998.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned thereunto duly
authorized.
KANSAS CITY POWER & LIGHT COMPANY
Dated: November 9, 1998 By: /s/Drue Jennings
(Drue Jennings)
(Chief Executive Officer)
Dated: November 9, 1998 By: /s/Neil Roadman
(Neil Roadman)
(Principal Accounting Officer)
<PAGE>
Exhibit 10(a)
CREDIT AGREEMENT
Arranged by
FIRST CHICAGO CAPITAL MARKETS, INC.
Dated as of August 11, 1998
among
KANSAS CITY POWER & LIGHT COMPANY,
CERTAIN LENDERS,
THE FIRST NATIONAL BANK OF CHICAGO,
as Administrative Agent
and
NATIONSBANK, N.A.,
as Documentation Agent
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS 1
ARTICLE II
THE CREDITS 10
2.1. Commitment 10
2.2. Required Payments; Termination 10
2.3. Ratable Loans 10
2.4. Types of Advances 10
2.5. Commitment Fee; Reductions in Aggregate Commitment 10
2.6. Minimum Amount of Each Advance 11
2.7. Optional Principal Payments 11
2.8. Method of Selecting Types and Interest Periods
for New Advances 11
2.9. Conversion and Continuation of Outstanding Advances 11
2.10. Changes in Interest Rate, etc. 12
2.11. Rates Applicable After Default 12
2.12. Method of Payment 13
2.13. Noteless Agreement; Evidence of Indebtedness 13
2.14. Telephonic Notices 14
2.15. Interest Payment Dates; Interest and Fee Basis 14
2.16. Notification of Advances, Interest Rates, Prepayments
and Commitment Reductions 14
2.17. Lending Installations 15
2.18. Non-Receipt of Funds by the Administrative Agent 15
2.19. Extension of Facility Termination Date 15
ARTICLE III
YIELD PROTECTION; TAXES 16
3.1. Yield Protection 16
3.2. Changes in Capital Adequacy Regulations 16
3.3. Availability of Types of Advances 17
3.4. Funding Indemnification 17
3.5. Taxes 17
3.6. Lender Statements; Survival of Indemnity 19
ARTICLE IV
CONDITIONS PRECEDENT 19
4.1. Initial Advance 19
4.2. Each Advance 20
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<PAGE>
ARTICLE V
REPRESENTATIONS AND WARRANTIES 21
5.1. Existence and Standing 21
5.2. Authorization and Validity 21
5.3. No Conflict; Government Consent 22
5.4. Financial Statements 22
5.5. Material Adverse Change 22
5.6. Taxes 22
5.7. Litigation and Contingent Obligations 22
5.8. ERISA 23
5.9. Accuracy of Information 23
5.10. Regulation U 23
5.11. Material Agreements 23
5.12. Compliance With Laws 23
5.13. Ownership of Properties 23
5.14. Plan Assets; Prohibited Transactions 24
5.15. Environmental Matters 24
5.16. Investment Company Act 24
5.17. Public Utility Holding Company Act 24
5.18. Pari Passu Indebtedness 24
5.19. Year 2000 Problem 24
ARTICLE VI
COVENANTS 24
6.1. Financial Reporting 25
6.2. Use of Proceeds 26
6.3. Notice of Default 26
6.4. Conduct of Business 26
6.5. Taxes 26
6.6. Insurance 26
6.7. Compliance with Laws 27
6.8. Maintenance of Properties 27
6.9. Inspection 27
6.10. Consolidations, Mergers and Sale of Assets 27
6.11. Liens 28
6.12. Affiliates 29
ARTICLE VII
DEFAULTS 30
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES 31
8.1. Acceleration 31
8.2. Amendments 32
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<PAGE>
8.3. Preservation of Rights 32
ARTICLE IX
GENERAL PROVISIONS 33
9.1. Survival of Representations 33
9.2. Governmental Regulation 33
9.3. Headings 33
9.4. Entire Agreement 33
9.5. Several Obligations; Benefits of this Agreement 33
9.6. Expenses; Indemnification 33
9.7. Numbers of Documents 34
9.8. Accounting 34
9.9. Severability of Provisions 34
9.10. Nonliability of Lenders 34
9.11. Confidentiality 35
9.12. Nonreliance 35
ARTICLE X
THE AGENTS 35
10.1. Appointment; Nature of Relationship 35
10.2. Powers 36
10.3. General Immunity 36
10.4. No Responsibility for Loans, Recitals, etc. 36
10.5. Action on Instructions of Lenders 37
10.6. Employment of Administrative Agents and Counsel 37
10.7. Reliance on Documents; Counsel 37
10.8. Administrative Agent's Reimbursement and Indemnification 37
10.9. Notice of Default 38
10.10. Rights as a Lender 38
10.11. Lender Credit Decision 38
10.12. Successor Administrative Agent 38
10.13. Administrative Agent's Fee. 39
10.14. Delegation to Affiliates. 39
ARTICLE XI
SETOFF; RATABLE PAYMENTS 40
11.1. Setoff 40
11.2. Ratable Payments 40
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS 40
12.1. Successors and Assigns 40
12.2. Participations 41
Page iii
<PAGE>
12.2.1. Permitted Participants; Effect 41
12.2.2. Voting Rights 41
12.2.3. Benefit of Setoff 41
12.3. Assignments 42
12.3.1. Permitted Assignments 42
12.3.2. Effect; Effective Date 42
12.3.3. Substitution of Lenders 42
12.4. Dissemination of Information 43
12.5. Tax Treatment 43
ARTICLE XIII
NOTICES 43
13.1. Notices 43
13.2. Change of Address 44
ARTICLE XIV
COUNTERPARTS 44
ARTICLE XV
CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL 44
15.1. CHOICE OF LAW 44
15.2. CONSENT TO JURISDICTION 44
15.3. WAIVER OF JURY TRIAL 45
EXHIBIT A FORM OF OPINION
EXHIBIT B COMPLIANCE CERTIFICATE
EXHIBIT C ASSIGNMENT AGREEMENT
EXHIBIT D LOAN/CREDIT RELATED MONEY TRANSFER INSTRUCTION
EXHIBIT E NOTE
SCHEDULE 1 LIENS
Page iv
<PAGE>
CREDIT AGREEMENT
This Agreement, dated as of August 11, 1998, is among
Kansas City Power & Light Company, the Lenders, The First
National Bank of Chicago, as Administrative Agent and
NationsBank, N.A., as Documentation Agent. The parties
hereto agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement:
"Administrative Agent" means The First National Bank of
Chicago in its capacity as contractual representative of the
Lenders pursuant to Article X, and not in its individual
capacity as a Lender, and any successor Administrative Agent
appointed pursuant to Article X.
"Advance" means a borrowing hereunder (or conversion or
continuation thereof) consisting of the aggregate amount of
the several Loans made on the same Borrowing Date (or date of
conversion or continuation) by the Lenders to the Borrower of
the same Type and, in the case of Eurodollar Advances, for
the same Interest Period.
"Affiliate" of any Person means any other Person
directly or indirectly controlling, controlled by or under
common control with such Person. For purposes of this
definition, "control" (including, with correlative meanings,
the terms "controlled by" and "under common control with")
shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of voting
securities or by contract or otherwise.
"Aggregate Commitment" means the aggregate of the
Commitments of all the Lenders, as reduced from time to time
pursuant to the terms hereof.
"Agreement" means this credit agreement, as it may be
amended or modified and in effect from time to time.
"Alternate Base Rate" means, for any day, a rate of
interest per annum equal to the higher of (i) the Corporate
Base Rate for such day and (ii) the sum of the Federal Funds
Effective Rate for such day plus 1/2% per annum.
"Applicable Fee Rate" means, at any time, the percentage
rate per annum at which commitment fees are accruing on the
unused portion of the Aggregate Commitment at such time as
set forth in the Pricing Schedule.
<PAGE>
"Applicable Margin" means, with respect to Advances of
any Type at any time, the percentage rate per annum which is
applicable at such time with respect to Advances of such Type
as set forth in the Pricing Schedule.
"Arranger" means First Chicago Capital Markets, Inc., a
Delaware corporation, and its successors.
"Article" means an article of this Agreement unless
another document is specifically referenced.
"Authorized Officer" means any of the Treasurer or the
Chief Financial Officer of the Borrower, acting singly.
"Bonds" is defined in Section 6.2.
"Bond Documents" means the Bonds, any related offering
circular and all documents, instruments and certificates
delivered in connection therewith.
"Borrower" means Kansas City Power & Light Company, a
Missouri corporation, and its successors and assigns.
"Borrowing Date" means a date on which an Advance is
made hereunder.
"Borrowing Notice" is defined in Section 2.8.
"Business Day" means (i) with respect to any borrowing,
payment or rate selection of Eurodollar Advances, a day
(other than a Saturday or Sunday) on which banks generally
are open in Chicago and New York for the conduct of
substantially all of their commercial lending activities and
on which dealings in United States dollars are carried on in
the London interbank market and (ii) for all other purposes,
a day (other than a Saturday or Sunday) on which banks
generally are open in Chicago for the conduct of
substantially all of their commercial lending activities.
"Capitalized Lease" of a Person means any lease of
Property by such Person as lessee which would be capitalized
on a balance sheet of such Person prepared in accordance with
GAAP.
"Capitalized Lease Obligations" of a Person means the
amount of the obligations of such Person under Capitalized
Leases which would be shown as a liability on a balance sheet
of such Person prepared in accordance with GAAP.
"Code" means the Internal Revenue Code of 1986, as
amended, reformed or otherwise modified from time to time.
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<PAGE>
"Commitment" means, for each Lender, the obligation of
such Lender to make Loans not exceeding the amount set forth
opposite its signature below or as set forth in any Notice of
Assignment relating to any assignment that has become
effective pursuant to Section 12.3.2, as such amount may be
modified from time to time pursuant to the terms hereof.
"Contingent Obligation" of a Person means any agreement,
undertaking or arrangement by which such Person assumes,
guarantees, endorses, contingently agrees to purchase or
provide funds for the payment of, or otherwise becomes or is
contingently liable upon, the obligation or liability of any
other Person, or agrees to maintain the net worth or working
capital or other financial condition of any other Person, or
otherwise assures any creditor of such other Person against
loss.
"Conversion/Continuation Notice" is defined in Section
2.9.
"Controlled Group" means all members of a controlled
group of corporations or other business entities and all
trades or businesses (whether or not incorporated) under
common control which, together with the Borrower or any of
its Subsidiaries, are treated as a single employer under
Section 414 of the Code.
"Corporate Base Rate" means a rate per annum equal to
the corporate base rate of interest announced by First
Chicago from time to time, changing when and as said
corporate base rate changes.
"Default" means an event described in Article VII.
"Documentation Agent" means NationsBank, N.A., in its
capacity as documentation agent for the Lenders.
"Environmental Laws" means any and all federal, state,
local and foreign statutes, laws, judicial decisions,
regulations, ordinances, rules, judgments, orders, decrees,
plans, injunctions, permits, concessions, grants, franchises,
licenses, agreements and other governmental restrictions
relating to (i) the protection of the environment, (ii) the
effect of the environment on human health, (iii) emissions,
discharges or releases of pollutants, contaminants, hazardous
substances or wastes into surface water, ground water or
land, or (iv) the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of
pollutants, contaminants, hazardous substances or wastes or
the clean-up or other remediation thereof.
"ERISA" means the Employee Retirement Income Security
Act of 1974, as amended from time to time, and any rule or
regulation issued thereunder.
"Eurodollar Advance" means an Advance which bears
interest at the applicable Eurodollar Rate.
Page 3
<PAGE>
"Eurodollar Base Rate" means, with respect to a
Eurodollar Advance for the relevant Interest Period, the rate
determined by the Administrative Agent to be the rate at
which First Chicago offers to place deposits in U.S. dollars
with first-class banks in the London interbank market at
approximately 11:00 a.m. (London time) two Business Days
prior to the first day of such Interest Period, in the
approximate amount of First Chicago's relevant Eurodollar
Loan and having a maturity approximately equal to such
Interest Period.
"Eurodollar Loan" means a Loan which bears interest at
the applicable Eurodollar Rate.
"Eurodollar Rate" means, with respect to a Eurodollar
Advance for the relevant Interest Period, the sum of (i) the
quotient of (a) the Eurodollar Base Rate applicable to such
Interest Period, divided by (b) one minus the Reserve
Requirement (expressed as a decimal) applicable to such
Interest Period, plus the Applicable Margin. The Eurodollar
Rate shall be rounded to the next higher multiple of 1/16 of
1% if the rate is not such a multiple.
"Excluded Taxes" means, in the case of each Lender or
applicable Lending Installation and the Administrative Agent,
taxes imposed on its overall net income, and franchise taxes
imposed on it, by (i) the jurisdiction under the laws of
which such Lender or the Administrative Agent is incorporated
or organized or (ii) the jurisdiction in which the
Administrative Agent's or such Lender's principal executive
office or such Lender's applicable Lending Installation is
located.
"Exhibit" refers to an exhibit to this Agreement, unless
another document is specifically referenced.
"Extension Date" is defined in Section 2.19.
"Extension Request" is defined in Section 2.19.
"Facility Termination Date" means August 10, 1999 or any
later date as may be specified as the Facility Termination
Date in accordance with Section 2.19 or any earlier date on
which the Aggregate Commitment is reduced to zero or
otherwise terminated pursuant to the terms hereof.
"Federal Funds Effective Rate" means, for any day, an
interest rate per annum equal to the weighted average of the
rates on overnight Federal funds transactions with members of
the Federal Reserve System arranged by Federal funds brokers
on such day, as published for such day (or, if such day is
not a Business Day, for the immediately preceding Business
Day) by the Federal Reserve Bank of New York, or, if such
rate is not so published for any day which is a Business Day,
the average of the quotations at approximately 10:00 a.m.
(Chicago time) on such day on such transactions received by
the Administrative Agent from three Federal funds brokers of
recognized standing selected by the Administrative Agent in
its sole discretion.
Page 4
<PAGE>
"FERC" means the Federal Energy Regulatory Commission
and any successor agency thereto.
"FERC Order" means the order issued by the FERC to
Borrower dated June 4, 1998, Docket No. ES98-26-000, or an
extension, renewal or replacement of such order in form and
substance satisfactory to the Lenders.
"First Chicago" means The First National Bank of Chicago
in its individual capacity, and its successors.
"Floating Rate" means, for any day, a rate per annum
equal to the Alternate Base Rate for such day, in each case
changing when and as the Alternate Base Rate changes.
"Floating Rate Advance" means an Advance which bears
interest at the Floating Rate.
"Floating Rate Loan" means a Loan which bears interest
at the Floating Rate.
"FPA" means the Federal Power Act, as amended, and all
rules and regulations promulgated thereunder.
"GAAP" means generally accepted accounting principles
set forth from time to time in the opinions and
pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and
statements of the Financial Accounting Standards Board.
"Indebtedness" of a Person means such Person's (i)
obligations for borrowed money, (ii) obligations representing
the deferred purchase price of Property or services (other
than accounts payable arising in the ordinary course of such
Person's business payable on terms customary in the trade),
(iii) obligations, whether or not assumed, secured by Liens
or payable out of the proceeds or production from property
now or hereafter owned or acquired by such Person, (iv)
obligations which are evidenced by notes, acceptances, or
other instruments, (v) obligations of such Person to purchase
securities or other property arising out of or in connection
with the sale of the same or substantially similar securities
or property, (vi) Capitalized Lease Obligations, (vii)
Contingent Obligations, (ix) all obligations, contingent or
otherwise, with respect to the face amount of letters of
credit (whether or not drawn) and bankers' acceptances issued
for the account of such Person and (x) any other obligation
for borrowed money or other financial accommodation which in
accordance with GAAP would be shown as a liability on the
consolidated balance sheet of such Person.
"Interest Period" means, with respect to a Eurodollar
Advance, a period of one, two, three or six months commencing
on a Business Day selected by the Borrower pursuant to this
Agreement. Such Interest Period shall end on the day which
corresponds numerically to such date one, two, three or six
months thereafter, provided, however, that if there is no
Page 5
<PAGE>
such numerically corresponding day in such next, second,
third or sixth succeeding month, such Interest Period shall
end on the last Business Day of such next, second, third or
sixth succeeding month. If an Interest Period would
otherwise end on a day which is not a Business Day, such
Interest Period shall end on the next succeeding Business
Day, provided, however, that if said next succeeding Business
Day falls in a new calendar month, such Interest Period shall
end on the immediately preceding Business Day.
"Lenders" means the lending institutions listed on the
signature pages of this Agreement and their respective
successors and assigns.
"Lending Installation" means, with respect to a Lender
or the Administrative Agent, the office, branch, subsidiary
or affiliate of such Lender or the Administrative Agent
listed on the signature pages hereof or on a Schedule or
otherwise selected by such Lender or the Administrative Agent
pursuant to Section 2.17.
"Lien" means any lien (statutory or other), mortgage,
pledge, hypothecation, assignment, deposit arrangement,
encumbrance or preference, priority or other security
agreement or preferential arrangement of any kind or nature
whatsoever (including, without limitation, the interest of a
vendor or lessor under any conditional sale, Capitalized
Lease or other title retention agreement).
"Loan" means, with respect to a Lender, such Lender's
loan made pursuant to Article II (or any conversion or
continuation thereof).
"Loan Documents" means this Agreement and any Notes
issued pursuant to Section 2.13.
"Material Adverse Effect" means a material adverse
effect on (i) the business, Property, condition (financial or
otherwise), results of operations, or prospects of the
Borrower and its Subsidiaries taken as a whole, (ii) the
ability of the Borrower to perform its obligations under the
Loan Documents or (iii) the validity or enforceability of any
of the Loan Documents or the rights or remedies of the
Administrative Agent or the Lenders thereunder.
"Material Indebtedness" is defined in Section 7.5.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a Plan maintained pursuant to
a collective bargaining agreement or any other arrangement to
which the Borrower or any member of the Controlled Group is a
party to which more than one employer is obligated to make
contributions.
"Non-U.S. Lender" is defined in Section 3.5(iv).
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<PAGE>
"Note" means any promissory note issued at the request
of a Lender pursuant to Section 2.13 in the form of Exhibit
E.
"Notice of Assignment" is defined in Section 12.3.2.
"Obligations" means all unpaid principal of and accrued
and unpaid interest on the Loans, all accrued and unpaid fees
and all expenses, reimbursements, indemnities and other
obligations of the Borrower to the Lenders or to any Lender,
the Administrative Agent or any indemnified party arising
under the Loan Documents.
"Other Taxes" is defined in Section 3.5(ii).
"Participants" is defined in Section 12.2.1.
"Payment Date" means the last Business Day of each
March, June, September and December.
"PBGC" means the Pension Benefit Guaranty Corporation,
or any successor thereto.
"Person" means any natural person, corporation, firm,
joint venture, partnership, limited liability company,
association, enterprise, trust or other entity or
organization, or any government or political subdivision or
any agency, department or instrumentality thereof.
"Plan" means an employee pension benefit plan which is
covered by Title IV of ERISA or subject to the minimum
funding standards under Section 412 of the Code as to which
the Borrower or any member of the Controlled Group may have
any liability.
"Pricing Schedule" means the Schedule attached hereto
identified as such.
"Property" of a Person means any and all property,
whether real, personal, tangible, intangible, or mixed, of
such Person, or other assets owned, leased or operated by
such Person.
"PUHCA" means the Public Utility Holding Company Act of
1935, as amended.
"Purchasers" is defined in Section 12.3.1.
"Regulation D" means Regulation D of the Board of
Governors of the Federal Reserve System as from time to time
in effect and any successor thereto or other regulation or
official interpretation of said Board of Governors relating
to reserve requirements applicable to member banks of the
Federal Reserve System.
"Regulation U" means Regulation U of the Board of
Governors of the Federal Reserve System as from time to time
in effect and any successor or other regulation or
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official interpretation of said Board of Governors relating
to the extension of credit by banks for the purpose of purchasing
or carrying margin stocks applicable to member banks of the
Federal Reserve System.
"Reportable Event" means a reportable event as defined
in Section 4043 of ERISA and the regulations issued under
such section, with respect to a Plan, excluding, however,
such events as to which the PBGC has by regulation waived the
requirement of Section 4043(a) of ERISA that it be notified
within 30 days of the occurrence of such event, provided,
however, that a failure to meet the minimum funding standard
of Section 412 of the Code and of Section 302 of ERISA shall
be a Reportable Event regardless of the issuance of any such
waiver of the notice requirement in accordance with either
Section 4043(a) of ERISA or Section 412(d) of the Code.
"Required Lenders" means Lenders in the aggregate having
at least 66- % of the Aggregate Commitment or, if the
Aggregate Commitment has been terminated, Lenders in the
aggregate holding at least 66- % of the aggregate unpaid
principal amount of the outstanding Advances.
"Reserve Requirement" means, with respect to an Interest
Period, the maximum aggregate reserve requirement (including
all basic, supplemental, marginal and other reserves) which
is imposed under Regulation D on Eurocurrency liabilities.
"S&P" means Standard and Poor's Ratings Services, a
division of The McGraw Hill Companies, Inc.
"Schedule" refers to a specific schedule to this
Agreement, unless another document is specifically
referenced.
"Section" means a numbered section of this Agreement,
unless another document is specifically referenced.
"Significant Subsidiary" means, at any time, each
Subsidiary of the Borrower in which the Borrower has, at such
time, an investment, either directly or indirectly, of
$100,000,000 or more, whether through loans or advances,
equity investments, capital contributions, Contingent
Obligations or otherwise, with all such investments
determined at the original amount thereof, without giving
effect to any writedowns or writeoffs of any such investment.
"Single Employer Plan" means a Plan maintained by the
Borrower or any member of the Controlled Group for employees
of the Borrower or any member of the Controlled Group.
"Subsidiary" of a Person means (i) any corporation more
than 50% of the outstanding securities having ordinary voting
power of which shall at the time be owned or controlled,
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directly or indirectly, by such Person or by one or more of
its Subsidiaries or by such Person and one or more of its
Subsidiaries, or (ii) any partnership, limited liability
company, association, joint venture or similar business
organization more than 50% of the ownership interests having
ordinary voting power of which shall at the time be so owned
or controlled. Unless otherwise expressly provided, all
references herein to a "Subsidiary" shall mean a Subsidiary
of the Borrower.
"Substantial Portion" means, with respect to the
Property of the Borrower and its Subsidiaries, Property which
(i) represents more than 10% of the consolidated assets of
the Borrower and its Subsidiaries as would be shown in the
consolidated financial statements of the Borrower and its
Subsidiaries as at the beginning of the twelve-month period
ending with the month in which such determination is made, or
(ii) is responsible for more than 10% of the consolidated net
sales or of the consolidated net income of the Borrower and
its Subsidiaries as reflected in the financial statements
referred to in clause (i) above.
"Taxes" means any and all present or future taxes,
duties, levies, imposts, deductions, charges or withholdings,
and any and all liabilities with respect to the foregoing,
but excluding Excluded Taxes.
"`34 Act Reports" means the periodic reports of the
Borrower filed with the Securities and Exchange Commission on
Forms 10K, 10Q and 8K (or any successor forms thereto).
"Transferee" is defined in Section 12.4.
"Type" means, with respect to any Advance, its nature as
a Floating Rate Advance or a Eurodollar Advance.
"Unmatured Default" means an event which but for the
lapse of time or the giving of notice, or both, would
constitute a Default.
"Western Merger Transactions" means, collectively, the
mergers and related transactions contemplated by the Amended
and Restated Plan of Merger, dated as of March 18, 1998, by
and among Western Resources, Inc., Kansas Gas & Electric
Company, NKC, Inc. and the Borrower.
"Wholly-Owned Subsidiary" of a Person means (i) any
Subsidiary all of the outstanding voting securities of which
shall at the time be owned or controlled, directly or
indirectly, by such Person or one or more Wholly-Owned
Subsidiaries of such Person, or by such Person and one or
more Wholly-Owned Subsidiaries of such Person, or (ii) any
partnership, limited liability company, association, joint
venture or similar business organization 100% of the
ownership interests having ordinary voting power of which
shall at the time be so owned or controlled.
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"Year 2000 Problem" means the risk that computer
applications and embedded microchips in non-computing devices
may be unable to recognize and perform properly date-
sensitive functions involving certain dates prior to and any
date after December 31, 1999.
The foregoing definitions shall be equally applicable to
both the singular and plural forms of the defined terms.
ARTICLE II
THE CREDITS
2.1. Commitment. From and including the date of
this Agreement and prior to the Facility Termination Date,
each Lender severally agrees, on the terms and conditions set
forth in this Agreement, to make Loans to the Borrower from
time to time in amounts not to exceed in the aggregate at any
one time outstanding the amount of its Commitment. Subject
to the terms of this Agreement, the Borrower may borrow,
repay and reborrow at any time prior to the Facility
Termination Date. The Commitments to lend hereunder shall
expire on the Facility Termination Date.
2.2. Required Payments; Termination. Any
outstanding Advances and all other unpaid Obligations shall
be paid in full by the Borrower on the Facility Termination
Date.
2.3. Ratable Loans. Each Advance hereunder shall
consist of Loans made from the several Lenders ratably in
proportion to the ratio that their respective Commitments
bear to the Aggregate Commitment.
2.4. Types of Advances. The Advances may be
Floating Rate Advances or Eurodollar Advances, or a
combination thereof, selected by the Borrower in accordance
with Sections 2.8 and 2.9.
2.5. Commitment Fee; Reductions in Aggregate
Commitment. The Borrower agrees to pay to the Administrative
Agent for the account of each Lender a commitment fee at a
per annum rate equal to the Applicable Fee Rate on the daily
unused portion of such Lender's Commitment from the date
hereof to and including the Facility Termination Date,
payable on each Payment Date hereafter and on the Facility
Termination Date. The Borrower may permanently reduce the
Aggregate Commitment in whole, or in part ratably among the
Lenders in integral multiples of $10,000,000, upon at least
three Business Days' prior written notice to the
Administrative Agent, which notice shall specify the amount
of any such reduction, provided, however, that the amount of
the Aggregate Commitment may not be reduced below the
aggregate principal amount of the outstanding Advances. All
accrued commitment fees shall be payable on the effective
date of any termination of the obligations of the Lenders to
make Loans hereunder.
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2.6. Minimum Amount of Each Advance. Each
Eurodollar Advance shall be in the minimum amount of
$5,000,000 (and in multiples of $1,000,000 if in excess
thereof), and each Floating Rate Advance shall be in the
minimum amount of $5,000,000 (and in multiples of $1,000,000
if in excess thereof), provided, however, that any Floating
Rate Advance may be in the amount of the unused Aggregate
Commitment.
2.7. Optional Principal Payments. The Borrower may
from time to time pay, without penalty or premium, all
outstanding Floating Rate Advances, or, in a minimum
aggregate amount of $5,000,000 or any integral multiple of
$100,000 in excess thereof, any portion of the outstanding
Floating Rate Advances upon two Business Days' prior notice
to the Administrative Agent. The Borrower may from time to
time pay, subject to the payment of any funding
indemnification amounts required by Section 3.4 but without
penalty or premium, all outstanding Eurodollar Advances, or,
in a minimum aggregate amount of $5,000,000 or any integral
multiple of $100,000 in excess thereof, any portion of the
outstanding Eurodollar Advances upon three Business Days'
prior notice to the Administrative Agent.
2.8. Method of Selecting Types and Interest Periods
for New Advances. The Borrower shall select the Type of
Advance and, in the case of each Eurodollar Advance, the
Interest Period applicable thereto from time to time. The
Borrower shall give the Administrative Agent irrevocable
notice (a "Borrowing Notice") not later than 11:00 a.m.
(Chicago time) on the Borrowing Date of each Floating Rate
Advance and not later than 11:00 a.m. (Chicago time) three
Business Days before the Borrowing Date for each Eurodollar
Advance, specifying:
(i) the Borrowing Date, which shall be a Business
Day, of such Advance,
(ii) the aggregate amount of such Advance,
(iii) the Type of Advance selected, and
(iv) in the case of each Eurodollar Advance, the
Interest Period applicable thereto.
Not later than noon (Chicago time) on each Borrowing Date,
each Lender shall make available its Loan or Loans in funds
immediately available in Chicago to the Administrative Agent
at its address specified pursuant to Article XIII. The
Administrative Agent will make the funds so received from the
Lenders available to the Borrower at the Administrative
Agent's aforesaid address.
2.9. Conversion and Continuation of Outstanding
Advances. Floating Rate Advances shall continue as Floating
Rate Advances unless and until such Floating Rate Advances
are converted into Eurodollar Advances pursuant to this
Section 2.9 or are repaid in accordance with Section 2.7.
Each Eurodollar Advance shall continue as a Eurodollar
Advance until the end of the then applicable Interest Period
therefor, at which time such
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Eurodollar Advance shall be automatically converted into a
Floating Rate Advance unless (x) such Eurodollar Advance is
or was repaid in accordance with Section 2.7 or (y) the
Borrower shall have given the Administrative Agent a
Conversion/Continuation Notice (as defined below) requesting
that, at the end of such Interest Period, such Eurodollar
Advance continue as a Eurodollar Advance for the same or
another Interest Period. Subject to the terms of Section 2.6,
the Borrower may elect from time to time to convert all or
any part of a Floating Rate Advance into a Eurodollar Advance.
The Borrower shall give the Administrative Agent irrevocable notice
(a "Conversion/Continuation Notice") of each conversion of a
Floating Rate Advance into a Eurodollar Advance or
continuation of a Eurodollar Advance not later than 10:00
a.m. (Chicago time) at least three Business Days prior to the
date of the requested conversion or continuation, specifying:
(i) the requested date, which shall be a Business
Day, of such conversion or continuation,
(ii) the aggregate amount and Type of the Advance
which is to be converted or continued, and
(iii) the amount of such Advance which is to be
converted into or continued as a Eurodollar Advance
and the duration of the Interest Period applicable
thereto.
2.10. Changes in Interest Rate, etc. Each Floating
Rate Advance shall bear interest on the outstanding principal
amount thereof, for each day from and including the date such
Advance is made or is automatically converted from a
Eurodollar Advance into a Floating Rate Advance pursuant to
Section 2.9, to but excluding the date it is paid or is
converted into a Eurodollar Advance pursuant to Section 2.9
hereof, at a rate per annum equal to the Floating Rate for
such day. Changes in the rate of interest on that portion of
any Advance maintained as a Floating Rate Advance will take
effect simultaneously with each change in the Alternate Base
Rate. Each Eurodollar Advance shall bear interest on the
outstanding principal amount thereof from and including the
first day of the Interest Period applicable thereto to (but
not including) the last day of such Interest Period at the
interest rate determined by the Administrative Agent as
applicable to such Eurodollar Advance based upon the
Borrower's selections under Section 2.8 and 2.9 and otherwise
in accordance with the terms hereof. No Interest Period may
end after the Facility Termination Date.
2.11. Rates Applicable After Default.
Notwithstanding anything to the contrary contained in Section
2.8 or 2.9, during the continuance of a Default or Unmatured
Default the Required Lenders may, at their option, by notice
to the Borrower (which notice may be revoked at the option of
the Required Lenders notwithstanding any provision of Section
8.2 requiring unanimous consent of the Lenders to changes in
interest rates), declare that no Advance may be made as,
converted into or continued as a Eurodollar Advance. During
the continuance of a Default the Required Lenders may, at
their option, by notice to the Borrower (which notice may be
revoked at the option of the Required Lenders notwithstanding
any provision of Section 8.2 requiring unanimous consent of
the Lenders to
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changes in interest rates), declare that (i) each Eurodollar
Advance shall bear interest for the remainder of the applicable
Interest Period at the rate otherwise applicable to such
Interest Period plus 2% per annum and (ii) each Floating Rate
Advance shall bear interest at a rate per annum equal to the
Floating Rate in effect from time to time plus 2% per annum,
provided that, during the continuance of a Default under
Section 7.6 or 7.7, the interest rates set forth in clauses
(i) and (ii) above shall be applicable to all Advances without
any election or action on the part of the Administrative Agent
or any Lender.
2.12. Method of Payment. All payments of the
Obligations hereunder shall be made, without setoff,
deduction, or counterclaim, in immediately available funds to
the Administrative Agent at the Administrative Agent's
address specified pursuant to Article XIII, or at any other
Lending Installation of the Administrative Agent specified in
writing by the Administrative Agent to the Borrower, by noon
(local time) on the date when due and shall be applied
ratably by the Administrative Agent among the Lenders. Each
payment delivered to the Administrative Agent for the account
of any Lender shall be delivered promptly by the
Administrative Agent to such Lender in the same type of funds
that the Administrative Agent received at its address
specified pursuant to Article XIII or at any Lending
Installation specified in a notice received by the
Administrative Agent from such Lender.
2.13. Noteless Agreement; Evidence of Indebtedness.
(i) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness
of the Borrower to such Lender resulting from each Loan made
by such Lender from time to time, including the amounts of
principal and interest payable and paid to such Lender from
time to time hereunder.
(ii) The Administrative Agent shall also maintain
accounts in which it will record (a) the amount of each Loan
made hereunder, the Type thereof and the Interest Period with
respect thereto, (b) the amount of any principal or interest
due and payable or to become due and payable from the
Borrower to each Lender hereunder and (c) the amount of any
sum received by the Administrative Agent hereunder from the
Borrower and each Lender's share thereof.
(iii) The entries maintained in the accounts maintained
pursuant to paragraphs (i) and (ii) above shall be prima
facie evidence of the existence and amounts of the
Obligations therein recorded; provided, however, that the
failure of the Administrative Agent or any Lender to maintain
such accounts or any error therein shall not in any manner
affect the obligation of the Borrower to repay the
Obligations in accordance with their terms.
(iv) Any Lender may request that its Loans be evidenced
by a promissory note (a "Note"). In such event, the Borrower
shall prepare, execute and deliver to such Lender a Note
payable to the order of such Lender in substantially the form
of Exhibit E hereto. Thereafter, the Loans evidenced by such
Note and interest thereon shall at all times (including after
any assignment pursuant to Section 12.3) be represented by
one or more
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Notes payable to the order of the payee named therein or any
assignee pursuant to Section 12.3, except to the extent that
any such Lender or assignee subsequently returns any such
Note for cancellation and requests that such Loans once again
be evidenced as described in paragraphs (i) and (ii) above.
2.14. Telephonic Notices. The Borrower hereby
authorizes the Lenders and the Administrative Agent to
extend, convert or continue Advances, effect selections of
Types of Advances and to transfer funds based on telephonic
notices made by any person or persons the Administrative
Agent or any Lender in good faith believes to be acting on
behalf of the Borrower. The Borrower agrees to deliver
promptly to the Administrative Agent a written confirmation,
if such confirmation is requested by the Administrative Agent
or any Lender, of each telephonic notice signed by an
Authorized Officer. If the written confirmation differs in
any material respect from the action taken by the
Administrative Agent and the Lenders, the records of the
Administrative Agent and the Lenders shall govern absent
manifest error.
2.15. Interest Payment Dates; Interest and Fee
Basis. Interest accrued on each Floating Rate Advance shall
be payable on each Payment Date, commencing with the first
such date to occur after the date hereof and at maturity.
Interest accrued on each Eurodollar Advance shall be payable
on the last day of its applicable Interest Period, on any
date on which the Eurodollar Advance is prepaid, whether by
acceleration or otherwise, and at maturity. Interest accrued
on each Eurodollar Advance having an Interest Period longer
than three months shall also be payable on the last day of
each three-month interval during such Interest Period.
Interest and commitment fees shall be calculated for actual
days elapsed on the basis of a 360-day year. Interest shall
be payable for the day an Advance is made but not for the day
of any payment on the amount paid if payment is received
prior to noon (local time) at the place of payment (it being
understood that the Administrative Agent shall be deemed to
have received a payment prior to noon (local time) if (x) the
Borrower has provided the Administrative Agent with evidence
satisfactory to the Administrative Agent that the Borrower
has initiated a wire transfer of such payment prior to such
time and (y) the Administrative Agent actually receives such
payment on the same Business Day on which such wire transfer
was initiated). If any payment of principal of or interest
on an Advance shall become due on a day which is not a
Business Day, such payment shall be made on the next
succeeding Business Day and, in the case of a principal
payment, such extension of time shall be included in
computing interest in connection with such payment.
2.16. Notification of Advances, Interest Rates,
Prepayments and Commitment Reductions. Promptly after
receipt thereof, the Administrative Agent will notify each
Lender of the contents of each Aggregate Commitment reduction
notice, Borrowing Notice, Conversion/Continuation Notice, and
repayment notice received by it hereunder. The
Administrative Agent will notify each Lender of the interest
rate applicable to each Eurodollar Advance promptly upon
determination of such interest rate and will give each Lender
prompt notice of each change in the Alternate Base Rate.
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2.17. Lending Installations. Each Lender may book
its Loans at any Lending Installation selected by such Lender
and may change its Lending Installation from time to time.
All terms of this Agreement shall apply to any such Lending
Installation and the Loans and any Notes issued hereunder
shall be deemed held by each Lender for the benefit of such
Lending Installation. Each Lender may, by written notice to
the Administrative Agent and the Borrower in accordance with
Article XIII, designate replacement or additional Lending
Installations through which Loans will be made by it and for
whose account Loan payments are to be made.
2.18. Non-Receipt of Funds by the Administrative
Agent. Unless the Borrower or a Lender, as the case may be,
notifies the Administrative Agent prior to the date on which
it is scheduled to make payment to the Administrative Agent
of (i) in the case of a Lender, the proceeds of a Loan or
(ii) in the case of the Borrower, a payment of principal,
interest or fees to the Administrative Agent for the account
of the Lenders, that it does not intend to make such payment,
the Administrative Agent may assume that such payment has
been made. The Administrative Agent may, but shall not be
obligated to, make the amount of such payment available to
the intended recipient in reliance upon such assumption. If
such Lender or the Borrower, as the case may be, has not in
fact made such payment to the Administrative Agent, the
recipient of such payment shall, on demand by the
Administrative Agent, repay to the Administrative Agent the
amount so made available together with interest thereon in
respect of each day during the period commencing on the date
such amount was so made available by the Administrative Agent
until the date the Administrative Agent recovers such amount
at a rate per annum equal to (x) in the case of payment by a
Lender, the Federal Funds Effective Rate for such day or (y)
in the case of payment by the Borrower, the interest rate
applicable to the relevant Loan.
2.19. Extension of Facility Termination Date. The
Borrower may request an extension of the Facility Termination
Date by submitting a request for an extension to the
Administrative Agent (an "Extension Request") no more than 60
days prior to the Facility Termination Date. The Extension
Request must specify the new Facility Termination Date
requested by the Borrower and the date (which must be at
least 30 days after the Extension Request is delivered to the
Administrative Agent) as of which the Lenders must respond to
the Extension Request (the "Response Date"). The new
Facility Termination Date shall be no more than 364 days
after the Facility Termination Date in effect at the time the
Extension Request is received, including the Facility
Termination Date as one of the days in the calculation of the
days elapsed. Promptly upon receipt of an Extension Request,
the Administrative Agent shall notify each Lender of the
contents thereof and shall request each Lender to approve the
Extension Request. Each Lender approving the Extension
Request shall deliver its written consent no later than the
Response Date. If the consent of each of the Lenders is
received by the Administrative Agent, the Facility
Termination Date specified in the Extension Request shall
become effective on the existing Facility Termination Date
and the Administrative Agent shall promptly notify the
Borrower and each Lender of the new Facility Termination
Date.
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ARTICLE III
YIELD PROTECTION; TAXES
3.1. Yield Protection. If, on or after the date of
this Agreement, the adoption of any law or any governmental
or quasi-governmental rule, regulation, policy, guideline or
directive (whether or not having the force of law), or any
change in the interpretation or administration thereof by any
governmental or quasi-governmental authority, central bank or
comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender or
applicable Lending Installation with any request or directive
(whether or not having the force of law) of any such
authority, central bank or comparable agency:
(i) subjects any Lender or any applicable Lending
Installation to any Taxes, or changes the basis of
taxation of payments (other than with respect to
Excluded Taxes) to any Lender in respect of its
Eurodollar Loans, or
(ii) imposes or increases or deems applicable any
reserve, assessment, insurance charge, special
deposit or similar requirement against assets of,
deposits with or for the account of, or credit
extended by, any Lender or any applicable Lending
Installation (other than reserves and assessments
taken into account in determining the interest rate
applicable to Eurodollar Advances), or
(iii) imposes any other condition the result of
which is to increase the cost to any Lender or any
applicable Lending Installation of making, funding
or maintaining its Eurodollar Loans or reduces any
amount receivable by any Lender or any applicable
Lending Installation in connection with its
Eurodollar Loans, or requires any Lender or any
applicable Lending Installation to make any payment
calculated by reference to the amount of Eurodollar
Loans held or interest received by it, by an amount
deemed material by such Lender,
and the result of any of the foregoing is to increase the
cost to such Lender or applicable Lending Installation of
making or maintaining its Eurodollar Loans or Commitment or
to reduce the return received by such Lender or applicable
Lending Installation in connection with such Eurodollar Loans
or Commitment, then, within 15 days of demand by such Lender,
the Borrower shall pay such Lender such additional amount or
amounts as will compensate such Lender for such increased
cost or reduction in amount received.
3.2. Changes in Capital Adequacy Regulations. If a
Lender determines the amount of capital required or expected
to be maintained by such Lender, any Lending Installation of
such Lender or any corporation controlling such Lender is
increased as a result of a Change, then, within 15 days of
demand by such Lender, the Borrower shall pay such Lender the
amount necessary to compensate for any shortfall in the rate
of return on the portion of such increased capital which such
Lender determines is attributable to this Agreement, its Loans
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or its Commitment to make Loans hereunder (after taking
into account such Lender's policies as to capital adequacy).
"Change" means (i) any change after the date of this
Agreement in the Risk-Based Capital Guidelines or (ii) any
adoption of or change in any other law, governmental or
quasi-governmental rule, regulation, policy, guideline,
interpretation, or directive (whether or not having the force
of law) after the date of this Agreement which affects the
amount of capital required or expected to be maintained by
any Lender or any Lending Installation or any corporation
controlling any Lender. "Risk-Based Capital Guidelines"
means (i) the risk-based capital guidelines in effect in the
United States on the date of this Agreement, including
transition rules, and (ii) the corresponding capital
regulations promulgated by regulatory authorities outside the
United States implementing the July 1988 report of the Basle
Committee on Banking Regulation and Supervisory Practices
Entitled "International Convergence of Capital Measurements
and Capital Standards," including transition rules, and any
amendments to such regulations adopted prior to the date of
this Agreement.
3.3. Availability of Types of Advances. If (i) any
Lender determines that maintenance of its Eurodollar Loans at
a suitable Lending Installation would violate any applicable
law, rule, regulation, or directive, whether or not having
the force of law, or (ii) the Required Lenders determine that
(a) deposits of a type and maturity appropriate to match fund
Eurodollar Advances are not available or (b) the interest
rate applicable to a Type of Advance does not accurately
reflect the cost of making or maintaining such Advance, then
the Administrative Agent shall suspend the availability of
the affected Type of Advance and, in the case of clause (i),
require any affected Eurodollar Advances to be repaid or
converted to Floating Rate Advances, subject to the payment
of any funding indemnification amounts required by Section
3.4.
3.4. Funding Indemnification. If any payment of a
Eurodollar Advance occurs on a date which is not the last day
of the applicable Interest Period, whether because of
acceleration, prepayment or otherwise, or a Eurodollar
Advance is not made on the date specified by the Borrower for
any reason other than default by the Lenders, the Borrower
will indemnify each Lender for any loss or cost incurred by
it resulting therefrom, including, without limitation, any
loss or cost in liquidating or employing deposits acquired to
fund or maintain such Eurodollar Advance.
3.5. Taxes. (i) All payments by the Borrower to or for
the account of any Lender or the Administrative Agent
hereunder or under any Note shall be made free and clear of
and without deduction for any and all Taxes. If the Borrower
shall be required by law to deduct any Taxes from or in
respect of any sum payable hereunder to any Lender or the
Administrative Agent, (a) the sum payable shall be increased
as necessary so that after making all required deductions
(including deductions applicable to additional sums payable
under this Section 3.5) such Lender or the Administrative
Agent (as the case may be) receives an amount equal to the
sum it would have received had no such deductions been made,
(b) the Borrower shall make such deductions, (c) the Borrower
shall pay the full amount deducted to the relevant authority
in accordance with applicable law and (d) the
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Borrower shall furnish to the Administrative Agent the original
copy of a receipt evidencing payment thereof within 30 days after
such payment is made.
(ii) In addition, the Borrower hereby agrees to pay any
present or future stamp or documentary taxes and any other
excise or property taxes, charges or similar levies which
arise from any payment made hereunder or under any Note or
from the execution or delivery of, or otherwise with respect
to, this Agreement or any Note ("Other Taxes").
(iii) The Borrower hereby agrees to indemnify the
Administrative Agent and each Lender for the full amount of
Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed on amounts payable under this
Section 3.5) paid by the Administrative Agent or such Lender
and any liability (including penalties, interest and
expenses) arising therefrom or with respect thereto.
Payments due under this indemnification shall be made within
30 days of the date the Administrative Agent or such Lender
makes demand therefor pursuant to Section 3.6.
(iv) Each Lender that is not incorporated under the
laws of the United States of America or a state thereof (each
a "Non-U.S. Lender") agrees that it will, not less than ten
Business Days after the date of this Agreement, (i) deliver
to each of the Borrower and the Administrative Agent two duly
completed copies of United States Internal Revenue Service
Form 1001 or 4224, certifying in either case that such Lender
is entitled to receive payments under this Agreement without
deduction or withholding of any United States federal income
taxes, and (ii) deliver to each of the Borrower and the
Administrative Agent a United States Internal Revenue Form W-
8 or W-9, as the case may be, and certify that it is entitled
to an exemption from United States backup withholding tax.
Each Non-U.S. Lender further undertakes to deliver to each of
the Borrower and the Administrative Agent (x) renewals or
additional copies of such form (or any successor form) on or
before the date that such form expires or becomes obsolete,
and (y) after the occurrence of any event requiring a change
in the most recent forms so delivered by it, such additional
forms or amendments thereto as may be reasonably requested by
the Borrower or the Administrative Agent. All forms or
amendments described in the preceding sentence shall certify
that such Lender is entitled to receive payments under this
Agreement without deduction or withholding of any United
States federal income taxes, unless an event (including
without limitation any change in treaty, law or regulation)
has occurred prior to the date on which any such delivery
would otherwise be required which renders all such forms
inapplicable or which would prevent such Lender from duly
completing and delivering any such form or amendment with
respect to it and such Lender advises the Borrower and the
Administrative Agent that it is not capable of receiving
payments without any deduction or withholding of United
States federal income tax.
(v) For any period during which a Non-U.S. Lender has
failed to provide the Borrower with an appropriate form
pursuant to clause (iv), above (unless such failure is due to
a change in treaty, law or regulation, or any change in the
interpretation or administration thereof by any governmental
authority, occurring subsequent to the date on which a form
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originally was required to be provided), such Non-U.S. Lender
shall not be entitled to indemnification under this Section
3.5 with respect to Taxes imposed by the United States;
provided that, should a Non-U.S. Lender which is otherwise
exempt from or subject to a reduced rate of withholding tax
become subject to Taxes because of its failure to deliver a
form required under clause (iv), above, the Borrower shall
take such steps as such Non-U.S. Lender shall reasonably
request to assist such Non-U.S. Lender to recover such Taxes.
(vi) Any Lender that is entitled to an exemption from
or reduction of withholding tax with respect to payments
under this Agreement or any Note pursuant to the law of any
relevant jurisdiction or any treaty shall deliver to the
Borrower (with a copy to the Administrative Agent), at the
time or times prescribed by applicable law, such properly
completed and executed documentation prescribed by applicable
law as will permit such payments to be made without
withholding or at a reduced rate.
3.6. Lender Statements; Survival of Indemnity. To
the extent reasonably possible and upon the request of the
Borrower, each Lender shall designate an alternate Lending
Installation with respect to its Eurodollar Loans to reduce
any liability of the Borrower to such Lender under Sections
3.1, 3.2 and 3.5 or to avoid the unavailability of Eurodollar
Advances under Section 3.3, so long as such designation is
not, in the judgment of such Lender, disadvantageous to such
Lender. Each Lender shall deliver a written statement of
such Lender to the Borrower (with a copy to the
Administrative Agent) as to the amount due, if any, under
Section 3.1, 3.2, 3.4 or 3.5. Such written statement shall
set forth in reasonable detail the calculations upon which
such Lender determined such amount and shall be final,
conclusive and binding on the Borrower in the absence of
manifest error. Determination of amounts payable under such
Sections in connection with a Eurodollar Loan shall be
calculated as though each Lender funded its Eurodollar Loan
through the purchase of a deposit of the type and maturity
corresponding to the deposit used as a reference in
determining the Eurodollar Rate applicable to such Loan,
whether in fact that is the case or not. Unless otherwise
provided herein, the amount specified in the written
statement of any Lender shall be payable on demand after
receipt by the Borrower of such written statement. The
obligations of the Borrower under Sections 3.1, 3.2, 3.4 and
3.5 shall survive payment of the Obligations and termination
of this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT
4.1. Initial Advance. The Lenders shall not be
required to make the initial Advance hereunder unless the
Borrower has furnished to the Administrative Agent with
sufficient copies for the Lenders:
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(i) Copies of the articles or certificate of
incorporation of the Borrower, together with all
amendments, and a certificate of good standing,
each certified by the appropriate governmental
officer in its jurisdiction of incorporation.
(ii) Copies, certified by the Secretary or
Assistant Secretary of the Borrower, of its by-laws
and of its Board of Directors' resolutions and of
resolutions or actions of any other body
authorizing the execution of the Loan Documents to
which the Borrower is a party.
(iii) An incumbency certificate, executed by
the Secretary or Assistant Secretary of the
Borrower, which shall identify by name and title
and bear the signatures of the Authorized Officers
and any other officers of the Borrower authorized
to sign the Loan Documents to which the Borrower is
a party, upon which certificate the Administrative
Agent and the Lenders shall be entitled to rely
until informed of any change in writing by the
Borrower.
(iv) A certificate, signed by the chief financial
officer of the Borrower, stating that on the
initial Borrowing Date no Default or Unmatured
Default has occurred and is continuing.
(v) A written opinion of the Borrower's counsel,
addressed to the Lenders in substantially the form
of Exhibit A.
(vi) Any Notes requested by a Lender pursuant to
Section 2.13 payable to the order of each such
requesting Lender.
(vii) A certified copy of the FERC Order
authorizing the Borrower to incur the Indebtedness
contemplated by the Loan Documents.
(viii) Written money transfer instructions, in
substantially the form of Exhibit D, addressed to
the Administrative Agent and signed by an
Authorized Officer, together with such other
related money transfer authorizations as the
Administrative Agent may have reasonably requested.
(ix) Copies of the Bond Documents, certified by the
Secretary or an Assistant Secretary of the
Borrower.
(x) Such other documents as any Lender or its
counsel may have reasonably requested.
4.2. Each Advance. The Lenders shall not be
required to make any Advance (other than an Advance that,
after giving effect thereto and to the application of the
proceeds thereof, does not increase the aggregate amount of
outstanding Advances), unless on the applicable Borrowing
Date:
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(i) There exists no Default or Unmatured Default.
(ii) The representations and warranties contained
in Article V are true and correct as of such
Borrowing Date except to the extent any such
representation or warranty is stated to relate
solely to an earlier date, in which case such
representation or warranty shall have been true and
correct on and as of such earlier date.
(iii) The FERC Order shall not have expired or
been revoked and shall permit the Borrower to incur
the Indebtedness evidenced by such Advance. The
Borrower shall, upon request, provide the
Administrative Agent with evidence satisfactory to
the Administrative Agent that, after giving effect
to such Advance, the aggregate amount of short-term
debt instruments issued by the Borrower in reliance
upon the FERC Order shall not exceed the maximum
amount of Indebtedness authorized by the FERC
Order.
Each Borrowing Notice with respect to each such Advance
shall constitute a representation and warranty by the
Borrower that the conditions contained in Sections 4.2(i) and
(ii) have been satisfied. Any Lender may require a duly
completed compliance certificate in substantially the form of
Exhibit B as a condition to making an Advance.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Borrower represents and warrants to the Lenders
that:
5.1. Existence and Standing. Each of the Borrower
and its Subsidiaries is a corporation, partnership (in the
case of Subsidiaries only) or limited liability company duly
and properly incorporated or organized, as the case may be,
validly existing and (to the extent such concept applies to
such entity) in good standing under the laws of its
jurisdiction of incorporation or organization and has all
requisite authority to conduct its business in each
jurisdiction in which its business is conducted.
5.2. Authorization and Validity. The Borrower has
the power and authority and legal right to execute and
deliver the Loan Documents and to perform its obligations
thereunder. The execution and delivery by the Borrower of
the Loan Documents and the performance of its obligations
thereunder have been duly authorized by proper corporate
proceedings, and the Loan Documents constitute legal, valid
and binding obligations of the Borrower enforceable against
the Borrower in accordance with their terms, except as
enforceability may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights
generally.
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5.3. No Conflict; Government Consent. Neither the
execution and delivery by the Borrower of the Loan Documents,
nor the consummation of the transactions therein
contemplated, nor compliance with the provisions thereof will
violate (i) any law, rule, regulation, order, writ, judgment,
injunction, decree or award binding on the Borrower or (ii)
the Borrower's articles or certificate of incorporation or
by-laws or (iii) the provisions of any indenture, instrument
or agreement to which the Borrower is a party or is subject,
or by which it, or its Property, is bound, or conflict with
or constitute a default thereunder, or result in, or require,
the creation or imposition of any Lien in, of or on the
Property of the Borrower pursuant to the terms of any such
indenture, instrument or agreement. No order, consent,
adjudication, approval, license, authorization, or validation
of, or filing, recording or registration with, or exemption
by, or other action in respect of any governmental or public
body or authority (including without limitation the FERC), or
any subdivision thereof, which has not been obtained by the
Borrower, is required to be obtained by the Borrower in
connection with the execution and delivery of the Loan
Documents, the borrowings under this Agreement, the payment
and performance by the Borrower of the Obligations or the
legality, validity, binding effect or enforceability of any
of the Loan Documents.
5.4. Financial Statements. The December 31, 1997
consolidated financial statements of the Borrower and its
Subsidiaries heretofore delivered to the Lenders were
prepared in accordance with GAAP and fairly present the
consolidated financial condition and operations of the
Borrower and its Subsidiaries at such date and the
consolidated results of their operations for the period then
ended.
5.5. Material Adverse Change. Since March 31, 1998
there has been no change in the business, Property,
prospects, condition (financial or otherwise) or results of
operations of the Borrower and its Subsidiaries which could
reasonably be expected to have a Material Adverse Effect.
5.6. Taxes. The Borrower and its Subsidiaries have
filed all United States federal tax returns and all other tax
returns which are required to be filed and have paid all
taxes due pursuant to said returns or pursuant to any
assessment received by the Borrower or any of its
Subsidiaries, except such taxes, if any, as are being
contested in good faith and as to which adequate reserves
have been provided in accordance with GAAP and as to which no
Lien exists. The United States income tax returns of the
Borrower and its Subsidiaries have been audited by the
Internal Revenue Service through the fiscal year ended
December 31, 1990. No tax liens have been filed and no
material claims are being asserted with respect to any such
taxes. The charges, accruals and reserves on the books of
the Borrower and its Subsidiaries in respect of any taxes or
other governmental charges are adequate.
5.7. Litigation and Contingent Obligations. Except
as set forth in the Borrower's `34 Act Reports, there is no
litigation, arbitration, governmental investigation,
proceeding or inquiry pending or, to the knowledge of any of
their officers, threatened against or affecting the Borrower
or any of its Subsidiaries which could reasonably be expected
to have a Material Adverse Effect or which seeks to prevent,
enjoin or delay the making of any Loans.
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Other than any liability incident to any litigation, arbitration
or proceeding which could not reasonably be expected to have a
Material Adverse Effect, the Borrower has no material
contingent obligations not provided for or disclosed in the
financial statements referred to in Section 5.4.
5.8. ERISA. The Borrower and each other member of
the Controlled Group has fulfilled its obligations under the
minimum funding standards of ERISA and the Code with respect
to each Plan and is in compliance in all material respects
with the presently applicable provisions of ERISA and the
Code with respect to each Plan. Neither the Borrower nor any
other member of the Controlled Group has (i) sought a waiver
of the minimum funding standard under Section 412 of the Code
in respect of any Plan, (ii) failed to make any contribution
or payment to any Plan or Multiemployer Plan, or made any
amendment to any Plan which has resulted or could result in
the imposition of a Lien or the posting of a bond or other
security under ERISA or the Code or (iii) incurred any
liability under Title IV of ERISA other than a liability to
the PBGC for premiums under Section 4007 of ERISA.
5.9. Accuracy of Information. No information, exhibit
or report furnished by the Borrower or any of its
Subsidiaries to the Administrative Agent or to any Lender in
connection with the negotiation of, or compliance with, the
Loan Documents contained any material misstatement of fact or
omitted to state a material fact or any fact necessary to
make the statements contained therein not misleading.
5.10. Regulation U. Margin stock (as defined in
Regulation U) constitutes less than 25% of the value of those
assets of the Borrower and its Subsidiaries which are subject
to any limitation on sale, pledge or other restriction
hereunder.
5.11. Material Agreements. Neither the Borrower nor
any Subsidiary is a party to any agreement or instrument or
subject to any charter or other corporate restriction which
is reasonably likely to have a Material Adverse Effect.
Neither the Borrower nor any Subsidiary is in default in the
performance, observance or fulfillment of any of the
obligations, covenants or conditions contained in any
agreement to which it is a party, which default could
reasonably be expected to have a Material Adverse Effect.
5.12. Compliance With Laws. The Borrower and its
Subsidiaries have complied with all applicable statutes,
rules, regulations, orders and restrictions of any domestic
or foreign government or any instrumentality or agency
thereof having jurisdiction over the conduct of their
respective businesses or the ownership of their respective
Property except for any failure to comply with any of the
foregoing which could not reasonably be expected to have a
Material Adverse Effect.
5.13. Ownership of Properties. Except as set forth
on Schedule 1, on the date of this Agreement, the Borrower
and its Significant Subsidiaries will have good title, free
of all Liens other than those permitted by Section 6.11, to
all of the Property and assets reflected
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in the Borrower's most recent consolidated financial statements
provided to the Administrative Agent as owned by the Borrower
and its Subsidiaries.
5.14. Plan Assets; Prohibited Transactions. The
Borrower is not an entity deemed to hold "plan assets" within
the meaning of 29 C.F.R. 2510.3-101 of an employee benefit
plan (as defined in Section 3(3) of ERISA) which is subject
to Title I of ERISA or any plan (within the meaning of
Section 4975 of the Code), and neither the execution of this
Agreement nor the making of Loans hereunder gives rise to a
prohibited transaction within the meaning of Section 406 of
ERISA or Section 4975 of the Code.
5.15. Environmental Matters. Except as set forth in
the Borrower's '34 Act Reports, there are no risks and
liabilities accruing to the Borrower due to Environmental
Laws that could reasonably be expected to have a Material
Adverse Effect.
5.16. Investment Company Act. Neither the Borrower
nor any Subsidiary is an "investment company" or a company
"controlled" by an "investment company", within the meaning
of the Investment Company Act of 1940, as amended.
5.17. Public Utility Holding Company Act. The
Borrower is a public utility. Neither Borrower or any
Subsidiary is a "holding company," a "subsidiary company" of
a "holding company" or an "affiliate" of a "holding company"
or of a "subsidiary company" of a "holding company", within
the meaning of PUHCA.
5.18. Pari Passu Indebtedness. The Indebtedness under
the Loan Documents ranks at least pari passu with all other
unsecured Indebtedness of the Borrower.
5.19 Year 2000 Problem. The Borrower and its
Subsidiaries (a) have reviewed the areas within their
business and operations which could be adversely affected by,
and have developed or are developing a program to address on
a timely basis, the Year 2000 Problem and (b) have made
appropriate inquiries as to the effect the Year 2000 Problem
will have on their material suppliers and customers. Based
on such review, program and inquiries, the Borrower
reasonably believes that the "Year 2000 Problem" will not
have a Material Adverse Effect.
ARTICLE VI
COVENANTS
During the term of this Agreement, unless the Required
Lenders shall otherwise consent in writing:
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6.1. Financial Reporting. The Borrower will
maintain, for itself and each Subsidiary, a system of
accounting established and administered in accordance with
generally accepted accounting principles, and furnish to the
Lenders:
(i) Within 90 days after the close of each of its
fiscal years, an unqualified audit report certified
by Coopers & Lybrand or other firm of independent
certified public accountants which is a member of
the "Big Four," prepared in accordance with GAAP on
a consolidated basis for itself and its
Subsidiaries, including balance sheets as of the
end of such period and related statements of
income, retained earnings and cash flows,
accompanied by (a) any management letter prepared
by said accountants, and (b) a certificate of said
accountants that, in the course of their
examination necessary for their audit report, they
have obtained no knowledge of any Default or
Unmatured Default, or if, in the opinion of such
accountants, any Default or Unmatured Default shall
exist, stating the nature and status thereof.
(ii) Within 45 days after the close of the first
three quarterly periods of each of its fiscal
years, for itself and its Subsidiaries, either (i)
consolidated and consolidating unaudited balance
sheets as at the close of each such period and
consolidated and consolidating profit and loss and
reconciliation of surplus statements and a
statement of cash flows for the period from the
beginning of such fiscal year to the end of such
quarter, all certified by its chief financial
officer or (ii) if the Borrower is then a
"registrant" within the meaning of Rule 1-01 of
Regulation S-X of the Securities and Exchange
Commission and required to file a report on Form 10-
Q with the Securities and Exchange Commission, a
copy of the Borrower's report on Form 10-Q for such
quarterly period.
(iii) Together with the financial statements
required under Sections 6.1(i) and (ii), a
compliance certificate in substantially the form of
Exhibit B signed by its chief accounting officer
stating that no Default or Unmatured Default
exists, or if any Default or Unmatured Default
exists, stating the nature and status thereof.
(iv) As soon as possible and in any event within 10
days after the Borrower knows that any Reportable
Event has occurred with respect to any Plan, a
statement, signed by the chief financial officer of
the Borrower, describing said Reportable Event and
the action which the Borrower proposes to take with
respect thereto.
(v) Promptly upon the furnishing thereof to the
shareholders of the Borrower, copies of all
financial statements, reports and proxy statements
so furnished.
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(vi) Promptly upon the filing thereof, copies of
all registration statements and annual, quarterly,
monthly or other regular reports which the Borrower
files with the Securities and Exchange Commission.
(vii) Promptly upon the request of the
Administrative Agent or any Lender, such updated
information or documentation as may be requested
from time to time regarding the efforts of the
Borrower and its Significant Subsidiaries to
address the Year 2000 Problem.
(ix) Such other information (including
non-financial information) as the Administrative
Agent or any Lender may from time to time
reasonably request.
6.2. Use of Proceeds. The Borrower will use the
proceeds of the Advances to provide liquidity support for the
remarketing of the Borrower's $106,500,000 Environmental
Improvement Revenue Refunding Bonds (Kansas City Power &
Light Company Project) Series 1998-A and Series 1998-B
(collectively, the "Bonds"), and to repay outstanding
Advances. The Borrower will not use any of the proceeds of
the Advances to purchase or carry any "margin stock" (as
defined in Regulation U).
6.3. Notice of Default. The Borrower will, and
will cause each Subsidiary to, give prompt notice in writing
to the Lenders of the occurrence of any Default or Unmatured
Default and of any other development, financial or otherwise,
which could reasonably be expected to have a Material Adverse
Effect.
6.4. Conduct of Business. The Borrower will, and
will cause each Significant Subsidiary to, carry on and
conduct its business in substantially the same manner and in
substantially the same fields of enterprise as it is
presently conducted and do all things necessary to remain
duly incorporated or organized, validly existing and (to the
extent such concept applies to such entity) in good standing
as a domestic corporation, partnership or limited liability
company in its jurisdiction of incorporation or organization,
as the case may be, and maintain all requisite authority to
conduct its business in each jurisdiction in which its
business is conducted.
6.5. Taxes. The Borrower will, and will cause each
Significant Subsidiary to, timely file United States federal
and applicable foreign, state and local tax returns required
by law and pay when due all taxes, assessments and
governmental charges and levies upon it or its income,
profits or Property, except those which are being contested
in good faith by appropriate proceedings and with respect to
which adequate reserves have been set aside in accordance
with GAAP.
6.6. Insurance. The Borrower will, and will cause
each Significant Subsidiary to, maintain with financially
sound and reputable insurance companies insurance on all
their Property in such amounts and covering such risks as is
consistent with sound business
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practice, and the Borrower will furnish to any Lender upon
request full information as to the insurance carried.
6.7. Compliance with Laws. The Borrower will, and
will cause each Significant Subsidiary to, comply with all
laws, rules, regulations, orders, writs, judgments,
injunctions, decrees or awards to which it may be subject
including, without limitation, all Environmental Laws.
6.8. Maintenance of Properties. The Borrower will,
and will cause each Significant Subsidiary to, do all things
necessary to maintain, preserve, protect and keep its
Property in good repair, working order and condition, and
make all necessary and proper repairs, renewals and
replacements so that its business carried on in connection
therewith may be properly conducted at all times.
6.9. Inspection. The Borrower will, and will cause
each Subsidiary to, permit the Administrative Agent and the
Lenders, by their respective representatives and agents, to
inspect any of the Property, books and financial records of
the Borrower and each Subsidiary, to examine and make copies
of the books of accounts and other financial records of the
Borrower and each Subsidiary, and to discuss the affairs,
finances and accounts of the Borrower and each Subsidiary
with, and to be advised as to the same by, their respective
officers at such reasonable times and intervals as the
Administrative Agent or any Lender may designate. After the
occurrence and during the continuance of a Default, any such
inspection shall be at the Borrower's expense; at all other
times, the Borrower shall not be liable to pay the expenses
of the Administrative Agent or any Lender in connection with
such inspections.
6.10. Consolidations, Mergers and Sale of Assets.
The Borrower will not, nor will it permit any Significant
Subsidiary to, sell, lease, transfer, or otherwise dispose of
all or substantially all of its assets (whether by a single
transaction or a number of related transactions and whether
at one time or over a period of time) or consolidate with or
merge into any Person or permit any Person to merge into it,
except
(i) A Wholly-Owned Subsidiary may be merged into
the Borrower.
(ii) The Borrower may sell all or substantially all
of its assets to, or consolidate with or merge
into, any other corporation, or permit another
corporation to merge into it; provided, however,
that (a) the surviving corporation, if such
surviving corporation is not the Borrower, or the
transferee corporation in the case of a sale of all
or substantially all of the Borrower's assets (1)
shall be a corporation organized and existing under
the laws of the United States of America or a state
thereof or the District of Columbia, and (2) shall
expressly assume in writing the due and punctual
payment of the Obligations and the due and punctual
performance of and compliance with all of the terms
of this Credit Agreement and the other Loan
Documents to be performed or complied
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with by the Borrower, (b) immediately before and
after such merger, consolidation or sale, there
shall not exist any Default or Unmatured Default and
(c) the surviving corporation of such merger or
consolidation, or the transferee corporation of the
assets of the Borrower, as applicable, has, both
immediately before and after such merger,
consolidation or sale, a Moody's Rating of Baa3 or
better or an S&P Rating of BBB - or better.
(iii) The Western Merger Transactions;
provided, however, that (a) the surviving
corporation of any merger or consolidation
involving the Borrower that is contemplated by the
Western Merger Transactions, if such surviving
corporation is not the Borrower, or the transferee
corporation in the case of a sale of all or
substantially all of the Borrower's assets (1)
shall be a corporation organized and existing under
the laws of the United States of America or a state
thereof or the District of Columbia, and (2) shall
expressly assume in writing the due and punctual
payment of the Obligations and the due and punctual
performance of and compliance with all of the terms
of this Credit Agreement and the other Loan
Documents to be performed or complied with by the
Borrower, (b) immediately before and after such
merger, consolidation or sale, there shall not
exist any Default or Unmatured Default and (c) the
surviving corporation of such merger or
consolidation, or the transferee corporation of
such assists of the Borrower, as applicable, has,
both immediately before and after giving effect to
such merger, consolidation or sale, a Moody's
Rating of Baa3 or better or an S&P Rating of BBB -
or better.
6.11. Liens. The Borrower will not, nor will it
permit any Significant Subsidiary to, create, incur, or
suffer to exist any Lien in, of or on the Property of the
Borrower or any of its Significant Subsidiaries, except:
(i) Liens for taxes, assessments or governmental
charges or levies on its Property if the same shall
not at the time be delinquent or thereafter can be
paid without penalty, or are being contested in
good faith and by appropriate proceedings and for
which adequate reserves in accordance with GAAP
shall have been set aside on its books.
(ii) Liens imposed by law, such as carriers',
warehousemen's and mechanics' liens and other
similar liens arising in the ordinary course of
business which secure payment of obligations not
more than 60 days past due or which are being
contested in good faith by appropriate proceedings
and for which adequate reserves shall have been set
aside on its books.
(iii) Liens arising out of pledges or deposits
under worker's compensation laws, unemployment
insurance, old age pensions, or other social
security or retirement benefits, or similar
legislation.
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(iv) Utility easements, building restrictions and
such other encumbrances or charges against real
property as are of a nature generally existing with
respect to properties of a similar character and
which do not in any material way affect the
marketability of the same or interfere with the use
thereof in the business of the Borrower or its
Subsidiaries.
(v) The Lien of the General Mortgage Indenture and
Deed of Trust dated December 1, 1986, from the
Borrower to UMB, N.A.
(vi) Liens existing on the date hereof and
described in Schedule 1.
(vii) Judgment Liens which secure payment of
legal obligations that would not constitute a
Default under Section 7.9.
(viii) Liens on Property acquired by the
Borrower or a Significant Subsidiary after the date
hereof, existing on such Property at the time of
acquisition thereof (and not created in
anticipation thereof), provided that in any such
case no such Lien shall extend to or cover any
other Property of the Borrower or such Significant
Subsidiary, as the case may be.
(ix) Deposits to secure the performance of bids,
trade contracts (other than for borrowed money),
leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a
like nature incurred in the ordinary course of
business by the Borrower or any Significant
Subsidiary.
(x) Liens which would otherwise not be permitted
by clauses (i) through (ix) securing additional
Indebtedness of the Borrower or a Significant
Subsidiary, provided that after giving effect
thereto the aggregate unpaid principal amount of
Indebtedness (including, without limitation,
Capitalized Lease Obligations) of the Borrower and
its Significant Subsidiaries (including prepayment
premiums and penalties) secured by such Liens
permitted by this clause (x) shall not exceed
$50,000,000.
6.12. Affiliates. The Borrower will not, and will not
permit any Subsidiary to, enter into any transaction
(including, without limitation, the purchase or sale of any
Property or service) with, or make any payment or transfer
to, any Affiliate except in the ordinary course of business
and pursuant to the reasonable requirements of the Borrower's
or such Subsidiary's business and upon fair and reasonable
terms no less favorable to the Borrower or such Subsidiary
than the Borrower or such Subsidiary would obtain in a
comparable arms-length transaction.
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ARTICLE VII
DEFAULTS
The occurrence of any one or more of the following
events shall constitute a Default:
7.1. Any representation or warranty made or deemed
made by or on behalf of the Borrower to the Lenders or the
Administrative Agent under or in connection with this
Agreement, any Loan, or any certificate or information
delivered in connection with this Agreement or any other Loan
Document shall be materially false on the date as of which
made.
7.2. Nonpayment of principal of any Loan when due,
or nonpayment of interest upon any Loan or of any commitment
fee or other obligations under any of the Loan Documents
within five days after the same becomes due.
7.3. The breach by the Borrower of any of the terms
or provisions of Section 6.2, 6.10, 6.11 or 6.12.
7.4. The breach by the Borrower (other than a
breach which constitutes a Default under another Section of
this Article VII) of any of the terms or provisions of this
Agreement which is not remedied within five days after
written notice from the Administrative Agent or any Lender.
7.5. Failure of the Borrower or any of its
Significant Subsidiaries to pay when due any Indebtedness
aggregating in excess of $15,000,000 ("Material
Indebtedness"); or the default by the Borrower or any of its
Significant Subsidiaries in the performance of any term,
provision or condition contained in any agreement under which
any such Material Indebtedness was created or is governed, or
any other event shall occur or condition exist, the effect of
which default or event is to cause, or to permit the holder
or holders of such Material Indebtedness to cause, such
Material Indebtedness to become due prior to its stated
maturity; or any Material Indebtedness of the Borrower or any
of its Significant Subsidiaries shall be declared to be due
and payable or required to be prepaid or repurchased (other
than by a regularly scheduled payment) prior to the stated
maturity thereof; or the Borrower or any of its Subsidiaries
shall not pay, or admit in writing its inability to pay, its
debts generally as they become due.
7.6. The Borrower or any of its Significant
Subsidiaries shall (i) have an order for relief entered with
respect to it under the Federal bankruptcy laws as now or
hereafter in effect, (ii) make an assignment for the benefit
of creditors, (iii) apply for, seek, consent to, or acquiesce
in, the appointment of a receiver, custodian, trustee,
examiner, liquidator or similar official for it or any
Substantial Portion of its Property, (iv) institute any
proceeding seeking an order for relief under the Federal
bankruptcy laws as now or hereafter in effect or
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seeking to adjudicate it a bankrupt or insolvent, or seeking
dissolution, winding up, liquidation, reorganization,
arrangement, adjustment or composition of it or its debts
under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors or fail to file an answer
or other pleading denying the material allegations of any
such proceeding filed against it, (v) take any corporate or
partnership action to authorize or effect any of the
foregoing actions set forth in this Section 7.6 or (vi) fail
to contest in good faith any appointment or proceeding
described in Section 7.7.
7.7. Without the application, approval or consent
of the Borrower or any of its Subsidiaries, a receiver,
trustee, examiner, liquidator or similar official shall be
appointed for the Borrower or any of its Subsidiaries or any
Substantial Portion of its Property, or a proceeding
described in Section 7.6(iv) shall be instituted against the
Borrower or any of its Subsidiaries and such appointment
continues undischarged or such proceeding continues
undismissed or unstayed for a period of 30 consecutive days.
7.8. Any court, government or governmental agency
shall condemn, seize or otherwise appropriate, or take
custody or control of, all or any portion of the Property of
the Borrower and its Subsidiaries which, when taken together
with all other Property of the Borrower and its Subsidiaries
so condemned, seized, appropriated, or taken custody or
control of, during the twelve-month period ending with the
month in which any such action occurs, constitutes a
Substantial Portion.
7.9. The Borrower or any of its Significant
Subsidiaries shall fail within 30 days to pay, bond or
otherwise discharge any judgment or order for the payment of
money in excess of $15,000,000 (either singly or in the
aggregate with other such judgments), which is not stayed on
appeal or otherwise being appropriately contested in good
faith.
ARTICLE VIII
ACCELERATION, WAIVERS, AMENDMENTS AND REMEDIES
8.1. Acceleration. If any Default described in
Section 7.6 or 7.7 occurs with respect to the Borrower, the
obligations of the Lenders to make Loans hereunder shall
automatically terminate and the Obligations shall immediately
become due and payable without any election or action on the
part of the Administrative Agent or any Lender. If any other
Default occurs, the Required Lenders (or the Administrative
Agent with the consent of the Required Lenders) may terminate
or suspend the obligations of the Lenders to make Loans
hereunder, or declare the Obligations to be due and payable,
or both, whereupon the Obligations shall become immediately
due and payable, without presentment, demand, protest or
notice of any kind, all of which the Borrower hereby
expressly waives.
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If, within 30 days after acceleration of the maturity of
the Obligations or termination of the obligations of the
Lenders to make Loans hereunder as a result of any Default
(other than any Default as described in Section 7.6 or 7.7
with respect to the Borrower) and before any judgment or
decree for the payment of the Obligations due shall have been
obtained or entered, the Required Lenders (in their sole
discretion) shall so direct, the Administrative Agent shall,
by notice to the Borrower, rescind and annul such
acceleration and/or termination.
8.2. Amendments. Subject to the provisions of this
Article VIII, the Required Lenders (or the Administrative
Agent with the consent in writing of the Required Lenders)
and the Borrower may enter into agreements supplemental
hereto for the purpose of adding or modifying any provisions
to the Loan Documents or changing in any manner the rights of
the Lenders or the Borrower hereunder or waiving any Default
hereunder; provided, however, that no such supplemental
agreement shall, without the consent of all of the Lenders:
(i) Extend the final maturity of any Loan or
forgive all or any portion of the principal amount
thereof, or reduce the rate or extend the time of
payment of interest or fees thereon.
(ii) Reduce the percentage specified in the
definition of Required Lenders.
(iii) Extend the Facility Termination Date, or
reduce the amount or extend the payment date for,
the mandatory payments required under Section 2.2,
or increase the amount of the Commitment of any
Lender hereunder, or permit the Borrower to assign
its rights under this Agreement.
(iv) Amend this Section 8.2.
No amendment of any provision of this Agreement relating to
the Administrative Agent shall be effective without the
written consent of the Administrative Agent. The
Administrative Agent may waive payment of the fee required
under Section 12.3.2 without obtaining the consent of any
other party to this Agreement.
8.3. Preservation of Rights. No delay or omission
of the Lenders or the Administrative Agent to exercise any
right under the Loan Documents shall impair such right or be
construed to be a waiver of any Default or an acquiescence
therein, and the making of a Loan notwithstanding the
existence of a Default or the inability of the Borrower to
satisfy the conditions precedent to such Loan shall not
constitute any waiver or acquiescence. Any single or partial
exercise of any such right shall not preclude other or
further exercise thereof or the exercise of any other right,
and no waiver, amendment or other variation of the terms,
conditions or provisions of the Loan Documents whatsoever
shall be valid unless in writing signed by the Lenders
required pursuant to Section 8.2, and then only to the extent
in such writing specifically set forth. All remedies
contained in the Loan Documents or by law
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afforded shall be cumulative and all shall be available to the
Administrative Agent and the Lenders until the Obligations have
been paid in full.
ARTICLE IX
GENERAL PROVISIONS
9.1. Survival of Representations. All
representations and warranties of the Borrower contained in
this Agreement shall survive the making of the Loans herein
contemplated.
9.2. Governmental Regulation. Anything contained
in this Agreement to the contrary notwithstanding, no Lender
shall be obligated to extend credit to the Borrower in
violation of any limitation or prohibition provided by any
applicable statute or regulation.
9.3. Headings. Section headings in the Loan
Documents are for convenience of reference only, and shall
not govern the interpretation of any of the provisions of the
Loan Documents.
9.4. Entire Agreement. The Loan Documents embody
the entire agreement and understanding among the Borrower,
the Administrative Agent and the Lenders and supersede all
prior agreements and understandings among the Borrower, the
Administrative Agent and the Lenders relating to the subject
matter thereof other than the fee letter described in Section
10.13.
9.5. Several Obligations; Benefits of this
Agreement. The respective obligations of the Lenders
hereunder are several and not joint and no Lender shall be
the partner or agent of any other (except to the extent to
which the Administrative Agent is authorized to act as such).
The failure of any Lender to perform any of its obligations
hereunder shall not relieve any other Lender from any of its
obligations hereunder. This Agreement shall not be construed
so as to confer any right or benefit upon any Person other
than the parties to this Agreement and their respective
successors and assigns, provided, however, that the parties
hereto expressly agree that the Arranger shall enjoy the
benefits of the provisions of Sections 9.6, 9.10 and 10.11 to
the extent specifically set forth therein and shall have the
right to enforce such provisions on its own behalf and in its
own name to the same extent as if it were a party to this
Agreement.
9.6. Expenses; Indemnification. (i) The Borrower
shall reimburse the Administrative Agent and the Arranger for
any reasonable costs, internal charges and out-of-pocket
expenses (including attorneys' fees and time charges of
attorneys for the Administrative Agent, which attorneys may
be employees of the Administrative Agent) paid or incurred by
the Administrative Agent or the Arranger in connection with
the preparation,
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negotiation, execution, delivery, syndication, review, amendment,
modification, and administration of the Loan Documents. The
Borrower also agrees to reimburse the Administrative Agent, the
Arranger and the Lenders for any costs, internal charges and
out-of-pocket expenses (including attorneys' fees and time
charges of attorneys for the Administrative Agent, the
Arranger and the Lenders, which attorneys may be employees of
the Administrative Agent, the Arranger or the Lenders) paid
or incurred by the Administrative Agent, the Arranger or any
Lender in connection with the collection and enforcement of
the Loan Documents.
(ii) The Borrower hereby further agrees to indemnify
the Administrative Agent, the Arranger and each Lender, its
directors, officers and employees against all losses, claims,
damages, penalties, judgments, liabilities and expenses
(including, without limitation, all expenses of litigation or
preparation therefor whether or not the Administrative Agent,
the Arranger or any Lender is a party thereto) which any of
them may pay or incur arising out of or relating to this
Agreement, the other Loan Documents, the transactions
contemplated hereby or the direct or indirect application or
proposed application of the proceeds of any Loan hereunder
except to the extent that they are determined in a final non-
appealable judgment by a court of competent jurisdiction to
have resulted from the gross negligence or willful misconduct
of the party seeking indemnification. The obligations of
the Borrower under this Section 9.6 shall survive the payment
of the Obligations and termination of this Agreement.
9.7. Numbers of Documents. All statements,
notices, closing documents, and requests hereunder shall be
furnished to the Administrative Agent with sufficient
counterparts so that the Administrative Agent may furnish one
to each of the Lenders.
9.8. Accounting. Except as provided to the
contrary herein, all accounting terms used herein shall be
interpreted and all accounting determinations hereunder shall
be made in accordance with GAAP.
9.9. Severability of Provisions. Any provision in any
Loan Document that is held to be inoperative, unenforceable,
or invalid in any jurisdiction shall, as to that
jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that
jurisdiction or the operation, enforceability, or validity of
that provision in any other jurisdiction, and to this end the
provisions of all Loan Documents are declared to be
severable.
9.10. Nonliability of Lenders. The relationship
between the Borrower on the one hand and the Lenders and the
Administrative Agent on the other hand shall be solely that
of borrower and lender. Neither the Administrative Agent,
the Arranger nor any Lender shall have any fiduciary
responsibilities to the Borrower. Neither the Administrative
Agent, the Arranger nor any Lender undertakes any
responsibility to the Borrower to review or inform the
Borrower of any matter in connection with any phase of the
Borrower's business or operations. The Borrower agrees that
neither the Administrative Agent, the Arranger nor
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any Lender shall have liability to the Borrower (whether sounding
in tort, contract or otherwise) for losses suffered by the
Borrower in connection with, arising out of, or in any way
related to, the transactions contemplated and the
relationship established by the Loan Documents, or any act,
omission or event occurring in connection therewith, unless
it is determined in a final non-appealable judgment by a
court of competent jurisdiction that such losses resulted
from the gross negligence or willful misconduct of the party
from which recovery is sought. Neither the Administrative
Agent, the Arranger nor any Lender shall have any liability
with respect to, and the Borrower hereby waives, releases and
agrees not to sue for, any special, indirect or consequential
damages suffered by the Borrower in connection with, arising
out of, or in any way related to the Loan Documents or the
transactions contemplated thereby.
9.11. Confidentiality. Each Lender agrees to hold
any confidential information which it may receive from the
Borrower pursuant to this Agreement in confidence, except for
disclosure (i) to its Affiliates and to other Lenders and
their respective Affiliates, (ii) to legal counsel,
accountants, and other professional advisors to that Lender
or to a Transferee, (iii) to regulatory officials, (iv) to
any Person as requested pursuant to or as required by law,
regulation, or legal process, (v) to any Person in connection
with any legal proceeding to which that Lender is a party and
(vi) permitted by Section 12.4.
9.12. Nonreliance. Each Lender hereby represents
that it is not relying on or looking to any margin stock (as
defined in Regulation U of the Board of Governors of the
Federal Reserve System) for the repayment of the Loans
provided for herein.
ARTICLE X
THE AGENTS
10.1. Appointment; Nature of Relationship. The
First National Bank of Chicago is hereby appointed by each of
the Lenders as its contractual representative (herein
referred to as the "Administrative Agent") hereunder and
under each other Loan Document, and each of the Lenders
irrevocably authorizes the Administrative Agent to act as the
contractual representative of such Lender with the rights and
duties expressly set forth herein and in the other Loan
Documents. The Administrative Agent agrees to act as such
contractual representative upon the express conditions
contained in this Article X. Notwithstanding the use of the
defined term "Administrative Agent," it is expressly
understood and agreed that the Administrative Agent shall not
have any fiduciary responsibilities to any Lender by reason
of this Agreement or any other Loan Document and that the
Administrative Agent is merely acting as the contractual
representative of the Lenders with only those duties as are
expressly set forth in this Agreement and the other Loan
Documents. In its capacity as the Lenders' contractual
representative, the Administrative Agent (i) does not hereby
assume any
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fiduciary duties to any of the Lenders, (ii) is a
"representative" of the Lenders within the meaning of Section
9-105 of the Uniform Commercial Code and (iii) is acting as
an independent contractor, the rights and duties of which are
limited to those expressly set forth in this Agreement and
the other Loan Documents. Each of the Lenders hereby agrees
to assert no claim against the Administrative Agent on any
agency theory or any other theory of liability for breach of
fiduciary duty, all of which claims each Lender hereby
waives. Each Lender hereby appoints NationsBank, N.A. as
Documentation Agent for the Lenders. The Documentation
Agent, in its capacity as such, shall have no rights, duties
or responsibilities hereunder or under any other Loan
Document.
10.2. Powers. The Administrative Agent shall have
and may exercise such powers under the Loan Documents as are
specifically delegated to the Administrative Agent by the
terms of each thereof, together with such powers as are
reasonably incidental thereto. The Administrative Agent
shall have no implied duties to the Lenders, or any
obligation to the Lenders to take any action thereunder
except any action specifically provided by the Loan Documents
to be taken by the Administrative Agent.
10.3. General Immunity. Neither the Administrative
Agent nor any of its directors, officers, agents or employees
shall be liable to the Borrower, the Lenders or any Lender
for any action taken or omitted to be taken by it or them
hereunder or under any other Loan Document or in connection
herewith or therewith except to the extent such action or
inaction is determined in a final non-appealable judgment by
a court of competent jurisdiction to have arisen from the
gross negligence or willful misconduct of such Person.
10.4. No Responsibility for Loans, Recitals, etc.
Neither the Administrative Agent nor any of its directors,
officers, agents or employees shall be responsible for or
have any duty to ascertain, inquire into, or verify (a) any
statement, warranty or representation made in connection with
any Loan Document or any borrowing hereunder; (b) the
performance or observance of any of the covenants or
agreements of any obligor under any Loan Document, including,
without limitation, any agreement by an obligor to furnish
information directly to each Lender; (c) the satisfaction of
any condition specified in Article IV, except receipt of
items required to be delivered solely to the Administrative
Agent; (d) the existence or possible existence of any Default
or Unmatured Default; (e) the validity, enforceability,
effectiveness, sufficiency or genuineness of any Loan
Document or any other instrument or writing furnished in
connection therewith; (f) the value, sufficiency, creation,
perfection or priority of any Lien in any collateral
security; or (g) the financial condition of the Borrower or
any guarantor of any of the Obligations or of any of the
Borrower's or any such guarantor's respective Subsidiaries.
The Administrative Agent shall have no duty to disclose to
the Lenders information that is not required to be furnished
by the Borrower to the Administrative Agent at such time, but
is voluntarily furnished by the Borrower to the
Administrative Agent (either in its capacity as
Administrative Agent or in its individual capacity).
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10.5. Action on Instructions of Lenders. The
Administrative Agent shall in all cases be fully protected in
acting, or in refraining from acting, hereunder and under any
other Loan Document in accordance with written instructions
signed by the Required Lenders, and such instructions and any
action taken or failure to act pursuant thereto shall be
binding on all of the Lenders. The Lenders hereby
acknowledge that the Administrative Agent shall be under no
duty to take any discretionary action permitted to be taken
by it pursuant to the provisions of this Agreement or any
other Loan Document unless it shall be requested in writing
to do so by the Required Lenders. The Administrative Agent
shall be fully justified in failing or refusing to take any
action hereunder and under any other Loan Document unless it
shall first be indemnified to its satisfaction by the Lenders
pro rata against any and all liability, cost and expense that
it may incur by reason of taking or continuing to take any
such action.
10.6. Employment of Administrative Agents and
Counsel. The Administrative Agent may execute any of its
duties as Administrative Agent hereunder and under any other
Loan Document by or through employees, agents, and
attorneys-in-fact and shall not be answerable to the Lenders,
except as to money or securities received by it or its
authorized agents, for the default or misconduct of any such
agents or attorneys-in-fact selected by it with reasonable
care. The Administrative Agent shall be entitled to advice
of counsel concerning the contractual arrangement between the
Administrative Agent and the Lenders and all matters
pertaining to the Administrative Agent's duties hereunder and
under any other Loan Document.
10.7. Reliance on Documents; Counsel. The
Administrative Agent shall be entitled to rely upon any Note,
notice, consent, certificate, affidavit, letter, telegram,
statement, paper or document believed by it to be genuine and
correct and to have been signed or sent by the proper person
or persons, and, in respect to legal matters, upon the
opinion of counsel selected by the Administrative Agent,
which counsel may be employees of the Administrative Agent.
10.8. Administrative Agent's Reimbursement and
Indemnification. The Lenders agree to reimburse and
indemnify the Administrative Agent ratably in proportion to
their respective Commitments (or, if the Commitments have
been terminated, in proportion to their Commitments
immediately prior to such termination) (i) for any amounts
not reimbursed by the Borrower for which the Administrative
Agent is entitled to reimbursement by the Borrower under the
Loan Documents, (ii) for any other expenses incurred by the
Administrative Agent on behalf of the Lenders, in connection
with the preparation, execution, delivery, administration and
enforcement of the Loan Documents (including, without
limitation, for any expenses incurred by the Administrative
Agent in connection with any dispute between the
Administrative Agent and any Lender or between two or more of
the Lenders) and (iii) for any liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind and nature whatsoever
which may be imposed on, incurred by or asserted against the
Administrative Agent in any way relating to or arising out of
the Loan Documents or any other document delivered in
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connection therewith or the transactions contemplated thereby
(including, without limitation, for any such amounts incurred
by or asserted against the Administrative Agent in connection
with any dispute between the Administrative Agent and any
Lender or between two or more of the Lenders), or the
enforcement of any of the terms of the Loan Documents or of
any such other documents, provided that no Lender shall be
liable for any of the foregoing to the extent any of the
foregoing is found in a final non-appealable judgment by a
court of competent jurisdiction to have resulted from the
gross negligence or willful misconduct of the Administrative
Agent. The obligations of the Lenders under this Section
10.8 shall survive payment of the Obligations and termination
of this Agreement.
10.9. Notice of Default. The Administrative Agent
shall not be deemed to have knowledge or notice of the
occurrence of any Default or Unmatured Default hereunder
unless the Administrative Agent has received written notice
from a Lender or the Borrower referring to this Agreement
describing such Default or Unmatured Default and stating that
such notice is a "notice of default". In the event that the
Administrative Agent receives such a notice, the
Administrative Agent shall give prompt notice thereof to the
Lenders.
10.10. Rights as a Lender. In the event the
Administrative Agent is a Lender, the Administrative Agent
shall have the same rights and powers hereunder and under any
other Loan Document with respect to its Commitment and its
Loans as any Lender and may exercise the same as though it
were not the Administrative Agent, and the term "Lender" or
"Lenders" shall, at any time when the Administrative Agent is
a Lender, unless the context otherwise indicates, include the
Administrative Agent in its individual capacity. The
Administrative Agent and its Affiliates may accept deposits
from, lend money to, and generally engage in any kind of
trust, debt, equity or other transaction, in addition to
those contemplated by this Agreement or any other Loan
Document, with the Borrower or any of its Subsidiaries in
which the Borrower or such Subsidiary is not restricted
hereby from engaging with any other Person.
10.11. Lender Credit Decision. Each Lender
acknowledges that it has, independently and without reliance
upon the Administrative Agent, the Arranger or any other
Lender and based on the financial statements prepared by the
Borrower and such other documents and information as it has
deemed appropriate, made its own credit analysis and decision
to enter into this Agreement and the other Loan Documents.
Each Lender also acknowledges that it will, independently and
without reliance upon the Administrative Agent, the Arranger
or any other Lender and based on such documents and
information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not
taking action under this Agreement and the other Loan
Documents.
10.12. Successor Administrative Agent. The
Administrative Agent may resign at any time by giving written
notice thereof to the Lenders and the Borrower, such
resignation to be effective upon the appointment of a
successor Administrative Agent or, if no successor
Administrative Agent has been appointed, forty-five days
after the retiring Administrative Agent gives notice of its
intention to resign. The Administrative Agent may be removed at
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any time with or without cause by written notice received
by the Administrative Agent from the Required Lenders, such
removal to be effective on the date specified by the Required
Lenders. Upon any such resignation or removal, the Required
Lenders shall have the right to appoint, on behalf of the
Borrower and the Lenders, a successor Administrative Agent.
If no successor Administrative Agent shall have been so
appointed by the Required Lenders within thirty days after
the resigning Administrative Agent's giving notice of its
intention to resign, then the resigning Administrative Agent
may appoint, on behalf of the Borrower and the Lenders, a
successor Administrative Agent. Notwithstanding the previous
sentence, the Administrative Agent may at any time without
the consent of the Borrower or any Lender, appoint any of its
Affiliates which is a commercial bank as a successor
Administrative Agent hereunder. If the Administrative Agent
has resigned or been removed and no successor Administrative
Agent has been appointed, the Lenders may perform all the
duties of the Administrative Agent hereunder and the Borrower
shall make all payments in respect of the Obligations to the
applicable Lender and for all other purposes shall deal
directly with the Lenders. No successor Administrative Agent
shall be deemed to be appointed hereunder until such
successor Administrative Agent has accepted the appointment.
Any such successor Administrative Agent shall be a commercial
bank having capital and retained earnings of at least
$100,000,000. Upon the acceptance of any appointment as
Administrative Agent hereunder by a successor Administrative
Agent, such successor Administrative Agent shall thereupon
succeed to and become vested with all the rights, powers,
privileges and duties of the resigning or removed
Administrative Agent. Upon the effectiveness of the
resignation or removal of the Administrative Agent, the
resigning or removed Administrative Agent shall be discharged
from its duties and obligations hereunder and under the Loan
Documents. After the effectiveness of the resignation or
removal of an Administrative Agent, the provisions of this
Article X shall continue in effect for the benefit of such
Administrative Agent in respect of any actions taken or
omitted to be taken by it while it was acting as the
Administrative Agent hereunder and under the other Loan
Documents. In the event that there is a successor to the
Administrative Agent by merger, or the Administrative Agent
assigns its duties and obligations to an Affiliate pursuant
to this Section 10.12, then the term "Corporate Base Rate" as
used in this Agreement shall mean the prime rate, base rate
or other analogous rate of the new Administrative Agent.
10.13. Administrative Agent's Fee. The Borrower agrees
to pay to the Administrative Agent, for its own account, the
fees agreed to by the Borrower and the Administrative Agent
pursuant to that certain letter agreement dated July 3, 1998,
or as otherwise agreed from time to time.
10.14. Delegation to Affiliates. The Borrower and the
Lenders agree that the Administrative Agent may delegate any
of its duties under this Agreement to any of its Affiliates.
Any such Affiliate (and such Affiliate's directors, officers,
agents and employees) which performs duties in connection
with this Agreement shall be entitled to the same benefits of
the indemnification, waiver and other protective provisions
to which the Administrative Agent is entitled under Articles
IX and X.
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ARTICLE XI
SETOFF; RATABLE PAYMENTS
11.1. Setoff. In addition to, and without
limitation of, any rights of the Lenders under applicable
law, if the Borrower becomes insolvent, however evidenced, or
any Default occurs, any and all deposits (including all
account balances, whether provisional or final and whether or
not collected or available) and any other Indebtedness at any
time held or owing by any Lender or any Affiliate of any
Lender to or for the credit or account of the Borrower may be
offset and applied toward the payment of the Obligations
owing to such Lender, whether or not the Obligations, or any
part hereof, shall then be due.
11.2. Ratable Payments. If any Lender, whether by
setoff or otherwise, has payment made to it upon its Loans
(other than payments received pursuant to Section 3.1, 3.2,
3.4 or 3.5) in a greater proportion than that received by any
other Lender, such Lender agrees, promptly upon demand, to
purchase a portion of the Loans held by the other Lenders so
that after such purchase each Lender will hold its ratable
proportion of Loans. If any Lender, whether in connection
with setoff or amounts which might be subject to setoff or
otherwise, receives collateral or other protection for its
Obligations or such amounts which may be subject to setoff,
such Lender agrees, promptly upon demand, to take such action
necessary such that all Lenders share in the benefits of such
collateral ratably in proportion to their Loans. In case any
such payment is disturbed by legal process, or otherwise,
appropriate further adjustments shall be made.
ARTICLE XII
BENEFIT OF AGREEMENT; ASSIGNMENTS; PARTICIPATIONS
12.1. Successors and Assigns. The terms and
provisions of the Loan Documents shall be binding upon and
inure to the benefit of the Borrower and the Lenders and
their respective successors and assigns, except that (i) the
Borrower shall not have the right to assign its rights or
obligations under the Loan Documents and (ii) any assignment
by any Lender must be made in compliance with Section 12.3.
Notwithstanding clause (ii) of this Section, any Lender may
at any time, without the consent of the Borrower or the
Administrative Agent, assign all or any portion of its rights
under this Agreement and any Note to a Federal Reserve Bank;
provided, however, that no such assignment to a Federal
Reserve Bank shall release the transferor Lender from its
obligations hereunder. The Administrative Agent may treat
the Person which made any Loan or which holds any Note as the
owner thereof for all purposes hereof unless and until such
Person complies with Section 12.3 in the case of an
assignment thereof or, in the case of any other transfer, a
written notice of the transfer is filed with the
Administrative Agent. Any assignee or transferee of
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the rights to any Loan or any Note agrees by acceptance of such
transfer or assignment to be bound by all the terms and
provisions of the Loan Documents. Any request, authority or
consent of any Person, who at the time of making such request
or giving such authority or consent is the owner of the
rights to any Loan (whether or not a Note has been issued in
evidence thereof), shall be conclusive and binding on any
subsequent holder, transferee or assignee of the rights to
such Loan.
12.2. Participations.
12.2.1. Permitted Participants; Effect. Any
Lender may, in the ordinary course of its business and
in accordance with applicable law, at any time sell to
one or more banks or other entities ("Participants")
participating interests in any Loan owing to such
Lender, any Note held by such Lender, any Commitment of
such Lender or any other interest of such Lender under
the Loan Documents. In the event of any such sale by a
Lender of participating interests to a Participant, such
Lender's obligations under the Loan Documents shall
remain unchanged, such Lender shall remain solely
responsible to the other parties hereto for the
performance of such obligations, such Lender shall
remain the owner of its Loans and the holder of any Note
issued to it in evidence thereof for all purposes under
the Loan Documents, all amounts payable by the Borrower
under this Agreement shall be determined as if such
Lender had not sold such participating interests, and
the Borrower and the Administrative Agent shall continue
to deal solely and directly with such Lender in
connection with such Lender's rights and obligations
under the Loan Documents.
12.2.2. Voting Rights. Each Lender shall retain
the sole right to approve, without the consent of any
Participant, any amendment, modification or waiver of
any provision of the Loan Documents other than any
amendment, modification or waiver with respect to any
Loan or Commitment in which such Participant has an
interest which forgives principal, interest or fees or
reduces the interest rate or fees payable with respect
to any such Loan or Commitment, extends the Facility
Termination Date or postpones any date fixed for any
regularly-scheduled payment of principal of, or interest
or fees on, any such Loan or Commitment.
12.2.3. Benefit of Setoff. The Borrower agrees
that each Participant shall be deemed to have the right
of setoff provided in Section 11.1 in respect of its
participating interest in amounts owing under the Loan
Documents to the same extent as if the amount of its
participating interest were owing directly to it as a
Lender under the Loan Documents, provided that each
Lender shall retain the right of setoff provided in
Section 11.1 with respect to the amount of participating
interests sold to each Participant. The Lenders agree
to share with each Participant, and each Participant, by
exercising the right of setoff provided in Section 11.1,
agrees to share with each Lender, any amount received
pursuant to the exercise of its right of setoff, such
amounts to be shared in accordance with Section 11.2 as
if each Participant were a Lender.
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12.3. Assignments.
12.3.1. Permitted Assignments. Any Lender may, in
the ordinary course of its business and in accordance
with applicable law, at any time assign to one or more
banks or other entities ("Purchasers") all or any part
of its rights and obligations under the Loan Documents.
Such assignment shall be substantially in the form of
Exhibit C or in such other form as may be agreed to by
the parties thereto. The consent of the Borrower and
the Administrative Agent shall be required prior to an
assignment becoming effective with respect to a
Purchaser which is not a Lender or an Affiliate thereof;
provided, however, that if a Default has occurred and is
continuing, the consent of the Borrower shall not be
required. Such consent shall not be unreasonably
withheld or delayed. Each such assignment shall (unless
each of the Borrower and the Administrative Agent
otherwise consents) be in an amount not less than the
lesser of (i) $10,000,000 or (ii) the remaining amount
of the assigning Lender's Commitment (calculated as at
the date of such assignment).
12.3.2. Effect; Effective Date. Upon (i) delivery
to the Administrative Agent of a notice of assignment,
substantially in the form attached as Exhibit I to
Exhibit C (a "Notice of Assignment"), together with any
consents required by Section 12.3.1, and (ii) payment of
a $3,000 fee to the Administrative Agent for processing
such assignment, such assignment shall become effective
on the effective date specified in such Notice of
Assignment. The Notice of Assignment shall contain a
representation by the Purchaser to the effect that none
of the consideration used to make the purchase of the
Commitment and Loans under the applicable assignment
agreement are "plan assets" as defined under ERISA and
that the rights and interests of the Purchaser in and
under the Loan Documents will not be "plan assets" under
ERISA. On and after the effective date of such
assignment, such Purchaser shall for all purposes be a
Lender party to this Agreement and any other Loan
Document executed by or on behalf of the Lenders and
shall have all the rights and obligations of a Lender
under the Loan Documents, to the same extent as if it
were an original party hereto, and no further consent or
action by the Borrower, the Lenders or the
Administrative Agent shall be required to release the
transferor Lender with respect to the percentage of the
Aggregate Commitment and Loans assigned to such
Purchaser. Upon the consummation of any assignment to a
Purchaser pursuant to this Section 12.3.2, the
transferor Lender, the Administrative Agent and the
Borrower shall, if the transferor Lender or the
Purchaser desires that its Loans be evidenced by Notes,
make appropriate arrangements so that new Notes or, as
appropriate, replacement Notes are issued to such
transferor Lender and new Notes or, as appropriate,
replacement Notes, are issued to such Purchaser, in each
case in principal amounts reflecting their respective
Commitments, as adjusted pursuant to such assignment.
12.3.3. Substitution of Lenders. In the event any
Lender's long term unsecured debt rating falls below Aa3
from Moody's or AA- from S&P, the Borrower may designate
another financial institution which is acceptable to the
Administrative
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Agent in its sole discretion, to purchase, pursuant to
this Section 12.3, the Loans and Commitment of such
Lender and such Lender's rights hereunder, without
recourse to or warranty by, or expense to, such Lender
for a purchase price equal to the outstanding principal amount
of the Loans payable to such Lender plus any accrued but
unpaid interest on such Loans and accrued but unpaid
commitment fees and any other amounts payable to
such Lender under this Agreement, and to assume all the
obligations of such Lender hereunder.
12.4. Dissemination of Information. The Borrower
authorizes each Lender to disclose to any Participant or
Purchaser or any other Person acquiring an interest in the
Loan Documents by operation of law (each a "Transferee") and
any prospective Transferee any and all information in such
Lender's possession concerning the creditworthiness of the
Borrower and its Subsidiaries; provided that each Transferee
and prospective Transferee agrees to be bound by Section 9.11
of this Agreement.
12.5. Tax Treatment. If any interest in any Loan
Document is transferred to any Transferee which is organized
under the laws of any jurisdiction other than the United
States or any State thereof, the transferor Lender shall
cause such Transferee, concurrently with the effectiveness of
such transfer, to comply with the provisions of Section
3.5(iv).
ARTICLE XIII
NOTICES
13.1. Notices. Except as otherwise permitted by
Section 2.13 with respect to borrowing notices, all notices,
requests and other communications to any party hereunder
shall be in writing (including electronic transmission,
facsimile transmission or similar writing) and shall be given
to such party: (x) in the case of the Borrower or the
Administrative Agent, at its address or facsimile number set
forth on the signature pages hereof, (y) in the case of any
Lender, at its address or facsimile number set forth below
its signature hereto or (z) in the case of any party, at such
other address or facsimile number as such party may hereafter
specify for the purpose by notice to the Administrative Agent
and the Borrower in accordance with the provisions of this
Section 13.1. Each such notice, request or other
communication shall be effective (i) if given by facsimile
transmission, when transmitted to the facsimile number
specified in this Section and confirmation of receipt is
received, (ii) if given by mail, 72 hours after such
communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid, or (iii) if given by
any other means, when delivered (or, in the case of
electronic transmission, received) at the address specified
in this Section; provided that notices to the Administrative
Agent under Article II shall not be effective until received.
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<PAGE>
13.2. Change of Address. The Borrower, the
Administrative Agent and any Lender may each change the
address for service of notice upon it by a notice in writing
to the other parties hereto.
ARTICLE XIV
COUNTERPARTS
This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute
one agreement, and any of the parties hereto may execute this
Agreement by signing any such counterpart. This Agreement
shall be effective when it has been executed by the Borrower,
the Administrative Agent and the Lenders and each party has
notified the Administrative Agent by facsimile transmission
or telephone that it has taken such action.
ARTICLE XV
CHOICE OF LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL
15.1. CHOICE OF LAW. THE LOAN DOCUMENTS (OTHER THAN
THOSE CONTAINING A CONTRARY EXPRESS CHOICE OF LAW PROVISION)
SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND
NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
15.2. CONSENT TO JURISDICTION. THE BORROWER HEREBY
IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF ANY
UNITED STATES FEDERAL OR ILLINOIS STATE COURT SITTING IN
CHICAGO, ILLINOIS IN ANY ACTION OR PROCEEDING ARISING OUT OF
OR RELATING TO ANY LOAN DOCUMENTS AND THE BORROWER HEREBY
IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION
OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT
AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER
HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING
BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT
FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR
ANY LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE
COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY
THE BORROWER AGAINST THE AGENT OR ANY LENDER OR ANY AFFILIATE
OF THE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY,
ANY MATTER IN
Page 44
<PAGE>
ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY
LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN CHICAGO,
ILLINOIS.
15.3. WAIVER OF JURY TRIAL. THE BORROWER, THE AGENT
AND EACH LENDER HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL
PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER
(WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY
ARISING OUT OF, RELATED TO, OR CONNECTED WITH ANY LOAN
DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER.
Page 45
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Lenders and the
Administrative Agent have executed this Agreement as of the
date first above written.
KANSAS CITY POWER & LIGHT COMPANY
By: /s/Andrea F. Bielsker
Title: Treasurer
1200 Walnut
Kansas City, Missouri 64141
Attention: Andrea F. Bielsker,
Treasurer
Telephone: (816) 556-2595
FAX: (816) 556-2992
Commitments
- -----------
$22,000,000 THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Administrative Agent
By: /s/William N. Banks
Title: First Vice President
One First National Plaza
Chicago, Illinois 60670
Attention: William N. Banks
Telephone: (312) 732-9781
FAX: (312) 732-3055
$22,000,000 NATIONSBANK, N.A.,
Individually and as Documentation Agent
By: /s/Curtis L. Anderson
Title: Senior Vice President
901 Main Street
Dallas, Texas 75202
Attention: Curtis L. Anderson
Telephone: (214) 508-1290
FAX: (214) 508-3943
$18,000,000 ABN AMRO BANK, N.V.
By: /s/Mark R. Lasek
Title: Vice President
By: /s/Robert E. Lee IV
Title: Assistant Vice President
135 South LaSalle Street
Chicago, Illinois 60603
Attention: Mark Lasek
Telephone: (312) 904-2074
FAX: (312) 904-1466
$18,000,000 THE BANK OF NOVA SCOTIA, ATLANTA OFFICE
By: /s/F. C. H. Ashby
Title: Senior Manager Loan Operations
600 Peachtree Street N.E., Suite 2700
Atlanta, GA 30308
Attention: Vicki Gibson
Telephone: (404) 877-1557
FAX: (404) 888-8998
$15,000,000 THE BANK OF NEW YORK
By: /s/Ian K. Stewart
Title: Senior Vice President
One Wall Street, 19th Floor
New York, NY 10286
Attention: Nate Howard
Telephone: (212) 635-7916
FAX: (212) 635-7923
$15,000,000 WESTDEUTSCHE LANDESBANK GIROZENTRALE
By: /s/Lisa Walker
Title: Vice President
By: /s/Elisabeth R. Wilds
Title: Associate
1211 Ave of the Americas
New York, NY 10036
Attention: Cheryl Y. Wilson
Telephone: (212) 852-6152
FAX: (212 302-7946
$110,000,000
============
<PAGE>
Exhibit 10(b)
EQUIPMENT LEASING AGREEMENT
dated as of September 8, 1998
between
CCG TRUST CORPORATION,
as the Lessor
and
KANSAS CITY POWER & LIGHT COMPANY,
as the Lessee
THIS IS COUNTERPART NO. 2 OF 5 SERIALLY NUMBERED MANUALLY EXECUTED
COUNTERPARTS. TO THE EXTENT, IF ANY, THAT THIS DOCUMENT CONSTITUTES
CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL CODE, NO SECURITY
INTEREST IN THIS DOCUMENT MAY BE PERFECTED THROUGH THE POSSESSION
OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1.
<PAGE>
TABLE OF CONTENTS
1. Definitions; Construction. . . . . . . . . . . . . . .1
2. Agreement for Purchase and Lease of Equipment. . . . 10
(a) Purchase. . . . . . . . . . . . . . . . . . . . 10
(b) Lease . . . . . . . . . . . . . . . . . . . . . 10
3. Conditions Precedent . . . . . . . . . . . . . . . . 10
4. Delivery, Acceptance and Leasing of Equipment;
Funding . . . . . . . . . . . . . . . . . . . . . . 11
(a) Delivery, Acceptance and Leasing. . . . . . . . 11
(b) Funding . . . . . . . . . . . . . . . . . . . . 12
(c) Characterization. . . . . . . . . . . . . . . . 12
5. Term . . . . . . . . . . . . . . . . . . . . . . . . 12
6. Return of Equipment. . . . . . . . . . . . . . . . . 12
7. Basic Rent and Other Payments. . . . . . . . . . . . 14
(a) Basic Rent. . . . . . . . . . . . . . . . . . . 14
(b) Supplemental Payments . . . . . . . . . . . . . 15
(c) Method of Payment . . . . . . . . . . . . . . . 15
8. Net Lease. . . . . . . . . . . . . . . . . . . . . . 15
9. Use of Equipment; Compliance with Laws . . . . . . . 16
10. Maintenance and Repair of Equipment. . . . . . . . . 17
11. Replacements; Alterations: Modifications . . . . . . 17
12. Identification Marks; Inspection . . . . . . . . . . 18
13. Assignment and Subleasing; Quiet Enjoyment . . . . . 19
(a) By the Lessee . . . . . . . . . . . . . . . . . 19
(b) By the Lessor . . . . . . . . . . . . . . . . . 19
(c) Quiet Enjoyment . . . . . . . . . . . . . . . . 20
14. Liens. . . . . . . . . . . . . . . . . . . . . . . . 21
15. Loss, Damage or Destruction. . . . . . . . . . . . . 21
ii
<PAGE>
(a) Risk of Loss, Damage or Destruction . . . . . . 21
(b) Payment of Casualty Loss Value Upon an Event
of Loss . . . . . . . . . . . . . . . . . . . . 21
(c) Substitution. . . . . . . . . . . . . . . . . . 22
(d) Application of Payments Not Relating to an
Event of Loss . . . . . . . . . . . . . . . . . 23
16. Insurance. . . . . . . . . . . . . . . . . . . . . . 23
17. General Tax Indemnity. . . . . . . . . . . . . . . . 23
18. Indemnification. . . . . . . . . . . . . . . . . . . 27
19. No Warranties. . . . . . . . . . . . . . . . . . . . 29
20. Lessee's Representations and Warranties. . . . . . . 29
21. Events of Default. . . . . . . . . . . . . . . . . . 31
22. Remedies Upon Default. . . . . . . . . . . . . . . . 32
23. Lessor's Right to Perform for the Lessee . . . . . . 34
24. Late Charges . . . . . . . . . . . . . . . . . . . . 35
25. Further Assurances . . . . . . . . . . . . . . . . . 35
26. Notices. . . . . . . . . . . . . . . . . . . . . . . 35
27. Lessee's Renewal, Purchase and Sale Options. . . . . 35
(a) Lessee's Renewal Option . . . . . . . . . . . . 35
(b) Lessee's Purchase Option. . . . . . . . . . . . 36
(c) Third Party Sale of Equipment . . . . . . . . . 37
(i) Remarketing Obligations . . . . . . . . . . . . 37
(ii) Sale of Equipment . . . . . . . . . . . . . . . 37
28. End-of-Term Rental Adjustment - Third Party Sale
of Equipment . . . . . . . . . . . . . . . . . . . . 38
29. Covenants of the Lessee. . . . . . . . . . . . . . . 38
(a) Financial Information . . . . . . . . . . . . . 38
(b) Mergers, etc. . . . . . . . . . . . . . . . . . 39
(c) ERISA . . . . . . . . . . . . . . . . . . . . . 39
(d) ERISA Information . . . . . . . . . . . . . . . 39
(e) ERISA Notice. . . . . . . . . . . . . . . . . . 40
(f) Litigation. . . . . . . . . . . . . . . . . . . 40
iii
<PAGE>
30. Payment of Transaction Expenses. . . . . . . . . . . 40
31. Owner for Income Tax Purposes. . . . . . . . . . . . 40
32. Governing Law; Waiver of Jury Trial; Submission
to Jurisdiction . . . . . . . . . . . . . . . . . . 40
33. Miscellaneous. . . . . . . . . . . . . . . . . . . . 41
34. Registered Instrument. . . . . . . . . . . . . . . . 41
SCHEDULE I - NOTICE OF INFORMATION
SCHEDULE II - PRINCIPAL COMPONENT, UNAMORTIZED LEASE
BALANCE AND BASIC RENT PAYMENT
SCHEDULE III - FORM OF PURCHASE AGREEMENT ASSIGNMENT
EXHIBIT A - FORM OF LEASE SUPPLEMENT
EXHIBIT B - FORM OF FUNDING NOTICE
iv
<PAGE>
EQUIPMENT LEASING AGREEMENT
EQUIPMENT LEASING AGREEMENT dated as of September 8, 1998
(herein, as amended and supplemented from time to time, called
"this Lease"), between CCG Trust Corporation, a Barbados
corporation (together with its successors and permitted assigns
herein called the "Lessor"), having its principal place of
business at #1 Chelston Park, Collymore Rock, St. Michael,
Barbados, West Indies, and KANSAS CITY POWER & LIGHT COMPANY, a
Missouri corporation (together with its successors and permitted
assigns herein called the "Lessee"), having its principal place of
business at 1201 Walnut Street, Kansas City, Missouri 64106.
In consideration of the mutual covenants and agreements
hereinafter set forth, the parties hereto agree as follows:
1. Definitions; Construction.
(a) Definitions. Unless the context otherwise
requires, the following terms shall have the following
meanings for all purposes of this Lease and shall be equally
applicable to both the singular and the plural forms of the
terms herein defined:
"AAR" means the Association of American Railroads or any
successor thereto.
"Acceptance Date" for any Item of Equipment means the date
on which the Lessee has unconditionally accepted such Item for
lease hereunder, as evidenced by the Lessee's execution and
delivery of a Lease Supplement for such Item dated such date.
"Acquisition Cost" of each Item of Equipment means an amount
as reflected on Schedule II to the Lease Supplement equal to one-
hundred one percent (101%) of the total cost paid by the Lessor to
the Manufacturer for such Item.
"Affected Party" means the Lessor or any of its successors
and permitted assigns.
"Affiliate" of any Person means any other Person directly or
indirectly controlling, controlled by or under common control with
such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlled by"
and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether
through the ownership of voting securities or by contract or
otherwise.
"After Tax Basis" means, with respect to any payment to be
received, the amount of such payment increased so that, after
deduction of the amount of all taxes required to be paid by the
recipient (less any tax savings actually realized and the present
value (discounted at the then-prevailing Applicable Rate) of any
tax savings projected to be actually realized by the recipient as
1
<PAGE>
a result of, in the case of a cash basis taxpayer, the payment,
or, in the case of an accrual taxpayer, the accrual of the amount
in respect of which the indemnity payment is being made and in
respect of the indemnity amount) with respect to the receipt or
accrual by the recipient of such amounts, such increased payment
(as so reduced) is equal to the payment otherwise required to be
made.
"Applicable Law" shall mean all applicable laws, statutes,
treaties, rules, codes, ordinances, regulations, certificates,
orders, interpretations, licenses and permits of any Governmental
Authority (including the DOT, the FRA and the AAR Interchange
Rules) and judgments, decrees, injunctions, writs, orders or like
action of any court, arbitrator or other administrative, judicial
or quasi-judicial tribunal or agency of competent jurisdiction.
"Applicable Rate" means a per annum rate equal to 6.09% per
annum (calculated on the basis of a 30-day month and a 360-day
year).
"Appraisal" means, with respect to any Item, an appraisal of
the Fair Market Sales Value of such Item.
"Assignee" shall have the meaning given to such term in
Section 13(b) hereof.
"Basic Rent" means the rent payable for each Item of
Equipment during (i) the Basic Term thereof pursuant to Section
7(a) hereof and (ii) each Renewal Term thereof (if this Lease is
renewed) pursuant to Section 27(a) hereof.
"Basic Term" for each Item of Equipment means the period
commencing on the Basic Term Commencement Date and ending on the
first anniversary of such date unless extended by a Renewal Term
or earlier terminated in accordance with the provisions hereof.
"Basic Term Commencement Date" for each Item of Equipment
means the Acceptance Date.
"Business Day" means any day other than a day on which
banking institutions in the State of New York, Barbados, West
Indies, or the State of Missouri are authorized or required by law
to close.
"Casualty Loss Value" with respect to any Item of Equipment
as of the Casualty Loss Value Payment Date with respect to such
Item means an amount determined by multiplying the Acquisition
Cost of such Item of Equipment by the percentage set forth
opposite such Casualty Loss Value Payment Date on Schedule I
attached to the Lease Supplement for such Item.
"Casualty Loss Value Payment Date" with respect to any Item
of Equipment shall mean the earlier of (i) the day that is 90 days
after the date of the Event of Loss applicable to such Item or
(ii) the Rent Payment Date next following the date of the Event of
Loss applicable to such Item (or the last day of the Term, if
sooner) and shall be as set forth in the Schedule of Casualty Loss
2
<PAGE>
Values attached to the Lease Supplement for such Item but in no
event shall the Casualty Loss Value Payment date be sooner than
the first to occur of (a) receipt of the insurance proceeds or (b)
45 days after the date of the Event of Loss.
"Change in Withholding Tax Law" means (A) the enactment of
any amendment to the Code or the enactment of any other United
States Federal statute relating to Federal income tax regarding
withholding requirements for interest paid to non-United States
entities, (B) the adoption of any regulation to the Code, or any
amendment of any regulation to the Code, in temporary or final
form (that is, in a form that is effective) regarding withholding
requirements for interest paid to non-United States entities,
(C) the entry into force of any new income tax convention to which
the United States is a party or any amendment or supplement to, or
revocation of, any income tax convention to which the United
States is a party regarding withholding requirements for interest
paid to non-United States entities.
"Closing Date" means the date of the execution and delivery
of this Lease by the parties hereto.
"Code" means the Internal Revenue Code of 1986, as the same
may be amended from time to time, or any comparable successor law.
"Commitment Amount" means $12,710,071.20 plus the amounts
described in the definition of Transaction Expenses in an
aggregate maximum amount not to exceed that Maximum Acquisition
Cost.
"Default" means any condition or event that after notice or
lapse of time or both would constitute an Event of Default.
"Disclosure Documents" means the Lessee's (i) Annual Report
on Form 10-K for the year ended December 31, 1997, and
(ii) Quarterly Report on Form 10-Q for the quarter ended June 30,
1998.
"DOT" means the U.S. Department of Transportation or any
successor thereto.
"Equipment" means the Freight Car Services, Inc. aluminum
gondola railcars of the type(s) described on each consecutively
numbered Lease Supplement and leased or to be leased by the Lessor
to the Lessee hereunder, together with any and all accessions,
additions, improvements, appliances, parts, instruments,
appurtenances, accessories, furnishings, replacements and other
equipment of whatever nature from time to time incorporated or
installed therein which are or become the property of the Lessor
pursuant to the terms of this Lease.
"Equipment Documents" means the disclosure materials related
to the description and specifications of the Equipment, as such
documents may be amended or supplemented from time
3
<PAGE>
to time provided to the Lessor by the Lessee, and identified as such
by the parties hereto on the Closing Date.
"Estimated Residual Value" for any Item of Equipment means
the amount obtained by multiplying (a) the percentage set forth in
the Lease Supplement for such Item under the caption "Estimated
Residual Value Percentage" applicable to the Basic Term or Renewal
Term then ending, by (b) the Acquisition Cost for such Item.
"Event of Default" means any of the events referred to in
Section 21 hereof.
"Event of Loss" with respect to any Item of Equipment means
(except as caused by the Lessor's gross negligence or willful
misconduct, other than any such negligence or misconduct as may be
imputed to Lessor solely by reason of its interest in the
Equipment) (i) the permanent loss of such Item of Equipment,
(ii) unless the Lessee has irrevocably exercised its purchase
option as to that Item under Section 27(b) hereof or the Lessee
has irrevocably exercised its sale option as to that Item under
Section 27(c) hereof, the loss of the use of such Item of
Equipment due to theft or disappearance for a period in excess of
90 days or the remainder of the then applicable Term, whichever is
less, (iii) the destruction, the determination that such Item of
Equipment is damaged beyond repair, or rendition of such Item of
Equipment permanently unfit for normal use for any reason
whatsoever, (iv) the condemnation, confiscation, seizure, or
requisition of title to such Item of Equipment by any Governmental
Authority under the power of eminent domain or otherwise, (v) the
confiscation, condemnation, seizure of or requisition of use of
such Item of Equipment by any Governmental Authority other than
the United States (which shall only be an Event of Loss if
continuing at the end of the then-applicable Term) for a period in
excess of 360 days (or the remainder of the then-applicable Term,
whichever is less), (vi) the use of such Item of Equipment shall
have been prohibited in interstate commerce for a continuous
period in excess of the lesser of 360 days or the balance of the
then-applicable Term as a result of any rule, regulation or order
of, or other action by, the U.S. government or any agency or
instrumentality thereof or (vii) damage to such Item or any part
thereof or any other event that results in an insurance settlement
on the basis of a total loss or constructive or compromised total
loss.
"Expenses" shall mean liabilities, obligations, losses
(excluding loss of anticipated profits, provided that such
exclusion shall not affect Lessor's right to any Make Whole Amount
required to be paid under this Lease), damages, claims, actions,
suits, judgments, fees, charges (including demurrage charges),
penalties and costs, expenses and disbursements (including
reasonable out-of-pocket legal fees and expenses) of any kind and
nature whatsoever.
"Fair Market Sales Value" means, with respect to any Item,
the amount that would be paid in cash in an arm's-length
transaction between an informed and willing purchaser and an
informed and willing seller, neither of whom is under any
compulsion to purchase or sell, respectively, for the ownership of
such Item based on the actual condition of such Item.
"FRA" means the Federal Railroad Administration or any
successor thereto.
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"Funding" means the payment of the aggregate Acquisition
Cost for all Items of Equipment covered by the initial Lease
Supplement.
"Funding Date" means the date on which the Funding occurs.
"Funding Notice" is defined in Section 4(b) hereof.
"Governmental Authority" shall mean any Federal, state,
county, municipal or regional governmental authority, agency,
board, body, instrumentality or court (including the DOT and
AAR).
"[I]ncluding" means including, without limitation.
"Indemnified Party" is defined in Section 18 hereof.
"Internal Revenue Service" means the United States Internal
Revenue Service or any Successor agency or regulatory authority.
"Item of Equipment or "Item" means one of the units of
Equipment more specifically described in a Lease Supplement and
leased to the Lessee hereunder, together with the related
appurtenances, additions, improvements, equipment and replacements
thereto.
"Lease Supplement" means a Lease Supplement substantially in
the form attached hereto as Exhibit A, to be executed by the
Lessor and the Lessee with respect to the Items of Equipment
covered thereby as provided in Section 4 hereof, evidencing that
each such Item is leased hereunder.
"Lessee" is defined in the preamble of this Lease.
"Lessor" is defined in the preamble of this Lease.
"Lien" means liens, mortgages, encumbrances, pledges,
claims, leases, charges and security interests of any kind.
"Make Whole Amount" means, as of the date of any purchase
option pursuant to Section 27(b) hereof, the excess, if any, of
(i) the present value, as of such date of purchase, of the
remaining Principal Components and Interest Components with
respect to such Item that, but for such purchase, would have been
payable under this Lease on the Rent Payment Dates after such
purchase over (ii) the purchase aggregate Unamortized Lease
Balance remaining to be paid under this Lease with respect to such
item. Such present value shall be determined by discounting the
amounts of such installments semi-annually from their respective
payment dates to the date of purchase at a rate equal to the
Treasury Rate (as defined below) plus 0.50% per annum. "Treasury
Rate" with respect to the Make Whole Amount means the weekly
average of the yield
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on a hypothetical United States Treasury
security with a constant maturity matching the remaining average
life to maturity of such Principal Component. The hypothetical
Treasury security is to be derived by referring to the most
recently available information (by not more than ten (10) nor less
than five (5) Business Days preceding the date of the purchase)
contained in the Federal Reserve Board's Statistical Release
H.15 (519) (or its successor publication). If there is a Treasury
constant maturity listed in said Federal Reserve Release H.
15 (519) with a maturity equal to the then-remaining average life
to maturity of such Principal Component then the yield on such
Treasury security shall be the Treasury Rate. If no such Treasury
constant maturity exists, then the weekly average yield on such
Treasury security shall be linearly interpolated from the weekly
average yields on (a) the Treasury security with constant maturity
closest to and greater than the then-remaining average life to
maturity of such Principal Component and (b) the Treasury security
with a constant maturity closest to and less than the
then-remaining average life to maturity of such Principal
Component. If there shall be no Treasury security with a constant
maturity less than the then-remaining average life to maturity on
such Principal Component, then the Treasury Rate shall mean the
weekly average yield on the Treasury security with the shortest
Treasury constant maturity. If said Federal Reserve Release
H.15 (519) or a successor publication refers to no applicable
yield on Treasury securities, then the Treasury Rate shall be
determined in any manner mutually acceptable to the Lessor and the
Lessee.
"Manufacturer" means, with respect to each Item of
Equipment, the manufacturer or supplier thereof specified in the
Lease Supplement with respect to such Item.
"Maximum Acquisition Cost" means $12,837,171.91.
"Maximum Lessee Risk Amount" for any Item of Equipment shall
mean the percentage set forth in the Lease Supplement for such
Item under the caption "Maximum Lessee Risk Percentage" applicable
to the Basic Term or any Renewal Term then ending, multiplied by
the Acquisition Cost for such Item.
"Maximum Lessor Risk Amount" for any Item of Equipment shall
mean the percentage set forth in the Lease Supplement for such
Item under the caption "Maximum Lessor Risk Percentage" applicable
to the Basic Term or any Renewal Term then ending, multiplied by
the Acquisition Cost for such Item.
"Maximum Term" for each Item of Equipment shall mean the
twentieth anniversary of the Closing Date.
"Multiemployer Plan" shall have the meaning assigned to the
term "multiemployer plan" in Section 3(37) of ERISA.
"Net Proceeds of Sale" is defined in Section 28.
"1935 Act" means the Public Utility Holding Company Act of
1935, as amended.
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"Permitted Liens" shall mean:
(a)(i) any rights in favor of the Lessor or any
Assignee under the Lease and the related documents and (ii)
any rights of any Persons entitled to use of the Equipment
in accordance with this Lease;
(b) any Lien on the Lessee's rights in this Lease
and Lessee's interest in the Equipment contained in
mortgages granted by the Lessee which cover after acquired
property of the Lessee and which otherwise subject all or
substantially all of the Lessee's assets to such mortgage,
provided that any such Lien on the Equipment is subordinate
to and does not adversely affect Lessor's interest in the
Equipment under this Lease, and in connection therewith
Lessee warrants that no one other than Lessor has made any
filing with the Surface Transportation Board or the
Interstate Commerce Commission covering any of the Equipment
subject to this Lease (except for Freight Car Services, Inc.
whose filing is being terminated contemporaneously
herewith), and in the event that the mortgagee under any of
Lessee's mortgages claims that it has an interest in such
Equipment which is superior to Lessor's interest therein,
such claim shall constitute an Event of Default under
Section 21(c) of this Lease;
(c) any Lien (including Liens of landlords,
carriers, warehousemen, mechanics or materialmen) in favor
of any Person securing payment of the price of goods or
services provided in the ordinary course of business for
amounts the payment of which is not overdue or is being
contested in good faith by appropriate proceedings
diligently prosecuted so long as such proceedings do not
involve any material risk of the sale, forfeiture or loss of
one or more Items of Equipment or any part thereof and such
proceedings do not involve any material risk of civil
lability to Lessor or any risk of criminal liability to
Lessor (other than minor fines which do not adversely affect
Lessor);
(d) any Lien arising out of any act of, or any
failure to act by, or any claim (including any claim for
taxes) against, the Lessor, any Assignee or any of their
Affiliates which is either not required to be indemnified by
Lessee under this Lease or unrelated to the transactions
contemplated by this Lease or any Lien arising out of any
breach by the Lessor, any Assignee or any of their
Affiliates of their obligations under this Lease or any
related documents;
(e) any Lien for taxes, assessments or other
governmental charges which are not delinquent or the
validity of which is being contested in good faith by
appropriate proceedings diligently prosecuted so long as
such proceedings do not involve any material risk of the
sale, forfeiture or loss of one or more Items of Equipment
or any part thereof and such proceedings do not involve any
material risk of civil liability to Lessor or any risk of
criminal liability to Lessor (other than minor fines which
do not adversely affect Lessor); and
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(f) attachments, judgments and other similar Liens
arising in connection with court proceedings, provided that
within ninety (90) days of the attachment thereof (or
fifteen (15) days prior to any execution or sale pursuant
thereto), the execution or other enforcement of such Liens
is effectively stayed and the claims secured thereby are
being contested in good faith and by appropriate proceedings
so long as such proceedings do not involve any material risk
of the sale, forfeiture or loss of one or more Items of
Equipment or any part thereof and such proceedings do not
involve any material risk of civil liability to Lessor or
any risk of criminal liability to Lessor (other than minor
fines which do not adversely affect Lessor).
"Person" means any individual, corporation, limited
liability company, partnership, joint venture, association, joint
stock company, trust, trustee(s) of a trust, unincorporated
organization, or Governmental Authority.
"Plan" shall mean (a) with respect to the Lessee, any plan
described in Section 3(3) of ERISA under which the Lessee or any
ERISA Affiliate of the Lessee has any liability, and (b) with
respect to any other person, any employee benefit plan or other
plan established or maintained by such person for the benefit of
such person's employees and to which Title IV of ERISA applies.
"Remarketing Period" shall have the meaning given to such
term in Section 27(c) hereof.
"Renewal Term" for any Item of Equipment, means each one
year period (not to exceed nineteen consecutive one year periods)
following the end of the Basic Term for such Item with respect to
which the Lessee has the option to renew this Lease pursuant to
Section 27(a) hereof. Notwithstanding anything to the contrary
which may be contained in this Lease, the Basic Term of this Lease
with respect to any Item of Equipment shall in no event exceed the
Maximum Term.
"Rent Payment Date" shall mean March 8, 1999, and each
six-month anniversary of such date through the Term of the Lease.
"Rental Period" for each Item of Equipment means
(i) initially, the period commencing on the Funding Date for the
applicable Lease Supplement and ending on the immediately
succeeding Rent Payment Date and (ii) thereafter, each period
beginning on the first day after the last day of the preceding
Rental Period and ending on the next succeeding Rent Payment Date.
"Responsible Officer" means, with respect to the subject
matter of any covenant, agreement or obligation of any Person
contained herein in the related transaction documents, the
President, any Vice President, the Chief Financial Officer or the
Treasurer who, in the normal performance of such person's
operational responsibility, would have knowledge of such matter
and the requirements with respect thereto.
"SEC" means the United States Securities and Exchange
Commission or any successor agency or regulatory authority.
8
<PAGE>
"Supplemental Payments" means without duplication all
amounts, liabilities and obligations which the Lessee assumes or
agrees to pay hereunder to the Lessor or others, including
payments of Casualty Loss Value and any indemnities that may
become payable by the Lessee hereunder, but excluding Basic Rent.
"Tax Indemnitee" is defined in Section 17 hereof.
"Term" means the full term of this Lease with respect to any
Item of Equipment, including the Basic Term and each Renewal Term
(if any).
"Termination Date" for any Item of Equipment, means the last
day of the Basic Term of such Item, or if the Term of such Item
has been renewed pursuant to Section 27(a) or 27(d), the last day
of the Renewal Term of such Item.
"Transaction Expenses" means all costs and expenses incurred
in connection with the preparation, execution and delivery of this
Lease and the transaction documents and the transactions
contemplated thereby including:
(a) the reasonable fees, out-of-pocket expenses and
disbursements of any law firm or other external counsel of
the Lessor in connection with the negotiation and
documentation of this Lease and the transactions
contemplated hereby; and
(b) any and all taxes and fees incurred in
recording, registering or filing this Lease, any Lease
Supplement or any other transaction document, any deed,
declaration, mortgage, security agreement, notice or
financing statement with any public office, registry or
governmental agency in connection with the transactions
contemplated by the transaction documents.
"Unamortized Lease Balance" means the sum reflected on
Schedule II to this Lease for the relevant date of determination.
"Western Resources Merger Transaction" means, collectively,
the mergers and related transactions contemplated by the Amended
and Restated Plan of Merger, dated as of March 18, 1998, by and
among Western Resources, Inc., Kansas Gas & Electric Company, NKC,
Inc. and the Borrower.
(b) Construction. The words "this Lease", "herein",
"hereunder", "hereof" or other like words mean this
Equipment Leasing Agreement (including each schedule,
exhibit, and other attachment), as from time to time
supplemented and amended.
9
<PAGE>
2. Agreement for Purchase and Lease of Equipment.
(a) Purchase. Subject to the terms and conditions
of this Lease, on the Funding Date the Lessor shall purchase
the Items of Equipment listed on the initial Lease
Supplement for the aggregate Acquisition Cost specified in
such Lease Supplement. The Lessor will pay the invoiced
cost of the Equipment to the Manufacturer and the remainder
of the Acquisition Cost to the Persons entitled to such
payments as part of Transaction Expenses by wire transfer of
immediately available funds to such account in the United
States as designated in writing to the Lessor at least two
Business Days prior to the Funding Date.
(b) Lease. Subject to, and upon all of the terms
and conditions of this Lease, the Lessor hereby agrees to
lease to the Lessee and the Lessee hereby agrees to lease
from the Lessor each Item of Equipment listed on a Lease
Supplement for the Term with respect to such Item. Provided
that no Event of Default has occurred and is continuing
hereunder, neither the Lessor or any Assignee, nor anyone
claiming through or under the Lessor or any Assignee, shall
cause or allow any Lien attributable to it to exist or arise
against any of the Equipment (except for Permitted Liens
(other than those described in (d) of the definition of
Permitted Liens) and Liens which are required to be removed
by Lessee under the terms of this Lease) or interfere with
the Lessee's quiet enjoyment and use of any Item of
Equipment by the Lessee (or any permitted transferee from
the Lessee) during the Term therefor, except as otherwise
expressly permitted hereunder.
3. Conditions Precedent. The Lessor shall have no
obligation to purchase any Item of Equipment nor to lease the same
to the Lessee unless each of the following conditions are
fulfilled to the satisfaction of the Lessor on or prior to the
Funding Date:
(a) this Lease shall have been executed and
delivered by the parties hereto, and no Default or Event of
Default shall have occurred and be continuing;
(b) no material adverse change in the financial
condition of the Lessee which, in the Lessor's reasonable
opinion, would impair the ability of the Lessee to pay and
perform its obligations under this Lease has occurred,
except as expressly contemplated and disclosed under the
Disclosure Documents, since the date of the Disclosure
Documents;
(c) such Item of Equipment shall be free from all
damage and be acceptable to the Lessor, and free and clear
of all Liens, other than any Permitted Lien;
(d) [Intentionally Omitted];
(e) after giving effect to such purchase, the
aggregate Acquisition Cost of all Equipment subject to this
Lease shall not exceed the Maximum Acquisition Cost;
10
<PAGE>
(f) the Lessor shall have received an invoice or a
bill of sale for such Item of Equipment from the
Manufacturer thereof, approved for payment by the Lessee,
showing the Lessor as the purchaser of such Item;
(g) the Lessor shall have received a Lease
Supplement for such Item, duly executed by the Lessee, and
dated the Acceptance Date for such Item;
(h) a memorandum of this Lease and the Lease
Supplement covering such Item, shall have been duly filed
with the Surface Transportation Board of the DOT and Uniform
Commercial Code financing statements covering such Item in
form and substance satisfactory to Lessor shall have been
filed in such jurisdictions as may be necessary or
appropriate;
(i) the Lessor shall have received a copy of
resolutions of the Lessee's board of directors authorizing
the execution, delivery and performance by the Lessee of
this Lease;
(j) the Lessor shall have received a fully executed
Funding Notice with respect to the initial Lease Supplement;
(k) if the Funding Date does not occur on the date
hereof, the Lessor shall have received a certificate from
the Lessee (executed on its behalf by a Responsible Officer
of the Lessee) to the effect that the representations and
warranties of the Lessee contained herein shall be true and
correct on and as of the Funding Date with the same effect
as though made on and as of the Funding Date;
(l) the Lessor shall have received certificates of
insurance, loss payable endorsements and other evidence that
the Lessee has complied with the provisions of Section 16;
and
(m) the Lessee and the Lessor shall have executed
and delivered the Purchase Agreement Assignment in
substantially the form of Schedule III hereto.
4. Delivery, Acceptance and Leasing of Equipment;
Funding.
(a) Delivery, Acceptance and Leasing. The Lessor
shall not be liable to the Lessee for any failure or delay
in obtaining any Item of Equipment or making delivery
thereof. Forthwith upon delivery of each Item of Equipment
to the Lessee, the Lessee or its agents will promptly
inspect such Item, and unless the Lessee gives the Lessor
prompt written notice of any defect in or other proper
objection to such Item, the Lessee shall promptly upon
completion of such inspection execute and deliver to the
Lessor a Lease Supplement for such Item, dated the
Acceptance Date of such Item. The execution by the
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<PAGE>
Lessor and the Lessee of a Lease Supplement for an Item of
Equipment shall (a) evidence that such Item is leased under,
and is subject to all of the terms, provisions and
conditions of, this Lease, and (b) constitute the Lessee's
unconditional acceptance of such Item for all purposes of
this Lease.
(b) Funding. The Funding shall be made on notice
from the Lessee to the Lessor received by the Lessor not
later than two Business Days prior to the proposed Funding
Date; provided, however, that (i) the Funding shall be for
an aggregate Acquisition Cost equal to the Commitment Amount
with respect to the initial Lease Supplement or such lesser
amount which shall be acceptable to the Lessee and the
Lessor, and (ii) the aggregate of all Acquisition Costs paid
for by the Lessor, after giving effect to the Funding, shall
not exceed the Maximum Acquisition Cost. The notice of
Funding shall be in the form of Exhibit B (each a "Funding
Notice"), and shall specify the date of the proposed
Funding, the aggregate Acquisition Cost for the Items
covered by the initial Lease Supplement (including
Transaction Expenses) to be funded on such date and the list
of Equipment to be funded by the Lessor on such date, and
shall be accompanied by the Manufacturer's invoices and/or
bills of sale for the Equipment to be funded.
(c) Characterization. As further described herein,
the Lessee and the Lessor hereby agree to treat the
arrangement created pursuant to this Lease as a financing or
conditional sale for Federal income tax purposes.
5. Term. The Basic Term for each Item of Equipment shall
commence on the Basic Term Commencement Date thereof and, unless
this Lease is sooner terminated with respect to such Item (or all
Equipment) pursuant to the provisions hereof, shall end on the
last day of the Basic Term thereof, as specified in the applicable
Lease Supplement, or if this Lease is renewed with respect to such
Item pursuant to Section 27(a) hereof, on the last day of the last
Renewal Term thereof or if this Lease is extended with respect to
such Item pursuant to Section 27(d) hereof, for one or more
Additional Terms as specified therein.
6. Return of Equipment. Upon the expiration or earlier
termination of the Term with respect to each Item of Equipment
(unless the Lessee has exercised its purchase option with respect
thereto pursuant to Section 27(b) hereof or a third party sale
thereof has been consummated on the Termination Date with respect
thereto pursuant to Section 27(c) hereof), the Lessee will, at its
expense, surrender and deliver possession of each Item of
Equipment to the Lessor or the Lessor's agent on the Termination
Date at such location(s) in the continental United States, no
greater than fifty (50) miles from Kansas City, Missouri or in
route between Lessee's facilities and the Powder River Basin in
Wyoming as shall be designated by the Lessor (not to exceed two
(2) locations) in writing at least sixty (60) days prior to the
termination or expiration of the applicable Term or in the absence
of such designation, at the then location of each such Item. At
the time of such return to the Lessor, each Item of Equipment (and
each part or component thereof) shall:
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<PAGE>
(a) be in as good condition, state of repair, and
appearance as when delivered to the Lessee hereunder,
ordinary wear and tear excepted, and not in immediate need
of any further repair or reconditioning,
(b) comply with all laws and rules referred to in
Sections 9 and 10 hereof, shall have been maintained in
accordance with the terms of this Lease (and all
modifications or alterations of such Equipment that were
undertaken prior to the Termination Date shall have been
fully accomplished and completed), and no Default or Event
of Default shall have occurred and be continuing hereunder,
(c) conform to and comply with all applicable
Governmental Authority (including DOT and FRA) safety rules
and regulations (without exemption, waiver or deferment),
(d) be suitable for interchange under the rules and
regulations of the AAR and FRA, to the extent the Equipment
was originally designed and approved, provided that the
Lessee shall not be required to make any modifications which
would not be required of the Lessee if the Lessee were to
continue to operate the Equipment,
(e)(i) have attached or affixed thereto any
addition, modification or improvement considered an
accession thereto as provided in Section 11 hereof,
(ii) have removed therefrom in a workmanlike manner if so
requested by the Lessor or any Assignee at the Lessee's
expense any addition, modification or improvement which, as
provided in Section 11 hereof, is owned by the Lessee, and
(iii) have removed therefrom, or painted over, in either
case in a workmanlike manner, any insignia or marking
permitted pursuant to Section 12 hereof,
(f) be suitable for hauling coal,
(g) be free from all material accumulations or
deposits from commodities transported in or on it while in
the service of the Lessee and be free of corrosion, ordinary
wear and tear excepted,
(h) shall not have any missing or damaged parts or
any structural or mechanical damage on any surface or
device, ordinary wear and tear excepted, and
(i) be free and clear of all Liens, other than the
Permitted Liens specified in clause (a)(i) or clause (d) of
the definition thereof.
The Lessee shall pay for any repairs necessary to restore
any Item of Equipment to the condition required by this Lease.
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For the purpose of delivering possession of any Items of
Equipment as above required, the Lessee shall at its own cost,
expense and risk:
(i) forthwith and in the usual manner (including, to
the extent legally required by Applicable Law,
to protect the Lessor's or any Assignee's
interest in the Items of Equipment) give prompt
electronic and written notice to all railroads
to which any Items of Equipment have been
interchanged or which may have possession
thereof to return the Items of Equipment and
place such Items of Equipment upon such storage
tracks along the rail routes then used by the
Lessee in the ordinary usage of the Equipment as
the Lessor reasonably may designate;
(ii) if requested by Lessor, cause such Items of
Equipment to be stored on such tracks at the
risk of the Lessee without charge to the Lessor
or any Assignee for insurance, rent or storage
until all such Items of Equipment have been
sold, leased or otherwise disposed of by the
Lessor for a period not to exceed thirty (30)
days after the Termination Date; and
(iii) deliver to the Lessor, if requested, all manuals
and inspection, modification, overhaul and
maintenance records applicable to such Items of
Equipment (which records may exclude the cost of
repairs, maintenance, modifications and
overhauls).
During any storage period, the Lessee will maintain and keep
the Items of Equipment in the manner set forth in Section 10
hereof and permit the Lessor or any Person designated by it,
including the authorized representative or representatives of any
prospective purchaser, lessee or other user of any Items of
Equipment, to inspect the same during normal business hours at
such inspector's own risk, cost and expense.
Until the Equipment has been returned to the Lessor in the
condition and as otherwise provided in this Section 6 hereof,
purchased under Section 27(b) hereof or sold under Section 27(c)
hereof, the Lessee shall continue to pay the Lessor rent at a per
diem rate equal to the daily equivalent of the Basic Rent that was
payable on the last Rent Payment Date until such Items of
Equipment are returned to the Lessor; provided that during such
holdover period, the Lessee shall use its best efforts to secure
the return of the Equipment as required under this Section 6.
Lessee shall pay all rent payable pursuant to this Section 6 on a
monthly basis, with all amounts being paid within thirty (30) days
after all Items of Equipment have been returned to Lessor in
accordance with this Section 6, in each case after Lessee has
received from Lessor an invoice for such amount. The provision
for payment pursuant to this Section 6 shall not be in abrogation
of the Lessor's right under this Section 6 to have such Equipment
returned to it hereunder.
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7. Basic Rent and Other Payments.
(a) Basic Rent. The Lessee hereby agrees to pay to
the Lessor Basic Rent semi-annually, in arrears, for each
Item of Equipment during the Basic Term thereof on each Rent
Payment Date during the Basic Term in the respective amounts
set forth opposite such Rent Payment Date on Schedule II
hereto.
(b) Supplemental Payments. The Lessee also agrees
to pay to the Lessor, or to whomsoever shall be entitled
thereto as expressly provided herein, all Supplemental
Payments, promptly as the same shall become due and owing,
and in the event of any failure on the part of the Lessee so
to pay any such Supplemental Payment hereunder, the Lessor
shall (except as otherwise specified herein) have all
rights, powers and remedies provided for herein or by law or
equity or otherwise in the case of nonpayment of Basic Rent.
(c) Method of Payment. All payments of Basic Rent
and Supplemental Payments required to be made by the Lessee
to the Lessor shall be made by wire transfer of immediately
available funds no later than 12:00 noon, New York time, to
such account of the Lessor as specified on Schedule I hereto
(or such other account as Lessor may hereafter designate in
writing to Lessee). If the date that any payment of Basic
Rent is due is other than a Business Day, the payment of
Basic Rent otherwise payable on such date shall be payable
on the next succeeding Business Day with no adjustment to
the payment amount. In the event of any assignment to an
Assignee pursuant to Section 13(b) hereof in accordance with
Section 34, all payments which are assigned to such
Assignee, whether Basic Rent, Supplemental Payments or
otherwise, shall be paid by wire transfer of immediately
available funds to an account designated by the Person
entitled to receipt thereof.
8. Net Lease. This Lease is a net lease. Except as may
otherwise be provided for in this Lease, the Lessee acknowledges
and agrees that the Lessee's obligations to pay Basic Rent for all
Equipment leased hereunder, and to pay all Supplemental Payments
payable hereunder shall be unconditional and irrevocable under any
and all circumstances, shall not be subject to cancellation,
termination, modification or repudiation by the Lessee, and shall
be paid and performed by the Lessee without notice or demand and
without any abatement, reduction, diminution, setoff, or
recoupment whatsoever, including any abatement, reduction,
diminution, setoff, or recoupment due or alleged to be due to, or
by reason of, any past, present or future claims which the Lessee
may have against the Lessor, any Assignee, any Manufacturer of the
Equipment or any Item thereof, or any other Person for any reason
whatsoever, or any defect in the Equipment or any Item thereof, or
the condition, design, operation or fitness for use thereof, any
damage to, or any loss or destruction of, the Equipment or any
Item thereof, or any Liens or rights of others with respect to the
Equipment or any Item thereof, or any prohibition or interruption
of or other restriction against the Lessee's use, operation or
possession of the Equipment or any Item thereof, for any reason
whatsoever, or any interference with such use,
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operation or possession by any Person or entity, or any default by the
Lessor in the performance of any of its obligations herein contained,
or any other indebtedness or liability, howsoever and whenever
arising, of the Lessor, or of any Assignee, or of the Lessee to
any other Person, or by reason of insolvency, bankruptcy or
similar proceedings by or against the Lessor, any Assignee or the
Lessee, or for any other reason whatsoever, whether similar or
dissimilar to any of the foregoing, any present or future law to
the contrary notwithstanding; it being the intention of the
parties hereto that all Basic Rent and Supplemental Payments
payable by the Lessee hereunder shall continue to be payable in
all events and in the manner and at the times herein provided,
without notice or demand, unless the obligation to pay the same
shall be terminated pursuant to the express provisions of this
Lease. However, nothing in this Section 8 shall prevent the
Lessee from separately pursuing any rights it might have against
the Lessor or any other Person. Notwithstanding the foregoing,
this Lease is intended to and shall be construed as an operating
lease for financial accounting purposes. If this Lease is
determined not to be a true lease for purposes of the Uniform
Commercial Code, Lessee's interest in the Equipment shall serve as
security for the obligations of the Lessee hereunder.
9. Use of Equipment; Compliance with Laws. The Lessee
agrees that the Equipment will be used and operated solely in the
conduct of its business or as otherwise provided by Section 13(a)
hereof and in compliance with any and all applicable insurance
policy terms, conditions, and provisions for the insurance
required by Section 16 hereof and with all Applicable Laws of any
Governmental Authority applicable to the use and operation of the
Equipment, including the AAR Interchange Rules, the rules and
regulations of the FRA, the DOT and the Surface Transportation
Board, and environmental, noise and pollution laws (including
notifications and reports); provided, however, that the Lessee
shall not be obligated to so comply with laws, rules or
regulations (i) whose application or validity is being contested
diligently and in good faith by appropriate proceedings, so long
as such proceedings do not involve any material risk of the sale,
forfeiture or loss of one or more Items of Equipment or any part
thereof and such proceedings do not involve any material risk of
civil liability to Lessor or any risk of criminal liability to
Lessor (other than minor fines which do not adversely affect
Lessor and which are indemnified for by Lessee), (ii) compliance
with which shall have been excused or exempted (subject to
Section 6(c)) by a nonconforming use permit, waiver, extension or
forbearance exempting it from such laws, rules or regulations,
(iii) if failure to comply shall impose no material risk of civil
liability or any risk of criminal lability on the Lessor (other
than minor fines which do not adversely affect Lessor and which
are indemnified for by Lessee), or (iv) if failure of compliance
would impose no additional liability on the Lessor or adverse
consequences of the Lessor's rights under this Lease or its
interest in the Equipment. The Equipment shall in no event be
used or located outside of the continental limits of the United
States, Canada, Mexico and Alaska unless at least thirty (30)
days' prior written notice of such use or location is provided to
Lessor, Lessor shall have consented thereto and all filings,
recordings, deposits, or giving of notice necessary to protect the
rights of the Lessor in or to the Lease and the Equipment shall
have been made, such consent not to be unreasonably withheld;
provided, however, Lessee shall give Lessor thirty (30) days'
notice prior to first operating the Equipment in Canada and, in
connection therewith, Lessee shall execute and deliver to Lessor
all documents Lessor may
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reasonably request to protect the rights of Lessor in or to this
Lease and the Equipment. The Lessee shall not use any Item of
Equipment, or permit any Item of Equipment to be used, for the
transportation or storage of any substance which is any substance
which is specifically listed or designated as "oil" under Section
1001 of the Oil Pollution Act of 1990 and which is subject to the
provisions of that Act or which is categorized as, or required to
be labeled as, "poison" or "poisonous", "explosive" or "radioactive"
(or any categories or labels substituted for such categories or
labels as in effect on the day hereof) under 49 CFR 171 or other
applicable Federal rules in effect from time to time regulating
the transportation of hazardous or toxic materials, including
nuclear fuels, radioactive products, asbestos, PCB's or nuclear
wastes, nor will the Lessee permit the Equipment to engage in any
unlawful trade or violate any law or carry any unlawful cargo that
will expose the Equipment to penalty, forfeiture or capture.
10. Maintenance and Repair of Equipment. The Lessee
agrees, at its own cost and expense, to keep, repair, maintain and
preserve the Equipment in good order and operating condition, and
in compliance with such maintenance and repair standards, ordinary
wear and tear excepted, as set forth in the applicable AAR and FRA
rules and regulations and as otherwise may be required to enforce
warranty claims against each Manufacturer of each Item of
Equipment, and except as otherwise permitted by Section 9 hereof
but subject to Section 6 hereof) in compliance with all Applicable
Laws relating to the maintenance and condition of the Equipment,
including environmental, noise and pollution laws and regulations
(including notifications and reports), and suitable for
interchange under the rules of the AAR, to the extent the
Equipment was originally designed and approved and with all lawful
rules of the DOT, the Surface Transportation Board and any other
legislative, executive, administrative or judicial body exercising
any power or jurisdiction over the Equipment, to the extent that
such laws and rules affect the title, operation, maintenance or
use of the Equipment, and in the event that such laws or rules
require any alteration, replacement or addition of or to any part
on any Equipment the Lessee will conform therewith at its own
expense. The Lessee agrees to prepare and deliver to the Lessor
and any Assignee within a reasonable time prior to the required
date of filing (or, to the extent permissible, file on behalf of
the Lessor and any Assignee) any and all reports (other than
income and franchise tax returns and those required under banking
and similar laws) to be filed by the Lessor or any Assignee with
any Federal or state regulatory authority by reason of the
ownership by the Lessor or any Assignee of the Items of Equipment
or the leasing thereof to the Lessee. The Lessee agrees to
maintain all records, logs and other materials required by the AAR
or DOT, or any other Governmental Authority having jurisdiction
over the Items of Equipment or the Lessee, to be maintained in
respect of each Item of Equipment. The Lessee shall, at its own
cost and expense, supply the necessary power and other items
required in the operation of the Equipment. The Lessee hereby
waives any right now or hereafter conferred by law to make repairs
on the Equipment at the expense of the Lessor.
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11. Replacements; Alterations: Modifications. ln case any
Item of Equipment (or any equipment, part or appliance therein) is
required to be altered, added to, replaced or modified in order to
comply with any Applicable Laws or pursuant to Section 9 or 10
hereof (each, a "Required Alteration"), the Lessee agrees to make
such Required Alteration at its own expense and the same shall
immediately become subject to the terms of this Lease. The Lessee
or any permitted sublessee may make any optional alteration to any
Item of Equipment (each, an "Optional Alteration") provided such
Optional Alteration does not impair the condition, value, use or
remaining useful life of such Item of Equipment. In the event
such Optional Alteration (i) is readily removable without causing
material damage to the Item of Equipment, (ii) is not a part, item
of equipment or appliance which replaces any part, item of
equipment or appliance originally incorporated or installed in or
attached to such Item of Equipment on the Acceptance Date therefor
or any part, item of equipment or appliance in replacement of or
substitution for any such original part, item of equipment or
appliance, and (iii) is not a Required Alteration, so long as no
Default or Event of Default shall have occurred and be continuing,
the Lessee may, as its sole cost and expense, remove such Optional
Alteration. Upon the removal thereof as provided above, such
Optional Alteration shall no longer be deemed subject to this
Lease or part of the Equipment from which it was removed. Any
Optional Alteration not removed as above provided prior to the
return of the Equipment to the Lessor hereunder shall remain the
property of the Lessor. The Lessee agrees that, within thirty
days after the Lessor so requests (but not more frequently than
once per year), the Lessee will give written notice to the Lessor
describing, in reasonable detail, the Required Alterations and
specifying the cost thereof with respect to each Item of Equipment
and the date or dates when made. Any parts installed or
replacements made by the Lessee upon any Item of Equipment
pursuant to its obligation to maintain and keep the Equipment in
good order, operating condition and repair under Section 10 hereof
shall be considered accessions to such Item of Equipment and a
security interest therein shall be immediately vested in the
Lessor. Except as required or permitted by the provisions of this
Section 11, the Lessee shall not modify an Item of Equipment
without the prior written authority and approval of the Lessor.
12. Identification Marks; Inspection. The Lessee will
cause each Item to be kept numbered with the identification number
as shall be set forth on the Lease Supplement therefor, and the
Lessee will keep and maintain, plainly, distinctly, durably, and
conspicuously marked on each side of each Item, in letters not
less than one inch in height, the words "Subject to Lease or
security interest filed with the U.S. Surface Transportation
Board", with appropriate changes thereof and additions thereto as
from time to time may be required by law in order to protect the
Lessor's title to and interests in such Item and the rights of the
Lessor and of any Assignee. The Lessee will replace promptly any
such words which may be removed, defaced, obliterated or
destroyed. The Lessee will not change the identification number
of any Item unless and until a statement of new number or numbers
to be substituted therefor shall have been deposited by the Lessee
in all public offices where this Lease shall have been filed,
recorded and deposited. As promptly as practicable after any
change in identification number, Lessee shall notify Lessor of
such change. The Items of Equipment may be lettered with the
names or initials or other insignia customarily used by the Lessee
or any permitted sublessee. The Lessee shall not allow the name
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of any Person to be placed upon any Item of Equipment as a
designation that might reasonably be interpreted as indicating a
claim of ownership thereto or a security interest therein by any
Person other than the Lessor or any Assignee. The Lessor shall
have the right (at its risk and expense, or at the Lessee's
expense if a Default or Event of Default exists) to inspect the
Equipment and the Lessee's records pertaining to the Equipment no
more frequently than once in any twelve consecutive months, so
long as no Default or Event of Default shall have occurred and be
continuing, at such reasonable times as it shall request during
the Term, not to interfere with Lessee's operations.
13. Assignment and Subleasing; Quiet Enjoyment.
(a) By the Lessee. The Lessee may, without any
consent of the Lessor, so long as no Default or Event of
Default shall have occurred and be continuing, sublease any
Item of Equipment to any U.S.-based operator, provided,
however, that the following conditions shall apply thereto:
(i) any sublease shall be expressly subject to and
subordinate to the terms and conditions of this Lease;
(ii) THE LESSEE'S OBLIGATIONS (FINANCIAL OR OTHERWISE) UNDER
THIS LEASE SHALL CONTINUE IN THEIR ENTIRETY IN FULL FORCE
AND EFFECT AS THE OBLIGATIONS OF A PRINCIPAL AND NOT OF A
SURETY; (iii) the sublessee shall not engage in activities
with the Equipment substantially different from the Lessee's
activities without prior consent from the Lessor, which
consent shall not be unreasonably withheld; (iv) the
sublease does not adversely affect the Lessor's interest and
rights in this Lease nor the Lessor's interest and rights in
the Equipment; (v) the Lessee shall provide the Lessor
prompt written notice, not to exceed ten (10) Business Days
after execution of such sublease, of any such sublease of
any Item of Equipment, which notice shall describe the
parties, term and applicable Items of Equipment subject to
any such agreement or arrangement; and (vi) the term of such
sublease (including all available renewal terms) shall not
extend beyond the termination date of the last Renewal Term
for which Lessee has exercised its renewal option. THE
LESSEE SHALL NOT, WITHOUT THE PRIOR WRITTEN CONSENT OF THE
LESSOR, WHICH CONSENT SHALL NOT BE UNREASONABLY WITHHELD,
ASSIGN, TRANSFER OR ENCUMBER (EXCEPT FOR PERMITTED LIENS AND
AS MAY OTHERWISE BE PERMITTED HEREBY) ITS RIGHTS, INTERESTS
OR OBLIGATIONS UNDER THIS LEASE AND ANY SUCH ASSIGNMENT,
TRANSFER OR ENCUMBERING (EXCEPT FOR THE PERMITTED LIENS AND
AS MAY OTHERWISE BE PERMITTED HEREBY) BY THE LESSEE SHALL BE
NULL AND VOID. Lessee may enter into a joint venture or
pooling arrangement or create a special purpose subsidiary
to operate such railcars, and, so long as Lessee remains
bound to pay and perform all of the obligations of Lessee
under this Lease, any such arrangements will not be deemed
to have relinquished control or violated this Section 13(a)
of the Lease.
(b) By the Lessor. The Lessor may, at any time,
without the consent of the Lessee, sell, assign or transfer
to any Person all or any part of the Lessor's rights,
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obligations, or interest in, to and under the Equipment or
any Item(s) thereof, this Lease, any Lease Supplement and/or
any Basic Rent and Supplemental Payments payable under this
Lease or any Lease Supplement so long as (a) such Person is
an institutional investor (organized under the laws of the
United States or any state thereof) and, at the time of
transfer, shall not be the subject of any bankruptcy,
insolvency or other similar proceedings; (b) such Person (or
a guarantor acceptable to Lessee) shall have a tangible net
worth in excess of $50 million; (c) the transfer shall not
result in a violation of any Applicable Law; (d) 30 days
prior written notice shall be given to Lessee by Lessor of
any proposed transfer; (e) Lessor (or such Person) shall pay
all expenses of Lessee; and (f) Lessor must transfer not
less than all of the Equipment then remaining under the
Lease. The Lessor shall obtain the approval of the Lessee,
which such approval shall not be unreasonably withheld or
delayed, prior to the time the Lessor sells, assigns or
transfers all or any part of the Lessor's rights,
obligations, title or interest in, to and under the
Equipment or any Item(s) thereof, this Lease, any Lease
Supplement and/or any Basic Rent and Supplemental Payments
payable under this Lease or any Lease Supplement to any
Person other than as provided in the immediately preceding
sentence. Any Person to whom any such sale, assignment or
transfer is made in accordance with the terms of this Lease
is herein called an "Assignee" and any such sale, assignment
or transfer is herein called an "assignment". The Lessee
agrees to execute any and all related acknowledgments,
consents, amendments (necessary or appropriate to reflect
such assignment) and other documents, and to make any and
all registrations and filings (including filings under the
Uniform Commercial Code) that may be reasonably requested by
the Lessor or an Assignee, all at the Lessor's expense, in
connection with any such assignment. Each Assignee shall
have and may enforce all of the rights and benefits of the
Lessor hereunder with respect to the Item(s) of Equipment
and related Lease Supplement(s) covered by the assignment.
Each such assignment shall be subject to the Lessee's rights
hereunder. Notwithstanding anything to the contrary in this
Lease, the Lessee shall be under no obligation to any
Assignee except upon written notice of such assignment from
the Lessor and compliance with the terms of Section 34
below; provided, however, that until such notice and
compliance with Section 34, Lessee shall deem and treat
Lessor as the Party entitled to the rights and benefits of
"Lessor" hereunder. Upon written notice to the Lessee of an
assignment and compliance with the terms of Section 34
below, the Lessee agrees to pay the Basic Rent and
Supplemental Payments with respect to the Item(s) of
Equipment covered by such assignment to such Assignee to a
United States bank account in accordance with the
instructions specified in such notice without any abatement,
setoff, or recoupment whatsoever, and to otherwise comply
with all notices, directions and demands which shall be
properly given by the Lessor or such Assignee with respect
to such Item(s), in accordance with the provisions of this
Lease. Notwithstanding any such assignment, all obligations
of the Lessor to the Lessee under this Lease shall be and
remain enforceable by the Lessee against the Lessor (unless
and until Lessee has notice of such assignment and such
assignment has been made in accordance with the terms of
this Section 13 and Section 34 below and thereafter against
any Assignee to whom an assignment has been made).
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(c) Quiet Enjoyment. So long as no Default or Event
of Default shall have occurred and be continuing hereunder,
the Lessee and its Affiliates (to the extent permitted by
the terms hereof) shall be entitled to the possession and
use of the Items of Equipment upon lines of railroad over
which the Lessee or its Affiliates has or have trackage or
other operating rights or over which railroad equipment of
the Lessee or its Affiliates is operated pursuant to
contract and shall be entitled to permit the use of the
Items of Equipment by connecting and other carriers in the
usual interchange of traffic or pursuant to run-through or
trip-lease agreements, provided, however, that the LESSEE'S
OBLIGATIONS (FINANCIAL OR OTHERWISE) UNDER THIS LEASE SHALL
CONTINUE IN THEIR ENTIRETY IN FULL FORCE AND EFFECT AS THE
OBLIGATIONS OF A PRINCIPAL AND NOT OF A SURETY. The Lessee
may receive and retain compensation for the use of any of
the Items of Equipment from railroads or other entities so
using such Items of Equipment.
14. Liens. The Lessee will not directly or indirectly
create, incur, assume or suffer to exist any Lien on or with
respect to (i) the Equipment or any Item thereof, or the Lessor's
interest therein, or (ii) this Lease or any of the Lessor's
interests hereunder, except in the case of either clause (i) or
(ii), Permitted Liens. The Lessee, at its own expense, will
promptly pay, satisfy and otherwise take such actions as may be
necessary to keep this Lease and the Equipment free and clear of,
and to duly discharge or eliminate or bond in a manner
satisfactory to the Lessor and each Assignee, if any, any such
Lien not excepted above if the same shall arise at any time. The
Lessee will notify the Lessor and each Assignee, if any, in
writing promptly upon becoming aware of any tax or other Lien
(other than any Permitted Lien excepted above) that shall attach
to the Equipment or any Item of Equipment, in reasonable detail.
15. Loss, Damage or Destruction.
(a) Risk of Loss, Damage or Destruction. The Lessee
hereby assumes all risk of loss, damage, theft, taking,
destruction, confiscation, requisition or commandeering,
partial or complete, of or to each Item of Equipment,
however caused or occasioned (except as caused or occasioned
by the Lessor's or any Assignee's gross negligence or
willful misconduct), such risk to be borne by the Lessee
with respect to each Item of Equipment from the date of this
Lease, and continuing until such Item of Equipment has been
returned to the Lessor in accordance with the provisions of
Section 6 hereof or has been purchased by the Lessee or sold
in accordance with the provisions of Section 27 hereof. The
Lessee agrees that no occurrence specified in the preceding
sentence shall impair, in whole or in part, any obligation
of the Lessee under this Lease, including the obligation to
pay Basic Rent, until such obligation is terminated in
accordance with the terms of this Lease.
(b) Payment of Casualty Loss Value Upon an Event of
Loss. Subject to Section 15(c), if an Event of Loss occurs
with respect to an Item of Equipment during the
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Term, the Lessee shall, within thirty (30) days after such
Event of Loss, give the Lessor written notice thereof and shall
pay to the Lessor on the applicable Casualty Loss Value Payment
Date the sum of (i) all unpaid Basic Rent payable for such
Item of Equipment for any Rental Period in which the Event
of Loss has occurred, plus (ii) the Casualty Loss Value of
such Item of Equipment determined as of the immediately
preceding Rent Payment Date plus interest thereon at the
Applicable Rate from such preceding Rent Payment Date
through the Applicable Casualty Loss Value Payment Date,
plus (iii) all other Supplemental Payments due for such Item
of Equipment as of the date of payment of the amounts
specified in the foregoing clauses (i) and (ii). Any
payments received at any time by the Lessor or by the Lessee
from any insurer or other party as a result of the
occurrence of such Event of Loss will be applied in
reduction of the Lessee's obligation to pay the foregoing
amounts, if not already paid by the Lessee, or, if already
paid by the Lessee, will be applied to reimburse the Lessee
for its payment of such amount (unless a Default or Event of
Default exists, in which case the Lessor may first apply any
such payments in reduction of the Lessee's obligation to pay
any other amounts due from the Lessee). Upon payment in
full of such Casualty Loss Value and Basic Rent, (A) the
obligation of the Lessee to pay Basic Rent hereunder with
respect to such Item of Equipment shall terminate and the
Term of this Lease with respect to such Item shall
terminate, and (B) the Lessor shall transfer to the Lessee,
"as is, where is" without recourse or warranty except as to
the absence of Liens described in clause (d) of the
definition of Permitted Liens, all right, title and interest
conveyed to the Lessor in and to such Item of Equipment.
(c) Substitution. Provided no Default or Event of
Default shall have occurred and be continuing, Lessee may,
in lieu of payment of the Casualty Loss Value for any Item
of Equipment due and owing as provided in Section 15(b),
convey or cause to be conveyed to Lessor within 180 days of
the occurrence of the applicable Event of Loss (or such
longer period as Lessor may reasonably agree), as
replacement for any lost or destroyed Item of Equipment,
title to a replacement Item of Equipment of the same or
similar type, free and clear of all liens and having a
value, utility, remaining useful life and estimated residual
value at least equal to, and being in good operating
condition as, such Item of Equipment, assuming such Item of
Equipment was in the condition and repair required by the
terms hereof immediately prior to the loss or destruction
(such replacement car being hereinafter referred to as a
"Replacement Car"). Prior to or at the time of any such
conveyance, the Lessee, at its own expense, will furnish
Lessor with (i) a warranty bill of sale in form and
substance satisfactory to Lessor, with respect to such
Replacement Car, (ii) a Lease Supplement and an Acceptance
Certificate, subjecting such Replacement Car to this Lease,
duly executed by Lessee, suitable for execution by Lessor
and, upon such execution, for filing for recordation in the
same manner as provided for herein (and Lessee shall
promptly file the same for recordation and furnish to Lessor
satisfactory evidence thereof), (iii) an opinion of counsel
to the effect that (x) the bill of sale referred to in
clause (i) above constitutes a legal, valid, binding and
enforceable obligation of the seller, (y) such Replacement
Car has been subjected to this Lease free
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and clear of all liens, and (z) all filings, recordings and
other action necessary or appropriate to perfect and protect
the Lessor's interests in the Replacement Car have been
accomplished, (iv) an acknowledgment by Lessee to Lessor, in
form and substance reasonably satisfactory to Lessor, that
Lessee will indemnify Lessor for any loss or deferral of
depreciation or other adverse tax consequences resulting
from such replacement, (v) an officer's certificate
addressed to Lessor certifying that as of said date, and
upon consummation of the replacement, no Default exists, and
(vi) such other documents and evidence as Lessor may
reasonably request in order to establish the consummation of
the transactions contemplated by this Section 15(c). For
all purposes hereof, upon passage of title thereto to
Lessor, the Replacement Car shall be deemed part of the
property leased hereunder and the Replacement Car shall be
deemed an "Item of Equipment" as defined herein. Upon full
compliance by Lessee with the terms of this Section 15(c) as
determined by Lessor in good faith, Lessor will transfer to
Lessee or its designee, without recourse or warranty (except
as to the absence of Lessor's Liens) all of Lessor's right,
title and interest in and to such destroyed Item of
Equipment.
(d) Application of Payments Not Relating to an Event
of Loss. Any payments (including insurance proceeds)
received at any time by the Lessor or the Lessee from any
party with respect to any loss or damage to any Item or
Items of Equipment not constituting an Event of Loss will be
paid to or retained by the Lessee (unless an Event of
Default exists, in which case the Lessor may first apply any
such payments in reduction of the Lessee's obligation to pay
any other amounts due from the Lessee).
16. Insurance. The Lessee will at its sole expense and at
all times during the Term or, if applicable, until the pertinent
Items of Equipment are returned to the Lessor or the Lessor's
agent pursuant to Section 6 hereof, whichever is longer, cause to
be carried and maintained (i) public liability insurance with
respect to third party personal injury and property damage in an
amount per occurrence of not less than $10,000,000 and
(ii) property insurance in respect of all Items of Equipment in an
amount not less than the Casualty Loss Value for such Item of
Equipment (subject, in the case of clause (ii), to such per
occurrence limits as may be specified in the applicable policies
of insurance). The Lessee will carry such insurance as is
required hereunder in such amounts and for such risks consistent
with prudent industry practice (which industry means major
creditworthy U.S. electric utilities and which own or use railcars
for the transportation of coal) and at least comparable in amounts
and against risks customarily insured against by the Lessee in
respect of equipment owned or leased by it similar in nature to
the Equipment; provided that the Lessee may in any event
self-insure or carry deductibles for up to $5,000,000 per
occurrence for public liability and $5,000,000 per occurrence for
property insurance (or such higher amounts as shall be consistent
with prudent industry practice at the time). The proceeds of any
such property insurance as is required hereunder shall be payable
to the Lessor, each Assignee and the Lessee, as their respective
interests may appear. Each policy required hereunder (i) shall
provide thirty days' prior notice of cancellation or material
change and (ii) shall include the Lessor and each Assignee, if
any, as loss payee and/or additional insured as their respective
interests may appear, and the Lessee shall endeavor to obtain a
waiver by such
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insurance company of any right to claim any
premiums or commissions against the Lessor and each Assignee.
Prior to the Funding Date and thereafter on the expiration dates
of the expiring policies theretofore delivered, the Lessee shall
deliver to the Lessor and each Assignee, if any, certificates of
insurance issued by the insurer(s) for the insurance required to
be maintained hereunder. If the Lessee shall fail to cause the
insurance required under this Section to be carried and
maintained, the Lessor or any Assignee may, after prior written
notice to the Lessee, provide such insurance, and the Lessee shall
reimburse the Lessor or such Assignee, as the case may be, upon
demand for the cost thereof as a Supplemental Payment hereunder.
17. General Tax Indemnity.
(a) The Lessee agrees to pay, defend and indemnify
and hold the Lessor and each Assignee and Affected Party
(each, a "Tax Indemnitee") harmless on an After-Tax Basis
from any and all U.S. Federal, U.S. state and local taxes,
including sales, use, ad valorem and property taxes,
together with any penalties, fines or interest thereon
(herein called "taxes or other impositions") howsoever
imposed, whether levied or imposed upon or asserted against
the Lessor, Tax Indemnitee, the Lessee, the Equipment, any
Item of Equipment, or any part thereof, by any Federal,
state or local government or taxing authority in the United
States, upon or with respect to (i) the Equipment, or any
Item of Equipment or any part thereof, or (ii) the ownership
and operation of the Equipment, or any Item of Equipment or
any part thereof; provided, however, that the foregoing
indemnity shall not apply to
(i) any tax or other imposition based on or measured
by net income or in the nature of a net income
tax or imposed in lieu of a net income tax,
including any franchise tax and any such similar
tax based on capital, receipts, net worth or
comparable basis of measurement, unless such
taxes or other impositions are (i) imposed
solely by reason of the use, location, or
presence of the Equipment in, or the presence or
activities of the Lessee in, or the making of
payments by the Lessee from, the jurisdiction
imposing such taxes or impositions or (ii) are
in the nature of sales, use, property, ad
valorem or value added taxes, provided the
foregoing indemnity shall not apply if such
taxes would not have been required to be paid if
Lessor had not assigned any interest under or
related to the Lease;
(ii) other than as expressly provided in Section
27(b) hereof, any taxes or other impositions in
respect of this Lease of any Item of Equipment
that results from any act, event or omission
that occurs after the termination of this Lease
in respect of such Item of Equipment and the
payment in full of all amounts due under this
Lease;
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(iii) any taxes or other impositions that are imposed
on any Tax Indemnitee as a result of the gross
negligence or willful misconduct of such Tax
Indemnitee or its Affiliate;
(iv) any taxes or other impositions that are imposed
on any Tax Indemnitee that are a result of such
Tax Indemnitee not being a resident of, or not
being organized under the laws of, the United
States or any political subdivision thereof;
provided, however, that proviso (v) and not this
proviso (iv) shall govern U.S. Federal income
taxes imposed by withholding;
(v) U.S. Federal income taxes imposed by
withholding; provided, however, that this
exclusion shall not apply if the tax required to
be deducted and withheld would not have been
required to be so deducted and withheld but for
a Change in Withholding Tax Law that occurs
after the date on which the Tax Indemnitee
acquires its interest in the Lease;
(vi) any taxes or other impositions that have not
been paid and that are being contested in
accordance with clause (b) below; provided that
this exclusion shall apply only during the
conduct of such contest;
(vii) any taxes or other impositions that result from
any transfer by any Tax Indemnitee of any
interest in an Item of Equipment or any interest
arising under this Lease (other than as set
forth in Section 11, Section 27(b) and
Section 27(c) hereof, or in connection with the
occurrence of an Event of Default, or an Event
of Loss or as otherwise required by this Lease);
(viii) any tax that is enacted or adopted as a
substitute for or in lieu of any tax that
would not have been indemnified against
pursuant to Section 17(a);
(ix) taxes on any items of tax preference or any
minimum tax of such Tax Indemnitee;
(x) taxes which are gross income or gross receipts
taxes, unless (i) such taxes are imposed solely
by reason of the use, location, or presence of
the Equipment in, or the presence or activities
of the Lessee in, or the making of payments by
the Lessee from, the jurisdiction imposing such
taxes or (ii) such taxes are in the nature of
sales, use, property, ad valorem or value added
taxes; provided, the immediately foregoing
indemnity shall not apply if such taxes would
not have been required to be paid if Lessor had
not assigned any interest under or related to
the Lease; and
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(xi) taxes or other impositions imposed on any Tax
Indemnitee as a result of, or in connection
with, any "prohibited transaction" within the
meaning or the provisions of the Code or
regulations thereunder or as set forth in
Section 406 of ERISA or the regulations
implementing ERISA, engaged in by any Tax
Indemnitee.
Notwithstanding the foregoing provisos (i) through (xi), the
Lessee shall indemnify each Tax Indemnitee for any taxes
identified in provisos (i), (iv) or (vii) (or any increase in such
taxes) imposed on such Tax Indemnitee net of any decrease in such
taxes actually realized by such Tax Indemnitee, to the extent that
such tax or tax increase would not have occurred if on each
Funding Date the Lessor had advanced funds to the Lessee in the
form of a loan secured by the Equipment in an amount equal to the
amount funded on such Funding Date, with debt service for such
loan equal to the Basic Rent payable on each Rent Payment Date and
a principal balance at the maturity of such loan in an amount
equal to the amount of the Acquisition Cost then outstanding at
the end of the term of this Lease.
The Lessee will prepare and file any reports or returns
required to be made with respect to any tax or other imposition
for which the Lessee is responsible, directly or indirectly, if
permitted by applicable law to file the same, and if not so
permitted, the Lessee shall, at its sole cost, prepare such
reports or returns for signature by the Tax Indemnitee or, upon
request of the Tax Indemnitee, will promptly provide the Tax
Indemnitee with all information necessary for the making and
timely filing of such reports or returns by the Tax Indemnitee,
and shall forward the same, together with immediately available
funds for payment of any tax or other imposition due, to the Tax
Indemnitee, at least ten days in advance of the date such payment
is to be made. Upon written request, the Lessee shall furnish the
Tax Indemnitee with copies of all paid receipts or other
appropriate evidence of payment for all taxes or other impositions
paid by the Lessee pursuant to this Section 17. All of the
indemnities contained in this Section 17 in respect of (i) any
act, event, omission or tax period that occurs on or prior to
termination of this Lease and (ii) any sale described in
Section 27(b) hereof shall continue in full force and effect
notwithstanding the expiration or earlier termination of this
Lease in whole or in part, including the expiration or termination
of the Term with respect to any Item (or all) of the Equipment,
and are expressly made for the benefit of, and shall be
enforceable by, the Lessor and each Assignee.
The Lessee shall have no obligation to pay any amount under
this Section 17 to any Lessor other than CCG Trust Corporation
that is greater than the amount that would have been payable to
CCG Trust Corporation if it were the Lessor (the Lessee being
obligated only to pay to such Lessor the amount it would have paid
to CCG Trust Corporation).
(b) In the event any claim, action, proceeding or
suit is brought against any Tax Indemnitee with respect to
which the Lessee would be required to indemnify such Tax
Indemnitee, such Tax Indemnitee shall promptly give written
notice of any such claim, action, proceeding or suit to the
Lessee. The Lessee may, and upon the Lessee's request any
such Tax Indemnitee will, at the Lessee's expense, resist
and defend such action, suit
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or proceeding, or cause the same to be resisted or defended
by counsel selected by the Lessee and reasonably satisfactory
to such Tax Indemnitee, and the Lessee shall pay all costs
and expenses (including attorney's fees and expenses)
reasonably incurred by such Tax Indemnitee in connection
with such action, suit or proceeding; provided that no Tax
Indemnitee shall compromise or settle any such actions for
which it has assumed the responsibility of defense without
consent of the Lessee (not unreasonably to be withheld),
and provided further, that the failure of any Tax Indemnitee
to give such notice to the Lessee shall not relieve the
Lessee from any of its obligations to provide indemnification
to any Tax Indemnitee under this Section 17, except to the
extent that the Lessee's right to contest or defend is
adversely affected by such Tax Indemnitee's failure to give
notice; provided further, that the Lessee shall be relieved
of its obligations to provide indemnification under this
Section 17 with respect to any Tax Indemnitee, to the extent
that such Tax Indemnitee shall deliver to the Lessee a written
notice waiving the benefits of the indemnification of such Tax
Indemnitee provided by this Section 17 in connection with
such claim, action, proceeding or suit. In such event the
Tax Indemnitee shall reimburse the Lessee for all amounts
paid by the Lessee with respect to such non-contested claim,
action, proceeding, or suit. If any Tax Indemnitee actually
obtains a refund (or would have actually received such a
refund but for offset by matters not indemnifiable by the
Lessee under Section 17(a)) of all or any part of any tax
paid or reimbursed by the Lessee, such Tax Indemnitee shall
promptly pay to the Lessee the amount of such refund (or the
amount of such offset) plus any interest thereon (less any
taxes imposed on such Tax Indemnitee with respect to such
interest) received from the relevant taxing authority (or
which would have been received with respect to the amount of
such an offset) plus the amount of any tax benefits realized
by such Tax Indemnitee as a result of such payment (net of
any net tax detriment resulting from the receipt of the
refund and interest on the refund (after giving effect to
such Tax Indemnitee's obligations to make payments to the
Lessee under this sentence)).
(c) On the Funding Date but in any event at least
five Business Days prior to the first date on which any
payment is due hereunder for the account of any Affected
Party not incorporated under the laws of the United States
or a state thereof, such Affected Party agrees that it will
have delivered to each of the Lessee and the Lessor two duly
completed copies of United States Internal Revenue Service
Form 1001, W-8 or 4224, certifying that such Affected Party
is entitled to receive payments of interest and/or yield and
a return of the principal amount of the Acquisition Cost
under the transaction documents without deduction or
withholding of any United States Federal income taxes. Each
Affected Party which so delivers a Form 1001, W-8 or 4224
further undertakes to deliver to each of the Lessee and the
Lessor two additional copies of such form (or a successor
form) on or before the date that such form expires
(currently, three successive calendar years for Forms 1001
and W-8 and one calendar year for Form 4224) or becomes
obsolete or after the occurrence of any event requiring a
change in the most recent forms so delivered by it, and such
amendments thereto or extensions or renewals thereof as may
be reasonably requested by the Lessee or the Lessor, in each
case certifying that such
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Affected Party is entitled to receive payments under the
transaction documents without deduction or withholding of
any United States Federal income taxes, unless any change
in treaty, law or regulation has occurred prior to the date
on which any delivery of such additional forms would
otherwise be required which changes such Affected Party's
entitlement to receive any payments without withholding and
such Affected Party advises the Lessee that it is no longer
entitled to receive payments without any withholding of
United States Federal income tax.
18. Indemnification. The Lessee hereby assumes liability
for, and does hereby agree to indemnify, protect, save, defend,
and hold harmless the Lessor, each Assignee and their respective
officers, directors, employees, successors, permitted assigns, and
agents (each such party being herein, for purposes of this
Section 18, called an "Indemnified Party") on an After-Tax Basis
for, from and against any and all Expenses of every kind and
nature whatsoever, imposed on, incurred by, or asserted against
any Indemnified Party, in any way relating to or arising out of
(a) the manufacture, construction, ordering, purchase, acceptance
or rejection, ownership, titling or retitling, registration or
reregistration, delivery, leasing, subleasing, releasing,
possession, use, operation, storage, removal, return,
repossession, sale or other disposition of the Equipment or any
Item of Equipment, or any part thereof as may arise from (i) the
transactions contemplated by this Lease, (ii) the loss or damage
to any property or death or injury to any persons, (iii) patent or
latent defects in any Item of Equipment (whether or not
discoverable by the Lessee or any Indemnified Party), (iv) any
claims based on strict liability in tort, (v) any claims based on
patent, trademark, tradename or copyright infringement, (vi) any
claims based upon any non-compliance with or violation of any
environmental control, noise or pollution laws or requirements,
including fines and penalties arising from violations of or
noncompliance with such requirements or failure to report
discharges, and costs of clean-up of any discharge, and (vii) any
loss or damage to any commodities loaded or shipped in the
Equipment; or (b) any failure on the part of the Lessee to perform
or comply with any of the terms of this Lease; or (c) any power of
attorney issued to the Lessee in connection with this Lease (all
the foregoing being "Liabilities"). The Lessee shall give each
Indemnified Party prompt notice of any occurrence, event or
condition known to the Lessee as a consequence of which any
Indemnified Party may be entitled to indemnification hereunder.
The Lessee shall forthwith upon demand of any such Indemnified
Party reimburse such Indemnified Party for amounts reasonably
expended by it in connection with any of the foregoing or pay such
amounts directly; provided, however, that the Lessee's Liability
for taxes, imposts and similar matters (other than taxes arising
against the Lessee under Section 4975 of the Code) are expressly
limited to the terms of Section 17 hereof and Lessee shall not be
liable to such Indemnified Party under this Section 18 for any of
the Liabilities to the extent they arise from the gross
negligence, willful misconduct, or breach of such Indemnified
Party's obligations under this Lease, or to the extent that they
arise from or after any transfer of the Lessor's interest in any
Item or this Lease (other than arising directly in connection with
a transfer resulting from an Event of Default, an Event of Loss,
or a sale made under Section 27 hereof, or any transfer made at
the Lessee's request or direction). The Lessee shall be
subrogated to an Indemnified Party's rights in any matter with
respect to which the Lessee has actually reimbursed such
Indemnified Party for amounts expended by it or has actually paid
such amounts directly. If any claim for a
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<PAGE>
Liability is made against the Lessee or any Indemnified Party and
such party has received notice thereof, such party receiving notice of
such Liability shall promptly notify the Lessee; provided that the
failure to provide such notice promptly shall not release the
Lessee from any of its obligations to indemnify hereunder, except
to the extent that such failure adversely affects any applicable
defense or counterclaim, or otherwise increases the amount the
Lessee would have been liable for in the absence of such failure.
Subject to the rights of any insurer under any policy of insurance
maintained pursuant to this Lease, and if no Default or Event of
Default shall exist, the Lessee shall have the right to
investigate and defend or compromise any Liability for which it
may be required to indemnify, and each Indemnified Party agrees to
cooperate with all responsible requests of the Lessee in
connection therewith. Notwithstanding any of the foregoing to the
contrary, the Lessee shall not be entitled to assume
responsibility for and control of any such judicial or
administrative proceedings if (i) any Event of Default shall
exist, (ii) such proceedings will involve a material risk of the
sale, forfeiture, or loss of, or the creation of any Lien (other
than a Permitted Lien) on, any Item, unless the Lessee posts a
bond or other security satisfactory to the relevant Indemnified
Party in respect to such risk, or (iii) such proceedings would
involve the imposition of criminal liability (other than minor
fines which have no adverse effect on any Indemnified Party which
are indemnified for by Lessee) on an Indemnified Party or if such
contest will, in the reasonable opinion of such Indemnified Party,
be inappropriate under applicable standards of professional
conduct. An Indemnified Party may participate at its own expense
and with its own counsel in any judicial proceeding controlled by
the Lessee pursuant to the preceding provisions. In the case of
any Liability covered by any policy of insurance maintained
pursuant to this Lease, each Indemnified Party shall cooperate
with all reasonable requests of the insurers in the exercise of
their rights to investigate, defend, or compromise such claim as
may be required by such policy to maintain the insurance coverage
provided to the parties thereunder. The provisions of this
Section 18, and the obligations of the Lessee under this Section
18, shall apply from the date of the execution of this Lease
notwithstanding that the Term may not have commenced with respect
to any Item of Equipment, and shall survive and continue in full
force and effect (as to any event occurring or condition existing
during the Term) notwithstanding the expiration or earlier
termination of this Lease or the Termination Date.
19. No Warranties. THE LESSOR LEASES AND THE LESSEE TAKES
THE EQUIPMENT "AS-IS, WHERE-IS." THE LESSEE ACKNOWLEDGES AND
AGREES THAT AS BETWEEN THE LESSOR AND THE LESSEE (A) THE EQUIPMENT
IS OF DESIGN, CAPACITY AND MANUFACTURE SELECTED BY AND ACCEPTABLE
TO THE LESSEE, (B) THE LESSEE IS SATISFIED THAT THE EQUIPMENT IS
SUITABLE FOR ITS PURPOSES, (C) THE LESSOR IS NOT A MANUFACTURER OR
A DEALER IN PROPERTY OF SUCH KIND, AND (D) THE LESSOR HAS NOT
MADE, OR DEEMED TO HAVE MADE, AND THE LESSOR EXPRESSLY DISCLAIMS
AND MAKES NO REPRESENTATION OR WARRANTY, EITHER EXPRESSED OR
IMPLIED, AS TO THE DESIGN, CONDITION, QUALITY, CAPACITY,
MERCHANTABILITY, DURABILITY, SUITABILITY OR FITNESS FOR ANY
PARTICULAR PURPOSE OF THE EQUIPMENT, AS TO THE ABSENCE OF LATENT
OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE, AS TO THE ABSENCE
OF ANY INFRINGEMENT OF ANY PATENT,
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TRADEMARK OR COPYRIGHT, AS TO THE ABSENCE OF OBLIGATIONS BASED ON
STRICT LIABILITY IN TORT, OR ANY OTHER IMPLIED REPRESENTATION OR
WARRANTY CONCERNING THE EQUIPMENT.
20. Lessee's Representations and Warranties. The Lessee
hereby represents and warrants, as of the date hereof and on the
Funding Date, that:
(a) the Lessee is a corporation duly organized,
validly existing and in good standing under the laws of the
State of Missouri, and is qualified to do business in, and
is in good standing in, each state or other jurisdiction in
which the nature of its business makes such qualification
necessary;
(b) the Lessee has the corporate power and authority
to execute and perform this Lease and to lease the Equipment
hereunder, and has duly authorized the execution, delivery
and performance of this Lease;
(c) the leasing of the Equipment from the Lessor by
the Lessee, the Lessee's execution and delivery of this
Lease, each Lease Supplement, the Purchase Agreement
Assignment and other related instruments, documents and
agreements, and the compliance by the Lessee with the terms
hereof and thereof, and the payments and performance by the
Lessee of all of its obligations hereunder and thereunder
(i) have been duly and legally authorized by appropriate
corporate action taken by the Lessee, (ii) are not in
contravention of, and will not result in a violation or
breach of, any of the terms of the Lessee's Articles of
Incorporation, its By-Laws, or of any provisions relating to
shares of the capital stock of the Lessee, and (iii) will
not violate or constitute a breach of any provision of law,
any order of any court or other Governmental Authority, or
any indenture, agreement or other instrument to which the
Lessee is a party, or by or under which the Lessee or any of
the Lessee's property is bound, or be in conflict with,
result in a breach of, or constitute (with due notice and/or
lapse of time) a default under any such indenture, agreement
or instrument, or result in the creation or imposition of
any Lien upon any of the Lessee's property or assets other
than the Liens contemplated hereby and the Permitted Liens;
(d) this Lease has been executed by the duly
authorized officer or officers of the Lessee and delivered
to the Lessor and constitutes, when executed by the duly
authorized officer or officers of the Lessee and delivered
to the Lessor, each Lease Supplement and related
instruments, documents and agreements with respect to each
Item of Equipment will constitute, the legal, valid and
binding obligations of the Lessee, enforceable against the
Lessee in accordance with their terms (subject to such
bankruptcy and similar laws affecting the rights of
creditors generally);
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(e) the Lessee holds all material licenses,
certificates and permits from Governmental Authorities
necessary to use and operate the Equipment in accordance
with the provisions of this Lease;
(f) there is no litigation or other proceeding now
pending or, to the best of the Lessee's knowledge,
threatened against or affecting the Lessee, in any court or
before any regulatory commission, board or other
administrative Governmental Authority (i) which would
directly or indirectly adversely affect or impair the title
of the Lessor to the Equipment, or (ii) which, except as may
be contemplated and disclosed under the Disclosure
Documents, would materially adversely affect the financial
condition of the Lessee;
(g) all balance sheets, statements or profit and
loss and other financial statements set forth in the
Disclosure Documents fairly present the financial condition
of the Lessee on the dates for which, and the results of its
operations for the periods for which, the same have been
furnished, and have been prepared in accordance with
generally accepted accounting principles consistently
followed throughout the periods covered thereby (except as
noted therein); and there has been no material adverse
change in the financial condition of the Lessee, since the
date of the Disclosure Documents, except as may be disclosed
under the Disclosure Documents;
(h) no approval that has not been obtained by the
Lessee as of the date of this representation and warranty is
required from any regulatory body, board, authority or
commission, nor from any other administrative or
governmental agency, nor from any other Person, with respect
to the Lessee's execution, delivery and performance of this
Lease;
(i) the Disclosure Documents and the Equipment
Documents are true and correct in all material respects and
do not omit any information necessary to make the
information provided, in light of the circumstances under
which such information was provided, not materially
misleading;
(j) the Lessee is not an "investment company" or a
company "controlled" by an "investment company", within the
meaning of the Investment Company Act of 1940, as amended;
and
(k) any Lien on the Lessee's interest in the
Equipment contained in mortgages granted by the Lessee which
cover after acquired property of the Lessee and which
otherwise subject all or substantially all of the Lessee's
assets to such mortgage, is subordinate to and does not
adversely affect Lessor's interest in the Equipment under
this Lease, and no one other than Lessor has made any filing
with the Surface Transportation
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Board or the Interstate Commerce Commission covering any of
the Equipment subject to this Lease.
21. Events of Default. Any of the following events shall
constitute an Event of Default
(a) the Lessee shall fail to make any payment of
Basic Rent or any Supplemental Payment on the date due, and
that failure shall continue for at least ten (10) Business
Days after the due date for such payment in the case of
Basic Rent or thirty (30) days after receipt of written
notice from Lessor, in the case of any other amount,
including Supplemental Payments; or
(b) the Lessee shall fail to perform or observe any
other covenant, condition, or agreement to be performed or
observed by it under this Lease, or in any agreement or
certificate furnished to the Lessor or any Assignee in
connection herewith, and such failure shall continue
unremedied for ten (10) days (if not capable of being cured)
or thirty (30) days (if capable of being cured) after the
first to occur of (i) an officer of Lessee with express
authority to make decisions regarding this Lease has actual
specific knowledge thereof or (ii) Lessor provides written
notice to the Lessee specifying such failure and demanding
the same to be remedied; or
(c) any representation or warranty made by the
Lessee under this Lease or in any Lease Supplement or in any
document or certificate furnished to the Lessor or any
Assignee in connection herewith or pursuant hereto, shall
prove to be untrue or incorrect in any material respect when
made; provided that if the effect of such misrepresentation
or warranty is reasonably curable, the Lessee shall have
thirty (30) days after notice from the Lessor to effect a
cure; or
(d) the Lessee shall (i) generally fail to pay, or
admit in writing its inability to pay, its debts as they
become due, or shall voluntarily commence any case or
proceeding or file any petition under any bankruptcy,
insolvency or similar law or seeking dissolution,
liquidation or reorganization or the appointment of a
receiver, trustee, custodian or liquidator for itself or a
substantial portion of its property, assets or business or
to effect a plan or other arrangement with its creditors, or
shall file any answer admitting the jurisdiction of the
court and the material allegations of any involuntary
petition filed against it in any bankruptcy, insolvency or
similar case or proceeding, or shall be adjudicated
bankrupt, or shall make a general assignment for the benefit
of creditors, or shall consent to, or acquiesce in the
appointment of, a receiver, trustee, custodian or liquidator
for itself or substantially all of its property, assets or
business; or
(e) involuntary proceedings or an involuntary
petition shall be commenced or filed against the Lessee
under any bankruptcy, insolvency or similar law or seeking
the dissolution, liquidation or reorganization of the Lessee
or the appointment of a receiver,
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trustee, custodian or liquidator for the Lessee or of
substantially all of the property, assets or business of
the Lessee, or any writ, judgment, warrant of attachment,
execution or similar process shall be issued or levied
against substantially all of the property, assets or
business of the Lessee, and such proceedings or petition
shall not be dismissed, or such writ, judgment, warrant of
attachment, execution or similar process shall not be stayed,
released, vacated or fully bonded, within ninety (90)
consecutive days after commencement, filing or levy, as
the case may be.
22. Remedies Upon Default.
(a) Upon the occurrence of any Event of Default and
at any time thereafter so long as the same shall be
continuing, the Lessor may exercise one or more of the
following remedies as the Lessor in its sole discretion may
elect:
(i) the Lessor may terminate or cancel this Lease,
without prejudice to any other remedies of the
Lessor hereunder, with respect to all or any
Item of Equipment, and whether or not this Lease
has been so terminated, may enter the premises
of the Lessee or any other party to take
immediate possession of the Equipment and remove
all or any Item of Equipment by summary
proceedings or otherwise, or may cause the
Lessee, to store, maintain, surrender and
deliver possession of the Equipment or such Item
in the same manner as provided in Section 6
hereof;
(ii) the Lessor may lease to others the Equipment or
any Item of Equipment, as the Lessor in its sole
discretion may determine, free and clear of any
rights of the Lessee and without any duty to
account to the Lessee with respect to such
action or inaction or for any proceeds with
respect thereto, except as required by this
Lease or by law;
(iii) the Lessor may sell the Equipment or any Item
of Equipment at public or private sale as the
Lessor may determine, free and clear of any
rights of the Lessee (except as required by
law), and the Lessee shall pay to the Lessor, as
liquidated damages for loss of a bargain and not
as a penalty (in lieu of the Basic Rent due for
the Equipment or Item(s) so sold for any Rental
Period commencing after the date on which such
sale occurs), the difference, if any of (A) the
sum of (x) all unpaid Basic Rent payable for
each Item of Equipment for all Rental Periods
through the date on which such sale occurs, plus
(y) the Casualty Loss Value of the Item(s) of
Equipment so sold, computed as of the Rent
Payment Date coincident with (or, if the sale is
not on a Rent Payment Date, next preceding) the
date of such sale, plus (z) all unpaid
Supplemental Payments (including Make Whole
Amount, if any) due with respect to each Item of
Equipment so sold
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minus (B) the net proceeds of such sale (exclusive
of any costs, fees and expenses incurred in
connection with such sale);
(iv) whether or not the Lessor shall have exercised,
or shall thereafter at any time exercise, any of
its rights under clause (i) or (ii) above with
respect to any Item(s) of Equipment, the Lessor,
by written notice to the Lessee specifying a
payment date, may demand that the Lessee pay to
the Lessor, and the Lessee shall pay to the
Lessor, on the payment date specified in such
notice, as liquidated damages for loss of a
bargain and not as a penalty (in lieu of the
Basic Rent due for any Item(s) of Equipment for
any Rental Period commencing after the payment
date specified in such notice and in lieu of the
exercise by the Lessor of its remedies under
clause (ii) above in the case of a re-lease of
such Item(s) or under clause (iii) above with
respect to a sale of such Item(s)), the sum of
(i) all unpaid Basic Rent payable for such
Item(s) for all Rental Periods through the
payment date specified in such notice, plus
(ii) all unpaid Supplemental Payments (including
Make Whole Amount, if any) due with respect to
such Item(s) as of the payment date specified in
such notice, plus (iii) an amount, with respect
to each such Item, equal to the Casualty Loss
Value of such Item(s) computed as of the Rent
Payment Date coincident with (or, if the payment
date specified is not a Rent Payment Date, next
preceding) the payment date specified in such
notice; provided, however, that with respect to
any such Item(s) returned to or repossessed by
the Lessor, the amount recoverable by the Lessor
pursuant to the foregoing shall be reduced (but
not below zero) by an amount equal to the Fair
Market Sales Value of such Item(s) as of the
date on which the Lessor has obtained possession
of such Item(s) and shall not exceed the Maximum
Lessee Risk Amount plus the Make Whole Amount
due to Lessor, if any, for such date;
(v) unless the Equipment has been sold in its
entirety, the Lessor may, whether or not the
Lessor shall have exercised or shall thereafter
at any time exercise any of its rights under
clause (ii), (iii) or (iv) of this Section 22
with respect to the Equipment or portions
thereof, demand, by written notice to the Lessee
specifying a date not earlier than ten days
after the date of such notice, that the Lessee
purchase, on such date, the Equipment (or the
remaining portion thereof) in accordance with
the provisions of Section 27(b)(i); provided,
however that no such written notice shall be
required upon the occurrence of any Event of
Default described in clause (d) or (e) of
Section 21; and
(vi) the Lessor may exercise any other right or
remedy which may be available to it under
Applicable Law or proceed by appropriate court
action to
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enforce the terms hereof or to recover
damages for the breach hereof or to rescind this
Lease.
In addition, the Lessee shall be liable for all Expenses,
including attorneys' fees and Appraisal costs and expenses,
reasonably incurred by the Lessor or any Assignee by reason of the
occurrence of any Event of Default or the exercise of the Lessor's
remedies with respect thereto, including all Expenses incurred in
connection with the return of the Equipment in accordance with
Section 6 hereof or in placing the Equipment in the condition
required by Section 6. For the purpose of clause (iv) above, the
"Fair Market Sales Value" of any Item of Equipment shall mean such
value as has been determined by averaging the valuations of an
independent qualified appraiser selected by each of the Lessor and
the Lessee. The exercise or beginning of exercise by the Lessor
of any one or more of its remedies shall not constitute the
exclusive election of such remedies. No express or implied waiver
by the Lessor of any Event of Default shall in any way be, or be
construed to be, a waiver of any future or subsequent Event of
Default.
(b) After the sale of all of the Equipment pursuant
to the exercise of the Lessor's remedies under this Lease,
any amounts collected by the Lessor in such sale or sales
which exceed the sum of (i) the applicable Casualty Loss
Values for all Items of Equipment subject to this Lease,
plus but without duplication (ii) any amounts owed by the
Lessee to the Lessor under this Lease, plus but without
duplication (iii) the costs incurred by the Lessor in
consummating such sale, shall be paid to the Lessee by the
Lessor.
23. Lessor's Right to Perform for the Lessee. If the
Lessee fails to make any Supplemental Payment required to be made
by it hereunder or fails to perform or comply with any of its
agreements contained herein, the Lessor may itself, after at least
five (5) Business Days' prior written notice to the Lessee, make
such payment or perform or comply with such agreement, and the
amount of such payment and the amount of the reasonable Expenses
of the Lessor incurred in connection with such payment or the
performance of or compliance with such agreement, as the case may
be, together with interest thereon at the rate specified in
Section 24 hereof, shall, if not paid by the Lessee to the Lessor
on demand, be deemed a Supplemental Payment hereunder.
24. Late Charges. The Lessee shall pay to the Lessor,
upon demand, to the extent permitted by applicable law, interest
on any installment of Basic Rent not paid when due, and on any
Supplemental Payment or other amount payable under this Lease
which is not paid when due, for any period for which any of the
same is overdue (without regard to any grace period) at a rate
equal to the lesser of (a) the Applicable Rate plus two percent
per annum, or (b) the maximum rate of interest permitted by law.
35
<PAGE>
25. Further Assurances. The Lessee will promptly and duly
execute and deliver to the Lessor and any Assignee such other
documents and assurances and filings (including with the Surface
Transportation Board and under the Uniform Commercial Code), and
will take such further action as the Lessor or any Assignee may
from time to time reasonably request in order to carry out more
effectively the intent and purposes of this Lease and to establish
and protect the rights and remedies created or intended to be
created in favor of the Lessor and of any Assignee and their
respective rights, title and interests in and to the Equipment.
26. Notices. All notices provided for or required under
the terms and provisions hereof shall be in writing (including
facsimile) and addressed, delivered or transmitted to the
appropriate party at its address or facsimile number as set forth
on Schedule I hereto, or in the case of any Assignee, to the
address or facsimile number as such Assignee shall designate in
writing to the Lessor and the Lessee, or in each case at such
other address or facsimile number as an addressee shall designate
in writing to the other parties. Any notice, if mailed or sent by
courier service, shall be deemed given when delivered; any notice,
if transmitted by facsimile, shall be deemed given when
transmitted and electronically confirmed.
27. Lessee's Renewal, Purchase and Sale Options.
(a) Lessee's Renewal Option. With respect to each
Lease Supplement, the Lessee shall be entitled, at its
option, to renew this Lease for a Renewal Term with respect
to all or any portion of the Items of Equipment then subject
to such Lease Supplement (provided that the balance of the
Equipment not so renewed is purchased), unless (i) an Event
of Default exists, or (ii) this Lease shall have been
earlier terminated. The first Renewal Term with respect to
each such Item of Equipment will commence at the expiration
of the Basic Term of such Item, and each succeeding Renewal
Term will commence at the expiration of the next preceding
Renewal Term. All of the provisions of this Lease,
including Basic Rent, Casualty Loss Value and the Applicable
Rate, shall be applicable during each Renewal Term for each
such Item of Equipment. If the Lessee intends not to
exercise said renewal option with respect to all of such
Items of Equipment for the next following Renewal Term with
respect thereto, the Lessee shall give written notice to the
Lessor to such effect at least 180 days prior to the
expiration of the Basic Term, in the case of the first
Renewal Term, and at least 180 days prior to the expiration
of the then current Renewal Term of said Item(s) of
Equipment, in the case of the then next succeeding Renewal
Term. If the Lessee fails to give such written notice to
the Lessor with respect to all of the Items of Equipment
covered by any Lease Supplement, it shall be conclusively
presumed that the Lessee has elected to exercise said
renewal option with respect to all of such Items of
Equipment for said Renewal Term. In the event the Lessee
elects not to exercise said renewal option, the Lessee shall
be deemed to have exercised its purchase option under
Section 27(b) hereof (unless Lessee elects to sell such Item
to a third party in accordance with Section 27(c) hereof).
36
<PAGE>
(b) Lessee's Purchase Option. (I) With respect to
each Lease Supplement, the Lessee shall be entitled, at its
option at the end of the Basic Term and any Renewal Term
(notwithstanding that Lessee may have previously agreed to
renew this Lease for subsequent Renewal Terms), upon written
notice to the Lessor as hereinafter provided, to purchase
all, but not less than all, Items of Equipment then subject
to such Lease Supplement for which Lessee has not opted to
renew this Lease, unless (i) a Default or Event of Default
exists, or (ii) this Lease shall have been earlier
terminated. Such purchase shall be consummated, and the
Lessee shall pay the purchase price therefor to the Lessor
in immediately available funds, on the Rent Payment Date
specified in the Lessee's notice to the Lessor. The date of
purchase shall be no earlier than the first anniversary of
the Funding Date with respect to such Items of Equipment.
The purchase price for each such Item shall be an amount
(each, an "EBO Purchase Option Amount") equal to the
Unamortized Lease Balance for such Items of Equipment. In
addition, the Lessee shall pay to the Lessor on the early
buyout date, in immediately available funds, (x) any
applicable sales, excise or other taxes imposed as a result
of such sale (other than gross or net income or similar
taxes attributable to such sale), plus (y) the Make Whole
Amount, if any, required to be paid under the terms of this
Lease and any other Supplemental Payments then due and owing
to the Lessor hereunder. The Lessor's sale of each Item of
Equipment shall be on an "as-is, where-is" basis, without
any representation or warranty by, or recourse to, the
Lessor except that the Lessor shall warrant that each such
Item of Equipment shall be returned free and clear of all
Liens of the sort described in clause (d) of the definition
of Permitted Liens. If the Lessee intends to exercise said
early buyout option, the Lessee shall provide the Lessor
with 180 days' prior written notice thereof.
(II) In addition to Lessee's purchase option under
clause (I) above, if either (x) this Lease is not construed
as an operating lease for financial accounting purposes by
Lessee's independent accountants or (y) any Required
Alteration under Section 11 is reasonably determined by
Lessee to be economically impractical, then, with respect to
each Lease Supplement, the Lessee shall be entitled, upon
not less than ninety (90) days prior written notice to the
Lessor as hereinafter provided, to purchase all, but not
less than all, Items of Equipment then subject to such Lease
Supplement, unless (i) a Default or Event of Default exists,
or (ii) this Lease shall have been earlier terminated. Such
purchase shall be consummated, and the Lessee shall pay the
purchase price therefor to the Lessor in immediately
available funds, on the Business Day (the "Payment Date")
specified in the Lessee's notice to the Lessor. The
purchase price for each such Item shall be an amount (each,
an "EBO Purchase Option Amount") equal to the Unamortized
Lease Balance for such Items of Equipment as of the
immediately preceding Rent Payment Date plus interest
accrued thereon at the Applicable Rate from such preceding
Rent Payment Date through such Payment Date. In addition,
the Lessee shall pay to the Lessor on the Payment Date, in
immediately available funds, (x) any applicable sales,
excise or other taxes imposed as a result of such sale
(other than gross or net income or similar taxes
attributable to such sale), plus (y) the Make Whole Amount,
if any, required to be paid under the terms of this Lease
and any other Supplemental Payments then due and owing to
37
<PAGE>
the Lessor hereunder. The Lessor's sale of each Item of
Equipment shall be on an "as-is", "where-is" basis, without
any representation or warranty by, or recourse to, the
Lessor except that the Lessor shall warrant that each such
Item of Equipment shall be returned free and clear of all
Liens of the sort described in clause (d) of the definition
of Permitted Liens.
(c) Third Party Sale of Equipment.
(i) Remarketing Obligations. In the event the
Lessee (x) delivers notice to the Lessor that it
has elected not to renew this Lease with respect
to all Items of Equipment then subject to this
Lease in accordance with Section 27(a) hereof
and (y) has not exercised its option to purchase
all of the Items of Equipment then subject to
this Lease pursuant to Section 27(b), then the
Lessee shall have the obligation during the last
180 days of the Basic Term (after exercise of
the maximum number of Renewal Terms permitted
hereby) (the "Remarketing Period"), to obtain
(at the cost of the Lessee) bona fide bids for
not less than all Items of Equipment then
subject to this Lease from prospective
purchasers (who are not, and are not acting on
behalf of, Lessee or any Affiliate of Lessee)
who are financially capable of purchasing such
Items of Equipment for cash. Any such sale
shall be on an "as-is, where-is" basis, without
recourse or warranty except that the Lessor
shall warrant that each such Item of Equipment
shall be returned free and clear of all Liens of
the sort described in clause (d) of the
definition of Permitted Liens. All such bids
received by the Lessee during such Remarketing
Period of such Items of Equipment shall be
immediately certified to the Lessor in writing,
setting forth the amount of such bid and the
name and address of the person or entity
submitting such bid. Notwithstanding the
foregoing, the Lessor shall have the right, but
not the obligation, to seek bids for the
Equipment during the Remarketing Period.
(ii) Sale of Equipment. On the Termination Date,
provided that all the conditions hereof have
been met, the Lessor shall sell (or cause to be
sold) all Items of Equipment then subject to
this Lease, for cash to the bidder, if any,
selected by the Lessee on an "as-is, where-is"
basis and without recourse or warranty except
that the Lessor shall warrant that each such
Item of Equipment shall be returned free and
clear of all Liens of the sort described in
clause (d) of the definition of Permitted Liens,
and upon receipt by the Lessor of the sales
price, the Lessor shall instruct the Lessee to
deliver and the Lessee shall deliver such
Item(s) of Equipment to such bidder; provided
that (x) any such sale shall be consummated, and
the sales price for such Item (and any amounts
payable by Lessee pursuant to Section 28) shall
be paid to the Lessor in immediately available
funds, on or before the Termination Date, and
(y) the Lessor shall not be obligated
38
<PAGE>
to sell such Equipment if (i) the Net Proceeds of
Sale of such Items are less than the aggregate
Maximum Lessor Risk Amount applicable to such
Items as of the Termination Date, and (ii) the
Lessor has not received the amounts, if any,
payable by the Lessee pursuant to Section 28;
provided further that if such sale shall not be
consummated on such date and the Term shall not
have been extended or renewed, Lessee shall be
deemed to have exercised its purchase option
pursuant to Section 27(b)(i) and shall pay
Lessor the amounts specified therein on the
Termination Date. Except as expressly set forth
herein, the Lessee shall have no right, power or
authority to bind the Lessor in connection with
any proposed sale of the Equipment.
28. End-of-Term Rental Adjustment - Third Party Sale of
Equipment. If the aggregate proceeds of sale of the Equipment
pursuant to Section 27(c) after deducting therefrom the aggregate
amount of all costs (other than sales commissions or similar
third-party fees, unless approved in writing by the Lessee)
incurred by the Lessor in connection with such sale (such net
amount being hereinafter referred to as "Net Proceeds of Sale")
are less than the aggregate Estimated Residual Value of the
Equipment as of such Termination Date, the Lessee shall, on the
Termination Date, pay to the Lessor, in immediately available
funds, to the Lessor's account specified pursuant to Section 7(c)
hereof, (x) an amount equal to such deficiency (a "Deficiency")
plus (y) the Basic Rent due and payable for such Items of
Equipment on the Termination Date plus (z) any other Supplemental
Payments then due and owing to the Lessor hereunder; provided,
however, that if no Default or Event of Default shall exist, the
amount of the Deficiency payable by the Lessee with respect to the
Items covered by such Lease Supplement shall not exceed the
Maximum Lessee Risk Amount as set forth in such Lease Supplement
for such Termination Date. If the Net Proceeds of Sale of such
Items of Equipment exceed the aggregate Estimated Residual Value
of such Items, then the Lessor shall apply that excess to any
amounts that the Lessee then owes to the Lessor hereunder with
respect to such Items (or, if an Event of Default exists, to any
other amount that the Lessee then owes to the Lessor), and shall
pay to the Lessee the remainder of such excess as an adjustment to
the Basic Rent payable under this Lease for such Items.
29. Covenants of the Lessee. The Lessee agrees, for the
benefit of the Lessor and each Assignee, as follows:
(a) Financial Information. During the Term, the
Lessee will furnish or cause to be furnished to the Lessor
(a) within one hundred twenty (120) days after the end of
each of its fiscal years, its consolidated balance sheet and
related consolidated statements of income and cash flows, in
each case certified by independent certified public
accountants of nationally recognized standing, showing its
financial position at the close of such year and the results
of its operations and cash flows for such year; (b) within
sixty (60) days after the end of each of the first three (3)
quarters in each of its fiscal years, its unaudited
condensed consolidated balance sheet and related condensed
consolidated statements of income and cash flows, such
balance sheets to be as of the end of such quarter and such
39
<PAGE>
statements of income and cash flows to be for the period
from the beginning of the fiscal year to the end of such
quarter, in each case in the forms included in its Quarterly
Report on Form 10-Q for such quarter filed with the SEC
pursuant to the Securities Exchange Act of 1934, as amended,
and subject to audit and year-end adjustments; and (c) such
other information respecting the Lessee's business,
properties or its condition or operations, financial or
otherwise, as the Lessor may from time to time reasonably
request.
In the event the Lessee is no longer obligated to file
Forms 10-K and 10-Q with the SEC, the Lessee shall furnish
to the Lessor the financial statements required to be filed
under such Forms on or prior to the dates specified in the
preceding sentence.
(b) Mergers, etc. The Lessee shall not merge with
or into or consolidate with or into any other Person (other
than the Western Resources Merger Transaction, which merger
Lessor and Lessee agree complies with clauses (1) and (2)
below) or sell, transfer, or otherwise dispose of
substantially all the Lessee's assets unless, immediately
after giving effect thereto, (1) the Lessee is the surviving
corporation, or the surviving (if not the Lessee) or
resulting corporation shall have assumed, in writing, the
obligations of the Lessee under this Lease pursuant to
documentation reasonably satisfactory to the Lessor and each
Assignee (if any), and (2) the surviving entity or resulting
entity or transferee, as applicable, will have a credit
rating from Standard & Poor's Rating Group for its senior
unsecured debt of BBB or better (or an equivalent rating
from Moody's Investors Service).
(c) ERISA. As soon as possible and in any event
(A) within the time notice to the PBGC is required as to any
ERISA Event described in clause (i) of the definition of
ERISA Event with respect to any Plan of the Lessee or any
ERISA Affiliate of the Lessee has occurred and (B) within
ten days after any other ERISA Event with respect to any
Plan of the Lessee or any ERISA Affiliate of the Lessee has
occurred, the Lessee shall deliver to the Lessor a statement
if the Lessee (signed on its behalf by a Responsible Officer
of the Lessee) describing such ERISA Event and the action,
if any, which the Lessee or such ERISA Affiliate proposes to
take with respect thereto.
(d) ERISA Information. Promptly after receipt
thereof' by the Lessee or any of its ERISA Affiliates from
the PBGC, the Lessee shall deliver to the Lessor copies of
each notice received by the Lessee or such ERISA Affiliate
of the PBGC's intention to terminate any Plan if the Lessee
or such ERISA Affiliate or to have a trustee appointed to
administer any such Plan.
(e) ERISA Notice. Promptly after receipt thereof by
the Lessee or any ERISA Affiliate of the Lessee from a
Multiemployer Plan sponsor, the Lessee shall deliver to the
Lessor copy of each notice received by the Lessee or such
ERISA Affiliate concerning the imposition or amount of
withdrawal liability in an aggregate principal amount of at
least
40
<PAGE>
$10 million pursuant to Section 4202 of ERISA in
respect of which the Lessee or such ERISA Affiliate is
reasonably expected to be liable.
(f) Litigation. The Lessee shall deliver to the
Lessor, promptly after the Lessee becomes aware of the
occurrence thereof, notice of all actions, suits,
proceedings or other events for which the Lessor will be
entitled to indemnity hereunder.
30. Payment of Transaction Expenses. The Lessor shall be
responsible for the reasonable fees and expenses of its counsel
and special Surface Transportation Board counsel incurred in
connection with the negotiation and initial documentation of this
transaction. The Lessee shall be responsible for the reasonable
fees and expenses of its counsel.
31. Owner for Income Tax Purposes. The Lessor agrees that
the Lessee shall be deemed the owner of the Equipment for Federal,
state and local income tax purposes and that, so long as no Event
of Default shall have occurred and be continuing, the Lessor shall
take no action inconsistent with such ownership for income tax
purposes.
32. Governing Law; Waiver of Jury Trial; Submission to
Jurisdiction. This Lease shall in all respects be governed by,
and construed in accordance with, the laws of the State of
Illinois, including all matters of construction, validity and
performance. The Lessee and the Lessor hereby waive any right to
a trial by jury in any dispute arising under or in any way
relating to the transactions contemplated by this Lease. Each of
the Lessor and the Lessee (a) irrevocably submits itself to the
non-exclusive jurisdiction of the Courts of the State of Illinois,
Cook County and the United States District Court for the Northern
District of Illinois for the purposes of any suit, action or other
proceeding arising out of this Lease, or the subject matter hereof
or the transaction contemplated hereby, (b) irrevocably agrees
that all claims in respect of such action or proceeding may be
heard and determined in such Illinois State or United States
Federal court and (c) agrees not to assert, by way of motion, as a
defense or otherwise, in any such suit, action or proceeding any
claim that is not personally subject to the jurisdiction of the
above-named Illinois State or United States Federal courts, that
the suit, action or proceeding is brought in an inconvenient
forum, that the venue of the suit, action or proceeding is
improper, or that this Lease or the subject matter hereof may not
be enforced in or by such courts under any applicable law. The
Lessee agrees that its submission to jurisdiction is made for the
express benefit of the Lessor and its successors and permitted
assigns. Lessee hereby agrees that service of process may be made
upon Lessee by written notice. Nothing in this Section 32 shall
affect the right of the Lessor or its successors or assigns to
serve legal process in any other manner permitted by law or affect
the right of the Lessor or its successors or permitted assigns to
bring any action or proceeding against the Lessee or its property
in the courts of other jurisdictions.
41
<PAGE>
33. Miscellaneous. Any provision of this Lease which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating or diminishing any party's
rights under the remaining provisions hereof, and any such
prohibition or unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction. To the extent permitted by applicable law, the
Lessee and the Lessor hereby waive any provision of law which
renders any provision of this Lease prohibited or unenforceable in
any respect. No term or provision of this Lease may be amended,
altered, waived, discharged or terminated orally, but may be
amended, altered, waived, discharged or terminated only by an
instrument in writing signed by a duly authorized officer of the
party against which the enforcement of the amendment, alteration,
waiver, discharge or termination is sought. A waiver on any one
occasion shall not be construed as a waiver on a future occasion.
All of the covenants, conditions and obligations contained in this
Lease shall be binding upon and shall inure to the benefit of the
respective successors and permitted assigns of the Lessor and the
Lessee (subject to the restrictions of Section 13 above and
Section 34 below). This Lease, each Lease Supplement and each
related instrument, document, agreement and certificate,
collectively constitute the complete and exclusive statement of
the terms of the agreement between the Lessor and the Lessee with
respect to the acquisition and leasing of the Equipment, and
cancel and supersede any and all prior oral or written
understandings with respect thereto. This Lease and each Lease
Supplement may be executed in counterparts, each of which shall
constitute an original document but all of which together shall
constitute a single instrument.
34. Registered Instrument. This Lease is a registered
instrument. A manually signed copy of this Lease shall be
evidence only of Lessor's and Lessee's rights and is not a bearer
instrument. The Lessor agrees with the Lessee that the Lessee
shall keep books of registry by which Lessee will register by book
entry, and register by book entry any transfer of, Lessor's
interest in this Lease and in the right to receive any payments
under this Lease. Prior to the due presentment for registration
of any transfer of Lessor's interest in this Lease, the Lessee and
the Lessor shall deem and treat the Person in whose name this
Lease is registered in the books of registry as the absolute owner
of this Lease and the holder of this Lease for the purpose of
receiving payment of all amounts payable with respect to this
Lease. Lessor's interest in this Lease and in the rights to
receive any payments under the Lease may be transferred only
pursuant to and in compliance with the provisions of this Lease,
which transfers shall be registered by book entry made by the
Lessee in its books of registry. No transfer by Lessor (whether
or not with Lessee's consent) of any interest in this Lease or in
the right to receive any payments hereunder shall be permitted
unless a book entry of such transfer is made upon such registry
and such transfer is otherwise in accordance with the terms of
this Lease.
IN WITNESS WHEREOF, the parties hereto have caused this
Equipment Leasing Agreement to be duly executed by their duly
authorized representatives as of the date first above written.
[SIGNATURES ARE ON ATTACHED PAGES]
42
<PAGE>
[Equipment Leasing Agreement]
Attest: Lessee:
KANSAS CITY POWER & LIGHT COMPANY
By: /s/Jeanie Sell Latz By: /s/Andrea F. Bielsker
Name: Jeanie Sell Latz Name: Andrea F. Bielsker
Title: Title:
Senior Vice President- Treasurer
Corporate Services, Corporate
Secretary & Chief Legal Officer
(Corporate Seal)
Lessor:
CCG TRUST CORPORATION
Attest:
By: /s/M. Hafiz Khan By: /s/John R. Walker
Name: M. Hafiz Khan Name: John R. Walker
Title: Title:
Attorney at Law Managing Director
(Corporate Seal)
THIS IS COUNTERPART NO. __ OF ____ SERIALLY NUMBERED MANUALLY
EXECUTED COUNTERPARTS. TO THE EXTENT, IF ANY, THAT THIS DOCUMENT
CONSTITUTES CHATTEL PAPER UNDER THE UNIFORM COMMERCIAL CODE, NO
SECURITY INTEREST IN THIS DOCUMENT MAY BE PERFECTED THROUGH THE
POSSESSION OF ANY COUNTERPART OTHER THAN COUNTERPART NO. 1.
43
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Sep-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 2,308,405
<OTHER-PROPERTY-AND-INVEST> 331,623
<TOTAL-CURRENT-ASSETS> 248,444
<TOTAL-DEFERRED-CHARGES> 180,934
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 3,069,406
<COMMON> 449,697
<CAPITAL-SURPLUS-PAID-IN> (1,674)
<RETAINED-EARNINGS> 461,430
<TOTAL-COMMON-STOCKHOLDERS-EQ> 910,150
62
89,000
<LONG-TERM-DEBT-NET> 859,575
<SHORT-TERM-NOTES> 6,741
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 36,287
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 1,168,288
<TOT-CAPITALIZATION-AND-LIAB> 3,069,406
<GROSS-OPERATING-REVENUE> 748,599
<INCOME-TAX-EXPENSE> 70,854
<OTHER-OPERATING-EXPENSES> 519,476
<TOTAL-OPERATING-EXPENSES> 590,330
<OPERATING-INCOME-LOSS> 158,269
<OTHER-INCOME-NET> 7,908
<INCOME-BEFORE-INTEREST-EXPEN> 166,177
<TOTAL-INTEREST-EXPENSE> 54,370
<NET-INCOME> 111,807
2,930
<EARNINGS-AVAILABLE-FOR-COMM> 108,877
<COMMON-STOCK-DIVIDENDS> 75,807
<TOTAL-INTEREST-ON-BONDS> 43,426
<CASH-FLOW-OPERATIONS> 261,447
<EPS-PRIMARY> 1.76
<EPS-DILUTED> 1.76
</TABLE>
