<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1997
--OR--
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
----------------------------------------
For the Transition Period From to
--------- ---------
Exact Name of Registrant as Specified
Commission in its Charter; Address of Principal I.R.S. Employer
File Number Executive Offices; and Telephone Number Identification No.
- ----------- --------------------------------------- -----------------
1-12833 Texas Utilities Company 75-2669310
Energy Plaza, 1601 Bryan Street
Dallas, TX 75201-3411
(214) 812-4600
0-11442 Texas Utilities Electric Company 75-1837355
Energy Plaza, 1601 Bryan Street
Dallas, TX 75201-3411
(214) 812-4600
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<PAGE>
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Name of Each Exchange on
Registrant Title of Each Class Which Registered
---------- ------------------- -------------------
<S> <C> <C>
Texas Utilities Company Common Stock, without par value New York Stock Exchange
The Chicago Stock Exchange
The Pacific Exchange
Texas Utilities Electric Company Depositary Shares, Series A, each representing New York Stock Exchange
1/4 of a share of $7.50 Cumulative
Preferred Stock, without par value
Texas Utilities Electric Depositary Shares, Series B, each representing New York Stock Exchange
Company 1/4 of a share of $7.22 Cumulative
Preferred Stock, without par value
TU Electric Capital I, a 8.25% Trust Originated Preferred Securities New York Stock Exchange
subsidiary of Texas Utilities
Electric Company
TU Electric Capital III, a 8.00% Quarterly Income Preferred Securities New York Stock Exchange
subsidiary of Texas Utilities
Electric Company
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: Preferred Stock of
Texas Utilities Electric Company, without par value
-----------------------------------
Indicate by check mark whether the registrants (1) have 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
registrants were required to file such reports), and (2) have been subject to
such filing requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Aggregate market value of Texas Utilities Company Common Stock held by non-
affiliates, based on the last reported sale price on the composite tape on March
13, 1998: $9,863,560,270.
Aggregate market value of Texas Utilities Electric Company Common Stock held by
non-affiliates: None
Common Stock outstanding at March 13, 1998:
Texas Utilities Company - 245,237,688 shares, without par value
Texas Utilities Electric Company - 142,931,000 shares, without par value
----------------------------------------------------
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement pursuant to Regulation 14A, which was
filed with the Commission on March 19, 1998, are incorporated by reference into
Part III of this report.
-----------------------------------------------------
This combined Form 10-K is filed separately by Texas Utilities Company and Texas
Utilities Electric Company. Information contained herein relating to an
individual registrant is filed by that registrant on its own behalf except that
the information with respect to Texas Utilities Electric Company, other than the
financial statements of Texas Utilities Electric Company, is filed by each of
Texas Utilities Company and Texas Utilities Electric Company. Each registrant
makes no representation as to information filed by the other registrant.
<PAGE>
TABLE OF CONTENTS
PART I
Page
----
Item 1. BUSINESS.................................................. 1
Texas Utilities Company and Subsidiaries................ 1
Texas Energy Industries, Inc. and Subsidiaries.......... 3
ENSERCH Corporation and Subsidiaries.................... 5
Texas Utilities Electric Company and Subsidiaries....... 5
Electricity Peak Load and Capability.................... 6
Gas Distribution Peaking................................ 8
Fuel Supply and Purchased Power......................... 8
Regulation and Rates.................................... 12
Competition............................................. 17
Environmental Matters................................... 21
Item 2. PROPERTIES................................................ 24
Capital Expenditures.................................... 25
Item 3. LEGAL PROCEEDINGS......................................... 26
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....... 26
EXECUTIVE OFFICERS OF THE COMPANY.................................. 27
PART II
Item 5. MARKET FOR EACH REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS ...................................... 28
Item 6. SELECTED FINANCIAL DATA................................... 28
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................... 29
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK............................................... 29
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............... 29
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE....................... 29
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF EACH REGISTRANT....... 30
Item 11. EXECUTIVE COMPENSATION.................................... 33
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT............................................ 40
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS............ 40
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K....................................... 41
APPENDIX A - Financial Information of Texas Utilities Company and Subsidiaries
and Texas Utilities Electric Company and Subsidiaries
APPENDIX B - Financial Information of ENSERCH Corporation and Subsidiaries
i
<PAGE>
PART I
ITEM 1. BUSINESS
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
Texas Utilities Company (Company), a Texas corporation organized in 1996,
which was named as TUC Holding Company, is a holding company for its predecessor
companies, Texas Energy Industries, Inc. (TEI), formerly known as Texas
Utilities Company, and ENSERCH Corporation (ENSERCH). Through subsidiaries and
divisions of TEI and ENSERCH, the Company engages in the generation,
transmission and distribution of electricity; the processing, transmission,
distribution and marketing of natural gas; and telecommunications, power
development and other businesses. Additional information concerning TEI and
ENSERCH and their respective subsidiaries and divisions follows. The Company
holds no franchises other than its corporate franchise.
At December 31, 1997, the Company and its direct and indirect wholly-owned
subsidiaries (System Companies) had 14,751 full-time employees.
MERGERS AND ACQUISITIONS
Certain comparisons in this Form 10-K have been affected by the August 1997
acquisition of ENSERCH and the November 1997 acquisition of Lufkin-Conroe
Communications Co. (LCC) by the Company and by the December 1995 acquisition of
Eastern Energy Limited (Eastern Energy) by Texas Utilities Australia Pty. Ltd.
(TU Australia), a wholly-owned subsidiary of the Company. The results of each
acquired company are included only for the periods subsequent to acquisition.
On August 5, 1997, the merger transactions (Merger) between the former
Texas Utilities Company, now known as TEI, and ENSERCH were completed. At the
effective time of the Merger: (i) the former Texas Utilities Company changed its
name to TEI, (ii) TEI and ENSERCH merged with wholly-owned subsidiaries of TUC
Holding Company, which, as a result, owned all the common stock of TEI and of
ENSERCH, (iii) TUC Holding Company changed its name to Texas Utilities Company
(now the Company), (iv) each share of TEI's common stock was automatically
converted into one share of common stock of the Company, and (v) each share of
common stock of ENSERCH was automatically converted into 0.225 share of common
stock of the Company, with cash issued in lieu of fractional shares. The share
conversions were tax-free transactions. In the Merger, approximately 15. 9
million shares of the Company's common stock were issued to former holders of
ENSERCH common stock. The value assigned to the Company shares issued and costs
incurred in connection with the acquisition of ENSERCH aggregated $579 million.
At the date of the Merger, ENSERCH had debt and preferred stock outstanding of
approximately $1.3 billion.
On November 21, 1997, the Company acquired LCC. Approximately 8.7 million
shares of the Company's common stock were issued to LCC stockholders in a
stock-for-stock exchange. The value assigned to the Company shares issued and
costs incurred in connection with the acquisition of LCC aggregated $319
million. At the date of the acquisition, LCC had debt outstanding of
approximately $31 million. Immediately following the acquisition, the Company
contributed its investment in LCC to TEI.
The acquisitions of ENSERCH, LCC and Eastern Energy were accounted for as
purchase business combinations. The assets and liabilities of the acquired
companies at the acquisition dates were adjusted to their estimated fair values.
The excess of the purchase price paid by the Company over the estimated fair
value of net assets acquired and liabilities assumed was recorded as goodwill
and is being amortized over 40 years. The process of determining the fair value
of assets and liabilities of ENSERCH and LCC as of the date of acquisition is
continuing, and the final results await primarily the resolution of income tax
and other contingencies and finalization of some preliminary estimates.
1
<PAGE>
For financial reporting and other purposes, the Company is being treated
herein as the successor to TEI. Unless otherwise specified, all references to
the Company which relate to a period prior to August 5, 1997, shall be deemed to
be references to TEI.
The Company continues to seek potential investment opportunities from time
to time when it concludes that such investments are consistent with its business
strategies and are likely to enhance the long-term return to its shareholders.
In January 1998, the Company announced that it had approached The Energy Group
PLC (TEG), a diversified international energy group, in connection with its
possible interest in acquiring TEG. TEG is the holding company for Eastern
Electricity PLC, which is one of the largest regional electric companies in the
United Kingdom (U.K.), one of the largest U.K. generators of electricity and one
of the largest U.K. suppliers of natural gas. On March 2, 1998, the Company
announced through its wholly owned subsidiary, TU Acquisitions PLC (TU
Acquisitions), an offer to holders of TEG securities, to acquire 100% of TEG's
ordinary shares, including the ordinary shares evidenced by American Depository
Receipts, which was increased on March 3, 1998 to an offer of (Pounds)8.40 per
share. Alternatively, up to 20% of the TEG shares may be exchanged for Company
common stock with a value of approximately (Pounds)8.65 per TEG share. There is
currently a competing offer for TEG shares at (Pounds)8.20 per share. The offer
by the Company is subject to certain conditions and to certain regulatory
consents and confirmations which the Company anticipates will be satisfactorily
resolved within the normal timetable for an offer in the U.K. As of March 17,
1998, the Company had acquired 21.96% of TEG's shares in the U.K. market. The
TEG businesses to be acquired by the Company (which exclude TEG's Peabody Coal
and Citizens Power businesses, which are to be sold by TEG to an unaffiliated
party in connection with the Company's offer) had assets of approximately $10.3
billion at September 30, 1997 and $5.2 billion of revenues for the twelve months
ended on that date. Such businesses had debt outstanding at September 30, 1997
of approximately $3.8 billion. The estimated purchase price for the TEG shares
is approximately $7.3 billion. The Company estimates that the financing
necessary to purchase all outstanding TEG shares at the (Pounds)8.40 price and
to pay all associated expenses will be approximately (Pounds)4.6 billion ($7.6
billion). The Company and TU Acquisitions and other intermediate U.K. holding
companies have entered into credit facilities with banking institutions in the
United States (U.S.) and the U.K., respectively, which will provide committed
financing sufficient to purchase the outstanding TEG shares and pay related
expenses. The U.S. credit facilities, which will aggregate $5.0 billion, will
replace the Company's current Credit Facilities described in Note 3 to the
Consolidated Financial Statements. The timing, amount and funding of any other
new business investment opportunities are presently undetermined.
2
<PAGE>
The Company's more significant subsidiaries are as follows:
TEXAS ENERGY INDUSTRIES, INC.
Texas Utilities Electric Company
TU Electric Capital I Trust
TU Electric Capital III Trust
TU Electric Capital IV Trust
TU Electric Capital V Trust
Southwestern Electric Service Company
Texas Utilities Australia Pty. Ltd.
Eastern Energy Limited
Texas Utilities Fuel Company
Texas Utilities Mining Company
Lufkin-Conroe Communications Co.
Lufkin-Conroe Telephone Exchange, Inc.
Lufkin-Conroe Telecommunications Corp.
LCT Long Distance, Inc.
East Texas Fiber Line, Inc. (67% owned)
Texas Utilities Integrated Solutions Inc.
Texas Utilities Services Inc.
Texas Utilities Properties Inc.
Texas Utilities Communications Inc.
Basic Resources Inc.
Chaco Energy Company
Enserch Development Corporation
Lone Star Gas International, Inc.
National Pipeline Company
Enserch International Services, Inc.
ENSERCH CORPORATION
Lone Star Gas Company, a Division of ENSERCH Corporation
Lone Star Pipeline Company, a Division of ENSERCH Corporation
Enserch Processing, Inc.
Enserch Energy Services, Inc.
TU FINANCE (NO. 1) LIMITED
TU Finance (No. 2) Limited (90% owned by TU Finance (No. 1) Limited and
10% owned by Texas Utilities Services Inc.)
TU Acquisitions PLC
TEXAS ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
TEI is a holding company whose principal subsidiary, Texas Utilities
Electric Company (TU Electric), is an operating public utility company engaged
in the generation, purchase, transmission, distribution and sale of electric
energy in the north central, eastern and western portions of Texas. For
information concerning TU Electric, see TU Electric below. Two other
subsidiaries of TEI are also engaged directly or indirectly in electric utility
operations. Southwestern Electric Service Company (SESCO) is engaged in the
purchase, transmission, distribution and sale of electric energy in ten counties
in the eastern and central parts of Texas with a population estimated at
126,900. TU Australia owns all of the common stock of Eastern Energy, an
Australian company engaged in the purchase, distribution, marketing and sale of
electric energy to approximately 489,000 customers in a 31,000 square mile
distribution service area extending from the outer eastern suburbs of the
Melbourne metropolitan area to the eastern coastal areas of the State of
Victoria and north to the State of New South Wales border. References herein to
TU Australia include its subsidiary, Eastern Energy.
3
<PAGE>
Texas Utilities Fuel Company (Fuel Company) owns a natural gas pipeline
system, acquires, stores and delivers fuel gas and provides other fuel services,
at cost, for the generation of electric energy by TU Electric.
Texas Utilities Mining Company (Mining Company) owns, leases and operates
fuel production facilities for the surface mining and recovery of lignite, at
cost, for the generation of electric energy by TU Electric.
LCC is the parent company of Lufkin-Conroe Telephone Exchange, Inc. (LCTX)
and Lufkin-Conroe Telecommunications Corporation (LCT) and its subsidiaries.
LCTX is an independent local exchange carrier which has provided telephone
services for almost 100 years, and as of December 1997, was the fourth largest
telephone company in Texas (28th largest in the U.S.). LCTX has sixteen
exchanges that serve approximately 100,000 access lines in the Alto, Conroe and
Lufkin areas of southeast Texas. It also provides access services to a number of
interexchange carriers, who provide long distance services. LCT and its
subsidiaries own fiber optic cable systems which they lease to interexchange
carriers, provide Internet access, radio communications tower rentals, cellular
mobile telephones and radio paging services and private branch exchange service
to local customers. LCT, through a subsidiary, also provides interexchange long
distance service, with a primary focus on business customers.
Texas Utilities Integrated Solutions Inc. is an unregulated company
providing retail energy services. The company bundles energy-related products
and services for selected target market segments.
Texas Utilities Services Inc. (TU Services) provides financial, accounting,
information technology, environmental services, customer services, procurement,
personnel and other administrative services, at cost, to the System Companies.
TU Services acts as transfer agent, registrar and dividend paying agent with
respect to the common stock of the Company, the preferred stock and preferred
securities of TU Electric, and as agent for participants under the Company's
Automatic Dividend Reinvestment and Common Stock Purchase Plan.
Texas Utilities Properties Inc. (TU Properties) owns, leases and manages
real and personal properties, primarily the Company's corporate headquarters.
Texas Utilities Communications Inc. was organized to provide access to
advanced telecommunications technology, primarily for the Company's expected
expansion of the energy services business.
Basic Resources Inc. was organized for the purpose of developing natural
resources, primarily energy sources, and other business opportunities.
Chaco Energy Company (Chaco) was organized to own and operate facilities
for the acquisition, production, sale and delivery of coal and other fuels and
currently leases extensive coal reserves.
In December 1997, TEI acquired from ENSERCH the companies which had
constituted its power development and international gas distribution
operations. Enserch Development Corporation (EDC) develops and finances
independent electric power plant and cogeneration facilities. EDC's efforts are
currently focused on international projects. International gas operations,
which are conducted through Lone Star Gas International, Inc., National Pipeline
Company and Enserch International Services, Inc., are currently focused in
Mexico and Central and South America and consist primarily of minority
ownership in gas distribution systems.
TU Electric, SESCO, TU Australia, LCTX and LCT possess all of the necessary
franchises, licenses and certificates required to enable them to conduct their
respective businesses (see Regulation and Rates).
At December 31, 1997, TEI and its direct and indirect wholly-owned
subsidiaries had 11,758 full-time employees.
4
<PAGE>
ENSERCH CORPORATION AND SUBSIDIARIES
ENSERCH is an integrated company focused on natural gas. Its major business
operations consist of the gathering, processing, transmission, distribution and
marketing of natural gas through the following companies.
Enserch Processing, Inc. (EPI) gathers and processes natural gas to remove
impurities and extract natural gas liquids for sale.
Lone Star Pipeline Company (Lone Star Pipeline), a division of ENSERCH, is
a partially rate-regulated business that owns and operates interconnected
natural-gas transmission lines, underground storage reservoirs, compressor
stations and related properties, all within Texas. With a system consisting of
approximately 7,600 miles of gathering and transmission pipelines in Texas, Lone
Star Pipeline is one of the largest pipelines in the United States. Through
these facilities, it transports natural gas to distribution systems of Lone Star
Gas Company (Lone Star Gas) and other customers. Rates for the services to Lone
Star Gas are regulated by the Railroad Commission of Texas (RRC) while rates
for services to other customers are generally only subject to RRC jurisdiction
through complaint proceedings.
Lone Star Gas, a partially rate-regulated division of ENSERCH, owns and
operates natural-gas distribution systems and related properties. One of the
largest gas distribution companies in the United States and the largest in
Texas, Lone Star Gas provides service through over 23,800 miles of distribution
mains. Through these facilities, it purchases, distributes and sells natural gas
to over 1.35 million residential, commercial and industrial customers in
approximately 550 cities and towns, including the 11-county Dallas/Fort Worth
Metroplex. Lone Star Gas also transports natural gas within its distribution
system as market opportunities require.
Enserch Energy Services, Inc. (EES) is a wholesale and retail marketer of
natural gas in several areas of the U.S. Its primary U.S. retail markets are in
Texas, the Northeast, the Midwest and the West Coast. In January 1998, the
Federal Energy Regulatory Commission approved an Order authorizing EES to make
physical sales of electricity in the wholesale market throughout the U.S. other
than within the area of the Electric Reliability Council of Texas (ERCOT).
ENSERCH possesses all of the necessary franchises and certificates required
to enable it to conduct its business (see Regulation and Rates). See Appendix B
to this report for additional information concerning the various operations of
ENSERCH.
At December 31, 1997, ENSERCH and its direct and indirect wholly-owned
subsidiaries had 2,987 full-time employees.
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
TU Electric is an electric utility engaged in the generation, purchase,
transmission, distribution and sale of electric energy wholly within the State
of Texas. TU Electric possesses all of the necessary franchises and
certificates required to enable it to conduct its business (see Regulation and
Rates). TU Electric is the principal subsidiary of the Company. References
herein to TU Electric include its financing subsidiaries (see Note 7 to
Consolidated Financial Statements included in Appendix A to this report).
5
<PAGE>
TU Electric's service area is located in the north central, eastern and
western parts of Texas, with a population estimated at 6,020,000 -- about one-
third of the population of Texas. Electric service is provided in 91 counties
and 372 incorporated municipalities, including Dallas, Fort Worth, Arlington,
Irving, Plano, Waco, Mesquite, Grand Prairie, Wichita Falls, Odessa, Midland,
Carrollton, Tyler, Richardson and Killeen. The area is a diversified commercial
and industrial center with substantial banking, insurance, communications,
electronics, aerospace, petrochemical and specialized steel manufacturing, and
automotive and aircraft assembly. The territory served includes major portions
of the oil and gas fields in the Permian Basin and East Texas, as well as
substantial farming and ranching sections of the State. Its service territory
also includes the Dallas-Forth Worth International Airport and the Alliance
Airport. For energy sales and operating revenues contributed by each customer
classification, see Texas Utilities Electric Company and Subsidiaries --
Consolidated Operating Statistics included in Appendix A to this report.
At December 31, 1997, TU Electric had 6,053 full-time employees.
ELECTRICITY PEAK LOAD AND CAPABILITY
THE COMPANY AND TU ELECTRIC
- ---------------------------
The electricity peak load and net capability for the System Companies
include those of TU Electric, contained in the chart below, SESCO and Eastern
Energy. For SESCO, peak load was 238 megawatts (MW) on July 29, 1997 and for
Eastern Energy was 1,042 MW on February 19, 1997. SESCO and Eastern Energy
generate no electric energy.
TU Electric's net capability, peak load and reserve, in MW, at the time of
peak were as follows during the years indicated:
<TABLE>
<CAPTION>
ELECTRICITY
PEAK LOAD (a)
-----------------------
INCREASE FIRM
NET OVER PEAK
YEAR CAPABILITY AMOUNT PRIOR YEAR LOAD RESERVE(b)
---- ---------- ------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C>
1997...... 22,449(c) 20,351 3.5% 19,229 3,220
1996...... 22,389(d) 19,668 2.5 18,930 3,459
1995...... 22,469(e) 19,180 6.4 18,631 3,619
</TABLE>
- --------------------
(a) The 1997 peak load occurred on August 20. TU Electric's peak load includes
interruptible load at the time of peak of 1,122 MW in 1997, 738 MW in 1996
and 744 MW in 1995.
(b) Amount of net capability in excess of firm peak load at the time of peak.
(c) Included in net capability is 1,224 MW of firm purchased capacity, of which
1,164 MW is cogeneration and small power production, and 60 MW is short-term
firm summer capacity purchased in 1997 from a power marketer.
(d) Included in net capability is 1,164 MW of firm purchased capacity, all of
which is cogeneration and small power production.
(e) Included in net capability is 1,244 MW of firm purchased capacity, of which
1,164 MW is cogeneration and small power production.
TU ELECTRIC
- -----------
The peak load changes for 1997 as compared to 1996 resulted primarily from
customer growth and increased customer usage. The peak load changes for 1996
and 1995, compared in each case to the prior year, resulted primarily from
customer growth and weather factors. TU Electric expects to continue to
purchase capacity in the future from various sources. (See Fuel Supply and
Purchased Power and Note 15 to Consolidated Financial Statements included in
Appendix A to this report.) Firm peak load increases over the next ten years
are expected to average approximately 1.7% annually, after consideration of load
management programs (including interruptible contracts).
6
<PAGE>
Changes in utility regulation and legislation at the federal and state
levels such as the Public Utility Regulatory Policy Act of 1978 (PURPA), the
National Energy Policy Act of 1992 (Energy Policy Act) and the 1995 amendments
to the Public Utility Regulatory Act (PURA) in Texas have significantly changed
the way in which utilities plan for new resources. TU Electric believes that
competitive market forces will be a major factor in determining future resource
additions to serve customer loads. Thus, for planning purposes, TU Electric can
no longer readily identify the ownership and types of resources to include in
its plan before the actual selection of those resources. TU Electric has
reflected this uncertainty through use of the term "Unspecified Resources."
Except for known contracts, all potential new resource needs are designated as
"Unspecified Resources."
In January 1996, in accordance with an order of the PUC, TU Electric filed
an updated ten-year Integrated Resource Plan (IRP) with the PUC for the period
1996 through 2005 along with a proposed plan for the solicitation of resources
through a competitive bidding process. The PUC issued its final order on TU
Electric's IRP in October 1996, and modified the order in December 1996 and
February 1997. The modified order approved a flexible solicitation plan that
will allow TU Electric to conduct up to three optional resource solicitations
for a total of 2,074 MW of demand-side and supply-side resources prior to the
filing of its next IRP in June 1999. A large portion of TU Electric's near-term
resource needs have been alleviated with the extension of an existing purchased
power contract through the year 2002. Thus, the immediate need to issue a short-
term solicitation for additional resources was deferred past 1997. TU Electric
is also evaluating the possible extension of its remaining purchased power
contracts and exploring opportunities in the short-term market. TU Electric is
continuing to review the need and timing for conducting the resource
solicitations.
In addition to its solicitation plan in the IRP docket, TU Electric
requested and received approval from the PUC to expand its Power Cost Recovery
tariff to provide current cost recovery of resource acquisition costs for
demand-side management resources acquired in the solicitations and for eight
previously approved demand-side management contracts entered into by TU Electric
to the extent such costs are not currently reflected in TU Electric's base
rates.
RESOURCE ESTIMATES
The resource additions identified in TU Electric's 1998 IRP for the next
five years are as follows:
1998-2002
-------------------------
FIRM
CAPABILITY
RESOURCE ADDITIONS (MW) PERCENT
------------------ ---------- --------
Load management (a)....................... 376 20.5%
Renewable resources (b)................... 4 0.2
Long-term purchase (c).................... 25 1.4
Unspecified resources .................... 1,427 77.9
----- -----
Total................................. 1,832 100.0%
===== =====
- ---------------------
(a) TU Electric has executed an agreement to purchase 75 MW during the summer
peak months of 1998 and has negotiated and signed contracts with eight
suppliers of demand-side management services designed to displace a total of
72 MW by 2004.
(b) TU Electric has negotiated and signed one purchased power contract for
approximately 35 MW (4 MW firm) of wind-powered resources to be placed in
service during 1999.
(c) TU Electric has negotiated and signed a three-year extension to an existing
purchased power contract for an increase in contract capacity from 410 MW to
435 MW.
The exact timing of when retail competition will occur in Texas is unknown
at this time. Some areas in the U.S. already have retail competition (e.g.,
California), many others are considering it, including Texas. During the next
session of the Texas legislature, which will be in 1999, the issue of retail
competition will likely be discussed, and some form of legislation may be
enacted. Because of this uncertainty and the potential impact of retail
competition on TU Electric's ability to retain customers presently served, any
forecasts of future resource needs beyond the near-term (i.e., five years or
less) are speculative and likely to be in error. Thus, TU Electric is providing
only resource information for the next five years (1998-2002).
7
<PAGE>
GAS DISTRIBUTION PEAKING
THE COMPANY
- -----------
Lone Star Gas estimates its peak-day availability from long-term contracts
and withdrawals from underground storage to be 1.4 billion cubic feet (Bcf).
Short-term peaking contracts and daily spot contracts raise this availability
level to meet anticipated sales needs.
During 1997, the average daily demand of Lone Star Gas' residential and
commercial customers was .3 Bcf. Lone Star Gas' greatest daily demand in 1997
was on January 13 when the arithmetic-mean temperature was 22 degrees F. and
deliveries to all customers reached 2.3 Bcf, including estimated deliveries to
residential and commercial customers of 2.1 Bcf.
FUEL SUPPLY AND PURCHASED POWER
THE COMPANY AND TU ELECTRIC
- ---------------------------
Net input for the System Companies during 1997 totaled 108,468 million
kilowatt-hours (kWh) of which 91,298 million kWh were generated by TU Electric.
Average fuel and purchased power cost (excluding capacity charges) per kWh of
net input for the Company and TU Electric were 1.97 and 1.84 cents for 1997,
1.94 and 1.79 cents for 1996 and 1.64 and 1.62 cents for 1995, respectively. The
Company's increase for 1997 primarily reflects TU Electric's increased natural
gas costs. A comparison of TU Electric's resource mix for net kWh input and the
unit cost per million British thermal units (Btu) of fuel during the last three
years is as follows:
<TABLE>
<CAPTION>
MIX FOR NET UNIT COST
KWH INPUT PER MILLION BTU
--------------------- -------------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
Fuel for Electric Generation:
<S> <C> <C> <C> <C> <C> <C>
Gas/Oil (a)...................... 32.9% 33.0% 33.4% $2.80 $2.66 $2.31
Lignite/Coal (b)................. 38.9 39.6 37.4 1.04 1.03 1.02
Nuclear.......................... 17.1 15.0 17.9 0.57 0.56 0.59
----- ----- ----- ----- ---- ----
Total/Weighted Average Fuel Cost.. 88.9 87.6 88.7 $1.62 $1.58 $1.43
Purchased Power (c)............... 11.1 12.4 11.3
----- ----- -----
Total............................. 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
- ------------------
(a) Fuel oil was an insignificant component of total fuel and purchased power
requirements.
(b) Lignite cost per ton to TU Electric was $13.24 in 1997, $13.22 in 1996 and
$13.05 in 1995.
(c) Excludes SESCO's and Eastern Energy's purchased power: 1997 - 543 million
kWh and 5,190 million kWh, respectively; 1996 -616 million kWh and 5,090
million kWh, respectively; 1995 - 865 million kWh and 335 million kWh,
respectively.
TU Electric, SESCO and Eastern Energy are unable to predict: (i) whether or
not problems may be encountered in the future in obtaining the fuel and
purchased power each will require, (ii) the effect upon operations of any
difficulty any of them may experience in protecting rights to fuel and purchased
power now under contract, or (iii) the cost of fuel and purchased power. The
reasonable costs of fuel and purchased power of TU Electric and SESCO are
generally recoverable subject to the rules of the PUC. (See Regulation and Rates
for information pertaining to the method of recovery of purchased power and fuel
costs.)
GAS/OIL
TU ELECTRIC
- -----------
Fuel gas for units at nineteen of the principal generating stations of TU
Electric, having an aggregate net gas/oil capability of 13,100 MW, was provided
during 1997 by Fuel Company. Fuel Company supplied
8
<PAGE>
approximately 16% of such fuel gas requirements under contracts with producers
at the wellhead and 84% under contracts with commercial suppliers.
THE COMPANY
- -----------
Fuel Company -- Fuel Company has acquired supplies of gas from producers at
the wellhead under contracts expiring at intervals through 2008. As gas
production under these contracts declines and contracts expire, new contracts
are expected to be negotiated to replenish or augment such supplies. Fuel
Company has negotiated gas purchase contracts, with terms ranging from one to
ten years, with a number of commercial suppliers. Additionally, Fuel Company has
entered into a number of short-term gas purchase contracts with other commercial
suppliers at spot market prices. In general, these spot gas purchase contracts
require both the buyer and seller to purchase and deliver the gas on negotiated
terms during the agreed-upon delivery period. In the past, curtailments of gas
deliveries have been experienced during periods of winter peak gas demand;
however, such curtailments have been of relatively short duration, have had a
minimal impact on operations and have generally required utilization of fuel oil
and gas storage inventories to replace the gas curtailed. During 1997, Fuel
Company experienced no curtailments.
Fuel Company owns and operates an intrastate natural gas pipeline system
that extends from the gas-producing area of the Permian Basin in West Texas to
the East Texas gas fields and southward to the Gulf Coast area. This system
includes a one-half interest in a 36-inch pipeline that extends 395 miles from
the Permian Basin area to a point of termination south of the Dallas-Fort Worth
area and has a total estimated capacity of 885 million cubic feet per day with
existing compression facilities. Additionally, Fuel Company owns a 39% undivided
interest in another 36-inch pipeline connecting to this pipeline and extending
58 miles eastward to one of Fuel Company's underground gas storage facilities.
Fuel Company also owns and operates approximately 1,550 miles of various smaller
capacity lines that are used to gather and transport natural gas from other
gas-producing areas. The pipeline facilities of Fuel Company form an integrated
network through which fuel gas is gathered and transported to certain TU
Electric generating stations for use in the generation of electric energy.
Fuel Company also owns and operates three underground gas storage
facilities with a usable capacity of 28.2 Bcf with approximately 14.8 Bcf of gas
in inventory at December 31, 1997. Gas stored in these facilities currently can
be withdrawn for use during periods of peak demand to meet seasonal and other
fluctuations or curtailment of deliveries by gas suppliers. Under normal
operating conditions, up to 400 million cubic feet can be withdrawn each day for
a ten-day period, with withdrawals at lower rates thereafter.
Fuel oil can be stored at eighteen of the principally gas-fueled generating
stations. At December 31, 1997, the System Companies had fuel oil storage
capacity sufficient to accommodate approximately 6.2 million barrels of oil,
with approximately 2.3 million barrels of oil in inventory.
Lone Star Gas -- Lone Star Gas' gas supply consists of contracts for the
purchase of specific reserves, contracts not related to specific reserves or
fields, and gas in storage. The total gas supply as of January 1, 1998, was 489
Bcf, which is approximately three times Lone Star Gas' purchases during 1997. Of
this total, 130 Bcf are specific reserves and 34 Bcf are working gas in storage.
Management has calculated that 325 Bcf, including 131 Bcf under one contract,
are committed to Lone Star Gas under gas supply contracts not related to
specific reserves or fields. In 1997, Lone Star Gas' gas requirement was
purchased from some 125 independent producers and non-affiliated pipeline
companies, one of which supplied approximately 28% of total requirements.
To meet peak-day gas demands during winter months, Lone Star Gas utilizes
the service of seven affiliated gas storage fields, all of which are located in
Texas. These fields have a working gas capacity of 47 Bcf and a day-one storage
withdrawal capacity of 1.3 Bcf per day.
Lone Star Gas has historically maintained a contractual right to curtail,
which is designed to achieve the highest load factor possible in the use of the
pipeline system while assuring continuous and uninterrupted service
9
<PAGE>
to the residential and commercial customers. Under the program, industrial
customers select their own rates and relative priorities of service.
Interruptible service contracts include the right to curtail gas deliveries up
to 100% according to a strict priority plan. The last sales curtailment for Lone
Star Gas occurred in 1990 and lasted for only 30 hours.
Estimates of gas supplies and reserves are not necessarily indicative of
Lone Star Gas' ability to meet current or anticipated market demands or
immediate delivery requirements because of factors such as the physical
limitations of gathering and transmission systems, the duration and severity of
cold weather, the availability of gas reserves from its suppliers, the ability
to purchase additional supplies on a short-term basis and actions by federal and
state regulatory authorities. Curtailment rights provide Lone Star Gas
flexibility to meet the human-needs requirements of its customers on a firm
basis. Priority allocations and price limitations imposed by federal and state
regulatory agencies, as well as other factors beyond the control of Lone Star
Gas, may affect its ability to meet the demands of its customers.
The Lone Star Gas supply program is designed to contract for new supplies
of gas (and to recontract targeted expiring sources) connected to Lone Star
Pipeline's pipeline system. In addition to being heavily concentrated in the
established gas-producing areas of central, northern and eastern Texas, Lone
Star Pipeline's intrastate pipeline system also extends into or near the major
producing areas of the Texas Gulf Coast and the Delaware and Val Verde Basins of
West Texas. Nine basins located in Texas are estimated to contain a substantial
portion of the nation's remaining onshore natural-gas reserves. Lone Star
Pipeline's pipeline system provides access to all of these basins. Lone Star
Pipeline is well situated to receive large volumes into its system at the major
hubs, such as Katy and Waha, as well as at the major third-party owned storage
facilities where suppliers maintain instantaneous high delivery capabilities.
Lone Star Gas buys gas under long-term, intrastate contracts in order to
assure reliable supply to its customers. Many of these contracts require minimum
purchases of gas. Presently, based on estimated gas demand which assumes normal
weather conditions, requisite gas purchases are expected to substantially
satisfy purchase obligations for the year 1998 and thereafter.
LIGNITE/COAL
TU ELECTRIC
- -----------
Lignite is used as the primary fuel in two units at the Big Brown
generating station (Big Brown), three units at the Monticello generating station
(Monticello), three units at the Martin Lake generating station (Martin Lake),
and one unit at the Sandow generating station (Sandow), having an aggregate net
capability of 5,825 MW. TU Electric's lignite units have been constructed
adjacent to surface minable lignite reserves. At the present time, TU Electric
owns in fee or has under lease an estimated 508 million tons of proven reserves
dedicated to the Big Brown, Monticello, and Martin Lake generating stations. TU
Electric also owns in fee or has under lease in excess of 270 million tons of
proven reserves not dedicated to specific generating stations. Mining Company
operates owned and/or leased equipment to remove the overburden and recover the
lignite. One of TU Electric's lignite units, Sandow Unit 4, is fueled from
lignite deposits owned by Alcoa, which furnishes fuel at no cost to TU Electric
for that portion of energy generated from such unit that is equal to the amount
of energy delivered to Alcoa (see Texas Utilities Electric Company and
Subsidiaries - Consolidated Operating Statistics included in Appendix A to this
report).
Lignite production operations at Big Brown, Monticello, and Martin Lake are
accompanied by an extensive reclamation program that returns the land to
productive uses such as wildlife habitats, commercial timberland, and pasture
land. For information concerning federal and state laws with respect to surface
mining, see Environmental Matters. TU Electric supplements TU Electric-owned
lignite fuel at Monticello with western coal from the Powder River Basin (PRB)
in Wyoming. The coal is purchased from two suppliers under two-year contracts,
and is transported from the PRB to TU Electric's generating plants by railcar
under a two-year contract scheduled to expire on December 31, 1998.
10
<PAGE>
TU Electric currently plans to supplement its lignite fuel at Martin Lake
and Big Brown utilizing western coal to be delivered by the year 2000.
Construction of a 25 mile rail spur into Big Brown to facilitate the delivery of
the western coal will begin later this year.
THE COMPANY
- -----------
Chaco has a coal lease agreement for the rights to certain surface minable
coal reserves located in New Mexico. The agreement encompasses a minimum of 228
million tons of coal with provisions for advance royalty payments to be made
annually through 2017. The Company has entered into a surety agreement to assure
the performance by Chaco with respect to this agreement. Because of the present
ample availability of western coal at favorable prices from other mines, Chaco
has delayed plans to commence mining operations, and accordingly, is reassessing
its alternatives with respect to its coal properties including seeking
purchasers thereof. (See Item 2. Properties and Management's Discussion and
Analysis of Financial Condition and Results of Operation and Notes 14 and 15 to
Consolidated Financial Statements included in Appendix A to this report.)
NUCLEAR
TU ELECTRIC
- -----------
TU Electric owns and operates two nuclear-fueled generating units at the
Comanche Peak nuclear generating station (Comanche Peak), each of which is
designed for a net capability of 1,150 MW. (See Electricity Peak Load and
Capability.)
The nuclear fuel cycle requires the mining and milling of uranium ore to
provide uranium oxide concentrate (U\\3\\O\\8\\), the conversion of U\\3\\O\\8\\
to uranium hexafluoride (UF\\6\\), the enrichment of the UF\\6\\ and the
fabrication of the enriched uranium into fuel assemblies. TU Electric has on
hand, or has contracted for, the raw materials and services it expects to need
for its nuclear units through future years as follows: uranium (1999),
conversion (2003), enrichment (2014), and fabrication (2002). Although TU
Electric cannot predict the future availability of uranium and nuclear fuel
services, TU Electric does not currently expect to have difficulty obtaining
U\\3\\O\\8\\ and the services necessary for its conversion, enrichment and
fabrication into nuclear fuel for years later than those shown above.
The Energy Policy Act has provisions for the recovery of a portion of the
costs associated with the decommissioning and decontamination of the gaseous
diffusion plants used to enrich uranium for fuel. These costs are being
recovered in annual fees paid to the United States Department of Energy (DOE) as
determined by the Secretary of Energy. The total unescalated assessment for all
domestic utilities is capped at $150 million per federal fiscal year assessable
for fifteen years. TU Electric's assessment for the 1998 federal fiscal year,
as calculated by the DOE, is $994,000.
The Nuclear Waste Policy Act of 1982, as amended (NWPA), provides for the
development by the DOE of interim storage and permanent disposal facilities for
spent nuclear fuel and/or high level radioactive waste materials. In December
1996, the DOE notified program participants that it did not expect to meet its
obligation to begin acceptance of spent nuclear fuel by 1998. The DOE continues
to maintain its position despite a U.S. Court of Appeals decision affirming the
Company's position that such an obligation exists. TU Electric is unable to
predict what impact, if any, the DOE delay will have on TU Electric's future
operations. Under provisions of the NWPA, funding for the program is provided
by a one-mill per kWh fee currently levied on electricity generated and sold
from nuclear reactors, including the Comanche Peak units.
Currently, TU Electric's onsite storage capability for spent nuclear fuel
is sufficient to accommodate the operation of Comanche Peak through the year
2000, while fully maintaining the capability to off-load one of the nuclear-
fueled generating unit's core. TU Electric is currently pursuing options for
increasing its storage capability, subject to approval by the Nuclear Regulatory
Commission (NRC).
11
<PAGE>
PURCHASED POWER
THE COMPANY AND TU ELECTRIC
- ---------------------------
In 1997, System Companies purchased a net of 17,170 million kWh or
approximately 16% of their energy requirements. TU Electric and SESCO had
available 1,292 MW of firm purchased capacity under contract, including 60 MW of
short-term firm capacity to meet the 1997 summer peak. During 1997, TU Electric
extended, from 1999 to 2002, an existing contract which increased the purchase
of capacity from 410 MW to 435 MW. In July 1998, SESCO will begin receiving
power under a full requirements contract with another supplier and will no
longer receive power from TU Electric. Beginning in 1999, TU Electric expects to
receive energy under a contract with a developer for the purchase of energy
produced from wind turbines equivalent to approximately 35 MW (or approximately
4 MW of firm capacity at peak). The proposed facility will include four of the
largest commercial wind turbines in the world, rated at 1.65 MW each. TU
Electric expects to acquire additional amounts of purchased resources in the
future to adequately and reliably accommodate its customers' electrical needs.
Such resources will be acquired in accordance with the requirements of PURA and
the PUC Substantive Rules. ( For information concerning future resources
requirements, see the Electricity Peak Load and Capability section.)
Eastern Energy and other distribution and retail companies in the State of
Victoria, Australia purchase their electric energy needs from a competitive
power pool owned and operated by the Victorian government. A full national
market will commence in 1998 among the participants in the States of New South
Wales, Victoria, Queensland, South Australia and the Australian Capital
Territory, and will be operated by a corporation owned by the governments of
those jurisdictions. While the spot price of electric energy from the pool can
vary substantially, Eastern Energy enters into hedging contracts with electric
energy generators and others to manage its exposure to such price fluctuations
(see Management's Discussion and Analysis of Financial Condition and Results of
Operation and Note 9 to Consolidated Financial Statements included in Appendix A
to this report).
REGULATION AND RATES
GENERAL
THE COMPANY
- -----------
The Company is a holding company as defined in the Public Utility Holding
Company Act of 1935. However, the Company and all of its subsidiary companies
are exempt from the provisions of such Act, except Section 9(a)(2) which relates
to the acquisition of securities of public utility companies.
The System Companies are also subject to various other federal, state and
local regulations. (See discussion below and Environmental Matters.)
THE COMPANY AND TU ELECTRIC
- ---------------------------
TU Electric and SESCO do not transmit electric energy in interstate
commerce or sell electric energy at wholesale in interstate commerce, or own or
operate facilities therefor, and their facilities are not connected directly or
indirectly to other systems which are involved in such interstate activities,
except during the continuance of emergencies permitting temporary or permanent
connections or under order of the Federal Energy Regulatory Commission (FERC)
exempting TU Electric and SESCO from jurisdiction under the Federal Power Act.
In view thereof, TU Electric and SESCO believe that they are not public
utilities as defined in the Federal Power Act and have been advised by their
counsel that they are not subject to general regulation under such Act.
The PUC has original jurisdiction over electric rates and service in
unincorporated areas and those municipalities that have ceded original
jurisdiction to the PUC and has exclusive appellate jurisdiction to review the
rate and service orders and ordinances of municipalities. Generally, PURA
prohibits the collection of any rates or charges (including charges for fuel) by
a public utility that does not have the prior approval of the PUC.
12
<PAGE>
TU Electric is subject to the jurisdiction of the NRC with respect to
nuclear power plants. NRC regulations govern the granting of licenses for the
construction and operation of nuclear power plants and subject such plants to
continuing review and regulation.
LCC is not subject to direct rate or service regulation. However, its
affiliates, LCTX and LCT Long Distance, Inc. (LCTLD), are regulated at both the
state and federal level. LCTX is a local exchange company providing a variety
of local and intrastate long distance services. LCTX is regulated in Texas by
the PUC. This regulation applies to the geographical areas served, the
intrastate local and long distance rates and tariffs and the intrastate access
services provided by LCTX. Because LCTX has elected to provide intrastate
services under an incentive rate regulation plan available under the PUC's
enabling statute, intrastate rates are subject to only limited regulation by the
PUC. LCTX is also regulated by the Federal Communications Commission (FCC) for
certain services. Regulation by the FCC is limited primarily to interstate
access rates and services. LCTLD provides long distance service in the States
of Texas and Louisiana as well as interstate long distance service. Interstate
long distance service is regulated by the FCC. Intrastate, interexchange
service is regulated by the respective state commissions. In Texas, regulation
is limited to certification to do business and the filing of rate sheets. The
rates charged are not subject to direct regulation by the PUC. In Louisiana,
LCTLD is required to file rate tariffs, but rate regulation is subject to
maintaining rates for services within a "band" or range of rates set by the
Louisiana Public Service Commission. At the federal level, LCTLD's interstate
long distance rates are filed in the form of rate sheets. The FCC does not
establish rates for interstate long distance service, since their rates are
subject to competition from a large number of interexchange long distance
service providers.
Lone Star Gas and Lone Star Pipeline are wholly intrastate in character and
perform distribution utility operations and transportation services in the State
of Texas subject to regulation by the RRC and municipalities in Texas. The RRC
regulates the charge for the transportation of gas by Lone Star Pipeline to Lone
Star Gas' distribution systems for sale to Lone Star Gas' residential and
commercial consumers. Lone Star Pipeline owns no certificated interstate
transmission facilities subject to the jurisdiction of FERC under the Natural
Gas Act, has no sales for resale under the rate jurisdiction of FERC and does
not perform any transportation service that is subject to FERC jurisdiction
under the Natural Gas Act.
The city gate rate for the cost of gas Lone Star Gas ultimately delivers to
residential and commercial customers is established by the RRC and provides for
full recovery of the actual cost of gas delivered, including out-of-period costs
such as gas purchase contract settlement costs. The rates Lone Star Gas charges
its residential and commercial customers are established by the municipal
governments of the cities and towns served, with the RRC having appellate
jursidication.
In October 1996, Lone Star Pipeline filed a request with the RRC to
increase the rate it charges Lone Star Gas to store and transport gas ultimately
destined for residential and commercial customers in the 550 Texas cities and
towns served by Lone Star Gas. Lone Star Gas also requested that the RRC
separately set rates for costs to aggregate gas supply for these cities. Rates
previously in effect were set by the RRC in 1982. In September 1997, the RRC
issued an order reducing the charges by Lone Star Pipeline to Lone Star Gas for
storage and transportation services. In that order, the RRC did authorize
separate charges for the Lone Star Pipeline storage and transportation services,
a separate charge by Lone Star Gas for the cost of aggregating gas supplies, and
a continuation of the 100% flow through of purchased gas expense. The RRC also
imposed some new criteria for affiliate gas purchases and a new reconciliation
procedure that will require a review of purchased gas expenses every three
years. The RRC order has become final, but is being appealed by several parties
including Lone Star Pipeline and Lone Star Gas. The rates authorized by the
order became effective on December 1, 1997, and will result in an annual margin
reduction of approximately $8.2 million.
On August 20, 1996, the RRC ordered a general inquiry into the rates and
services of Lone Star Gas, most notably a review of Lone Star Gas' historic gas
cost and gas acquisition practices since the last rate setting. The inquiry
docket has been separated into different phases. Two of the phases, conversion
to the NARUC account numbering system and unbundling, have been dismissed by the
RRC, and one other phase, rate case expense, is pending RRC action on the basis
of a stipulation of all parties. In the phase dealing with historic gas cost and
gas
13
<PAGE>
acquisition practices, Lone Star Gas and Lone Star Pipeline have filed a motion
for summary disposition stating that any retroactive rate action would be
inappropriate and unlawful. Settlement discussions with intervenor cities are
ongoing. If the motion for summary disposition is denied, a hearing has been
scheduled to begin in August 1998. A number of management and transportation
related issues have been placed in a separate phase which still has an undefined
scope and is being held in abeyance pending the resolution of the phase dealing
with gas costs. Management believes that gas costs were prudently incurred and
were properly accounted for and recovered through the gas cost recovery
mechanism previously approved by the RRC. At this time, management is unable to
determine the ultimate outcome of the inquiry.
Eastern Energy is subject to regulation by the Office of the Regulator
General (ORG). The ORG has the power to issue licenses for the supply,
distribution and sale of electricity within Victoria and regulates tariffs for
the use of the transmission system, distribution system, and other ancillary
services. The existing tariff under which Eastern Energy operates is in effect
through December 31, 2000. The ORG will review the existing tariff to see if it
will be effective for the period commencing after December 31, 2000.
TU ELECTRIC
- -----------
DOCKET 9300
The PUC's final order (Order) in connection with TU Electric's January 1990
rate increase request (Docket 9300) was reviewed by the 250th Judicial District
Court of Travis County, Texas (District Court) and thereafter was appealed to
the Court of Appeals for the Third District of Texas and to the Supreme Court of
Texas (Supreme Court). As a result of such review and appeals, an aggregate of
$909 million of disallowances with respect to TU Electric's reacquisitions of
minority owners' interests in Comanche Peak, which had previously been recorded
as a charge to the Company's and TU Electric's earnings, has been remanded to
the District Court with instructions that it be remanded to the PUC for
reconsideration on the basis of a prudent investment standard. On remand, the
PUC would also be required to reevaluate the appropriate level of TU Electric's
construction work in progress included in rate base in light of its financial
condition at the time of the initial hearing. In January 1997, the Supreme
Court denied a motion for rehearing on the Comanche Peak minority owners issue
filed by the original complainants. TU Electric cannot predict the outcome of
the reconsideration of the Order on remand by the PUC.
In its decision, the Supreme Court also affirmed the previous $472 million
prudence disallowance related to Comanche Peak. Since the Company and TU
Electric each has previously recorded a charge to earnings for this prudence
disallowance, the Supreme Court's decision did not have an effect on the
Company's or TU Electric's current financial position, results of operation or
cash flows.
DOCKET 11735
In July 1994, TU Electric filed a petition in the 200th Judicial District
Court of Travis County, Texas to seek judicial review of the final order of the
PUC granting a $449 million, or 9.0%, rate increase in connection with TU
Electric's January 1993 rate increase request of $760 million, or 15.3% (Docket
11735). Other parties to the PUC proceedings also filed appeals with respect to
various portions of the order.
DOCKETS 15638 AND 15840
In May 1996, TU Electric filed with the PUC its transmission cost
information and tariffs for open-access wholesale transmission service (Docket
15638) in accordance with PUC rules adopted in February 1996. These tariffs also
provide for generation-related ancillary services necessary to support wholesale
transactions. In August 1997, the PUC approved final tariffs for TU Electric and
implemented rates for other transmission providers within ERCOT (Docket 15840).
Under rates implemented by the PUC, TU Electric's payments for transmission
service will exceed its revenues for providing transmission service. The PUC has
adopted a rate-moderation plan that will minimize the impact of the new pricing
mechanism for the first three years the rules are in effect. As such, the
current maximum impact on TU Electric for 1998 is an $8.52 million deficit,
which, in the
14
<PAGE>
opinion of TU Electric, is not expected to have a material effect on its
financial position, results of operation or cash flows.
TU Electric joined a lawsuit in state district court challenging the
validity of the cost-shifting aspects of the PUC wholesale open-access rules. In
December 1997, the District Court judge issued a decision upholding the validity
of the PUC pricing rules.
DOCKET 17250
In late 1996, as part of its regular earnings monitoring process, the PUC
staff advised the PUC, after reviewing the 1995 Electric Investor-Owned
Utilities Earnings Report of TU Electric, that it believed TU Electric was
earning in excess of a reasonable rate of return, and the PUC and TU Electric
subsequently began discussions concerning possible remedies. It was decided to
limit negotiations to a resolution of issues concerning TU Electric's earnings
through 1997, and discussion of a longer-term resolution was deferred. In July
1997, the PUC issued its final written order approving TU Electric's proposal to
make a one-time $80 million refund to its customers (Rate Settlement) and to
leave rates unchanged during the remainder of 1997. TU Electric recorded the
charge to revenues in July 1997 and included the refunds in August 1997
billings. The proposal was the result of a joint stipulation in which TU
Electric was joined by the PUC General Counsel, on behalf of the PUC Staff and
the public interest, the Office of Public Utility Counsel, the state agency
charged with representing the interests of residential and small commercial
customers, and the Coalition of Cities served by TU Electric.
DOCKET 18490
On December 17, 1997, TU Electric, together with the PUC General Counsel,
the Office of Public Utility Counsel and various other parties interested in TU
Electric's rates and services, filed with the PUC a stipulation and joint
application which, if granted, would among other things: (i) result in permanent
retail base rate credits beginning January 1, 1998, of 4% for residential
customers, 2% for general service secondary customers and 1% for all other
retail customers, (ii) result in additional permanent retail base rate credits
beginning January 1, 1999, of 1.4% for residential customers, (iii) impose a
11.35% cap on TU Electric's rate of return on equity during 1998 and 1999, with
any sums earned above that cap being applied as additional nuclear production
depreciation, (iv) allow TU Electric to record depreciation applicable to
transmission and distribution assets in 1998 and 1999 as additional depreciation
of nuclear production assets, (v) establish an updated cost of service study
that includes interruptible customers as customer classes, (vi) result in the
permanent dismissal of pending appeals of prior PUC orders including Docket No.
11735, if all other parties that have filed appeals of those dockets also
dismiss their appeals, (vii) result in the stay of any proceedings in the remand
of Docket 9300 prior to January 1, 2000, and (viii) result in all gains from
off-system sales of electricity in excess of the amount included in base rates
being flowed to customers through the fuel factor.
The PUC has until March 31, 1998 to approve or reject the stipulation and
joint application. Otherwise, TU Electric may terminate the base rate
reductions and all other aspects of the proposal upon giving two weeks notice to
the PUC.
FUEL COST RECOVERY RULE
Pursuant to a PUC rule, the recovery of TU Electric's eligible fuel costs
is provided through fixed fuel factors. The rule allows a utility's fuel factor
to be revised upward or downward every six months, according to a specified
schedule. A utility is required to petition to make either surcharges or refunds
to ratepayers, together with interest based on a twelve month average of prime
commercial rates, for any material, as defined by the PUC, cumulative under- or
over-recovery of fuel costs. If the cumulative difference of the under- or over-
recovery, plus interest, is in excess of 4% of the annual estimated fuel costs
most recently approved by the PUC, it will be deemed to be material. In
accordance with PUC approvals, TU Electric has, since the inception of the rule
in 1986, made thirteen refunds of over-collected fuel costs and two surcharges
of under-collected fuel costs. The most recent refund was made pursuant to a
petition filed by TU Electric in July 1997 to refund approximately $67 million,
including interest, in over-collected fuel costs for the period October 1995
through May 1997 (Fuel Refund). Such
15
<PAGE>
over-collection was primarily due to TU Electric's ability to use less expensive
nuclear fuel and purchased power to offset a higher-priced natural gas market
during the period. Customer refunds were included in August 1997 billings. A
final order confirming the Fuel Refund was entered by the PUC in October 1997.
The two surcharges (one in the amount of $147.3 million and the other in the
amount of $93 million) have been appealed by certain intervenors to district
courts of Travis County, Texas. In those appeals, those parties are contending
that the PUC is without authority to allow a fuel cost surcharge without a
hearing and resultant findings that the costs are reasonable and necessary and
that the prices charged to TU Electric by supplying affiliates are no higher
than the prices charged by those affiliates to others for the same item or class
of items. TU Electric is unable to predict their outcome.
The fuel cost recovery rule also contains a procedure for an expedited
change in the fixed fuel factor in the event of an emergency. Final
reconciliation of fuel costs must be made either in a reconciliation proceeding,
which may cover no more than three years and no less than one year, or in a
general rate case. In a final reconciliation, a utility has the burden of
proving that fuel costs under review were reasonable and necessary to provide
reliable electric service, that it has properly accounted for its fuel-related
revenues, and that fuel prices charged to the utility by an affiliate were
reasonable and necessary and not higher than prices charged for similar items by
such affiliate to other affiliates or nonaffiliates. In addition, for generating
utilities like TU Electric, the rule provides for recovery of purchased power
capacity costs through a power cost recovery factor (PCRF) with respect to
purchases from qualifying facilities, to the extent such costs are not otherwise
included in base rates. The energy-related costs of such purchases are included
in the fixed fuel factor. For non-generating utilities like SESCO, the rule
provides for the recovery of all costs of power purchased at wholesale
chargeable under rate schedules approved by a federal or state regulatory
authority and all amounts paid to qualifying facilities for the purchase of
capacity and/or energy, to the extent such costs are not otherwise included in
base rates. Penalties of up to 10% will be imposed in the event an emergency
increase has been granted when there was no emergency or when collections under
the PCRF exceed PCRF costs by 10% in any month or 5% in the most recent twelve
months .
FUEL RECONCILIATION PROCEEDING
In July 1997, the PUC ruled on TU Electric's petition seeking final
reconciliation of all eligible fuel and purchased power expenses incurred during
the reconciliation period of July 1, 1992 through June 30, 1995 (approximately
$4.7 billion). In the ruling, the PUC disallowed approximately $81 million of
eligible fuel related costs (including interest of $12 million) incurred during
the reconciliation period (Fuel Disallowance). The majority of the Fuel
Disallowance (approximately $67 million) is related to replacement fuel costs as
a result of the November 1993 collapse of the emissions chimney serving Unit 3
of the Monticello lignite-fueled generating station. In addition, the PUC ruled
that approximately $10 million from the gain on sale of sulfur dioxide
allowances should be deferred and reconsidered at a future date. TU Electric
received a final written order from the PUC and recorded the charge to revenues
in August 1997. TU Electric strongly disagrees with the Fuel Disallowance and
continues to vigorously defend its position. TU Electric has appealed the PUC's
order to the District Court of Travis County, Texas.
FLEXIBLE RATE INITIATIVES
TU Electric continues to offer flexible rates in over 160 cities with
original regulatory jurisdiction within its service territory (including the
cities of Dallas and Fort Worth) to existing non-residential retail and
wholesale customers that have viable alternative sources of supply and would
otherwise leave the system. TU Electric also continues to offer in those cities
an economic development rider to attract new businesses and to encourage
existing customers to expand their facilities as well as an environmental
technology rider to encourage qualifying customers to convert to technologies
that conserve energy or improve the environment. TU Electric will continue to
pursue the expanded use of flexible rates when such rates are necessary to be
price-competitive.
16
<PAGE>
COMPETITION
THE COMPANY AND TU ELECTRIC
- ---------------------------
GENERAL
As legislative, regulatory, economic and technological changes occur, the
energy and utility industries are faced with increasing pressure to become more
competitive while adhering to regulatory requirements. The level of competition
is affected by a number of variables, including price, reliability of service,
the cost of energy alternatives, new technologies and governmental regulations.
The National Energy Policy Act of 1992 (Energy Policy Act) addresses a wide
range of energy issues and is intended to increase competition in electric
generation and broaden access to electric transmission systems. In addition,
the Public Utility Regulatory Act of 1995, as amended (PURA), impacts the PUC
and its regulatory practices and encourages increased competition in some
aspects of the electric utility industry in Texas. Although the Company is
unable to predict the ultimate impact of the Energy Policy Act, PURA and any
related regulations or legislation on the System Companies' operations, it
believes that such actions are consistent with the trend toward increased
competition in the energy industry.
In order to remain competitive, the System Companies are aggressively
managing their operating costs and capital expenditures through streamlined
business processes and are developing and implementing strategies to address an
increasingly competitive environment. These strategies include initiatives to
improve their return on corporate assets and to maximize shareholder value
through new marketing programs, creative rate design and new business
opportunities. Additional initiatives under consideration include the potential
disposition or alternative utilization of existing assets and the restructuring
of strategic business units.
While TU Electric has experienced competitive pressures in the wholesale
market resulting in a small loss of load since the beginning of 1993, wholesale
sales represented a relatively low percentage of TU Electric's consolidated
operating revenues in 1997. TU Electric is unable to predict the extent of
future competitive developments in either the wholesale or retail markets or
what impact, if any, such developments may have on its operations.
Federal legislation such as the PURPA and, more recently, the Energy Policy
Act, as well as initiatives in various states, encourage wholesale competition
among electric utility and non-utility power producers. Together with
increasing customer demand for lower-priced electricity and other energy
services, these measures have accelerated the industry's movement toward a more
competitive pricing and cost structure. Competition in the electric utility
industry was also addressed in the 1995 session of the Texas legislature. PURA
was amended to encourage greater wholesale competition and flexible retail
pricing. PURA amendments also require the PUC to report to the legislature,
during each legislative session, on competition in electric markets.
Accordingly, PUC reports were submitted to the Texas legislature in January
1997, recommending that the legislature continue the process of expanding
competition in the Texas electricity markets, leading to expanded retail
competition, and authorize the PUC to take numerous steps toward that goal. The
PUC further recommended that full competition not occur prior to the year 2000
in order to provide an environment through which both retail customers and
utilities in Texas move more smoothly to achieve the perceived benefits of
competition. The PUC is seeking guidance from the legislature and authority to
address the issue of recovery of stranded costs (i.e., costs of assets that may
not be recoverable from customers as a result of competitive pricing). The
PUC's latest available estimate for TU Electric's potentially stranded retail
costs ranged from a projected excess of net book value over market value of $7.7
billion to a projected excess of market value over net book value of $2.1
billion. Legislation that would have authorized retail competition was not
enacted by the 1997 Texas legislature.
17
<PAGE>
As a result of the shift in emphasis toward greater competition, large and
small industry participants are offering energy services and energy-related
products that are both economically and environmentally attractive to customers.
In Texas, aggressive marketing of competitive prices by rural electric
cooperatives, municipally-owned electric systems, and other energy providers
who are not subject to the traditional governmental regulation experienced by
the energy and utility industries has intensified competition within the state's
wholesale markets and, in multi-certificated areas, retail customer markets.
Furthermore, there is increasing pressure on utilities to reduce costs,
including the cost of power, and to tailor energy services to the specific needs
of customers. Such competitive pressures among electric utility and non-utility
power producers could result in the loss by TU Electric of customers and the
cost of certain of its assets becoming stranded costs. To the extent stranded
costs cannot be recovered from customers, it may be necessary for such costs to
be borne partially or entirely by shareholders. In response to these competitive
pressures, many utilities are implementing significant restructuring and re-
engineering initiatives designed to make them more competitive. Since the
implementation of an Operations Review and Cost Reduction program in April 1992,
the System Companies continue to take steps to reduce costs by streamlining
business processes and operating practices. (For information pertaining to the
effects of competition on the treatment of certain regulatory assets and
liabilities, see Management's Discussion and Analysis of Financial Condition and
Results of Operation and Note 2 to Consolidated Financial Statements included in
Appendix A to this report.)
LCC's long distance service at both the intrastate and interstate level is
subject to competition. Interexchange long distance service has been subject to
competition for more than ten years. LCTLD competes with numerous interexchange
carriers ranging from small resellers to large, facilities-based carriers such
as AT&T and MCI. While monitored by regulatory authorities, rates for these
long distance services are largely market based and have been essentially
deregulated.
LCTX also provides intrastate intraLATA long distance service. Upon
divestiture of the Bell System, the state was divided into long distance calling
areas called Local Access Transport Areas (LATA's). Direct dialed long distance
calls made within the boundaries of the LATA are reserved to be handled by the
local exchange carrier at state-wide average rates. Customers may use the
carrier of their choice for intraLATA calls only by dialing a special carrier
access code before each call. Because intraLATA service was not subject to
equal access, the local exchange companies have dominated this service sector.
Recent changes in federal and state law have applied equal access principles to
this service sector and it is anticipated that competition will likely become
more intense beginning in mid-1998.
LCTX is also subject to, but to-date has not experienced significant levels
of, local competition. It is too early to predict whether significant local
competition will emerge in LCTX's service area.
Customer sensitivity to energy prices and the availability of competitively
priced gas in the non-regulated markets continue to provide intense competition
in the electric-generation and industrial-user markets. Natural gas faces
varying degrees of competition from electricity, coal, natural gas liquids, oil
and other refined products throughout Lone Star Gas' service territory. Pipeline
systems of other companies, both intrastate and interstate, extend into or
through the areas in which Lone Star Gas' markets are located, creating
competition from other sellers of natural gas. Competitive pressure from other
pipelines and alternative fuels has caused a decline in sales by Lone Star Gas
to industrial and electric-generation customers. Sales by ENSERCH's non-
regulated companies, along with transportation services provided by Lone Star
Pipeline, have served to offset much of the effects of this decline. As
developments in the energy industry point to a continuation of these competitive
pressures, Lone Star Gas maintains its focus on customer service and the
creation of new services for its customers in order to remain its customers'
supplier of choice.
Lone Star Pipeline is the sole transporter of natural gas to Lone Star
Gas' distribution systems. Lone Star Pipeline competes with other pipelines in
Texas to transport natural gas to off-system markets. This business is highly
competitive and greatly influenced by the demand to move natural gas across
Texas to supply Northeast and upper Midwest U.S. markets.
18
<PAGE>
Natural gas liquids processing is highly competitive and includes
competition among producers, third-party owners and processors for cost-sharing
and interest-sharing arrangements.
EES pursues markets connected to pipelines other than Lone Star Pipeline's.
As natural-gas markets continue to evolve following the implementation of the
1992 Order 636 of the FERC, additional opportunities are created in the broader,
more active trading markets and in serving non- regulated customers. This highly
competitive market demands that a wide array of services be offered, including
term contracts with interruptible and firm deliveries, risk management,
aggregation of supply, nominations, scheduling of deliveries and storage.
RETAIL ELECTRIC MARKET
TU Electric and SESCO are experiencing competition for retail load in areas
that are multi-certificated with rural electric cooperatives or municipal
utilities. Except in areas where there is multi-certification by the PUC, TU
Electric and SESCO currently have the exclusive right to provide electric
service to the public within their service areas.
In addition, some energy consumers have the ability to produce their own
electricity or to use alternative forms of energy. Industrial customers may
also be able to relocate their facilities to lower-cost service areas. To some
degree, there is competition among utilities with defined service areas to
attract and retain large customers. TU Electric and SESCO are pursuing efforts
to remain competitive through competitive pricing, economic development and
other initiatives. (See Regulation and Rates.)
Congress, as well as legislatures and regulatory commissions in several
states, have begun to examine the possibility of mandated "retail wheeling," the
required delivery by an electric utility over its transmission and distribution
facilities of energy produced by another entity to retail customers in such
utility's service territory. If implemented, such access could allow a retail
customer to purchase electric service from any other electric service provider,
subject to the practical constraints of long distance transmission. To date,
retail wheeling has not been implemented in Texas; however, this issue is likely
to be pursued again during the 1999 session of the Texas legislature and in the
106th Congress.
While the Company and TU Electric anticipate legislation being enacted
during the 1999 session of the Texas legislature to authorize competition in the
retail market, they cannot predict the ultimate outcome of the ongoing efforts
that are taking place to restructure the electric utility industry or whether
such outcome will have a material effect on their financial position, results of
operation or cash flows.
The energy supply franchise portion of Eastern Energy's business is
gradually being exposed to competition through a phase-in of customers' right to
choose their energy supplier. This phase-in is by customer class and is expected
to be complete by December 31, 2000, at which time all energy customers in
Victoria will have the right to choose their energy supplier. Eastern Energy is
required to offer distribution of electric energy in its service territory on
behalf of other electric suppliers and distribution companies to those customers
having a right to choose their supplier, and Eastern Energy can similarly supply
electric energy to such customers in other service territories by utilizing the
distribution networks of the distribution companies in those service
territories. A national electricity market continues to develop in Australia,
with full contestabilty for all customers to be phased in progressively through
2001. Eastern Energy currently has a license to provide retail electricity in
New South Wales and may pursue retail licences in other states.
TU Electric, SESCO and Eastern Energy are not able to predict the extent of
future competitive developments or what impact, if any, such developments may
have on their operations.
19
<PAGE>
TU ELECTRIC
- -----------
WHOLESALE MARKET
In the wholesale power market, TU Electric competes with a variety of
utilities and other suppliers, some of which are willing and able to sell at
rates below TU Electric's standard wholesale power service rate as approved by
the PUC. As a result, TU Electric has received notifications of termination of
approximately 700 MW of wholesale load through 1999. In 1997, wholesale
revenues represented about 3% of TU Electric's total consolidated operating
revenues.
Amendments to PURA made during the 1995 session of the Texas legislature
allow for wholesale pricing flexibility. While wholesale rates for electric
utilities are not deregulated, wholesale tariffs or contracts with charges less
than approved rates but greater than the utility's marginal cost may be approved
by the regulatory authority upon application by the utility.
OPEN-ACCESS TRANSMISSION
In February 1996, pursuant to the 1995 amendments to PURA, the PUC adopted
rules requiring each electric utility in ERCOT to provide wholesale transmission
and related services to other utilities and non-utility power suppliers at
rates, terms and conditions that are comparable to those applicable to such
utility's use of its own transmission facilities.
Under the rules, the PUC established a transmission pricing mechanism
consisting of an ERCOT system-wide component and a distance-sensitive component.
The ERCOT system-wide component provides that each load-serving entity in ERCOT
will pay a share of the ERCOT-wide transmission cost of service based on the
entity's load. The distance-sensitive component provides that a distance-
sensitive rate will be paid to utilities that own transmission facilities, based
on the impact of transmitting power and energy to loads. The rates charged for
using the transmission system are designed to ensure that all market
participants pay on a comparable basis to use the system. While all users of
the transmission grid pay rates that are comparably designed, the impact on
individual users will differ.
In May 1996, TU Electric filed with the PUC, under Docket 15638, its
transmission cost information and tariffs for open-access wholesale transmission
service. These tariffs also provide for generation-related ancillary services
necessary to support wholesale transactions. Company-specific proceedings to
determine transmission rates for each transmission provider within ERCOT were
concluded in 1996. In August 1997, the PUC approved final tariffs for TU
Electric and implemented rates for other transmission providers within ERCOT.
(See Regulation and Rates.)
As a result of the PUC rules, the organization and structure of ERCOT has
been changed to provide for equal governance among all wholesale electricity
market participants. These changes were made in order to facilitate wholesale
competition while ensuring continued reliability within ERCOT.
At the federal level, the Energy Policy Act empowers the FERC to require
utilities to provide transmission service for the delivery of wholesale power
from other power producers to qualified resellers, such as municipalities,
cooperatives and other utilities. In April 1996, the FERC issued Order No. 888
which requires all FERC-jurisdictional electric utilities to offer third parties
wholesale transmission services under an open-access tariff and provides a
framework for recovery of "legitimate, prudent and verifiable stranded costs"
resulting from the implementation of open-access wholesale transmission service.
In May 1997, TU Electric filed with the FERC a modification of its tariff
governing service to, from and over certain High Voltage Direct Current (HVDC)
interconnections (TFO Tariff) between ERCOT and the Southwest Power Pool. This
modification conformed TU Electric's TFO Tariff to the rates, terms and
conditions governing open-access wholesale transmission service within ERCOT
previously approved by the PUC. In October 1997, the FERC accepted TU Electric's
TFO Tariff with minor modifications.
20
<PAGE>
THE COMPANY
- -----------
Lone Star Pipeline has been an open access transporter under Section 311 of
the Natural Gas Policy Act of 1978 (NGPA) on its intrastate transmission
facilities since July 1988. Such transportation is performed pursuant to Section
311(a)(2) of the NGPA and is subject to an exemption from the jurisdiction of
the FERC under the Natural Gas Act, pursuant to Section 601 of the NGPA.
ENVIRONMENTAL MATTERS
THE COMPANY AND TU ELECTRIC
- ---------------------------
GENERAL
The System Companies are subject to various federal, state and local
regulations dealing with air and water quality and related environmental
matters. (See Item 2. Properties - Capital Expenditures and Management's
Discussion and Analysis of Financial Condition and Results of Operation included
in Appendix A to this report.)
AIR
Under the Texas Clean Air Act, the Texas Natural Resource Conservation
Commission (TNRCC) has jurisdiction over the permissible level of air
contaminant emissions from generating facilities located within the State of
Texas. In addition, the new source performance standards of the Environmental
Protection Agency (EPA) promulgated under the federal Clean Air Act, as amended
(Clean Air Act), which have also been adopted by the TNRCC, are applicable to
generating units, the construction of which commenced after August 17, 1971. TU
Electric's generating units have been constructed to operate in compliance with
current regulations and emission standards promulgated pursuant to these Acts;
however, due to variations in the quality of the lignite fuel, operation of
certain of the lignite-fueled generating units at reduced loads is required from
time to time in order to maintain compliance with these standards.
The Clean Air Act includes provisions which, among other things, place
limits on the sulfur dioxide emissions produced by generating units. In addition
to the new source performance standards applicable to sulfur dioxide, the Clean
Air Act required that fossil-fueled plants meet certain sulfur dioxide emission
allowances by 1995 (Phase I), and will require more restrictions on sulfur
dioxide emission allowances by 2000 (Phase II). TU Electric's generating units
were not affected by the Phase I requirements. The applicable Phase II
requirements currently are met by 52 out of the 56 of TU Electric's generating
units to which those requirements apply. Because the sulfur dioxide emissions
from the other four units are relatively low and alternatives are available to
enable these units to reduce sulfur dioxide emissions or utilize compensatory
reduction allowances achieved in other units, compliance with the applicable
Phase II sulfur dioxide requirements is not expected to have a significant
impact on TU Electric. In January 1993, the EPA issued its "core" regulations to
implement the sulfur dioxide reduction program. TU Electric is preparing
compliance plans in accordance with these regulations and expects these plans to
be implemented by January 1, 2000.
To meet these sulfur dioxide requirements, the Clean Air Act provides for
the annual allocation of sulfur dioxide emission allowances to utilities. Under
the Clean Air Act, utilities are permitted to transfer allowances within their
own systems and to buy or sell allowances from or to other utilities. The EPA
grants a maximum number of allowances annually to TU Electric based on the
amount of emissions from units in operation during the period 1985 through 1987.
TU Electric intends to utilize internal allocation of emission allowances within
its system and, if cost effective, may purchase additional emission allowances
to enable both existing and future electric generating units to meet the
requirements of the Clean Air Act. TU Electric may also sell excess emission
allowances. TU Electric is unable to predict the extent to which it may generate
excess allowances or will be able to acquire allowances from others if needed
but does not anticipate any significant problems in keeping emissions within its
allotted allowances.
21
<PAGE>
TU Electric's generating units meet the nitrogen oxide (NOx) limits
currently required by the Clean Air Act. The TNRCC and the EPA have determined
that the requirements of the Clean Air Act for ozone nonattainment areas will
not require NOx emission reductions at TU Electric's generating units in the
Dallas-Fort Worth area; however, the TNRCC is re-evaluating its position since
the Dallas-Fort Worth area did not achieve attainment of the ozone standard in
1996 as required by Clean Air Act regulations. Additionally, in 1996, TU
Electric elected for an early opt-in under Phase I related to NOx limits for its
coal-fired generating units. This election locks in NOx limits for these
generating units for a ten-year period. The Clean Air Act also requires studies,
which began in 1991, by the EPA to assess the potential for toxic emissions from
utility boilers. TU Electric is unable to predict either the results of such
studies or the effects of any subsequent regulations. Recently, the EPA
finalized more stringent standards for ambient levels of ozone and of fine
particulates and issued proposed rules for regional haze. The impact of these
new standards or proposed regional haze rules, if adopted, is unknown at this
time.
In December 1997, the Conference of the Parties of the United Nations
Framework Convention on Climate Change adopted the Kyoto Protocol which
specifies targets and timetables for certain countries to reduce greenhouse gas
emissions. The Company is unable to predict whether the Kyoto Protocol will be
ratified by the United States Congress and to what extent, if any, such protocol
might impact the Company.
The 1997 session of the Texas legislature directed the TNRCC to develop a
voluntary post-construction state permitting program for older air emission
facilities, including many of TU Electric's generating facilities as well as
certain ENSERCH facilities. All of these facilities, including the so-called
"grandfathered units," are in compliance with state and federal regulations. At
this time, the Company is unable to predict the impact of this voluntary
permitting program on Company operations.
In 1997, the Clean Air Act required some System Companies to submit Title V
Operating Permit applications for many of their facilities, including TU
Electric's generating plants and certain Fuel Company and ENSERCH facilities.
These System Companies anticipate the approval of all such permit applications.
Additional Clean Air Act regulations have been proposed and others are not
yet finalized by the EPA. The Company believes that the requirements necessary
to be in compliance with additional regulatory provisions can be met as they are
developed. Estimates for the capital requirements related to the Clean Air Act
are included in the Company's and TU Electric's estimated construction
expenditures. (See Item 2. Properties - Capital Expenditures and Management's
Discussion and Analysis of Financial Condition and Results of Operation included
in Appendix A to this report.) Any additional capital expenditures, as well as
any increased operating costs associated with new requirements or compliance
measures, are expected to be recoverable through rates, as similar costs have
been recovered in the past. For ENSERCH facilities, certain emission sources may
be required to reduce emissions or to install monitoring equipment under
proposed rules and regulations. The Company currently believes, however, that if
the rules and regulations under the Clean Air Act are adopted as proposed,
operating costs that will be incurred under operating permits, new permit fee
structures, capital expenditures associated with equipment modifications to
reduce emissions, or any expenditures on monitoring equipment, in the aggregate,
will not have a materially adverse effect on the Company's financial position,
results of operation or cash flows.
WATER
The TNRCC, the EPA and the RRC have jurisdiction over water discharges
(including storm water) from all System Companies' domestic facilities. The
System Companies' domestic facilities are presently in compliance with
applicable state and federal requirements relating to discharge of pollutants
into the water. TU Electric, ENSERCH, Fuel Company and Mining Company have
obtained all required waste water discharge permits from the TNRCC, the EPA and
the RRC for facilities in operation and have applied for or obtained necessary
permits for facilities under construction. TU Electric, ENSERCH, Fuel Company
and Mining Company believe they can satisfy the requirements necessary to obtain
any required permits or renewals.
22
<PAGE>
OTHER
Diversion, impoundment and withdrawal of water for cooling and other
purposes are subject to the jurisdiction of the TNRCC. System Companies,
including TU Electric, possess all necessary permits for these activities from
the TNRCC for their present operations.
Federal legislation regulating surface mining was enacted in August 1977
and regulations implementing the law have been issued. Mining Company's lignite
mining operations are currently regulated at the state level by the RRC, with
oversight by the United States Department of the Interior's Office of Surface
Mining, Reclamation and Enforcement. Surface mining permits have been issued for
current Mining Company operations that provide fuel for Big Brown, Monticello
and Martin Lake.
Treatment, storage and disposal of solid and hazardous waste are regulated
at the state level under the Texas Solid Waste Disposal Act (Texas Act) and at
the federal level under the Resource Conservation and Recovery Act of 1976, as
amended (RCRA) and the Toxic Substances Control Act (TSCA). The EPA has issued
regulations under the RCRA and TSCA, and the TNRCC and the RRC have issued
regulations under the Texas Act applicable to System Companies' domestic
facilities. The Company has registered its solid waste disposal sites and has
obtained or applied for such permits as are required by such regulations.
Beginning in 1998, certain TU Electric and Mining Company facilities came
under the jurisdiction of the toxic release inventory requirements of the
Emergency Planning Community Right-To-Know Act (EPCRA) as finalized by the EPA.
Regulatory reporting of toxic releases under EPCRA will begin in 1999.
Under the federal Low-Level Radioactive Waste Policy Act of 1980, as
amended, the State of Texas is required to provide, either on its own or jointly
with other states in a compact, for the disposal of all low-level radioactive
waste generated within the state. The State of Texas is taking steps to site,
construct and operate a low-level radioactive waste disposal site by 1999 and
submitted a license application in March 1992 for such a facility. The license
application has been finalized and a contested Administrative Hearing on the
adequacy of the application began in January 1998. The State of Texas has agreed
to a compact with the States of Maine and Vermont, which is subject to
ratification by Congress, for such a facility. Low-level waste material will
continue to be shipped off-site as long as an alternate disposal site is
available. Otherwise the low-level waste material will be stored on-site. TU
Electric's on-site storage capacity is expected to be adequate until other
facilities are available.
Eastern Energy is subject to various Australian federal and Victorian state
environmental regulations, the most significant of which is the Victorian
Environmental Protection Act of 1970 (VEPA). VEPA regulates, in particular, the
discharge of waste into air, land and water, site contamination, the emission of
noise and the storage, recycling and disposal of solid and industrial waste.
VEPA establishes the Environmental Protection Authority (Authority) and grants
the Authority a wide range of powers to control and prevent environmental
pollution. These powers include issuing approvals for construction of works
which may cause noise or emissions to air, water or land, waste discharge
licenses and pollution abatement notices. No licenses or works approvals from
the Authority are currently required for activities undertaken by Eastern
Energy.
23
<PAGE>
ITEM 2. PROPERTIES
THE COMPANY AND TU ELECTRIC
- ---------------------------
The Company does not directly own utility plant or real property. At
December 31, 1997, TU Electric owned or leased and operated the following
generating units:
<TABLE>
<CAPTION>
ELECTRIC NET
GENERATING CAPABILITY
UNITS FUEL SOURCE (MW) %
- ---------- ----------- ---------- ----
<S> <C> <C> <C>
46 Natural Gas (a).............. 12,105 57.0%
9 Lignite/Coal................. 5,825 27.5
2 Nuclear...................... 2,300 10.8
15 Combustion Turbines (b)...... 975 4.6
10 Diesel....................... 20 0.1
------ ----
Total 21,225 100.0%
====== =====
</TABLE>
- ------------------------
(a) Twenty-four natural gas units are capable of operating on fuel oil for
short periods when gas supplies are interrupted or curtailed. In addition,
five natural gas units are capable of operating on fuel oil for extended
periods.
(b) Natural gas units leased and operated by TU Electric. Such units are
capable of operating on fuel oil for extended periods.
The principal generating facilities of TU Electric and load centers of TU
Electric and SESCO are connected by 3,863 circuit miles of 345,000 volt
transmission lines and 9,327 circuit miles of 138,000 and 69,000 volt
transmission lines.
TU Electric is connected by six 345,000 volt lines to Houston Lighting &
Power Company; by three 345,000 volt, eight 138,000 volt and nine 69,000 volt
lines to West Texas Utilities Company; by two 345,000 volt and eight 138,000
volt lines to the Lower Colorado River Authority; by four 345,000 volt and eight
138,000 volt lines to the Texas Municipal Power Agency; by one asynchronous HVDC
interconnection to Southwestern Electric Power Company; and at several points
with smaller systems operating wholly within Texas. SESCO is connected to TU
Electric by three 138,000 volt lines, ten 69,000 volt lines and three lines at
distribution voltage. TU Electric and SESCO are members of ERCOT, an intrastate
network of investor-owned entities, cooperatives, public entities, non-utility
generators and power marketers. ERCOT is the regional reliability coordinating
organization for member electric power systems in Texas and is responsible for
ensuring equal access to transmission service by all wholesale market
participants in the ERCOT region.
The generating stations and other important units of property of TU
Electric and SESCO are located on lands owned primarily in fee simple. The
greater portion of the transmission and distribution lines of TU Electric and
SESCO, the gas gathering and transmission lines of Fuel Company and the gas
gathering, transmission and distribution lines of Lone Star Gas and Lone Star
Pipeline, have been constructed over lands of others pursuant to easements or
along public highways and streets as permitted by law. The gas gathering lines
of EPI are not utility property and are primarily constructed over lands of
others pursuant to private easements. The rights of the System Companies in the
realty on which their properties are located are considered by them to be
adequate for their use in the conduct of their business. Minor defects and
irregularities customarily found in titles to properties of like size and
character may exist, but any such defects and irregularities do not materially
impair the use of the properties affected thereby. TU Electric, SESCO, Fuel
Company, Eastern Energy, Lone Star Gas and Lone Star Pipeline have the right of
eminent domain whereby they may, if necessary, perfect or secure titles or gain
access to privately held land used or to be used in their operations. Utility
plant of TU Electric and SESCO is generally subject to the liens of their
respective mortgages.
24
<PAGE>
Eastern Energy's distribution network is comprised primarily of
subtransmission and distribution assets. It owns no generating or transmission
facilities. Eastern Energy's distribution system is interconnected with an
intrastate power network comprised of the operator of the transmission system,
and each of the other distribution companies within Victoria. Eastern Energy
has entered into distribution system agreements with each of the distribution
businesses which share the boundaries of its distribution area to provide for
wheeling of electricity on behalf of those distribution businesses and for the
reciprocal provision of other distribution services.
LCC and its affiliates provide a full range of telecommunications services
over a variety of state of the art facilities. As of December 31, 1997, LCC's
local exchange affiliate, LCTX, provided service to 97,959 access lines and
74,287 customers in 16 exchanges. All calls are switched by state of the art
digital switches. LCTLD has a separate digital switch for providing long
distance services.
LCC's affiliate, LCT, owns 63% of East Texas Fiber Line, Inc. (ETFL). ETFL
provides voice and data capacity to interexchange carriers over its fiber optic
lines. LCT owns an additional two hundred route miles of fiber optic lines and
markets that capacity to interexchange carriers including LCTLD. LCT also has
cellular interests in the Houston Metropolitan Serving Area as well as interests
in the three rural service areas.
At December 31, 1997, Lone Star Pipeline operated approximately 7,600 miles
of transmission and gathering lines and operated 22 compressor stations having a
total rated horsepower of approximately 76,455. Lone Star Pipeline also owns
seven active gas-storage fields, all located on its system in Texas, and three
major gas-treatment plants to remove undesirable components from the gas stream.
At December 31, 1997, EPI had interests in 15 processing plants, 10 of which
were wholly owned, and operated approximately 1,714 miles of gathering lines. At
December 31, 1997, Lone Star Gas operated approximately 23,800 miles of
distribution mains.
ENSERCH owns a five-building office complex in Dallas, containing
approximately 453,000 square feet of space that is occupied by ENSERCH and some
of its affiliates. In addition, ENSERCH leases a 21-story, 400,000 square-foot
building in Houston under a two-year lease that is automatically extended each
year unless terminated. This building is sub-leased, primarily to non-affiliated
parties.
TU Properties currently leases a 48-story office building in Dallas
containing approximately 1,027,000 square feet of space (Energy Plaza) from a
bank leasing company, and expects to generate revenue by offering competitively
priced business office space to interested parties. TU Properties has entered
into a tenant agreement with TU Services on behalf of the System Companies that
allows the System Companies to occupy certain office space in Energy Plaza at a
market price.
CAPITAL EXPENDITURES
THE COMPANY AND TU ELECTRIC
- ---------------------------
The Company has taken steps to aggressively manage its construction
expenditures. Such construction expenditures for utility related activities,
excluding allowance for funds used during construction, (see Note 15 to
Consolidated Financial Statements included in Appendix A to this report) are
presently estimated at $886 million, $799 million and $852 million for the
Company and $449 million, $439 million and $441 million for TU Electric for each
of the years 1998, 1999, and 2000, respectively. The System Companies are
subject to federal, state and local regulations dealing with environmental
protection. (See Item 1. Business - Environmental Matters.) Such expenditures
for construction to meet the requirements of environmental regulations at
existing generating units are estimated to be $27 million for 1998 (included in
the 1998 construction estimates noted above) and were approximately $33 million
in 1997, $14 million in 1996 and $64 million in 1995. Expenditures for nuclear
fuel are presently estimated to be $104 million, $81 million and $92 million for
the Company and TU Electric for each of the years 1998, 1999 and 2000,
respectively.
25
<PAGE>
The re-evaluation of growth expectations, the effects of inflation,
additional regulatory requirements and the availability of fuel, labor,
materials and capital may result in changes in estimated construction costs and
dates of completion. Commitments in connection with the construction program are
generally revocable subject to reimbursement to manufacturers for expenditures
incurred or other cancellation penalties. (See Item 1. Business -Electricity
Peak Load and Capability.)
The Company and TU Electric continue to seek potential investment
opportunities from time to time when it concludes that such investments are
consistent with its business strategies and are likely to enhance the long-term
return to its shareholders. In January 1998, the Company announced that it had
approached The Energy Group PLC (TEG), a diversified international energy group,
in connection with its possible interest in acquiring TEG. (See Item 1.
Business - Texas Utilities Company and Subsidiaries - Mergers and Acquisitions.)
The estimated purchase price for the TEG shares is approximately $7.3 billion.
The Company estimates that the financing necessary to purchase all outstanding
TEG shares and to pay all associated expenses will be approximately (Pounds)4.6
billion ($7.6 billion). The Company and TU Acquisitions and other intermediate
U.K. holding companies have entered into credit facilities with banking
institutions in the U.S. and the U.K., respectively, which will provide
committed financing sufficient to purchase the outstanding TEG shares and pay
related expenses. The U.S. credit facilities, which will aggregate $5.0
billion, will replace the Company's current Credit Facilities described in Note
3 to the Consolidated Financial Statements. The timing, amount and funding of
any other new business investment opportunities are presently undetermined.
For information regarding the financing of capital expenditures, see
Management's Discussion and Analysis of Financial Condition and Results of
Operation included in Appendix A to this report.
ITEM 3. LEGAL PROCEEDINGS
THE COMPANY AND TU ELECTRIC
- ---------------------------
The Company and its subsidiaries are party to lawsuits arising in the
ordinary course of its business. The Company believes, based on its current
knowledge and the advice of counsel, that all such lawsuits and resulting claims
would not have a material adverse effect on its financial position, results of
operation or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
THE COMPANY AND TU ELECTRIC
- ---------------------------
None.
26
<PAGE>
---------------------------------------------
EXECUTIVE OFFICERS OF THE COMPANY
<TABLE>
<CAPTION>
POSITIONS AND OFFICES DATE FIRST ELECTED TO
PRESENTLY HELD PRESENT OFFICES
(CURRENT TERM EXPIRES (CURRENT TERM EXPIRES BUSINESS EXPERIENCE
NAME OF OFFICER AGE MAY 8, 1998) MAY 8, 1998) (PRECEDING FIVE YEARS)
- --------------- --- ----------------------- ---------------------- -----------------------------------------
<S> <C> <C> <C> <C>
Erle Nye 60 Chairman of the Board May 23, 1997 Chairman of the Board and Chief Executive
Chief Executive of and Director the Company,
TU Electric and ENSERCH
Corporation; prior thereto,
President and Chief
Executive of the Company and
Chairman of the Board and Chief
Executive of TU Electric.
David W. Biegler 51 President and Chief August 5, 1997 President and Chief Operating Officer of
Operating Officer the Company, TU Electric and
ENSERCH Corporation; prior
thereto, Chairman, President and
Chief Executive Officer of
ENSERCH Corporation.
H. Jarrell Gibbs 60 Vice Chairman of August 5, 1997 Vice Chairman of the Board; prior thereto,
the Board President of TU Electric; prior
thereto, Vice President and
Principal Financial Officer of
the Company.
Michael J. McNally 43 Executive Vice President May 23, 1997 Executive Vice President and Chief
and Chief Financial Financial Officer; prior
Officer thereto, President,
Transmission Division of TU
Electric; prior thereto,
Executive Vice
President of TU Electric;
prior thereto, Principal of
Enron Development Corporation;
prior thereto, Managing Director
of Industrial Services (Enron
Capital and Trade Resources)
and President of Houston Pipe
Line Company and Enron Gas
Liquids, Inc.
</TABLE>
There is no family relationship between any of the above-named Executive
Officers.
27
<PAGE>
PART II
ITEM 5. MARKET FOR EACH REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
THE COMPANY
- -----------
The Company's common stock is listed on the New York, Chicago and Pacific
stock exchanges (symbol: TXU).
The price range of the common stock of the Company on the composite tape,
as reported by The Wall Street Journal and the dividends paid for each of the
calendar quarters of 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Price Range Dividends Paid
------------------------------------ --------------
Quarter Ended 1997 1996 1997 1996
- ------------- ----------------- ----------------- ------ ------
High Low High Low
-------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
March 31....... $42.0000 $33.7500 $42.8750 $38.8750 $0.525 $0.50
June 30........ 37.0000 31.5000 42.7500 38.5000 0.525 0.50
September 30... 36.1875 33.5000 43.7500 39.3750 0.525 0.50
December 31.... 41.8125 34.1875 42.1250 38.7500 0.525 0.50
------ -----
$2.100 $2.00
====== =====
</TABLE>
The Company or its predecessor TEI, have declared common stock dividends
payable in cash in each year since TEI's incorporation in 1945. The Board of
Directors of the Company, at its February 1998 meeting, declared a quarterly
dividend of $0.55 a share, payable April 1, 1998 to shareholders of record on
March 6, 1998. For information concerning the Company's dividend policy, see
Management's Discussion and Analysis of Financial Condition and Results of
Operation included in Appendix A to this report. Future dividends may vary
depending upon the Company's profit levels and capital requirements as well as
financial and other conditions existing at the time. Reference is made to Note 5
to Consolidated Financial Statements included in Appendix A to this report
regarding limitations upon payment of dividends on common stock of TU Electric
and SESCO.
The number of record holders of the common stock of the Company as of March
13, 1998 was 88,868.
TU ELECTRIC
- -----------
All of TU Electric's common stock is owned by the Company. Reference is
made to Note 5 to Consolidated Financial Statements included in Appendix A to
this report regarding limitations upon payment of dividends on common stock of
TU Electric.
ITEM 6. SELECTED FINANCIAL DATA
THE COMPANY AND TU ELECTRIC
- ---------------------------
The information required hereunder for the Company and TU Electric is set
forth under Selected Financial Data included in Appendix A to this report.
28
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
THE COMPANY AND TU ELECTRIC
- ---------------------------
The information required hereunder for the Company and TU Electric is set
forth under Management's Discussion and Analysis of Financial Condition and
Results of Operation included in Appendix A to this report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
THE COMPANY AND TU ELECTRIC
- ---------------------------
The information required hereunder for the Company and TU Electric is set
forth in Management's Discussion and Analysis of Financial Condition and Results
of Operation included in Appendix A to this report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
THE COMPANY AND TU ELECTRIC
- ---------------------------
The information required hereunder for the Company and TU Electric is set
forth under Statements of Responsibility, Independent Auditors' Reports,
Statements of Consolidated Income, Statements of Consolidated Cash Flows,
Consolidated Balance Sheets, Statements of Consolidated Common Stock Equity, and
Notes to Consolidated Financial Statements included in Appendix A to this
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
THE COMPANY AND TU ELECTRIC
- ---------------------------
None.
29
<PAGE>
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF EACH REGISTRANT
For financial reporting and other purposes, the Company is being treated
herein as the successor to TEI. Unless otherwise specified, all references to
the Company which relate to a period prior to August 5, 1997, shall be deemed to
be references to TEI.
The Company
- -----------
Information with respect to this item is found under the heading Election
of Directors in the definitive proxy statement filed by the Company with the
Commission on March 19, 1998. Additional information with respect to Executive
Officers of the Company is found at the end of Part I.
TU Electric
- -----------
Identification of Directors, business experience and other directorships:
<TABLE>
<CAPTION>
Other Positions and
Offices Presently Held Date First Elected Present Principal Occupation or
With TU Electric as Director Employment and Principal
(Current Term Expires (Current Term Expires Business (Preceding Five Years),
Name of Director Age May 8, 1998) May 8, 1998) Other Directorships
- ---------------- --- --------------------- --------------------- --------------------------------
<S> <C> <C> <C> <C>
T. L. Baker 52 President, Electric February 20, 1987 President, Electric Service Division of TU
Service Division Electric and President of Lone Star Gas
prior thereto, Executive Vice President of TU
Electric; prior thereto, Senior Vice President
of TU Electric.
David W. Biegler 51 President and Chief August 29, 1997 President and Chief Operating Officer of the
Operating Officer Company, TU Electric and ENSERCH; prior
thereto, Chairman, President and Chief
Executive Officer of ENSERCH; other
directorships: ENSERCH and Trinity Industries,
Inc.
Barbara B. Curry 43 None August 29, 1997 Executive Vice President of TU Services; prior
thereto, Vice President of TU Services and,
prior thereto, Assistant to the Chairman of the
Company; other directorship: ENSERCH.
M. S. Greene 52 President, Transmission May 27, 1997 President, Transmission Division of TU Electric;
Division prior thereto, Executive Vice President of
Fuel Company and Mining Company.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Other Positions and
Offices Presently Held Date First Elected Present Principal Occupation or
With TU Electric as Director Employment and Principal
(Current Term Expires (Current Term Expires Business (Preceding Five Years),
Name of Director Age May 8, 1998) May 8, 1998) Other Directorships
- ---------------- --- --------------------- --------------------- --------------------------------
<S> <C> <C> <C> <C>
Michael J. McNally 43 None February 16, 1996 Executive Vice President and Chief Financial
Officer of the Company; prior thereto,
President, Transmission Division of TU
Electric; prior thereto, Executive Vice
President of TU Electric; prior thereto,
Principal of Enron Development Corporation;
prior thereto, Managing Director of Industrial
Services (Enron Capital and Trade Resources)
and President of Houston Pipe Line Company and
Enron Gas Liquids, Inc.; other directorship:
ENSERCH.
Erle Nye 60 Chairman of the Board and September 17, 1982 Chairman of the Board and Chief Executive of the
Chief Executive Company, TU Electric and ENSERCH; prior
thereto, President and Chief Executive of
the Company and Chairman of the Board and Chief
Executive of TU Electric; other directorships:
the Company and ENSERCH.
W. M. Taylor 55 President, Generation May 20, 1986 President, Generation Division of TU Electric;
Division prior thereto, Executive Vice President of TU
Electric.
</TABLE>
Directors of TU Electric receive no compensation in their capacity as Directors
of TU Electric.
31
<PAGE>
Identification of Executive Officers and business experience:
<TABLE>
<CAPTION>
Positions and
Offices Presently Held Date First Elected
With TU Electric as Director
(Current Term Expires (Current Term Expires Business Experience
Name of Director Age May 8, 1998) May 8, 1998) (Preceding Five Years)
- ---------------- --- --------------------- --------------------- ----------------------
<S> <C> <C> <C> <C>
Erle Nye 60 Chairman of the Board February 20, 1987 Chairman of the Board and Chief Executive of the
and Chief Executive Company, TU Electric and ENSERCH; prior
thereto, President and Chief Executive of
the Company and Chairman of the Board and Chief
Executive of TU Electric.
David W. Biegler 51 President and Chief January 1, 1998 President and Chief Operating Officer of the
Operating Officer Company, TU Electric and ENSERCH; prior
thereto, Chairman, President and Chief
Executive Officer of ENSERCH.
T. L. Baker 52 President, Electric February 16, 1996 President, Electric Service Division of TU
Service Division Electric and President of Lone Star Gas
prior thereto, Executive Vice President of TU
Electric; prior thereto, Senior Vice President
of TU Electric.
M. S. Greene 52 President, Transmission May 27, 1997 President, Transmission Division of TU Electric;
Division prior thereto, Executive Vice President of
Fuel Company and Mining Company.
W. M. Taylor 55 President, Generation February 16, 1996 President, Generation Division of TU Electric;
Division prior thereto, Executive Vice President of TU
Electric.
</TABLE>
There is no family relationship between any of the above- named Directors and
Executive Officers.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
All required reports relating to changes in beneficial ownership have been
timely filed.
32
<PAGE>
Item 11. EXECUTIVE COMPENSATION
The Company
- -----------
Information with respect to this item is found under the heading Executive
Compensation in the definitive proxy statement filed by the Company with the
Commission on March 19, 1998.
TU Electric
- -----------
TU Electric and its affiliates have paid or awarded compensation during the
last three calendar years to the following Executive Officers for services in
all capacities:
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation (5)
------------------------------- ----------------------------------
Awards Payouts
----------------------- -------
Other
Annual Restricted Securities
Compen- Stock Underlying LTIP All Other
Name and Salary Bonus sation Awards Options/ Payouts Compensation
Principal Position Year ($) ($)(4) ($) ($) SARs (#) ($) ($)(6)
- --------------------------- ---- ------- ------- -------- ---------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Erle Nye, 1997 760,417 325,000 - 499,375 - 23,928 143,963
Chairman of the Board 1996 723,333 185,000 - 351,500 - 0 117,908
and Chief Executive of the 1995 679,167 140,000 - 266,000 - 25,602 87,810
Company and TU Electric (1)
H. Jarrell Gibbs, 1997 354,583 103,000 - 185,125 - 8,432 66,226
Vice Chairman of the Board 1996 321,250 113,000 - 189,500 - 0 53,203
of the Company (2) 1995 282,917 67,200 - 120,300 - 9,102 38,702
W. M. Taylor, 1997 339,583 83,000 - 161,750 - 9,343 59,948
President, Generation 1996 312,500 83,500 - 156,625 - 0 49,530
Division - TU Electric 1995 282,917 64,700 - 117,800 - 10,809 38,278
Michael J. McNally, 1997 279,167 105,000 - 172,500 - 0 103,630
Executive Vice President 1996 229,166 75,000 - 131,250 - 0 97,949
and Chief Financial 1995 170,833 0 - 0 - 0 0
Officer of the Company (3)
T. L. Baker, 1997 294,583 71,000 - 139,625 - 10,619 56,603
President, Electric 1996 275,833 60,500 - 123,500 - 0 46,319
Service Division - TU 1995 261,667 44,900 - 93,500 - 11,947 34,465
Electric
M. S. Greene, 1997 233,750 53,000 - 107,000 - 6,609 40,668
President, Transmission 1996 220,833 45,000 - 95,625 - 0 34,750
Division - TU Electric 1995 206,667 25,800 - 64,500 - 6,599 28,619
</TABLE>
- ---------------------------------
(1) Amounts reported in the table for Mr. Nye consist entirely of compensation
paid by the Company.
(2) Mr. Gibbs served as President of TU Electric until December 31, 1997 and was
also elected to his current position with the Company effective August 5,
1997; a portion of the 1997 compensation represents compensation paid by the
Company.
(3) Mr. McNally served as President of the Transmission Division of TU Electric
through May 23, 1997; compensation after that date represents compensation
paid by the Company.
(4) Amounts reported as Bonus in the Summary Compensation Table are attributable
to the named officer's participation in the Annual Incentive Plan (AIP).
Elected corporate officers of the Company and its participating subsidiaries
with a title of Vice President or above are eligible to participate in the
AIP. Under the terms of the AIP, target incentive
33
<PAGE>
awards ranging from 35% to 50% of base salary, and a maximum award of 100%
of base salary, are established. The percentage of the target or the maximum
actually awarded, if any, is dependent upon the attainment of per share net
income goals established in advance by the Organization and Compensation
Committee (Committee) as well as the Committee's evaluation of the
participant's and the Company's performance. One-half of each such award is
paid in cash and is reflected as Bonus in the Summary Compensation Table.
Payment of the remainder of the award is deferred under the Deferred and
Incentive Compensation Plan (DICP) discussed hereinafter in footnote (5).
(5) Amounts reported as Long-Term Compensation are attributable to the named
officer's participation in the DICP. Elected corporate officers of the
Company and its participating subsidiaries with the title of Vice President
or above are eligible to participate in the DICP. Participants in the DICP
may defer a percentage of their base salary not to exceed a maximum
percentage determined by the Committee for each Plan year and in any event
not to exceed 15% of the participant's base salary. The Company makes a
matching award (Matching Award) equal to 150% of the participant's deferred
salary. In addition, one-half of any AIP award (Incentive Award) is
deferred and invested under the DICP. The Matching Awards and Incentive
Awards are subject to forfeiture under certain circumstances. Under the
DICP, a trustee purchases Company common stock with an amount of cash equal
to each participant's deferred salary, Matching Award and Incentive Award,
and accounts are established for each participant containing performance
units (Units) equal to such number of common shares. DICP investments,
including reinvested dividends, are restricted to Company common stock. On
the expiration of the applicable maturity period (three years for the
Incentive Awards and five years for deferred salary and Matching Awards),
the values of the participant's accounts are paid in cash based upon the
then current value of the Units; provided, however, that in no event will a
participant's account be deemed to have a cash value which is less than the
sum of such participant's deferred salary together with a 6% per annum
(compounded annually) interest equivalent thereon. The maturity period is
waived if the participant dies or becomes totally and permanently disabled
and may be extended under certain circumstances.
Incentive Awards and Matching Awards that have been made under the DICP are
included under Restricted Stock Awards in the Summary Compensation Table for
each of the last three years. As a result of these awards, undistributed
Incentive Awards and Matching Awards made under the DICP in prior years, and
dividends reinvested thereon, the number and market value of such Units at
December 31, 1997 (each of which is equal to one share of common stock) held
in the DICP accounts for Messrs. Nye, Gibbs, Taylor, McNally, Baker and
Greene were 39,725 ($1,648,588), 17,134 ($711,061), 15,597 ($647,276), 8,299
($344,409), 13,278 ($551,037) and 9,887 ($410,310), respectively.
The Long-Term Incentive Compensation Plan (LTICP) is a comprehensive, stock-
based incentive compensation plan providing for discretionary grants of
common stock-based awards, including restricted stock. Outstanding awards to
named executive officers vest over a three year period and such executive
officers may earn from 0% to 200% of the number of shares awarded based on
the Company's total return to shareholders over such three year period
compared to the total return provided by the companies comprising the
Standard & Poor's Electric Utility Index. Dividends are paid and reinvested
on such restricted stock awards at the same rate as dividends on the
Company's common stock. As a result of restricted stock awards under the
LTICP, and dividends reinvested thereon, the number of shares of restricted
stock and the value of such shares at December 31, 1997 held for Messrs.
Nye, Gibbs, Taylor, McNally, Baker and Greene were 22,666 ($940,639), 5,151
($213,767), 4,121 ($171,022), 11,333 ($470,320), 5,151 ($213,767), and -0-
($-0-), respectively.
34
<PAGE>
Salary deferred under the DICP is included in amounts reported as Salary in
the Summary Compensation Table. Amounts shown in the table below represent
the number of shares purchased under the DICP with such deferred salaries
for 1997 and the number of shares awarded under the LTICP:
<TABLE>
<CAPTION>
Long-Term Incentive Plans - Awards in Last Fiscal Year
Deferred and Incentive
Compensation Plan Long-Term Incentive Compensation Plan
----------------------------- ------------------------------------------------------------
Number of Performance Number of Performance
Shares, or Other Shares, or Other
Units or Period Until Units or Period Until Estimated Future Payouts
Other Maturation Other Maturation or -----------------------------
Name Rights (#) or Payout Rights (#) Payout Minimum (#) Maximum (#)
---- ---------- ------------ ----------- -------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Erle Nye 3,305 5 Years 22,000 3 Years 0 44,000
H. Jarrell Gibbs 1,556 5 Years 5,000 3 Years 0 10,000
W. M. Taylor 1,492 5 Years 4,000 3 Years 0 8,000
Michael J. McNally 1,279 5 Years 11,000 3 Years 0 22,000
T. L. Baker 1,300 5 Years 5,000 3 Years 0 10,000
M. S. Greene 1,023 5 years 0 - 0 0
</TABLE>
Amounts reported as LTIP Payouts in the Summary Compensation Table represent
payouts maturing during such years of earnings on salary deferred under the
DICP in prior years.
(6) Amounts reported as All Other Compensation are attributable to the named
officer's participation in certain plans and as otherwise described
hereinafter in this footnote.
Under the Employees' Thrift Plan of the Texas Utilities Company System
(Thrift Plan) all employees with at least six months of eligible service
with the Company or any of its participating subsidiaries may invest up to
16% of their regular salary or wages in common stock of the Company, or in a
variety of selected mutual funds. Under the Thrift Plan, the Company matches
a portion of an employee's savings in an amount equal to 40%, 50% or 60%
(depending on the employee's length of service) of the first 6% of such
employee's savings. All matching amounts are invested in common stock of the
Company. The amounts reported under All Other Compensation in the Summary
Compensation Table include these matching amounts which, for Messrs. Nye,
Gibbs, Taylor, McNally, Baker and Greene amounted to $5,760, $4,800, $5,760,
$3,840, $5,760 and $5,760, respectively, during 1997.
The Company has a Salary Deferral Program (Program) under which each
employee of the Company and its participating subsidiaries whose annual
salary is equal to or greater than an amount established under the Program
($94,760 for the Program Year beginning April 1997) may elect to defer a
percentage of annual salary for a period of seven years, a period ending
with the retirement of such employee, or for a combination thereof. Such
deferrals may not exceed in the aggregate 10% of the employee's annual
salary. Salary deferred under the Program is included in amounts reported
under Salary in the Summary Compensation Table. The Company makes a matching
award, subject to forfeiture under certain circumstances, equal to 100% of
the salary deferred under the Program. The trustee for the Program
distributes, at the end of the applicable maturity period, cash equal to the
greater of the actual earnings of Program assets, or the average yield
during the applicable maturity period of U. S. Treasury Notes with a
maturity of ten years. The distribution of the amounts due under the Program
is in a lump sum if the maturity period is seven years or, if the retirement
option is elected, in twenty annual installments. The Company is financing
the retirement portion of the Program through the purchase of corporate-
owned life insurance on the lives of the participants. The proceeds from
such insurance are expected to allow the Company to fully recover the cost
of the retirement option. During 1997, matching awards, which are included
under All Other Compensation in the Summary Compensation Table, were made
for Messrs. Nye, Gibbs, Taylor, McNally, Baker and Greene in the amounts of
$76,042, $35,458, $33,958, $27,917, $29,458 and $23,375, respectively.
Under the Split-Dollar Life Insurance Program of the Texas Utilities Company
System (Insurance Program), split-dollar life insurance policies are
purchased for elected corporate officers of the Company and its
participating subsidiaries with a title of Vice President or above, with a
death benefit equal to four times their annual Insurance Program
compensation. New participants vest in the policies issued under the
Insurance Program over a six year period. The Company pays the premiums for
these policies and has received a collateral assignment of the policies
equal in value to the sum of all of its insurance premium payments. Although
the Insurance Program is terminable
35
<PAGE>
at any time, it is designed so that if it is continued, the Company will
fully recover all of the insurance premium payments it has made either upon
the death of the participant or, if the assumptions made as to policy yield
are realized, upon the later of fifteen years of participation or the
participant's attainment of age sixty-five. During 1997, the economic
benefit derived by Messrs. Nye, Gibbs, Taylor, McNally, Baker and Greene
from the term insurance coverage provided and the interest foregone on the
remainder of the insurance premiums paid by the Company amounted to $62,161,
$25,968, $20,230, $5,582, $21,385 and $11,533, respectively.
The amount of $66,291 included in the All Other Compensation column of the
Summary Compensation Table for Mr. McNally for 1997 represents additional
compensation that the Company agreed to pay Mr. McNally incident to his
employment with the Company in lieu of payments he would have received from
a prior employer.
PENSION PLAN TABLE
Years of Service
---------------------------------------------------------------
Remuneration 20 25 30 35 40
------------ -- -- -- -- --
$ 50,000 $ 14,688 $ 18,360 $ 22,032 $ 25,704 $ 29,376
100,000 29,688 37,110 44,532 51,954 59,376
200,000 59,688 74,610 89,532 104,454 119,376
400,000 119,688 149,610 179,532 209,454 239,376
800,000 239,688 299,610 359,532 419,454 479,376
1,000,000 299,688 374,610 449,532 524,454 599,376
1,400,000 419,688 524,610 629,532 734,454 839,376
The Company and its subsidiaries maintain retirement plans (Plans) which are
qualified under applicable provisions of the Internal Revenue Code of 1986, as
amended (Code). Annual retirement benefits are computed as follows: for each
year of accredited service up to a total of 40 years of service, 1.3% of the
first $7,800, plus 1.5% of the excess over $7,800 of the participant's average
annual earnings during his or her three years of highest earnings. Amounts
reported under Salary for the named officers in the Summary Compensation Table
approximate earnings as defined by the Plans and the Supplemental Retirement
Plan (Supplemental Plan). Benefits paid under the Plans are not subject to any
reduction for Social Security payments but are limited by provisions of the
Code. The Supplemental Plan provides for the payment of retirement benefits
which would otherwise be limited by the Code or by the definition of earnings in
the Plans. Under the Supplemental Plan, retirement benefits are calculated in
accordance with the same formula used under the Plans, except that earnings also
include AIP awards (50% of the AIP award is reported under Bonus for the named
officers in the Summary Compensation Table). As of February 28, 1998, years of
accredited service under the plans for Messrs. Nye, Gibbs, Taylor, McNally,
Baker and Greene were 35, 35, 30, 1, 27 and 27, respectively. The table
illustrates the total annual benefit payable at retirement under the Plans and
Supplemental Plan prior to any reduction for a contingent beneficiary option
which may be selected by the participant.
The following report and performance graph are presented herein for
information purposes only. This information is not required to be included
herein and shall not be deemed to form a part of this report or be "filed" with
the Securities and Exchange Commission. The report set forth hereinafter is the
report of the Organization and Compensation Committee of the Board of Directors
of the Company and is illustrative of the methodology utilized in establishing
the compensation of executive officers of the Company and TU Electric.
36
<PAGE>
ORGANIZATION AND COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The Organization and Compensation Committee of the Board of Directors
(Committee) is responsible for reviewing and establishing the compensation of
the executive officers of the Company. The Committee consists of all of the
nonemployee directors of the Company and is chaired by James A. Middleton. The
Committee has directed the preparation of this report and has approved its
contents and submission to the shareholders.
As a matter of policy, the Committee believes that levels of executive
compensation should be based upon an evaluation of the performance of the
Company and its officers generally, as well as in comparison to persons with
comparable responsibilities in similar business enterprises. Compensation plans
should align executive compensation with returns to shareholders with due
consideration accorded to balancing both long-term and short-term objectives.
The overall compensation program should provide for an appropriate and
competitive balance between base salaries and performance-based annual and long-
term incentives. The Committee has determined that, as a matter of policy to be
implemented over time, the base salaries of the officers will be established at
the median, or 50th percentile, of the top ten electric utilities in the United
States and that opportunities for total direct compensation (defined as the sum
of base salaries, annual incentives and long-term incentives) to reach the 75th
percentile, or above, of such utilities will be provided through performance-
based compensation plans. Such compensation principles and practices have
allowed, and should continue to allow, the Company to attract, retain and
motivate its key executives.
In furtherance of these policies, a nationally recognized compensation
consultant has been retained since 1994 to assist the Committee in its periodic
reviews of compensation and benefits provided to officers. The consultant's
evaluations include comparisons to the largest utilities as well as to general
industry with respect both to the level and composition of officers'
compensation. The consultant's recommendations including the Annual Incentive
Plan, the Long-Term Incentive Compensation Plan and certain benefit changes have
generally been implemented. The Annual Incentive Plan, which was approved by the
shareholders in 1995, is generally referred to as the AIP and is described in
this report as well as in footnote 4 to the Summary Compensation Table. The
Long-Term Incentive Compensation Plan, referred to as the Long-Term Plan or
LTICP, was approved by the shareholders in 1997 and is described in this report
as well as in footnote 5 to the Summary Compensation Table.
In recent years, the compensation of the officers of the Company has
consisted principally of base salaries, the opportunity to participate in the
Deferred and Incentive Compensation Plan (referred to as the DICP and described
in footnote 5 to the Summary Compensation Table) and the opportunity to earn an
incentive award under the AIP. Benefits provided under the DICP and the AIP have
represented a substantial portion of officers' compensation, and the value of
future payments under the DICP, as well as the value of the deferred portion of
any award under the AIP, is directly related to the future performance of the
Company's common stock. It is anticipated that performance-based incentive
awards under the AIP and the Long-Term Plan, will, in future years, constitute
an increasing percentage of the officers' total compensation.
The AIP is administered by the Committee and provides an objective framework
within which annual Company and individual performance can be evaluated by the
Committee. Depending on the results of such performance evaluations, and the
attainment of the per share net income goals established in advance, the
Committee may provide annual incentive compensation awards to eligible officers.
The evaluation of each individual participant's performance is based upon the
attainment of individual and business unit objectives. The Company's performance
is evaluated, compared to the ten largest electric utilities and/or the electric
utility industry, based upon its total return to shareholders and return on
invested capital, as well as other measures relating to competitiveness, service
quality and employee safety. The combination of individual and Company
performance results, together with the Committee's evaluation of the competitive
level of compensation which is appropriate for such results, determines the
amount, if any, actually awarded.
The Long-Term Plan, which is also administered by the Committee, is a
comprehensive stock-based incentive compensation plan under which all awards are
made in, or based on the value of, the Company's common stock. The Long-Term
Plan provides that, in the discretion of the Committee, awards may be in the
form of stock options, stock appreciation rights, performance and/or restricted
stock or stock units or in any other stock-based form. The purpose of the Long-
Term Plan is to provide performance-related incentives linked to long-term
performance goals. Such performance goals may be based on individual performance
and/or may include criteria such as absolute or relative levels of total
shareholder return, revenues, sales, net income or net worth of the Company, any
of its subsidiaries, business units or other areas, all as the Committee may
determine. Awards under the Long-Term Plan are expected to constitute the
principal long-term component of officers' compensation. At its meeting in May
1997, the Committee provided awards of performance-based restricted stock to
certain officers, including the Chief Executive. The future value of those
awards will be determined by the Company's total return to shareholders over a
three year period compared to the total return for that period of the companies
comprising the Standard & Poor's Electric Utility Index. Depending upon the
Company's relative return for such period, the officers may earn from 0% to 200%
of the original award and their compensation is, thereby, directly related to
shareholder value. These awards, and any awards that may be made in the future,
are based upon the Committee's evaluation of the appropriate level of long-term
compensation consistent with its policy relating to total direct compensation.
37
<PAGE>
In establishing levels of executive compensation at its May 1997 meeting,
the Committee reviewed various performance and compensation data, including the
performance measures under the AIP and the report of its compensation
consultant. Information was also gathered from industry sources and other
published and private materials which provided a basis for comparing the largest
electric and gas utilities and other survey groups representing a large variety
of business organizations. Included in the data considered was that the
Company's total return to shareholders in 1996 was 4.4%, which was the third
highest total return amongst the ten largest utilities. The comparative returns
provided by the largest electric and gas utilities are represented by the
returns of the Standard & Poor's Electric Utility Index and are reflected in the
graph herein. The graph also reflects the returns provided by the Moody's 24
Utilities, and that disclosure will be discontinued after this year in light of
the greater comparability of the Company to the companies comprising such S&P
index. In 1996, TU Electric, the Company's principal subsidiary, was the largest
electric utility in the United States as measured by megawatt hour sales and,
compared to other electric utilities in the United States, was fifth in electric
revenues, sixth in total assets, fourth in net generating capability, eighth in
number of customers and twelfth in number of employees. Compensation amounts
were established by the Committee based upon its consideration of the above
comparative data and its subjective evaluation of Company and individual
performance at levels consistent with the Committee's policy relating to total
direct compensation.
In May 1997 the Committee increased Mr. Nye's base salary as Chief Executive
to an annual rate of $775,000 representing a $35,000 or 4.7% increase over the
amount established for Mr. Nye in May 1996. Based upon the Committee's
evaluation of individual and Company performance, as called for by the AIP, the
Committee also provided Mr. Nye with an AIP award of $650,000 compared to the
prior year's award of $370,000. The Committee also awarded 22,000 shares of
performance-based restricted stock to Mr. Nye. Under the terms of the award, Mr.
Nye can earn from 0% to 200% of the award depending on the Company's total
return to shareholders over a three-year period (April 1, 1997 through March 31,
2000) compared to the total return provided by the companies comprising the
Standard & Poor's Electric Utility Index. This level of compensation was
established based upon the Committee's subjective evaluation of the information
described in this report.
In discharging its responsibilities with respect to establishing executive
compensation, the Committee normally considers such matters at its May meeting
held in conjunction with the Annual Meeting of Shareholders. Although Company
management may be present during Committee discussions of officers'
compensation, Committee decisions with respect to the compensation of the
Chairman of the Board and Chief Executive and the President are reached in
private session without the presence of any member of Company management.
Section 162(m) of the Code limits the deductibility of compensation which a
publicly traded corporation provides to its most highly compensated officers. As
a general policy, the Company does not intend to provide compensation which is
not deductible for federal income tax purposes. Awards under the AIP in 1996 and
subsequent years as well as awards under the Long-Term Plan are expected to be
fully deductible, and the DICP and the Salary Deferral Program have been amended
to require the deferral of distributions of amounts earned in 1995 and
subsequent years until the time when such amounts would be deductible. Awards
provided under the AIP in 1995 and distributions under the DICP and the Salary
Deferral Program which were earned in plan years prior to 1995, may not be fully
deductible but such amounts are not expected to be material.
Shareholder comments to the Committee are welcomed and should be addressed
to the Secretary of the Company at the Company's offices.
Organization and Compensation Committee
James A. Middleton, Chair Margaret N. Maxey
Bayard H. Friedman J. E. Oesterreicher
William M. Griffin Charles R. Perry
Kerney Laday Herbert H. Richardson
38
<PAGE>
PERFORMANCE GRAPH
The following graph compares the performance of the Company's common stock to
the S&P 500 Index, the Moody's 24 Utilities and the S&P Electric Utility Index
for the last five years. The graph assumes the investment of $100 at December
31, 1992 and that all dividends were reinvested. The amount of the investment
at the end of each year is shown in the graph and in the table which follows.
[LINE GRAPH APPEARS HERE]
Cumulative Total Returns
for the Five Years Ended 12/31/97
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Texas Utilities 100 109 88 123 128 138
- ----------------------------------------------------------------------------
S&P 500 Index 100 110 111 153 188 251
- ----------------------------------------------------------------------------
Moody's 24 Utilities 100 110 94 123 125 152
- ----------------------------------------------------------------------------
S&P Electric Utility Index 100 113 98 128 128 162
- ----------------------------------------------------------------------------
</TABLE>
39
<PAGE>
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company
- -----------
Information with respect to this item is found under the headings Beneficial
Ownership of Common Stock of the Company in the definitive proxy statement
filed by the Company with the Commission on March 19, 1998. Additional
information with respect to Executive Officers of the Company is found at the
end of Part I.
TU Electric
- -----------
Security ownership of certain beneficial owners at February 28, 1998:
<TABLE>
<CAPTION>
Amount and
Name and Address Nature
of Beneficial of Beneficial Percent of
Title of Class Owner Ownership Class
-------------- ----------------- ---------------- -------------
<S> <C> <C> <C>
Common stock, Texas Energy 142,931,000 100.0%
without par value, Industries, Inc. shares
of TU Electric Energy Plaza, sole voting and
1601 Bryan Street investment power
Dallas, Texas
75201
</TABLE>
Security ownership of management at February 28, 1998:
The following lists the common stock of the Company owned by the Directors and
Executive Officers of TU Electric. The named individuals have sole voting and
investment power for the shares of common stock reported. Ownership of such
common stock by the Directors and Executive Officers, individually and as a
group, constituted less than 1% of the outstanding shares at February 28, 1998.
None of the named individuals own any of the preferred stock of TU Electric or
the preferred securities of any subsidiaries of TU Electric.
<TABLE>
<CAPTION>
Number of Shares
-----------------------------------
Beneficially Deferred
Name Owned Plan * Total
----- ------------ -------- -------
<S> <C> <C> <C>
T. L. Baker 8,575 18,752 27,327
David W. Biegler 15,272 0 15,272
Barbara B. Curry 2,444 3,612 6,056
H. Jarrell Gibbs 14,323 23,494 37,817
M. S. Greene 745 14,130 14,875
Michael J. McNally 20,551 10,688 31,239
Erle Nye 49,466 54,462 103,928
W. M. Taylor 14,847 21,850 36,697
All Directors and Executive ------- ------- -------
Officers as a group (8)
126,223 146,988 273,211
======= ======= =======
</TABLE>
- -----------
* Share units held in deferred compensation accounts under the Deferred and
Incentive Compensation Plan. Although this plan allows such units to be
paid only in the form of cash, investments in such units create
essentially the same investment stake in the performance of the Company's
common stock as do investments in actual shares of common stock.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company
- -----------
Information with respect to this item is found under the heading Beneficial
Ownership of Common Stock of the Company in the definitive proxy statement filed
by the Company with the Commission on March 19, 1998. Additional information
with respect to Executive Officers of the Company is found at the end of Part I.
TU Electric
- -----------
None.
40
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
Page
----
<S> <C> <C>
(a) Documents filed as part of this Report:
The Company and TU Electric
- ---------------------------
Financial Statements (included in Appendix A to this report):
The Company and TU Electric:
Selected Financial Data - Consolidated Financial and Operating Statistics.............. A-2
Management's Discussion and Analysis of Financial Condition
and Results of Operation........................................................... A-7
Statements of Responsibility........................................................... A-19
Independent Auditors' Reports.......................................................... A-21
The Company:
Statements of Consolidated Income for each of the three years in the
period ended December 31, 1997..................................................... A-23
Statements of Consolidated Cash Flows for each of the three years in
the period ended December 31, 1997................................................. A-24
Consolidated Balance Sheets, December 31, 1997 and 1996................................ A-25
Statements of Consolidated Common Stock Equity for each of the three years in
the period ended December 31, 1997................................................. A-27
TU Electric:
Statements of Consolidated Income and Retained Earnings for each of the three years
in the period ended December 31, 1997.............................................. A-28
Statements of Consolidated Cash Flows for each of the three years in
the period ended December 31, 1997................................................. A-29
Consolidated Balance Sheets, December 31, 1997 and 1996................................ A-30
The Company and TU Electric:
Notes to Consolidated Financial Statements............................................. A-32
</TABLE>
The consolidated financial statement schedules are omitted because of
the absence of the conditions under which they are required or because the
required information is included in the consolidated financial statements or
notes thereto.
Other financial information included :
<TABLE>
Page
----
<S> <C>
Financial Statements (included in Appendix B to this report):
ENSERCH Corporation:
Selected Financial Data................................................................ B-2
Management's Discussion and Analysis of Financial Condition and
Results of Operation........................................................... B-3
Independent Auditors' Report........................................................... B-9
Statements of Consolidated Income for each of the three years in the
period ended December 31, 1997..................................................... B-10
Statements of Consolidated Cash Flows for each of the three years in
the period ended December 31, 1997................................................. B-11
Consolidated Balance Sheets, December 31, 1997 and 1996................................ B-12
Statements of Consolidated Common Stock Equity for each of the three years in
the period ended December 31, 1997................................................. B-13
Notes to Consolidated Financial Statements............................................. B-14
</TABLE>
41
<PAGE>
(b) Reports on Form 8-K:
Reports on Form 8-K filed since September 30, 1997, are as follows:
The Company
- -----------
Date of Report Item Reported
-------------- -------------
November 21, 1997 Item 5. OTHER EVENTS
December 17, 1997 Item 5. OTHER EVENTS
February 26, 1998 Item 5. OTHER EVENTS
March 13, 1998 Item 5. OTHER EVENTS
TU Electric
- -----------
Date of Report Item Reported
-------------- -------------
December 17, 1997 Item 5. OTHER EVENTS
(c) Exhibits:
The Company and TU Electric
- ---------------------------
<TABLE>
Previously Filed*
---------------------------
With
File As
Exhibits Number Exhibit Number Dated
- -------- ------ ------- ------ -----
<S> <C> <C> <C> <C> <C>
2(a) 333-12391 2(a) - Amended and Restated Agreement and Plan of Merger, dated as of
April 13, 1996, among the Company, ENSERCH Corporation and TUC
Holding Company.
3(a) 333-12391 4(a) - Restated Articles of Incorporation of the Company.
3(b) 333-45657 4(b) - Bylaws, as amended, of the Company.
3(c) 0-11442 4(a) - Restated Articles of Incorporation of TU Electric.
Form 10-Q
(Quarter ended
June 30, 1997)
3(d) 33-64694 4(c) - Bylaws of TU Electric, as amended.
4(a) 2-90185 4(a) - Mortgage and Deed of Trust, dated as of December 1, 1983,
between TU Electric and Irving Trust Company (now The Bank of
New York), Trustee.
4(a)(1) - Supplemental Indentures to Mortgage and Deed of Trust:
2-90185 4(b) First April 1, 1984
2-92738 4(a)-1 Second September 1, 1984
2-97185 4(a)-1 Third April 1, 1985
2-99940 4(a)-1 Fourth August 1, 1985
2-99940 4(a)-2 Fifth September 1, 1985
33-01774 4(a)-2 Sixth December 1, 1985
33-9583 4(a)-1 Seventh March 1, 1986
33-9583 4(a)-2 Eighth May 1, 1986
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
Previously Filed*
---------------------------
With
File As
Exhibits Number Exhibit Number Dated
- -------- ------ ------- ------ -----
<S> <C> <C> <C> <C> <C>
33-11376 4(a)-1 Ninth October 1, 1986
33-11376 4(a)-2 Tenth December 1, 1986
33-11376 4(a)-3 Eleventh December 1, 1986
33-14584 4(a)-1 Twelfth February 1, 1987
33-14584 4(a)-2 Thirteenth March 1, 1987
33-14584 4(a)-3 Fourteenth April 1, 1987
33-24089 4(a)-1 Fifteenth July 1, 1987
33-24089 4(a)-2 Sixteenth September 1, 1987
33-24089 4(a)-3 Seventeenth October 1, 1987
33-24089 4(a)-4 Eighteenth March 1, 1988
33-24089 4(a)-5 Nineteenth May 1, 1988
33-30141 4(a)-1 Twentieth September 1, 1988
33-30141 4(a)-2 Twenty-first November 1, 1988
33-30141 4(a)-3 Twenty-second January 1, 1989
33-35614 4(a)-1 Twenty-third August 1, 1989
33-35614 4(a)-2 Twenty-fourth November 1, 1989
33-35614 4(a)-3 Twenty-fifth December 1, 1989
33-35614 4(a)-4 Twenty-six February 1, 1990
33-39493 4(a)-1 Twenty-seventh September 1, 1990
33-39493 4(a)-2 Twenty-eighth October 1, 1990
33-39493 4(a)-3 Twenty-ninth October 1, 1990
33-39493 4(a)-4 Thirtieth March 1, 1991
33-45104 4(a)-1 Thirty-first May 1, 1991
33-45104 4(a)-2 Thirty-second July 1, 1991
33-46293 4(a)-1 Thirty-third February 1, 1992
33-49710 4(a)-1 Thirty-fourth April 1, 1992
33-49710 4(a)-2 Thirty-fifth April 1, 1992
33-49710 4(a)-3 Thirty-sixth June 1, 1992
33-49710 4(a)-4 Thirty-seventh June 1, 1992
33-57576 4(a)-1 Thirty-eighth August 1, 1992
33-57576 4(a)-2 Thirty-ninth October 1, 1992
33-57576 4(a)-3 Fortieth November 1, 1992
33-57576 4(a)-4 Forty-first December 1, 1992
33-60528 4(a)-1 Forty-second March 1, 1993
33-64692 4(a)-1 Forty-third April 1, 1993
33-64692 4(a)-2 Forty-fourth April 1, 1993
33-64692 4(a)-3 Forty-fifth May 1, 1993
33-68100 4(a)-1 Forty-sixth July 1, 1993
33-68100 4(a)-3 Forty-seventh October 1, 1993
33-68100 4(a)-4 Forty-eighth November 1, 1993
33-68100 4(a)-5 Forty-ninth May 1, 1994
33-68100 4(a)-6 Fiftieth May 1, 1994
33-68100 4(a)-7 Fifty-first August 1, 1994
0-11442 99 Fifty-second April 1, 1995
Form 10-Q
(Quarter ended
March 31, 1995)
0-11442 99 Fifty-third June 1, 1995
Form 10-Q
(Quarter ended
June 30, 1995)
0-11442 4 Fifty-fourth October 1, 1995
Form 8-K (Dated
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Previously Filed*
---------------------------
With
File As
Exhibits Number Exhibit Number Dated
- -------- ------ ------- ------ -----
<S> <C> <C> <C> <C> <C>
(September 26, 1995)
0-11442 4(a) Fifty-fifth March 1, 1996
Form 10-Q
(Quarter ended
March 31, 1996)
0-11442 4(a) Fifty-sixth September 1, 1996
Form 10-Q
(Quarter ended
September 30, 1996)
33-83976 4(g) Fifty-seventh February 1, 1997
0-11442 4(b) Fifty-eighth July 1, 1997
Form 10-Q
(Quarter ended
June 30, 1997)
4(b)(1) - Agreement to furnish certain debt instruments (the Company).
4(b)(2) - Agreement to furnish certain debt instruments (TU Electric).
4(c) 33-68104 4(b)-17 - Deposit Agreement between TU Electric and Chemical Bank, dated
as of August 4, 1993.
4(d) 0-11442 4(e) - Deposit Agreement between TU Electric and Chemical Bank, dated
Form 10-K as of October 14, 1993.
(1993)
4(e) 0-11442 4(f) - Indenture (For Unsecured Subordinated Debt Securities relating to
Form 10-K Trust Securities), dated as of December 1, 1995, between TU
(1995) Electric and The Bank of New York, as Trustee.
4(f) 0-11442 4(g) - Amended and Restated Trust Agreement, dated as of December 12,
Form 10-K 1995, between TU Electric, as Depositor, and The Bank of New
(1995) York, The Bank of New York (Delaware) and the Administrative
Trustees thereunder, as Trustees for TU Electric Capital I.
4(g) 0-11442 4(h) - Guarantee Agreement with respect to TU Electric Capital I, dated
Form 10-K as of December 12, 1995, between TU Electric, as Guarantor, and
(1995) The Bank of New York, as Trustee.
4(h) 0-11442 4(i) - Agreement as to Expenses and Liabilities, dated as of December
Form 10-K 12, 1995, between TU Electric and TU Electric Capital I.
(1995)
4(i) 0-11442 4(j) - Officer's Certificate, dated as of December 12, 1995, establishing
Form 10-K the terms of the Junior Subordinated Debentures issued in
(1996) connection with the preferred securities of TU Electric Capital I.
4(j) 0-11442 4(j) - Amended and Restated Trust Agreement, dated as of December 12,
Form 10-K 1995, between TU Electric, as Depositor, and The Bank of New
(1995) York, The Bank of New York (Delaware) and the Administrative
Trustees thereunder, as Trustees for TU Electric Capital II.
4(k) 0-11442 4(k) - Guarantee Agreement with respect to TU Electric Capital II, dated
Form 10-K as of December 12, 1995, between TU Electric, as Guarantor, and
(1995) The Bank of New York, as Trustee.
4(l) 0-11442 4(l) - Agreement as to Expenses and Liabilities, dated as of December
Form 10-K 12, 1995, between TU Electric and TU Electric Capital II.
(1995)
</TABLE>
44
<PAGE>
<TABLE>
<CAPTION>
Previously Filed*
---------------------------
With
File As
Exhibits Number Exhibit Number Dated
- -------- ------ ------- ------ -----
<S> <C> <C> <S>
4(m) 0-11442 4(n) - Officer's Certificate, dated as of December 12, 1995, establishing
Form 10-K the terms of the Junior Subordinated Debentures issued in
(1996) connection with the preferred securities of TU Electric Capital II.
4(n) 0-11442 4(m) - Amended and Restated Trust Agreement, dated as of December 13,
Form 10-K 1995, between TU Electric, as Depositor, and The Bank of New
(1995) York, The Bank of New York (Delaware), and the Administrative
Trustees thereunder, as Trustees for TU Electric Capital III.
4(o) 0-11442 4(n) - Guarantee Agreement with respect to TU Electric Capital III, dated
Form 10-K as of December 13, 1995, between TU Electric, as Guarantor, and
(1995) The Bank of New York, as Trustee.
4(p) 0-11442 4(o) - Agreement as to Expenses and Liabilities, dated as of December
Form 10-K 13, 1995, between TU Electric and TU Electric Capital III.
(1995)
4(q) 0-11442 4(r) - Officer's Certificate, dated as of December 13, 1995, establishing
Form 10-K the terms of the Junior Subordinated Debentures issued in
(1996) connection with the preferred securities of TU Electric Capital III.
4(r) 0-11442 4(s) - Amended and Restated Trust Agreement, dated as of January 30,
Form 10-K 1997, between TU Electric, as Depositor, and The Bank of New
(1996) York (Delaware), and the Administrative Trustee thereunder, as Trustees for TU
Electric Capital IV.
4(s) 0-11442 4(t) - Guarantee Agreement with respect to TU Electric Capital IV, dated
Form 10-K as of January 30, 1997, between TU Electric, as Guarantor, and The
(1996) Bank of New York, as Trustee.
4(t) 0-11442 4(u) - Agreement as to Expenses and Liabilities, dated as of January 30,
Form 10-K 1997, between TU Electric and TU Electric Capital IV.
(1996)
4(u) 0-11442 4(v) - Officer's Certificate, dated as of January 30, 1997, establishing the
Form 10-K terms of the Junior Subordinated Debentures issued in connection
(1996) with the preferred securities of TU Electric Capital IV.
4(v) 0-11442 4(w) - Amended and Restated Trust Agreement, dated as of January 30,
Form 10-K 1997, between TU Electric, as Depositor, and The Bank of New
(1996) York (Delaware), and the Administrative Trustee thereunder, as Trustees for TU
Electric Capital V.
4(w) 0-11442 4(x) - Guarantee Agreement with respect to TU Electric Capital V, dated
Form 10-K as of January 30, 1997, between TU Electric, as Guarantor, and The
(1996) Bank of New York, as Trustee.
4(x) 0-11442 4(y) - Agreement as to Expenses and Liabilities, dated as of January 30,
Form 10-K 1997, between TU Electric and TU Electric Capital V.
(1996)
4(y) 0-11442 4(z) - Officer's Certificate, dated as of January 30, 1997, establishing the
Form 10-K terms of the Junior Subordinated Debentures issued in connection
(1996) with the preferred securities of TU Electric Capital V.
4(z) 333-45999 4(a) - Indenture, dated October 1, 1997, relating to the Company's
6.20% Series A Senior Notes and 6.20% Series A Exchange Notes
(together, Series A Notes).
4(aa) 333-45999 4(c) - Registration Rights Agreement with respect to Series A Notes.
4(bb) 333-45999 4(e) - Officers' Certificate establishing Series A Notes.
4(cc) 333-45999 4(b) - Indenture, dated October 1, 1997, relating to the Company's
6.375% Series B Senior Notes and 6.375% Series B Exchange
Notes (together, Series B Notes).
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Previously Filed*
---------------------------
With
File As
Exhibits Number Exhibit Number Dated
- -------- ------ ------- ------ -----
<S> <C> <C> <C> <C> <C>
4(dd) 333-45999 4(d) - Registration Rights Agreement with respect to Series B Notes.
4(ee) 333-45999 4(f) - Officer's Certificate establishing Series B Notes.
4(ff) - Indenture, dated January 1, 1998, relating to the Company's
6.375% Series C Senior Notes and 6.375% Series C Exchange
Notes (together, Series C Notes).
4(gg) - Registration Rights Agreement with respect to Series C Notes.
4(hh) - Officers' Certificate establishing Series C Notes.
4(ii) 0-11442 - Indenture (For Unsecured Debt Securities), dated as of August 1,
Form 10-Q 1997, between TU Electric and The Bank of New York.
(Quarter ended
Sept. 30, 1997)
4(jj) 0-11442 - Officer's Certificate establishing the TU Electric 7.17% Debentures
Form 10-Q due August 1, 2007.
(Quarter ended
Sept. 30, 1997)
4(kk) - Indenture (For Unsecured Debt Securities), dated as of January 1, 1998, between
ENSERCH Corporation and The Bank of New York.
4(ll) - Officer's Certificate establishing the ENSERCH 6 1/4% Series A
Notes due January 1, 2003.
4(mm) - Officer's Certificate establishing the ENSERCH Remarketed Reset
Notes due January 1, 2008.
4(nn) 33-45688 4.2 - Indenture, dated February 15, 1992, between ENSERCH Corporation
and The First National Bank of Chicago.
4(oo) - ENSERCH Corporation 7% Note due 1999, dated August 18, 1992.
4(pp) - ENSERCH Corporation 8 7/8% Note due 2001, dated March 17, 1992.
4(qq) - ENSERCH Corporation 6 3/8% Note due 2004, dated February 1, 1994.
4(rr) - ENSERCH Corporation 7 1/8% Note due 2005, dated June 6, 1995.
10(a)** 1-3591 10(a) - Deferred and Incentive Compensation Plan of the Texas Utilities
Form 10-Q Company System, as amended February 20, 1998.
(Quarter ended
June 30, 1995)
10(b)** 1-3591 10(f) - Salary Deferral Program of the Texas Utilities Company System
Form 10-Q as amended February 20, 1998.
(Quarter ended
June 30, 1995)
10(c)** 1-3591 10(c) - Restated Supplemental Retirement Plan for Employees of the
Form 10-Q Texas Utilities Company System, as restated effective January 1, 1995.
(Quarter ended
June 30, 1995)
10(d)** 1-3591 10(b) - Deferred Compensation Plan for Outside Directors of the Company,
Form 10-Q effective as of July 1, 1995.
(Quarter ended
June 30, 1995)
10(e)** 1-3591 10(d) - Long-Term Incentive Plan of the Texas Utilities Company System,
Form 10-Q dated as of May 19, 1995.
(Quarter ended
June 30, 1995)
10(f)** 333-45657 - Deferred Compensation Plan for Directors of Subsidiaries of Texas
Utilities Company dated as of February 5, 1998.
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
Previously Filed*
---------------------------
With
File As
Exhibits Number Exhibit Number Dated
- -------- ------ ------- ------ -----
<S> <C> <C> <C> <C> <C>
10(g)** 1-3591 10(e) - Management Transition Agreement, dated as of May 19, 1995
Form 10-Q between the Company and J.S. Farrington.
(Quarter ended
June 30, 1995)
10(h) 1-12833 (b)(1) - 364 Day Competitive Advance and Revolving Credit Facility
Schedule 14D-1 Agreement, dated as of March 2, 1998 among Texas Utilities
(filed March 10, Company, Texas Utilities Electric Company, ENSERCH
1998) Corporation, The Chase Manhattan Bank, as Competitive Advance
Facility Agent and Chase Bank of Texas, National Association, as
Administrative Agent and certain banks listed therein
(US Facility A).
10(i) l-12833 (b)(2) - 5-Year Competitive Advance and Revolving Credit Facility
Schedule 14D-1 Agreement dated as of March 2, 1998 among Texas Utilities
(filed March 10, Company, Texas Utilities Electric Company, ENSERCH Corporation,
1998) The Chase Manhattan Bank, as Competitive Advance Facility Agent
and Chase Bank of Texas, National Association, as Administrative
Agent and certain banks listed therein
(US Facility B).
10(j) l-12833 (b)(3) - Amendment No. 1, dated March 3, 1998, to US Facility A and US
Schedule 14D-1 Facility B.
(filed March 10,
1998)
10(k) l-12833 (b)(4) - Facilities Agreement for (Pounds)3,625,000,000 Credit Facilities for TU
Schedule 14D-1 Finance (No. 1) Limited, TU Finance (No. 2) Limited, TU
(filed March 10, Acquisitions PLC, Chase Manhattan plc, Lehman Brothers
1998) International and Merrill Lynch Capital Corporation as Joint Lead
Arrangers, the Chase Manhattan Bank, Lehman Commercial Paper
Inc. and Merrill Lynch Capital Corporation as Underwriters (UK
Facility).
10(l) l-12833 (b)(5) - Amendment No. 1, dated March 3, 1998 to UK Facility.
Schedule 14D-1
(filed March 10,
1998)
10(m) l-12833 (b)(6) - 364-Day Competitive Advance and Revolving Credit Facility
Schedule 14D-1 Agreement "Interim Facility", dated as of March 6, 1998 among
(filed March 10, Texas Utilities Company, Chase Bank of Texas, National
1998) Association, as Administrative Agent and The Chase Manhattan
Bank, as Competitive Advance Facility Agent, Initial Underwriters,
The Chase Manhattan Bank, Lehman Commercial Paper Inc., Merrill
Lynch Capital Corporation, Chase Securities Inc., Lehman Brothers
Inc. and Merrill Lynch & Co. as Joint Lead Arrangers and certain
banks listed therein (Interim Facility).
10(n) - Amendment No. 1, dated March 23, 1998 to the Interim Facility.
12(a) - Computation of Ratio of Earnings to Fixed Charges for the Company.
12(b) - Computation of Ratio of Earnings to Fixed Charges, and to Fixed
Charges and Preferred Dividends for TU Electric.
21 - Subsidiaries of the Company.
23(a) - Consent of Counsel to the Company.
23(b) - Consent of Counsel to TU Electric.
23(c) - Independent Auditors' Consent for the Company.
23(d) - Independent Auditors' Consent for TU Electric.
</TABLE>
47
<PAGE>
<TABLE>
<CAPTION>
Previously Filed*
---------------------------
With
File As
Exhibits Number Exhibit Number Dated
- -------- ------ ------- ------ -----
<S> <C> <C> <C>
23(e) - Independent Auditors' Consent for ENSERCH.
27(a) - Financial Data Schedule for the Company.
27(b) - Financial Data Schedule for TU Electric.
99(a) 1-3591 28(b) - Agreement, dated as of February 12, 1988, between TU Electric
Form 10-K and Texas Municipal Power Agency.
(1987)
99(b) 33-55408 99(a) - Agreement, dated as of July 5, 1988, between TU Electric and
Electric and Tex-La Electric Cooperative of Texas, Inc.
99(c) 33-23532 4(c)(I) - Trust Indenture, Security Agreement and Mortgage, dated as of
December 1, 1987, as supplemented by Supplement No. 1 thereto
dated as of May 1, 1988 among the Lessor, TU Electric and the
Trustee.
99(d) 33-24089 4(c)-1 - Supplement No. 2 to Trust Indenture, Security Agreement and
Mortgage, dated as of August 1, 1988.
99(e) 33-24089 4(e)-1 - Supplement No. 3 to Trust Indenture, Security Agreement and
Mortgage, dated as of August 1, 1988.
99(f) 0-11442 99(c) - Supplement No. 4 to Trust Indenture, Security Agreement and
Form 10-Q Mortgage, including form of Secured Facility Bond, 1993 Series.
(Quarter ended
June 30, 1993)
99(g) 33-23532 4(d) - Lease Agreement, dated as of December 1, 1987 between the
Lessor and TU Electric as supplemented by Supplement No. 1
thereto dated as of May 20, 1988 between the Lessor and TU
Electric.
99(h) 33-24089 4(f) - Lease Agreement Supplement No. 2, dated as of August 18, 1988.
99(i) 33-24089 4(f)-1 - Lease Agreement Supplement No. 3, dated as of August 25, 1988.
99(j) 33-63434 4(d)(iv) - Lease Agreement Supplement No. 4, dated as of December 1, 1988.
99(k) 33-63434 4(d)(v) - Lease Agreement Supplement No. 5, dated as of June 1, 1989.
99(l) 0-11442 99(d) - Lease Agreement Supplement No. 6, dated as of July 1, 1993.
Form 10-Q
(Quarter ended
June 30, 1993)
99(m) 33-23532 4(e) - Participation Agreement dated as of December 1, 1987, as
amended by a Consent to Amendment of the Participation
Agreement, dated as of May 20, 1988, each among the Lessor, the
Trustee, the Owner Participant, certain banking institutions,
Capcorp, Inc. and TU Electric.
99(n) 33-24089 4(g) - Consent to Amendment of the Participation Agreement, dated as
of August 18, 1988.
99(o) 33-24089 4(g)-1 - Supplement No. 1 to the Participation Agreement, dated as of
August 18, 1988.
99(p) 33-24089 4(g)-2 - Supplement No. 2 to the Participation Agreement, dated as of
August 18, 1988.
99(q) 33-63434 4(e)(v) - Supplement No. 3 to the Participation Agreement, dated as of
December 1, 1988.
</TABLE>
48
<PAGE>
<TABLE>
<CAPTION>
Previously Filed*
---------------------------
With
File As
Exhibits Number Exhibit Number Dated
- -------- ------ ------- ------ -----
<S> <C> <C> <C>
99(r) 0-11442 99(e) - Supplement No. 4 to the Participation Agreement, dated as of
Form 10-Q June 17, 1993.
(Quarter ended
June 30, 1993)
99(s) 0-11442 4(b) - Supplement No. 1, dated October 25, 1995, to Trust Indenture,
Form 10-Q Security Agreement and Mortgage, dated as of December 1, 1989,
(Quarter ended among the Owner Trustee, TU Electric and the Indenture Trustee.
March 31, 1996)
99(t) 0-11442 4(c) - Supplement No. 1, dated October 19, 1995, to Amended and
Form 10-Q Restated Participation Agreement, dated as of November 28, 1989,
(Quarter ended among the Owner Trustee, The First National Bank of Chicago,
March 31, 1996) As Original Indenture Trustee, the Indenture Trustee, the Owner
Participant, Mesquite Power Corporation and TU Electric.
99(u) 0-11442 99(a) - Amended and Restated 364 Day Competitive Advance and
Form 10-Q Revolving Credit Facility Agreement, "Facility A", dated as of
(Quarter ended April 24, 1997, among the Company, TEI, TU Electric, ENSERCH,
March 31, 1997 certain banks, Chemical Bank and Texas Commerce Bank National
Association, as Agents.
99(v) 0-11442 99(a) - Amendment, dated as of September 4, 1997, to Facility A.
Form 10-Q
(Quarter ended
June 30, 1997)
99(w) 0-11442 99(w) - Second Amendment, dated as of November 10, 1997, to Facility
Form 10-Q A.
(Quarter ended
September 30, 1997)
99(x) 0-11442 99(u) - Amended and Restated Five Year Competitive Advance and
Form 10-Q Revolving Credit Facility Agreement, "Facility B", dated as of
(Quarter ended April 24, 1997, among the Company, TEI, TU Electric, ENSERCH,
March 31, 1997 certain banks, Chemical Bank and Texas Commerce Bank National
Association, as Agents.
99(y) 0-11442 99(v) - Amendment, dated as of September 4, 1997, to Facility B.
Form 10-Q
(Quarter ended
June 30, 1997)
99(z) 0-11442 99(z) - Second Amendment, dated as of November 10, 1997, to Facility
Form 10-Q B.
(Quarter ended
September 30, 1997)
</TABLE>
- -----------------------
* Incorporated herein by reference.
** Management contract or compensation plan or arrangement required to be
filed as an exhibit to this report pursuant to Item 14(c) of Form 10-K.
49
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Texas Utilities Company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
TEXAS UTILITIES COMPANY
Date: March 26, 1998 By: /s/ ERLE NYE
------------------------------------
(Erle Nye, Chairman of the Board and
Chief Executive)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Texas
Utilities Company and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ ERLE NYE Principal Executive
- ------------------------------------ Officer and Director
(Erle Nye, Chairman of the Board and
Chief Executive)
/s/ MICHAEL J. McNALLY Principal Financial Officer
- ------------------------------------
(Michael J. McNally, Executive
Vice President and Chief
Financial Officer)
/s/ J. W. PINKERTON Principal Accounting Officer
- ------------------------------------
(J. W. Pinkerton, Controller)
/s/ J. S. FARRINGTON Director
- ------------------------------------
(J. S. Farrington)
/s/ BAYARD H. FRIEDMAN Director
- ------------------------------------
(Bayard H. Friedman)
/s/ WILLIAM M. GRIFFIN Director March 26, 1998
- ------------------------------------
(William M. Griffin)
/s/ KERNEY LADAY Director
- ------------------------------------
(Kerney Laday)
/s/ MARGARET N. MAXEY Director
- ------------------------------------
(Margaret N. Maxey)
/s/ JAMES A. MIDDLETON Director
- ------------------------------------
(James A. Middleton)
/s/ J. E. OESTERREICHER Director
- ------------------------------------
(J. E. Oesterreicher)
/s/ CHARLES R. PERRY Director
- ------------------------------------
(Charles R. Perry)
/s/ HERBERT H. RICHARDSON Director
- ------------------------------------
(Herbert H. Richardson)
50
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Texas Utilities Electric Company has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
TEXAS UTILITIES ELECTRIC COMPANY
Date: March 26, 1998 By: /s/ ERLE NYE
------------------------------------
(Erle Nye, Chairman of the Board and
Chief Executive)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Texas
Utilities Electric Company and in the capacities and on the date indicated.
Signature Title Date
--------- ----- ----
/s/ ERLE NYE Principal Executive
- ------------------------------------ Officer and Director
(Erle Nye, Chairman of the Board and
Chief Executive)
/s/ ROBERT S. SHAPARD Principal Financial Officer
- ------------------------------------
(Robert S. Shapard, Treasurer and
Assistant Secretary)
/s/ J. W. PINKERTON Principal Accounting Officer
- ------------------------------------
(J. W. Pinkerton, Controller)
/s/ T. L. BAKER Director
- ------------------------------------
(T. L. Baker)
/s/ D. W. Biegler Director
- ------------------------------------
(D. W. Biegler)
/s/ BARBARA B. CURRY Director March 26, 1998
- ------------------------------------
(Barbara B. Curry)
/s/ M. S. GREENE Director
- ------------------------------------
(M. S. Greene)
/s/ MICHAEL J. McNALLY Director
- ------------------------------------
(Michael J. McNally)
/s/ W. M. TAYLOR Director
- ------------------------------------
(W. M. Taylor)
51
<PAGE>
Appendix A
TEXAS UTILITIES COMPANY AND SUBSIDIARIES AND
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
INDEX TO FINANCIAL INFORMATION
December 31, 1997
Page
<S> <C>
Texas Utilities Company and Subsidiaries and Texas Utilities Electric
Company and Subsidiaries:
Selected Financial Data - Consolidated Financial and Operating Statistics .............................. A-2
Management's Discussion and Analysis of Financial Condition and Results
of Operation .......................................................................................... A-7
Statements of Responsibility ........................................................................... A-19
Independent Auditors' Reports .......................................................................... A-21
Financial Statements:
Texas Utilities Company and Subsidiaries:
Statements of Consolidated Income ...................................................................... A-23
Statements of Consolidated Cash Flows .................................................................. A-24
Consolidated Balance Sheets ............................................................................ A-25
Statements of Consolidated Common Stock Equity ......................................................... A-27
Texas Utilities Electric Company and Subsidiaries:
Statements of Consolidated Income and Retained Earnings ................................................ A-28
Statements of Consolidated Cash Flows .................................................................. A-29
Consolidated Balance Sheets ............................................................................ A-30
Notes to Consolidated Financial Statements ............................................................. A-32
</TABLE>
A-1
<PAGE>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
CONSOLIDATED FINANCIAL STATISTICS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands, except ratios and per share amounts)
<S> <C> <C> <C> <C> <C>
Total assets -- end of year .............................. $24,874,129 $21,397,655 $21,535,851 $20,893,408 $21,518,128
- -----------------------------------------------------------------------------------------------------------------------------------
Property, plant & equipment - gross -- end of year ....... $26,579,187 $24,931,239 $24,911,787 $24,206,351 $23,836,729
Accumulated depreciation and amortization -- end of
year................................................... 7,172,152 6,496,724 5,857,580 5,228,423 4,710,398
Reserve for regulatory disallowances -- end of year .... 836,005 836,005 1,308,460 1,308,460 1,308,460
Construction expenditures (including allowance for
funds used during construction) ....................... 586,097 434,139 434,338 444,245 871,450
- -----------------------------------------------------------------------------------------------------------------------------------
Capitalization -- end of year
Long-term debt, less amounts due currently ............. $ 8,759,379 $ 8,668,111 $ 9,174,575 $ 7,888,413 $ 8,379,826
TU Electric obligated, mandatorily redeemable, preferred
securities of subsidiary trusts holding solely
debentures of TU Electric ............................ 875,146 381,311 381,476 -- --
Preferred stock of subsidiaries:
Not subject to mandatory redemption ................... 304,194 464,427 489,695 870,190 1,083,008
Subject to mandatory redemption ....................... 20,600 238,391 263,196 387,482 396,917
Common stock equity .................................... 6,843,062 6,032,913 5,731,753 6,490,047 6,570,993
----------- ----------- ----------- ----------- -----------
Total ............................................. $16,802,381 $15,785,153 $16,040,695 $15,636,132 $16,430,744
=========== =========== =========== =========== ===========
Capitalization ratios -- end of year
Long-term debt, less amounts due currently ............. 52.1% 54.9% 57.2% 50.5% 51.0%
TU Electric obligated, mandatorily redeemable, preferred
securities of subsidiary trusts holding solely
debentures of TU Electric ............................. 5.2 2.4 2.4 -- --
Preferred stock of subsidiaries ........................ 2.0 4.5 4.7 8.0 9.0
Common stock equity .................................... 40.7 38.2 35.7 41.5 40.0
----- ----- ----- ----- -----
Total ............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
- -----------------------------------------------------------------------------------------------------------------------------------
Embedded interest cost on long-term debt -- end of
year ................................................. 7.9% 8.1% 8.4% 8.7% 8.7%
Embedded distribution cost on TU Electric obligated,
mandatorily redeemable, preferred securities of
subsidiary trusts holding solely debentures of TU
Electric -- end of year .............................. 8.3% 8.7% 8.6% --% --%
Embedded dividend cost on preferred stock of subsidiaries
-- end of year* ...................................... 9.2% 7.5% 7.4% 7.5% 7.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Net income (loss) ........................................ $660,454 $753,606 $(138,645) $542,799 $368,660
Dividends declared on common stock ....................... $496,244 $456,059 $ 634,613 $695,590 $682,438
- -----------------------------------------------------------------------------------------------------------------------------------
Common stock data
Shares outstanding -- average .......................... 230,957,999 225,159,846 225,841,037 225,833,659 221,555,218
Shares outstanding -- end of year ...................... 245,237,559 224,602,557 225,841,037 225,841,037 224,345,422
Basic Earnings (loss) per share ........................ $2.86 $3.35 $(0.61) $2.40 $1.66
Diluted Earnings (loss) per share ...................... $2.85 $3.35 $(0.61) $2.40 $1.66
Dividends declared per share ........................... $2.125 $2.025 $2.81 $3.08 $3.08
Book value per share -- end of year .................... $27.90 $26.86 $25.38 $28.74 $29.29
Return on average common stock equity .................. 10.3% 12.8% (2.3)% 8.3% 5.6%
Ratio of earnings to fixed charges:
Pre-tax ................................................ 2.3 2.4 0.8 2.3 1.9
After-tax .............................................. 1.8 2.0 0.9 1.9 1.6
Allowance for funds used during construction as
percent of net income ................................. 2.1% 1.7% --% 4.1% 71.4%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes the unamortized balance of the loss on reacquired preferred stock and
associated amortization. The embedded dividend cost excluding the effects of the
loss on reacquired preferred stock is 6.6% for 1997, 6.8% for 1996, and 6.9% for
1995.
Certain financial statistics for 1997 were affected by the August 1997
acquisition of ENSERCH and the November 1997 acquisition of LCC; for 1996 and
1995 were affected by the December 1995 acquisition of Eastern Energy; for the
year 1995, were affected by recording of the impairment of certain assets (see
Note 14 to Consolidated Financial Statements); and for the year 1993, were
affected by TU Electric recording a regulatory disallowance in a rate order
issued by the PUC in Docket 11735 (see Note 13 to Consolidated Financial
Statements). Shares outstanding assuming dilution for 1997 was 231,957,491.
There were no additional diluted shares for any of the prior periods presented.
A-2
<PAGE>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED OPERATING STATISTICS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
ELECTRIC ENERGY GENERATED AND
PURCHASED (MWh)
Generated -- net station output............... 91,297,900 88,129,637 83,876,565 81,320,922 79,105,495
Purchased and net interchange................. 17,170,477 18,119,171 11,880,174 12,551,167 12,785,246
----------- ----------- ---------- ---------- ----------
Total generated and purchased............... 108,468,377 106,248,808 95,756,739 93,872,089 91,890,741
Company use, losses and unaccounted for...... 6,255,458 5,905,076 5,653,698 5,246,480 5,631,085
----------- ----------- ---------- ---------- ----------
Total electric energy sales............ 102,212,919 100,343,732 90,103,041 88,625,609 86,259,656
=========== =========== ========== ========== ==========
SALES VOLUMES
Electric Energy Sales (MWh)
Residential................................. 36,376,916 35,855,314 31,284,477 30,460,307 30,504,991
Commercial.................................. 28,851,097 27,946,728 25,899,942 25,073,687 24,269,456
Industrial.................................. 26,253,835 25,755,045 23,586,291 23,154,145 21,586,803
Government and municipal.................... 6,231,775 6,161,150 5,752,800 5,619,135 5,427,436
----------- ----------- ---------- ---------- ----------
Total general business................. 97,713,622 95,718,237 86,523,510 84,307,274 81,788,686
Other electric utilities............... 4,499,296 4,625,495 3,579,531 4,318,335 4,470,970
----------- ----------- ---------- ---------- ----------
Total electric energy sales............ 102,212,919 100,343,732 90,103,041 88,625,609 86,259,656
=========== =========== ========== ========== ==========
Gas Distribution (million cubic feet):
Residential................................. 33,417 -- -- -- --
Commercial.................................. 20,996 -- -- -- --
Industrial.................................. 2,094 -- -- -- --
Electric generation......................... 463 -- -- -- --
---------- ---------- ---------- ---------- ----------
Total gas distribution................. 56,970 -- -- -- --
---------- ---------- ---------- ---------- ----------
Pipeline transportation (million cubic feet).. 255,391 -- -- -- --
Gas liquids (thousand barrels)................ 2,521 -- -- -- --
Gas marketing (million cubic feet)............ 292,264 -- -- -- --
OPERATING REVENUES (thousands)
Electric base rate:
Residential................................. $2,248,411 $2,251,734 $1,920,087 $1,862,525 $1,704,766
Commercial.................................. 1,368,057 1,357,326 1,219,443 1,183,757 1,061,591
Industrial.................................. 668,805 690,943 602,518 595,213 536,800
Government and municipal.................... 319,795 322,013 287,674 283,783 245,458
---------- ---------- ---------- ---------- ----------
Total general business................. 4,605,068 4,622,016 4,029,722 3,925,278 3,548,615
Other electric utilities............... 138,974 146,358 117,904 155,389 149,289
---------- ---------- ---------- ---------- ----------
Total base rate revenues............... 4,744,042 4,768,374 4,147,626 4,080,667 3,697,904
Fuel revenue (including over/under-recovered). 1,696,409 1,670,844 1,418,211 1,513,929 1,657,331
Transmission service revenues................. 113,196 -- -- -- --
Other operating revenues...................... 110,670 111,710 72,851 68,947 79,277
---------- ---------- ---------- ---------- ----------
Total electric operating revenues...... 6,664,317 6,550,928 5,638,688 5,663,543 5,434,512
---------- ---------- ---------- ---------- ----------
Gas distribution
Residential................................. 205,760 -- -- -- --
Commercial.................................. 108,650 -- -- -- --
Industrial.................................. 8,594 -- -- -- --
Electric generation......................... 6,424 -- -- -- --
---------- ---------- ---------- ---------- ----------
Total gas distribution................. 329,428 -- -- -- --
---------- ---------- ---------- ---------- ----------
Pipeline transportation....................... 57,544 -- -- -- --
Gas liquids................................... 36,514 -- -- -- --
Gas marketing................................. 858,566 -- -- -- --
Telecommunications............................ 11,900 -- -- -- --
Other......................................... 43,877 -- -- -- --
Less intercompany revenues.................... (56,538) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total operating revenues............... $7,945,608 $6,550,928 $5,638,688 $5,663,543 $5,434,512
========== ========== ========== ========== ==========
</TABLE>
A-3
<PAGE>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED OPERATING STATISTICS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
CUSTOMERS (end of year)
Electric
Residential................................. 2,607,803 2,558,025 2,504,128 2,053,235 2,020,667
Commercial.................................. 281,694 274,076 267,579 225,479 221,422
Industrial.................................. 50,153 49,390 49,558 21,673 21,954
Government and municipal.................... 32,289 31,108 30,458 29,437 29,034
--------- --------- --------- --------- ---------
Total general business................... 2,971,939 2,912,599 2,851,723 2,329,824 2,293,077
Other electric utilities.................... 128 161 165 212 220
--------- --------- --------- --------- ---------
Total electric customers................. 2,972,067 2,912,760 2,851,888 2,330,036 2,293,297
========= ========= ========= ========= =========
Gas distribution............................. 1,355,402 -- -- -- --
========= ========= ========= ========= =========
ELECTRIC RESIDENTIAL STATISTICS
(excludes master-metered
customers, kWh sales and revenues)
Average annual kWh per customer.......... 13,495 13,551 12,003 14,192 14,594
Average revenue per kWh.................. 7.95c 8.02c 8.08c 8.25c 7.56c
- ----------
Industrial classification
includes service to Alcoa-Sandow:
Electric energy sales (Mwh).............. 3,820,421 3,841,904 3,764,658 3,886,258 3,166,797
Operating revenues (thousands)........... $46,755 $46,853 $47,739 $54,699 $53,352
</TABLE>
Certain previously reported operating statistics have been reclassified to
conform to current classifications. The operating statistics include the
operations of ENSERCH and Eastern Energy from their date of acquisition, August
1997 and December 1995, respectively.
A-4
<PAGE>
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
CONSOLIDATED FINANCIAL STATISTICS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total assets -- end of year.............................. $18,833,433 $18,794,939 $19,003,374 $19,446,998 $19,870,990
- -----------------------------------------------------------------------------------------------------------------------------------
Electric plant - gross -- end of year.................... $22,219,894 $22,664,086 $22,747,860 $23,063,436 $22,680,508
Accumulated depreciation and amortization -- end of
year................................................... 6,120,309 5,963,477 5,370,818 4,765,474 4,233,720
Reserve for regulatory disallowances -- end of year..... 836,005 836,005 1,308,460 1,308,460 1,308,460
Construction expenditures (including allowance for
funds used during construction)......................... 446,088 377,438 407,305 415,290 841,181
- -----------------------------------------------------------------------------------------------------------------------------------
Capitalization -- end of year
Long-term debt.......................................... $ 5,475,447 $ 6,310,594 $ 7,212,070 $ 7,220,641 $ 7,607,090
TU Electric obligated, mandatorily redeemable, preferred
securities of subsidiary trusts holding solely
debentures of TU Electric............................. 875,146 381,311 381,476 -- --
Preferred stock:
Not subject to mandatory redemption.................... 129,194 464,427 489,695 870,190 1,083,008
Subject to mandatory redemption........................ 20,600 238,391 263,196 387,482 396,917
Common stock equity..................................... 6,298,445 6,105,907 5,799,898 6,114,261 6,029,217
----------- ----------- ----------- ----------- -----------
Total................................................ $12,798,832 $13,500,630 $14,146,335 $14,592,574 $15,116,232
=========== =========== =========== =========== ===========
Embedded interest cost on long-term debt -- end of
year................................................... 8.3% 8.3% 8.4% 8.7% 8.8%
Embedded distribution cost on TU Electric obligated,
mandatorily redeemable, preferred securities of
subsidiary trusts holding solely debentures of TU
Electric -- end of year ................................ 8.3% 8.7% 8.6% --% --%
Embedded dividend cost on preferred stock -- end of
year*.................................................. 14.1% 7.5% 7.4% 7.5% 7.6%
- -----------------------------------------------------------------------------------------------------------------------------------
Net income available for common stock.................... $ 745,024 $ 809,337 $ 367,717 $ 556,309 $ 361,294
Dividends declared on common stock....................... $ 136,416 $ 503,328 $ 682,080 $ 715,760 $ 707,382
- -----------------------------------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges:
Pre-tax................................................. 2.9 3.0 2.0 2.5 2.0
After-tax............................................... 2.3 2.5 1.7 2.0 1.7
Ratio of earnings to combined fixed charges and preferred
dividends........................................ 2.8 2.7 1.8 2.0 1.6
Allowance for funds used during construction as a percent
of consolidated net income available for common stock.. 1.8% 1.6% 6.0% 4.0% 72.9%
Return on average common stock equity.................... 12.0% 13.6% 6.2% 9.2% 5.9%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes the unamortized balance of the loss on reacquired preferred stock and
associated amortization. The embedded dividend cost excluding the effects of the
loss on reacquired preferred stock is 6.9% for 1997, 6.8% for 1996, and 6.9% for
1995.
Certain financial statistics for 1995 were affected by the recording of the
impairment of certain assets (see Note 14 to Consolidated Financial Statements);
and for the year 1993, were affected by TU Electric recording a regulatory
disallowance in a rate order issued by the PUC in Docket 11735 (see Note 13 to
Consolidated Financial Statements).
A-5
<PAGE>
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED OPERATING STATISTICS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
ELECTRIC ENERGY GENERATED AND
PURCHASED (MWh)
Generated -- net station output............................. 91,297,900 88,129,637 83,876,565 81,320,922 79,105,495
Purchased and net interchange............................... 11,442,749 12,417,774 10,683,722 11,663,148 12,431,763
----------- ----------- ----------- ----------- -----------
Total generated and purchased............................ 102,740,649 100,547,411 94,560,287 92,984,070 91,537,258
Company use, losses and unaccounted for..................... 6,161,070 5,804,526 5,532,031 5,131,173 5,572,916
----------- ----------- ----------- ----------- -----------
Total electric energy sales.............................. 96,579,579 94,742,885 89,028,256 87,852,897 85,964,342
=========== =========== =========== =========== ===========
ELECTRIC ENERGY SALES (MWh)
Residential................................................. 33,529,811 33,038,399 30,716,241 30,065,767 30,278,230
Commercial.................................................. 27,322,757 26,455,954 25,553,369 24,815,874 24,139,120
Industrial.................................................. 24,609,131 24,214,960 23,301,933 22,984,218 21,506,547
Government and municipal.................................... 6,039,407 5,929,249 5,615,715 5,505,298 5,365,815
----------- ----------- ----------- ----------- -----------
Total general business................................... 91,501,106 89,638,562 85,187,258 83,371,157 81,289,712
Other electric utilities.................................... 5,078,473 5,104,323 3,840,998 4,481,740 4,674,630
----------- ----------- ----------- ----------- -----------
Total electric energy sales.............................. 96,579,579 94,742,885 89,028,256 87,852,897 85,964,342
=========== =========== =========== =========== ===========
OPERATING REVENUES (thousands)
Base rate:
Residential................................................. $ 1,990,903 $ 1,993,506 $ 1,875,311 $ 1,832,557 $ 1,686,692
Commercial.................................................. 1,235,330 1,227,271 1,193,561 1,165,498 1,052,227
Industrial.................................................. 582,345 590,174 586,146 585,963 532,076
Government and municipal.................................... 292,623 291,020 279,803 276,856 241,600
----------- ----------- ----------- ----------- -----------
Total general business................................... 4,101,201 4,101,971 3,934,821 3,860,874 3,512,595
Other electric utilities.................................... 163,663 165,619 133,359 163,134 157,173
----------- ----------- ----------- ----------- -----------
Total from base rate revenues............................ 4,264,864 4,267,590 4,068,180 4,024,008 3,669,768
Fuel revenues (including over/under-recovered).............. 1,707,044 1,679,009 1,421,861 1,521,029 1,662,358
Transmission service revenues............................... 113,811 -- -- -- --
Other operating revenues.................................... 49,698 83,012 70,421 68,138 77,030
----------- ----------- ----------- ----------- -----------
Total operating revenues................................. $ 6,135,417 $ 6,029,611 $ 5,560,462 $ 5,613,175 $ 5,409,156
=========== =========== =========== =========== ===========
ELECTRIC CUSTOMERS (end of year)
Residential................................................. 2,152,362 2,109,343 2,061,273 2,019,025 1,986,946
Commercial.................................................. 237,312 230,253 225,183 219,604 215,621
Industrial.................................................. 21,004 21,002 21,253 21,445 21,716
Government and municipal.................................... 30,628 30,062 29,429 28,949 28,555
----------- ----------- ----------- ----------- -----------
Total general business................................... 2,441,306 2,390,660 2,337,138 2,289,023 2,252,838
Other electric utilities.................................... 140 173 177 219 228
----------- ----------- ----------- ----------- -----------
Total electric customers................................. 2,441,446 2,390,833 2,337,315 2,289,242 2,253,066
=========== =========== =========== =========== ===========
RESIDENTIAL STATISTICS (excludes master-metered
customers, kWh sales and revenues)
Average annual kWh per customer.......................... 15,026 15,100 14,336 14,236 14,604
Average revenue per kWh.................................. 7.85c 7.91c 8.08c 8.26c 7.55c
- -------------------------
Industrial classification includes service to Alcoa-Sandow:
Electric energy sales (MWh).............................. 3,820,421 3,841,904 3,764,658 3,886,258 3,166,797
Operating revenues (thousands)........................... $46,755 $46,853 $47,739 $54,699 $53,352
</TABLE>
Certain previously reported operating statistics have been reclassified to
conform to current classifications.
A-6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
FORWARD-LOOKING STATEMENTS
This report and other presentations made by Texas Utilities Company (the
Company or TUC) and its direct and indirect subsidiaries (System Companies) or
Texas Utilities Electric Company and its subsidiaries (TU Electric) contain
forward-looking statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. Although the Company and TU Electric each
believes that in making any such statement its expectations are based on
reasonable assumptions, any such statement involves uncertainties and is
qualified in its entirety by reference to the following important factors, among
others, that could cause the actual results of the Company or TU Electric to
differ materially from those projected in such forward-looking statement: (i)
prevailing governmental policies and regulatory actions, including those of the
Federal Energy Regulatory Commission, the Public Utility Commission of Texas
(PUC), the Railroad Commission of Texas (RRC), the Nuclear Regulatory
Commission, and, in the case of the Company, the Office of the Regulator General
of Victoria, Australia, with respect to allowed rates of return, industry and
rate structure, purchased power and investment recovery, operations of nuclear
generating facilities, acquisitions and disposal of assets and facilities,
operation and construction of plant facilities, decommissioning costs, present
or prospective wholesale and retail competition, changes in tax laws and
policies and changes in and compliance with environmental and safety laws and
policies, (ii) weather conditions and other natural phenomena, (iii)
unanticipated population growth or decline, and changes in market demand and
demographic patterns, (iv) competition for retail and wholesale customers, (v)
pricing and transportation of crude oil, natural gas and other commodities, (vi)
unanticipated changes in interest rates, rates of inflation or in foreign
exchange rates, (vii) unanticipated changes in operating expenses and capital
expenditures, (viii) capital market conditions, (ix) competition for new energy
development opportunities, (x) legal and administrative proceedings and
settlements, (xi) inability of the various counterparties to meet their
obligations with respect to the Company's and TU Electric's financial
instruments, (xii) changes in technology used and services offered by the
Company and TU Electric, and (xiii) significant changes in the Company's
relationship with its employees and the potential adverse effects if labor
disputes or grievances were to occur.
Any forward-looking statement speaks only as of the date on which such
statement is made, and neither the Company nor TU Electric undertakes any
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which such statement is made or to reflect the
occurrence of unanticipated events. New factors emerge from time to time and it
is not possible for the Company or TU Electric to predict all of such factors,
nor can they assess the impact of each such factor or the extent to which any
factor, or combination of factors, may cause results to differ materially from
those contained in any forward-looking statement.
FINANCIAL CONDITION
Mergers and Acquisitions
Certain comparisons in this Form 10-K have been affected by the August 1997
acquisition of ENSERCH Corporation (ENSERCH) and the November 1997 acquisition
of Lufkin-Conroe Communications Co. (LCC) by the Company and by the December
1995 acquisition of Eastern Energy Limited (Eastern Energy) by Texas Utilities
Australia Pty. Ltd. (TU Australia), a wholly-owned subsidiary of the Company.
The results of each acquired company are included only for the periods
subsequent to acquisition. (See Note 1 to Consolidated Financial Statements.)
On August 5, 1997, the merger transactions (Merger) between the former Texas
Utilities Company, now known as Texas Energy Industries Inc. (TEI), and ENSERCH
were completed. At the effective time of the Merger: (i) the former Texas
Utilities Company changed its name to TEI, (ii) TEI and ENSERCH merged with
wholly-owned subsidiaries of TUC Holding Company, which, as a result, owned all
the common stock of TEI and of ENSERCH, (iii) TUC Holding Company changed its
name to Texas Utilities Company (now the Company), (iv) each share of TEI's
common stock was automatically converted into one share of common stock of TUC,
and (v) each share of common stock of ENSERCH was automatically converted into
0.225 share of common stock of TUC, with cash issued in lieu of fractional
shares. The share conversions were tax-free transactions.
A-7
<PAGE>
In the Merger, approximately 15. 9 million shares of TUC common stock were
issued to former holders of ENSERCH common stock. The value assigned to the TUC
shares issued and costs incurred in connection with the acquisition of ENSERCH
aggregated $579 million. At the date of the Merger, ENSERCH had debt and
preferred stock outstanding of approximately $1.3 billion.
Businesses and subsidiaries acquired in the Merger were Lone Star Gas Company
(Lone Star Gas), a gas distribution company in Texas, Lone Star Pipeline
Company (Lone Star Pipeline) and subsidiaries engaged in natural gas processing,
natural gas marketing, independent power production and international gas
distribution systems development.
On November 21, 1997, the Company acquired LCC. Approximately 8.7 million
shares of TUC common stock were issued to LCC stockholders in a stock-for-stock
exchange. The value assigned to the TUC shares issued and costs incurred in
connection with the acquisition of LCC aggregated $319 million. At the date of
the acquisition, LCC had debt outstanding of approximately $31 million.
The acquisitions of ENSERCH, LCC and Eastern Energy were accounted for as
purchase business combinations. The assets and liabilities of the acquired
companies at the acquisition dates were adjusted to their estimated fair
values. The excess of the purchase price paid by the Company over the estimated
fair value of net assets acquired and liabilities assumed was recorded as
goodwill and is being amortized over 40 years. The process of determining the
fair value of assets and liabilities of ENSERCH and LCC as of the date of
acquisition is continuing, and the final result awaits primarily the resolution
of income tax and other contingencies and finalization of some preliminary
estimates.
For financial reporting purposes, the Company is being treated as the
successor to TEI. Unless otherwise specified, all references to the Company
which relate to a period prior to August 5, 1997, shall be deemed to be
references to TEI.
The Company continues to seek potential investment opportunities from time to
time when it concludes that such investments are consistent with its business
strategies and are likely to enhance the long-term return to its shareholders.
In January 1998, the Company announced that it had approached the Energy Group
plc (TEG) in connection with its possible interest in acquiring TEG. TEG is a
diversified international energy group. Discussions between the Company and TEG
are continuing and may or may not lead to an offer being made by the Company.
Likewise, the timing, amount and funding of any specific new business investment
opportunities are presently undetermined.
Capital Expenditures
The Company and TU Electric
- ---------------------------
The primary capital expenditures of the Company and all of its majority-owned
subsidiaries (System Companies) in 1997 and as estimated for 1998 through 2000
are as follows:
1997 1998 1999 2000
---- ---- ---- ----
Thousands of Dollars
Cash construction expenditures
(excluding allowance for funds
used during construction)..... $ 577,000 $ 886,000 $ 799,000 $ 852,000
Nuclear fuel (excluding
allowance for funds used
during construction)........... 71,000 104,000 81,000 92,000
Maturities and redemptions of
long-term debt, sinking fund
requirements, redemptions of
preferred stock and reacquisi-
tions of common stock.......... 2,276,000 772,000 505,000 1,859,000
---------- ---------- ---------- ----------
Total......................... $2,924,000 $1,762,000 $1,385,000 $2,803,000
========== ========== ========== ==========
For information concerning construction work contemplated by the System
Companies and the commitments with respect thereto, see Note 15 to the
Consolidated Financial Statements.
A-8
<PAGE>
In 1997, the Company bought ENSERCH for $579 million and LCC for $319 million
primarily through the issuance of common stock.
The primary capital expenditures of TU Electric in 1997 and as estimated for
1998 through 2000 are as follows:
<TABLE>
<CAPTION>
1997 1998 1999 2000
---- ---- ---- ----
Thousands of Dollars
<S> <C> <C> <C> <C>
Cash construction expenditures (excluding
allowance for funds used during construction) ..................... $ 438,000 $ 449,000 $439,000 $441,000
Nuclear fuel (excluding allowance for funds used
during construction) .............................................. 71,000 104,000 81,000 92,000
Maturities and redemptions of long-term debt,
sinking fund requirements and redemptions
of preferred stock ................................................ 1,775,000 753,000 336,000 159,000
---------- ---------- -------- --------
Total ................................................... $2,284,000 $1,306,000 $856,000 $692,000
========== ========== ======== ========
</TABLE>
See Item 2. Properties -- Capital Expenditures and Note 15 to Consolidated
Financial Statements.
Liquidity and Capital Resources
For 1997, the System Companies generated cash from operations sufficient to
meet operating needs and debt service requirements, pay dividends on capital
stock, pay distributions on preferred securities of trusts and finance capital
expenditures. Factors affecting the continued ability of TU Electric, the
Company's primary subsidiary, to fund its capital requirements from operations
include responsive regulatory practices allowing recovery of capital investment
through adequate depreciation rates, recovery of the cost of fuel and purchased
power and the opportunity to earn competitive rates of return required in the
capital markets.
External funds of a permanent or long-term nature are obtained through the
issuance of common and preferred stock, preferred securities and long-term debt
by the System Companies. The capitalization ratios of the Company and its
subsidiaries at December 31, 1997, consisted of approximately 52% long-term
debt, 5% TU Electric obligated, mandatorily redeemable, preferred securities of
subsidiary trusts holding solely debentures of TU Electric, 2% preferred stock
and 41% common stock equity.
The capitalization ratios of TU Electric at December 31, 1997 consisted of
approximately 43% long-term debt, 7% TU Electric obligated, mandatorily
redeemable, preferred securities of subsidiary trusts holding solely debentures
of TU Electric, 1% preferred stock and 49% common stock equity.
Proceeds from financings by System Companies in 1997 were used primarily for
the early redemption or reacquisition of debt and preferred stock. The
financings consisted of:
<TABLE>
<CAPTION>
Principal Current
Description Amount Interest Rates Maturity
----------- ---------- -------------- --------
Thousands of Dollars
<S> <C> <C> <C>
Senior Notes issued by the Company .................................... $ 300,000 6.20% to 6.375% 2002-2004
Unsecured Debentures issued by TU Electric ............................. 300,000 7.17% 2007
Pollution Control Revenue Bonds (backed by TU Electric First Mortgage
Bonds) ............................................................. 212,715 3.70% to 5.60% 2022-2032
TU Electric obligated, mandatorily redeemable, preferred securities .... 493,273 7.183% to 8.175% 2037
Other .................................................................. 9,964
---------
Total .............................................................. $1,315,952
=========
</TABLE>
During 1997, the Company purchased and retired 4,015,000 shares of its common
stock at a cost of $148.8 million. In addition, long-term debt and preferred
stock of subsidiary companies totaling $2.1 billion was retired. Early
redemptions of long-term debt and preferred stock may occur from time to time in
amounts presently undetermined. (See Notes 6 and 8 to Consolidated Financial
Statements.)
A-9
<PAGE>
At December 31, 1997, TUC, TU Electric and ENSERCH had joint lines of credit
under credit facility agreements (Credit Agreements) with a group of commercial
banks. The Credit Agreements have two facilities. Facility A provides for
short-term borrowings aggregating up to $570 million outstanding at any one time
at variable interest rates and terminates April 23, 1998. Facility B provides
for short-term borrowings aggregating up to $1,330 million outstanding at any
one time at variable interest rates and terminates April 24, 2002. The combined
borrowings of TUC, TU Electric and ENSERCH under both facilities are limited to
an aggregate of $1,900 million outstanding at any one time. ENSERCH's
borrowings under both facilities are limited to an aggregate of up to $650
million outstanding at any one time. Borrowings under these facilities will be
used for working capital and other corporate purposes, including commercial
paper backup. The total of short-term borrowings authorized by the Board of
Directors of TUC at December 31, 1997, from banks or other lenders, was $2,150
million.
In addition, certain non-U.S. subsidiaries have revolving credit agreements
aggregating approximately $95 million, of which $61 million was outstanding at
December 31, 1997. These revolving credit agreements expire at various dates
through 2000.
In January 1998, the Company issued $200 million of 6.375% Series C Senior
Notes due 2008, and ENSERCH issued $125 million of 6 1/4% Series A Notes due
2003 and $125 million of Remarketed Reset Notes due 2008 with a variable
interest rate (5.82% at date of issuance). Net proceeds from these borrowings
were used to refinance or redeem like amounts of higher rate debt and preferred
stock.
The System Companies may issue additional debt and equity securities as
needed, including the possible future sale: (i) by TU Electric of up to $148.9
million principal amount of debt securities, (ii) by TU Electric of up to
250,000 shares of Cumulative Preferred Stock ($100 liquidation value), and (iii)
by ENSERCH of up to $250 million aggregate principal amount of securities, all
of which are currently registered with the Securities and Exchange Commission
(SEC) for offering pursuant to Rule 415 under the Securities Act of 1933.
Quantitative and Qualitative Disclosure About Market Risk
The Company's market risk exposure is primarily a result of changes in
interest rates and commodity price exposures. Derivative instruments including
options, swaps, futures and other contractual commitments are used to reduce and
manage a portion of those risks. With the exception of the marketing activities
of a subsidiary, Enserch Energy Services, Inc. (EES), the Company's
participation in derivative transactions are designated for hedging purposes;
derivative instruments are not held or issued for trading purposes.
CREDIT RISK - Credit risk relates to the risk of loss that the Company would
incur as a result of nonperformance by counterparties to their respective
derivative instruments. The Company maintains credit policies with regard to
its counterparties that management believes significantly minimize overall
credit risk. The Company does not obtain collateral to support the agreements
but monitors the financial viability of counterparties and believes its credit
risk is minimal on these transactions. The Company believes the risk of
nonperformance by counterparties is minimal.
INTEREST RATE MARKET RISK - The table below provides information concerning
the Company's and TU Electric's financial instruments as of December 31, 1997
that are sensitive to changes in interest rates, which include debt obligations
and interest rate swaps. For debt obligations, the table presents principal
cash flows and related weighted average interest rates by expected maturity
dates. The Company or TU Electric have entered into interest rate swaps under
which they have agreed to exchange the difference between fixed-rate and
variable-rate interest amounts calculated with reference to the specified
notional principal amounts. The contracts require settlement of net interest
receivable or payable at specified intervals (primarily semi-annually) which
generally coincide with the dates on which interest is payable on the underlying
debt. When differences exist between the swap settlement dates and the dates on
which interest is payable on the underlying debt, the gap exposure, or basis
risk, is managed by means of forward rate agreements. These forward rate
agreements are not expected to have a material effect on the Company's and TU
Electric's financial position, results of operations or cash flows. For
interest rate swaps, the table presents notional amounts and weighted average
interest rates by expected (contractual) maturity dates. Weighted average
variable rates are based on rates in effect at the reporting date.
A-10
<PAGE>
<TABLE>
<CAPTION>
Expected Maturity Date
---------------------------------------------------------------------------------
There- Fair
The Company 1998 1999 2000 2001 2002 after Total Value
- ----------- ---- ---- ---- ---- ---- ------ ----- -----
December 31, 1997 Millions of Dollars
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term Debt (including current maturities)
Fixed Rate ($US)............................. $772.1 $504.7 $868.5 $344.4 $595.1 $4,446.2 $7,531.0 $7,931.7
Average interest rate...................... 7.18% 8.38% 6.61% 8.00% 7.53% 7.54% 7.47% --
Variable Rate ($US).......................... -- -- $990.4 -- -- $1,010.1 $2,000.5 $2,000.5
Average interest rate...................... -- -- 6.18% -- -- 4.83% 5.50% --
Interest Rate Swaps (notional amounts)
Variable to Fixed ($US)...................... $16.3 $110.5 $32.5 -- $468.2 $100.0 $ 727.5 $(57.0)
Average pay rate........................... 5.29% 6.68% 6.14% -- 8.45% 7.18% 7.83% --
Average receive rate....................... 5.08% 4.89% 4.89% -- 5.23% 6.55% 5.34% --
Fixed to Variable ($US)...................... -- -- -- -- -- $350.0 $ 350.0 $6.1
Average pay rate........................... -- -- -- -- -- 6.32% 6.32% --
Average receive rate....................... -- -- -- -- -- 6.89% 6.89% --
TU Electric
- -----------
December 31, 1997
Long-term Debt Obligations (including
current maturities)
Fixed Rate ($US)............................. $752.6 $335.9 $159.4 $225.5 $373.8 $3,370.8 $5,218.0 $5,563.4
Average interest rate...................... 7.12% 8.92% 6.62% 7.49% 8.22% 7.69% 7.68% --
Variable Rate ($US).......................... -- -- -- -- -- $1,010.1 $1,010.1 $1,010.1
Average interest rate...................... -- -- -- -- -- 4.83% 4.83% --
Interest Rate Swaps (notional amounts)
Variable to Fixed ($US)...................... -- -- -- -- -- $ 100.0 $ 100.0 $ (1.4)
Average pay rate........................... -- -- -- -- -- 7.18% 7.18% --
Average receive rate....................... -- -- -- -- -- 6.55% 6.55% --
</TABLE>
The Company and TU Electric
- ---------------------------
ENERGY MARKETING MARKET RISK - As part of its natural gas marketing
activities, EES enters into forward contracts that principally involve physical
delivery of natural gas and derivative financial instruments, including options,
swaps, futures and other contractual arrangements to offset price risks of gas
supply. These activities involve price commitments into the future and,
therefore, give rise to market risk. EES applies mark-to-market accounting to
its business activities. At December 31, 1997, natural gas marketing operations
had net commitments to sell approximately 50.6 billion cubic feet (Bcf) of
natural gas through the year 2003 with offsetting net financial positions to
purchase approximately 61.3 Bcf.
For purposes of new SEC disclosure requirements, EES has performed a
sensitivity analysis to estimate its exposure to market risk of its commodity
and related financial commitments. The exposure for fixed price natural gas
purchase and sale commitments, and derivative financial instruments, including
options, swaps, futures and other contractual commitments, is based on a
methodology that uses a five-day holding period and a 95% confidence level. EES
uses market-implied volatilities to determine its exposure to volatility risk.
Market risk is estimated as the potential loss in fair value resulting from at
least a 15% change in market factors which may differ from actual results.
Using 15%, the most adverse change in fair value at December 31, 1997 as a
result of this analysis, was a reduction of $1.1 million. For additional
information regarding derivative instruments, see Note 9 to Consolidated
Financial Statements.
A-11
<PAGE>
NUCLEAR DECOMMISSIONING AND DISPOSAL OF SPENT FUEL TRUST -- TU Electric has
established an external trust to provide for nuclear decommissioning and
disposal of spent fuel. The trust is invested in marketable fixed income debt
and equity securities. At December 31, 1997, the current market value of the
debt and equity securities was $85.9 million and $74. 1 million, respectively.
A hypothetical 10% increase in interest rates and 10% decrease in equity prices
would result in a $10.8 million reduction in the fair value of the trust assets.
However, adjustments to market value result in a corresponding adjustment to
related liability accounts based on current regulatory treatment.
Regulation and Rates
Under the current regulatory environment, certain System Companies are
subject to the provisions of Statement of Financial Accounting Standards (SFAS)
No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS 71).
This statement applies to utilities that have cost-based rates established by a
regulator and charged to and collected from customers. In accordance with this
statement, these companies may defer the recognition of certain costs
(regulatory assets) and certain obligations (regulatory liabilities) that, as a
result of the ratemaking process, have probable corresponding increases or
decreases in future revenues. Future significant changes in regulation or
competition could affect these companies' ability to meet the criteria for
continued application of SFAS 71 and may affect these companies' ability to
recover such regulatory assets from, or refund such regulatory liabilities to,
customers. These regulatory assets and liabilities are being amortized over
various periods (5 to 40 years). The amortization is currently, or is expected
to be, included in rates. In the event all or a portion of these companies'
operations fail to meet the criteria for application of SFAS 71, these companies
would be required to write-off all or a portion of their regulatory assets and
liabilities. Should significant changes in regulation or competition occur, the
affected System Companies would be required to assess the recoverability of
certain assets, including plant and regulatory assets, and, if impaired, to
write down the assets to reflect their fair market value. (See Note 2 to
Consolidated Financial Statements.) The System Companies cannot predict the
timing or extent of changes in the business environment that may require the
discontinuation of SFAS 71 application.
The Company and TU Electric
- ---------------------------
Although TU Electric cannot predict future regulatory or legislative actions
or any changes in economic and securities market conditions, no changes are
expected in trends or commitments, other than those discussed in this Form 10-K,
which might significantly alter its basic financial position, results of
operation or cash flows. (See Note 15 to Consolidated Financial Statements.)
Docket 9300 -- The PUC's final order (Order) in connection with TU Electric's
January 1990 rate increase request (Docket 9300) was reviewed by the 250th
Judicial District Court of Travis County, Texas, (District Court) and thereafter
was appealed to the Court of Appeals for the Third District of Texas and to the
Supreme Court of Texas (Supreme Court). As a result of such review and appeals,
an aggregate of $909 million of disallowances with respect to TU Electric's
reacquisitions of minority owners' interests in Comanche Peak, which had
previously been recorded as a charge to the Company's and TU Electric's
earnings, has been remanded to the District Court with instructions that it be
remanded to the PUC for reconsideration on the basis of a prudent investment
standard. On remand, the PUC would also be required to reevaluate the
appropriate level of TU Electric's construction work in progress included in
rate base in light of its financial condition at the time of the initial
hearing. In January 1997, the Supreme Court denied a motion for rehearing on
the Comanche Peak minority owners issue filed by the original complainants. TU
Electric cannot predict the outcome of the reconsideration of the Order on
remand by the PUC.
In its decision, the Supreme Court also affirmed the previous $472 million
prudence disallowance related to Comanche Peak. Since the Company and TU
Electric each has previously recorded a charge to earnings for this prudence
disallowance, the Supreme Court's decision did not have an effect on the
Company's or TU Electric's current financial position, results of operation or
cash flows.
Docket 11735 -- In July 1994, TU Electric filed a petition in the 200th
Judicial District Court of Travis County, Texas to seek judicial review of the
final order of the PUC granting a $449 million, or 9.0%, rate increase in
connection with TU Electric's January 1993 rate increase request of $760
million, or 15.3% (Docket 11735). Other parties to the PUC proceedings also
filed appeals with respect to various portions of the order.
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<PAGE>
Dockets 15638 AND 15840 -- In May 1996, TU Electric filed with the PUC its
transmission cost information and tariffs for open-access wholesale transmission
service (Docket 15638) in accordance with PUC rules adopted in February 1996.
These tariffs also provide for generation-related ancillary services necessary
to support wholesale transactions. In August 1997, the PUC approved final
tariffs for TU Electric and implemented rates for other transmission providers
within the Electric Reliability Council of Texas (ERCOT) (Docket 15840). Under
rates implemented by the PUC, TU Electric's payments for transmission service
will exceed its revenues for providing transmission service. The PUC has
adopted a rate-moderation plan that will minimize the impact of the new pricing
mechanism for the first three years the rules are in effect. As such, the
current maximum impact on TU Electric for 1998 is an $8.52 million deficit,
which, in the opinion of TU Electric, is not expected to have a material effect
on its financial position, results of operation or cash flows.
Docket 17250 -- In late 1996, as part of its regular earnings monitoring
process, the PUC staff advised the PUC, after reviewing the 1995 Electric
Investor-Owned Utilities Earnings Report of TU Electric, that it believed TU
Electric was earning in excess of a reasonable rate of return, and the PUC and
TU Electric subsequently began discussions concerning possible remedies. It was
decided to limit negotiations to a resolution of issues concerning TU Electric's
earnings through 1997, and discussion of a longer-term resolution was deferred.
In July 1997, the PUC issued its final written order approving TU Electric's
proposal to make a one-time $80 million refund to its customers (Rate
Settlement) and to leave rates unchanged during the remainder of 1997. TU
Electric recorded the charge to revenues in July 1997 and included the refunds
in August 1997 billings. The proposal was the result of a joint stipulation in
which TU Electric was joined by the PUC General Counsel, on behalf of the PUC
Staff and the public interest, the Office of Public Utility Counsel, the state
agency charged with representing the interests of residential and small
commercial customers, and the Coalition of Cities served by TU Electric.
Docket 18490 -- On December 17, 1997, TU Electric, together with the PUC
General Counsel, the Office of Public Utility Counsel and various other parties
interested in TU Electric's rates and services, filed with the PUC a
stipulation and joint application which, if granted, would among other things:
(i) result in permanent retail base rate credits beginning January 1, 1998, of
4% for residential customers, 2% for general service secondary customers and 1%
for all other retail customers, (ii) result in additional permanent retail base
rate credits beginning January 1, 1999, of 1.4% for residential customers, (iii)
impose a 11.35% cap on TU Electric's rate of return on equity during 1998 and
1999, with any sums earned above that cap being applied as additional nuclear
production depreciation, (iv) allow TU Electric to record depreciation
applicable to transmission and distribution assets in 1998 and 1999 as
additional depreciation of nuclear production assets, (v) establish an updated
cost of service study that includes interruptible customers as customer classes,
(vi) result in the permanent dismissal of pending appeals of prior PUC orders
including Docket No. 11735, if all other parties that have filed appeals of
those dockets also dismiss their appeals, (vii) result in the stay of any
proceedings in the remand of Docket 9300 prior to January 1, 2000, and (viii)
result in all gains from off-system sales of electricity in excess of the amount
included in base rates being flowed to customers through the fuel factor.
The PUC has until March 31, 1998 to approve or reject the stipulation and
joint application. Otherwise, TU Electric may terminate the base rate
reductions and all other aspects of the proposal upon giving two weeks notice to
the PUC.
Fuel Cost Recovery Rule -- TU Electric in July 1997, petitioned the PUC for
and received interim approval to refund approximately $67 million, including
interest, in over-collected fuel costs for the period October 1995 through May
1997 (Fuel Refund). Such over-collection was primarily due to TU Electric's
ability to use less expensive nuclear fuel and purchased power to offset a
higher-priced natural gas market during the period. Customer refunds were
included in August 1997 billings. A final order confirming the Fuel Refund was
entered by the PUC in October 1997.
Fuel Reconciliation Proceeding -- In July 1997, the PUC ruled on TU
Electric's petition seeking final reconciliation of all eligible fuel and
purchased power expenses incurred during the reconciliation period of July 1,
1992 through June 30, 1995 (approximately $4.7 billion ). In the ruling, the
PUC disallowed approximately $81 million of eligible fuel related costs
(including interest of $12 million) incurred during the reconciliation period
(Fuel Disallowance). The majority of the Fuel Disallowance (approximately $67
million) is related to replacement fuel costs as a result of the November 1993
collapse of the emissions chimney serving Unit 3 of the Monticello lignite-
fueled generating station. In addition, the PUC ruled that approximately $10
million from the gain on sale of sulfur dioxide allowances should be deferred
and reconsidered at a future date. TU Electric received a final written order
from the PUC and recorded the charge to revenues in August 1997. TU Electric
strongly disagrees with the Fuel Disallowance and has appealed the PUC's order.
A-13
<PAGE>
Flexible Rate Initiatives -- TU Electric continues to offer flexible rates in
over 160 cities with original regulatory jurisdiction within its service
territory (including the cities of Dallas and Fort Worth) to existing non-
residential retail and wholesale customers that have viable alternative sources
of supply and would otherwise leave the system. TU Electric also continues to
offer an economic development rider to attract new businesses and to encourage
existing customers to expand their facilities as well as an environmental
technology rider to encourage qualifying customers to convert to technologies
that conserve energy or improve the environment. TU Electric will continue to
pursue the expanded use of flexible rates when such rates are necessary to be
price-competitive.
Integrated Resource Plan -- In October 1994, TU Electric filed an application
for approval by the PUC of certain aspects of its Integrated Resource Plan (IRP)
for the ten year period 1995 - 2004. The IRP, developed as an experimental
pilot project in conjunction with regulatory and customer groups, included the
acquisition of electric energy through a competitive bidding process of third
party-supplied demand-side management resources and renewable resources. In
August 1995, the PUC remanded the case to an Administrative Law Judge for
development of a solicitation plan and to more closely conform the TU Electric
1995 IRP to new state legislation that required the PUC to adopt a state-wide
integrated resource planning rule by September 1, 1996. In January 1996, TU
Electric filed an updated IRP with the PUC along with a proposed plan for the
solicitation of resources through a competitive bidding process. The PUC issued
its final order on TU Electric's IRP in October 1996, and modified the order in
December 1996 and February 1997. The modified order approved a flexible
solicitation plan that will allow TU Electric to conduct up to three optional
resource solicitations for a total of 2,074 MW of demand-side and supply-side
resources prior to the filing of its next IRP in June 1999. TU Electric is
currently reviewing the need and timing for conducting the first of these
resource solicitations.
In addition to its solicitation plan in the IRP docket, TU Electric requested
and received approval from the PUC to expand its Power Cost Recovery tariff to
provide current cost recovery of resource acquisition costs for demand-side
management resources acquired in the solicitations and for eight previously
approved demand-side management contracts entered into by TU Electric to the
extent such costs are not currently reflected in TU Electric's base rates.
Open-Access Transmission -- In February 1996, pursuant to the 1995 amendments
to PURA, the PUC adopted rules requiring each electric utility in ERCOT to
provide wholesale transmission and related services to other utilities and non-
utility power suppliers at rates, terms and conditions that are comparable to
those applicable to such utility's use of its own transmission facilities.
Under the rules, the PUC established a transmission pricing mechanism
consisting of an ERCOT system-wide component and a distance-sensitive component.
The ERCOT system-wide component provides that each load-serving entity in ERCOT
will pay a share of the ERCOT-wide transmission cost of service based on the
entity's load. The distance-sensitive component provides that a distance-
sensitive rate will be paid to utilities that own transmission facilities, based
on the impact of transmitting power and energy to loads. The rates charged for
using the transmission system are designed to ensure that all market
participants pay on a comparable basis to use the system. While all users of
the transmission grid pay rates that are comparably designed, the impact on
individual users will differ.
In May 1996, TU Electric filed with the PUC, under Docket 15638, its
transmission cost information and tariffs for open-access wholesale transmission
service. These tariffs also provide for generation-related ancillary services
necessary to support wholesale transactions. Company-specific proceedings to
determine transmission rates for each transmission provider within ERCOT were
concluded in 1996. In August 1997, the PUC approved final tariffs for TU
Electric and implemented rates for other transmission providers within ERCOT.
As a result of the PUC rules, the organization and structure of ERCOT has
been changed to provide for equal governance among all wholesale electricity
market participants. These changes were made in order to facilitate wholesale
competition while ensuring continued reliability within ERCOT.
A-14
<PAGE>
The Company
- -----------
LONE STAR GAS COMPANY AND LONE STAR PIPELINE COMPANY RATES -- In October
1996, Lone Star Pipeline filed a request with the RRC to increase the rate it
charges Lone Star Gas to store and transport gas ultimately destined for
residential and commercial customers in the 550 Texas cities and towns served by
Lone Star Gas. Lone Star Gas also requested that the RRC separately set rates
for costs to aggregate gas supply for these cities. Rates previously in effect
were set by the RRC in 1982. In September 1997, the RRC issued an order
reducing the charges by Lone Star Pipeline to Lone Star Gas for storage and
transportation services. In that order, the RRC did authorize separate charges
for the Lone Star Pipeline storage and transportation services, a separate
charge by Lone Star Gas for the cost of aggregating gas supplies, and a
continuation of the 100% flow through of purchased gas expense. The RRC also
imposed some new criteria for affiliate gas purchases and a new reconciliation
procedure that will require a review of purchased gas expenses every three
years. The RRC order has become final, but is being appealed by several parties
including Lone Star Pipeline and Lone Star Gas. The rates authorized by the
order became effective on December 1, 1997, and will result in an annual margin
reduction of approximately $8.2 million.
On August 20, 1996, the RRC ordered a general inquiry into the rates and
services of Lone Star Gas, most notably a review of Lone Star Gas' historic gas
cost and gas acquisition practices since the last rate setting. The inquiry
docket has been separated into different phases. Two of the phases, conversion
to the NARUC account numbering system and unbundling, have been dismissed by the
RRC, and one other phase, rate case expense, is pending RRC action on the basis
of a stipulation of all parties. In the phase dealing with historic gas cost
and gas acquisition practices, Lone Star Gas and Lone Star Pipeline have filed a
motion for summary disposition stating that any retroactive rate action would be
inappropriate and unlawful. Settlement discussions with intervenor cities are
ongoing. If the motion for summary disposition is denied, a hearing has been
scheduled to begin in August 1998. A number of management and transportation
related issues have been placed in a separate phase which still has an undefined
scope and is being held in abeyance pending the resolution of the phase dealing
with gas costs. Management believes that gas costs were prudently incurred and
were properly accounted for and recovered through the gas cost recovery
mechanism previously approved by the RRC. At this time, management is unable to
determine the ultimate outcome of the inquiry.
Competition
The Company and TU Electric
- ---------------------------
The National Energy Policy Act of 1992 (Energy Policy Act) addresses a wide
range of energy issues and is intended to increase competition in electric
generation and broaden access to electric transmission systems. In addition,
the Public Utility Regulatory Act of 1995, as amended (PURA), impacts the PUC
and its regulatory practices and encourages increased competition in some
aspects of the electric utility industry in Texas. Although the Company is
unable to predict the ultimate impact of the Energy Policy Act, PURA and any
related regulations or legislation on the System Companies' operations, it
believes that such actions are consistent with the trend toward increased
competition in the energy industry.
In order to remain competitive, the System Companies are aggressively
managing their operating costs and capital expenditures through streamlined
business processes and are developing and implementing strategies to address an
increasingly competitive environment. These strategies include initiatives to
improve their return on corporate assets and to maximize shareholder value
through new marketing programs, creative rate design and new business
opportunities. Additional initiatives under consideration include the potential
disposition or alternative utilization of existing assets and the restructuring
of strategic business units.
While TU Electric has experienced competitive pressures in the wholesale
market resulting in a small loss of load since the beginning of 1993, wholesale
sales represented a relatively low percentage of TU Electric's consolidated
operating revenues in 1997. TU Electric is unable to predict the extent of
future competitive developments in either the wholesale or retail markets or
what impact, if any, such developments may have on its operations.
Federal legislation such as the PURPA and, more recently, the Energy Policy
Act, as well as initiatives in various states, encourage wholesale competition
among electric utility and non-utility power producers. Together with
increasing customer demand for lower-priced electricity and other energy
services, these measures have accelerated the industry's movement
A-15
<PAGE>
toward a more competitive pricing and cost structure. Competition in the
electric utility industry was also addressed in the 1995 session of the Texas
legislature. PURA was amended to encourage greater wholesale competition and
flexible retail pricing. PURA amendments also require the PUC to report to the
legislature, during each legislative session, on competition in electric
markets. Accordingly, PUC reports were submitted to the Texas legislature in
January 1997, recommending that the legislature continue the process of
expanding competition in the Texas electricity markets, leading to expanded
retail competition, and authorize the PUC to take numerous steps toward that
goal. The PUC further recommended that full competition not occur prior to the
year 2000 in order to provide an environment through which both retail
customers and utilities in Texas move more smoothly to achieve the perceived
benefits of competition. The PUC is seeking guidance from the legislature and
authority to address the issue of stranded cost recovery. The PUC's current
estimate for TU Electric's potentially stranded retail costs ranged from a
projected excess of net book value over market value of $7.7 billion to a
projected excess of market value over net book value of $2.1 billion.
Legislation that would have authorized retail competition was not enacted by
the 1997 Texas legislature.
While the Company and TU Electric anticipate legislation being enacted during
the 1999 session of the Texas legislature to authorize competition in the retail
market, they cannot predict the ultimate outcome of the ongoing efforts that are
taking place to restructure the electric utility industry or whether such
outcome will have a material effect on their financial position, results of
operation or cash flows.
RESULTS OF OPERATION
The Company
- -----------
For the year ended December 31, 1997, net income for the Company decreased
approximately 12% from the prior period. Results for 1997 were reduced by the
recognition of TU Electric's $80.0 million Rate Settlement refund in July 1997,
the August 1997 $81.1 million Fuel Disallowance (including interest) and a
charge of $10.1 million from the sale of sulfur dioxide allowances previously
recognized. After revenue-related and income taxes, these settlements reduced
income by $103.4 million. Excluding these items, 1997 net income increased
slightly over the 1996 period. For the year ended December 31, 1996, net
income increased approximately 14% over the comparable 1995 period, excluding
the after-tax effect of recording a September 1995 impairment of several non-
performing assets. Such impairment, on an after-tax basis, amounted to $802
million. (See Note 14 to Consolidated Financial Statements.)
TU Electric continued to experience core revenue and sales volume growth in
excess of 3% due to increases in both number of customers and usage. Warmer
than normal summer weather contributed to 1996 results, while summer weather was
normal in 1995 and 1997.
Operating revenues increased approximately 21% and 16% for the years ended
December 31, 1997 and 1996, respectively. In 1997, the increase in operating
revenues was due primarily to the inclusion of ENSERCH revenues ($1,278.0
million) for the period following the Merger and to TU Electric's transmission
service revenues ($113.8 million) from implementing the PUC's Open Access
Transmission Rule effective January 1, 1997. LCC's revenues after acquisition
were $11.9 million. In 1996, the increase was due primarily to a full year of
Eastern Energy's revenues ($474 million).
Base rate electricity revenues (including unbilled sales) decreased slightly
from 1996 as a result of the Rate Settlement refund mentioned above, while
electric energy sales in megawatt hours (including unbilled sales) increased
approximately 2% and 11% for 1997 and 1996, respectively. Fuel revenue
increased in 1997 and 1996 due primarily to increases in fuel costs driven by
increased energy sales and spot market gas prices, partially offset, in 1997, by
the Fuel Disallowance.
Fuel and purchased power expense increased approximately 4% and 30% for 1997
and 1996, respectively. The increases were primarily due to increased energy
sales and increased spot market gas prices and in 1996 included 13.1%
attributable to Eastern Energy for a full year. (See Consolidated Operating
Statistics.) Gas purchased for resale represents the cost of gas ultimately sold
to ENSERCH gas customers, which is recovered in rates.
Total operating expenses, excluding fuel and purchased power and gas
purchased for resale, increased approximately 15% for 1997 and 9% for 1996
(including 8.6% in 1997 attributable to ENSERCH companies since acquisition and
5.7% in
A-16
<PAGE>
1996 attributable to Eastern Energy). Operation and maintenance expense
increased in 1997 as result of recording third party transmission expenses in
accordance with the PUC's Open Access Transmission Rule, partially offset by
decreased employee benefit expenses. The 1996 increase is due primarily to
increases in employee benefit expenses and payroll expenses. Taxes other than
income increased in 1997 due primarily to the effect of ENSERCH and LCC amounts
subsequent to acquisition. Taxes other than income decreased in 1996 as a result
of a reduction in TU Electric's ad valorem tax obligation due primarily to a
property tax rate reduction, partially offset by an increase in state and local
gross receipts tax.
The change in other income (deductions) - net in 1997 was primarily due to
losses from an interest in a telecommunications partnership. Amounts for 1996
were lower than the previous year due primarily to increased non-utility
property expenses and decreased allowance for equity funds used during
construction, partially offset by gains on the disposition of certain
properties.
Interest expense and distributions on preferred securities and preferred
stock of subsidiaries totaled $860.6 million in 1997, $884.3 million in 1996 and
$792.9 million in 1995. The Company's capital restructuring and debt reduction
programs have favorably affected the comparisons. Year - to - year comparisons
are also affected by the debt incurred or assumed in connection with the 1997
acquisitions of ENSERCH and LCC and the December 1995 acquisition of Eastern
Energy. Interest expense in 1996 included an interest payment related to a
settlement with the Internal Revenue Service, and 1997 interest expense included
a charge related to the settlement on over-recovered fuel. Allowance for funds
used during construction (AFUDC) decreased $2.4 million from 1996 to 1997 and
$4.1 million from 1995 to 1996.
The change in income tax expense (benefit) from 1995 to 1996 was due
primarily to the effects of the recording of the September 1995 asset
impairment. (See Note 10 to Consolidated Financial Statements for a
reconciliation of income taxes (benefit) computed at the statutory rate to
provision for income taxes (benefit).)
TU Electric
- -----------
For the year ended December 31, 1997, net income for TU Electric decreased
approximately 11% from the prior period. Results for 1997 were reduced by the
Rate Settlement, Fuel Disallowance and charge mentioned above which totaled
$103.4 million after-taxes. Excluding these items, 1997 net income increased
slightly over the 1996 period. For the year ended December 31, 1996, net
income increased approximately 12% over the comparable 1995 period (excluding
the $316 million after-tax effect of the September 1995 asset impairment).
Operating revenues increased approximately 2% and 8% for the years ended
December 31, 1997 and 1996, respectively. In 1997, the increase in operating
revenue reflects transmission service revenues ($113.5 million) from
implementing the PUC's Open Access Transmission Rule effective January 1, 1997,
with revenue increases due to customer growth essentially offsetting the impact
of the Rate Settlement, the Fuel Disallowance and the charge related to the
sulphur dioxide allowances. In 1996, the increase was a result of customer
growth, increased usage and warmer than normal summer weather.
Base rate electricity revenues (including unbilled sales) decreased slightly
from 1996 as a result of the Rate Settlement refund mentioned above while
electric energy sales in MWh (including unbilled sales) increased approximately
2% and 6% for 1997 and 1996, respectively. Fuel revenue increased in 1997 and
1996 due primarily to increases in fuel costs driven by increased energy sales
and spot market gas prices, partially offset, in 1997, by the Fuel Disallowance.
Fuel and purchased power expense increased approximately 5% and 16% for 1997
and 1996, respectively. The increases were primarily due to increased energy
sales and increased spot market gas prices.
Total operating expenses, excluding fuel and purchased power and gas purchased
for resale, increased approximately 5% for 1997 and 4% for 1996. Operation and
maintenance expense increased in 1997 as result of recording third party
transmission expenses in accordance with the PUC's Open Access Transmission
Rule, partially offset by decreased employee benefit expenses. The 1996
increase is due primarily to increases in employee benefit expense and payroll
expense. Taxes, other than income taxes decreased in 1996 as a result of a
reduction in TU Electric's ad valorem tax obligation due primarily to a property
tax rate reduction, partially offset by an increase in state and local gross
receipts tax.
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<PAGE>
Other income (deductions) - net decreased in 1997 primarily due to lower
income tax benefits while 1995 included the after tax effects of the impairment
write-down.
Total interest charges, excluding AFUDC and distributions on preferred
securities of subsidiary trusts, decreased approximately 5% in each of the years
1997 and 1996 compared to the prior year period. The capital restructuring and
debt reduction programs have favorably affected the comparisons.
CHANGES IN ACCOUNTING STANDARDS
The Company and TU Electric
- ---------------------------
SFAS 130, "Reporting Comprehensive Income," will become effective in 1998.
This statement requires companies to report and display comprehensive income and
its components (revenues, expenses, gains and losses). Comprehensive income
includes all changes in equity during a period except those resulting from
investments by owners and distributions to owners.
SFAS 131, "Disclosures About Segments of an Enterprise and Related
Information," will become effective in 1998. This statement establishes
standards for defining and reporting business segments. The Company and TU
Electric are currently determining their reportable segments.
The adoption of SFAS 130 and SFAS 131 will not affect financial position,
results of operations or cash flows.
YEAR 2000 ISSUES
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or produce erroneous data by or at the Year 2000. The
Year 2000 issues affect virtually all companies and organizations.
The Company began its Year 2000 initiative in 1996 by addressing mainframe-
based application systems. In early 1997, an infrastructure project to address
information technology (IT) related equipment and systems software was begun.
In late 1997, a corporate-wide project to address Year 2000 issues related to
embedded systems such as process controls for energy production and delivery and
client-developed applications was begun. Most of the ENSERCH mainframe
applications, infrastructure, embedded systems and client-developed applications
that will not be migrated to existing or planned Company systems have been
incorporated into these projects. These projects extend beyond the Company's
organization in an effort to also work with key vendors, service suppliers and
others so that the Company can appropriately prepare for Year 2000.
The remediation and replacement work on the majority of IT application systems
and infrastructure are expected to be completed by the end of 1998. Much of the
work on the corporate-wide Year 2000 project is expected to be completed by the
end of 1998, although the project will extend into 1999. Based on present
assessments of the IT and infrastructure projects, a cost of $11.25 million was
estimated. These costs are being expensed as incurred over the four-year period
(1996 through 1999) covered by the projects. Assessment of the cost of the
corporate-wide Year 2000 project is in the early stages.
Eastern Energy initiated a Year 2000 project in the third quarter of 1997.
The estimated cost of that project is $1.8 million, with completion anticipated
in early 1999. The cost to either modify or replace LCC application systems
affected by Year 2000 is estimated to be $1.5 million, with completion
anticipated in 1999. The effect on LCC's embedded systems is still being
assessed.
A-18
<PAGE>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
STATEMENT OF RESPONSIBILITY
The management of Texas Utilities Company is responsible for the preparation,
integrity and objectivity of the consolidated financial statements of the
Company and its subsidiaries and other information included in this report. The
consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. As appropriate, the statements
include amounts based on informed estimates and judgments of management.
The management of the Company has established and maintains a system of
internal control designed to provide reasonable assurance, on a cost-effective
basis, that assets are safeguarded, transactions are executed in accordance with
management's authorization and financial records are reliable for preparing
consolidated financial statements. Management believes that the system of
control provides reasonable assurance that errors or irregularities that could
be material to the consolidated financial statements are prevented or would be
detected within a timely period. Key elements in this system include the
effective communication of established written policies and procedures,
selection and training of qualified personnel and organizational arrangements
that provide an appropriate division of responsibility. This system of control
is augmented by an ongoing internal audit program designed to evaluate its
adequacy and effectiveness. Management considers the recommendations of the
internal auditors and independent certified public accountants concerning the
Company's system of internal control and takes appropriate actions which are
cost-effective in the circumstances. Management believes that, as of December
31, 1997, the Company's system of internal control was adequate to accomplish
the objectives discussed herein.
The Board of Directors of the Company addresses its oversight responsibility
for the consolidated financial statements through its Audit Committee, which is
composed of directors who are not employees of the Company. The Audit Committee
meets regularly with the Company's management, internal auditors and independent
certified public accountants to review matters relating to financial reporting,
auditing and internal control. To ensure auditor independence, both the
internal auditors and independent certified public accountants have full and
free access to the Audit Committee.
The independent certified public accounting firm of Deloitte & Touche LLP is
engaged to audit, in accordance with generally accepted auditing standards, the
consolidated financial statements of the Company and its subsidiaries and to
issue their report thereon.
/s/ ERLE NYE
--------------------------------------------
Erle Nye, Chairman of the Board
and Chief Executive
/s/ D. W. BIEGLER
--------------------------------------------
D. W. Biegler, President and
Chief Operating Officer
/s/ MICHAEL J. McNALLY
--------------------------------------------
Michael J. McNally, Executive Vice President
and Chief Financial Officer
/s/ J. W. PINKERTON
--------------------------------------------
J. W. Pinkerton, Controller and
Principal Accounting Officer
A-19
<PAGE>
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
STATEMENT OF RESPONSIBILITY
The management of Texas Utilities Electric Company is responsible for the
preparation, integrity and objectivity of the financial statements of TU
Electric and its subsidiaries and other information included in this report.
The financial statements have been prepared in conformity with generally
accepted accounting principles. As appropriate, the statements include amounts
based on informed estimates and judgments of management.
The management of TU Electric has established and maintains a system of
internal control designed to provide reasonable assurance, on a cost-effective
basis, that assets are safeguarded, transactions are executed in accordance with
management's authorization and financial records are reliable for preparing
financial statements. Management believes that the system of control provides
reasonable assurance that errors or irregularities that could be material to the
financial statements are prevented or would be detected within a timely period.
Key elements in this system include the effective communication of established
written policies and procedures, selection and training of qualified personnel
and organizational arrangements that provide an appropriate division of
responsibility. This system of control is augmented by an ongoing internal audit
program designed to evaluate its adequacy and effectiveness. Management
considers the recommendations of the internal auditors and independent certified
public accountants concerning TU Electric's system of internal control and takes
appropriate actions which are cost-effective in the circumstances. Management
believes that, as of December 31, 1997, TU Electric's system of internal control
was adequate to accomplish the objectives discussed herein.
The independent certified public accounting firm of Deloitte & Touche LLP is
engaged to audit, in accordance with generally accepted auditing standards, the
financial statements of TU Electric and to issue their report thereon.
/s/ ERLE NYE
--------------------------------------------
Erle Nye, Chairman of the Board
and Chief Executive
/s/ D. W. BIEGLER
--------------------------------------------
D. W. Biegler, President and
Chief Operating Officer
/s/ ROBERT S. SHAPARD
--------------------------------------------
Robert S. Shapard, Treasurer and Assistant
Secretary and Principal Financial Officer
/s/ J. W. PINKERTON
--------------------------------------------
J. W. Pinkerton, Controller and
Principal Accounting Officer
A-20
<PAGE>
INDEPENDENT AUDITORS' REPORT
Texas Utilities Company and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Texas
Utilities Company and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of income, cash flows and common stock equity
for each of the three years in the period ended December 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Texas Utilities Company and
subsidiaries at December 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1997, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 24, 1998
A-21
<PAGE>
INDEPENDENT AUDITORS' REPORT
Texas Utilities Electric Company and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Texas Utilities
Electric Company (TU Electric) and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of income, retained earnings and
cash flows for each of the three years in the period ended December 31, 1997.
These financial statements are the responsibility of TU Electric management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Texas Utilities Electric Company
and subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 24, 1998
A-22
<PAGE>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1997 1996 1995
---- ---- ----
Thousands of Dollars
<S> <C> <C> <C>
OPERATING REVENUES............................................. $7,945,608 $6,550,928 $5,638,688
---------- ---------- ----------
OPERATING EXPENSES
Fuel and purchased power...................................... 2,212,689 2,136,309 1,640,990
Gas purchased for resale...................................... 1,052,977 -- --
Operation and maintenance..................................... 1,548,150 1,256,280 1,109,644
Depreciation and amortization................................. 666,448 620,505 563,819
Taxes other than income....................................... 558,673 534,844 536,608
---------- ---------- ----------
Total operating expenses..................................... 6,038,937 4,547,938 3,851,061
---------- ---------- ----------
OPERATING INCOME............................................... 1,906,671 2,002,990 1,787,627
OTHER INCOME (DEDUCTIONS) -- NET............................... (17,588) (1,148) 24,583
---------- ---------- ----------
INCOME BEFORE INTEREST, OTHER CHARGES
AND INCOME TAXES............................................. 1,889,083 2,001,842 1,812,210
---------- ---------- ----------
INTEREST AND OTHER CHARGES
Interest...................................................... 762,937 797,893 706,182
Allowance for borrowed funds used during construction......... (8,890) (11,248) (15,327)
Impairment of assets.......................................... -- -- 1,233,320
Distributions on TU Electric obligated, mandatorily
redeemable, preferred securities of subsidiary trusts
holding solely debentures of TU Electric..................... 69,701 33,001 1,801
Preferred stock dividends of subsidiaries..................... 27,983 53,358 84,914
---------- ---------- ----------
Total interest and other charges............................ 851,731 873,004 2,010,890
---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES.............................. 1,037,352 1,128,838 (198,680)
INCOME TAX EXPENSE (BENEFIT)................................... 376,898 375,232 (60,035)
---------- ---------- ----------
NET INCOME (LOSS).............................................. $ 660,454 $ 753,606 $ (138,645)
========== ========== ==========
Average shares of common stock
outstanding (thousands)....................................... 230,958 225,160 225,841
Per share of common stock:
Basic earnings (loss)....................................... $2.86 $3.35 $(0.61)
Diluted earnings (loss)..................................... $2.85 $3.35 $(0.61)
Dividends declared.......................................... $2.125 $2.025 $ 2.81
</TABLE>
See Notes to Consolidated Financial Statements.
A-23
<PAGE>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
1997 1996 1995
---- ---- ----
Thousands of Dollars
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income (loss)......................................................... $ 660,454 $ 753,606 $ (138,645)
Adjustments to reconcile net income (loss) to cash
provided by operating activities:
Depreciation and amortization (including amounts charged to fuel)....... 838,606 774,305 725,646
Deferred income taxes -- net............................................ 167,705 184,612 (204,550)
Investment tax credits -- net........................................... (22,851) (33,075) (22,774)
Allowance for equity funds used during construction..................... (5,236) (1,575) (6,680)
Impairment of assets.................................................... -- -- 1,233,320
Changes in operating assets and liabilities:
Accounts receivable................................................... (441,964) (2,503) (22,898)
Inventories........................................................... (13,891) 6,328 18,701
Accounts payable...................................................... 333,763 33,388 10,904
Interest and taxes accrued............................................ 39,902 (33,463) (94,158)
Other working capital................................................. 90,322 9,912 (25,932)
Over/(under) - recovered fuel revenue -- net of deferred taxes........ (20,483) (47,368) 94,717
Gas marketing risk management assets and liabilities.................. (13,142) -- --
Other -- net.......................................................... 45,933 79,918 5,902
---------- ---------- ----------
Cash provided by operating activities............................... 1,659,118 1,724,085 1,573,553
---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuances of securities:
First mortgage bonds.................................................... 212,715 244,225 535,055
Other long-term debt.................................................... 609,964 1,199,679 300,000
TU Electric obligated, mandatorily redeemable, preferred securities
of subsidiary trusts holding solely debentures of TU Electric.......... 493,273 -- 381,476
Retirements of securities:
First mortgage bonds.................................................... (939,467) (556,847) (684,385)
Other long-term debt.................................................... (634,407) (1,273,934) (202,520)
Preferred stock of subsidiaries......................................... (553,093) (50,269) (504,781)
Common stock............................................................ (148,780) (51,636) --
Change in notes payable:
Commercial paper........................................................ 1,102,749 (31,894) (78,841)
Banks................................................................... (543,080) (140,378) 731,945
Common stock dividends paid............................................... (478,592) (451,063) (695,656)
Debt premium, discount, financing and reacquisition expenses.............. (40,774) (44,043) (123,668)
---------- ---------- ----------
Cash used in financing activities................................... (919,492) (1,156,160) (341,375)
---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures................................................. (586,097) (434,139) (434,338)
Allowance for equity funds used during construction (excluding
amount for nuclear fuel)................................................. 2,941 892 3,952
Change in construction receivables/payables -- net........................ (1,688) (706) 2,140
Nuclear fuel (excluding allowance for equity funds used
during construction)..................................................... (74,510) (58,895) (55,013)
Acquisitions.............................................................. 4,777 (9,821) (616,865)
Other investments......................................................... (58,753) (75,822) (111,175)
---------- ---------- ----------
Cash used in investing activities................................... (713,330) (578,491) (1,211,299)
---------- ---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH.................................... 2,294 1,558 (3,452)
---------- ---------- ----------
NET CHANGE IN CASH AND CASH EQUIVALENTS.................................... 28,590 (9,008) 17,427
CASH AND CASH EQUIVALENTS -- BEGINNING BALANCE............................ 15,845 24,853 7,426
---------- ---------- ----------
CASH AND CASH EQUIVALENTS -- ENDING BALANCE................................ $ 44,435 $ 15,845 $ 24,853
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
A-24
<PAGE>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
---- ----
Thousands of Dollars
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Electric:
Production............................................... $16,294,778 $16,277,151
Transmission............................................. 1,675,681 1,607,925
Distribution............................................. 5,779,226 5,655,677
Gas distribution and pipeline.............................. 1,068,708 --
Telecommunications......................................... 145,125 14
Other...................................................... 562,890 503,674
----------- -----------
Total................................................. 25,526,408 24,044,441
Less accumulated depreciation.............................. 6,715,662 6,127,610
----------- -----------
Net of accumulated depreciation........................ 18,810,746 17,916,831
Construction work in progress.............................. 330,184 240,612
Nuclear fuel (net of accumulated amortization: 1997
-- $456,490,000;
1996 --$369,114,000)................................... 242,018 252,589
Held for future use........................................ 24,087 24,483
Less reserve for regulatory disallowances 836,005 836,005
----------- -----------
Net property, plant and equipment....................... 18,571,030 17,598,510
----------- -----------
INVESTMENTS
Goodwill (net of accumulated amortization:
1997-- $33,444,000; 1996--$15,894,000)................... 1,423,420 528,102
Other investments.......................................... 851,320 630,121
----------- -----------
Total investments...................................... 2,274,740 1,158,223
----------- -----------
CURRENT ASSETS
Cash and cash equivalents.................................. 44,435 15,845
Accounts receivable:
Customers................................................. 941,506 290,111
Other..................................................... 50,883 44,032
Allowance for uncollectible accounts...................... (11,322) (6,262)
Inventories -- at average cost:
Materials and supplies.................................... 209,825 200,601
Fuel stock................................................ 81,490 77,227
Gas stored underground.................................... 156,637 44,472
Gas marketing risk management assets....................... 365,650 --
Prepayments................................................ 59,809 56,324
Deferred income taxes...................................... 76,307 50,972
Other current assets....................................... 19,628 14,084
----------- -----------
Total current assets.................................... 1,994,848 787,406
----------- -----------
DEFERRED DEBITS
Unamortized regulatory assets.............................. 1,853,016 1,753,418
Deferred income taxes...................................... -- 10,997
Other deferred debits...................................... 180,495 89,101
----------- -----------
Total deferred debits................................... 2,033,511 1,853,516
----------- -----------
Total............................................. $24,874,129 $21,397,655
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
A-25
<PAGE>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
December 31,
--------------------------
1997 1996
---- ----
Thousands of Dollars
CAPITALIZATION
Common stock without par value -- net.............. $ 5,587,200 $ 4,787,047
Retained earnings.................................. 1,311,875 1,202,390
Cumulative currency translation adjustment......... (56,013) 43,476
----------- -----------
Total common stock equity...................... 6,843,062 6,032,913
Preferred stock of subsidiaries:
Not subject to mandatory redemption.............. 304,194 464,427
Subject to mandatory redemption.................. 20,600 238,391
TU Electric obligated, mandatorily redeemable,
preferred securities of subsidiary trusts
holding solely debentures of TU Electric.......... 875,146 381,311
Long-term debt, less amounts due currently......... 8,759,379 8,668,111
----------- -----------
Total capitalization........................... 16,802,381 15,785,153
----------- -----------
CURRENT LIABILITIES
Notes payable:
Commercial paper................................. 570,000 253,151
Banks............................................ 44,442 69,788
Long-term debt due currently....................... 772,071 356,076
Accounts payable................................... 879,593 336,391
Gas marketing risk management liabilities.......... 357,044 --
Dividends declared................................. 139,994 129,879
Customers' deposits................................ 91,440 80,390
Taxes accrued...................................... 182,532 143,424
Interest accrued................................... 193,125 156,758
Deferred income taxes.............................. 7,919 10,951
Over-recovered fuel revenue........................ 11,987 42,984
Other current liabilities.......................... 271,853 90,485
----------- -----------
Total current liabilities...................... 3,522,000 1,670,277
----------- -----------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred income taxes.................. 2,989,254 2,812,623
Unamortized investment tax credits................. 570,283 589,713
Pensions and other postretirement benefits......... 402,292 195,667
Other deferred credits and noncurrent liabilities.. 587,919 344,222
----------- -----------
Total deferred credits and other noncurrent
liabilities................................... 4,549,748 3,942,225
COMMITMENTS AND CONTINGENCIES (Note 15)
----------- -----------
Total........................................... $24,874,129 $21,397,655
=========== ===========
See Notes to Consolidated Financial Statements.
A-26
<PAGE>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMMON STOCK EQUITY
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1997 1996 1995
---- ---- ----
Thousands of Dollars
<S> <C> <C> <C>
COMMON STOCK without par value-authorized shares -- 500,000,000:
Balance at beginning of year....................................... $4,787,047 $4,806,912 $4,798,797
Issued for acquisitions:
ENSERCH Corporation (15,861,272 shares).................... 565,105 -- --
Lufkin-Conroe Communications Co. (8,727,730 shares)....... 317,142 -- --
Issued for Long-Term Incentive Compensation Plan
(61,000 shares).............................................. 2,594 -- --
Net change in unamortized costs of Long-Term Incentive
Compensation Plan............................................ (2,197) -- --
Common stock repurchased and retired (4,015,000 shares in 1997
and 1,238,480 shares in 1996)................................ (90,186) (27,980) --
Special allocation to Thrift Plan by trustee.................... 8,115 8,137 8,115
Other........................................................... (420) (22) --
---------- ---------- ----------
Balance at end of year (1997-245,237,559 shares;
1996 -- 224,602,557 shares; and 1995 - 225,841,037 shares) 5,587,200 4,787,047 4,806,912
---------- ---------- ----------
RETAINED EARNINGS:
Balance at beginning of year....................................... 1,202,390 924,444 1,691,250
Net income (loss)............................................... 660,454 753,606 (138,645)
Dividends declared on common stock.............................. (496,244) (456,059) (634,613)
Common stock repurchased and retired............................ (58,594) (23,633) --
LESOP dividend deduction tax benefit and other.................. 3,869 4,032 6,452
---------- ---------- ----------
Balance at end of year............................................. 1,311,875 1,202,390 924,444
---------- ---------- ----------
CUMULATIVE CURRENCY TRANSLATION ADJUSTMENT:
Balance at beginning of year....................................... 43,476 397 --
Change during the year - net of deferred income taxes............ (99,489) 43,079 397
---------- ---------- ----------
Balance at end of year............................................. (56,013) 43,476 397
---------- ---------- ----------
COMMON STOCK EQUITY................................................. $6,843,062 $6,032,913 $5,731,753
========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
A-27
<PAGE>
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Year Ended December 31,
------------------------------
1997 1996 1995
---- ---- ----
Thousands of Dollars
OPERATING REVENUES $6,135,417 $6,029,611 $5,560,462
---------- ---------- ----------
OPERATING EXPENSES
Fuel and purchased power............. 2,062,709 1,965,756 1,697,091
Operation and maintenance............ 1,226,384 1,111,911 1,049,034
Depreciation and amortization........ 572,277 561,902 549,611
Income taxes......................... 419,681 421,012 382,315
Taxes other than income.............. 507,306 506,432 512,045
---------- ---------- ----------
Total operating expenses........... 4,788,357 4,567,013 4,190,096
---------- ---------- ----------
OPERATING INCOME....................... 1,347,060 1,462,598 1,370,366
---------- ---------- ----------
OTHER INCOME (LOSS)
Allowance for equity funds used
during construction................. 5,202 1,549 6,658
Impairment of assets................. -- -- (486,350)
Other income (deductions) -- net..... (1,699) 503 8,625
Income taxes......................... 10,135 15,513 169,362
---------- ---------- ----------
Total other income (loss).......... 13,638 17,565 (301,705)
---------- ---------- ----------
INCOME BEFORE INTEREST AND OTHER
CHARGES............................... 1,360,698 1,480,163 1,068,661
---------- ---------- ----------
INTEREST AND OTHER CHARGES
Interest on mortgage bonds........... 439,398 486,791 526,977
Interest on other long-term debt..... 22,124 26,456 44,071
Other interest....................... 65,744 82,459 58,500
Distributions on TU Electric
obligated, mandatorily redeemable,
preferred securities of subsidiary
trusts holding solely debentures
of TU Electric...................... 69,701 33,001 1,801
Allowance for borrowed funds used
during construction................. (8,143) (11,239) (15,319)
---------- ---------- ----------
Total interest and other charges.. 588,824 617,468 616,030
---------- ---------- ----------
NET INCOME............................. 771,874 862,695 452,631
PREFERRED STOCK DIVIDENDS.............. 26,850 53,358 84,914
---------- ---------- ----------
NET INCOME AVAILABLE FOR
COMMON STOCK.......................... $ 745,024 $ 809,337 $ 367,717
========== ========== ==========
STATEMENTS OF CONSOLIDATED RETAINED EARNINGS
Year Ended December 31,
-------------------------------
1997 1996 1995
---- ---- ----
Thousands of Dollars
BALANCE AT BEGINNING OF YEAR............. $1,373,602 $1,067,593 $ 948,136
Net income.............................. 771,874 862,695 452,631
Transfer from common stock.............. -- -- 433,820
Preferred stock dividends............... (26,850) (53,358) (84,914)
Common stock dividends.................. (136,416) (503,328) (682,080)
---------- ---------- ----------
BALANCE AT END OF YEAR................... $1,982,210 $1,373,602 $1,067,593
========== ========== ==========
See Notes to Consolidated Financial Statements.
A-28
<PAGE>
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
1997 1996 1995
---- ---- ----
Thousands of Dollars
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................. $ 771,874 $ 862,695 $ 452,631
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization (including amounts
charged to fuel)...................................... 710,366 684,710 685,693
Deferred income taxes -- net........................... 134,263 149,851 83,621
Investment tax credits -- net.......................... (21,222) (31,501) (21,201)
Allowance for equity funds used during construction.... (5,202) (1,549) (6,658)
Impairment of assets................................... -- -- 427,478
Changes in operating assets and liabilities:
Accounts receivable................................... (123,735) 9,190 (24,807)
Inventories........................................... (4,122) 3,366 612
Accounts payable...................................... 44,169 52,126 1,842
Interest and taxes accrued............................ 42,086 (18,718) (110,455)
Other working capital................................. 82,651 (1,255) 4,917
Over/(under) - recovered fuel revenue -- net of
deferred taxes....................................... (20,488) (47,368) 94,717
Other -- net.......................................... 58,890 39,908 (2,580)
--------- --------- ---------
Cash provided by operating activities............... 1,669,530 1,701,455 1,585,810
--------- --------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES
Issuances of securities:
First mortgage bonds................................... 212,715 244,225 535,055
Other long-term debt................................... 300,000 -- 300,000
TU Electric obligated, mandatorily redeemable,
preferred securities of subsidiary trusts holding
solely debentures of TU Electric...................... 493,273 -- 381,476
Retirements of securities:
First mortgage bonds................................... (939,440) (556,820) (684,385)
Other long-term debt................................... (2,413) (302,458) (183,947)
Preferred stock........................................ (553,094) (50,269) (504,781)
Common stock........................................... (279,654) -- --
Change in notes receivable/payable -- affiliates......... 218,444 (33,159) 26,238
Change in notes payable -- commercial paper.............. (253,151) (68,839) (41,896)
Preferred stock dividends paid........................... (36,246) (54,411) (95,304)
Common stock dividends paid.............................. (272,832) (366,912) (682,080)
Debt premium, discount, financing and reacquisition
expenses................................................ (26,892) (37,898) (123,393)
--------- --------- ---------
Cash used in financing activities......................... (1,139,290) (1,226,541) (1,073,017)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Construction expenditures................................ (446,088) (377,438) (407,305)
Allowance for equity funds used during construction
(excluding amount for nuclear fuel)..................... 2,907 867 3,929
Change in construction receivables/payables -- net....... (1,688) (706) (1,305)
Nuclear fuel (excluding allowance for equity funds used
during construction).................................... (74,510) (58,895) (55,013)
Other investments...................................... (12,037) (48,370) (37,165)
--------- --------- ---------
Cash used in investing activities......................... (531,416) (484,542) (496,859)
--------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS................... (1,176) (9,628) 15,934
CASH AND CASH EQUIVALENTS -- BEGINNING BALANCE............ 13,005 22,633 6,699
--------- --------- ---------
CASH AND CASH EQUIVALENTS -- ENDING BALANCE............... $ 11,829 $ 13,005 $ 22,633
========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
A-29
<PAGE>
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
------------------------
1997 1996
---- ----
Thousands of Dollars
ELECTRIC PLANT
In service:
Production........................................ $15,369,306 $15,330,974
Transmission...................................... 1,669,259 1,601,628
Distribution...................................... 4,745,270 4,442,547
General........................................... 436,059 432,178
----------- -----------
Total........................................... 22,219,894 21,807,327
Less accumulated depreciation..................... 6,120,309 5,594,363
----------- -----------
Electric plant in service, less
accumulated depreciation....................... 16,099,585 16,212,964
Construction work in progress...................... 190,579 210,573
Nuclear fuel (net of accumulated amortization:
1997 -- $456,490,000, 1996 -- $369,114,000)....... 242,017 252,589
Held for future use................................ 23,966 24,483
----------- -----------
Electric plant, less accumulated
depreciation and amortization.................. 16,556,147 16,700,609
Less reserve for regulatory disallowances.......... 836,005 836,005
----------- -----------
Net electric plant.............................. 15,720,142 15,864,604
----------- -----------
INVESTMENTS......................................... 534,487 508,437
----------- -----------
CURRENT ASSETS
Cash and cash equivalents.......................... 11,829 13,005
Accounts receivable:
Customers........................................ 345,041 215,706
Other............................................ 18,710 23,282
Allowance for uncollectible accounts............. (6,049) (5,021)
Notes receivable -- affiliates..................... -- 35,515
Inventories -- at average cost:
Materials and supplies........................... 181,157 181,405
Fuel stock....................................... 81,489 77,119
Prepayments........................................ 31,338 31,758
Deferred income taxes.............................. 49,359 50,882
Other current assets............................... 1,818 3,246
----------- -----------
Total current assets............................. 714,692 626,897
----------- -----------
DEFERRED DEBITS
Unamortized regulatory assets...................... 1,796,516 1,735,306
Other deferred debits.............................. 67,596 59,695
----------- -----------
Total deferred debits............................ 1,864,112 1,795,001
----------- -----------
Total............................................ $18,833,433 $18,794,939
=========== ===========
See Notes to Consolidated Financial Statements.
A-30
<PAGE>
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
December 31,
-------------------------
1997 1996
---- ----
Thousands of Dollars
CAPITALIZATION
Common stock without par value:
Authorized shares -- 180,000,000
Outstanding shares 1997 -- 142,931,000; 1996 --
156,800,000...................................... $ 4,316,235 $ 4,732,305
Retained earnings................................... 1,982,210 1,373,602
----------- -----------
Total common stock equity........................ 6,298,445 6,105,907
Preferred stock:
Not subject to mandatory redemption............... 129,194 464,427
Subject to mandatory redemption................... 20,600 238,391
TU Electric obligated, mandatorily redeemable,
preferred securities of subsidiary trusts
holding solely debentures of TU Electric........... 875,146 381,311
Long-term debt, less amounts due currently.......... 5,475,447 6,310,594
----------- -----------
Total capitalization............................. 12,798,832 13,500,630
----------- -----------
CURRENT LIABILITIES
Notes payable:
Affiliates...................................... 182,929 --
Commercial paper................................ -- 253,151
Long-term debt due currently........................ 752,645 338,213
Accounts payable:
Affiliates........................................ 289,075 126,143
Other............................................. 152,367 136,401
Dividends declared.................................. 2,567 148,379
Customers' deposits................................. 74,256 70,141
Taxes accrued....................................... 167,009 132,514
Interest accrued.................................... 140,538 132,947
Over-recovered fuel revenue......................... 11,987 42,984
Other current liabilities 134,369 57,681
----------- -----------
Total current liabilities........................ 1,907,742 1,438,554
----------- -----------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred income taxes................... 3,216,951 2,989,612
Unamortized investment tax credits.................. 556,743 577,965
Other deferred credits and noncurrent liabilities 353,165 288,178
----------- -----------
Total deferred credits and other noncurrent
liabilities..................................... 4,126,859 3,855,755
COMMITMENTS AND CONTINGENCIES (Note 15)
----------- -----------
Total............................................ $18,833,433 $18,794,939
=========== ===========
See Notes to Consolidated Financial Statements.
A-31
<PAGE>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS, MERGERS AND ACQUISITIONS
The Company
- -----------
Texas Utilities Company (TUC, or the Company) is a holding company which owns
all of the outstanding common stock of Texas Energy Industries Inc. (TEI) and
ENSERCH Corporation (ENSERCH). TEI is a holding company; the assets of its
primary subsidiary, Texas Utilities Electric Company (TU Electric), and the
Company's other electric utility businesses represent in excess of 85% of the
total assets and in excess of 75% of the total revenues of the Company. TU
Electric is engaged in the generation, purchase, transmission, distribution and
sale of electric energy wholly within Texas. Two other subsidiaries of TEI are
engaged directly or indirectly in public utility operations: Southwestern
Electric Service Company (SESCO) and Texas Utilities Australia Pty. Ltd. (TU
Australia), which in December 1995 acquired the common stock of Eastern Energy
Limited (Eastern Energy), one of five electricity distribution companies
operating in Victoria, Australia. Neither SESCO nor Eastern Energy generate
electric energy. TEI has other wholly-owned service subsidiaries, which support
the operations of the Company and its operating subsidiaries. For 1997, none of
the Company's other businesses are significant individually or in the aggregate
and, accordingly, do not require separate segment disclosure under existing
accounting standards. The Company is currently determining its reportable
segments under Statement of Financial Accounting Standards (SFAS) No. 131,
which becomes effective in 1998.
On August 5, 1997, the merger transactions (Merger) between the former Texas
Utilities Company, now known as TEI and ENSERCH were completed. At the effective
time of the Merger: (i) the former Texas Utilities Company changed its name to
TEI, (ii) TEI and ENSERCH merged with wholly-owned subsidiaries of TUC Holding
Company, which, as a result, owned all the common stock of TEI and of ENSERCH,
(iii) TUC Holding Company changed its name to Texas Utilities Company (now the
Company), (iv) each share of TEI's common stock was automatically converted into
one share of common stock of TUC, and (v) each share of common stock of ENSERCH
was automatically converted into 0.225 share of common stock of TUC, with cash
issued in lieu of fractional shares. The share conversions were tax-free
transactions.
Businesses and subsidiaries acquired in the Merger were Lone Star Gas Company
(Lone Star Gas), a gas distribution company in Texas, serving over 1.35 million
customers and providing service through over 23,800 miles of distribution mains;
Lone Star Pipeline Company (Lone Star Pipeline), which has approximately 7,600
miles of gathering and transmission pipeline in Texas; and subsidiaries engaged
in natural gas processing, natural gas marketing, independent power production
and international gas distribution systems development.
In the Merger, approximately 15.9 million shares of TUC common stock were
issued to former holders of ENSERCH common stock. The value assigned to the TUC
shares issued and costs incurred in connection with the acquisition of ENSERCH
aggregated $579 million. At the date of the Merger, ENSERCH had debt and
preferred stock outstanding of approximately $1.3 billion. Effective with the
Merger, under terms specified in the Merger agreement, outstanding options for
ENSERCH common stock were exchanged for options for 532,913 shares of the
Company's common stock exercisable at prices ranging from $7.03 to $37.71 per
share, and ENSERCH was precluded from awarding further options. The estimated
fair value of these options of $3,214,000 was accounted for as a part of the
cost of the acquisition. At December 31, 1997, 402,966 of these options remained
outstanding and exercisable.
On November 21, 1997, the Company acquired Lufkin-Conroe Communications Co.
(LCC). Approximately 8.7 million shares of TUC common stock were issued to LCC
stockholders in a stock-for-stock exchange. The value assigned to the TUC shares
issued and costs incurred in connection with the acquisition of LCC aggregated
$319 million. At the date of the acquisition, LCC had debt outstanding of
approximately $31 million. LCC is the parent company of Lufkin-Conroe Telephone
Exchange, Inc. (LCTX) and Lufkin-Conroe Telecommunications Corporation (LCT) and
its subsidiaries. LCTX is an independent local exchange carrier that serves
approximately 100,000 access lines in the Alto, Conroe and Lufkin areas of
southeast Texas. It also provides access services to a number of interexchange
carriers who provide long distance services.
A-32
<PAGE>
LCT and its subsidiaries own fiber optic cable systems which they lease to
interexchange carriers, provide Internet access, radio communications tower
rentals, cellular mobile telephones and radio paging services and private branch
exchange service to local customers. LCT, through a subsidiary, also provides
interexchange long distance service, with primary focus on business customers.
The acquisitions of ENSERCH, LCC and Eastern Energy were accounted for as
purchase business combinations. The assets and liabilities of the acquired
companies at the acquisition dates were adjusted to their estimated fair values.
The excess of the purchase price paid by the Company over the estimated fair
value of net assets acquired and liabilities assumed was recorded as goodwill
and is being amortized over 40 years. The process of determining the fair value
of assets and liabilities of ENSERCH and LCC as of the date of acquisition is
continuing, and the final result awaits primarily the resolution of income tax
and other contingencies and finalization of some preliminary estimates. The
results of operations of ENSERCH, LCC and Eastern Energy, are reflected in the
consolidated financial statements of the Company from the respective dates of
their acquisition.
The Company continues to seek potential investment opportunities from time to
time when it concludes that such investments are consistent with its business
strategies and are likely to enhance the long-term return to its shareholders.
In January 1998, the Company announced that it had approached the Energy Group
plc (TEG) in connection with its possible interest in acquiring TEG. TEG is a
diversified international energy group. Discussions between the Company and TEG
are continuing and may or may not lead to an offer being made by the Company.
Likewise, the timing, amount and funding of any specific new business investment
opportunities are presently undetermined.
Following is a summary of unaudited pro forma results of the Company's
operations assuming the ENSERCH and LCC acquisitions had occurred at the
beginning of the periods presented:
Year Ended December 31,
-----------------------
1997 1996
---- ----
Thousands of dollars
Revenues............................................. $9,315,952 $8,526,600
Operating income..................................... 1,971,790 2,109,610
Net income........................................... 665,593 751,333
Earnings per share of common stock:
Basic............................................... $2.68 $3.01
Diluted............................................. $2.67 $2.99
2. SIGNIFICANT ACCOUNTING POLICIES
The Company and TU Electric
---------------------------
Consolidation -- The consolidated financial statements include the accounts
of the Company and all of its majority-owned subsidiaries (System Companies).
Prior to August 5, 1997, the date of the Merger, the Company did not have any
assets or operations. Pursuant to the Merger, the Company became the parent of
each of TEI and ENSERCH. For financial reporting purposes, the Company is
treated as the successor to TEI. Unless otherwise specified, all references to
the Company for periods prior to August 5, 1997, are deemed to be references to
TEI since the merger of the Company and TEI is the combination of entities under
common control. The Company's financial statements have been restated in a
manner similar to pooling of interests accounting. Since the acquisitions of
ENSERCH, LCC and Eastern Energy were purchase business combinations, no
financial and other information for those companies are presented for periods
prior to their dates of acquisition. The consolidated financial statements of
TU Electric include all of its business trusts.
All significant intercompany items and transactions have been eliminated in
consolidation. Investments in significant unconsolidated affiliates are
accounted for by the equity method. Certain previously reported amounts have
been reclassified to conform to current classifications.
Use of Estimates -- The preparation of the Company's and TU Electric's
consolidated financial statements, in conformity with generally accepted
accounting principles, requires management to make estimates and assumptions
about future events that affect the reporting and disclosure of assets and
liabilities at the balance sheet dates and the reported amounts of revenue
A-33
<PAGE>
and expense during the periods covered by the consolidated financial statements.
In the event estimates and/or assumptions prove to be different from actual
amounts, adjustments are made in subsequent periods to reflect more current
information. No material adjustments were made to previous estimates during the
current year.
System of Accounts -- The accounting records of TU Electric and SESCO are
maintained in accordance with the Federal Energy Regulatory Commission's (FERC)
Uniform System of Accounts as adopted by the Public Utility Commission of Texas
(PUC). Lone Star Gas and Lone Star Pipeline, divisions of ENSERCH, are subject
to the accounting requirements prescribed by the National Association of
Regulatory Utility Commissioners (NARUC).
Property, Plant and Equipment -- Electric and gas utility plant is stated at
original cost less certain regulatory disallowances. The cost of property
additions to electric and gas utility plant includes labor and materials,
applicable overhead and payroll-related costs and an allowance for funds used
during construction (AFUDC). Other property is stated at cost.
Allowance For Funds Used During Construction -- AFUDC is a cost accounting
procedure whereby amounts based upon interest charges on borrowed funds and a
return on equity capital used to finance construction are added to utility
plant. The accrual of AFUDC is in accordance with generally accepted accounting
principles for the industry, but does not represent current cash income.
TU Electric capitalizes AFUDC, compounded semi-annually, on expenditures for
ongoing construction work in progress (CWIP) and nuclear fuel in process not
otherwise allowed in rate base by regulatory authorities. For 1997, 1996 and
1995, TU Electric used rates of 7.9%, 7.4%, and 7.7%, respectively. Other
regulated subsidiaries also capitalize AFUDC.
Depreciation of Property, Plant and Equipment -- Depreciation of the
Company's electric and gas utility plant is generally based upon an amortization
of the original cost of depreciable properties (net of regulatory disallowances)
on a straight-line basis over the estimated service lives of the properties.
Depreciation also includes an amount for TU Electric's Comanche Peak
decommissioning costs which is being accrued over the lives of the units and
deposited to external trust funds. (See Note 15.) Depreciation of all other
plant and equipment generally is determined by the straight-line method over the
useful life of the asset. Consolidated depreciation as a percent of average
depreciable property for the Company and System Companies approximated 2.6% for
1997, 2.7% for 1996 and 2.6% for 1995.
Amortization of Nuclear Fuel and Refueling Outage Costs -- The amortization
of nuclear fuel in the reactors (net of regulatory disallowances) is calculated
on the units of production method and is included in nuclear fuel expense. TU
Electric accrues a provision for costs anticipated to be incurred during the
next scheduled Comanche Peak nuclear generating station (Comanche Peak)
refueling outage.
Foreign Currency Translation -- The assets and liabilities of foreign
operations denominated in foreign currencies are translated at rates in effect
at year end. Revenues and expenses are translated at average rates for the
applicable periods. Generally, local currencies are considered to be the
functional currency, and adjustments resulting from such translation are
included in the cumulative currency translation adjustment, a separate component
of common stock equity.
Derivative Instruments -- The Company enters into interest rate swaps to
reduce exposure to interest rate fluctuations. Amounts paid or received under
interest rate swap agreements are accrued as interest rates change and are
recognized over the life of the agreements as adjustments to interest expense.
The Company also enters into derivative contracts in connection with the
wholesale purchases of electric energy by Eastern Energy and defers the impact
of changes in the market value of the contracts, which serve as hedges, until
the related transaction is completed. (See Note 9.)
A-34
<PAGE>
Energy Marketing Activities -- The Company, through its natural gas marketing
subsidiary, Enserch Energy Services, Inc. (EES), is a marketer of natural gas
and natural gas services. As part of these business activities, EES enters into
a variety of transactions, including forward contracts principally involving
physical delivery of natural gas and derivative financial instruments, including
options, swaps, futures and other contractual arrangements. The derivative
transactions are concentrated with established energy companies and major
financial institutions. EES uses the mark-to-market method of valuing and
recognizing earnings from firm contractual commitments to purchase and sell
natural gas in the future and from its portfolio of derivative financial
instruments, including options, swaps, futures and other contractual
commitments. (See Note 9.)
Revenues --Electric revenues include billings under approved rates (including
a fixed fuel factor) applied to meter readings each month on a cycle basis and
an accrual of base rate revenue for energy provided after cycle billing but not
billed through the end of each month. Revenues also include an amount for
under- or over-recovery of fuel revenue representing the difference between
actual fuel cost and billings under the approved fixed fuel factor and a
provision that generally allows recovery through a Power Cost Recovery Factor,
on a monthly basis, of the capacity portion of purchased power cost and wheeling
cost from qualifying facilities not included in base rates. The fuel portion of
purchased power cost is included in the fixed fuel factor. A utility's fuel
factor can be revised upward or downward every six months, according to a
specified schedule. A utility is required to petition to make either surcharges
or refunds to ratepayers, together with interest based on a twelve month average
of prime commercial rates, for any material cumulative under- or over-recovery
of fuel costs. If the cumulative difference of the under- or over-recovery,
plus interest, is in excess of 4% of the annual estimated fuel costs most
recently approved by the PUC, it will be deemed to be material. A procedure
exists for an expedited change in fuel factors in the event of an emergency.
Final reconciliation of fuel costs must be made either in a reconciliation
proceeding, which may cover no more than three years and no less than one year,
or in a general rate case. (See Note 13.)
The city gate rate for the cost of gas Lone Star Gas ultimately delivers to
residential and commercial customers is established by the Railroad Commission
of Texas (RRC) and provides for full recovery of the actual cost of gas
delivered, including out-of-period costs such as gas-purchase contract
settlement costs. The rates Lone Star Gas charges its residential and
commercial customers are established by the municipal governments of the cities
and towns served, with the RRC having appellate jurisdiction. Lone Star Gas
records revenues on the basis of cycle meter readings throughout the month and
accrues revenues for gas delivered from the meter reading dates to the end of
the month. The rate Lone Star Pipeline charges to Lone Star Gas for
transportation and storage of gas ultimately consumed by residential and
commercial customers is established by the RRC.
Income Taxes --The Company and its domestic (U.S.) subsidiaries file a
consolidated federal income tax return, and federal income taxes are allocated
to subsidiaries based upon their respective taxable income or loss. Investment
tax credits are normally amortized to income over the estimated service lives of
the properties. Deferred income taxes are currently provided for temporary
differences between the book and tax basis of assets and liabilities (including
the provision for regulatory disallowances). Certain provisions of SFAS 109
provide that regulated enterprises are permitted to recognize such adjustments
as regulatory tax assets or tax liabilities if it is probable that such amounts
will be recovered from, or returned to, customers in future rates. Accordingly,
at December 31, 1997, the consolidated balance sheet includes a net regulatory
tax asset of $1,249,338,000.
Effective January 1, 1997, TU Electric's state franchise tax status changed
from a tax based on net taxable capital to a tax based on net taxable earned
surplus. Certain other subsidiaries of the Company are also taxed on the earned
surplus method. Net taxable earned surplus is based on the federal income tax
return. The portion of the franchise tax calculated under the earned surplus
method is an income tax.
Income Taxes on Undistributed Earnings of Foreign Subsidiaries -- The Company
intends to reinvest the earnings of its foreign subsidiaries into those
businesses. Accordingly, no provision has been made for taxes which would be
payable if such earnings were to be repatriated to the United States.
Earnings Per Share --Under the provisions of SFAS 128, which became effective
in December 1997, basic earnings per share applicable to common stock are based
on the weighted average number of common shares outstanding during the
A-35
<PAGE>
year. Diluted earnings per share since the Merger include the effect of
potential common shares resulting from the assumed conversion of the outstanding
6 3/8% Convertible Subordinated Debentures due 2002 of ENSERCH and the exercise
of all outstanding stock options. For the period from the effective date of the
Merger to December 31, 1997, 999,492 shares were added to the average shares
outstanding for 1997 and $1,545,964 of after-tax interest expense was added to
earnings applicable to common stock for the purpose of calculating diluted
earnings per share. Previously reported earnings per share amounts for prior
years were not affected by the new standard.
Consolidated Cash Flows -- For purposes of reporting cash flows, temporary
cash investments purchased with a remaining maturity of three months or less are
considered to be cash equivalents.
The schedule below details the Company's and TU Electric's cash payments and
noncash investing and financing activities:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1997 1996 1995
---- ---- ----
Thousands of Dollars
<S> <C> <C> <C>
The Company
- -----------
CASH PAYMENTS
Interest (net of amounts capitalized)................... $ 630,844 $757,092 $ 677,415
Income taxes............................................ 174,908 246,556 208,326
NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of ENSERCH and LCC (1997) and Eastern
Energy (1995):
Book value of assets acquired......................... $ 2,033,311 $ -- $ 1,329,158
Goodwill.............................................. 1,005,277 -- 302,497
Common stock issued, net of capitalized expenses...... (892,068) 9,821 --
Liabilities assumed................................... (2,124,878) -- (1,006,847)
----------- -------- -----------
Cash used.......................................... 21,642 9,821 624,808
Cash acquired......................................... (26,419) -- (7,943)
----------- -------- -----------
Net cash used (provided)........................... $ (4,777) $ 9,821 $ 616,865
=========== ======== ===========
TU Electric
- -----------
CASH PAYMENTS
Interest (net of amounts capitalized)................... $ 467,760 $558,039 $ 602,524
Income taxes............................................ 231,809 303,204 213,690
</TABLE>
Regulatory Assets and Liabilities -- SFAS 71 applies to utilities which have
cost-based rates established by a regulator and charged to and collected from
customers. In accordance with this statement, the Company's regulated
subsidiaries may defer the recognition of certain costs (regulatory assets) and
certain obligations (regulatory liabilities) that, as a result of the rate
making process, have probable corresponding increases or decreases in future
revenues. These regulatory assets and liabilities are being amortized over
various periods of 5 to 40 years and are currently included in rates, or are
expected to be included in future rates.
Significant net regulatory assets are as follows:
<TABLE>
<CAPTION>
The Company TU Electric
December 31, December 31,
--------------------------------------------------
Item 1997 1996 1997 1996
---- ---- ---- ---- ----
Thousands of Dollars
<S> <C> <C> <C> <C>
Securities reacquisition costs............. $ 397,488 $ 396,335 $ 396,702 $ 394,733
Canceled lignite unit costs................ 9,208 12,322 9,208 12,322
Rate case costs............................ 56,637 59,444 56,637 59,444
Litigation and settlement costs............ 72,685 72,685 72,685 72,685
Voluntary retirement/severance program..... 100,337 128,337 107,776 108,884
Recoverable deferred income taxes -- net... 1,249,338 1,167,922 1,254,456 1,173,413
Other regulatory assets (liabilities)...... 40,008 (10,942) (28,263) (13,490)
Reserve for regulatory disallowances....... (72,685) (72,685) (72,685) (72,685)
---------- ---------- ---------- ----------
Unamortized regulatory assets............ 1,853,016 1,753,418 1,796,516 1,735,306
Unamortized investment tax credits........ (570,283) (589,713) (556,743) (577,965)
---------- ---------- ---------- ----------
Unamortized regulatory assets -- net....... $1,282,733 $1,163,705 $1,239,773 $1,157,341
========== ========== ========== ==========
</TABLE>
A-36
<PAGE>
Future significant changes in regulation or competition could affect the
regulated subsidiaries' ability to meet the criteria for continued application
of SFAS 71 and may affect their ability to recover these regulatory assets from,
or refund these regulatory liabilities to, customers. If the affected System
Companies were to discontinue the application of SFAS 71, they would be required
to assess the recoverability of certain assets, including plant and regulatory
assets, and, if impaired, to write down the assets to reflect their fair market
value. The Company and TU Electric cannot predict the ultimate outcome of the
ongoing efforts that are taking place to restructure the electric utility
industry or whether the outcome of such efforts will have a material effect on
its financial position, results of operation or cash flows. However, the
Company and TU Electric have no current knowledge of planned or impending
actions by regulators, including the legislature of the State of Texas, that
would affect recoverability of its plant and net regulatory assets.
TU Electric
- -----------
Affiliates -- The Company provides common stock capital and partial
requirements for short-term financing to TU Electric and System Companies. The
Company has other subsidiaries which perform specialized services for the System
Companies, including TU Electric; Texas Utilities Services Inc. (TU Services)
which provides financial, accounting, information technology, environmental
services, customer services, procurement, personnel, shareholder services and
other administrative services at cost; Texas Utilities Fuel Company (Fuel
Company) which owns a natural gas pipeline system, acquires, stores and delivers
fuel gas and provides other fuel services at cost for the generation of
electric energy by TU Electric; and Texas Utilities Mining Company (Mining
Company) which owns, leases and operates fuel production facilities for the
surface mining and recovery of lignite at cost for use at TU Electric's
generating stations; and ENSERCH. TU Electric provided services such as energy
sales, wheeling and scheduling to SESCO.
TU Electric has entered into agreements with Fuel Company for the procurement
of certain fuels and related services and with Mining Company for the
procurement and production of lignite. Payments are at cost for the services
received and are required by the agreements to be "at least equivalent in the
aggregate to the annual charge to income on the books" of Fuel Company and of
Mining Company. TU Electric is, in effect, obligated for the principal,
$382,142,000 at December 31, 1997, and interest on long-term notes of Mining
Company through payments described above. Such notes mature at various dates
through 2005 and have interest rates ranging from 6.50% to 9.42%.
The schedule below details TU Electric's significant billings to and from
affiliates for services rendered and interest on short-term financings:
Year Ended December 31,
----------------------------
1997 1996 1995
---- ---- ----
Thousands of Dollars
Billings from:
TU Services.......................... $270,547 $263,869 $182,334
Fuel Company......................... 995,635 922,200 763,346
Mining Company....................... 354,896 368,937 327,856
Billings to:
SESCO................................ $ 35,195 $ 29,171 $ 20,657
Fuel Company......................... 900 1,619 5,669
3. SHORT-TERM FINANCING
The Company
- -----------
The Company had outstanding short-term borrowings of $614,442,000 consisting
of commercial paper of $570,000,000 and bank borrowings of $44,442,000 at
December 31, 1997. The weighted average interest rates on such borrowings was
6.18% at December 31, 1997. During the years 1997, 1996 and 1995, the
Company's average amounts outstanding for short-term borrowings, including
amounts classified as long-term, were $1,222,176,000, $593,660,000 and
$149,806,000, respectively. Weighted average interest rates for short-term
borrowings during such periods were 5.86%, 5.94%,and 6.33%, respectively.
At December 31, 1997, the Company, TU Electric and ENSERCH had joint lines of
credit under credit facility agreements (Credit Agreements) with a group of
commercial banks. The Credit Agreements have two facilities. Facility A
provides for short-term borrowings aggregating up to $570,000,000 outstanding at
any one time at variable interest rates and
A-37
<PAGE>
terminates April 23, 1998. Facility B provides for short-term borrowings
aggregating up to $1,330,000,000 outstanding at any one time at variable
interest rates and terminates April 24, 2002. The combined borrowings of the
Company, TU Electric and ENSERCH under both facilities are limited to an
aggregate of $1,900,000,000 outstanding at any one time. ENSERCH's borrowings
under both facilities are limited to an aggregate of up to $650,000,000
outstanding at any one time. Borrowings under these facilities will be used for
working capital and other corporate purposes, including commercial paper backup.
The total of short-term borrowings authorized by the Board of Directors of the
Company at December 31, 1997, from banks or other lenders, was $2,150,000,000.
In addition, certain non-U.S. subsidiaries have revolving credit agreements
aggregating approximately $95,000,000, of which $61,000,000 was outstanding at
December 31, 1997. These revolving credit agreements expire at various dates
through 2000.
The Company intends to refinance up to $990,440,000 of its current short-term
borrowings beyond one year of the balance sheet date of December 31, 1997. As a
result, such amount has been reclassified from notes payable - commercial paper
to long-term debt on the Company's 1997 Balance Sheet (see Note 8). If
necessary, the Company would draw upon Facility B if such amount were not
refinanced in the normal course of business.
TU Electric
- -----------
TU Electric had no borrowings from banks in 1997 or 1996. Average amounts
outstanding to banks for borrowings were $11,667,000 during 1995 and TU
Electric's average commercial paper outstanding was $36,761,000, $254,027,000,
and $340,579,000 for 1997, 1996 and 1995, respectively. During such periods,
weighted average interest rates to banks for borrowings were 6.51%, and to
holders of commercial paper were 5.61%, 5.53%, and 6.10%, respectively. Average
borrowings outstanding from other affiliates were $157,608,000, $9,586,000 and
$4,079,000 during 1997, 1996, and 1995, respectively, and the respective
weighted average interest rates for such borrowings were 5.88%, 5.91% and 6.38%
4. COMMON STOCK
The Company
- -----------
The Company has an Automatic Dividend Reinvestment and Common Stock Purchase
Plan (DRIP) and an Employees' Thrift Plan of the Texas Utilities Company System
(Thrift Plan). During each of the last three years, requirements under the DRIP
and Thrift Plan have been met through open market purchases of the Company's
common stock.
At December 31, 1997, the Thrift Plan had an obligation of $250,000,000
outstanding in the form of a note, which the Company purchased from the
original third-party lender and recorded as a reduction to common equity. At
December 31, 1997, the Thrift Plan trustee held 5,375,158 shares of common stock
(LESOP Shares) of the Company under the leveraged employee stock ownership
provision of the Thrift Plan. LESOP Shares are held by the trustee until
allocated to Thrift Plan participants when required to meet the System
Companies' obligations under terms of the Thrift Plan. The Thrift Plan uses
dividends on the LESOP Shares held and contributions from the System Companies,
if required, to repay interest and principal on the note. Common stock equity
increases at such time as LESOP Shares are allocated to participants' accounts
although shares of common stock outstanding include unallocated LESOP Shares
held by the trustee. Allocations to participants' accounts in each of the years
1997 and 1995 increased common stock equity by $8,115,000; 1996 increased by
$8,137,000.
The Long-Term Incentive Compensation Plan was approved and adopted by the
directors of the Company and approved by the shareholders in 1997. The purpose
of the plan is to assist the Company in attracting, retaining and motivating
executive officers and other key employees essential to the success of the
Company through performance-related incentives linked to long-range performance
goals. The plan is a comprehensive, stock-based incentive compensation plan,
providing for discretionary awards (Awards) of incentive stock options,
nonqualified stock options, stock appreciation rights, restricted stock,
restricted stock units, performance shares, performance units, bonus stock and
other stock-based awards. All Awards will be made in, or based on the value of,
the Company's common stock. The maximum number of shares of common stock for
which Awards may be granted under the plan is 2,500,000 subject to adjustment in
the event of a merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, or other similar event. During 1997, the Board of
Directors
A-38
<PAGE>
authorized the award of 61,000 shares of restricted common stock, which were
issued in 1997 subject to performance and vesting requirements over a three to
five year period. No stock options were granted.
At December 31, 1997, 14,154,372 shares of the authorized but unissued
common stock of the Company were reserved for issuance and sale pursuant to the
above plans, for conversion of the 6% Convertible Subordinated Debentures due
2002 (see Note 8) and for other purposes.
In November 1997, the Company's Board of Directors increased the common stock
repurchase limit to $350 million of which $148,780,000 was used as of December
31, 1997 to purchase and retire 4,015,000 shares of the Company's issued and
outstanding common stock during 1997. The cost of the repurchased shares, to
the extent it exceeded the estimated amount received upon their original
issuance, has been charged to retained earnings.
The Company has 50,000,000 authorized shares of serial preference stock
having a par value of $25 a share, none of which has been issued.
TU Electric
- -----------
During the year ended December 31, 1997, TU Electric purchased and retired a
total of 13,869,000 shares of its issued and outstanding common stock at a total
cost of approximately $416,070,000. TU Electric had no common stock
transactions in 1995 or 1996.
No shares of TU Electric's common stock are held by or for its own account,
nor are any shares of such capital stock reserved for its officers and employees
or for options, warrants, conversions and other rights in connection therewith.
5. DIVIDEND RESTRICTIONS OF TU ELECTRIC AND OTHER SUBSIDIARIES OF THE COMPANY
The articles of incorporation and/or the mortgages, as supplemented, and
certain other debt instruments of TU Electric and SESCO contain provisions
which, under certain conditions, restrict distributions on or acquisitions of
common stock. At December 31, 1997, $29,236,000 of retained earnings of TU
Electric, and $13,970,000 of retained earnings of SESCO, were thus restricted
as a result of such provisions.
In 1995, TU Electric transferred approximately $433,820,000 from its common
stock account to retained earnings. Such amount represented the Company's
equity in undistributed earnings, since acquisition, included in previous
transfers by TU Electric.
A-39
<PAGE>
6. PREFERRED STOCK OF TU ELECTRIC AND OTHER SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Shares Outstanding Amount Redemption Price Per Share
Dividend Rate December 31, December 31, (Before Adding Accumulated Dividends)
- ------------------------------------ ------------------ -------------------- ------------------------------------
1997 1996 1997 1996 December 31, 1997 Eventual Minimum
---- ---- ---- ---- ----------------- ----------------
Thousands of Dollars
Not Subject to Mandatory Redemption:
- ------------------------------------
TU Electric (cumulative, without par value, entitled upon liquidation to $100 a share; authorized 17,000,000 shares)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 4.50 series......................... 22,406 74,367 $ 2,242 $ 7,440 $ 110.00 $ 110.00
4.00 series (Dallas Power).......... 20,755 70,000 2,090 7,049 103.56 103.56
4.56 series (Texas Power)........... 52,879 133,628 5,291 13,371 112.00 112.00
4.00 series (Texas Electric)........ 69,221 110,000 6,922 11,000 102.00 102.00
4.56 series (Texas Electric)........ 22,237 64,947 2,246 6,560 112.00 112.00
4.24 series......................... 18,194 100,000 1,834 10,081 103.50 103.50
4.64 series......................... 25,195 100,000 2,524 10,016 103.25 103.25
4.84 series......................... 15,964 70,000 1,597 7,000 101.79 101.79
4.00 series (Texas Power)........... 27,391 70,000 2,739 7,000 102.00 102.00
4.76 series......................... 23,181 100,000 2,318 10,000 102.00 102.00
5.08 series......................... 27,716 80,000 2,773 8,004 103.60 103.60
4.80 series......................... 20,420 100,000 2,044 10,009 102.79 102.79
4.44 series......................... 33,672 150,000 3,381 15,061 102.61 102.61
7.20 series......................... -- 200,000 -- 20,044 -- --
6.84 series......................... -- 200,000 -- 20,023 -- --
7.24 series......................... -- 247,862 -- 24,905 -- --
8.20 series (a) (c)................. 146,501 338,872 14,138 32,704 (b) 100.00
7.98 series......................... 261,075 474,000 25,774 46,794 (b) 100.00
7.50 series (a)..................... 308,308 392,234 29,918 38,062 (b) 100.00
7.22 series (a)..................... 220,448 301,132 21,363 29,182 (b) 100.00
Adjustable rate series A................ -- 884,700 -- 86,878 -- --
Adjustable rate series B................ -- 440,137 -- 43,244 -- --
--------- --------- -------- --------
Total............................ 1,315,563 4,701,879 129,194 464,427
--------- --------- -------- --------
<CAPTION>
ENSERCH (entitled upon liquidation to stated value per share; authorized 2,000,000 shares)
- ------------------------------------------------------------------------------------------
Adjustable Rate Preferred Stock:
Series E (c) (d).................... 100,000 -- 100,000 -- 1,000.00 1,000.00
Series F (d)........................ 75,000 -- 75,000 -- (b) 1,000.00
--------- --------- -------- --------
Total............................. 175,000 -- 175,000 --
--------- --------- -------- --------
Total........................ 1,490,563 4,701,879 $304,194 $464,427
========= ========= ======== ========
<CAPTION>
TU Electric - Subject to Mandatory Redemption (e)
- -------------------------------------------------
$ 9.64 series......................... -- 400,000 $ -- $ 39,981 -- --
6.98 series......................... 107,500 1,000,000 10,672 99,199 (b) 100.00
6.375 series........................ 100,000 1,000,000 9,928 99,211 (b) 100.00
--------- --------- -------- --------
Total............................ 207,500 2,400,000 $ 20,600 $238,391
========= ========= ======== ========
</TABLE>
- -----------------------------------------
(a) The preferred stock series is the underlying preferred stock for depositary
shares that were issued to the public. Each depositary share represents one
quarter of a share of underlying preferred stock.
(b) Preferred stock series is not redeemable at December 31, 1997.
(c) Preferred stock series redeemed in January 1998.
(d) Stated value $1,000 per share. The preferred stock series is the underlying
preferred stock for depositary shares that were issued to the public. Each
depositary share represents one-tenth of a share of underlying preferred
stock for Series E ($100 per share) and one-fortieth of a share for Series F
($25 per share). Dividend rates are determined quarterly, in advance, based
on certain U.S. Treasury rates. At December 31, 1997, the Series E bears a
dividend rate of 7.0% and the Series F bears a dividend rate of 5.54%.
(e) TU Electric is required to redeem at a price of $100 per share plus
accumulated dividends a specified minimum number of shares annually or semi-
annually on the initial/next dates shown below. These redeemable shares may
be called, purchased or otherwise acquired. Certain issues may not be
redeemed at the option of TU Electric prior to 2003. TU Electric may
annually call for redemption, at its option, an aggregate of up to twice the
number of shares shown below for each series at a price of $100 per share
plus accumulated dividends.
Minimum Redeemable Initial/Next Date of
Series Shares Mandatory Redemption
------ ------------------ --------------------
$ 6.98 50,000 annually July 1, 2003
6.375 50,000 annually October 1, 2003
The carrying value of preferred stock subject to mandatory redemption is being
increased periodically to equal the redemption amounts at the mandatory
redemption dates with a corresponding increase in preferred stock dividends.
A-40
<PAGE>
During the year ended December 31, 1997, TU Electric redeemed or purchased
5,578,816 shares of its preferred stock (including 3,989,640 shares purchased by
the Company in March 1997 pursuant to a tender offer and subsequently sold to TU
Electric) with annual dividend rates ranging from 4.00% to 9.64% at a total cost
of approximately $553,093,000. In January 1998, TU Electric redeemed all of the
outstanding shares of the $8.20 series preferred stock, and ENSERCH redeemed the
Series E Adjustable Rate Preferred Stock, in each case at 100% of the
liquidation price plus accumulated and unpaid dividends.
7. TU ELECTRIC OBLIGATED, MANDATORILY REDEEMABLE, PREFERRED SECURITIES OF
SUBSIDIARY TRUSTS HOLDING SOLELY DEBENTURES OF TU ELECTRIC
Five statutory business trusts, each a TU Electric Trust, have been
established as financing subsidiaries of TU Electric for the purposes, in each
case, of issuing common and preferred trust securities and holding Junior
Subordinated Debentures issued by TU Electric (Debentures). TU Electric
Capital I, II and III preferred trust securities have a liquidation preference
of $25 per unit and TU Electric Capital IV and V preferred trust securities have
a liquidation preference of $1,000 per unit (Capital Securities). The
Debentures held by each TU Electric Trust are its only assets. The interest on
Trust assets matches the dividend rates on the trust securities. Each TU
Electric Trust will use interest payments received on the Debentures it holds to
make cash distributions on the trust securities it has issued.
The preferred securities are subject to mandatory redemption upon payment of
the Debentures at maturity or upon redemption. The Debentures are subject to
redemption, in whole or in part at the option of TU Electric, as 100% of their
principal amount plus accrued interest, after an initial period during which
they may not be redeemed and at any time upon the occurrence of certain events.
The carrying value of the preferred securities is being increased periodically
to equal the redemption amounts at the mandatory redemption dates with a
corresponding increase in preferred securities distributions.
At December 31, 1997 and 1996, the following preferred securities and related
trust assets of the TU Electric Trusts were outstanding:
<TABLE>
<CAPTION>
Preferred Securities Trust Assets
---------------------------------------------------------------------
Units Outstanding Amount Amount
December 31, December 31, December 31,
--------------------- ------------------ -------------------
1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
Thousands of Dollars
<S> <C> <C> <C> <C> <C> <C>
TU Electric Capital I (8.25% Series)..... 5,871,044 5,871,044 $140,851 $140,671 $154,869 $154,869
TU Electric Capital II (9.00% Series).... 1,991,253 1,991,253 47,374 47,301 51,419 51,419
TU Electric Capital III (8.00% Series)... 8,000,000 8,000,000 193,510 193,339 206,186 206,186
TU Electric Capital IV (floating rate
Capital Securities)(a)................. 100,000 -- 97,570 -- 103,093 --
TU Electric Capital V (8.175% Capital
Securities)............................. 400,000 -- 395,841 -- 412,372 --
---------- ---------- -------- -------- -------- --------
Total 16,362,297 15,862,297 $875,146 $381,311 $927,939 $412,474
========== ========== ======== ======== ======== ========
</TABLE>
(a) Floating rate is determined quarterly based on LIBOR. The related
interest rate swap fixes the rate at 7.183%.
At December 31, 1997, TU Electric, with respect to its Capital IV securities,
had an interest rate swap agreement with a notional principal amount of
$100,000,000 expiring 2002 that fixed the rate on the securities at 7.183% per
annum.
The combination of the obligations of TU Electric pursuant to agreements to
pay the expenses of each of the TU Electric Trusts and TU Electric's guarantees
of distributions with respect to trust securities, to the extent the issuing
trust has funds available therefor, constitutes a full and unconditional
guarantee by TU Electric of the obligations of each trust under the trust
securities it has issued. TU Electric is the owner of all the common trust
securities of each trust, which, in each case, constitutes 3% or more of the
liquidation amount of all the trust securities issued by such trust.
In January 1998, TU Electric redeemed all of the outstanding shares of the TU
Electric Capital II preferred trust securities at 100% of the liquidation amount
of $25 per preferred security, plus accumulated and unpaid dividends.
A-41
<PAGE>
8. LONG-TERM DEBT, less amounts due currently
<TABLE>
<CAPTION>
The Company TU Electric
December 31, December 31,
Interest Series ---------------------- ------------------
Rate Due 1997 1996 1997 1996
---- --- ---- ---- ---- ----
Thousands of Dollars
<S> <C> <C> <C> <C>
First mortgage bonds:
5-1/2% series due 1998............................... $ -- $125,000 $ -- $125,000
5-3/4% series due 1998............................... -- 150,000 -- 150,000
5-7/8% series due 1998............................... -- 175,000 -- 175,000
6-1/2% series due 1998............................... -- 1,065 -- --
7-3/8% series due 1999............................... 100,000 100,000 100,000 100,000
Floating rate series due 1999........................ -- 300,000 -- 300,000
9-1/2% series due 1999............................... 200,000 200,000 200,000 200,000
7-3/8% series due 2001............................... 150,000 150,000 150,000 150,000
7.95 % series due 2002............................... 888 900 -- --
8 % series due 2002............................... 147,000 147,000 147,000 147,000
8-1/8% series due 2002............................... 150,000 150,000 150,000 150,000
6-3/4% series due 2003............................... 200,000 200,000 200,000 200,000
6-3/4% series due 2003............................... 100,000 100,000 100,000 100,000
6-1/4% series due 2004............................... 125,000 125,000 125,000 125,000
8-1/4% series due 2004............................... 100,000 100,000 100,000 100,000
6-3/4% series due 2005............................... 100,000 100,000 100,000 100,000
10.44% series due 2008............................... 3,000 3,000 3,000 3,000
9-3/4% series due 2021............................... 135,855 280,855 135,855 280,855
8-7/8% series due 2022............................... 125,000 175,000 125,000 175,000
9 % series due 2022............................... -- 100,000 -- 100,000
7-7/8% series due 2023............................... 300,000 300,000 300,000 300,000
8-3/4% series due 2023............................... 135,550 195,550 135,550 195,550
7-7/8% series due 2024............................... 225,000 225,000 225,000 225,000
8-1/2% series due 2024............................... 113,000 163,000 113,000 163,000
7-3/8% series due 2025............................... 208,000 208,000 208,000 208,000
7-5/8% series due 2025............................... 250,000 250,000 250,000 250,000
Pollution control series:
Brazos River Authority
7-7/8% series due 2017............................... -- 81,305 -- 81,305
9-7/8% series due 2017............................... -- 28,765 -- 28,765
9-1/4% series due 2018............................... 54,005 54,005 54,005 54,005
8-1/4% series due 2019............................... 100,000 100,000 100,000 100,000
8-1/8% series due 2020............................... 50,000 50,000 50,000 50,000
7-7/8% series due 2021............................... 100,000 100,000 100,000 100,000
Taxable series due 2021 (5.86%) (a).................. 40,895 65,940 40,895 65,940
5-1/2% series due 2022............................... 50,000 50,000 50,000 50,000
6-5/8% series due 2022............................... 33,000 33,000 33,000 33,000
6.70 % series due 2022............................... 16,935 16,935 16,935 16,935
6-3/4% series due 2022............................... 50,000 50,000 50,000 50,000
Series 1997D due 2022 (3.75%) (c).................... 28,765 -- 28,765 --
Taxable series due 2023 (5.85%) (a).................. 100,000 100,000 100,000 100,000
6.05 % series due 2025............................... 90,000 90,000 90,000 90,000
Series 1996 A due 2026 (5.10%)(c).................... 25,060 25,060 25,060 25,060
6-1/2% series due 2027............................... 46,660 46,660 46,660 46,660
6.10 % series due 2028............................... 50,000 50,000 50,000 50,000
Series 1994A due 2029 (3.75% to 3.85%) (b)........... 39,170 39,170 39,170 39,170
Series 1994B due 2029 (3.75% to 3.80%) (b)........... 39,170 39,170 39,170 39,170
Series 1995A due 2030 (5.10%) (c).................... 50,670 50,670 50,670 50,670
Series 1995B due 2030 (4.60%) (c).................... 118,355 118,355 118,355 118,355
Series 1995C due 2030 (5.10%) (c).................... 118,355 118,355 118,355 118,355
Series 1996B due 2030 (4.60%) (c).................... 61,215 61,215 61,215 61,215
Series 1996C due 2030 (5.10%) (c).................... 50,000 50,000 50,000 50,000
Series 1997A due 2032 (5.10%) (c).................... 50,000 -- 50,000 --
Series 1997B due 2032 (4.95%) (c).................... 31,305 -- 31,305 --
Series 1997C due 2032 (5.10%) (c).................... 25,045 -- 25,045 --
Sabine River Authority of Texas
9 % series due 2007............................... -- 51,525 -- 51,525
8-1/8% series due 2020............................... 40,000 40,000 40,000 40,000
8-1/4% series due 2020............................... 11,000 11,000 11,000 11,000
</TABLE>
A-42
<PAGE>
<TABLE>
<CAPTION>
The Company TU Electric
December 31, December 31,
Interest Series ----------------------- -----------------------
Rate Due 1997 1996 1997 1996
---- --- ---- ---- ---- ----
Thousands of Dollars
Sabine River Authority of Texas (continued)
<S> <C> <C> <C> <C>
5.55 % series due 2022................................... $ 75,000 $ 75,000 $ 75,000 $ 75,000
6.55 % series due 2022................................... 40,000 40,000 40,000 40,000
5.85 % series due 2022................................... 33,465 33,465 33,465 33,465
Series 1997A due 2022 (3.70%)(c).......................... 51,525 -- 51,525 --
Series 1996A due 2026 (5.10%) (c)........................ 57,950 57,950 57,950 57,950
Series 1996B due 2026 (5.10%) (c)........................ 25,000 25,000 25,000 25,000
Series 1995A due 2030 (5.20%) (c)........................ 16,000 16,000 16,000 16,000
Series 1995B due 2030 (4.50%) (c)........................ 12,050 12,050 12,050 12,050
Series 1995C due 2030 (4.60%) (c)........................ 18,475 18,475 18,475 18,475
Trinity River Authority of Texas
9 % series due 2007.................................... -- 12,000 -- 12,000
Series 1997A due 2022 (3.75%) (c)......................... 12,000 -- 12,000 --
Series 1996 A due 2026 (5.10%) (c)....................... 25,000 25,000 25,000 25,000
Series 1997B due 2032 (5.95%) (c)......................... 14,075 -- 14,075 --
Secured medium-term notes, series A......................... 30,000 30,000 30,000 30,000
Secured medium-term notes, series B......................... 114,200 114,200 114,200 114,200
Secured medium-term notes, series D......................... 201,150 201,150 201,150 201,150
---------- ---------- ---------- ----------
Total first mortgage bonds.............................. 5,063,788 6,205,790 5,062,900 6,203,825
General obligation bonds..................................... 9,646 10,000 -- --
Debt assumed for purchase of utility plant (d)............... 153,537 156,182 153,537 156,182
TU Electric 7.17% Senior Debentures due 2007................. 300,000 -- 300,000 --
Senior notes:
TEI (due through 2010 at 10.2% to 10.58%)................... 235,800 239,350 -- --
TUC (due through 2004 at 6.20% to 6.375%)................... 300,000 -- -- --
ENSERCH (due through 2005 at 6.25% to 8.875%)............... 575,000 -- -- --
TUMCO (due through 2005 at 6.5% to 9.42%)................... 367,856 382,142 -- --
LCC (due through 2003 at 7.15% to 10.5%).................... 648 -- -- --
Eastern Energy (due through 2016 at 6.75% to 7.25%) (e)..... 280,994 343,389 -- --
6 3/8% Convertible subordinated debentures due 2002.......... 90,750 -- -- --
Term credit facilities (f)................................... 1,416,728 1,381,290 -- --
Unamortized premium and discount and fair value adjustments.. (35,368) (50,032) (40,990) (49,413)
---------- ---------- ---------- ----------
Total long-term debt, less amounts
due currently.................................... $8,759,379 $8,668,111 $5,475,447 $6,310,594
========== ========== ========== ==========
</TABLE>
- ------------------------------
(a) Interest rates in effect at December 31, 1997 are presented. Taxable
pollution control series are in a flexible rate mode. Series 1991D bonds due
2021 were remarketed on June 1, 1995 for rate periods up to 180 days and are
secured by an irrevocable letter of credit with maturities in excess of one
year. Series 1993 bonds due 2023 will be remarketed for periods of less than
270 days and are secured by an irrevocable letter of credit with maturities
in excess of one year.
(b) Interest rates in effect at December 31, 1997 are presented. These series
are in a flexible mode with varying interest rates and, while in such mode,
will be remarketed for periods of less than 270 days and are secured by an
irrevocable letter of credit with maturities in excess of one year.
(c) Interest rates in effect at December 31, 1997 are presented. These series
are in a daily mode with varying interest rates and are supported by either
municipal bond insurance policies and standby bond purchase agreements or
are secured by irrevocable letters of credit with maturities in excess of
one year.
(d) In 1990, TU Electric purchased the ownership interest in Comanche Peak of
Tex-La Electric Cooperative of Texas, Inc. (Tex-La) and assumed debt of Tex-
La payable over approximately 32 years. The assumption is secured by a
mortgage on the acquired interest. The Company has guaranteed these
payments.
(e) Eastern Energy has entered into cross-currency and interest rate swap
agreements expiring on concurrent dates with the underlying fixed rate debt
through 2016. Such agreements effectively convert these fixed rate U.S.
dollar denominated Senior Notes to a floating rate Australian Dollar
liability based on the Australian Bank Bill Swap rate plus a margin. At
December 31, 1997, such floating rates ranged from 5.29% to 8.45%.
(f) Includes the Company's $990,440,000 reclassified short-term debt (see Note
3). Also includes Eastern Energy's $297,837,000 Multi Option Credit Facility
due 2001 with a floating interest rate of 5.44% on December 31, 1997 and
Eastern Energy's $128,451,000 reclassified short-term debt (all of which is
included under interest rate swap agreements with notional principal amounts
of $627,539,000 expiring at various dates through 2002 with fixed interest
rates ranging from 5.29% to 8.45% per annum and forward contracts with
notional principal amounts of $45,521,000 expiring at various dates through
1998 with an average rate of 4.8%).
Long-term debt of the Company does not include Junior Subordinated Debentures
held by each TU Electric Trust. (See Note 7.)
The ENSERCH convertible subordinated debentures, which have an interest rate
of 6 3/8%, are due in 2002 and effective with the Merger, each $1,000 of the
$90,750,000 total principal amount outstanding became convertible into 25.947
shares of TUC common stock at the option of the debenture holder. The
debentures may be redeemed at 101.27% of the principal amount, plus accrued
interest, through March 31, 1998, and at declining premiums thereafter. The
Company currently intends to redeem these debentures in 1998.
A-43
<PAGE>
Sinking fund and maturity requirements for the years 1998 through 2002 under
long-term debt instruments in effect at December 31, 1997, were as follows:
The Company TU Electric
---------------------------------- -------------------------------
Sinking Minimum Cash Sinking Minimum Cash
Year Fund Maturity Requirement Fund Maturity Requirement
---- ------- -------- ------------ ------- -------- ------------
Thousands of Dollars
1998.. $ 20,994 $ 751,077 $ 772,071 $2,645 $750,000 $752,645
1999.. 24,680 480,012 504,692 5,906 330,000 335,906
2000.. 261,040 1,597,891 1,858,931 3,199 156,150 159,349
2001.. 22,415 322,012 344,427 3,502 222,000 225,502
2002.. 8,546 586,602 595,148 3,838 370,000 373,838
TU Electric's and SESCO's first mortgage bonds are secured by mortgages and
deeds of trust with major financial institutions. Electric plant of TU
Electric and SESCO is generally subject to the liens of their respective
mortgages.
9. DERIVATIVE INSTRUMENTS
The Company and TU Electric
- ---------------------------
The Company enters into derivative instruments, including options, swaps,
futures and other contractual commitments to manage market risks related to
changes in interest rates and commodity price exposures. The Company's
participation in derivative transactions, except for the gas marketing
activities, have been designated for hedging purposes and are not held or issued
for trading purposes. (For a discussion of accounting policies relating to
derivative instruments, see Note 2.)
Interest Rate Risk Management -- At December 31, 1997, Eastern Energy had
interest rate swaps outstanding with an aggregate notional amount of
$977,500,000. These swap agreements establish a mix of fixed and variable
interest rates on the outstanding debt and have remaining terms up to 19 years.
(See Note 8.)
At December 31,1997, TU Electric had an interest rate swap agreement with
respect to preferred securities of TU Electric Capital IV, with a notional
principal amount of $100,000,000 expiring 2002 that fixed the rate at 7.183% per
annum. (See Note 7.)
At December 31, 1997, there were $50,900,000 of net unrealized deferred
hedging losses on interest rate swaps.
Electricity Price Risk Management -- Eastern Energy and the other
distribution companies in Victoria purchase their power from a competitive power
pool operated by a statutory, independent corporation. Eastern Energy purchases
about 95% of its energy from this pool, the cost of which is based on spot
market prices. Eastern Energy and other distribution companies were required to
enter into wholesale market contracts to cover a substantial majority of its
forecasted franchise load through the end of 2000. Eastern Energy also
maintains a strategy that is aimed at seeking hedging contracts with individual
generators to cover forecast contestable loads. These contracts fix the price
of energy within a certain range for the purpose of hedging or protecting
against fluctuations in the spot market price. During 1997, the average spot
price for electric energy from the pool approximated $14 per megawatt-hour (MWh)
as compared with the average fixed price of Eastern Energy's electric energy
under its contracts of approximately $29 per MWh. At December 31, 1997, Eastern
Energy's contracts related to its forecasted contestable and franchise load
cover a notional volume of approximately 15.6 million MWh's for 1998 through
2000. Under these contracts, payments are made between Eastern Energy and the
generators representing the difference between the wholesale electricity market
price and the contract price. The net payable or receivable is recognized in
earnings as adjustments to purchased power expense in the period the related
transactions are completed.
Natural Gas Marketing Activities -- EES's marketing activities involve price
commitments into the future and, therefore, give rise to market risk, which
represents the potential loss that can be caused by a change in the market value
of a particular commitment. Net open portfolio positions often result from the
origination of new transactions or in response to changing market conditions.
The Company closely monitors its exposure to market risk. The Company utilizes
a number of methods to monitor market risk, including sensitivity analysis. The
exposure for fixed price natural gas purchase and sale commitments, and
derivative financial instruments, including options, swaps, futures and other
contractual commitments,
A-44
<PAGE>
is based on a methodology that uses a five-day holding period and a 95%
confidence level. EES uses market-implied volatilities to determine its exposure
to market risk. Market risk is estimated as the potential loss in fair value
resulting from at least a 15% change in market factors which may differ from
actual results. Using 15%, the most adverse change in fair value at December 31,
1997 as a result of this analysis was a reduction of $1.1 million.
EES enters into contracts to purchase and sell natural gas for physical
delivery in the future. At December 31, 1997, EES had net commitments to sell
approximately 50.6 billion cubic feet (Bcf) of natural gas through the year 2003
with offsetting net financial positions to purchase approximately 61.3 Bcf.
Concurrent with the Merger, EES conformed its accounting for its gas
marketing activities to mark-to-market accounting. Under mark-to-market
accounting, changes (whether positive or negative) in the value of contractual
commitments to purchase and sell natural gas in the future and from its
portfolio of derivative financial instruments, including options, swaps, futures
and other contractual commitments are recognized as an adjustment to operating
revenues in the period of change. The market prices used to value these
transactions reflect management's best estimate of market prices considering
various factors including closing exchange and over-the-counter quotations, time
value of money and volatility factors underlying the commitments. These market
prices are adjusted to reflect the potential impact of liquidating EES's
position in an orderly manner over a reasonable period of time under present
market conditions.
EES has a number of risks and costs associated with the future contractual
commitments included in its natural gas portfolio, including credit risks
associated with the financial condition of counterparties, product location
(basis) differentials and other risks that management policies dictate. EES
continuously monitors the valuation of identified risk and adjusts the portfolio
valuation based on present market conditions. Reserves are established in
recognition that certain risks exist until delivery of natural gas has occurred,
counterparties have fulfilled their financial commitments and related financial
instruments mature or are closed out.
The following table displays the mark-to-market values of EES's natural gas
marketing risk management assets and liabilities at December 31, 1997 and the
average value for the period from August 5, 1997 through December 31, 1997:
Assets Liabilities Net
------ ----------- ---
Thousands of Dollars
Fair Value:
Current.......................... $365,650 $357,044 $ 8,606
Noncurrent....................... 41,522 31,324 10,198
-------- -------- -------
Total.......................... $407,172 $388,368 18,804
======== ========
Less reserves.................... 9,251
-------
Net of reserves................ $ 9,553
=======
Average Value:
Total............................ $291,809 $278,332 $13,477
======== ========
Less reserves.................... 8,134
-------
Net of reserves................ $ 5,343
=======
EES incurred net trading losses of $286,000 from gas marketing activities for
the period from August 5, 1997 through December 31, 1997.
Credit Risk - Credit risk relates to the risk of loss that the Company would
incur as a result of nonperformance by counterparties to their respective
derivative instruments. The Company maintains credit policies with regard to
its counterparties that management believes significantly minimize overall
credit risk. The Company does not obtain collateral to support the agreements
but monitors the financial viability of counterparties and believes its credit
risk is minimal on these transactions. The Company believes the risk of
nonperformance by counterparties is minimal.
A-45
<PAGE>
10. INCOME TAXES
The components of the Company's and TU Electric provision for income taxes
are as follows:
Year Ended December 31,
-------------------------------
1997 1996 1995
-------- -------- ---------
Thousands of Dollars
The Company
- -----------
Current:
Federal.................................... $181,632 $198,522 $ 222,358
State...................................... 39,900 -- --
-------- -------- ---------
Total.................................. 221,532 198,522 222,358
-------- -------- ---------
Deferred
Federal.................................... 175,573 196,957 (259,445)
State...................................... (17,102) -- --
Foreign.................................... 19,746 12,828 (174)
-------- -------- ---------
Total.................................. 178,217 209,785 (259,619)
-------- -------- ---------
Investment Tax Credits........................ (22,851) (33,075) (22,774)
-------- -------- ---------
Total................................ $376,898 $375,232 $ (60,035)
======== ======== =========
TU Electric
- -----------
Charged (credited) to operating expenses:
Current:
Federal.................................. $283,464 $291,807 $ 260,988
State.................................... 43,601 -- --
-------- -------- ---------
Total current........................ 327,065 291,807 260,988
-------- -------- ---------
Deferred:
Depreciation differences and capitalized
construction costs...................... 146,623 151,391 205,280
Over/under-recovered fuel revenue........ 10,339 25,506 (49,798)
Alternative minimum tax.................. 728 15,000 (30,937)
Other.................................... (43,852) (32,024) 17,983
-------- -------- ---------
Total deferred -- net................ 113,838 159,873 142,528
-------- -------- ---------
Investment tax credits..................... (21,222) (30,668) (21,201)
-------- -------- ---------
Total to operating expenses.......... 419,681 421,012 382,315
-------- -------- ---------
Charged (credited) to other income:
Current:
Federal.................................. (35,964) (30,164) (59,454)
State.................................... (5,105) -- --
-------- -------- ---------
Total current........................ (41,069) (30,164) (59,454)
-------- -------- ---------
Deferred:
Federal:
Impairment of assets..................... -- -- (149,617)
Regulatory disallowance.................. 34,208 13,623 --
Other.................................... 13,462 1,861 39,709
-------- -------- ---------
Total federal....................... 47,670 15,484 (109,908)
-------- -------- ---------
State.................................... (16,736) -- --
Investment tax credits..................... -- (833) --
-------- -------- ---------
Total to other income.............. (10,135) (15,513) (169,362)
-------- -------- ---------
Total........................... $409,546 $405,499 $ 212,953
======== ======== =========
A-46
<PAGE>
Reconciliation of income taxes (benefit) computed at the federal statutory
rate to provision for income taxes (benefit).
The Company Year Ended December 31,
- ----------- ----------------------------------------
1997 1996 1995
---- ---- ----
Thousands of Dollars
Income (loss) before income taxes:
Domestic......................... $1,001,867 $1,108,386 $(197,373)
Foreign.......................... 35,485 20,452 (1,307)
---------- ---------- ---------
Total......................... 1,037,352 1,128,838 (198,680)
Preferred stock dividends of
subsidiaries.................... 27,983 53,358 84,914
---------- ---------- ---------
Income (loss) before preferred
stock dividends
of subsidiaries................. $1,065,335 $1,182,196 $(113,766)
========== ========== =========
Income taxes (benefit) at the
federal statutory
rate of 35%....................... $ 372,867 $ 413,769 $ (39,188)
Allowance for funds used during
construction.................... (1,821) (542) (2,330)
Depletion allowance.............. (22,691) (25,657) (23,564)
Amortization of investment tax
credits......................... (22,877) (23,203) (23,036)
Amortization of tax rate
differences..................... (6,856) (9,084) (9,648)
Amortization of prior
flow-through amounts............ 36,559 35,128 38,974
Foreign operations............... 7,326 5,670 283
Prior year adjustments........... (7,673) (25,250) (4,136)
State income taxes, net of
federal tax benefit............. 14,812 -- --
Amortization of goodwill......... 3,263 -- --
Other............................ 3,989 4,401 2,610
---------- ---------- ---------
Provision for income taxes
(benefit)......................... $ 376,898 $ 375,232 $ (60,035)
========== ========== =========
Effective tax rate (on income
before preferred stock
dividends of subsidiaries)........ 35.4% 31.7% 52.8%
The Company had net tax benefits from LESOP dividend deductions of $3.9
million, $4.0 million and $6.5 million in 1997, 1996 and 1995, respectively,
which were credited directly to retained earnings.
TU Electric Year Ended December 31,
- ----------- ------------------------------------
1997 1996 1995
---- ---- ----
Thousands of Dollars
Income before income taxes $1,181,420 $1,268,194 $665,584
========== ========== ========
Income taxes at the federal
statutory rate of 35%............. $413,497 $443,868 $232,954
Allowance for funds used during
construction.................... (1,821) (542) (2,330)
Depletion allowance.............. (22,636) (25,657) (23,564)
Amortization of investment tax
credits......................... (21,222) (21,629) (21,463)
Amortization of tax rate
differences..................... (6,559) (8,740) (9,288)
Amortization of prior
flow-through amounts............ 36,332 34,896 38,630
Prior year adjustments........... (6,914) (21,813) (5,669)
State income taxes, net of
federal tax benefit............. 14,144 -- --
Other............................ 4,725 5,116 3,683
---------- ---------- --------
Provision for income taxes.......... $409,546 $405,499 $212,953
========== ========== ========
Effective tax rate.................. 34.7% 32.0% 32.0%
A-47
<PAGE>
Deferred income taxes provided by the liability method for significant
temporary difference based on tax laws in effect at the December 31, 1997 and
1996 balance sheet dates are as follows:
<TABLE>
<CAPTION>
The Company December 31,
- ----------- --------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
Non Non
Total Current current Total Current current
----- ------- ------- ----- ------- -------
Thousand of Dollars
<S> <C> <C> <C> <C> <C> <C>
Deferred Tax Assets:
Unbilled revenues............................... $ 28,469 $ 28,469 $ -- $ 28,521 $ 28,521 $ --
Over-recovered fuel revenue..................... 4,530 4,530 -- 15,045 15,045 --
Unamortized investment tax credits.............. 300,871 -- 300,871 312,665 -- 312,665
Impairment of assets............................ 141,678 -- 141,678 143,210 -- 143,210
Regulatory disallowance......................... 183,729 -- 183,729 222,428 -- 222,428
Alternative minimum tax......................... 589,989 -- 589,989 587,052 -- 587,052
Tax rate differences............................ 78,477 -- 78,477 78,141 -- 78,141
Employee benefits............................... 163,632 -- 163,632 100,397 -- 100,397
Net operating loss carryforwards............... 155,871 -- 155,871 -- -- --
Deferred benefits of state income tax........... 156,237 5,129 151,108 -- -- --
Unrealized currency translation adjustments..... 27,685 -- 27,685 -- -- --
Other........................................... 35,130 35,130 -- 35,316 7,406 27,910
---------- -------- ---------- ---------- -------- ----------
Total deferred federal income tax asset........ 1,866,298 73,258 1,793,040 1,522,775 50,972 1,471,803
Deferred state income taxes..................... 52,996 3,170 49,826 -- -- --
Deferred foreign income taxes................... 77,222 5,573 71,649 69,541 2,994 66,547
---------- -------- ---------- ---------- -------- ----------
Total deferred tax assets..................... 1,996,516 82,001 1,914,515 1,592,316 53,966 1,538,350
---------- -------- ---------- ---------- -------- ----------
Deferred Tax Liabilities:
Depreciation differences and capitalized
construction costs............................. 4,257,455 -- 4,257,455 4,010,105 -- 4,010,105
Redemption of long-term debt.................... 123,354 -- 123,354 125,601 -- 125,601
Deferred charges for state income tax........... 24,433 -- 24,433 -- -- --
Other........................................... 122,304 121 122,183 148,720 -- 148,720
---------- -------- ---------- ---------- -------- ----------
Total deferred federal income tax liability.. 4,527,546 121 4,527,425 4,284,426 -- 4,284,426
Deferred state income taxes..................... 295,246 -- 295,246 -- -- --
Deferred foreign income taxes................... 94,590 13,492 81,098 69,495 13,945 55,550
---------- -------- ---------- ---------- -------- ----------
Total deferred tax liabilities................ 4,917,382 13,613 4,903,769 4,353,921 13,945 4,339,976
---------- -------- ---------- ---------- -------- ----------
Net Deferred Tax Liability (Asset)............ $2,920,866 $(68,388) $2,989,254 $2,761,605 $(40,021) $2,801,626
========== ======== ========== ========== ======== ==========
</TABLE>
At December 31, 1997, the Company had approximately $590 million of
alternative minimum tax credit carryforwards available to offset future tax
payments. At December 31, 1997, ENSERCH had $445 million of net operating loss
(NOL) carryforwards which begin to expire in 2003. Such NOL's were generated by
ENSERCH and subsidiaries prior to the Merger and can be used only to offset
future taxable income generated by ENSERCH and subsidiaries pursuant to Section
382 of the Internal Revenue Code. The Company expects to fully utilize such
NOL's prior to their expiration date.
A-48
<PAGE>
Separately, the ENSERCH consolidated income tax returns have been audited and
settled with the Internal Revenue Service (IRS) through the year 1992. The IRS
is currently auditing the year 1993 and as yet no notice of proposed adjustments
has been issued. The IRS has indicated that it will commence an audit of
ENSERCH's returns for the years 1994 through 1997 in 1998. To the extent that
adjustments to income tax accounts for periods prior to the Merger are required
as a result of an IRS audit, the adjustment will be added to or deducted from
goodwill in accordance with the provisions of SFAS 109.
<TABLE>
<CAPTION>
TU Electric December 31,
- ----------- --------------------------------------------------------------------
1997 1996
--------------------------------- ---------------------------------
Non Non
Total Current current Total Current current
----- ------- ------- ----- ------- -------
Thousand of Dollars
<S> <C> <C> <C> <C> <C> <C>
Deferred Tax Assets:
Unbilled revenues.............................. $ 28,257 $ 28,257 $ -- $ 28,521 $ 28,521 $ --
Over-recovered fuel revenue.................... 4,530 4,530 -- 15,045 15,045 --
Unamortized investment tax credits............. 296,155 -- 296,155 307,153 -- 307,153
Impairment of assets........................... 71,548 -- 71,548 71,791 -- 71,791
Regulatory disallowance........................ 183,729 -- 183,729 222,428 -- 222,428
Alternative minimum tax........................ 422,593 -- 422,593 431,277 -- 431,277
Tax rate differences........................... 76,641 -- 76,641 77,248 -- 77,248
Employee benefits.............................. 90,088 -- 90,088 76,060 -- 76,060
Deferred benefits of state income tax.......... 152,276 5,095 147,181 -- -- --
Other.......................................... 21,678 8,408 13,270 19,664 7,316 12,348
---------- -------- ---------- ---------- -------- ----------
Total deferred federal income tax asset...... 1,347,495 46,290 1,301,205 1,249,187 50,882 1,198,305
Deferred state income taxes.................... 47,319 3,069 44,250 -- -- --
---------- -------- ---------- ---------- -------- ----------
Total deferred tax assets.................... 1,394,814 49,359 1,345,455 1,249,187 50,882 1,198,305
---------- -------- ---------- ---------- -------- ----------
Deferred Tax Liabilities:
Depreciation differences and capitalized
construction costs............................ 4,027,135 -- 4,027,135 3,938,325 -- 3,938,325
Redemption of long-term debt................... 122,691 -- 122,691 125,123 -- 125,123
Deferred charges for state income tax.......... 21,817 -- 21,817 -- -- --
Other.......................................... 116,484 -- 116,484 124,469 -- 124,469
---------- -------- ---------- ---------- -------- ----------
Total deferred federal income tax liability.. 4,288,127 -- 4,288,127 4,187,917 -- 4,187,917
Deferred state income taxes.................... 274,280 -- 274,280 -- -- --
---------- -------- ---------- ---------- -------- ----------
Total deferred tax liability................. 4,562,407 -- 4,562,407 4,187,917 -- 4,187,917
---------- -------- ---------- ---------- -------- ----------
Net Deferred Tax Liability (Asset)............. $3,167,593 $(49,359) $3,216,952 $2,938,730 $(50,882) $2,989,612
========== ======== ========== ========== ======== ==========
</TABLE>
11. RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS
Most employees of System Companies are covered by defined benefit pension
plans which provide benefits based on years of service and average earnings. At
the date of their acquisition by the Company, both ENSERCH and LCC had defined
benefit pensions plans covering most of their employees and providing benefits
similar to those provided to employees of other System Companies. As a part of
the purchase accounting for ENSERCH and LCC, their accrued pension liabilities
were adjusted to recognize all previously unrecognized gains or losses arising
from past experience different from that assumed, the effects of changes in
assumptions, all unrecognized prior service costs and the remainder of any
unrecognized obligation or asset existing at the date of the initial application
of SFAS 87 by the respective company. These adjustments to the accrued pension
liability, to the extent associated with rate-regulated operations, were
recorded as regulatory assets or liabilities and, to the extent associated with
non-regulated operations, as goodwill.
Effective January 1, 1998, the ENSERCH retirement plan was merged into
another retirement plan of the Company. Also, effective during 1998, employees
of certain of the Company's emerging business units will be eligible to
participate in a cash balance plan, rather than the traditional defined benefit
plans. This change, which affects a relatively small percentage of employees,
was made in connection with overall changes in the compensation plans of these
business units designed to bring them closer to the prevailing practices of the
companies in the industries in which they compete.
A-49
<PAGE>
In connection with the ENSERCH acquisition, certain employees of ENSERCH and
other System Companies were offered and accepted an early retirement option.
Effects of the early retirement option associated with ENSERCH employees were
included in purchase accounting adjustments as regulatory assets or goodwill, as
appropriate. Effects of the early retirement option associated with employees
of other System Companies were recorded as regulatory assets, or liabilities.
<TABLE>
<CAPTION>
The Company TU Electric
Year Ended December 31, Year Ended December 31,
----------------------- -----------------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
Thousands of Dollars
<S> <C> <C> <C> <C> <C> <C>
Components of Net Pension Costs(including amounts charged
to fuel cost, deferred and capitalized):
Service cost -- benefits earned during the period.......... $ 36,712 $ 36,779 $ 23,515 $ 20,892 $ 21,731 $ 16,047
Interest cost on projected benefit obligation.............. 92,121 75,501 65,675 60,184 55,999 53,684
Actual return on plan assets............................... (299,800) (183,390) (241,887) (229,303) (143,416) (199,436)
Net amortization and deferral.............................. 190,203 97,988 160,198 154,028 79,261 132,147
--------- --------- --------- --------- --------- ---------
Net periodic pension cost................................. $ 19,236 $ 26,878 $ 7,501 $ 5,801 $ 13,575 $ 2,442
========= ========= ========= ========= ========= =========
Valuation Assumptions:
Discount rate.............................................. 7.25% 7.75% 7.25% 7.25% 7.75% 7.25%
Rate of increase in compensation levels.................... 4.3% 4.3% 4.3% 4.3% 4.3% 4.3%
Expected long-term rate of return.......................... 9.0% 9.0% 9.0% 9.0% 9.0% 9.0%
</TABLE>
<TABLE>
<CAPTION>
The Company TU Electric
December 31, December 31,
------------------------- ----------------------
1997 1996 1997 1996
---- ---- ---- ----
Thousands of Dollars
<S> <C> <C> <C> <C>
Amounts Recognized:
Actuarial present value of accumulated benefits:
Accumulated benefit obligation......................... $(1,337,120) $ (889,057) $ (725,504) $(685,419)
=========== =========== ========== =========
Vested benefit obligations............................. $(1,264,450) $ (823,918) $ (679,514) $(638,162)
=========== =========== ========== =========
Projected benefit obligation for service
rendered to date.................................... $(1,546,854) $(1,065,396) $ (837,725) $(797,044)
Plan assets at fair value -- primarily equity
investments, government bonds and
corporate bonds........................................ 1,790,715 1,296,025 1,124,924 994,370
----------- ----------- ---------- ---------
Plan assets in excess of projected benefit obligation...... 243,861 230,629 287,199 197,326
Unrecognized net gain from past experience different
from that assumed and effects of changes
in assumptions......................................... (422,503) (350,295) (399,591) (309,042)
Prior service cost not yet recognized in net periodic
pension expense........................................ 31,574 41,566 35,540 39,226
Unrecognized plan assets in excess of projected
benefit obligation at initial application.............. (4,700) (5,708) (2,701) (3,327)
----------- ----------- ---------- ---------
Accrued pension cost................................... $ (151,768) $ (83,808) $ (79,553) $ (75,817)
=========== =========== ========== =========
</TABLE>
The Eastern Energy, ENSERCH and LCC plans use economic assumptions similar to
the other System Companies' plans and are included in the tabular information
above.
A-50
<PAGE>
In addition to the retirement plans, the System Companies offer certain
health care and life insurance benefits to substantially all employees,
including those of ENSERCH and LCC but excluding those of Eastern Energy, and
their eligible dependents at retirement. Benefits received vary in level
depending on years of service and retirement dates. The purchase accounting
adjustments described above for the retirement plans of ENSERCH and LCC were
also applied to the accrued liabilities for the post employment health care and
life insurance benefits.
<TABLE>
<CAPTION>
The Company TU Electric
Year Ended December 31, Year Ended December 31,
---------------------------- ----------------------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
Thousands of Dollars
<S> <C> <C> <C> <C> <C> <C>
Components of Net Periodic Postretirement Benefit Costs (including
amounts charged to fuel cost, deferred and capitalized):
Service cost -- benefits earned during the period................... $ 12,084 $13,513 $ 9,771 $ 7,446 $ 8,437 $ 6,559
Interest cost on the accumulated postretirement benefit obligation.. 43,057 40,809 38,842 30,885 31,394 31,109
Amortization of the transition obligation........................... 16,953 16,978 16,978 13,618 13,633 13,633
Actual return on plan assets........................................ (13,260) (7,079) (6,096) (10,073) (4,816) (4,520)
Net amortization and deferral....................................... 7,015 8,303 4,646 4,894 5,746 3,662
-------- ------- ------- ------- ------- -------
Net postretirement benefits cost................................... $ 65,849 $72,524 $64,141 $46,770 $54,394 $50,443
======== ======= ======= ======= ======= =======
Valuation assumption:
Discount rate....................................................... 7.25% 7.75% 7.25% 7.25% 7.75% 7.25%
Medical cost trend rate............................................. 5.0% 5.0% 5.0% 5.0% 5.0% 5.0%
</TABLE>
<TABLE>
<CAPTION>
The Company TU Electric
December 31, December 31,
--------------------- -----------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Amounts Recognized:
Accumulated postretirement benefit obligation (APBO):
Retirees......................................................... $(412,919) $(325,672) $(274,586) $(280,541)
Fully eligible active employees.................................. (40,901) (38,320) (21,227) (22,701)
Other active employees........................................... (137,033) (187,451) (71,386) (120,452)
--------- --------- --------- ---------
Total APBO....................................................... (590,853) (551,443) (367,199) (423,694)
Plan assets at fair value........................................... 111,799 81,480 81,871 60,862
--------- --------- --------- ---------
APBO in excess of plan assets.................................... (479,054) (469,963) (285,328) (362,832)
Unrecognized net loss............................................... 67,023 92,589 45,681 68,977
Unrecognized prior service cost..................................... 18,557 819 -- --
Unrecognized transition obligation.................................. 162,359 271,649 141,685 218,126
--------- --------- --------- ---------
Accrued postretirement benefits cost............................ $(231,115) $(104,906) $ (97,962) $ (75,729)
========= ========= ========= =========
</TABLE>
The expected increase in costs of future benefits covered by the plan is
projected using a health care cost trend rate of 5% in 1998 and thereafter. A
one percentage point increase in the assumed health care cost trend rate in each
future year would increase the APBO at December 31, 1997 by approximately
$65,900,000 for the System Companies and $40,300,000 for TU Electric, and other
postretirement benefits cost for 1997 by approximately $9,800,000 for System
Companies and $7,300,000 for TU Electric.
12. SALES OF ACCOUNTS RECEIVABLE
TU Electric has facilities with financial institutions whereby it is
entitled to sell and such financial institutions may purchase, on an ongoing
basis, undivided interests in customer accounts receivable representing up to an
aggregate of $350,000,000. ENSERCH has a facility for $100,000,000. Additional
receivables are continually sold to replace those collected. At December 31,
1997 and 1996, accounts receivable of TU Electric was reduced by $300,000,000
and at December 31, 1997, accounts receivable of ENSERCH companies were reduced
by $100,000,000, to reflect the sales of such receivables to financial
institutions under such agreements.
A-51
<PAGE>
13. REGULATION AND RATES
The Company and TU Electric
- ---------------------------
Docket 9300 -- The PUC's final order (Order) in connection with TU
Electric's January 1990 rate increase request (Docket 9300) was reviewed by the
250th Judicial District Court of Travis County, Texas, (District Court) and
thereafter was appealed to the Court of Appeals for the Third District of Texas
and to the Supreme Court of Texas (Supreme Court). As a result of such review
and appeals, an aggregate of $909 million of disallowances with respect to TU
Electric's reacquisitions of minority owners' interests in Comanche Peak, which
had previously been recorded as a charge to the Company's and TU Electric's
earnings, has been remanded to the District Court with instructions that it be
remanded to the PUC for reconsideration on the basis of a prudent investment
standard. On remand, the PUC would also be required to reevaluate the
appropriate level of TU Electric's construction work in progress included in
rate base in light of its financial condition at the time of the initial
hearing. In January 1997, the Supreme Court denied a motion for rehearing on the
Comanche Peak minority owners issue filed by the original complainants. TU
Electric cannot predict the outcome of the reconsideration of the Order on
remand by the PUC.
In its decision, the Supreme Court also affirmed the previous $472 million
prudence disallowance related to Comanche Peak. Since the Company and TU
Electric have previously recorded a charge to earnings for this prudence
disallowance, the Supreme Court's decision did not have an effect on the
Company's or TU Electric's current financial position, results of operation or
cash flows.
Docket 11735 -- In July 1994, TU Electric filed a petition in the 200th
Judicial District Court of Travis County, Texas to seek judicial review of the
final order of the PUC granting a $449 million, or 9.0%, rate increase in
connection with TU Electric's January 1993 rate increase request of $760
million, or 15.3% (Docket 11735). Other parties to the PUC proceedings also
filed appeals with respect to various portions of the order.
Dockets 15638 and 15840 -- In May 1996, TU Electric filed with the PUC its
transmission cost information and tariffs for open-access wholesale transmission
service (Docket 15638) in accordance with PUC rules adopted in February 1996.
These tariffs also provide for generation-related ancillary services necessary
to support wholesale transactions. In August 1997, the PUC approved final
tariffs for TU Electric and implemented rates for other transmission providers
within the Electric Reliability Council of Texas (ERCOT) (Docket 15840). Under
rates implemented by the PUC, TU Electric's payments for transmission service
will exceed its revenues for providing transmission service. The PUC has
adopted a rate-moderation plan that will minimize the impact of the new pricing
mechanism for the first three years the rules are in effect. As such, the
current maximum impact on TU Electric for 1998 is an $8.52 million deficit,
which, in the opinion of TU Electric, is not expected to have a material effect
on its financial position, results of operation or cash flows.
Docket 17250 -- In late 1996, as part of its regular earnings monitoring
process, the PUC staff advised the PUC, after reviewing the 1995 Electric
Investor-Owned Utilities Earnings Report of TU Electric, that it believed TU
Electric was earning in excess of a reasonable rate of return, and the PUC and
TU Electric subsequently began discussions concerning possible remedies. It was
decided to limit negotiations to a resolution of issues concerning TU Electric's
earnings through 1997, and discussion of a longer-term resolution was deferred.
In July 1997, the PUC issued its final written order approving TU Electric's
proposal to make a one-time $80 million refund to its customers and to leave
rates unchanged during the remainder of 1997. TU Electric recorded the charge
to revenues in July 1997 and included the refunds in August 1997 billings. The
proposal was the result of a joint stipulation in which TU Electric was joined
by the PUC General Counsel, on behalf of the PUC Staff and the public interest,
the Office of Public Utility Counsel, the state agency charged with representing
the interests of residential and small commercial customers, and the Coalition
of Cities served by TU Electric.
Docket 18490 -- On December 17, 1997, TU Electric, together with the PUC
General Counsel, the Office of Public Utility Counsel and various other parties
interested in TU Electric's rates and services, filed with the PUC a
stipulation and joint application which, if granted would, among other things:
(i) result in permanent retail base rate credits beginning January 1, 1998, of
4% for residential customers, 2% for general service secondary customers and 1%
for all other retail
A-52
<PAGE>
customers, (ii) result in additional permanent retail base rate credits
beginning January 1, 1999, of 1.4% for residential customers, (iii) impose a
11.35% cap on TU Electric's rate of return on equity during 1998 and 1999, with
any sums earned above that cap being applied as additional nuclear production
depreciation, (iv) allow TU Electric to record depreciation applicable to
transmission and distribution assets in 1998 and 1999 as additional depreciation
of nuclear production assets, (v) establish an updated cost of service study
that includes interruptible customers as customer classes, (vi) result in the
permanent dismissal of pending appeals of prior PUC orders including Docket No.
11735, if all other parties that have filed appeals of those dockets also
dismiss their appeals, (vii) result in the stay of any proceedings in the remand
of Docket 9300 prior to January 1, 2000, and, (viii) result in all gains from
off-system sales of electricity in excess of the amount included in base rates
being flowed to customers through the fuel factor.
The PUC has until March 31, 1998 to approve or reject the stipulation and
joint application. Otherwise, TU Electric may terminate the base rate
reductions and all other aspects of the proposal upon giving two weeks notice to
the PUC.
Fuel Cost Recovery Rule -- Pursuant to a PUC rule, the recovery of TU
Electric's eligible fuel costs is provided through fixed fuel factors. The rule
allows a utility's fuel factor to be revised upward or downward every six
months, according to a specified schedule. A utility is required to petition to
make either surcharges or refunds to ratepayers, together with interest based on
a twelve month average of prime commercial rates, for any material, as defined
by the PUC, cumulative under- or over-recovery of fuel costs. If the cumulative
difference of the under- or over-recovery, plus interest, is in excess of 4% of
the annual estimated fuel costs most recently approved by the PUC, it will be
deemed to be material. In accordance with PUC approvals, TU Electric has, since
the inception of the rule in 1986, made thirteen refunds of over-collected fuel
costs and two surcharges of under-collected fuel costs. The most recent refund
was made pursuant to a petition filed by TU Electric in July 1997 to refund
approximately $67 million, including interest, in over-collected fuel costs for
the period October 1995 through May 1997 (Fuel Refund). Such over-collection was
primarily due to TU Electric's ability to use less expensive nuclear fuel and
purchased power to offset a higher-priced natural gas market during the period.
Customer refunds were included in August 1997 billings. A final order
confirming the Fuel Refund was entered by the PUC in October 1997. The two
surcharges (one in the amount of $147.3 million and the other in the amount of
$93 million) have been appealed by certain intervenors to district courts of
Travis County, Texas. In those appeals, those parties are contending that the
PUC is without authority to allow a fuel cost surcharge without a hearing and
resultant findings that the costs are reasonable and necessary and that the
prices charged to TU Electric by supplying affiliates are no higher than the
prices charged by those affiliates to others for the same item or class of
items. TU Electric is unable to predict their outcome.
Fuel Reconciliation Proceeding -- In July 1997, the PUC ruled on TU
Electric's petition seeking final reconciliation of all eligible fuel and
purchased power expenses incurred during the reconciliation period of July 1,
1992 through June 30, 1995 (approximately $4.7 billion). In the ruling, the PUC
disallowed approximately $81 million of eligible fuel related costs (including
interest of $12 million) incurred during the reconciliation period (Fuel
Disallowance). The majority of the Fuel Disallowance (approximately $67
million) is related to replacement fuel costs as a result of the November 1993
collapse of the emissions chimney serving Unit 3 of the Monticello lignite-
fueled generating station. In addition, the PUC ruled that approximately $10
million from the gain on sale of sulfur dioxide allowances should be deferred
and reconsidered at a future date. TU Electric received a final written order
from the PUC and recorded the charge to revenues in August 1997. TU Electric
strongly disagrees with the Fuel Disallowance and continues to vigorously defend
its position. TU Electric has appealed the PUC's order to the District Court of
Travis County, Texas.
Flexible Rate Initiatives -- TU Electric continues to offer flexible rates in
over 160 cities with original regulatory jurisdiction within its service
territory (including the cities of Dallas and Fort Worth) to existing non-
residential retail and wholesale customers that have viable alternative sources
of supply and would otherwise leave the system. TU Electric also continues to
offer in those cities an economic development rider to attract new businesses
and to encourage existing customers to expand their facilities as well as an
environmental technology rider to encourage qualifying customers to convert to
technologies that conserve energy or improve the environment. TU Electric will
continue to pursue the expanded use of flexible rates when such rates are
necessary to be price-competitive.
Integrated Resource Plan -- In October 1994, TU Electric filed an application
for approval by the PUC of certain aspects of its Integrated Resource Plan (IRP)
for the ten year period 1995 - 2004. The IRP, developed as an experimental
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<PAGE>
pilot project in conjunction with regulatory and customer groups, included the
acquisition of electric energy through a competitive bidding process of third
party-supplied demand-side management resources and renewable resources. In
August 1995, the PUC remanded the case to an Administrative Law Judge for
development of a solicitation plan and to more closely conform the TU Electric
1995 IRP to new state legislation that required the PUC to adopt a state-wide
integrated resource planning rule by September 1, 1996. In January 1996, TU
Electric filed an updated IRP with the PUC along with a proposed plan for the
solicitation of resources through a competitive bidding process. The PUC issued
its final order on TU Electric's IRP in October 1996, and modified the order in
December 1996 and February 1997. The modified order approved a flexible
solicitation plan that will allow TU Electric to conduct up to three optional
resource solicitations for a total of 2,074 MW of demand-side and supply-side
resources prior to the filing of its next IRP in June 1999. TU Electric is
currently reviewing the need and timing for conducting the first of these
resource solicitations.
In addition to its solicitation plan in the IRP docket, TU Electric requested
and received approval from the PUC to expand its Power Cost Recovery tariff to
provide current cost recovery of resource acquisition costs for demand-side
management resources acquired in the solicitations and for eight previously
approved demand-side management contracts entered into by TU Electric to the
extent such costs are not currently reflected in TU Electric's base rates.
Open-Access Transmission -- In February 1996, pursuant to the 1995 amendments
to PURA, the PUC adopted rules requiring each electric utility in ERCOT to
provide wholesale transmission and related services to other utilities and non-
utility power suppliers at rates, terms and conditions that are comparable to
those applicable to such utility's use of its own transmission facilities.
Under the rules, the PUC established a transmission pricing mechanism
consisting of an ERCOT system-wide component and a distance-sensitive component.
The ERCOT system-wide component provides that each load-serving entity in ERCOT
will pay a share of the ERCOT-wide transmission cost of service based on the
entity's load. The distance-sensitive component provides that a distance-
sensitive rate will be paid to utilities that own transmission facilities, based
on the impact of transmitting power and energy to loads. The rates charged for
using the transmission system are designed to ensure that all market
participants pay on a comparable basis to use the system. While all users of
the transmission grid pay rates that are comparably designed, the impact on
individual users will differ.
In May 1996, TU Electric filed with the PUC, under Docket 15638, its
transmission cost information and tariffs for open-access wholesale transmission
service. These tariffs also provide for generation-related ancillary services
necessary to support wholesale transactions. Company-specific proceedings to
determine transmission rates for each transmission provider within ERCOT were
concluded in 1996. In August 1997, the PUC approved final tariffs for TU
Electric and implemented rates for other transmission providers within ERCOT.
As a result of the PUC rules, the organization and structure of ERCOT has
been changed to provide for equal governance among all wholesale electricity
market participants. These changes were made in order to facilitate wholesale
competition while ensuring continued reliability within ERCOT.
The Company
- -----------
Lone Star Gas and Lone Star Pipeline Rates -- In October 1996, Lone Star
Pipeline filed a request with the RRC to increase the rate it charges Lone Star
Gas to store and transport gas ultimately destined for residential and
commercial customers in the 550 Texas cities and towns served by Lone Star Gas.
Lone Star Gas also requested that the RRC separately set rates for costs to
aggregate gas supply for these cities. Rates previously in effect were set by
the RRC in 1982. In September 1997, the RRC issued an order reducing the
charges by Lone Star Pipeline to Lone Star Gas for storage and transportation
services. In that order, the RRC did authorize separate charges for the Lone
Star Pipeline storage and transportation services, a separate charge by Lone
Star Gas for the cost of aggregating gas supplies, and a continuation of the
100% flow through of purchased gas expense. The RRC also imposed some new
criteria for affiliate gas purchases and a new reconciliation procedure that
will require a review of purchased gas expenses every three years. The RRC
order has become final, but is being appealed by several parties including Lone
Star Pipeline and Lone Star Gas. The rates authorized by the order became
effective on December 1, 1997, and will result in an annual margin reduction of
approximately $8.2 million.
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<PAGE>
On August 20, 1996, the RRC ordered a general inquiry into the rates and
services of Lone Star Gas, most notably a review of historic gas cost and gas
acquisition practices since the last rate setting. The inquiry docket has been
separated into different phases. Two of the phases, conversion to the NARUC
account numbering system and unbundling, have been dismissed by the RRC, and one
other phase, rate case expense, is pending RRC action on the basis of a
stipulation of all parties. In the phase dealing with historic gas cost and gas
acquisition practices, Lone Star Gas and Lone Star Pipeline have filed a motion
for summary disposition stating that any retroactive rate action would be
inappropriate and unlawful. Settlement discussions with intervenor cities are
ongoing. If the motion for summary disposition is denied, a hearing has been
scheduled to begin in August 1998. A number of management and transportation
related issues have been placed in a separate phase which still has an undefined
scope and is being held in abeyance pending the resolution of the phase dealing
with gas costs. Management believes that gas costs were prudently incurred and
were properly accounted for and recovered through the gas cost recovery
mechanism previously approved by the RRC. At this time, management is unable to
determine the ultimate outcome of the inquiry.
14. IMPAIRMENT OF ASSETS
The Company and TU Electric
- ---------------------------
In September 1995, the Company and TU Electric recorded the impairment of
several non-performing assets pursuant to SFAS 121 which prescribes a
methodology for assessing and measuring impairments in the carrying value of
certain assets. The September 1995 impairment of the Company's assets,
including the partially completed Twin Oak and Forest Grove lignite-fueled
facilities of TU Electric, and Chaco Energy Company's (Chaco's) coal reserves in
New Mexico, as well as several minor assets, aggregated $1,233 million ($802
million after tax) for the Company and $486 million ($316 million after tax) for
TU Electric. The Company and TU Electric have determined that the Twin Oak and
Forest Grove lignite-fueled facilities are not necessary to satisfy TU
Electric's capacity requirements as currently projected due to changes in load
growth patterns and availability of alternative generation. The impairment of
TU Electric's lignite-fueled facilities has been measured based on management's
current expectations that these assets will either be sold or constructed
outside the traditional regulated utility business. The Company has determined
that the Chaco coal reserves will no longer be developed through traditional
means due to ample availability of alternative fuels at favorable prices.
Chaco's impairment was measured based on a significant decrease in the market
value of the coal reserves as determined by an external study. A variety of
options are being considered with respect to the Chaco coal reserves. (See Note
15.) The impairment of these assets involved a write-down to their estimated
fair values using a valuation study based on the discounted expected future cash
flows from the respective assets' use. With respect to the other assets
impaired, fair values were determined based on current market values of similar
assets.
15. COMMITMENTS AND CONTINGENCIES
Capital Expenditures -- The Company's construction expenditures, excluding
AFUDC, are presently estimated at $886 million, $799 million and $852 million
for 1998, 1999 and 2000, respectively. TU Electric's construction
expenditures for utility related activities, excluding AFUDC, are presently
estimated at $449 million, $439 million and $441 million for 1998, 1999 and
2000, respectively. Expenditures for TU Electric nuclear fuel are presently
estimated at $104 million for 1998, $81 million for 1999 and $92 million for
2000.
The re-evaluation of growth expectations, the effects of inflation,
additional regulatory requirements and the availability of fuel, labor,
materials and capital may result in changes in estimated construction costs and
dates of completion. Commitments in connection with the construction program
are generally revocable subject to reimbursement to manufacturers for
expenditures incurred or other cancellation penalties.
TU Electric
- -----------
Clean Air Act -- The Federal Clean Air Act, as amended (Clean Air Act)
includes provisions which, among other things, place limits on the sulfur
dioxide emissions produced by generating units. To meet these sulfur dioxide
requirements, the Clean Air Act provides for the annual allocation of sulfur
dioxide emission allowances to utilities. Under the Clean Air Act, utilities are
permitted to transfer allowances within their own systems and to buy or sell
A-55
<PAGE>
allowances from or to other utilities. The Environmental Protection Agency
grants a maximum number of allowances annually to TU Electric based on the
amount of emissions from units in operation during the period 1985 through 1987.
TU Electric's capital requirements have not been significantly affected by the
requirements of the Clean Air Act. Although TU Electric is unable to fully
determine the cost of compliance with the Clean Air Act, it is not expected to
have a significant impact on the company. Any additional capital expenditures,
as well as any increased operating costs, associated with these new requirements
are expected to be recoverable through rates, as similar costs have been
recovered in the past.
The Company and TU Electric
- ---------------------------
Purchased Power Contracts --The System Companies have entered into purchased
power contracts to purchase portions of the generating output of certain
qualifying cogenerators and qualifying small power producers through the year
2005. These contracts provide for capacity payments subject to a facility
meeting certain operating standards and energy payments based on the actual
power taken under the contracts. The cost of these and other purchased power
contracts is recovered currently through base rates, power cost and fuel
recovery factors applied to customer billings. Capacity payments under these
contracts for the years ended December 31, 1997, 1996 and 1995 were
$240,174,000, $232,915,000, and $229,340,000, respectively, for the Company, and
$236,867,000, $228,336,000 and $223,910,000 respectively, for TU Electric.
Assuming operating standards are achieved, future capacity payments under the
agreements are estimated as follows:
The Company TU Electric
----------- -----------
Years Thousands of Dollars
- -----
1998......................... $ 248,168 $244,568
1999......................... 220,281 213,081
2000......................... 168,961 161,761
2001......................... 139,039 131,839
2002......................... 106,745 99,545
Thereafter................... 140,345 136,745
---------- --------
Total capacity payments.. $1,023,539 $987,539
========== ========
Leases -- The System Companies have entered into operating leases covering
various facilities and properties including combustion turbines, transportation,
mining and data processing equipment, and office space. Lease costs charged to
operation expense for the years ended December 31, 1997, 1996 and 1995 were
$156,710,000, $144,553,000, and $141,775,000, respectively, for the Company, and
$65,755,000, $56,376,000, and $60,156,000, respectively, for TU Electric.
Future minimum lease commitments under such operating leases that have
initial or remaining noncancellable lease terms in excess of one year as of
December 31, 1997, were as follows:
The Company TU Electric
----------- -----------
Years Thousands of Dollars
-----
1998.............................. $ 83,729 $ 35,049
1999.............................. 73,024 34,152
2000.............................. 64,161 33,834
2001.............................. 96,387 33,619
2002.............................. 55,428 32,857
Thereafter........................ 546,148 408,886
-------- --------
Total minimum lease commitments.. $918,877 $578,397
======== ========
Financial Guarantees -- TU Electric has entered into contracts with public
agencies to purchase cooling water for use in the generation of electric energy.
In connection with certain contracts, TU Electric has agreed, in effect, to
guarantee the principal, $30,005,000 at December 31, 1997, and interest on
bonds issued to finance the reservoirs from which the water is supplied. The
bonds mature at various dates through 2011 and have interest rates ranging from
5-1/2% to 7%. TU Electric is required to make periodic payments equal to such
principal and interest, including amounts assumed by a third party and
reimbursed to TU Electric, for the years 1998 through 2001 as follows:
$4,435,000 for each of the
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<PAGE>
years 1998 and 1999, $4,419,000 for 2000 and $4,422,000 for 2001. Payments made
by TU Electric, net of amounts assumed by a third party under such contracts,
for 1997, 1996 and 1995 were $3,750,000, $3,548,000, and $3,628,000,
respectively. In addition, TU Electric is obligated to pay certain variable
costs of operating and maintaining the reservoirs. TU Electric has assigned to a
municipality all contract rights and obligations of TU Electric in connection
with $69,395,000 remaining principal amount of bonds at December 31, 1997,
issued for similar purposes which had previously been guaranteed by TU Electric.
TU Electric is, however, contingently liable in the unlikely event of default by
the municipality. The Company and/or its subsidiaries are the guarantor on
various commitments and obligations of others aggregating some $45,000,000 at
December 31, 1997.
The Company
- -----------
Chaco Coal Properties -- Chaco has a coal lease agreement for the rights to
certain surface minable coal reserves located in New Mexico. The agreement
encompasses a minimum of 228 million tons of coal with provisions for minimum
advance royalty payments of approximately $16 million per year through 2017.
The Company has entered into a surety agreement to assure the performance by
Chaco with respect to this agreement. Because of the present ample availability
of western coal at favorable prices from other mines, Chaco has delayed plans to
commence mining operations, and accordingly, is reassessing its alternatives
with respect to its coal properties, including seeking purchasers thereof. (See
Note 14.)
TU Electric
- -----------
Nuclear Insurance -- With regard to liability coverage, the Price-Anderson Act
(Act) provides financial protection for the public in the event of a significant
nuclear power plant incident. The Act sets the statutory limit of public
liability for a single nuclear incident currently at $8.9 billion and requires
nuclear power plant operators to provide financial protection for this amount.
As required, TU Electric provides this financial protection for a nuclear
incident at Comanche Peak resulting in public bodily injury and property damage
through a combination of private insurance and industry-wide retrospective
payment plans. As the first layer of financial protection, TU Electric has
purchased $200 million of liability insurance from American Nuclear Insurers
(ANI), which provides such insurance on behalf of a major stock insurance pool,
Nuclear Energy Liability Insurance Association. The second layer of financial
protection is provided under an industry-wide retrospective payment program
called Secondary Financial Protection (SFP).
Under the SFP, each operating licensed reactor in the United States is
subject to an assessment of up to $79.275 million, subject to increases for
inflation every five years, in the event of a nuclear incident at any nuclear
plant in the United States. Assessments are limited to $10 million per
operating licensed reactor per year per incident. All assessments under the SFP
are subject to a 3% insurance premium tax which is not included in the amounts
above.
With respect to nuclear decontamination and property damage insurance,
Nuclear Regulatory Commission (NRC) regulations require that nuclear plant
license-holders maintain not less than $1.06 billion of such insurance and
require the proceeds thereof to be used to place a plant in a safe and stable
condition, to decontaminate it pursuant to a plan submitted to and approved by
the NRC before the proceeds can be used for plant repair or restoration or to
provide for premature decommissioning. TU Electric maintains nuclear
decontamination and property damage insurance for Comanche Peak in the amount of
$4.1 billion, above which TU Electric is self-insured. The primary layer of
coverage of $500 million is provided by Nuclear Electric Insurance Limited
(NEIL), a nuclear electric utility industry mutual insurance company. The
remaining coverage includes premature decommissioning coverage and is provided
by ANI and Mutual Atomic Energy Liability Underwriters (MAELU) in the amount of
$1.1 billion and additional insurance from NEIL in the amount of $2.5 billion.
TU Electric is subject to a maximum annual assessment from NEIL of $26 million
in the event NEIL's losses under this type of insurance for major incidents at
nuclear plants participating in these programs exceed the mutual's accumulated
funds and reinsurance.
TU Electric maintains Extra Expense Insurance through NEIL to cover the
additional costs of obtaining replacement power from another source if one or
both of the units at Comanche Peak are out of service for more than seventeen
weeks as a result of covered direct physical damage. The coverage provides for
weekly payments of $3.5 million for the first fifty-eight weeks and $2.8 million
for the next 104 weeks for each outage, respectively, after the initial
seventeen week period. The total maximum coverage is $494 million per unit.
The coverage amounts applicable to each unit will be
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<PAGE>
reduced to 80% if both units are out of service at the same time as a result of
the same accident. Under this coverage, TU Electric is subject to a maximum
annual assessment of $9 million per year.
The Company
- -----------
Gas Purchase Contracts -- Texas Utilities Fuel Company (Fuel Company) buys
gas under long-term intrastate contracts in order to assure reliable supply to
its customers. Many of these contracts require minimum purchases ("take-or-
pay") of gas. Based on Fuel Company's estimated gas demand, which assumes
normal weather conditions, requisite gas purchases are expected to substantially
satisfy purchase obligations for the year 1998 and thereafter.
Lone Star Gas buys gas under long-term, intrastate contracts in order to
assure reliable supply to its customers. Many of these contracts require
minimum purchases of gas. Lone Star Gas has made accruals for payments that may
be required for settlement of gas-purchase contract claims asserted or that are
probable of assertion. Lone Star Gas continually evaluates its position
relative to asserted and unasserted claims, above-market prices or future
commitments. Management believes that Lone Star Gas has not incurred losses for
which reserves should be provided at December 31, 1997. Based on estimated gas
demand, which assumes normal weather conditions, requisite gas purchases are
expected to substantially satisfy purchase obligations for the year 1998 and
thereafter.
TU Electric
- -----------
Nuclear Decommissioning and Disposal of Spent Fuel -- TU Electric has
established a reserve, charged to depreciation expense and included in
accumulated depreciation, for the decommissioning of Comanche Peak, whereby
decommissioning costs are being recovered from customers over the life of the
plant and deposited in external trust funds (included in other investments). At
December 31, 1997, such reserve totaled $120,452,000 which includes an accrual
of $18,179,000 for the year ended December 31, 1997. As of December 31, 1997,
the market value of deposits in the external trust for decommissioning of
Comanche Peak was $160,062,000. Any difference between the market value of the
external trust fund and the decommissioning reserve, that represents unrealized
gains or losses of the trust fund, is treated as a regulatory asset or a
regulatory liability. Realized earnings on funds deposited in the external
trust are recognized in the reserve. Based on a site-specific study completed
during 1997 using the prompt dismantlement method and then-current dollars,
decommissioning costs for Comanche Peak Unit 1, and Unit 2 and common facilities
were estimated to be $271,000,000 and $404,000,000, respectively.
Decommissioning activities are projected to begin in 2030 and 2033 for
Comanche Peak Unit 1, and Unit 2 and common facilities, respectively. TU
Electric is recovering decommissioning costs based upon a 1992 site-specific
study through rates placed in effect under Docket 11735 (see Note 13). Actual
decommissioning costs are expected to differ from estimates due to changes in
the assumed dates of decommissioning activities, regulatory requirements,
technology and costs of labor, materials and equipment. In addition, the
marketable fixed income debt and equity securities in which assets of the
external trust are invested are subject to interest rate and equity price
sensitivity.
TU Electric has a contract with the United States Department of Energy (DOE)
for the future disposal of spent nuclear fuel. In December 1996, the DOE
notified TU Electric that it did not expect to meet its obligation to begin
acceptance of spent nuclear fuel by 1998. TU Electric is unable to predict what
impact, if any, the DOE delay will have on TU Electric's future operations. The
disposal fee is at a cost to TU Electric of one mill per kilowatt-hour of
Comanche Peak net generation and is included in nuclear fuel expense.
The Company and TU Electric
- ---------------------------
General -- In addition to the above, the Company and TU Electric are involved
in various legal and administrative proceedings which, in the opinion of each,
should not have a material effect upon their financial position, results of
operation or cash flows.
A-58
<PAGE>
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and related estimated fair values of the Company's and
TU Electric's significant financial instruments at December 31, 1997 and 1996,
are as follows:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
---------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
Thousands of Dollars
<S> <C> <C> <C> <C>
The Company
- -----------
On balance sheet assets (liabilities):
Long-term debt (including current maturities)................. $(9,531,450) $(9,932,157) $(9,024,187) $(9,406,944)
TU Electric obligated, mandatorily redeemable, preferred
securities of subsidiary trusts holding solely debentures
of TU Electric............................................. (875,146) (913,447) (381,311) (395,091)
Preferred stock of subsidiary subject to mandatory
redemption................................................ (20,600) (22,019) (238,391) (250,098)
Other investments............................................. 241,959 248,980 194,652 191,435
LESOP note receivable......................................... 250,000 280,910 250,000 262,175
Off-balance sheet assets (liabilities):
Financial guarantees.......................................... (144,732) (148,628) (107,000) (111,000)
Interest rate swaps........................................... -- (50,476) -- (32,312)
Currency swap*................................................ -- 76,420 -- (1,557)
</TABLE>
*The foreign currency swap is a hedge of a foreign currency transaction. (See
Note 8.)
<TABLE>
<S> <C> <C> <C> <C>
TU Electric
- -----------
On balance sheet assets (liabilities):
Long-term debt (including current maturities).................... $(6,228,092) $(6,573,526) $(6,310,594) $(6,657,126)
TU Electric obligated, mandatorily redeemable, preferred
securities of subsidiary trusts holding solely debentures
of TU Electric................................................ (875,146) (913,447) (381,311) (395,091)
Preferred stock subject to mandatory redemption.................. (20,600) (22,019) (238,391) (250,098)
Other investments................................................ 204,794 209,190 172,779 169,820
Off balance sheet assets (liabilities):
Financial guarantees............................................. (99,400) (103,296) (107,000) (111,000)
Interest rate swap............................................... -- (1,368) -- --
</TABLE>
The fair values of long-term debt and preferred stock subject to mandatory
redemption are estimated at the lesser of either the call price or the market
value as determined by quoted market prices, where available, or, where not
available the present value of future cash flows discounted at rates consistent
with comparable maturities for credit risk. The fair values of preferred
securities are based on quoted market prices. The carrying amounts reflected in
the Consolidated Balance Sheets for financial assets classified as current
assets and the carrying amounts for financial liabilities classified as current
liabilities approximate fair value due to the short maturity of such
instruments.
Other investments include deposits in an external trust fund for nuclear
decommissioning of Comanche Peak. The trust funds are invested primarily in
fixed income debt and equity securities, which are considered as available-for-
sale. Any unrealized gains or losses are treated as regulatory assets or
regulatory liabilities, respectively.
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<PAGE>
Common stock -- net has been reduced by the note receivable from the
trustee of the leveraged employee stock ownership provision of the Thrift Plan.
The fair value of such note is estimated at the lesser of the Company's call
price or the present value of future cash flows discounted at rates consistent
with comparable maturities adjusted for credit risk.
The fair value of the financial guarantees is based on the present value of
the instruments' approximate cash flows discounted at the year-end risk free
rate for issues of comparable maturities adjusted for credit risk.
Fair values for the System Companies' off-balance-sheet instruments
(interest rate and currency swaps) are based either on quotes or the cost to
terminate the agreements.
The fair values of other financial instruments for which carrying amounts
and fair values have not been presented are not materially different than their
related carrying amounts.
17. SUPPLEMENTARY FINANCIAL INFORMATION (Unaudited)
In the opinion of the Company and TU Electric, respectively, the
information below includes all adjustments (constituting only normal recurring
accruals) necessary to a fair statement of such amounts. Quarterly results are
not necessarily indicative of expectations for a full year's operations because
of seasonal and other factors, including rate changes, variations in maintenance
and other operating expense patterns, and the charges for regulatory
disallowances. Certain quarterly information has been reclassified to conform to
the current year presentation.
<TABLE>
<CAPTION>
The Company
- -----------
Basic
Earnings (Loss)
Consolidated Net Per Share of
Operating Revenues Operating Income Income (Loss) Common Stock*
---------------------- ----------------------- ------------------ --------------
Quarter Ended 1997 1996 1997 1996 1997 1996 1997 1996
- ------------- ---- ---- ---- ---- ---- ---- ---- ----
Thousands of Dollars (except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31....................................... $1,493,804 $1,463,900 $ 381,807 $ 414,938 $114,799 $126,074 $0.51 $0.56
June 30........................................ 1,588,485 1,691,313 459,929 535,047 160,746 202,957 0.72 0.90
September 30................................... 2,264,945 1,930,097 684,063 743,610 289,610 357,983 1.24 1.59
December 31.................................... 2,598,374 1,465,618 380,872 309,395 95,299 66,592 0.39 0.30
---------- ---------- ---------- ---------- -------- --------
$7,945,608 $6,550,928 $1,906,671 $2,002,990 $660,454 $753,606
========== ========== ========== ========== ======== ========
</TABLE>
- --------------------------------------
* The sum of the quarters may not equal annual earnings per share due to
rounding. Diluted earnings per share for all other quarters were not different
from basic earnings per share.
The difference in operating income for the third quarter 1997 from amounts
previously reported reflects the reclassification of certain costs by ENSERCH to
conform to the Company's presentation.
TU Electric
- -----------
<TABLE>
<CAPTION>
Consolidated
Operating Revenues Operating Income Net Income
---------------------- ---------------------- ------------------
Quarter Ended 1997 1996 1997 1996 1997 1996
- ------------- ---- ---- ---- ---- ---- ----
Thousands of Dollars
<S> <C> <C> <C> <C> <C> <C>
March 31............... $1,365,459 $1,348,330 $ 271,867 $ 305,057 $143,011 $152,785
June 30................ 1,451,541 1,558,778 329,871 391,019 182,987 227,869
September 30........... 1,851,356 1,787,412 476,910 522,270 321,992 379,438
December 31............ 1,467,061 1,335,091 268,412 244,252 123,884 102,603
---------- ---------- ---------- ---------- -------- --------
$6,135,417 $6,029,611 $1,347,060 $1,462,598 $771,874 $862,695
========== ========== ========== ========== ======== ========
</TABLE>
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<PAGE>
Appendix B
ENSERCH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF TEXAS UTILITIES COMPANY)
INDEX TO FINANCIAL INFORMATION
December 31, 1997
Page
Selected Financial Data................................................... B-2
Management's Discussion and Analysis of Financial Condition and Results
of Operation............................................................. B-3
Independent Auditors' Report.............................................. B-9
Statements of Consolidated Income......................................... B-10
Statements of Consolidated Cash Flows..................................... B-11
Consolidated Balance Sheets............................................... B-12
Statements of Consolidated Common Stock Equity............................ B-13
Notes to Consolidated Financial Statements................................ B-14
B-1
<PAGE>
ENSERCH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF TEXAS UTILITIES COMPANY)
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Predecessor
-------------------------------------------------------------------------------
Period from Period from
Acquisition January 1,
Date to 1997 to Year Ended December 31,
December 31, Acquisition -----------------------------------------------------------------
1997 Date 1996 1995 1994 1993
------------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Total assets -- end of year.. $3,236,784 $2,721,142 $2,535,400 $2,640,573 $2,315,400
========== ========== ========== ========== ==========
Capitalization -- end of
year
Long-term Debt.............. $ 646,796 $ 932,721 $ 801,226 $ 806,471 $ 720,100
Advances from Parent........ 293,843 -- -- -- --
Preferred Stock............. 175,000 175,000 175,000 175,000 175,000
Common Stock Equity......... 761,644 743,391 719,182 726,187 647,600
---------- ---------- ---------- ---------- ----------
Total...................... $1,877,283 $1,851,112 $1,695,408 $1,707,658 $1,542,700
========== ========== ========== ========== ==========
Capitalization ratios -
end of year
Long-term Debt.............. 34.5% 50.4% 47.3% 47.2% 46.7%
Advances from Parent........ 15.6 -- -- -- --
Preferred Stock............. 9.3 9.4 10.3 10.3 11.3
Common Stock Equity......... 40.6 40.2 42.4 42.5 42.0
---------- ---------- ---------- ---------- ----------
Total...................... 100.0% 100.0% 100.0% 100.0% 100.0%
========== ========== ========== ========== ==========
Sales Volumes:
Gas distribution (million
cubic feet):
Residential................ 33,417 52,891 83,054 76,896 76,741 86,324
Commercial................. 20,996 33,162 52,265 48,765 49,013 53,023
Industrial................. 2,094 3,148 7,380 13,566 15,251 16,899
Electric generation........ 463 4,179 11,199 11,023 10,983 12,377
---------- ---------- ---------- ---------- ---------- ----------
Total gas distribution.... 56,970 93,380 153,898 150,250 151,988 168,623
========== ========== ========== ========== ========== ==========
Pipeline transportation
(million cubic feet)....... 255,391 362,020 652,339 561,134 541,590 542,772
Gas liquids (thousand
barrels)................... 2,521 3,352 6,114 5,984 5,913 5,958
Gas marketing (million
cubic feet)................ 292,264 223,207 315,332 419,243 488,415 306,675
Operating Revenues
Gas distribution:
Residential................ $ 205,760 $ 335,647 $ 514,724 $ 496,993 $ 480,272 $ 536,925
Commercial................. 108,650 178,897 275,045 269,448 264,053 286,899
Industrial................. 8,594 13,861 28,647 55,724 63,482 69,555
Electric generation........ 6,424 23,317 48,139 50,929 53,183 58,732
---------- ---------- ---------- ---------- ---------- ----------
Total gas distribution.... 329,428 551,722 866,555 873,094 860,990 952,111
Pipeline transportation..... 57,544 77,307 133,930 143,487 141,002 143,350
Gas liquids................. 36,514 49,345 97,391 69,751 68,870 73,551
Gas marketing............... 858,566 601,826 825,009 750,463 997,418 666,221
Other....................... 41,952 83,628 134,140 85,600 80,922 85,138
Less intercompany revenues.. (47,897) (85,671) (162,765) (131,354) (134,826) (129,774)
---------- ---------- ---------- ---------- ---------- ----------
Total operating revenues... $1,276,107 $1,278,157 $1,894,260 $1,791,041 $2,014,376 $1,790,597
========== ========== ========== ========== ========== ==========
Income (Loss) from
Continuing Operations....... $ (9,565) $ (15,377) $ 9,751 $ 21,362 $ (5,661) $ 22,260
========== ========== ========== ========== ========== ==========
Ratio of earnings to fixed
charges..................... 0.66 0.58 1.31 1.46 0.82 1.52
Ratio of earnings to
combined fixed charges and
preferred dividends......... 0.57 0.49 1.01 1.18 0.58 1.18
</TABLE>
Financial information of Predecessor for all periods prior to the Acquisition
Date (August 5, 1997) have been restated to reflect the results of Enserch
Exploration, Inc. and Lone Star Energy Plant Operations, Inc., as well as
engineering and construction and environmental businesses, as discontinued
operations.
B-2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
FORWARD-LOOKING STATEMENTS
This report and other presentations made by ENSERCH Corporation (ENSERCH or
the Corporation) contain forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. Although
ENSERCH believes that in making any such statement its expectations are based on
reasonable assumptions, any such statement involves uncertainties and is
qualified in its entirety by reference to the following important factors that
could cause the actual results of ENSERCH to differ materially from those
projected in such forward-looking statement: (i) prevailing governmental
policies and regulatory actions, including those of the Railroad Commission of
Texas (RRC), acquisitions and disposal of assets and facilities, operation and
construction of plant facilities, present or prospective wholesale and retail
competition, changes in tax laws and policies and changes in and compliance with
environmental and safety laws and policies, (ii) weather conditions and other
natural phenomena, (iii) unanticipated population growth or decline, and changes
in market demand and demographic patterns, (iv) competition for retail and
wholesale customers, (v) pricing and transportation of natural gas and other
commodities, (vi) unanticipated changes in interest rates or rates of inflation,
(vii) unanticipated changes in operating expenses and capital expenditures,
(viii) capital market conditions, (ix) competition for new energy development
opportunities, (x) legal and administrative proceedings and settlements, (xi)
inability of various counterparties to meet their obligations with respect to
ENSERCH's financial instruments, (xii) changes in technology used and services
offered by ENSERCH and (xiii) significant changes in ENSERCH's relationship with
its employees and the potential adverse effects if labor disputes or grievances
were to occur.
Any forward-looking statement speaks only as of the date on which such
statement is made, and ENSERCH undertakes no obligation to update any forward-
looking statement to reflect events or circumstances after the date on, which
such statement is made or to reflect the occurrence of unanticipated events.
New factors emerge from time to time, and it is not possible for ENSERCH to
predict all of such factors, nor can the impact of each such factor or the
extent to which any factor, or combination of factors, may cause results to
differ materially from those contained in any forward-looking statement be
assessed.
FINANCIAL CONDITION
Merger With TUC
On August 5, 1997 (Merger Date or Acquisition Date), all of the common stock
of ENSERCH Corporation was converted to common stock of Texas Utilities Company
(TUC), and ENSERCH became a wholly-owned subsidiary of TUC. ENSERCH shareholders
received .225 share of TUC common stock for each share of ENSERCH. Immediately
prior to ENSERCH's merger with TUC, Enserch Exploration, Inc. (EEX) and Lone
Star Energy Plant Operations, Inc. (LSEPO) were merged to form a new company
(New EEX), and ENSERCH distributed to its common shareholders its ownership
interest in New EEX, which was represented by approximately 105 million shares
of New EEX common stock with a carrying value of $583 million. In the
distribution, which was tax free to the recipients, ENSERCH shareholders of
record on August 4, 1997 received approximately 1.5 shares of New EEX common
stock for each share of ENSERCH common stock owned. ENSERCH's financial
statements for all periods presented have been restated to reflect EEX and LSEPO
as discontinued operations. ENSERCH's discontinued operations also include its
engineering and construction and environmental businesses, the principal assets
of which were sold in prior years. On December 31, 1997, ENSERCH sold to Texas
Energy Industries, Inc., a wholly-owned subsidiary of TUC, at net book value,
the group of companies which had constituted its power development and
international gas distribution operations. As a result, ENSERCH is no longer
engaged in these activities. The sale was effected in order to strengthen the
Corporation's financial position by relieving it of certain indebtedness as well
as its obligation to make capital expenditures in the future. For accounting
purposes, the sale was considered to be a merger of commonly controlled
companies, accordingly, it was reflected effective as of the Merger Date.
Operating results for periods following the Merger Date exclude these
operations.
B-3
<PAGE>
TUC accounted for its acquisition of ENSERCH as a purchase, and push down
accounting has been applied, with the result that purchase accounting
adjustments have been reflected in the financial statements of ENSERCH and its
subsidiaries for the period subsequent to August 5, 1997. Financial statements
for periods prior to that date were prepared using ENSERCH's historical basis of
accounting and are designated as "Predecessor". For purposes of the discussion
of operating results provided herein, the financial information of the
Predecessor for the 1997 periods prior to the Merger Date have been combined
with the post-merger 1997 financial information. The business operations of
ENSERCH were not significantly changed as a result of the merger, and post-
merger and pre-merger operating results, except as noted in the discussion, are
comparable.
Capital Expenditures
The primary capital expenditures of the Corporation and its subsidiaries in
1997 and as estimated for 1998 through 2000 are as follows:
1997.......................... $119,000,000
1998.......................... 143,000,000
1999.......................... 133,000,000
2000.......................... 140,000,000
The planned expenditures are expected to be funded from internal cash flows,
borrowings under credit lines or advances from TUC.
Liquidity and Financial Resources
Continuing operations used cash of $12.2 million for operating activities in
1997 compared with providing cash of $105.0 million in 1996 and $127.8 million
in 1995. Changes in operating assets and liabilities used cash of $71.0 million
in 1997 and $15.3 million in 1995 but provided cash of $16.0 million in 1996.
Discontinued exploration and production operations used cash of $21.8 million
in 1997 compared with providing cash of $19.6 million and $37.6 million in 1996
and 1995, respectively. The discontinued engineering and construction
operations used cash of $12.2 million in 1997, $5.0 million in 1996 and $28.1
million in 1995.
Investing activities required $125.6 million in 1997 versus $176.4 million in
1996 and $120.1 million in 1995. Capital spending in 1997 was about 10% lower
than in 1996 but 11% greater than in 1995. Also, investments in unconsolidated
affiliates provided cash in 1997 but required significant cash in 1996. Other
investing activities used cash of $14.3 million in 1997 and $.9 million in 1995
versus providing cash of $8.6 million in 1996.
Total capitalization at December 31, 1997 was $1.9 billion, up slightly from
year-end 1996. Common stock equity as a percentage of total capitalization was
40.6% at December 31, 1997 compared with 40.2% at year-end 1996.
Shortly after the merger with TUC, ENSERCH's commercial paper program and
bank lines in the form of a revolving credit agreement were discontinued.
ENSERCH retired $204.5 million of commercial paper outstanding at the Merger
Date and $260.4 million of long-term debt outstanding under the credit
agreement, using advances from TUC to fund the retirements. In December 1997,
TUC purchased additional shares of ENSERCH common stock for $200 million. These
funds were used to reduce borrowings from TUC.
In January 1998, ENSERCH issued $125 million of 6 1/4% Series A Notes due
2003 and $125 million of Remarketed Reset Notes due 2008 with a variable
interest rate (5.82% at date of issuance). Net proceeds from these borrowings
were used to refinance or redeem like amounts of higher rate debt and preferred
stock. Also in January, the Series E Adjustable
B-4
<PAGE>
Rate Preferred Stock was redeemed at 100% of its liquidation price plus accrued
and unpaid dividends. On February 25, 1998, the Corporation called for
redemption the 6 3/8% Convertible Subordinated Debentures. ENSERCH may issue
additional debt and equity securities as needed, including the possible future
sale of up to $250 million aggregate principal amount of securities currently
registered with the Securities and Exchange Commission (SEC) for offering
pursuant to Rule 415 under the Securities Act of 1933.
At December 31, 1997, TUC, Texas Utilities Electric Company, a wholly-owned
indirect subsidiary of TUC, and ENSERCH had joint lines of credit under credit
facility agreements (Credit Agreements) with a group of commercial banks. The
Credit Agreements have two facilities. Facility A provides for short-term
borrowings aggregating up to $570 million outstanding at any time at variable
interest rates and terminates April 23, 1998. Facility B provides for short-
term borrowings aggregating up to $1,330 million outstanding at any time at
variable interest rates and terminates April 24, 2002. ENSERCH borrowings under
both facilities are limited to an aggregate of $650 million outstanding at any
time. ENSERCH borrowings under these facilities will be used for working
capital and other needs. At December 31, 1997, ENSERCH had no borrowings under
these facilities.
Quantitative and Qualitative Disclosure About Market Risk
The Corporation's market risk exposure is primarily a result of changes in
interest rates and commodity price exposures. Derivative instruments including
options, swaps, futures and other contractual commitments are used to reduce and
manage a portion of those risks. With the exception of the marketing activities
of a subsidiary, Enserch Energy Services, Inc. (EES), the Corporation's
participation in derivative transactions is designated for hedging purposes;
derivative instruments are not held or issued for trading purposes.
CREDIT RISK -- Credit risk relates to the risk of loss that the Corporation
would incur as a result of nonperformance by counterparties to their respective
derivative instruments. The Corporation maintains credit policies with regard
to its counterparties that management believes significantly minimize overall
credit risk. The Corporation does not obtain collateral to support the
agreements but monitors the financial viability of counterparties and believes
its credit risk is minimal on these transactions. The Corporation believes the
risk of nonperformance by counterparties is minimal.
INTEREST RATE MARKET RISK -- The table below provides information concerning
the Corporation's financial instruments as of December 31, 1997 that are
sensitive to changes in interest rates, which consist only of debt obligations.
The table presents principal cash flows and related weighted average interest
rates by expected maturity dates.
<TABLE>
<CAPTION>
Expected Maturity Date
---------------------------------------------------------------------
There- Fair
1998 1999 2000 2001 2002 after Total Value
------ ------ ----- ------ ------ ------- ------- ------
Millions of Dollars
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term Debt (including current maturities)
Fixed Rate................................. $ -- $150.0 $ -- $100.0 $90.8 $306.0 $646.8 $649.1
Average interest rate...................... -- 7.00% -- 8.88% 6.38% 6.62% 7.02% --
</TABLE>
ENERGY MARKETING MARKET RISK -- As part of its natural gas marketing
activities, EES enters into forward contracts that principally involve physical
delivery of natural gas and derivative financial instruments, including options,
swaps, futures and other contractual arrangements to offset price risks of gas
supply. These activities involve price commitments into the future and,
therefore, give rise to market risk. EES applies mark-to-market accounting to
its business activities. At December 31, 1997, natural gas marketing operations
had net commitments to sell approximately 50.6 billion cubic feet (Bcf) of
natural gas through the year 2003 with offsetting net financial positions to
purchase approximately 61.3 Bcf.
B-5
<PAGE>
EES has performed a sensitivity analysis to estimate its exposure to market
risk of its commodity and related financial commitments. The exposure for fixed
price natural gas purchase and sale commitments, and derivative financial
instruments, including options, swaps, futures and other contractual
commitments, is based on a methodology that uses a five-day holding period and a
95% confidence level. EES uses market-implied volatilities to determine its
exposure to volatility risk. Market risk is estimated as the potential loss in
fair value resulting from at least a 15% change in market factors which may
differ from actual results. Using 15%, the most adverse change in fair value at
December 31, 1997 as a result of this analysis, was a reduction of $1.1 million.
For additional information regarding derivative instruments, see Note 7 to
Consolidated Financial Statements.
Regulation and Rates
In October 1996, Lone Star Pipeline Company, a division of ENSERCH (Lone Star
Pipeline), filed a request with the RRC to increase the rate it charges Lone
Star Gas Company, a division of ENSERCH (Lone Star Gas), to store and transport
gas ultimately destined for residential and commercial customers in the 550
Texas cities and towns served by Lone Star Gas. Lone Star Gas also requested
that the RRC separately set rates for costs to aggregate gas supply for these
cities. Rates previously in effect were set by the RRC in 1982. In September
1997, the RRC issued an order reducing the charges by Lone Star Pipeline to Lone
Star Gas for storage and transportation services. In that order, the RRC did
authorize separate charges for the Lone Star Pipeline storage and transportation
services, a separate charge by Lone Star Gas for the cost of aggregating gas
supplies, and a continuation of the 100% flow through of purchased gas expense.
The RRC also imposed some new criteria for affiliate gas purchases and a new
reconciliation procedure that will require a review of purchased gas expenses
every three years. The RRC order has become final, but is being appealed by
several parties including Lone Star Pipeline and Lone Star Gas. The rates
authorized by the order became effective on December 1, 1997, and will result in
an annual margin reduction of approximately $8.2 million.
On August 20, 1996, the RRC ordered a general inquiry into the rates and
services of Lone Star Gas, most notably a review of Lone Star Gas' historic gas
cost and gas acquisition practices since the last rate setting. The inquiry
docket has been separated into different phases. Two of the phases, conversion
to the NARUC account numbering system and unbundling, have been dismissed by the
RRC, and one other phase, rate case expense, is pending RRC action on the basis
of a stipulation of all parties. In the phase dealing with historic gas cost
and gas acquisition practices, Lone Star Gas and Lone Star Pipeline have filed a
motion for summary disposition stating that any retroactive rate action would be
inappropriate and unlawful. Settlement discussions with intervenor cities are
ongoing. If the motion for summary disposition is denied, a hearing has been
scheduled to begin in August 1998. A number of management and transportation
related issues have been placed in a separate phase which still has an undefined
scope and is being held in abeyance pending the resolution of the phase dealing
with gas costs. Management believes that gas costs were prudently incurred and
were properly accounted for and recovered through the gas cost recovery
mechanism previously approved by the RRC. At this time, management is unable to
determine the ultimate outcome of the inquiry.
RESULTS OF OPERATION
For purposes of the discussion of operating results provided herein, the
financial information of the Predecessor for the 1997 periods prior to the
Merger Date have been combined with the post-merger 1997 financial information.
The business operations of ENSERCH were not significantly changed as a result of
the merger, and post-merger and pre-merger operating results, except as noted in
the discussion, are comparable.
For the year ended December 31, 1997, ENSERCH had a loss from continuing
operations of $24.9 million compared with income of $9.8 million in 1996 and
income of $21.4 million in 1995. The 1997 results were reduced by a first
quarter $8.6 million pretax, $5.6 million after-tax, provision for a credit Lone
Star Gas made voluntarily to its customers, and were improved by third quarter
income of $12.5 million pretax, $8.1 million after-tax, from the sale of
interests in cogeneration projects. Also, results for 1997 were reduced by
merger-related expenses, which totaled $25.1 million pretax, $21.3 million
after-tax, and the amortization of goodwill of $8.1 million arising from the
merger with TUC.
B-6
<PAGE>
Consolidated revenues for 1997 were $2.6 billion compared with $1.9 billion
for 1996 and $1.8 billion for 1995. The higher revenues reflect an increase of
$.6 billion in gas marketing revenues. (The table of Selected Financial Data
provides additional information on revenues.) Gas purchased for resale
increased from $1.3 billion in 1996 to $2.0 billion in 1997, reflecting the
increase in natural gas marketing activity. Operating income was $66.7 million
in 1997 compared with $105.1 million in 1996 and $100.1 million in 1995.
Operating income from natural gas gathering and processing operations decreased
$12 million in 1997 from 1996 but increased $18 million in 1996 from 1995.
Fluctuations in natural gas liquids (NGL) demand, price volatility for NGL
products and natural-gas feedstock costs are the major factors that influence
financial results in the NGL processing business. Lone Star Pipeline operating
income increased $10 million in 1997 from 1996 but decreased $3 million in 1996
from 1995. The higher results in 1997, which were after a voluntary refund of
$8.6 million made prior to the Merger to residential and commercial customers,
were primarily attributable to lower operating and maintenance expenses and
lower costs of gas lost in transmission, while the decline from 1995 to 1996 was
principally due to higher operating and maintenance expenses. Lone Star Gas
operating income decreased $15 million in 1997 from 1996 after increasing $15
million in 1996 from 1995. The 1997 decline from 1996 was primarily due to
higher operating and maintenance expenses. Results for 1996 were improved from
1995 because of the higher volume of residential and commercial sales, which
have the highest margins. Natural gas marketing activities reported an
increased operating loss of $32 million in 1997 from 1996 and an increased loss
of $12 million in 1996 from 1995. Those losses were the result of low margins,
inadequate systems infrastructure and costs associated with new systems that
were implemented around year-end 1997. Natural gas marketing operations are
expected to be profitable in 1998. Power development income (prior to the
transfer of these operations to a TUC affiliate effective with the Merger)
improved $16 million in 1997 mostly due to the income from the sale of interests
in projects. The Corporation's 1997 operating results also include $8.1 million
of amortization of goodwill resulting from the Merger.
Other income (deductions) - net in 1997 included $2.4 million in gains from
the sale of cogeneration plants. Other amounts consisted principally of gains
on disposals of assets and interest income, less losses from unconsolidated
affiliates.
Interest charges for 1997 were $76.3 million compared with $76.7 million in
1996 and $71.4 million in 1995. Interest charges for 1997 included $10.7
million related to advances from TUC.
The extraordinary loss in 1996 of $2.1 million represented a premium incurred
in connection with the prepayment of ENSERCH's 9.06% Notes to facilitate the
merger with TUC.
For the year ended December 31, 1997, there was a loss from discontinued
operations of $224.7 million which included a $236 million after-tax impact of
a write-down of the carrying value of EEX's oil and gas properties due to the
U.S. cost center ceiling limitation at March 31, 1997, and a $9.7 million ($14.9
million pre-tax) provision for estimated costs and expenses to wind-up
engineering and construction operations. For the years 1996 and 1995,
discontinued operations had income of $11.4 million and a loss of $8.3 million,
respectively. (See Note 12 to consolidated financial statements.)
CHANGES IN ACCOUNTING STANDARDS
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," (SFAS 130) will become effective in 1998. This statement
requires companies to report and display comprehensive income and its components
(revenues, expenses, gains and losses). Comprehensive income includes all
changes in equity during a period except those resulting from investments by
owners and distributions to owners.
SFAS 131, "Disclosures About Segments of an Enterprise and Related
Information," will become effective in 1998. This statement establishes
standards for defining and reporting business segments. The Corporation is
currently determining its reportable segments.
The adoption of SFAS 130 and SFAS 131 will not affect the Corporation's
consolidated financial position, results of operations or cash flows.
B-7
<PAGE>
YEAR 2000 ISSUES
Many existing computer programs use only two digits to identify a year in the
date field. These programs were designed and developed without considering the
impact of the upcoming change in the century. If not corrected, many computer
applications could fail or produce erroneous data by or at the Year 2000. The
Year 2000 issues affect virtually all companies and organizations.
As a result of the Merger, many of the Corporation's existing computer
applications and systems will be migrated to existing or planned TUC systems.
TUC began its Year 2000 initiative in 1996 by addressing mainframe-based
application systems. In early 1997, an infrastructure project to address
information technology (IT) related equipment and systems software was begun.
In late 1997, a corporate-wide project to address Year 2000 issues related to
embedded systems such as process controls for energy production and delivery
and client-developed applications was begun. Most of the ENSERCH mainframe
applications, infrastructure, embedded systems and client-developed applications
that will not be migrated to existing or planned TUC systems have been
incorporated into these projects. These projects extend beyond the TUC
organization in an effort to also work with key vendors, service suppliers and
others so that TUC and ENSERCH can appropriately prepare for Year 2000.
The remediation and replacement work on the majority of IT application
systems and infrastructure are expected to be completed by the end of 1998.
Much of the work on the TUC Year 2000 project is expected to be completed by the
end of 1998, although the project will extend into 1999. Based on present
assessments of the IT and infrastructure projects, a cost of $11.25 million for
TUC was estimated. ENSERCH will be billed for its share of the costs. The TUC
costs are being expensed as incurred over the four-year period (1996 through
1999) covered by the projects. Assessment of the cost of the TUC Year 2000
project is in the early stages.
B-8
<PAGE>
INDEPENDENT AUDITORS' REPORT
ENSERCH Corporation and Subsidiaries:
We have audited the accompanying consolidated balance sheets of ENSERCH
Corporation and subsidiaries (the Corporation) as of December 31, 1997 and also
1996 (Predecessor Company balance sheet), and the related statements of
consolidated income, cash flows and common stock equity for the period from
August 5, 1997 (acquisition date) to December 31, 1997, and the period from
January 1, 1997 to the acquisition date and for each of the two years in the
period ended December 31, 1996 (Predecessor Company Operations). These
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ENSERCH Corporation
and subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for the period from the acquisition date to
December 31, 1997, the period from January 1, 1997 to the acquisition date and
for the two years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
February 24, 1998
B-9
<PAGE>
ENSERCH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF TEXAS UTILITIES COMPANY)
STATEMENTS OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Predecessor
----------------------------------------------
Period From
Period From January 1, 1997 Year Ended
Acquisition To December 31,
Date to Acquisition -------------------------------
December 31, 1997 Date 1996 1995
------------------ ----------- ---------------- -------------
Thousands of Dollars
<S> <C> <C> <C> <C>
OPERATING REVENUES.......................... $1,276,107 $1,278,157 $1,894,260 $1,791,041
---------- ---------- ---------- ----------
OPERATING EXPENSES
Gas purchased for resale............... 1,052,658 941,626 1,316,137 1,260,191
Operation and maintenance.............. 150,569 209,596 348,830 313,633
Depreciation and amortization.......... 29,720 33,693 53,802 48,272
Gross receipts taxes................... 12,312 29,134 43,212 41,415
Payroll, ad valorem and other taxes.... 11,024 17,224 27,186 27,479
---------- ---------- ---------- ----------
Total operating expenses......... 1,256,283 1,231,273 1,789,167 1,690,990
---------- ---------- ---------- ----------
OPERATING INCOME............................ 19,824 46,884 105,093 100,051
MERGER RELATED EXPENSES..................... -- (25,135) (6,790) --
OTHER INCOME (DEDUCTIONS) -- NET............ 881 2,799 (1,575) 4,106
INTEREST CHARGES............................ (31,755) (44,537) (76,700) (71,380)
---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE INCOME TAXES........... (11,050) (19,989) 20,028 32,777
INCOME TAX EXPENSE (BENEFIT)................ (1,485) (4,612) 10,277 11,415
---------- ---------- ---------- ----------
INCOME (LOSS) FROM CONTINUING OPERATIONS.... ( 9,565) (15,377) 9,751 21,362
INCOME (LOSS) FROM DISCONTINUED OPERATIONS.. -- (224,691) 11,387 (8,309)
EXTRAORDINARY LOSS ON EXTINGUISHMENT
OF DEBT................................ -- -- (2,096) --
---------- ---------- ---------- ----------
NET INCOME (LOSS)........................... (9,565) (240,068) 19,042 13,053
PREFERRED STOCK DIVIDENDS................... 4,677 6,725 11,339 11,690
---------- ---------- ---------- ----------
NET INCOME (LOSS) AVAILABLE FOR COMMON
STOCK................................. $ (14,242) $ (246,793) $ 7,703 $ 1,363
========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
B-10
<PAGE>
ENSERCH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF TEXAS UTILITIES COMPANY)
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
Predecessor
-------------------------------------
Period From
Period From January 1,
Acquisition 1997 Year Ended
Date to To December 31,
December 31, Acquisition --------------------------
1997 Date 1996 1995
----------- ---------- ------------ ------------
Thousands of Dollars
<S> <C> <C> <C> <C>
CASH FLOWS -- OPERATING ACTIVITIES
Income (loss) from continuing operations.... $ (9,565) $ (15,377) $ 9,751 $ 21,362
Adjustments to reconcile income (loss) from
continuing operations to cash provided by
operating activities:
Depreciation and amortization............. 29,720 33,693 53,802 48,272
Deferred income-tax expense (benefit)..... 18,718 (8,803) 5,317 5,043
Recoveries of gas-purchase contract
settlements............................. 318 27 7,926 51,297
Other..................................... 4,587 5,503 12,224 17,161
Changes in operating assets and liabilities
Accounts receivable..................... (340,758) 132,763 (101,288) (13,456)
Other current assets.................... 22,683 33,529 (24,995) (24,029)
Accounts payable
Affiliates............................ 4,926 -- -- --
Other................................. 279,756 (148,859) 98,148 10,960
Other current liabilities............... (33,737) (8,194) 44,121 11,209
Gas marketing risk management assets and
liabilities........................... (13,142) -- -- --
--------- --------- --------- ---------
Cash provided by (used for) operating
activities.......................... (36,494) 24,282 105,006 127,819
--------- --------- --------- ---------
CASH FLOWS -- INVESTING ACTIVITIES
Additions to property, plant and equipment.. (56,690) (62,074) (132,262) (106,854)
Sales and retirements of property, plant
and equipment............................. (250) 171 6,863 5,132
Investments in unconsolidated affiliates.... 188 12,267 (59,627) (8,785)
Sale of subsidiaries to an affiliated
company................................... (4,891) -- -- --
Purchases of businesses, net of cash
acquired.................................. -- -- -- (8,762)
Other....................................... (4,777) (9,539) 8,605 (875)
--------- --------- --------- ---------
Cash used for investing activities...... (66,420) (59,175) (176,421) (120,144)
--------- --------- --------- ---------
CASH FLOWS -- FINANCING ACTIVITIES
Change in commercial paper and other
short-term borrowings..................... (198,473) 66,540 (49,000) 32,759
Advances from parent........................ 382,641 -- -- --
Issuance of senior long-term debt........... -- 100,000 160,000 150,000
Debt issuance costs......................... -- -- (786) (944)
Borrowings under revolving credit agreement. -- -- 25,000 --
Retirement of senior long-term debt......... (269,335) (100,784) (66,960) (162,677)
Change in assignments of future gas purchase
credits................................... -- -- -- (17,191)
Issuance of common stock
Parent.................................... 200,000 -- -- --
Other..................................... -- 3,757 27,678 4,408
Cash dividends paid......................... (5,728) (12,771) (25,144) (25,401)
Other....................................... -- (7) (3,289) (702)
--------- --------- --------- ---------
Cash from (used for) financing activities. 109,105 56,735 67,499 (19,748)
--------- --------- --------- ---------
CASH PROVIDED BY (USED FOR) DISCONTINUED
OPERATIONS
Exploration and production.................. -- (21,773) 19,636 37,636
Engineering and construction................ (6,564) (5,641) (5,001) (28,102)
--------- --------- --------- ---------
Cash from (used for) Discontinued
Operations.............................. (6,564) (27,414) 14,635 9,534
--------- --------- --------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS....... (373) (5,572) 10,719 (2,539)
CASH AND CASH EQUIVALENTS -- BEGINNING BALANCE 12,143 17,715 6,996 9,535
--------- --------- --------- ---------
CASH AND EQUIVALENTS -- ENDING BALANCE........ $ 11,770 $ 12,143 $ 17,715 $ 6,996
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
B-11
<PAGE>
ENSERCH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF TEXAS UTILITIES COMPANY)
CONSOLIDATED BALANCE SHEETS
Predecessor
-----------
December 31,
-----------------------
1997 1996
---------- ---------
In thousands
ASSETS
Current Assets
Cash and cash equivalents......................... $ 11,770 $ 17,715
Accounts receivable............................... 506,284 350,535
Gas marketing risk management assets.............. 365,650 --
Gas stored underground............................ 114,244 119,178
Deferred income taxes............................. 22,663 20,683
Other............................................. 35,094 88,989
---------- ----------
Total current assets........................ 1,055,705 597,100
---------- ----------
Investments......................................... 37,041 113,771
---------- ----------
Net Investment in Discontinued Exploration and
Production Operations.............................. -- 798,229
---------- ----------
Property, Plant and Equipment....................... 1,200,864 1,942,528
Less accumulated depreciation and amortization... 24,669 787,205
---------- ----------
Net property, plant and equipment........... 1,176,195 1,155,323
---------- ----------
Goodwill (net of accumulated amortization:
1997 -- $8,113,000; 1996 -- $901,000).......... 791,401 8,740
---------- ----------
Other Assets
Unamortized regulatory assets for pension and
other postretirement benefits.................. 52,336 --
Deferred income taxes........................... 69,267 26,306
Other........................................... 54,839 21,673
---------- ----------
Total other assets.......................... 176,442 47,979
---------- ----------
Total....................................... $3,236,784 $2,721,142
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Commercial paper and short-term bank loans....... $ 6,067 $ 138,000
Current portion of long-term debt................ -- 1,598
Accounts payable
Affiliates.................................. 4,926 --
Other....................................... 491,645 393,097
Gas marketing risk management liabilities........ 357,044 --
Other current liabilities........................ 115,030 152,458
Liabilities for discontinued engineering and
construction operations......................... 12,932 17,933
---------- ----------
Total current liabilities................... 987,644 703,086
---------- ----------
Advances from Parent................................ 293,843 --
---------- ----------
Long-term Debt...................................... 646,796 932,721
---------- ----------
Other Liabilities
Pension and other postretirement benefits........ 165,514 48,075
Deferred income taxes............................ 10,498 13,888
Other............................................ 195,845 104,981
---------- ----------
Total other liabilities..................... 371,857 166,944
---------- ----------
Commitments and Contingent Liabilities (Note 10)....
Shareholders' Equity
Adjustable rate preferred stock.................. 175,000 175,000
Common stock equity.............................. 761,644 743,391
---------- ----------
Shareholders' equity........................ 936,644 918,391
---------- ----------
Total....................................... $3,236,784 $2,721,142
========== ==========
See Notes to Consolidated Financial Statements.
B-12
<PAGE>
ENSERCH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF TEXAS UTILITIES COMPANY)
STATEMENTS OF CONSOLIDATED COMMON STOCK EQUITY
<TABLE>
<CAPTION>
Predecessor
---------------------------------
Period From
Period From January 1,
Acquisition 1997 Year Ended
Date to To December 31,
December 31, Acquisition -------------------
1997 Date 1996 1995
------------ ----------- -------- --------
(In thousands)
<S> <C> <C> <C> <C>
COMMON STOCK -- authorized 100 million shares
Balance at beginning of period ............................................... $ -- 703 $304,897 $303,301
Issuance of common stock to parent (2,000,000 shares) ................... 2 -- -- --
Issued for stock plans (0; 215,000; 1,764,000; and 358,000 shares) ...... -- 2 7,363 1,596
Reclassify par value of common stock canceled at
acquisition date ...................................................... -- (705) -- --
Change in par value to $.01 from $4.45 per share ........................ -- -- (311,557) --
-------- --------- --------- --------
Balance at end of period (par value: $.01; $.01; $.01; and $4.45 per share -
outstanding shares: 201,000; 1,000; 70,280,000; and 68,516,000) ......... 2 -- 703 304,897
-------- --------- --------- --------
PAID IN CAPITAL
Balance at beginning of period ............................................ 579,126 672,775 338,857 334,672
Issuance of common stock to parent ................................... 199,998 -- -- --
Excess of proceeds over par value of
common stock issued for stock plans ................................ -- 3,755 21,794 3,866
Dividends declared ................................................... (4,677) (9,202) -- --
Change in par value of common stock .................................. -- -- 311,557 --
Other ................................................................ (3,240) -- 567 319
Distribution of EEX to common shareholders ........................... -- (582,574) -- --
Reclassify common stock and accumulated loss at acquisition date ..... -- (172,205) -- --
Purchase accounting adjustments ...................................... -- (132,937) -- --
-------- --------- --------- --------
Subtotal .......................................................... 771,207 (220,388) 672,775 338,857
Excess of purchase price over paid in capital at acquisition date..... -- 799,514 -- --
-------- --------- --------- --------
Balance at end of period .................................................. 771,207 579,126 672,775 338,857
-------- --------- --------- --------
RETAINED EARNINGS
Balance at beginning of period ............................................ -- 70,774 76,941 89,054
Net income (loss) .................................................... (9,565) (240,068) 19,042 13,053
Dividends declared ................................................... -- (3,616) (25,209) (25,162)
Reclassify accumulated loss at acquisition date ...................... -- 172,910 -- --
Other ................................................................ -- -- -- (4)
-------- --------- --------- --------
Balance at end of period .................................................. (9,565) -- 70,774 76,941
-------- --------- --------- --------
FOREIGN CURRENCY TRANSLATION ADJUSTMENT
Balance at beginning of year .............................................. -- (861) -- --
Change during the year ............................................... -- 76 (1,325) --
Deferred income tax effects .......................................... -- (27) 464 --
Purchase accounting adjustments ...................................... -- 812 -- --
-------- --------- --------- --------
Balance at end of period .................................................. -- -- (861) --
-------- --------- --------- --------
UNAMORTIZED RESTRICTED STOCK COMPENSATION
Balance at beginning of period ............................................ -- -- (1,513) (840)
Shares granted ....................................................... -- -- (1,284) (865)
Cancellations ........................................................ -- -- -- 64
Market valuation adjustments ......................................... -- -- (73) (332)
Amortization ......................................................... -- -- 2,870 460
-------- --------- --------- --------
Balance at end of period .................................................. -- -- -- (1,513)
-------- --------- --------- --------
COMMON STOCK EQUITY ............................................................ $761,644 $ 579,126 $ 743,391 $719,182
======== ========= ========= ========
</TABLE>
See Notes to Consolidated Financial Statements.
B-13
<PAGE>
ENSERCH CORPORATION AND SUBSIDIARIES
(A WHOLLY-OWNED SUBSIDIARY OF TEXAS UTILITIES COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BUSINESS , MERGERS AND DISPOSITIONS
ENSERCH Corporation (ENSERCH or the Corporation) is an integrated company
focused on natural gas. Substantially all of its business operations consist of
the gathering, processing, transmission, distribution and marketing of natural
gas. Businesses and subsidiaries of ENSERCH include Lone Star Gas Company
(Lone Star Gas), a gas distribution company in Texas, serving over 1.35
million customers and providing service through over 23,800 miles of
distribution mains; Lone Star Pipeline Company (Lone Star Pipeline), which has
approximately 7,600 miles of gathering and transmission pipeline in Texas; and
subsidiaries engaged in natural gas processing (Enserch Processing, Inc.) and
natural gas marketing (Enserch Energy Services, Inc.).
On August 5, 1997 (Merger Date or Acquisition Date), the merger transactions
between Texas Utilities Company (TUC) and ENSERCH were completed. All of the
common stock of ENSERCH was converted into common stock of TUC, and ENSERCH
became a wholly-owned subsidiary of TUC. ENSERCH shareholders became entitled
to receive .225 share of TUC common stock for each share of ENSERCH. At the
effective time of the merger, each of the 1,000 outstanding shares of common
stock of ENSERCH Merger Corp. (a transitory corporation organized to facilitate
the merger transaction and owned by TUC) was converted to one share of ENSERCH
Corporation Common Stock, (ENSERCH common stock). All of the shares of ENSERCH
common stock outstanding prior to the effective time of the merger were
converted to shares of TUC and, upon conversion, were canceled and ceased to
exist. Accordingly, upon completion of the merger the outstanding common stock
of ENSERCH consisted of 1,000 shares, par value $0.01 per share, all of which
were owned by TUC. Immediately prior to ENSERCH's merger with TUC, Enserch
Exploration, Inc. (EEX) and Lone Star Energy Plant Operations, Inc. (LSEPO),
former subsidiaries of the Corporation, were merged to form a new company (New
EEX), and ENSERCH distributed to its common shareholders its ownership interest
in these businesses, which was represented by approximately 105 million shares
of New EEX common stock with a carrying value of $583 million. In the
distribution, which was tax free to recipients, ENSERCH shareholders of record
on August 4, 1997 received approximately 1.5 shares of New EEX common stock for
each share of ENSERCH common stock owned.
The value of the TUC shares issued and costs incurred by TUC in connection
with the acquisition of ENSERCH aggregated $579 million. TUC accounted for its
acquisition of ENSERCH as a purchase, and purchase accounting adjustments,
including goodwill, have been pushed down and are reflected in the financial
statements of ENSERCH and its subsidiaries for the period subsequent to August
5, 1997. The financial statements of ENSERCH for the periods ended before
August 5, 1997, were prepared using ENSERCH's historical basis of accounting and
are designated as "Predecessor". The comparability of the operating results for
the Predecessor and the periods encompassing push down accounting are affected
by the purchase accounting adjustments including the amortization of goodwill
over a period of forty years.
The Predecessor financial statements for all periods presented have been
restated to reflect EEX and LSEPO as a discontinued operation. The historical
financial statements of ENSERCH reflect certain reclassifications made to
conform to TUC's presentation style. On December 31, 1997, ENSERCH sold, to
another subsidiary of TUC, at net book value, the group of companies which had
constituted the Corporation's power development and international gas
distribution operations. For financial reporting purposes, the sale was deemed
to have occurred on August 5, 1997. Prior periods were not restated to reflect
the sale.
The fair value of the assets and liabilities of ENSERCH's rate-regulated
natural gas utility business (conducted through its Lone Star Gas Company and
Lone Star Pipeline Company divisions) is considered to be equivalent to the
historical basis of accounting and accordingly, no adjustment has been made to
the carrying value. The excess of the consideration paid by TUC over the
estimated fair value of the assets and liabilities of ENSERCH at the merger date
was approximately $800 million and is reflected as goodwill in the ENSERCH
balance sheet as of December 31, 1997. The process of determining
B-14
<PAGE>
the fair value of assets and liabilities at the merger date is continuing, and
the final result awaits the resolution of income tax and other contingencies and
finalization of certain estimates. The following table summarizes the changes
made to the accounts of ENSERCH as of August 5, 1997 as a result of the merger
and application of push down accounting.
Purchase Accounting
Adjustments
--------------------
Thousands of Dollars
Investments $ (4,730)
Net property, plant and equipment (35,357)
Goodwill 791,386 *
Other assets 57,794
--------
Total assets $809,093
========
Current liabilities $ 9,732
Long-term debt 8,299
Deferred income taxes (45,728)
Pension and other postretirement benefits 125,892
Other liabilities 43,509
Shareholders' equity 667,389
--------
Total liabilities and equity $809,093
========
* Net of write-off of a premerger goodwill balance of $8,128 thousand.
The following is a summary of unaudited pro forma results of operations
assuming the distribution to shareholders and the Merger with TUC had occurred
at the beginning of the periods presented.
Year Ended December 31,
-------------------------
1997 1996
------------ -----------
Thousands of Dollars
Revenues............................ $2,553,564 $1,887,774
Operating income.................... 62,318 86,710
Income (loss) before income taxes... (12,034) 10,945
Income taxes (benefit).............. (235) 11,816
Net income (loss)................... (11,799) (871)
Net loss after preferred dividends.. (23,201) (12,210)
On June 29, 1995, ENSERCH purchased the principal operating assets of a
nonregulated marketer of natural gas for approximately $9 million in cash,
including some $8 million of cost in excess of net assets acquired. The
acquisition was accounted for as a purchase. The goodwill was written off as a
purchase adjustment in connection with the merger with TUC. Operations of the
acquired company are included in the accompanying consolidated financial
statements from the date of acquisition.
Effective June 30, 1995, the Corporation exchanged 1,204,098 shares of
ENSERCH common stock for 100% of the outstanding shares of a company, which,
through its subsidiary, is a marketer of natural gas and natural-gas services.
The transaction was accounted for as a pooling-of-interests.
B-15
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OTHER INFORMATION
Consolidation -- The consolidated financial statements include the accounts
of the Corporation and its majority-owned subsidiaries. All significant
intercompany items and transactions have been eliminated in consolidation.
Investments in significant unconsolidated affiliates are accounted for by the
equity method.
System of Accounts and Other Policies -- Lone Star Gas and Lone Star Pipeline
are subject to the accounting requirements prescribed by the National
Association of Regulatory Utility Commissioners (NARUC).
Use of Estimates -- The preparation of the Corporation's consolidated
financial statements, in conformity with generally accepted accounting
principles, requires management to make estimates and assumptions about future
events that affect the reporting and disclosure of assets and liabilities at the
balance sheet dates and the reported amounts of revenue and expense during the
periods covered by the consolidated financial statements. In the event
estimates and/or assumptions prove to be different from actual amounts,
adjustments are made in subsequent periods to reflect more current information.
Revenue Recognition -- The city gate rate for the cost of gas Lone Star Gas
ultimately delivers to residential and commercial customers is established by
the Railroad Commission of Texas (RRC) and provides for full recovery of the
actual cost of gas delivered, including out-of-period costs such as gas purchase
contract settlement costs. The rates Lone Star Gas charges it residential and
commercial customers are established by the municipal governments of the cities
and towns served, with the RRC having appellate jurisdiction. Lone Star Gas
records revenues on the basis of cycle meter readings throughout the month and
accrues revenues for gas delivered from the meter reading dates to the end of
the month. Gas stored underground is valued at average cost. The rate Lone
Star Pipeline charges to Lone Star Gas for transportation and storage of gas
ultimately consumed by residential and commercial customers is established by
the RRC.
Depreciation of Property, Plant and Equipment -- The pipeline and
distribution systems are depreciated by the straight line method over the
useful life of the asset; approximately 30 to 40 years from original
acquisition, respectively.
Energy Marketing Activities -- The Corporation, through its natural gas
marketing subsidiary, Enserch Energy Services, Inc. (EES), is a marketer of
natural gas and natural gas services. As part of these business activities, EES
enters into a variety of transactions, including forward contracts principally
involving physical delivery of natural gas and derivative financial instruments,
including options, swaps, futures and other contractual arrangements. The
derivative transactions are concentrated with established energy companies and
major financial institutions. Concurrent with the Merger, EES conformed its
accounting for such activities to the mark-to-market accounting method of
valuing and recognizing earnings from firm contractual commitments to purchase
and sell natural gas in the future and from its portfolio of derivative
financial instruments, including options, swaps, futures and other contractual
commitments. Hedge accounting was used previously by Predecessor.
Stock-Based Compensation -- Statement of Financial Accounting Standards
(SFAS) No. 123 encourages companies to record compensation cost for stock-based
employee compensation plans at fair value but permits other methods. Prior to
the Merger, the Corporation chose to account for stock-based compensation using
the intrinsic value method. Accordingly, compensation cost for stock options was
measured as the excess, if any, of the quoted market price of the Corporation's
stock at the date of the grant over the amount an employee must pay to acquire
the stock. The final compensation cost for restricted stock awards was based on
the quoted market price of the Corporation's stock at the date the award became
vested. As a result of the Merger, unexercised stock options at the Merger date
that had been granted under an ENSERCH plan were exchanged for options to
acquire TUC shares, and the estimated fair value assigned to such options as of
the Merger date was accounted for by TUC as a part of the cost of the
acquisition.
Consolidated Cash Flows -- For purposes of reporting cash flows, temporary
cash investments purchased with a remaining maturity of three months or less are
considered to be cash equivalents.
B-16
<PAGE>
The schedule below details the Corporation's cash payments and noncash
investing and financing activities:
<TABLE>
<CAPTION>
Predecessor
-----------------------------------
Period From
Period From January 1,
Acquisition 1997 Year Ended
Date to To December
December 31, Acquisition ------------------
1997 Date 1996 1995
------------ ---------- ------- --------
Thousands of Dollars
<S> <C> <C> <C> <C>
Cash payments (refunds):
Interest costs (net of amounts capitalized) ....... $ 33,535 $45,960 $75,833 $ 85,063
========= ======= ======= ========
Income taxes -- net ............................... $ (9,776) $ 4,415 $ 1,585 $ 4,187
========= ======= ======= ========
Non-cash investing and financing activities:
Sales and purchases of businesses:
Book value of assets (sold) acquired ........... $(105,878) $ -- $ -- $ 13,680
Goodwill ....................................... -- -- -- 8,325
Reduction in advances due parent ............... 20,143 -- -- --
Liabilities sold (assumed) ..................... 85,735 -- -- (12,481)
--------- ------- ------- --------
Cash required ................................ -- -- -- 9,524
Cash sold (acquired) ........................... 4,891 -- -- (762)
--------- ------- ------- --------
Net cash used ................................ $ 4,891 $ -- $ -- $ 8,762
========= ======= ======= ========
</TABLE>
3. AFFILIATES
Transactions between ENSERCH and TUC for the period from acquisition date
through December 31, 1997 included $10,674,000 in interest expense related to
ENSERCH borrowings from TUC. In addition, ENSERCH had revenues of $8,576,000
from the sale and transportation of gas to other TUC subsidiaries during the
period. The outstanding net amount payable to TUC (including advances) was
$298,769,000 at December 31, 1997.
4. BORROWINGS AND LINES OF CREDIT
ENSERCH's commercial paper program was discontinued following the merger with
TUC, and the borrowings outstanding at the Merger Date, which totaled
$204,500,000, were paid off at maturity with funds advanced to ENSERCH by TUC.
In addition, ENSERCH redeemed long-term debt of $260,400,000 outstanding under a
revolving credit agreement with funds advanced by TUC. At December 31, 1997,
advances from TUC totaled approximately $293,843,000.
At December 31, 1997, TUC, Texas Utilities Electric Company (TU Electric), a
wholly-owned indirect subsidiary of TUC, and ENSERCH had joint lines of credit
under credit facility agreements (Credit Agreements) with a group of commercial
banks. The Credit Agreements have two facilities. Facility A provides for
short-term borrowings aggregating up to $570,000,000 outstanding at any time at
variable interest rates and terminates April 23, 1998. Facility B provides for
short-term borrowings aggregating up to $1,330,000,000 outstanding at any time
at variable interest rates and terminates April 24, 2002. The combined
borrowings of TUC, TU Electric and ENSERCH under both facilities are limited to
an aggregate of $1,900,000,000 outstanding at any one time. ENSERCH borrowings
under both facilities are limited to an aggregate of $650,000,000 outstanding at
any time. ENSERCH borrowings under these facilities will be used for working
capital and other needs. At December 31, 1997, ENSERCH had no borrowings under
these facilities.
B-17
<PAGE>
<TABLE>
<CAPTION>
Predecessor
------------
December 31,
----------------------------
1997 1996
-------- --------
Thousands of Dollars
<S> <C> <C>
Senior Long-term Debt:
8% Notes due 1997........................................................ $ -- $100,000
7% Notes due 1999........................................................ 150,000 150,000
Subsidiary Revolving Credit Agreement Maturing 2000...................... -- 25,000
ENSERCH Revolving Credit Agreement Maturing 2001......................... -- 160,000
8 7/8% Notes due 2001.................................................... 100,000 100,000
6 3/8% Notes due 2004.................................................... 150,000 150,000
7 1/8% Notes due 2005.................................................... 150,000 150,000
6 3/8% Convertible Subordinated Debentures due 2002.......................... 90,750 90,750
Unamortized premium and discount and fair value adjustments.................. 6,046 8,569
-------- --------
Total..................................................................... 646,796 934,319
Less current maturities...................................................... -- 1,598
-------- --------
Noncurrent................................................................ $646,796 $932,721
======== ========
<CAPTION>
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Maturities (for next 5 years) $ -- $150,000 $ -- $100,000 $90,750
</TABLE>
The carrying value of ENSERCH debt has been adjusted to reflect fair value
as of the Merger date.
In connection with the Merger, the 6 3/8% Convertible Subordinated Debentures
Due in 2002 became convertible into shares of TUC common stock at $38.54 per
share (equal to 25.947 shares per $1,000 principal amount). The debentures may
be redeemed at 101.27% of the principal amount, plus accrued interest, through
March 31, 1998 and at declining premiums thereafter. The Corporation currently
intends to redeem these debentures in 1998.
In January 1998, the Corporation issued $125,000,000 of 6 1/4% Series A Notes
due 2003 and $125,000,000 of Remarketed Reset Notes due 2008 with a variable
interest rate (5.82% at date of issuance). Net proceeds from these borrowings
were used to refinance or redeem like amounts of higher rate debt and preferred
stock.
ENSERCH may issue additional debt and equity securities as needed, including
the possible future sale of up to $250,000,000 aggregate principal amount of
securities currently registered with the SEC for offering pursuant to Rule 415
under the Securities Act of 1933.
In September 1996, the Corporation paid off the outstanding balance of the
9.06% Notes due through 1999, including a prepayment premium of $3,200,000
($2,100,000 after-tax) which has been accounted for as an extraordinary loss on
early extinguishment of debt.
<TABLE>
<CAPTION>
Interest Charges were as follows: Predecessor
-------------------------------------
Period from
Period from January 1,
Acquisition 1997
Date to To Year Ended December 31,
December 31, Acquisition -----------------------
1997 Date 1996 1995
------------ ------------ ---- ----
Thousand of Dollars
<S> <C> <C> <C> <C>
Interest costs incurred ................................... $31,801 $44,668 $76,763 $71,614
Interest capitalized ...................................... (46) (131) (63) (234)
------- ------- ------- -------
Charged to expense ........................................ $31,755 $44,537 $76,700 $71,380
======= ======= ======= =======
</TABLE>
B-18
<PAGE>
5. SHAREHOLDERS' EQUITY
Common Stock -- On August 5, 1997, all of the common stock of ENSERCH
Corporation was converted into common stock of TUC, and ENSERCH became a wholly
owned subsidiary of TUC. At the effective time of the merger, each of the 1,000
outstanding shares of common stock of ENSERCH Merger Corp. (a transitory
corporation organized to facilitate the merger transaction and owned by TUC) was
converted to one share of ENSERCH Corporation Common Stock, (ENSERCH common
stock). All of the shares of ENSERCH common stock outstanding prior to the
effective time of the merger were converted to shares of TUC and, upon
conversion, were canceled and ceased to exist. Accordingly, at August 5, 1997,
the outstanding common stock of ENSERCH consisted of 1,000 shares, par value
$0.01 per share, all of which were owned by TUC.
In December 1997, TUC purchased an additional 200,000 shares for $200,000,000.
At the special shareholders meeting on November 15, 1996, shareholders of the
Corporation approved a change in the par value of ENSERCH common stock from
$4.45 per share to $.01 per share to facilitate the distribution of the
Corporation's interest in EEX. The reduction in par value was recorded by the
transfer of $312,000,000 to the paid-in-capital account.
<TABLE>
<CAPTION>
Adjustable Rate Preferred Stock
at December 31, 1997 and 1996: Stated Value Per Shares Outstanding
--------------------- ---------------------
Preferred Depositary Preferred Depositary Amount
Share Share Shares Shares (Thousands)
--------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Series E.................... $1,000 $100 100,000 1,000,000 $100,000
Series F.................... 1,000 25 75,000 3,000,000 75,000
--------
Total.................... $175,000
========
</TABLE>
On January 16, 1998, the Corporation redeemed all of the outstanding shares
of its Adjustable Rate Preferred Stock, Series E, at $1,000 per share, plus
accrued and unpaid dividends of $14.777 per share.
The Series F stock is redeemable at stated value after May 1, 1999. Holders
of the preferred stock are entitled to its stated value upon involuntary
liquidation.
Dividend rates for the Series F Stock are determined quarterly, in advance,
based on the "Applicable Rate" (highest of the three-month Treasury bill rate,
the Treasury ten-year constant maturity rate and either the Treasury twenty-year
or thirty-year constant maturity rate, as defined), as set forth below:
<TABLE>
<CAPTION>
Per Annum Rate
(Determined Quarterly)
----------------------
Series F
----------------
<S> <C>
Dividend rate..................... 87% of
Applicable Rate
Minimum rate...................... 4.50%
Maximum rate...................... 10.50%
</TABLE>
B-19
<PAGE>
<TABLE>
<CAPTION>
Dividends Declared: Predecessor
------------------------------------------
Period from
Period from January 1,
Acquisition 1997
Date to To Year Ended December 31,
December 31, Acquisition -----------------------
1997 Date 1996 1995
------------- ----------- ---- ----
Thousands of Dollars
<S> <C> <C> <C> <C>
Adjustable Rate Preferred Stock:
Series E ($6.42, $7.00, $7.00 per depositary share)... $2,917 $ 3,500 $ 7,000 $ 7,000
Series F ($1.34, $1.45, $1.54 per depositary share)... 1,760 2,270 4,360 4,610
Common Stock ($.10, $.20, $.20 per share)................. -- 7,048 13,849 13,552
------ ------- ------- -------
Total.............................................. $4,677 $12,818 $25,209 $25,162
====== ======= ======= =======
</TABLE>
6. STOCK COMPENSATION PLANS
Effective with the Merger, outstanding options for ENSERCH common stock were
exchanged for options for 532,913 shares of TUC common stock exercisable at
prices ranging from $7.03 to $37.71 per share, and ENSERCH was precluded from
awarding further options. The estimated fair value of these options of
$3,214,000 was accounted for as a part of the cost of the acquisition. At
December 31, 1997, 402,966 of these options remained outstanding and
exercisable. Prior to the Merger, the Corporation had three fixed option plans.
Stock options had been awarded to key employees and were outstanding under all
three plans. Options generally expire ten years after the date of the grant.
<TABLE>
<CAPTION>
Summary of Stock Option Activity:
Weighted Average
Exercise Price Number of Options
-------------- -----------------------------------
1997 1996 1997 1996 1995
------ ------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Outstanding -- Beginning of year... $17.71 $17.27 1,182,308 2,514,598 2,308,823
Granted.......................... -- 15.13 -- 326,300 263,200
Exercised (a).................... 17.15 16.47 (214,278) (1,579,289) (27,825)
Canceled or expired.............. 16.72 17.87 (126,225) (79,301) (29,600)
Converted into TUC options....... 18.00 -- (841,805) -- --
--------- ---------- ---------
Outstanding -- End of year......... -- 17.71 -- 1,182,308 2,514,598
========= ========== =========
Exercisable........................ -- 1,182,308 1,957,637
========= ========== =========
</TABLE>
(a) Price ranges for options exercised in 1997 (prior to the Merger) were $4.45
to $21.00; in 1996 were $4.45 to $21.13; and in 1995 were $12.50 to $17.00.
The weighted average fair value of stock options granted in 1996 and 1995 was
$4.97 and $4.80, respectively. The fair value for these options granted since
December 31, 1994 was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted average assumptions for 1996
and 1995, respectively: risk-free interest rates of 5.48% and 7.17%; dividend
yields of 1.33% and 1.48%; volatility factor of the expected market price of the
Corporation's common stock of .29; and a weighted average expected life of the
options of 6.3 years.
The stock option plans included provisions for issuing the Corporation's
common stock under performance-based grants. In 1996 and 1995, the Corporation
granted 83,500 and 59,000 shares of restricted stock under its stock option
plan, respectively. The weighted average grant-date fair value of these
restricted shares was $15.38 and $14.66, respectively. Fair value is equal to
the market value of the Corporation's common stock on the date of grant. Upon
the Board of Directors' agreement to merge with TUC in April 1996, all
restrictions were lifted on the 211,956 shares of restricted stock outstanding.
The unamortized portion of the cost of these shares of $3,100,000 was charged to
compensation expense in 1996.
B-20
<PAGE>
Pro forma information regarding net income is mandated by SFAS 123 and has
been determined as if the Corporation had accounted for its employee stock
options under the fair value method of that Statement. Had compensation cost
for the Corporation's stock option plans been determined based on the fair value
at the grant dates for awards under those plans in accordance with the provision
of SFAS 123, the Corporation's net income (loss) for the following periods would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Predecessor
--------------------------------------------
Period from
January 1,
1997
To Year Ended December 31,
Acquisition ----------------------------
Date 1996 1995
------------- ---- ----
Thousands of Dollars
<S> <C> <C> <C>
Net income (loss) (after provision for dividends on
preferred stock):
As reported.............................................. $(246,793) $7,703 $1,363
Pro forma................................................ (246,793) 5,498 1,179
</TABLE>
7. DERIVATIVE INSTRUMENTS
The Corporation enters into derivative instruments, including options, swaps,
futures and other contractual commitments to manage market risks related to
changes in interest rates and commodity price exposures. The Corporation's
participation in derivative transactions, except for the gas marketing
activities, has been designated for hedging purposes, and the derivatives
are not held or issued for trading purposes. (For a discussion of accounting
policies relating to derivative instruments, see Note 2.)
Natural Gas Marketing Activities -- EES's marketing activities involve price
commitments into the future and, therefore, give rise to market risk, which
represents the potential loss that can be caused by a change in the market value
of a particular commitment. Net open portfolio positions often result from the
origination of new transactions or in response to changing market conditions.
The Corporation closely monitors its exposure to market risk. The Corporation
utilizes a number of methods to monitor market risk, including sensitivity
analysis. The exposure for fixed price natural gas purchase and sale
commitments, and derivative financial instruments, including options, swaps,
futures and other contractual commitments, is based on a methodology that uses a
five-day holding period and a 95% confidence level. EES uses market-implied
volatilities to determine its exposure to market risk. Market risk is estimated
as the potential loss in fair value resulting from at least a 15% change in
market factors which may differ from actual results. Using 15%, the most
adverse change in fair value at December 31, 1997, as a result of this analysis,
was a reduction of $1,100,000.
EES enters into contracts to purchase and sell natural gas for physical
delivery in the future. At December 31, 1997, EES had net commitments to sell
approximately 50.6 billion cubic feet (Bcf) of natural gas through the year 2003
with offsetting net financial positions to purchase approximately 61.3 Bcf.
Concurrent with the Merger, EES conformed its accounting for its gas
marketing activities to mark-to-market accounting, which is the accounting
method used by TUC. Under mark-to-market accounting, changes (whether positive
or negative) in the value of contractual commitments to purchase and sell
natural gas in the future and from its portfolio of derivative financial
instruments, including options, swaps, futures and other contractual commitments
are recognized as an adjustment to operating revenues in the period of change.
The market prices used to value these transactions reflect management's best
estimate of market prices considering various factors including closing exchange
and over-the-counter quotations, time value of money and volatility factors
underlying the commitments. These market prices are adjusted to reflect the
potential impact of liquidating EES's position in an orderly manner over a
reasonable period of time under present market conditions.
B-21
<PAGE>
EES has a number of risks and costs associated with the future contractual
commitments included in its natural gas portfolio, including credit risks
associated with the financial condition of counterparties, product location
(basis) differentials and other risks that management policies dictate. EES
continuously monitors the valuation of identified risk and adjusts the portfolio
valuation based on present market conditions. Reserves are established in
recognition that certain risks exist until delivery of natural gas has occurred,
counterparties have fulfilled their financial commitments and related financial
instruments mature or are closed out.
The following table displays the mark-to-market values of EES's natural gas
marketing risk management assets and liabilities at December 31, 1997 and the
average value for the period from August 5, 1997 through December 31, 1997:
Assets Liabilities Net
------ ----------- ---
Thousands of Dollars
Fair Value:
Current............. $365,650 $357,044 $ 8,606
Noncurrent.......... 41,522 31,324 10,198
-------- -------- -------
Total.............. $407,172 $388,368 18,804
======== ========
Less reserves....... 9,251
-------
Net of reserves.... $ 9,553
=======
Average Value:
Total............... $291,809 $278,332 $13,477
======== ========
Less reserves....... 8,134
-------
Net of reserves.... $ 5,343
=======
The following table summarizes EES results from its gas marketing activities
for the periods presented:
<TABLE>
<CAPTION>
Predecessor
----------------------------------------
Period from
Period from January 1,
Acquisition 1997
Date to To Year Ended December 31,
December 31, Acquisition -------------------------
1997 Date 1996 1995
---------- ---------- ---------- ----------
Thousands of Dollars
<S> <C> <C> <C> <C>
Revenues........................ $858,467 $601,881 $825,009 $750,463
Net trading income (loss)....... (286) (4,709) 18,144 26,166
</TABLE>
Credit Risk -- Credit risk relates to the risk of loss that the Corporation
would incur as a result of nonperformance by counterparties to their respective
derivative instruments. The Corporation maintains credit policies with regard
to its counterparties that management believes significantly minimize overall
credit risk. The Corporation does not obtain collateral to support the
agreements but monitors the financial viability of counterparties and believes
its credit risk is minimal on these transactions. The Company believes the
risk of nonperformance by counterparties is minimal.
B-22
<PAGE>
8. INCOME TAXES
<TABLE>
<CAPTION>
Predecessor
------------------------------------
Period from
Period from January 1,
Acquisition 1997
Date to To Year Ended December 31,
Income Tax Expense (Benefit) December 31, Acquisition -----------------------
of Continuing Operations: 1997 Date 1996 1995
-------- --------- ------- -------
Thousands of Dollars
<S> <C> <C> <C> <C>
Current
Federal................... $(20,378) $ 4,297 $ 4,745 $ 6,230
State..................... 175 9 136 92
Foreign................... -- (115) 79 50
-------- ------- ------- -------
Total.................... (20,203) 4,191 4,960 6,372
-------- ------- ------- -------
Deferred
Federal................... 18,775 (8,719) 5,429 5,185
Foreign................... -- -- 29 --
-------- ------- ------- -------
Total.................... 18,775 (8,719) 5,458 5,185
-------- ------- ------- -------
Investment Tax Credits..... (57) (84) (141) (142)
-------- ------- ------- -------
Total.................... $ (1,485) $(4,612) $10,277 $11,415
======== ======= ======= =======
</TABLE>
Reconciliation of Income Taxes (Benefit) Computed at the Federal Statutory Rate
to Income Tax Expense (Benefit) of Continuing Operations:
<TABLE>
<CAPTION>
Predecessor
-------------------------------------
Period from
Period from January 1,
Acquisition 1997
Date to To Year Ended December 31,
December 31, Acquisition -----------------------
1997 Date 1996 1995
---------- ---------- --------- ---------
Thousands of Dollars
<S> <C> <C> <C> <C>
Income (loss) from continuing operations before income taxes:
Domestic.................................................... $(11,072) $(22,815) $27,084 $33,020
Foreign..................................................... 22 2,826 (7,056) (243)
-------- -------- ------- -------
Total..................................................... $(11,050) $(19,989) $20,028 $32,777
======== ======== ======= =======
Income taxes (benefit) at the federal statutory rate of 35%..... $ (3,868) $ (6,996) $ 7,010 $11,472
Amortization of investment tax credits.......................... (57) (84) (141) (142)
Amortization of goodwill........................................ 2,840 -- -- --
State and foreign taxes, net of federal tax benefit............. 114 (69) 159 93
Nondeductible distribution and merger related costs............. -- 4,948 2,275 --
Nondeductible meals and entertainment........................... 175 180 324 342
Change in cash surrender value of life insurance policies....... (313) (389) (24) (19)
Increase in (reduction of) prior year tax liabilities........... -- (2,530) 601 (501)
Other --- net................................................... ( 376) 328 73 170
-------- -------- ------- -------
Income Tax Expense (Benefit).............................. $ (1,485) $ (4,612) $10,277 $11,415
======== ======== ======= =======
</TABLE>
B-23
<PAGE>
Deferred income taxes provided by the liability method for significant
temporary differences based on tax laws and statutory rates in effect at the
December 31, 1997 and 1996 balance sheet dates are as follows:
<TABLE>
<CAPTION>
Predecessor
-----------------------------
1997 1996
------------------------------ -----------------------------
Total Current Noncurrent Total Current Noncurrent
-------- -------- ---------- -------- ------- ----------
Thousands of Dollars
<S> <C> <C> <C> <C> <C> <C>
Deferred Tax Assets:
Net operating--loss and other tax--
credit carryforwards............... $163,061 $ -- $163,061 $154,558 $ -- $154,558
Retirement and other employee
benefit obligations................ 47,128 4,469 42,659 22,916 2,600 20,316
Accruals and allowances.............. 11,779 10,004 1,775 24,728 11,420 13,308
Losses of controlled foreign
corporations....................... 2,557 -- 2,557 5,936 -- 5,936
All other............................ 8,358 8,358 -- 23,712 8,053 15,659
-------- ------- -------- -------- ------- --------
Total.............................. 232,883 22,831 210,052 231,850 22,073 209,777
-------- ------- -------- -------- ------- --------
Deferred Tax Liabilities:
Property-- related differences....... 139,934 -- 139,934 136,617 -- 136,617
All other............................ 11,517 168 11,349 62,132 1,390 60,742
-------- ------- -------- -------- ------- --------
Total.............................. 151,451 168 151,283 198,749 1,390 197,359
-------- ------- -------- -------- ------- --------
Net Deferred Tax Asset............... $ 81,432 $22,663 $ 58,769 $ 33,101 $20,683 $ 12,418
======== ======= ======== ======== ======= ========
</TABLE>
At December 31, 1997, domestic net operating-loss (NOL) carryforwards total
$445 million, which begin to expire in 2003, and alternative minimum tax-credit
carryforwards total $7 million. The tax benefits of these carryforwards of $163
million, as shown above, are available to offset future tax payments. ENSERCH
expects to fully utilize such NOL's prior to their expiration date. At December
31, 1997, ENSERCH also had $17 million of general business credit carryforwards
which begin to expire in 1999. As a result of limitations on the timing of use
arising from the Merger, ENSERCH does not expect to fully utilize such tax
credit carryforwards prior to their expiration date; therefore, such credits
were written off as a purchase accounting adjustment.
<TABLE>
<CAPTION>
Predecessor
------------------------------------
Period From
Period From January 1,
Acquisition 1997
Date to To Year Ended December 31,
Cash Payments (Refunds) of Income Taxes Allocated December 31, Acquisition -----------------------
to Continuing Operations: 1997 Date 1996 1995
------------- ----------- ---------- ----------
Thousands of Dollars
<S> <C> <C> <C> <C>
Federal:
Current year, including alternative minimum tax............ $(9,245) $2,203 $2,013 $ 8,840
Prior years................................................. (586) 2,149 (535) (5,026)
------- ------ ------ -------
Total..................................................... (9,831) 4,352 1,478 3,814
State......................................................... 55 63 (82) 373
Foreign....................................................... -- -- 189 --
------- ------ ------ -------
Total..................................................... $(9,776) $4,415 $1,585 $ 4,187
======= ====== ====== =======
</TABLE>
B-24
<PAGE>
9. EMPLOYEE BENEFIT PLANS
Pension Plan -- At the date of the Merger, ENSERCH had a defined benefit
pension plan providing retirement income benefits for substantially all of its
employees. As a part of purchase accounting, the accrued pension liability was
adjusted to recognize all previously unrecognized gains or losses arising from
past experience different from that assumed, the effects of changes in
assumptions, all unrecognized prior service costs and the remainder of
unrecognized asset existing at the date of the initial application of SFAS 87.
These adjustments to the accrued pension liability, to the extent associated
with rate-regulated operations, were recorded as regulatory assets or
liabilities and, to the extent associated with non-regulated operations, as
goodwill. Accrued retirement costs are funded to the extent such amounts are
deductible for federal income-tax purposes. Plan assets consist primarily of
equity investments, government bonds and corporate bonds. Benefits are based on
years of credited service and average compensation.
Effective January 1, 1998, the ENSERCH qualified retirement plan was merged
into another retirement plan of TUC.
In connection with the Merger, certain employees of ENSERCH were offered
and accepted an early retirement option. Effects of the early retirement option
associated with ENSERCH employees were included in purchase accounting
adjustments as regulatory assets or goodwill, as appropriate.
<TABLE>
<CAPTION>
Predecessor
---------------------------------------
Period from
Period from January 1,
Acquisition 1997
Date to To Year Ended December 31,
December 31, Acquisition ------------------------
1997 Date 1996 1995
------------- ------------ ----------- -----------
Thousands of Dollars
<S> <C> <C> <C> <C>
Components of Net Pension Costs:
Service cost -- benefits earned during the period.. $ 1,758 $ 2,466 $ 5,228 $ 3,801
Interest cost on projected benefit obligation...... 11,186 14,367 24,418 23,530
Actual return on plan assets....................... (9,606) (46,504) (40,474) (46,777)
Net amortization and deferral...................... (1,016) 31,226 14,295 23,975
------- -------- -------- --------
Net periodic pension cost......................... $ 2,322 $ 1,555 $ 3,467 $ 4,529
======= ======== ======== ========
Valuation Assumptions:
Discount rate...................................... 7.25% 7.75% 7.75% 7.65%
Rate of increase in compensation levels............ 4.30% 4.30% 4.00% 4.00%
Expected long-term rate of return on assets........ 9.00% 9.00% 9.50%
Amounts Recognized:
Actuarial present value of accumulated benefits:
Accumulated benefit obligation...................... $(351,976) $(305,041)
========= =========
Vested benefit obligation........................... $(349,711) $(302,360)
========= =========
Projected pension benefit obligation for service
rendered to date.................................. $(379,217) $(333,955)
Plan assets at fair value - primarily equity
investments, government bonds and corporate bonds.... 275,863 285,810
--------- ---------
Projected benefit obligation in excess of plan assets.. (103,354) (48,145)
Unrecognized net gain from past experience different
from that assumed and effects of changes
in assumptions........................................ 24,743 3,437
Prior service cost not yet recognized in net periodic
pension expense....................................... (6,077) (3,555)
Unrecognized plan assets in excess of projected benefit
obligation at initial application.................. -- (3,406)
--------- ---------
Accrued pension cost............................ $(84,688) $ (51,669)
========= =========
</TABLE>
B-25
<PAGE>
Postretirement Benefits Other than Pensions -- In addition to the retirement
plan, ENSERCH offers certain health care and life insurance benefits to
substantially all employees and their eligible dependents at retirement. In
connection with the Merger, the plan was amended to provide coverage to those
employees hired after July 1, 1989 not previously eligible for postretirement
medical benefits. In addition, the health care benefits provided to retirees
under the Plan were enhanced to reflect the same level of benefits as offered by
other such plans of TUC companies. The unrecognized prior service cost at
December 31, 1997 arose from these two changes which occurred after the Merger
Date. Obligations have not been prefunded. Benefits received vary in level
depending on years of service and retirement dates. The purchase accounting
adjustments described above for the retirement plan of ENSERCH were also applied
to the accrued liabilities for the postretirement health care and life insurance
benefits.
<TABLE>
<CAPTION>
Predecessor
-------------------------------------
Period from
Period from January 1,
Acquisition 1997
Date to To Year Ended December 31,
December 31, Acquisition -----------------------
1997 Date 1996 1995
------------ ------------ ------------ --------
Thousands of Dollars
<S> <C> <C> <C> <C>
Components of Net Periodic Postretirement Benefit Cost:
Service cost -- benefits earned during the period.................. $ 84 $ 142 $ 309 $ 227
Interest cost on accumulated postretirement benefit
obligation...................................................... 2,514 2,899 5,473 5,966
Amortization of the transition obligation.......................... -- 2,189 4,037 4,037
Net amortization and deferral...................................... -- 128 (63) (445)
--------- ------ -------- -------
Net periodic postretirement benefits cost.......................... $ 2,598 $5,358 $ 9,756 $9,785
========= ====== ======== =======
Valuation Assumptions:
Discount rate...................................................... 7.25% 7.75% 7.75% 7.65%
Medical cost trend rate............................................ 5.0% 5.0% 6.50%
Amounts Recognized:
Accumulated postretirement benefit obligation (APBO):
Retirees........................................................ $ (82,570) $(65,997)
Fully eligible active employees................................. (3,339) (499)
Other active employees.......................................... (20,504) (6,720)
--------- --------
Total APBO...................................................... (106,413) (73,216)
Unrecognized transition obligation................................. -- 53,013
Unrecognized prior service cost.................................... 17,822 --
Unrecognized net loss.............................................. 3,455 10,718
--------- --------
Accrued postretirement benefits cost........................... $ (85,136) $ (9,485)
========= ========
</TABLE>
The expected increase in costs of future benefits covered by the plan is
projected using a health care cost trend rate of 5% in 1998 and thereafter. A
one percentage point increase in the assumed health care cost trend rate in each
future year would increase the APBO at December 31, 1997 by approximately $11.6
million and other postretirement benefits cost for 1997 by approximately $.1
million.
B-26
<PAGE>
10. COMMITMENTS AND CONTINGENT LIABILITIES
Legal Proceedings -- A lawsuit was filed on February 24, 1987, in the 112th
Judicial District of Sutton County, Texas, against subsidiaries and affiliates
of the Corporation and its utility division. The plaintiffs have claimed that
defendants failed to make certain production and minimum-purchase payments under
a gas-purchase contract. The plaintiffs initially alleged a conspiracy to
violate purchase obligations, improper accounting of amounts due, fraud,
misrepresentation, duress, failure to properly market gas and failure to act in
good faith. Under amended pleadings filed in January 1997, plaintiffs have
added allegations of negligence and gross negligence in connection with the
measurement of gas and conversion. Plaintiffs seek actual damages in excess of
$5,000,000 and punitive damages in an amount equal to .5% of the consolidated
gross revenues of the Corporation for the years 1982-1986 (approximately
$85,000,000), interest, costs and attorneys' fees.
On October 30, 1995, a lawsuit was filed in the Supreme Court of Western
Australia by Woodside Petroleum Ltd. and its joint venture partners against the
Corporation, a former subsidiary of the Corporation and others. Plaintiffs seek
damages of approximately $18,000,000 from the Corporation based on an indemnity
arrangement and approximately $208,000,000 from the other defendants for alleged
breaches of contract and breaches of a trade practice act, all in connection
with the construction of an offshore gas and condensate drilling production
platform. The Corporation has agreed to indemnify the current owner of the
former subsidiary pursuant to the provisions in the prior sales agreement.
Following a preliminary hearing, the Court, on December 4, 1997, delivered an
opinion in favor of the Corporation, the former subsidiary and the other
defendants finding that the defendants are additional insurers under certain
insurance policies owned by the plaintiffs and that the plaintiffs and their
insurers are precluded from bringing a subrogated claim against the defendants.
An appeal of this ruling is anticipated.
Management of the Corporation believes it has meritorious defenses to the
claims made in these and other actions brought in the ordinary course of
business. In the opinion of management, the Corporation will incur no liability
from these and all other pending claims and suits that is material for financial
reporting purposes.
Environmental Matters -- The Corporation is subject to federal, state and
local environmental laws and regulations that regulate the discharge of
materials into the environment. Environmental expenditures are expensed or
capitalized depending on their future economic benefit. The level of future
expenditures for environmental matters, including costs of obtaining operating
permits, equipment monitoring and modifications under the Clean Air Act and
cleanup obligations, cannot be fully ascertained until the regulations that
implement the applicable laws have been approved and adopted. It is
management's opinion that all such costs, when finally determined, will not have
a material adverse effect on the consolidated financial position, results of
operations or cash flows of the Corporation.
Commitments -- Future minimum commitments are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999 2000 2001 2002 Thereafter
------- ------- ------ ------ ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Operating leases........ $ 6,100 $ 5,500 $4,800 $3,500 $3,200 $54,500
Gas-purchase contracts.. 87,600 33,900 8,100 5,400 3,000 1,400
</TABLE>
The Corporation had a number of noncancelable long-term operating leases at
December 31, 1997, principally for office space and machinery and equipment.
Rental expenses for continuing operations incurred under all operating leases
aggregated $2,600,000 for the pre-and post-merger periods of 1997, $3,600,000 in
1996 and $5,600,000 in 1995. Rental income received for subleased office space
was $2,000,000 in 1997, $3,400,000 in 1996 and $3,400,000 in 1995. Future
minimum rental income to be received for subleased office space is $11,500,000
over the next five years.
B-27
<PAGE>
Gas-Purchase Contracts -- Lone Star Gas buys gas under long-term, intrastate
contracts in order to assure a reliable supply to its customers. Many of these
contracts require minimum purchases of gas. Lone Star Gas has made accruals for
payments that may be required for settlement of gas-purchase contract claims
asserted or that are probable of assertion. Lone Star Gas continually evaluates
its position relative to asserted and unasserted claims, above-market prices or
future commitments. Management believes that Lone Star Gas has not incurred
losses for which reserves should be provided at December 31, 1997. Based on
estimated gas demand, which assumes normal weather conditions, requisite gas
purchases are expected to substantially satisfy purchase obligations for the
year 1998 and thereafter.
Sales of Receivables -- The Corporation has sold $100 million of receivables
under an amended limited recourse agreement that matures on September 22, 1998.
Additional receivables are continually sold to replace those collected. The
uncollected balances of receivables sold were $100 million at both year-end 1997
and 1996.
Guarantees -- The Corporation and/or its subsidiaries are the guarantor on
various commitments and obligations of others aggregating some $45,300,000 at
December 31, 1997. The Corporation is exposed to loss in the event of
nonperformance by other parties. However, the Corporation does not anticipate
nonperformance by the counterparties.
Concentrations of Credit Risk -- Lone Star Gas operations have trade
receivables from a few large industrial customers in North Central Texas arising
from the sale of natural gas. A change in economic conditions may affect the
ability of customers to meet their contractual obligations. At December 31,
1997 and 1996, the allowance for possible losses deducted from accounts
receivable was $3,902,000 and $3,968,000 respectively. The Corporation believes
that its provision for possible losses on uncollectible accounts receivable is
adequate for its credit loss exposure.
Inquiry into Lone Star Gas Company Rates -- In October 1996, Lone Star
Pipeline filed a request with the RRC to increase the rate it charges Lone Star
Gas to store and transport gas ultimately destined for residential and
commercial customers in the 550 Texas cities and towns served by Lone Star Gas.
Lone Star Gas also requested that the RRC separately set rates for costs to
aggregate gas supply for these cities. Rates previously in effect were set by
the RRC in 1982. In September 1997, the RRC issued an order reducing the
charges by Lone Star Pipeline to Lone Star Gas for storage and transportation
services. In that order, the RRC did authorize separate charges for the Lone
Star Pipeline storage and transportation services, a separate charge by Lone
Star Gas for the cost of aggregating gas supplies, and a continuation of the
100% flow through of purchased gas expense. The RRC also imposed some new
criteria for affiliate gas purchases and a new reconciliation procedure that
will require a review of purchased gas expenses every three years. The RRC
order has become final, but is being appealed by several parties including Lone
Star Pipeline and Lone Star Gas. The rates authorized by the order became
effective on December 1, 1997, and will result in an annual margin reduction of
approximately $8.2 million.
On August 20, 1996, the RRC ordered a general inquiry into the rates and
services of Lone Star Gas, most notably a review of historic gas cost and gas
acquisition practices since the last rate setting. The inquiry docket has been
separated into different phases. Two of the phases, conversion to the NARUC
account numbering system and unbundling, have been dismissed by the RRC, and one
other phase, rate case expense, is pending RRC action on the basis of a
stipulation of all parties. In the phase dealing with historic gas cost and gas
acquisition practices, Lone Star Gas and Lone Star Pipeline have filed a motion
for summary disposition stating that any retroactive rate action would be
inappropriate and unlawful. Settlement discussions with intervenor cities are
ongoing. If the motion for summary disposition is denied, a hearing has been
scheduled to begin in August 1998. A number of management and transportation
related issues have been placed in a separate phase which still has an undefined
scope and is being held in abeyance pending the resolution of the phase dealing
with gas costs. Management believes that gas costs were prudently incurred and
were properly accounted for and recovered through the gas cost recovery
mechanism previously approved by the RRC. At this time, management is unable to
determine the ultimate outcome of the inquiry.
B-28
<PAGE>
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value and related estimated fair values of the Corporation's
significant financial instruments at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
Carrying Estimated Carrying Estimated
or Notional Fair or Notional Fair
Amount Value Amount Value
------------ ---------- ------------ ----------
Thousand of Dollars
<S> <C> <C> <C> <C>
On-balance sheet liabilities:
Long-term debt (including current maturities) (a)........ $(646,796) $(649,089) $(934,319) $(935,626)
Off-balance sheet assets (liabilities):
Financial guarantees (b)................................. -- (45,332) -- (104,044)
EES derivatives (c)...................................... -- -- -- 749
</TABLE>
Estimated fair value: (a) variable-rate debt - approximates carrying amount,
exchange traded debt - quoted market prices, and other debt - discounted value
using rates for debt with similar characteristics; (b) approximates carrying or
notional amount; (c) 1996 based on mark-to-market valuations (see Note 7
concerning EES accounting in 1997).
The fair values of other financial instruments for which carrying amounts and
fair values have not been presented are not materially different than their
related carrying amounts.
B-29
<PAGE>
12. DISCONTINUED OPERATIONS
In connection with the merger of ENSERCH with TUC, EEX and LSEPO were merged
to form a new company (New EEX), and ENSERCH distributed to its common
shareholders its ownership interest in New EEX, which was represented by
approximately 105 million shares of New EEX common stock with a carrying value
of $583 million. In the distribution, which was tax free to the recipients,
ENSERCH shareholders of record on August 4, 1997 received approximately 1.5
shares of New EEX common stock for each share of ENSERCH common stock owned.
ENSERCH's financial statements for all periods presented have been restated to
reflect EEX and LSEPO as discontinued operations. ENSERCH's discontinued
operations also include its engineering and construction and environmental
businesses, the principal assets of which were sold in prior years. The results
of operations of ENSERCH's discontinued businesses were as follows:
<TABLE>
<CAPTION>
Predeccessor
-----------------------------------------------------
Period From Period From
Acquisition January 1, 1997
Date to To Year Ended December 31,
December 31, Acquisition -------------------------
1997 Date 1996 1995
------------- ------------ ---- ----
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Revenues from exploration and production operations.. $ -- $ 159,547 $248,365 $140,199
======= ========= ======== ========
Operating income (loss) from exploration and
production operations........................... $ -- $(375,510)* $ 36,078 $ 7,929
======= ========= ======== ========
Income (loss) from exploration and production
operations...................................... $ -- $(215,006)* $ 12,947 $ (8,309)
Provision for additional costs and expenses
for the wind-up of discontinued engineering and
construction business, net of tax benefit of $5,215
in 1997 and tax provision of $2,160 in 1996......... -- (9,685) (1,560) --
------- --------- -------- --------
Total........................................ $ -- $(224,691) $ 11,387 $ (8,309)
======= ========= ======== ========
Cash Flow Information:
Net cash flows from (used for)
Operating activities................................ $(6,564) $ 111,533 $154,307 $ 81,876
Investing activities................................ -- (125,333) (73,487) (152,127)
Purchase of business, net of cash acquired.......... -- -- -- (332,888)
Financing activities................................ -- (13,614) (66,185) 412,673
------- --------- -------- --------
Net cash flows from (used for) discontinued
operations........................................ $(6,564) $ (27,414) $ 14,635 $ 9,534
======= ========= ======== ========
By Discontinued Operation:
Exploration and production.......................... $ -- $ (21,773) $ 19,636 $ 37,636
Engineering and construction........................ (6,564) (5,641) (5,001) (28,102)
------- --------- -------- --------
Total........................................ $(6,564) $ (27,414) $ 14,635 $ 9,534
======= ========= ======== ========
</TABLE>
* Includes a $426 million pretax ($236 million after-tax) write-down of the
carrying value of EEX's oil and gas properties due to the U.S. cost center
ceiling limitation at March 31, 1997.
B-30
<PAGE>
The net investment in the discontinued exploration and production business as
of December 31, 1996 consisted of the following (in thousands):
Current assets................................... $ 114,329
Net property, plant and equipment................ 1,493,210
Other assets..................................... 12,161
Current liabilities.............................. (118,191)
Long-term debt................................... (95,564)
Deferred income taxes payable.................... (258,712)
Other liabilities................................ (349,004)
----------
Net investment................................ $ 798,229
==========
Loss provisions of $9.7 million in 1997 and $1.6 million in 1996 after-tax
were recorded in recognition that certain claims and accounts receivable were
settled at amounts less than previously estimated and costs and expenses
incurred for the windup of discontinued engineering and construction businesses
would be greater than previously estimated.
At December 31, 1997, discontinued engineering and construction businesses
had assets of $42 million, consisting principally of retained claims and
accounts receivable of the Ebasco and Enserch Environmental business units, and
current and other liabilities and reserves of $14 million. The Corporation has
filed suit against certain parties to recover amounts outstanding. Management
expects that substantially all disputes will be resolved by year-end 1998 and
that adequate provision for uncollectible claims and accounts receivable,
income-tax matters and expenses for windup of discontinued engineering and
construction operations has been made.
B-31
<PAGE>
QUARTERLY RESULTS (UNAUDITED) -- The results of operations by quarters are
summarized below. In the opinion of the Corporation's management, all
adjustments (consisting only of normal recurring accruals) necessary for a fair
presentation have been made. Previously reported amounts have been restated to
reflect EEX and LSEPO as discontinued operations and to reflect the sale of the
power development and international gas distribution operations to Texas Energy
Industries, Inc., a wholly-owned subsidiary of TUC. For accounting purposes,
the sale was considered to be effective as of the Merger date.
<TABLE>
<CAPTION>
Predecessor
----------------------------------
Period From
July 1 Period From
Quarter Ended To Acquisition Quarter
--------------------- Acquisition Date to Ended
March 31 June 30 Date September 30 December 31
---------- --------- ------------ ------------- ------------
Thousands of Dollars
<S> <C> <C> <C> <C> <C>
1997:
Revenues........................................ $ 794,813 $348,047 $135,297 $275,906 $1,000,201
Operating Income (Loss)......................... 51,328 (16,250) 11,806 (6,301) 26,125
Income (Loss) From Continuing Operations........ 18,576 (21,576) (12,377) (12,271) 2,706
Income (Loss) From Discontinued Operations...... (219,501) (8,511) 3,321 -- --
Net Income (Loss)............................... (200,925) (30,087) (9,056) (12,271) 2,706
Loss Applicable to Common Stock................. (203,787) (32,980) (10,026) (14,149) (93)
<CAPTION>
Predecessor
--------------------------------------------------------------
Quarter Ended
--------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Thousands of Dollars
<S> <C> <C> <C> <C>
1996:
Revenues........................................ $650,237 $341,432 $311,040 $591,551
Operating Income (Loss)......................... 63,911 (377) (5,589) 47,148
Income (Loss) From Continuing Operations........ 29,485 (12,805) (17,398) 10,469
Income From Discontinued Operations............. 292 6,104 2,117 2,874
Extraordinary Loss on Extinguishment of Debt.... -- -- (2,096) --
Net Income (Loss)............................... 29,777 (6,701) (17,377) 13,343
Earnings (Loss) Applicable to Common Stock...... 27,018 (9,518) (20,263) 10,466
</TABLE>
B-32
<PAGE>
RECONCILIATION OF PREVIOUSLY REPORTED AMOUNTS
Results of operations were restated for discontinued operations of EEX and
LSEPO effective with the quarterly report ended June 30, 1997. During the
fourth quarter of 1997, results of operations were also restated to reflect the
sale of the power development and international gas distribution operations
effective as of the Merger date. Following the Merger, certain
reclassifications, which only affected operating income, were made to prior
periods to conform to TUC's presentation.
<TABLE>
<CAPTION>
Increase (Decrease)
-----------------------------------------------------------------
Period From
July 1 Period From
Quarter Ended To Acquisition Quarter
---------------------- Acquisition Date to Ended
March 31 June 30 Date September 30 December 31
---------- ---------- ------------ ------------- ------------
Thousands of Dollars
<S> <C> <C> <C> <C> <C>
1997:
Revenues.................................... $ (73,154) $ -- $ -- $ (745) $ --
Operating Income (Loss)..................... 395,448 (1,481) (500) 628 --
Income From Continuing Operations........... 219,501 -- -- 1,507 --
Loss From Discontinued Operations........... (219,501) -- -- -- --
Net Income (Loss)........................... -- -- -- 1,507 --
Earnings (Loss) Applicable to Common Stock.. -- -- -- 1,507 --
<CAPTION>
Quarter Ended
----------------------------------------------------------------
March 31 June 30 September 30 December 31
--------- --------- ------------ -----------
Thousands of Dollars
<S> <C> <C> <C> <C>
1996:
Revenues.................................... $ (28,406) $(73,723) $ (74,475) $ (71,761)
Operating Income (Loss)..................... (6,481) (15,452) (10,285) (9,009)
Loss From Continuing Operations............. (292) (6,104) (2,117) (4,434)
Income From Discontinued Operations......... 292 6,104 2,117 4,434
</TABLE>
B-33
<PAGE>
Exhibit 4(b)(1)
March 24, 1998
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Texas Utilities Company
1997 Annual Report on Form 10-K
-------------------------------
Gentlemen:
Pursuant to the exemption afforded by Item 601(b)(4)(iii)(A) of Regulation
S-K, Texas Utilities Company (Company) is not filing as exhibits to its Annual
Report on Form 10-K for 1997 instruments with respect to its long-term debt of
the Company and/or its subsidiaries. These instruments include (i) agreements
with respect to pollution control revenue bonds and (ii) agreements with respect
to senior notes. Each item of long-term debt referenced above does not exceed
10% of the total assets of the Company and its subsidiaries on a consolidated
basis. Reference is made to Note 8 to Consolidated Financial Statements
(included in Appendix A of the Company's Annual Report on Form 10-K for 1997).
The Company agrees to furnish a copy of the above instruments to the
Securities and Exchange Commission upon request.
Sincerely,
/s/ J. W. Pinkerton
-------------------------------------------
J. W. Pinkerton
Controller and Principal Accounting Officer
<PAGE>
Exhibit 4(b)(2)
March 24, 1998
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Texas Utilities Electric Company
1997 Annual Report on Form 10-K
-------------------------------
Gentlemen:
Pursuant to the exemption afforded by Item 601(b)(4)(iii)(A) of Regulation
S-K, Texas Utilities Electric Company (Company) is not filing as exhibits to its
Annual Report on Form 10-K for 1997 instruments with respect to its long-term
debt consisting of pollution control revenue bonds, as the aggregate amounts
represented thereby do not exceed 10% of the total assets of the Company and its
subsidiaries on a consolidated basis. Reference is made to Note 8 to
Consolidated Financial Statements (included in Appendix A of the Company's
Annual Report on Form 10-K for 1997).
The Company agrees to furnish a copy of the above instruments to the
Securities and Exchange Commission upon request.
Sincerely,
/s/ J. W. Pinkerton
-------------------------------------------
J. W. Pinkerton
Controller and Principal Accounting Officer
<PAGE>
Exhibit 4(ff)
------------------------------------------
TEXAS UTILITIES COMPANY
TO
THE BANK OF NEW YORK
TRUSTEE
---------
INDENTURE
(FOR UNSECURED DEBT SECURITIES SERIES C)
DATED AS OF JANUARY 1, 1998
------------------------------------------
<PAGE>
i
TABLE OF CONTENTS
<TABLE>
<S> <C>
PARTIES......................................................................................................... 1
RECITAL OF THE COMPANY.......................................................................................... 1
ARTICLE ONE..................................................................................................... 1
Definitions and Other Provisions of General Application......................................................... 1
SECTION 101. Definitions.............................................................................. 1
Act........................................................................................... 2
Affiliate..................................................................................... 2
Authenticating Agent.......................................................................... 2
Authorized Officer............................................................................ 2
Board of Directors............................................................................ 2
Board Resolution.............................................................................. 2
Business Day.................................................................................. 2
Commission.................................................................................... 3
Company....................................................................................... 3
Company Request or Company Order.............................................................. 3
Corporate Trust Office........................................................................ 3
corporation................................................................................... 3
Defaulted Interest............................................................................ 3
Discount Security............................................................................. 3
Dollar or $................................................................................... 3
Eligible Obligations.......................................................................... 3
Event of Default.............................................................................. 3
Governmental Authority........................................................................ 4
Government Obligations........................................................................ 4
Holder........................................................................................ 4
Indenture..................................................................................... 4
Interest Payment Date......................................................................... 4
Maturity...................................................................................... 4
Officer's Certificate......................................................................... 4
Opinion of Counsel............................................................................ 4
Outstanding................................................................................... 5
Paying Agent.................................................................................. 6
Periodic Offering............................................................................. 6
Person........................................................................................ 6
Place of Payment.............................................................................. 6
Predecessor Security.......................................................................... 6
Redemption Date............................................................................... 6
Redemption Price.............................................................................. 6
Regular Record Date........................................................................... 6
Required Currency............................................................................. 6
Responsible Officer........................................................................... 6
</TABLE>
Note: This table of contents shall not, for any purpose, be deemed to be part
of the Indenture.
<PAGE>
ii
<TABLE>
<S> <C>
Securities.................................................................................... 7
Security Register and Security Registrar...................................................... 7
Special Record Date........................................................................... 7
Stated Interest Rate.......................................................................... 7
Stated Maturity............................................................................... 7
Subsidiary.................................................................................... 7
Tranche....................................................................................... 7
Trust Indenture Act........................................................................... 7
Trustee....................................................................................... 7
United States................................................................................. 7
SECTION 102. Compliance Certificates and Opinions..................................................... 8
SECTION 103. Form of Documents Delivered to Trustee................................................... 8
SECTION 104. Acts of Holders.......................................................................... 9
SECTION 105. Notices, etc. to Trustee and Company..................................................... 11
SECTION 106. Notice to Holders of Securities; Waiver.................................................. 12
SECTION 107. Conflict with Trust Indenture Act........................................................ 12
SECTION 108. Effect of Headings and Table of Contents................................................. 12
SECTION 109. Successors and Assigns................................................................... 13
SECTION 110. Separability Clause...................................................................... 13
SECTION 111. Benefits of Indenture.................................................................... 13
SECTION 112. Governing Law............................................................................ 13
SECTION 113. Legal Holidays........................................................................... 13
ARTICLE TWO..................................................................................................... 14
Security Forms.................................................................................................. 14
SECTION 201. Forms Generally.......................................................................... 14
SECTION 202. Form of Trustee's Certificate of Authentication.......................................... 14
ARTICLE THREE................................................................................................... 15
The Securities.................................................................................................. 15
SECTION 301. Amount Unlimited; Issuable in Series..................................................... 15
SECTION 302. Denominations............................................................................ 18
SECTION 303. Execution, Authentication, Delivery and Dating........................................... 19
SECTION 304. Temporary Securities..................................................................... 21
SECTION 305. Registration, Registration of Transfer and Exchange...................................... 22
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities......................................... 23
SECTION 307. Payment of Interest; Interest Rights Preserved........................................... 24
SECTION 308. Persons Deemed Owners.................................................................... 25
SECTION 309. Cancellation by Security Registrar....................................................... 26
SECTION 310. Computation of Interest.................................................................. 26
SECTION 311. Payment to Be in Proper Currency......................................................... 26
ARTICLE FOUR.................................................................................................... 27
</TABLE>
<PAGE>
iii
<TABLE>
<S> <C>
Redemption of Securities........................................................................................ 27
SECTION 401. Applicability of Article................................................................. 27
SECTION 402. Election to Redeem; Notice to Trustee.................................................... 27
SECTION 403. Selection of Securities to Be Redeemed................................................... 27
SECTION 404. Notice of Redemption..................................................................... 28
SECTION 405. Securities Payable on Redemption Date.................................................... 29
SECTION 406. Securities Redeemed in Part.............................................................. 29
ARTICLE FIVE.................................................................................................... 30
Sinking Funds................................................................................................... 30
SECTION 501. Applicability of Article................................................................. 30
SECTION 502. Satisfaction of Sinking Fund Payments with Securities.................................... 30
SECTION 503. Redemption of Securities for Sinking Fund................................................ 31
ARTICLE SIX..................................................................................................... 31
Covenants....................................................................................................... 31
SECTION 601. Payment of Principal, Premium and Interest............................................... 31
SECTION 602. Maintenance of Office or Agency.......................................................... 32
SECTION 603. Money for Securities Payments to Be Held in Trust........................................ 32
SECTION 604. Corporate Existence...................................................................... 34
SECTION 605. Maintenance of Properties................................................................ 34
SECTION 606. Annual Officer's Certificate as to Compliance............................................ 34
SECTION 607. Waiver of Certain Covenants.............................................................. 34
SECTION 608. Limitation on Liens...................................................................... 35
ARTICLE SEVEN................................................................................................... 38
Satisfaction and Discharge...................................................................................... 38
SECTION 701. Satisfaction and Discharge of Securities................................................. 38
SECTION 702. Satisfaction and Discharge of Indenture.................................................. 40
SECTION 703. Application of Trust Money............................................................... 41
ARTICLE EIGHT................................................................................................... 42
Events of Default; Remedies..................................................................................... 42
SECTION 801. Events of Default........................................................................ 42
SECTION 802. Acceleration of Maturity; Rescission and Annulment....................................... 43
SECTION 803. Collection of Indebtedness and Suits for Enforcement by Trustee.......................... 44
SECTION 804. Trustee May File Proofs of Claim......................................................... 45
SECTION 805. Trustee May Enforce Claims Without Possession of Securities.............................. 46
SECTION 806. Application of Money Collected........................................................... 46
SECTION 807. Limitation on Suits...................................................................... 46
SECTION 808. Unconditional Right of Holders to Receive Principal,
Premium and Interest..................................................................... 47
</TABLE>
<PAGE>
iv
<TABLE>
<S> <C>
SECTION 809. Restoration of Rights and Remedies....................................................... 47
SECTION 810. Rights and Remedies Cumulative........................................................... 48
SECTION 811. Delay or Omission Not Waiver............................................................. 48
SECTION 812. Control by Holders of Securities......................................................... 48
SECTION 813. Waiver of Past Defaults.................................................................. 48
SECTION 814. Undertaking for Costs.................................................................... 49
SECTION 815. Waiver of Stay or Extension Laws......................................................... 49
ARTICLE NINE.................................................................................................... 50
The Trustee..................................................................................................... 50
SECTION 901. Certain Duties and Responsibilities...................................................... 50
SECTION 902. Notice of Defaults....................................................................... 50
SECTION 903. Certain Rights of Trustee................................................................ 51
SECTION 904. Not Responsible for Recitals or Issuance of Securities................................... 52
SECTION 905. May Hold Securities...................................................................... 52
SECTION 906. Money Held in Trust...................................................................... 52
SECTION 907. Compensation and Reimbursement........................................................... 52
SECTION 908. Disqualification; Conflicting Interests.................................................. 53
SECTION 909. Corporate Trustee Required; Eligibility.................................................. 54
SECTION 910. Resignation and Removal; Appointment of Successor........................................ 54
SECTION 911. Acceptance of Appointment by Successor................................................... 56
SECTION 912. Merger, Conversion, Consolidation or Succession to Business.............................. 57
SECTION 913. Preferential Collection of Claims Against Company........................................ 58
SECTION 914. Co-trustees and Separate Trustees........................................................ 58
SECTION 915. Appointment of Authenticating Agent...................................................... 59
ARTICLE TEN..................................................................................................... 61
Holders' Lists and Reports by Trustee and Company............................................................... 61
SECTION 1001. Lists of Holders........................................................................ 61
SECTION 1002. Reports by Trustee and Company.......................................................... 62
ARTICLE ELEVEN.................................................................................................. 62
Consolidation, Merger, Conveyance or Other Transfer ............................................................ 62
SECTION 1101. Company May Consolidate, etc., Only on Certain Terms.................................... 62
SECTION 1102. Successor Corporation Substituted....................................................... 63
ARTICLE TWELVE.................................................................................................. 63
Supplemental Indentures......................................................................................... 63
SECTION 1201. Supplemental Indentures Without Consent of Holders...................................... 63
SECTION 1202. Supplemental Indentures With Consent of Holders......................................... 65
SECTION 1203. Execution of Supplemental Indentures.................................................... 67
SECTION 1204. Effect of Supplemental Indentures....................................................... 67
</TABLE>
<PAGE>
v
<TABLE>
<S> <C>
SECTION 1205. Conformity With Trust Indenture Act..................................................... 67
SECTION 1206. Reference in Securities to Supplemental Indentures...................................... 67
SECTION 1207. Modification Without Supplemental Indenture............................................. 67
ARTICLE THIRTEEN................................................................................................ 68
Meetings of Holders; Action Without Meeting..................................................................... 68
SECTION 1301. Purposes for Which Meetings May Be Called............................................... 68
SECTION 1302. Call, Notice and Place of Meetings...................................................... 68
SECTION 1303. Persons Entitled to Vote at Meetings.................................................... 69
SECTION 1304. Quorum; Action.......................................................................... 69
SECTION 1305. Attendance at Meetings; Determination of Voting Rights;
Conduct and Adjournment of Meetings..................................................... 70
SECTION 1306. Counting Votes and Recording Action of Meetings......................................... 71
SECTION 1307. Action Without Meeting.................................................................. 72
ARTICLE FOURTEEN................................................................................................ 72
Immunity of Incorporators, Shareholders, Officers and Directors................................................. 72
SECTION 1401. Liability Solely Corporate.............................................................. 72
ARTICLE FIFTEEN................................................................................................. 72
Securities of the First Series and Second Series................................................................ 72
SECTION 1501. Designation of Securities of the First Series........................................... 72
SECTION 1502. Designation of Securities of the Second Series.......................................... 73
Testimonium..................................................................................................... 70
Signatures...................................................................................................... 70
Acknowledgements................................................................................................ 71
</TABLE>
<PAGE>
TEXAS UTILITIES COMPANY
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939
AND INDENTURE, DATED AS OF JANUARY 1, 1998
TRUST INDENTURE ACT SECTION INDENTURE SECTION
S.310 (a)(1)....................................................909
(a)(2)....................................................909
(a)(3)....................................................914
(a)(4)..................................................Not Applicable
(b).......................................................908
910
S.311 (a).......................................................913
(b).......................................................913
(c).......................................................913
S.312 (a)......................................................1001
(b)......................................................1001
(c)......................................................1001
S.313 (a)......................................................1002
(b)......................................................1002
(c)......................................................1002
S.314 (a)......................................................1002
(a)(4)....................................................606
(b).....................................................Not Applicable
(c)(1)....................................................102
(c)(2)....................................................102
(c)(3)..................................................Not Applicable
(d).....................................................Not Applicable
(e).......................................................102
S.315 (a).......................................................901
903
(b).......................................................902
(c).......................................................901
(d).......................................................901
(e).......................................................814
S.316 (a).......................................................812
813
(a)(1)(A).................................................802
812
(a)(1)(B).................................................813
(a)(2)..................................................Not Applicable
(b).......................................................808
S.317 (a)(1)....................................................803
(a)(2)....................................................804
(b).......................................................603
S.318 (a).......................................................107
<PAGE>
INDENTURE, dated as of January 1, 1998, between TEXAS UTILITIES
COMPANY, a corporation duly organized and existing under the laws of the State
of Texas (herein called the "Company"), having its principal office at Energy
Plaza, 1601 Bryan Street, Dallas, Texas 75201, and THE BANK OF NEW YORK, a
corporation of the State of New York, having its principal corporate trust
office at 101 Barclay Street, New York, New York 10286, as Trustee (herein
called the "Trustee").
RECITAL OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured
debentures, notes or other evidences of indebtedness (herein called the
"Securities"), in an unlimited aggregate principal amount to be issued in one or
more series as contemplated herein; and all acts necessary to make this
Indenture a valid agreement of the Company have been performed.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires, capitalized terms used herein
shall have the meanings assigned to them in Article One of this Indenture.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities or of any
series thereof, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the singular;
(b) all terms used herein without definition which are defined in the
Trust Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles in the United States, and, except as otherwise herein expressly
provided, the term "generally accepted accounting
<PAGE>
-2-
principles" with respect to any computation required or permitted hereunder
shall mean such accounting principles as are generally accepted in the
United States at the date of such computation or, at the election of the
Company from time to time, at the date of the execution and delivery of
this Indenture; provided, however, that in determining generally accepted
accounting principles applicable to the Company, the Company shall, to the
extent required, conform to any order, rule or regulation of any
administrative agency, regulatory authority or other governmental body
having jurisdiction over the Company; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Article Nine, are defined in that
Article.
"ACT", when used with respect to any Holder of a Security, has the
meaning specified in Section 104.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"CONTROL" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or through one or
more intermediaries, whether through the ownership of voting securities, by
contract or otherwise; and the terms "CONTROLLING" and "CONTROLLED" have
meanings correlative to the foregoing.
"AUTHENTICATING AGENT" means any Person (other than the Company or an
Affiliate of the Company) authorized by the Trustee pursuant to Section 915 to
act on behalf of the Trustee to authenticate one or more series of Securities .
"AUTHORIZED OFFICER" means the Chairman of the Board, the President,
any Vice President, the Treasurer, any Assistant Treasurer, or any other officer
or agent of the Company duly authorized by the Board of Directors to act in
respect of matters relating to this Indenture.
"BOARD OF DIRECTORS" means either the board of directors of the
Company or any committee thereof duly authorized to act in respect of matters
relating to this Indenture.
"BOARD RESOLUTION" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"BUSINESS DAY", when used with respect to a Place of Payment or any
other particular location specified in the Securities or this Indenture, means
any day, other than a Saturday or Sunday, which is not a day on which banking
institutions or trust companies in such Place of
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Payment or other location are generally authorized or required by law,
regulation or executive order to remain closed, except as may be otherwise
specified as contemplated by Section 301.
"COMMISSION" means the Securities and Exchange Commission, as from
time to time constituted, created under the Securities Exchange Act of 1934, as
amended, or, if at any time after the date of execution and delivery of this
Indenture such Commission is not existing and performing the duties now assigned
to it under the Trust Indenture Act, then the body, if any, per forming such
duties at such time.
"COMPANY" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"COMPANY REQUEST" or "COMPANY ORDER" means a written request or order
signed in the name of the Company by an Authorized Officer and delivered to the
Trustee.
"CORPORATE TRUST OFFICE" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the date of execution and delivery of this
Indenture is located at 101 Barclay Street, New York, New York 10286.
"CORPORATION" means a corporation, association, company, joint stock
company or business trust.
"DEFAULTED INTEREST" has the meaning specified in Section 307.
"DISCOUNT SECURITY" means any Security which provides for an amount
less than the principal amount thereof to be due and payable upon a declaration
of acceleration of the Maturity thereof pursuant to Section 802. "Interest" with
respect to a Discount Security means interest, if any, borne by such Security at
a Stated Interest Rate.
"DOLLAR" or "$" means a dollar or other equivalent unit in such coin
or currency of the United States as at the time shall be legal tender for the
payment of public and private debts.
"ELIGIBLE OBLIGATIONS" means:
(a) with respect to Securities denominated in Dollars, Government
Obligations; or
(b) with respect to Securities denominated in a currency other than
Dollars or in a composite currency, such other obligations or instruments
as shall be specified with respect to such Securities, as contemplated by
Section 301.
"EVENT OF DEFAULT" has the meaning specified in Section 801.
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"GOVERNMENTAL AUTHORITY" means the government of the United States or
of any State or Territory thereof or of the District of Columbia or of any
county, municipality or other political subdivision of any of the foregoing, or
any department, agency, authority or other instrumentality of any of the
foregoing.
"GOVERNMENT OBLIGATIONS" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States and
entitled to the benefit of the full faith and credit thereof; and
(b) certificates, depositary receipts or other instruments which
evidence a direct ownership interest in obligations described in clause (a)
above or in any specific interest or principal payments due in respect
thereof; provided, however, that the custodian of such obligations or
specific interest or principal payments shall be a bank or trust company
(which may include the Trustee or any Paying Agent) subject to Federal or
state supervision or examination with a combined capital and surplus of at
least $50,000,000; and provided, further, that except as may be otherwise
required by law, such custodian shall be obligated to pay to the holders of
such certificates, depositary receipts or other instruments the full amount
received by such custodian in respect of such obligations or specific
payments and shall not be permitted to make any deduction therefrom.
"HOLDER" means a Person in whose name a Security is registered in the
Security Register.
"INDENTURE" means this instrument as originally executed and delivered
and as it may from time to time be supplemented or amended by one or more
indentures supplemental hereto entered into pursuant to the applicable
provisions hereof and shall include the terms of a particular series of
Securities established as contemplated by Section 301.
"INTEREST PAYMENT DATE", when used with respect to any Security, means
the Stated Maturity of an installment of interest on such Security.
"MATURITY", when used with respect to any Security, means the date on
which the principal of such Security or an installment of principal becomes due
and payable as provided in such Security or in this Indenture, whether at the
Stated Maturity, by declaration of acceleration, upon call for redemption or
otherwise.
"OFFICER'S CERTIFICATE" means a certificate signed by an Authorized
Officer and delivered to the Trustee.
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"OPINION OF COUNSEL" means a written opinion of counsel, who may be
counsel for the Company, or other counsel acceptable to the Trustee.
"OUTSTANDING", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(a) Securities theretofore canceled or delivered to the Security
Registrar for cancellation;
(b) Securities deemed to have been paid in accordance with Section
701; and
(c) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it and the Company that such Securities are held by a bona
fide purchaser or purchasers in whose hands such Securities are valid
obligations of the Company;
provided, however, that in determining whether or not the Holders of the
requisite principal amount of the Securities Outstanding under this Indenture,
or the Outstanding Securities of any series or Tranche, have given any request,
demand, authorization, direction, notice, consent or waiver hereunder or whether
or not a quorum is present at a meeting of Holders of Securities,
(x) Securities owned by the Company or any other obligor upon the
Securities or any Affiliate of the Company or of such other obligor (unless
the Company, such Affiliate or such obligor owns all Securities Outstanding
under this Indenture, or (except for the purposes of actions to be taken by
Holders of (i) more than one series voting as a class under Section 812 or
(ii) more than one series or more than one Tranche, as the case may be,
voting as a class under Section 1202) all Outstanding Securities of each
such series and each such Tranche, as the case may be, determined without
regard to this clause (x)) shall be disregarded and deemed not to be Out
standing, except that, in determining whether the Trustee shall be
protected in relying upon any such request, demand, authorization,
direction, notice, consent or waiver or upon any such determination as to
the presence of a quorum, only Securities which the Trustee knows to be so
owned shall be so disregarded; provided, however, that Securities so owned
which have been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Trustee the pledgee's right
so to act with respect to such Securities and that the pledgee is not the
Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor; and
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(y) the principal amount of a Discount Security that shall be deemed
to be Outstanding for such purposes shall be the amount of the principal
thereof that would be due and payable as of the date of such determination
upon a declaration of acceleration of the Maturity thereof pursuant to
Section 802;
provided, further, that, in the case of any Security the principal of which is
payable from time to time without presentment or surrender, the principal amount
of such Security that shall be deemed to be Outstanding at any time for all
purposes of this Indenture shall be the original principal amount thereof less
the aggregate amount of principal thereof theretofore paid.
"PAYING AGENT" means any Person, including the Company, authorized by
the Company to pay the principal of, and premium, if any, or interest, if any,
on any Securities on behalf of the Company.
"PERIODIC OFFERING" means an offering of Securities of a series from
time to time any or all of the specific terms of which Securities, including
without limitation the rate or rates of interest, if any, thereon, the Stated
Maturity or Maturities thereof and the redemption pro visions, if any, with
respect thereto, are to be determined by the Company or its agents upon the
issuance of such Securities.
"PERSON" means any individual, corporation, partnership, joint
venture, trust or unincorporated organization or any Governmental Authority.
"PLACE OF PAYMENT", when used with respect to the Securities of any
series, or any Tranche thereof, means the place or places, specified as
contemplated by Section 301, at which, subject to Section 602, principal of and
premium, if any, and interest, if any, on the Securities of such series or
Tranche are payable.
"PREDECESSOR SECURITY" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed (to the extent
lawful) to evidence the same debt as the mutilated, destroyed, lost or stolen
Security.
"REDEMPTION DATE", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"REDEMPTION PRICE", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"REGULAR RECORD DATE" for the interest payable on any Interest Payment
Date on the Securities of any series means the date specified for that purpose
as contemplated by Section 301.
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"REQUIRED CURRENCY" has the meaning specified in Section 311.
"RESPONSIBLE OFFICER", when used with respect to the Trustee, means
any officer of the Trustee assigned by the Trustee to administer its corporate
trust matters.
"SECURITIES" has the meaning stated in the first recital of this
Indenture and more particularly means any securities authenticated and delivered
under this Indenture.
"SECURITY REGISTER" and "SECURITY REGISTRAR" have the respective
meanings specified in Section 305.
"SPECIAL RECORD DATE" for the payment of any Defaulted Interest on the
Securities of any series means a date fixed by the Trustee pursuant to Section
307.
"STATED INTEREST RATE" means a rate (whether fixed or variable) at
which an obligation by its terms is stated to bear simple interest. Any
calculation or other determination to be made under this Indenture by reference
to the Stated Interest Rate on a Security shall be made without regard to the
effective interest cost to the Company of such Security and without regard to
the Stated Interest Rate on, or the effective cost to the Company of, any other
indebtedness in respect of which the Company's obligations are evidenced or
secured in whole or in part by such Security.
"STATED MATURITY", when used with respect to any obligation or any
installment of principal thereof or interest thereon, means the date on which
the principal of such obligation or such installment of principal or interest is
stated to be due and payable (without regard to any provisions for redemption,
prepayment, acceleration, purchase or extension).
"SUBSIDIARY" means a corporation more than 50% of the outstanding
voting stock of which is owned, directly or indirectly, by the Company or by one
or more other Subsidiaries, or by the Company and one or more other
Subsidiaries. For the purposes of this definition, "voting stock" means stock
that ordinarily has voting power for the election of directors, whether at all
times or only so long as no senior class of stock has such voting power by
reason of any contingency.
"TRANCHE" means a group of Securities which (a) are of the same series
and (b) have identical terms except as to principal amount and/or date of
issuance.
"TRUST INDENTURE ACT" means, as of any time, the Trust Indenture Act
of 1939, or any successor statute, as in effect at such time.
"TRUSTEE" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
with respect to one or more series of Securities pursuant to the applicable
provisions of this Indenture, and thereafter "Trustee"
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shall mean or include each Person who is then a Trustee hereunder, and if at any
time there is more than one such Person, "Trustee" as used with respect to the
Securities of any series shall mean the Trustee with respect to Securities of
that series.
"UNITED STATES" means the United States of America, its Territories,
its possessions and other areas subject to its political jurisdiction.
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Except as otherwise expressly provided in this Indenture, upon any
application or request by the Company to the Trustee to take any action under
any provision of this Indenture, the Company shall, if requested by the Trustee,
furnish to the Trustee an Officer's Certificate stating that all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action (including any covenants compliance with which constitutes a condition
precedent) have been complied with and an Opinion of Counsel stating that in the
opinion of such counsel all such conditions precedent, if any, have been
complied with, except that in the case of any such application or request as to
which the furnishing of such documents is speci fically required by any
provision of this Indenture relating to such particular application or request,
no additional certificate or opinion need be furnished.
Every certificate or opinon with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that each Person signing such certificate or opinion
has read such covenant or condition and the definitions herein relating
thereto;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such Person, such Person
has made such examination or investigation as is necessary to enable such
Person to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion of each such Person,
such condition or covenant has been complied with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by
<PAGE>
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only one document, but one such Person may certify or give an opinion with
respect to some matters and one or more other such Persons as to other matters,
and any such Person may certify or give an opinion as to such matters in one or
several documents.
Any certificate or opinion of an officer of the Company may be based,
insofar as it relates to legal matters, upon a certificate or opinion of, or
representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which such Officer's Certificate or opinion are
based are erroneous. Any such certificate or Opinion of Counsel may be based,
insofar as it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever, subsequent to the receipt by the Trustee of any Board
Resolution, Officer's Certificate, Opinion of Counsel or other document or
instrument, a clerical, typographical or other inadvertent or unintentional
error or omission shall be discovered therein, a new document or instrument may
be substituted therefor in corrected form with the same force and effect as if
originally filed in the corrected form and, irrespective of the date or dates of
the actual execution and/or delivery thereof, such substitute document or
instrument shall be deemed to have been executed and/or delivered as of the date
or dates required with respect to the document or instrument for which it is
substituted. Anything in this Indenture to the contrary notwithstanding, if any
such corrective document or instrument indicates that action has been taken by
or at the request of the Company which could not have been taken had the
original document or instrument not contained such error or omission, the action
so taken shall not be invalidated or otherwise rendered ineffective but shall be
and remain in full force and effect, except to the extent that such action was a
result of willful misconduct or bad faith. Without limiting the generality of
the foregoing, any Securities issued under the authority of such defective
document or instrument shall nevertheless be the valid obligations of the
Company entitled to the benefits of this Indenture equally and ratably with all
other Outstanding Securities, except as aforesaid.
SECTION 104. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
election, waiver or other action provided by this Indenture to be made,
given or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person
or by an agent duly
<PAGE>
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evidenced by the record of Holders voting in favor thereof, either in
person or by proxies duly appointed in writing, at any meeting of Holders
duly called and held in accordance with the provisions of Article Thirteen,
or a combination of such instruments and any such record. Except as herein
otherwise expressly provided, such action shall become effective when such
instrument or instruments or record or both are delivered to the Trustee
and, where it is hereby expressly required, to the Company. Such instrument
or instruments and any such record (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Holders signing such instrument or instruments and so voting at any such
meeting. Proof of execution of any such instrument or of a writing
appointing any such agent, or of the holding by any Person of a Security,
shall be sufficient for any purpose of this Indenture and (subject to
Section 901) conclusive in favor of the Trustee and the Company, if made in
the manner provided in this Section. The record of any meeting of Holders
shall be proved in the manner provided in Section 1306.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer
authorized by law to take acknowledgments of deeds, certifying that the
individual signing such instrument or writing acknowledged to him the
execution thereof or may be proved in any other manner which the Trustee
and the Company deem sufficient. Where such execution is by a signer acting
in a capacity other than his individual capacity, such certificate or
affidavit shall also constitute sufficient proof of his authority.
(c) The principal amount (except as otherwise contemplated in clause
(y) of the first proviso to the definition of Outstanding) and serial
numbers of Securities held by any Person, and the date of holding the same,
shall be proved by the Security Register.
(d) Any request, demand, authorization, direction, notice consent,
election, waiver or other Act of a Holder shall bind every future Holder of
the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee
or the Company in reliance thereon, whether or not notation of such action
is made upon such Security.
(e) Until such time as written instruments shall have been delivered
to the Trustee with respect to the requisite percentage of principal amount
of Securities for the action contemplated by such instruments, any such
instrument executed and delivered by or on behalf of a Holder may be
revoked with respect to any or all of such Securities by written notice by
such Holder or any subsequent Holder, proven in the manner in which such
instrument was proven.
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(f) Securities of any series, or any Tranche thereof, authenticated
and delivered after any Act of Holders may, and shall if required by the
Trustee, bear a notation in form approved by the Trustee as to any action
taken by such Act of Holders. If the Company shall so determine, new
Securities of any series, or any Tranche thereof, so modified as to
conform, in the opinion of the Trustee and the Company, to such action may
be prepared and executed by the Company and authenticated and delivered by
the Trustee in exchange for Outstanding Securities of such series or
Tranche.
(g) If the Company shall solicit from Holders any request, demand,
authorization, direction, notice, consent, waiver or other Act, the Company
may, at its option, fix in advance a record date for the determination of
Holders entitled to give such request, demand, authorization, direction,
notice, consent, waiver or other Act, but the Company shall have no
obligation to do so. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be given
before or after such record date, but only the Holders of record at the
close of business on the record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite proportion of the
Outstanding Securities have authorized or agreed or consented to such
request, demand, authorization, direction, notice, consent, waiver or other
Act, and for that purpose the Outstanding Securities shall be computed as
of the record date.
SECTION 105. NOTICES, ETC. TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice, consent,
election, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with, the
Trustee by any Holder or by the Company, or the Company by the Trustee or by any
Holder, shall be sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and delivered personally to an officer or
other responsible employee of the addressee, or transmitted by facsimile
transmission or other direct written electronic means to such telephone number
or other electronic communications address as the parties hereto shall from time
to time designate, or transmitted
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by certified or registered mail, charges prepaid, to the applicable address set
opposite such party's name below or to such other address as either party hereto
may from time to time designate:
If to the Trustee, to:
The Bank of New York
101 Barclay Street - 21W
New York, New York 10286
Attention: Vice President, Corporate Trust Administration
Telephone: (212) 815-5375
Telecopy: (212) 815-5915
If to the Company, to:
Texas Utilities Company
Energy Plaza
1601 Bryan Street
Dallas, Texas 75201
Attention: Treasurer
Telephone: (214) 812-4646
Telecopy: (214) 812-3366
Any communication contemplated herein shall be deemed to have been
made, given, furnished and filed if personally delivered, on the date of
delivery, if transmitted by facsimile transmission or other direct written
electronic means, on the date of transmission, and if transmitted by certified
or registered mail, on the date of receipt.
SECTION 106. NOTICE TO HOLDERS OF SECURITIES; WAIVER.
Except as otherwise expressly provided herein, where this Indenture
provides for notice to Holders of any event, such notice shall be sufficiently
given, and shall be deemed given, to Holders if in writing and mailed, first-
class postage prepaid, to each Holder affected by such event, at the address of
such Holder as it appears in the Security Register, not later than the latest
date, if any, and not earlier than the earliest date, if any, prescribed for the
giving of such notice.
In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice to
Holders by mail, then such notification as shall be made with the approval of
the Trustee shall constitute a sufficient no-
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tification for every purpose hereunder. In any case where notice to Holders is
given by mail, neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the sufficiency of such
notice with respect to other Holders.
Any notice required by this Indenture may be waived in writing by the
Person entitled to receive such notice, either before or after the event
otherwise to be specified therein, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
SECTION 107. CONFLICT WITH TRUST INDENTURE ACT.
If any provision of this Indenture limits, qualifies or conflicts with
another provision hereof which is required or deemed to be included in this
Indenture by, or is otherwise governed by, any of the provisions of the Trust
Indenture Act, such other provision shall control; and if any provision hereof
otherwise conflicts with the Trust Indenture Act, the Trust Indenture Act shall
control.
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings in this Indenture and the Table of
Contents are for convenience only and shall not affect the construction hereof.
SECTION 109. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company and
Trustee shall bind their respective successors and assigns, whether so expressed
or not.
SECTION 110. SEPARABILITY CLAUSE.
In case any provision in this Indenture or the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. BENEFITS OF INDENTURE.
Nothing in this Indenture or the Securities, express or implied, shall
give to any Person, other than the parties hereto, their successors hereunder
and the Holders, any benefit or any legal or equitable right, remedy or claim
under this Indenture.
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SECTION 112. GOVERNING LAW.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE EXTENT THAT
THE LAW OF ANY OTHER JURISDICTION SHALL BE MANDATORILY APPLICABLE.
SECTION 113. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day at any Place of Payment,
then (notwithstanding any other provision of this Indenture or of the Securities
other than a provision in Securities of any series, or any Tranche thereof, or
in the Board Resolution or Officer's Certificate which establishes the terms of
the Securities of such series or Tranche, which specifically states that such
provision shall apply in lieu of this Section) payment of interest or principal
and premium, if any, need not be made at such Place of Payment on such date, but
may be made on the next succeeding Business Day at such Place of Payment, with
the same force and effect, and in the same amount, as if made on the Interest
Payment Date or Redemption Date, or at the Stated Maturity, as the case may be,
and, if such payment is made or duly provided for on such Business Day, no
interest shall accrue on the amount so payable for the period from and after
such Interest Payment Date, Redemption Date or Stated Maturity, as the case may
be, to such Business Day.
ARTICLE TWO
SECURITY FORMS
SECTION 201. FORMS GENERALLY.
The definitive Securities of each series shall be in substantially the
form or forms thereof established in the indenture supplemental hereto
establishing such series or in a Board Resolution establishing such series, or
in an Officer's Certificate pursuant to such supplemental indenture or Board
Resolution, in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture, and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may be required to comply
with the rules of any securities exchange or as may, consistently herewith, be
determined by the officers executing such Secu rities, as evidenced by their
execution of the Securities. If the form or forms of Securities of any series
are established in a Board Resolution or in an Officer's Certificate pursuant to
a Board Resolution, such Board Resolution and Officer's Certificate, if any,
shall be delivered to the Trustee at or prior to the delivery of the Company
Order contemplated by Section 303 for the authentication and delivery of such
Securities.
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Unless otherwise specified as contemplated by Sections 301 or 1201(g),
the Securities of each series shall be issuable in registered form without
coupons. The definitive Securities shall be produced in such manner as shall be
determined by the officers executing such Securities, as evidenced by their
execution thereof.
SECTION 202. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
The Trustee's certificate of authentication shall be in substantially
the form set forth below:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
Dated:
-----------------------------------------
as Trustee
By: _____________________________________
Authorized Signatory
ARTICLE THREE
THE SECURITIES
SECTION 301. AMOUNT UNLIMITED; ISSUABLE IN SERIES.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. Subject to the
last paragraph of this Section, prior to the authentication and delivery of
Securities of any series there shall be established by specification in a
supplemental indenture or in a Board Resolution, or in an Officer's Certificate
pursuant to a supplemental indenture or a Board Resolution:
(a) the title of the Securities of such series (which shall
distinguish the Securities of such series from Securities of all other
series);
(b) any limit upon the aggregate principal amount of the Securities of
such series which may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of
transfer of, or in exchange
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for, or in lieu of, other Securities of such series pursuant to Section
304, 305, 306, 406 or 1206 and except for any Securities which, pursuant to
Section 303, are deemed never to have been authenticated and delivered
hereunder);
(c) the Person or Persons (without specific identification) to whom
interest on Securities of such series, or any Tranche thereof, shall be
payable on any Interest Payment Date, if other than the Persons in whose
names such Securities (or one or more Predecessor Securities) are
registered at the close of business on the Regular Record Date for such
interest;
(d) the date or dates on which the principal of the Securities of such
series, or any Tranche thereof, is payable or any formulary or other method
or other means by which such date or dates shall be determined, by
reference to an index or other fact or event ascertainable outside of this
Indenture or otherwise (without regard to any provisions for redemption,
prepayment, acceleration, purchase or extension);
(e) the rate or rates at which the Securities of such series, or any
Tranche thereof, shall bear interest, if any (including the rate or rates
at which overdue principal shall bear interest, if different from the rate
or rates at which such Securities shall bear interest prior to Maturity,
and, if applicable, the rate or rates at which overdue premium or interest
shall bear interest, if any), or any formulary or other method or other
means by which such rate or rates shall be determined, by reference to an
index or other fact or event ascertainable outside of this Indenture or
otherwise; the date or dates from which such interest shall accrue; the
Interest Payment Dates on which such interest shall be payable and the
Regular Record Date, if any, for the interest payable on such Securities on
any Interest Payment Date; and the basis of computation of interest, if
other than as provided in Section 310;
(f) the place or places at which or methods by which (1) the principal
of and premium, if any, and interest, if any, on Securities of such series,
or any Tranche thereof, shall be payable, (2) registration of transfer of
Securities of such series, or any Tranche thereof, may be effected, (3)
exchanges of Securities of such series, or any Tranche thereof, may be
effected and (4) notices and demands to or upon the Company in respect of
the Securities of such series, or any Tranche thereof, and this Indenture
may be served; the Security Registrar for such series or Tranche; and if
such is the case, that the principal of such Securities shall be payable
without presentment or surrender thereof;
(g) the period or periods within which, or the date or dates on which,
the price or prices at which and the terms and conditions upon which the
Securities of such series, or any Tranche thereof, may be redeemed, in
whole or in part, at the option of the Company and any restrictions on such
redemptions, including but not limited to a restriction on a partial
redemption by the Company of the Securities of any series, or
<PAGE>
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any Tranche thereof, resulting in delisting of such Securities from any
national exchange;
(h) the obligation or obligations, if any, of the Company to redeem or
purchase the Securities of such series, or any Tranche thereof, pursuant to
any sinking fund or other mandatory redemption provisions or at the option
of a Holder thereof and the period or periods within which or the date or
dates on which, the price or prices at which and the terms and conditions
upon which such Securities shall be redeemed or purchased, in whole or in
part, pursuant to such obligation, and applicable exceptions to the
requirements of Section 404 in the case of mandatory redemption or
redemption at the option of the Holder;
(i) the denominations in which Securities of such series, or any
Tranche thereof, shall be issuable if other than denominations of $1,000
and any integral multiple thereof;
(j) the currency or currencies, including composite currencies, in
which payment of the principal of and premium, if any, and interest, if
any, on the Securities of such series, or any Tranche thereof, shall be
payable (if other than in Dollars);
(k) if the principal of or premium, if any, or interest, if any, on
the Securities of such series, or any Tranche thereof, are to be payable,
at the election of the Company or a Holder thereof, in a coin or currency
other than that in which the Securities are stated to be payable, the
period or periods within which and the terms and conditions upon which,
such election may be made;
(l) if the principal of or premium, if any, or interest, if any, on
the Securities of such series, or any Tranche thereof, are to be payable,
or are to be payable at the election of the Company or a Holder thereof, in
securities or other property, the type and amount of such securities or
other property, or the formulary or other method or other means by which
such amount shall be determined, and the period or periods within which,
and the terms and conditions upon which, any such election may be made;
(m) if the amount payable in respect of principal of or premium, if
any, or interest, if any, on the Securities of such series, or any Tranche
thereof, may be determined with reference to an index or other fact or
event ascertainable outside of this Indenture, the manner in which such
amounts shall be determined to the extent not established pursuant to
clause (e) of this paragraph;
(n) if other than the principal amount thereof, the portion of the
principal amount of Securities of such series, or any Tranche thereof,
which shall be payable upon declaration of acceleration of the Maturity
thereof pursuant to Section 802;
<PAGE>
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(o) any Events of Default, in addition to those specified in Section
801, with respect to the Securities of such series, and any covenants of
the Company for the benefit of the Holders of the Securities of such
series, or any Tranche thereof, in addition to those set forth in Article
Six;
(p) the terms, if any, pursuant to which the Securities of such
series, or any Tranche thereof, may be converted into or exchanged for
shares of capital stock or other securities of the Company or any other
Person;
(q) the obligations or instruments, if any, which shall be considered
to be Eligible Obligations in respect of the Securities of such series, or
any Tranche thereof, denominated in a currency other than Dollars or in a
composite currency, and any additional or alternative provisions for the
reinstatement of the Company's indebtedness in respect of such Securities
after the satisfaction and discharge thereof as provided in Section 701;
(r) if the Securities of such series, or any Tranche thereof, are to
be issued in global form, (i) any limitations on the rights of the Holder
or Holders of such Securities to transfer or exchange the same or to obtain
the registration of transfer thereof, (ii) any limitations on the rights of
the Holder or Holders thereof to obtain certificates therefor in definitive
form in lieu of temporary form and (iii) any and all other matters
incidental to such Securities;
(s) if the Securities of such series, or any Tranche thereof, are to
be issuable as bearer securities, any and all matters incidental thereto
which are not specifically addressed in a supplemental indenture as
contemplated by clause (g) of Section 1201;
(t) to the extent not established pursuant to clause (r) of this
paragraph, any limitations on the rights of the Holders of the Securities
of such Series, or any Tranche thereof, to transfer or exchange such
Securities or to obtain the registration of transfer thereof; and if a
service charge will be made for the registration of transfer or exchange of
Securities of such series, or any Tranche thereof, the amount or terms
thereof;
(u) any exceptions to Section 113, or variation in the definition of
Business Day, with respect to the Securities of such series, or any Tranche
thereof;
(v) any collateral security, assurance or guarantee for the Securities
of such series;
(w) the non-applicability of Section 608 to the Securities of such
Series or any exceptions or modifications of Section 608 with respect to
the Securities of such Series;
<PAGE>
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(x) any rights or duties of another Person to assume the obligations
of the Company with respect to the Securities of such series (whether as
joint obligor, primary obligor, secondary obligor or substitute obligor)
and any rights or duties to discharge and release any obligor with respect
to the Securities of such series or the Indenture to the extent related to
such series; and
(y) any other terms of the Securities of such series, or any Tranche
thereof, not inconsistent with the provisions of this Indenture.
With respect to Securities of a series subject to a Periodic Offering,
the indenture supplemental hereto or the Board Resolution which establishes such
series, or the Officer's Certificate pursuant to such supplemental indenture or
Board Resolution, as the case may be, may provide general terms or parameters
for Securities of such series and provide either that the specific terms of
Securities of such series, or any Tranche thereof, shall be specified in a
Company Order or that such terms shall be determined by the Company or its
agents in accordance with procedures specified in a Company Order as
contemplated by the clause (b) of Section 303.
SECTION 302. DENOMINATIONS.
Unless otherwise provided as contemplated by Section 301 with respect
to any series of Securities, or any Tranche thereof, the Securities of each
series shall be issuable in denominations of $1,000 and any integral multiple
thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
Unless otherwise provided as contemplated by Section 301 with respect
to any series of Securities, or any Tranche thereof, the Securities shall be
executed on behalf of the Company by an Authorized Officer and may have the
corporate seal of the Company affixed thereto or reproduced thereon attested by
any other Authorized Officer or by the Secretary or an Assistant Secretary of
the Company. The signature of any or all of these officers on the Securities may
be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals
who were at the time of execution Authorized Officers or the Secretary or an
Assistant Secretary of the Company shall bind the Company, notwithstanding that
such individuals or any of them have ceased to hold such offices prior to the
authentication and delivery of such Securities or did not hold such offices at
the date of such Securities.
<PAGE>
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The Trustee shall authenticate and deliver Securities of a series, for
original issue, at one time or from time to time in accordance with the Company
Order referred to below, upon receipt by the Trustee of:
(a) the instrument or instruments establishing the form or forms and
terms of such series, as provided in Sections 201 and 301;
(b) a Company Order requesting the authentication and delivery of such
Securities and, to the extent that the terms of such Securities shall not
have been established in an indenture supplemental hereto or in a Board
Resolution, or in an Officer's Certificate pursuant to a supplemental
indenture or Board Resolution, all as contemplated by Sections 201 and 301,
either (i) establishing such terms or (ii) in the case of Securities of a
series subject to a Periodic Offering, specifying procedures, acceptable to
the Trustee, by which such terms are to be established (which procedures
may provide, to the extent acceptable to the Trustee, for authentication
and delivery pursuant to oral or electronic instructions from the Company
or any agent or agents thereof, which oral instructions are to be promptly
confirmed electronically or in writing), in either case in accordance with
the instrument or instruments delivered pursuant to clause (a) above;
(c) the Securities of such series, executed on behalf of the Company
by an Authorized Officer;
(d) an Opinion of Counsel to the effect that:
(i) the form or forms of such Securities have been duly
authorized by the Company and have been established in conformity with
the provisions of this Indenture;
(ii) the terms of such Securities have been duly authorized by
the Company and have been established in conformity with the
provisions of this Indenture; and
(iii) such Securities, when authenticated and delivered by the
Trustee and issued and delivered by the Company in the manner and
subject to any conditions specified in such Opinion of Counsel, will
have been duly issued under this Indenture and will constitute valid
and legally binding obligations of the Company, entitled to the
benefits provided by this Indenture, and enforceable in accordance
with their terms, subject, as to enforcement, to laws relating to or
affecting generally the enforcement of creditors' rights, including,
without limitation, bankruptcy and insolvency laws and to general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law);
<PAGE>
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provided, however, that, with respect to Securities of a series subject to a
Periodic Offering, the Trustee shall be entitled to receive such Opinion of
Counsel only once at or prior to the time of the first authentication of such
Securities (provided that such Opinion of Counsel addresses the authentication
and delivery of all Securities of such series) and that in lieu of the opinions
described in clauses (ii) and (iii) above Counsel may opine that:
(x) when the terms of such Securities shall have been
established pursuant to a Company Order or Orders or pursuant to such
procedures (acceptable to the Trustee) as may be specified from time
to time by a Company Order or Orders, all as contemplated by and in
accordance with the instrument or instruments delivered pursuant to
clause (a) above, such terms will have been duly authorized by the
Company and will have been established in conformity with the
provisions of this Indenture; and
(y) such Securities, when authenticated and delivered by the
Trustee in accordance with this Indenture and the Company Order or
Orders or specified procedures referred to in paragraph (x) above and
issued and delivered by the Company in the manner and subject to any
conditions specified in such Opinion of Counsel, will have been duly
issued under this In denture and will constitute valid and legally
binding obligations of the Company, entitled to the benefits provided
by the Indenture, and enforceable in accordance with their terms,
subject, as to enforcement, to laws relating to or affecting generally
the enforcement of creditors' rights, including, without limitation,
bankruptcy and insolvency laws, and to general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
With respect to Securities of a series subject to a Periodic
Offering, the Trustee may conclusively rely, as to the authorization by the
Company of any of such Securities, the form, terms thereof and the legality,
validity, binding effect and enforceability thereof, and compliance of the
authentication and delivery thereof with the terms and conditions of this
Indenture, upon the Opinion of Counsel and other documents delivered pursuant to
Sections 201 and 301 and this Section, as applicable, at or prior to the time of
the first authentication of Securities of such series unless and until such
opinion or other documents have been superseded or revoked or expire by their
terms. In connection with the authentication and delivery of Securities of a
series subject to a Periodic Offering, the Trustee shall be entitled to assume
that the Company's instructions to authenticate and deliver such Securities do
not violate any applicable law or any applicable rule, regulation or order of
any Governmental Authority having jurisdiction over the Company.
If the form or terms of the Securities of any series have been
established by or pursuant to a Board Resolution or an Officer's Certificate as
permitted by Sections 201 or 301, the Trustee shall not be required to
authenticate such Securities if the issuance of such
<PAGE>
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Securities pursuant to this Indenture will materially or adversely affect the
Trustee's own rights, duties or immunities under the Securities and this
Indenture or otherwise in a manner which is not reasonably acceptable to the
Trustee.
Unless otherwise specified as contemplated by Section 301 with respect
to any series of Securities, or any Tranche thereof, each Security shall be
dated the date of its authentication.
Unless otherwise specified as contemplated by Section 301 with respect
to any series of Securities, no Security shall be entitled to any benefit under
this Indenture or be valid or obligatory for any purpose unless there appears on
such Security a certificate of authentication substantially in the form provided
for herein executed by the Trustee or an Authenticating Agent by manual
signature, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder and is entitled to the benefits of this Indenture.
Notwithstanding the foregoing, if any Security shall have been authenticated and
delivered hereunder to the Company, or any Person acting on its behalf, but
shall never have been issued and sold by the Company, and the Company shall
deliver such Security to the Trustee for cancellation as provided in Section 309
together with a written statement (which need not comply with Section 102 and
need not be accompanied by an Opinion of Counsel) stating that such Security has
never been issued and sold by the Company, for all purposes of this Indenture
such Security shall be deemed never to have been authenticated and delivered
hereunder and shall never be entitled to the benefits hereof.
SECTION 304. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities of any series, or any
Tranche thereof, the Company may execute, and upon Company Order the Trustee
shall authenticate and deliver, temporary Securities which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any authorized
denomination, substantially of the tenor of the defi nitive Securities in lieu
of which they are issued, with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Securities may
determine, as evidenced by their execution of such Securities; provided,
however, that temporary Securities need not recite specific redemption, sinking
fund, conversion or exchange provisions.
Unless otherwise specified as contemplated by Section 301 with respect
to the Securities of any series, or any Tranche thereof, after the preparation
of definitive Securities of such series or Tranche, the temporary Securities of
such series or Tranche shall be exchangeable, without charge to the Holder
thereof, for definitive Securities of such series or Tranche upon surrender of
such temporary Securities at the office or agency of the Company maintained
pursuant to Section 602 in a Place of Payment for such Securities. Upon such
surrender of temporary Securities for such exchange, the Company shall, except
as aforesaid, execute and the Trustee shall authenticate and deliver in exchange
therefor definitive Securities
<PAGE>
-23-
of the same series and Tranche of authorized denominations and of like tenor and
aggregate principal amount.
Until exchanged in full as hereinabove provided, temporary Securities
shall in all respects be entitled to the same benefits under this Indenture as
definitive Securities of the same series and Tranche and of like tenor
authenticated and delivered hereunder.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause to be kept in each office designated pursuant
to Section 602, with respect to the Securities of each series, a register (all
registers kept in accordance with this Section being collectively referred to as
the "Security Register") in which, subject to such reasonable regulations as it
may prescribe, the Company shall provide for the registration of Securities of
such series, or any Tranche thereof, and the registration of transfer thereof.
The Company shall designate one Person to maintain the Security Register for the
Securities of each series on a consolidated basis, and such Person is referred
to herein, with respect to such series, as the "Security Registrar." Anything
herein to the contrary notwithstanding, the Company may designate one or more of
its offices as an office in which a register with respect to the Securities of
one or more series shall be maintained, and the Company may designate itself the
Security Registrar with respect to one or more of such series. The Security
Register shall be open for inspection by the Trustee and the Company at all
reasonable times.
Except as otherwise specified as contemplated by Section 301 with
respect to the Securities of any series, or any Tranche thereof, upon surrender
for registration of transfer of any Security of such series or Tranche at the
office or agency of the Company maintained pursuant to Section 602 in a Place of
Payment for such series or Tranche, the Company shall execute, and the Trustee
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Securities of the same series and Tranche, of
authorized denominations and of like tenor and aggregate principal amount.
Except as otherwise specified as contemplated by Section 301 with
respect to the Securities of any series, or any Tranche thereof, any Security of
such series or Tranche may be exchanged at the option of the Holder, for one or
more new Securities of the same series and Tranche, of authorized denominations
and of like tenor and aggregate principal amount, upon surrender of the
Securities to be exchanged at any such office or agency. Whenever any Securities
are so surrendered for exchange, the Company shall execute, and the Trustee
shall authenticate and deliver, the Securities which the Holder making the
exchange is entitled to receive.
All Securities delivered upon any registration of transfer or exchange
of Securities shall be valid obligations of the Company, evidencing the same
debt, and entitled to
<PAGE>
-24-
the same benefits under this Indenture, as the Securities surrendered upon such
registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer
or for exchange shall (if so required by the Company, the Trustee or the
Security Registrar) be duly endorsed or shall be accompanied by a written
instrument of transfer in form satisfactory to the Company, the Trustee or the
Security Registrar, as the case may be, duly executed by the Holder thereof or
his attorney duly authorized in writing.
Unless otherwise specified as contemplated by Section 301 with respect
to Securities of any series, or any Tranche thereof, no service charge shall be
made for any regis tration of transfer or exchange of Securities, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer or exchange of Securities, other than exchanges pursuant to Section
304, 406 or 1206 not involving any transfer.
The Company shall not be required to execute or to provide for the
registration of transfer of or the exchange of (a) Securities of any series, or
any Tranche thereof, during a period of 15 days immediately preceding the date
notice is to be given identifying the serial numbers of the Securities of such
series or Tranche called for redemption or (b) any Security so selected for
redemption in whole or in part, except the unredeemed portion of any Security
being redeemed in part.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of the same series and Tranche, and of like tenor and
principal amount and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (a)
evidence to their satisfaction of the ownership of and the destruction, loss or
theft of any Security and (b) such security or indemnity as may be reasonably
required by them to save each of them and any agent of either of them harmless,
then, in the absence of notice to the Company or the Trustee that such Security
is held by a Person purporting to be the owner of such Security, the Company
shall execute and the Trustee shall authenticate and deliver, in lieu of any
such destroyed, lost or stolen Security, a new Security of the same series and
Tranche, and of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
Notwithstanding the foregoing, in case any such mutilated, destroyed,
lost or stolen Security has become or is about to become due and payable, the
Company in its discretion may, instead of issuing a new Security, pay such
Security.
<PAGE>
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Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
reasonable expenses (including the fees and expenses of the Trustee) connected
therewith.
Every new Security of any series issued pursuant to this Section in
lieu of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable by anyone other than
the Holder of such new Security, and any such new Security shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Securities of such series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Unless otherwise specified as contemplated by Section 301 with respect
to the Securities of any series, or any Tranche thereof, interest on any
Security which is payable, and is punctually paid or duly provided for, on any
Interest Payment Date shall be paid to the Person in whose name that Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest.
Any interest on any Security of any series which is payable, but is
not punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the related Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities of such series
(or their respective Predecessor Securities) are registered at the
close of business on a date (herein called a "Special Record Date")
for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing
of the amount of Defaulted Interest proposed to be paid on each
Security of such series and the date of the proposed payment, and at
the same time the Company shall deposit with the Trustee an amount of
money equal to the aggregate amount proposed to be paid in respect of
such Defaulted Interest or shall make arrangements satisfactory to the
Trustee for such deposit on or prior to the date of the proposed
payment, such money when deposited to be held in trust for the benefit
of the Persons entitled to such Defaulted Interest as in this clause
provided. Thereupon the Trustee shall fix a Special Record Date for
the payment of such Defaulted Interest which shall be not more than
<PAGE>
-26-
15 days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date and, in the name and at the
expense of the Company, shall promptly cause notice of the proposed
payment of such Defaulted Interest and the Special Record Date
therefor to be mailed, first-class postage prepaid, to each Holder of
Securities of such series at the address of such Holder as it appears
in the Security Register, not less than 10 days prior to such Special
Record Date. Notice of the proposed payment of such Defaulted Interest
and the Special Record Date therefor having been so mailed, such
Defaulted Interest shall be paid to the Persons in whose names the
Securities of such series (or their respective Predecessor Securities)
are registered at the close of business on such Special Record Date.
(b) The Company may make payment of any Defaulted Interest on
the Securities of any series in any other lawful manner not
inconsistent with the requirements of any securities exchange on which
such Securities may be listed, and upon such notice as may be required
by such exchange, if, after notice given by the Company to the Trustee
of the proposed payment pursuant to this clause, such manner of
payment shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section and Section 305,
each Security delivered under this Indenture upon registration of transfer of or
in exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.
SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer,
the Company, the Trustee and any agent of the Company or the Trustee may treat
the Person in whose name such Security is registered as the absolute owner of
such Security for the purpose of receiving payment of principal of and premium,
if any, and (subject to Sections 305 and 307) interest, if any, on such Security
and for all other purposes whatsoever, whether or not such Security be overdue,
and neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.
SECTION 309. CANCELLATION BY SECURITY REGISTRAR.
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Security
Registrar, be delivered to the Security Registrar and, if not theretofore
canceled, shall be promptly canceled by the Security Registrar. The Company may
at any time deliver to the Security Registrar for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever or which the Company shall not have
<PAGE>
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issued and sold, and all Securities so delivered shall be promptly canceled by
the Security Registrar. No Securities shall be authenticated in lieu of or in
exchange for any Securities canceled as provided in this Section, except as
expressly permitted by this Indenture. All canceled Securities held by the
Security Registrar shall be disposed of in accordance with a Company Order
delivered to the Security Registrar and the Trustee, and the Security Registrar
shall promptly deliver a certificate of disposition to the Trustee and the
Company unless, by a Company Order, similarly delivered, the Company shall
direct that canceled Securities be returned to it. The Security Registrar shall
promptly deliver evidence of any cancellation of a Security in accordance with
this Section 309 to the Trustee and the Company.
SECTION 310. COMPUTATION OF INTEREST.
Except as otherwise specified as contemplated by Section 301 for
Securities of any series, or any Tranche thereof, interest on the Securities of
each series shall be computed on the basis of a 360-day year consisting of
twelve 30-day months and for any period shorter than a full month, on the basis
of the actual number of days elapsed in such period.
SECTION 311. PAYMENT TO BE IN PROPER CURRENCY.
In the case of the Securities of any series, or any Tranche thereof,
denominated in any currency other than Dollars or in a composite currency (the
"Required Currency"), except as otherwise specified with respect to such
Securities as contemplated by Section 301, the obligation of the Company to make
any payment of the principal thereof, or the premium or interest thereon, shall
not be discharged or satisfied by any tender by the Company, or re covery by the
Trustee, in any currency other than the Required Currency, except to the extent
that such tender or recovery shall result in the Trustee timely holding the full
amount of the Required Currency then due and payable. If any such tender or
recovery is in a currency other than the Required Currency, the Trustee may take
such actions as it considers appropriate to exchange such currency for the
Required Currency. The costs and risks of any such exchange, including without
limitation the risks of delay and exchange rate fluctuation, shall be borne by
the Company, the Company shall remain fully liable for any shortfall or
delinquency in the full amount of Required Currency then due and payable, and in
no circumstances shall the Trustee be liable therefor except in the case of its
negligence or willful misconduct.
ARTICLE FOUR
REDEMPTION OF SECURITIES
SECTION 401. APPLICABILITY OF ARTICLE.
Securities of any series, or any Tranche thereof, which are redeemable
before their Stated Maturity shall be redeemable in accordance with their terms
and (except as
<PAGE>
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otherwise specified as contemplated by Section 301 for Securities of such series
or Tranche) in accordance with this Article.
SECTION 402. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities shall be
evidenced by a Board Resolution or an Officer's Certificate. The Company shall,
at least 45 days prior to the Redemption Date fixed by the Company (unless a
shorter notice shall be satisfactory to the Trustee), notify the Trustee in
writing of such Redemption Date and of the principal amount of such Securities
to be redeemed. In the case of any redemption of Securities (a) prior to the
expiration of any restriction on such redemption provided in the terms of such
Securities or elsewhere in this Indenture or (b) pursuant to an election of the
Company which is subject to a condition specified in the terms of such
Securities, the Company shall furnish the Trustee with an Officer's Certificate
evidencing compliance with such restriction or condition.
SECTION 403. SELECTION OF SECURITIES TO BE REDEEMED.
If less than all the Securities of any series, or any Tranche thereof,
are to be redeemed, the particular Securities to be redeemed shall be selected
by the Trustee from the Outstanding Securities of such series or Tranche not
previously called for redemption, by such method as shall be provided for any
particular series, or, in the absence of any such provision, by such method as
the Trustee shall deem fair and appropriate and which may provide for the
selection for redemption of portions (equal to the minimum authorized
denomination for Securities of such series or Tranche or any integral multiple
thereof) of the principal amount of Securities of such series or Tranche of a
denomination larger than the minimum authorized denomination for Securities of
such series or Tranche; provided, however, that if, as indicated in an Officer's
Certificate, the Company shall have offered to purchase all or any principal
amount of the Securities then Outstanding of any series, or any Tranche thereof,
and less than all of such Securities as to which such offer was made shall have
been tendered to the Company for such purchase, the Trustee, if so directed by
Company Order, shall select for redemption all or any principal amount of such
Securities which have not been so tendered.
The Trustee shall promptly notify the Company and the Security
Registrar in writing of the Securities selected for redemption and, in the case
of any Securities selected to be redeemed in part, the principal amount thereof
to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal amount of such Securities which has been or is to be
redeemed.
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SECTION 404. NOTICE OF REDEMPTION.
Notice of redemption shall be given in the manner provided in Section
106 to the Holders of the Securities to be redeemed not less than 30 nor more
than 60 days prior to the Redemption Date.
All notices of redemption shall state:
(a) the Redemption Date,
(b) the Redemption Price (if known),
(c) if less than all the Securities of any series or Tranche are
to be redeemed, the identification of the particular Securities to be
redeemed and the portion of the principal amount of any Security to be
redeemed in part,
(d) that on the Redemption Date the Redemption Price, together
with accrued interest, if any, to the Redemption Date, will become due and
payable upon each such Security to be redeemed and, if applicable, that
interest thereon will cease to accrue on and after said date,
(e) the place or places where such Securities are to be surrendered
for payment of the Redemption Price and accrued interest, if any, unless it
shall have been specified as contemplated by Section 301 with respect to
such Securities that such surrender shall not be required,
(f) that the redemption is for a sinking or other fund, if such is the
case, and
(g) such other matters as the Company shall deem desirable or
appropriate.
Unless otherwise specified with respect to any Securities in
accordance with Section 301, with respect to any notice of redemption of
Securities at the election of the Company, unless, upon the giving of such
notice, such Securities shall be deemed to have been paid in accordance with
Section 701, such notice may state that such redemption shall be conditional
upon the receipt by the Paying Agent or Agents for such Securities, on or prior
to the date fixed for such redemption, of money sufficient to pay the principal
of and premium, if any, and interest, if any, on such Securities and that if
such money shall not have been so received such notice shall be of no force or
effect and the Company shall not be required to redeem such Securities. In the
event that such notice of redemption contains such a condition and such money is
not so received, the redemption shall not be made and within a reasonable time
thereafter notice shall be given, in the manner in which the notice of
redemption was given, that such money was not so received and such redemption
was not required to be made, and the Paying Agent or Agents for the Securities
otherwise to have been redeemed shall
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promptly return to the Holders thereof any of such Securities which had been
surrendered for payment upon such redemption.
Notice of redemption of Securities to be redeemed at the election of
the Company, and any notice of non-satisfaction of a condition for redemption as
aforesaid, shall be given by the Company or, at the Company's request, by the
Security Registrar in the name and at the expense of the Company. Notice of
mandatory redemption of Securities shall be given by the Security Registrar in
the name and at the expense of the Company.
SECTION 405. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, and the
conditions, if any, set forth in such notice having been satisfied, the
Securities or portions thereof so to be redeemed shall, on the Redemption Date,
become due and payable at the Redemption Price therein specified, and from and
after such date (unless, in the case of an unconditional notice of redemption,
the Company shall default in the payment of the Redemption Price and accrued
interest, if any) such Securities or portions thereof, if interest-bearing,
shall cease to bear interest. Upon surrender of any such Security for redemption
in accordance with such notice, such Security or portion thereof shall be paid
by the Company at the Redemption Price, together with accrued interest, if any,
to the Redemption Date; provided, however, that no such surrender shall be a
condition to such payment if so specified as contemplated by Section 301 with
respect to such Security; and provided, further, that except as otherwise
specified as contemplated by Section 301 with respect to such Security, any
installment of interest on any Security the Stated Maturity of which installment
is on or prior to the Redemption Date shall be payable to the Holder of such
Security, or one or more Predecessor Securities, registered as such at the close
of business on the related Regular Record Date according to the terms of such
Security and subject to the provisions of Section 307.
SECTION 406. SECURITIES REDEEMED IN PART.
Upon the surrender of any Security which is to be redeemed only in
part at a Place of Payment therefor (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder thereof
or his attorney duly authorized in writing), the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security, without
service charge, a new Security or Securities of the same series and Tranche, of
any authorized denomination requested by such Holder and of like tenor and in
aggregate principal amount equal to and in exchange for the unredeemed portion
of the principal of the Security so surrendered.
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ARTICLE FIVE
SINKING FUNDS
SECTION 501. APPLICABILITY OF ARTICLE.
The provisions of this Article shall be applicable to any sinking fund
for the retirement of the Securities of any series, or any Tranche thereof,
except as otherwise specified as contemplated by Section 301 for Securities of
such series or Tranche.
The minimum amount of any sinking fund payment provided for by the
terms of Securities of any series, or any Tranche thereof, is herein referred to
as a "mandatory sinking fund payment", and any payment in excess of such minimum
amount provided for by the terms of Securities of any series, or any Tranche
thereof, is herein referred to as an "optional sinking fund payment". If
provided for by the terms of Securities of any series, or any Tranche thereof,
the cash amount of any sinking fund payment may be subject to reduction as
provided in Section 502. Each sinking fund payment shall be applied to the
redemption of Securities of the series or Tranche in respect of which it was
made as provided for by the terms of such Securities.
SECTION 502. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES.
The Company (a) may deliver to the Trustee Outstanding Securities
(other than any previously called for redemption) of a series or Tranche in
respect of which a mandatory sinking fund payment is to be made and (b) may
apply as a credit Securities of such series or Tranche which have been redeemed
either at the election of the Company pursuant to the terms of such Securities
or through the application of permitted optional sinking fund payments pursuant
to the terms of such Securities, in each case in satisfaction of all or any part
of such mandatory sinking fund payment with respect to the Securities of such
series; provided, however, that no Securities shall be applied in satisfaction
of a mandatory sinking fund payment if such Securities shall have been
previously so applied. Securities so applied shall be received and credited for
such purpose by the Trustee at the Redemption Price specified in such Securities
for redemption through operation of the sinking fund and the amount of such
mandatory sinking fund payment shall be reduced accordingly.
SECTION 503. REDEMPTION OF SECURITIES FOR SINKING FUND.
Not less than 45 days prior to each sinking fund payment date for the
Securities of any series, or any Tranche thereof, the Company shall deliver to
the Trustee an Officer's Certificate specifying:
(a) the amount of the next succeeding mandatory sinking fund
payment for such series or Tranche;
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(b) to be made together with such mandatory sinking fund payment;
(c) the aggregate sinking fund payment;
(d) the portion, if any, of such aggregate sinking fund payment
which is to be satisfied by the payment of cash;
(e) the portion, if any, of such aggregate sinking fund payment
which is to be satisfied by delivering and crediting Securities of such
series or Tranche pursuant to Section 502 and stating the basis for such
credit and that such Securities have not previously been so credited, and
the Company shall also deliver to the Trustee any Securities to be so
delivered. If the Company shall not deliver such Officer's Certificate, the
next succeeding sinking fund payment for such series shall be made entirely
in cash in the amount of the mandatory sinking fund payment. Not less than
30 days before each such sinking fund payment date the Trustee shall select
the Securities to be redeemed upon such sinking fund payment date in the
manner specified in Section 403 and cause notice of the redemption thereof
to be given in the name of and at the expense of the Company in the manner
provided in Section 404. Such notice having been duly given, the redemption
of such Securities shall be made upon the terms and in the manner stated in
Sections 405 and 406.
ARTICLE SIX
COVENANTS
SECTION 601. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company shall pay the principal of and premium, if any, and
interest, if any, on the Securities of each series in accordance with the terms
of such Securities and this Indenture.
SECTION 602. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in each Place of Payment for the Securities
of each series, or any Tranche thereof, an office or agency where payment of
such Securities shall be made, where the registration of transfer or exchange of
such Securities may be effected and where notices and demands to or upon the
Company in respect of such Securities and this Indenture may be served. The
Company shall give prompt written notice to the Trustee of the location, and any
change in the location, of each such office or agency and prompt notice to the
Holders of any such change in the manner specified in Section 106. If at any
time the Company shall fail to maintain any such required office or agency in
respect of Securities of
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any series, or any Tranche thereof, or shall fail to furnish the Trustee with
the address thereof, payment of such Securities shall be made, registration of
transfer or exchange thereof may be effected and notices and demands in respect
thereof may be served at the Corporate Trust Office of the Trustee, and the
Company hereby appoints the Trustee as its agent for all such purposes in any
such event.
The Company may also from time to time designate one or more other
offices or agencies with respect to the Securities of one or more series, or any
Tranche thereof, for any or all of the foregoing purposes and may from time to
time rescind such designations; provided, however, that, unless otherwise
specified as contemplated by Section 301 with respect to the Securities of such
series or Tranche, no such designation or rescission shall in any manner relieve
the Company of its obligation to maintain an office or agency for such purposes
in each Place of Payment for such Securities in accordance with the requirements
set forth above. The Company shall give prompt written notice to the Trustee,
and prompt notice to the Holders in the manner specified in Section 106, of any
such designation or rescission and of any change in the location of any such
other office or agency.
Anything herein to the contrary notwithstanding, any office or agency
required by this Section may be maintained at an office of the Company, in which
event the Company shall perform all functions to be performed at such office or
agency.
SECTION 603. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent with
respect to the Securities of any series, or any Tranche thereof, it shall, on or
before each due date of the principal of and premium, if any, and interest, if
any, on any of such Securities, segregate and hold in trust for the benefit of
the Persons entitled thereto a sum sufficient to pay the principal and premium
or interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided. The Company shall promptly notify the
Trustee of any failure by the Company (or any other obligor on such Securities)
to make any payment of principal of or premium, if any, or interest, if any, on
such Securities.
Whenever the Company shall have one or more Paying Agents for the
Securities of any series, or any Tranche thereof, it shall, on or before each
due date of the principal of and premium, if any, and interest, if any, on such
Securities, deposit with such Paying Agents sums sufficient (without
duplication) to pay the principal and premium or interest so becoming due, such
sums to be held in trust for the benefit of the Persons entitled to such
principal, premium or interest, and (unless such Paying Agent is the Trustee)
the Company shall promptly notify the Trustee of any failure by it so to act.
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The Company shall cause each Paying Agent for the Securities of any
series, or any Tranche thereof, other than the Company or the Trustee, to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent shall:
(a) hold all sums held by it for the payment of the principal of
and premium, if any, or interest, if any, on such Securities in trust for
the benefit of the Persons entitled thereto until such sums shall be paid
to such Persons or otherwise disposed of as herein provided;
(b) give the Trustee notice of any failure by the Company (or any
other obligor upon such Securities) to make any payment of principal of or
premium, if any, or interest, if any, on such Securities; and
(c) at any time during the continuance of any such failure, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent and furnish to the Trustee such
information as it possesses regarding the names and addresses of the
Persons entitled to such sums.
The Company may at any time pay, or by Company Order direct any Paying
Agent to pay, to the Trustee all sums held in trust by the Company or such
Paying Agent, such sums to be held by the Trustee upon the same trusts as those
upon which such sums were held by the Company or such Paying Agent and, if so
stated in a Company Order delivered to the Trustee, in accordance with the
provisions of Article Seven; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of and premium, if
any, or interest, if any, on any Security and remaining unclaimed for two years
after such principal and premium, if any, or interest has become due and payable
shall be paid to the Company on Company Request, or, if then held by the
Company, shall be discharged from such trust; and, upon such payment or
discharge, the Holder of such Security shall, as an unsecured general creditor
and not as a Holder of an Outstanding Security, look only to the Company for
payment of the amount so due and payable and remaining unpaid, and all liability
of the Trustee or such Paying Agent with respect to such trust money, and all
liability of the Company as trustee thereof, shall thereupon cease; provided,
however, that the Trustee or such Paying Agent, before being required to make
any such payment to the Company, may
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at the expense of the Company cause to be mailed, on one occasion only, notice
to such Holder that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
mailing, any unclaimed balance of such money then remaining will be paid to the
Company.
SECTION 604. CORPORATE EXISTENCE.
Subject to the rights of the Company under Article Eleven, the Company
shall do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence.
SECTION 605. MAINTENANCE OF PROPERTIES.
The Company shall cause (or, with respect to property owned in common
with others, make reasonable effort to cause) all its properties used or useful
in the conduct of its business to be maintained and kept in good condition,
repair and working order and shall cause (or, with respect to property owned in
common with others, make reasonable effort to cause) to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as,
in the judgment of the Company, may be necessary so that the business carried on
in connection therewith may be properly conducted; provided, however, that
nothing in this Section shall prevent the Company from discontinuing, or causing
the discontinuance of, the operation and maintenance of any of its properties if
such discontinuance is, in the judgment of the Company, desirable in the conduct
of its business.
SECTION 606. ANNUAL OFFICER'S CERTIFICATE AS TO COMPLIANCE.
Not later than June 1 in each year, commencing June 1, 1998, the
Company shall deliver to the Trustee an Officer's Certificate which need not
comply with Section 102, executed by the principal executive officer, the
principal financial officer or the principal accounting officer of the Company,
as to such officer's knowledge of the Company's compliance with all conditions
and covenants under this Indenture, such compliance to be determined without
regard to any period of grace or requirement of notice under this Indenture.
SECTION 607. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with any
term, provision or condition set forth in (a) Section 602 or any additional
covenant or restriction specified with respect to the Securities of any series,
or any Tranche thereof, as contemplated by Section 301, if before the time for
such compliance the Holders of a majority in aggregate principal amount of the
Outstanding Securities of all series and Tranches with respect to which
compliance with Section 602 or such additional covenant or restriction is to be
omitted, considered as one class, shall, by Act of such Holders, either waive
such compliance in such instance or generally waive compliance with such term,
provision or condition and (b) Section 604, 605 or Article Eleven if before the
time for such compliance the Holders of a majority
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in principal amount of Securities Outstanding under this Indenture shall, by Act
of such Holders, either waive such compliance in such instance or generally
waive compliance with such term, provision or condition; but, in the case of (a)
or (b), no such waiver shall extend to or affect such term, provision or
condition except to the extent so expressly waived, and, until such waiver shall
become effective, the obligations of the Company and the duties of the Trustee
in respect of any such term, provision or condition shall remain in full force
and effect.
SECTION 608. LIMITATION ON LIENS.
(a) Except as otherwise specified as contemplated by Section 301 for
Securities of any series, so long as any Securities of any series are
Outstanding, the Company will not pledge, mortgage, hypothecate or grant a
security interest in, or permit any mortgage, pledge, security interest or other
lien upon, any capital stock of any Subsidiary now or hereafter owned by the
Company, to secure any Indebtedness (hereinafter defined) without making
effective provision whereby the Outstanding Securities shall (so long as such
other Indebtedness shall be so secured) be equally and ratably secured with any
and all such other Indebtedness and any other indebtedness similarly entitled to
be equally and ratably secured; provided, however, that this restriction shall
not apply to nor prevent the creation or existence of:
(1) any mortgage, pledge, security interest, lien or encumbrance
upon any such capital stock created at the time of the acquisition of such
capital stock by the Company or within one year after such time to secure
all or a portion of the purchase price for such capital stock;
(2) any mortgage, pledge, security interest, lien or encumbrance
upon any such capital stock existing thereon at the time of the acquisition
thereof by the Company (whether or not the obligations secured thereby are
assumed by the Company); or
(3) any extension, renewal of refunding of any mortgage, pledge,
security interest, lien or encumbrance permitted by Subsection (1) or (2)
above on capital stock of any Subsidiary theretofore subject thereto (or
substantially the same capital stock) or any portion thereof.
(4) any judgment, levy, execution, attachment or other similar
lien arising in connection with court proceedings, provided that either
(i) the execution or enforcement of each such lien is effectively
stayed within 30 days after entry of the corresponding judgment (or
the corresponding judgment has been discharged within such 30 day
period) and the claims secured thereby are being contested in good
faith by appropriate proceedings timely commenced and diligently
prosecuted;
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(ii) the payment of each such lien is covered in full by insurance
and the insurance company has not denied or contested coverage
thereof; or
(iii) so long as each such lien is adequately bonded, any
appropriate legal proceedings that may have been duly initiated for
the review of the corresponding judgment, decree or order shall not
have been fully terminated or the period within which such proceedings
may be initiated shall not have expired.
For purposes of this Section 608, "Indebtedness" means all
indebtedness, whether or not represented by bonds, debentures, notes or other
securities, created or assumed by the Company for the repayment of money
borrowed. All indebtedness for money borrowed secured by a lien upon property
owned by the Company and upon which indebtedness for money borrowed the Company
customarily pays interest, although the Company has not assumed or become liable
for the payment of such indebtedness for money borrowed, shall for purposes of
this Section 608 be deemed to be Indebtedness of the Company. All indebtedness
of others for money borrowed which is guaranteed as to payment of principal by
the Company or in effect guaranteed by the Company through a contingent
agreement to purchase such indebtedness for money borrowed shall for purposes of
this Section 608 be deemed to be Indebtedness of the Company, but no other
contingent obligation of the Company in respect of indebtedness for money
borrowed or other obligations incurred by others shall for purposes of this
Section 608 be deemed to be Indebtedness of the Company.
In case the Company or any Subsidiary shall propose to pledge,
mortgage, hypothecate or grant a security interest in any capital stock of any
Subsidiary owned by the Company to secure any Indebtedness, other than as
permitted by Subsections (a)(1) to (a)(3), inclusive, of this Section, the
Company will prior thereto give written notice thereof to the Trustee, and the
Company will prior to or simultaneously with such pledge, mortgage,
hypothecation or grant of security interest, by supplemental indenture executed
to the Trustee (or to the extent legally necessary to another trustee or an
additional or separate trustee), in form satisfactory to the Trustee,
effectively secure (for so long as such other Indebtedness shall be so secured)
all the Securities equally and ratably with such Indebtedness and with any other
indebtedness for money borrowed similarly entitled to be equally and ratably
secured.
(b) Except as otherwise specified as contemplated by Section 301 for
Securities of any series, the provisions of Subsection (a) of this Section 608
shall not apply in the event that the Company or any Subsidiary shall pledge,
mortgage, hypothecate or grant a security interest in or other lien upon any
capital stock of any Subsidiary now or hereafter owned by the Company to secure
any Indebtedness which would otherwise be subject to the foregoing restriction
up to an aggregate amount which, together with all other Indebtedness (other
than mortgages, pledges, security interests, liens or encumbrances permitted by
Subsection (a) of this Section 608) which would otherwise be subject to the
foregoing restriction, does not at the time exceed 5% of Consolidated
Capitalization.
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For purposes of this Section 608:
(1) The term "Consolidated Capitalization" means the sum obtained by
adding (i) Consolidated Shareholders' Equity, (ii) Consolidated
Indebtedness for money borrowed (exclusive of any thereof which is due and
payable within one year of the date such sum is determined) and, without
duplication, (iii) any preference or preferred stock of the Company or any
Consolidated Subsidiary which is subject to mandatory redemption or sinking
fund provisions.
(2) The term "Consolidated Shareholders' Equity" means the total
Assets of the Company and its Consolidated Subsidiaries less all
liabilities of the Company and its Consolidated Subsidiaries. As used in
this definition, "liabilities" means all obligations which would, in
accordance with generally accepted accounting principles, be classified on
a balance sheet as liabilities, including without limitation, (i)
indebtedness secured by property of the Company or any of its Consolidated
Subsidiaries whether or not the Company or such Consolidated Subsidiary is
liable for the payment thereof unless, in the case that the Company or such
Consolidated Subsidiary is not so liable, such property has not been
included among the Assets of the Company or such Consolidated Subsidiary on
such balance sheet, (ii) deferred liabilities, (iii) indebtedness of the
Company or any of its Consolidated Subsidiaries that is expressly
subordinated in right and priority of payment to other liabilities of the
Company or such Consolidated Subsidiary. As used in this definition,
"liabilities" includes preference or preferred stock of the Company or any
Consolidated Subsidiary only to the extent of any such preference or
preferred stock that is subject to mandatory redemption or sinking fund
provisions.
(3) The term "Consolidated Subsidiary" means at any date any
Subsidiary the financial statements of which under generally accepted
accounting principles would be consolidated with those of the Company in
its consolidated financial statements as of such date.
(4) The "Assets" of any Person means the whole or any part of its
business, property, assets, cash and receivables.
(5) The term "Consolidated Indebtedness" means total indebtedness as
shown on the consolidated balance sheet of the Company and its Consolidated
Subsidiaries.
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ARTICLE SEVEN
SATISFACTION AND DISCHARGE
SECTION 701. SATISFACTION AND DISCHARGE OF SECURITIES.
Any Security or Securities, or any portion of the principal amount
thereof, shall be deemed to have been paid for all purposes of this Indenture,
and the entire indebtedness of the Company in respect thereof shall be deemed to
have been satisfied and discharged, if there shall have been irrevocably
deposited with the Trustee or any Paying Agent (other than the Company), in
trust:
(a) money in an amount which shall be sufficient, or
(b) in the case of a deposit made prior to the Maturity of such
Securities or portions thereof, Eligible Obligations, which shall not
contain provisions permitting the redemption or other prepayment thereof at
the option of the issuer thereof, the princi pal of and the interest on
which when due, without any regard to reinvestment thereof, will provide
moneys which, together with the money, if any, deposited with or held by
the Trustee or such Paying Agent, shall be sufficient, or
(c) a combination of (a) or (b) which shall be sufficient,
to pay when due the principal of and premium, if any, and interest, if any, due
and to become due on such Securities or portions thereof on or prior to
Maturity; provided, however, that in the case of the provision for payment or
redemption of less than all the Securities of any series or Tranche, such
Securities or portions thereof shall have been selected by the Trustee as
provided herein and, in the case of a redemption, the notice requisite to the
validity of such redemption shall have been given or irrevocable authority shall
have been given by the Company to the Trustee to give such notice, under
arrangements satisfactory to the Trustee; and provided, further, that the
Company shall have delivered to the Trustee and such Paying Agent:
(x) if such deposit shall have been made prior to the
Maturity of such Securities, a Company Order stating that the money
and Eligible Obligations deposited in accordance with this Section
shall be held in trust, as provided in Section 703; and
(y) if Eligible Obligations shall have been deposited, an
Opinion of Counsel that the obligations so deposited constitute
Eligible Obligations and do not contain provisions permitting the
redemption or other prepayment at the option of the issuer thereof,
and an opinion of an independent public accountant of nationally
recognized standing, selected by the Company, to the
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effect that the requirements set forth in clause (b) above have been
satisfied; and
(z) if such deposit shall have been made prior to the
Maturity of such Securities, an Officer's Certificate stating the
Company's intention that, upon delivery of such Officer's Certificate,
its indebtedness in respect of such Securities or portions thereof
will have been satisfied and discharged as contemplated in this
Section.
Upon the deposit of money or Eligible Obligations, or both, in
accordance with this Section, together with the documents required by clauses
(x), (y) and (z) above, the Trustee shall, upon receipt of a Company Request,
acknowledge in writing that the Security or Securities or portions thereof with
respect to which such deposit was made are deemed to have been paid for all
purposes of this Indenture and that the entire indebtedness of the Company in
respect thereof has been satisfied and discharged as contemplated in this
Section. In the event that all of the conditions set forth in the preceding
paragraph shall have been satisfied in respect of any Securities or portions
thereof except that, for any reason, the Officer's Certificate specified in
clause (z) shall not have been delivered, such Securities or portions thereof
shall nevertheless be deemed to have been paid for all purposes of this
Indenture, and the Holders of such Securities or portions thereof shall
nevertheless be no longer entitled to the benefits of this Indenture or of any
of the covenants of the Company under Article Six (except the covenants
contained in Sections 602 and 603) or any other covenants made in respect of
such Securities or portions thereof as contemplated by Section 301, but the
indebtedness of the Company in respect of such Securities or portions thereof
shall not be deemed to have been satisfied and discharged prior to Maturity for
any other purpose, and the Holders of such Securities or portions thereof shall
continue to be entitled to look to the Company for payment of the indebtedness
represented thereby; and, upon Company Request, the Trustee shall acknowledge in
writing that such Securities or portions thereof are deemed to have been paid
for all purposes of this Indenture.
If payment at Stated Maturity of less than all of the Securities of
any series, or any Tranche thereof, is to be provided for in the manner and with
the effect provided in this Section, the Security Registrar shall select such
Securities, or portions of principal amount thereof, in the manner specified by
Section 403 for selection for redemption of less than all the Securities of a
series or Tranche.
In the event that Securities which shall be deemed to have been paid
for purposes of this Indenture, and, if such is the case, in respect of which
the Company's indebtedness shall have been satisfied and discharged, all as
provided in this Section do not mature and are not to be redeemed within the 60
day period commencing with the date of the deposit of moneys or Eligible
Obligations, as aforesaid, the Company shall, as promptly as practicable, give a
notice, in the same manner as a notice of redemption with respect to such
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Securities, to the Holders of such Securities to the effect that such deposit
has been made and the effect thereof.
Notwithstanding that any Securities shall be deemed to have been paid
for purposes of this Indenture, as aforesaid, the obligations of the Company and
the Trustee in respect of such Securities under Sections 304, 305, 306, 404, 503
(as to notice of redemption), 602, 603, 907 and 915 and this Article Seven shall
survive.
The Company shall pay, and shall indemnify the Trustee or any Paying
Agent with which Eligible Obligations shall have been deposited as provided in
this Section against, any tax, fee or other charge imposed on or assessed
against such Eligible Obligations or the principal or interest received in
respect of such Eligible Obligations, including, but not limited to, any such
tax payable by any entity deemed, for tax purposes, to have been created as a
result of such deposit.
Anything herein to the contrary notwithstanding, (a) if, at any time
after a Security would be deemed to have been paid for purposes of this
Indenture, and, if such is the case, the Company's indebtedness in respect
thereof would be deemed to have been satisfied or discharged, pursuant to this
Section (without regard to the provisions of this paragraph), the Trustee or any
Paying Agent, as the case may be, shall be required to return the money or
Eligible Obligations, or combination thereof, deposited with it as aforesaid to
the Company or its representative under any applicable Federal or State
bankruptcy, insolvency or other similar law, such Security shall thereupon be
deemed retroactively not to have been paid and any satisfaction and discharge of
the Company's indebtedness in respect thereof shall retroactively be deemed not
to have been effected, and such Security shall be deemed to remain Outstanding
and (b) any satisfaction and discharge of the Company's indebtedness in respect
of any Security shall be subject to the provisions of the last paragraph of
Section 603.
SECTION 702. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall upon Company Request cease to be of further
effect (except as hereinafter expressly provided), and the Trustee, at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(a) no Securities remain Outstanding hereunder; and
(b) the Company has paid or caused to be paid all other sums payable
hereunder by the Company;
provided, however, that if, in accordance with the last paragraph of Section
701, any Security, previously deemed to have been paid for purposes of this
Indenture, shall be deemed retroactively not to have been so paid, this
Indenture shall thereupon be deemed retroactively
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not to have been satisfied and discharged, as aforesaid, and to remain in full
force and effect, and the Company shall execute and deliver such instruments as
the Trustee shall reasonably request to evidence and acknowledge the same.
Notwithstanding the satisfaction and discharge of this Indenture as
aforesaid, the obligations of the Company and the Trustee under Sections 304,
305, 306, 404, 503 (as to notice of redemption), 602, 603, 907 and 915 and this
Article Seven shall survive.
Upon satisfaction and discharge of this Indenture as provided in this
Section, the Trustee shall assign, transfer and turn over to the Company,
subject to the lien provided by Section 907, any and all money, securities and
other property then held by the Trustee for the benefit of the Holders of the
Securities other than money and Eligible Obligations held by the Trustee
pursuant to Section 703.
SECTION 703. APPLICATION OF TRUST MONEY.
Neither the Eligible Obligations nor the money deposited pursuant to
Section 701, nor the principal or interest payments on any such Eligible
Obligations, shall be with drawn or used for any purpose other than, and shall
be held in trust for, the payment of the principal of and premium, if any, and
interest, if any, on the Securities or portions of principal amount thereof in
respect of which such deposit was made, all subject, however, to the provisions
of Section 603; provided, however, that, so long as there shall not have
occurred and be continuing an Event of Default, any cash received from such
principal or interest payments on such Eligible Obligations, if not then needed
for such purpose, shall, to the extent practicable and upon Company Request, be
invested in Eligible Obligations of the type described in clause (b) in the
first paragraph of Section 701 maturing at such times and in such amounts as
shall be sufficient, together with any other moneys and the principal of and
interest on any other Eligible Obligations then held by the Trustee, to pay when
due the principal of and premium, if any, and interest, if any, due and to
become due on such Securities or portions thereof on and prior to the Maturity
thereof, and interest earned from such reinvestment shall be paid over to the
Company as received, free and clear of any trust, lien or pledge under this
Indenture except the lien provided by Section 907; and provided, further, that,
so long as there shall not have occurred and be continuing an Event of Default,
any moneys held in accordance with this Section on the Maturity of all such
Securities in excess of the amount required to pay the principal of and premium,
if any, and interest, if any, then due on such Securities shall be paid over to
the Company free and clear of any trust, lien or pledge under this Indenture
except the lien provided by Section 907; and provided, further, that if an Event
of Default shall have occurred and be continuing, moneys to be paid over to the
Company pursuant to this Section shall be held until such Event of Default shall
have been waived or cured.
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ARTICLE EIGHT
EVENTS OF DEFAULT; REMEDIES
SECTION 801. EVENTS OF DEFAULT.
"Event of Default", wherever used herein with respect to Securities of
any series, means any one of the following events:
(a) failure to pay interest, if any, on any Security of such series
within 30 days after the same becomes due and payable; or
(b) failure to pay the principal of or premium, if any, on any
Security of such series at its Maturity; or
(c) failure to perform or breach of any covenant or warranty of the
Company in this Indenture (other than a covenant or warranty a default in
the performance of which or breach of which is elsewhere in this Section
specifically dealt with or which has expressly been included in this
Indenture solely for the benefit of one or more series of Securities other
than such series) for a period of 90 days after there has been given, by
registered or certified mail, to the Company by the Trustee, or to the Com
pany and the Trustee by the Holders of at least 33% in principal amount of
the Outstanding Securities of such series, a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder, unless the Trustee, or the
Trustee and the Holders of a principal amount of Securities of such series
not less than the principal amount of Securities the Holders of which gave
such notice, as the case may be, shall agree in writing to an extension of
such period prior to its expiration; provided, however, that the Trustee,
or the Trustee and the Holders of such principal amount of Securities of
such series, as the case may be, shall be deemed to have agreed to an
extension of such period if corrective action is initiated by the Company
within such period and is being diligently pursued; or
(d) the entry by a court having jurisdiction in the premises of (1) a
decree or order for relief in respect of the Company in an involuntary case
or proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or (2) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition
by one or more Persons other than the Company seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company
under any applicable Federal or State law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official for the Company or for any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and any such decree
or order for relief or any such other decree or order shall have remained
unstayed and in effect for a period of 90 consecutive days; or
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(e) the commencement by the Company of a voluntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or of any other case or proceeding to
be adjudicated a bankrupt or insolvent, or the consent by it to the entry
of a decree or order for relief in respect of the Company in a case or
proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against it, or the filing by it
of a petition or answer or consent seeking reorganization or relief under
any applicable Federal or State law, or the consent by it to the filing of
such petition or to the appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or similar official
of the Company or of any substantial part of its property, or the making by
it of an assignment for the benefit of creditors, or the ad mission by it
in writing of its inability to pay its debts generally as they become due,
or the authorization of such action by the Board of Directors; or
(f) any other Event of Default specified with respect to Securities
of such series.
SECTION 802. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default due to the default in payment of principal of,
or interest on, any series of Securities or due to the default in the
performance or breach of any other covenant or warranty of the Company
applicable to the Securities of such series but not applicable to all
Outstanding Securities shall have occurred and be continuing, either the Trustee
or the Holders of not less than 33% in principal amount of the Securities of
such series may then declare the principal amount (or, if any of the Securities
of such series are Discount Securities, such portion of the principal amount as
may be specified in the terms thereof as contemplated by Section 301) of all
Securities of such series and interest accrued thereon to be due and payable
immediately. If an Event of Default due to default in the performance of any
other of the covenants or agreements herein applicable to all Outstanding
Securities or an Event of Default specified in Section 801(d) or (e) shall have
occurred and be continuing, either the Trustee or the Holders of not less than
33% in principal amount of all Securities then Outstanding (considered as one
class), and not the Holders of the Securities of any one of such series, may
declare the principal of all Securities and interest accrued thereon to be due
and payable immediately. As a consequence of each such declaration (herein
referred to as a declaration of acceleration) with respect to Securities of any
series, the principal amount (or portion thereof in the case of Discount
Securities) of such Securities and interest accrued thereon shall become due and
payable immediately.
At any time after such a declaration of acceleration with respect to
Securities of any series shall have been made and before a judgment or decree
for payment of the money
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due shall have been obtained by the Trustee as hereinafter in this Article
provided, the Event or Events of Default giving rise to such declaration of
acceleration shall, without further act, be deemed to have been waived, and such
declaration and its consequences shall, without further act, be deemed to have
been rescinded and annulled, if
(a) the Company shall have paid or deposited with the Trustee a sum
sufficient to pay
(1) all overdue interest on all Securities of such series;
(2) the principal of and premium, if any, on any Securities of
such series which have become due otherwise than by such declaration
of acceleration and interest thereon at the rate or rates prescribed
therefor in such Securities;
(3) to the extent that payment of such interest is lawful,
interest upon overdue interest, if any, at the rate or rates
prescribed therefor in such Securities;
(4) all amounts due to the Trustee under Section 907;
and
(b) any other Event or Events of Default with respect to Securities of
such series, other than the nonpayment of the principal of Securities of
such series which shall have become due solely by such declaration of
acceleration, shall have been cured or waived as provided in Section 813.
No such rescission shall affect any subsequent Event of Default or impair any
right consequent thereon.
SECTION 803. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
If an Event of Default described in clause (a) or (b) of Section 801
shall have occurred and be continuing, the Company shall, upon demand of the
Trustee, pay to it, for the benefit of the Holders of the Securities of the
series with respect to which such Event of Default shall have occurred, the
whole amount then due and payable on such Securities for principal and premium,
if any, and interest, if any, and, to the extent permitted by law, interest on
any overdue principal and interest, at the rate or rates prescribed therefor in
such Securities, and, in addition thereto, such further amount as shall be
sufficient to cover any amounts due to the Trustee under Section 907.
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If the Company shall fail to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon such Securities
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company or any other obligor upon such
Securities, wherever situated.
If an Event of Default with respect to Securities of any series shall
have occurred and be continuing, the Trustee may in its discretion proceed to
protect and enforce its rights and the rights of the Holders of Securities of
such series by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 804. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal,
premium, if any, and interest, if any, owing and unpaid in respect of the
Securities and to file such other papers or documents as may be necessary
or advisable in order to have the claims of the Trustee (including any
claim for amounts due to the Trustee under Section 907) and of the Holders
allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amounts due it under Section 907.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder
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thereof or to authorize the Trustee to vote in respect of the claim of any
Holder in any such proceeding.
SECTION 805. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders in respect of which such judgment has been
recovered.
SECTION 806. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article shall be
applied in the following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money on account of principal or premium, if
any, or interest, if any, upon pre sentation of the Securities in respect of
which or for the benefit of which such money shall have been collected and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section
907;
SECOND: To the payment of the amounts then due and unpaid upon the
Securities for principal of and premium, if any, and interest, if any, in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the
amounts due and payable on such Securities for principal, premium, if any,
and interest, if any, respectively; and
THIRD: To the payment of the remainder, if any, to the Company or to
whomsoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct.
SECTION 807. LIMITATION ON SUITS.
No Holder shall have any right to institute any proceeding, judicial
or otherwise, with respect to this Indenture, or for the appointment of a
receiver or trustee, or for any other remedy hereunder, unless:
(a) such Holder shall have previously given written notice to the
Trustee of a continuing Event of Default with respect to the Securities of
such series;
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(b) the Holders of a majority in aggregate principal amount of the
Outstanding Securities of all series in respect of which an Event of
Default shall have occurred and be continuing, considered as one class,
shall have made written request to the Trustee to institute proceedings in
respect of such Event of Default in its own name as Trustee hereunder;
(c) such Holder or Holders shall have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity shall have failed to institute any such proceeding;
and
(e) no direction inconsistent with such written request shall have
been given to the Trustee during such 60-day period by the Holders of a
majority in aggregate principal amount of the Outstanding Securities of all
series in respect of which an Event of Default shall have occurred and be
continuing, considered as one class;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all of such
Holders.
SECTION 808. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment of the principal of and premium, if any, and (subject to Section
307) interest, if any, on such Security on the Stated Maturity or Maturities
expressed in such Security (or, in the c se of redemption, on the Redemption
Date) and to institute suit for the enforcement of any such payment, and such
rights shall not be impaired without the consent of such Holder.
SECTION 809. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding shall have been
discontinued or abandoned for any reason, or shall have been determined
adversely to the Trustee or to such Holder, then and in every such case, subject
to any determination in such proceeding, the Company, and Trustee and such
Holder shall be restored severally and respectively to their former positions
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hereunder and thereafter all rights and remedies of the Trustee and such Holder
shall continue as though no such proceeding had been instituted.
SECTION 810. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided in the last paragraph of Section 306, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 811. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder to exercise any
right or remedy accruing upon any Event of Default shall impair any such right
or remedy or constitute a waiver of any such Event of Default or an acquiescence
therein. Every right and remedy given by this Article or by law to the Trustee
or to the Holders may be exercised from time to time, and as often as may be
deemed expedient, by the Trustee or by the Holders, as the case may be.
SECTION 812. CONTROL BY HOLDERS OF SECURITIES.
If an Event of Default shall have occurred and be continuing in
respect of a series of Securities, the Holders of a majority in principal amount
of the Outstanding Securities of such series shall have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred on the Trustee, with
respect to the Securities of such series; provided, however, that if an Event of
Default shall have occurred and be continuing with respect to more than one
series of Securities, the Holders of a majority in aggregate principal amount of
the Outstanding Securities of all such series, considered as one class, shall
have the right to make such direction, and not the Holders of the Securities of
any one of such series; and provided, further, that such direction shall not be
in conflict with any rule of law or with this Indenture. The Trustee may take
any other action, deemed proper by the Trustee, which is not inconsistent with
any such direction. Before proceeding to exercise any right or power hereunder
at the direction of such Holders, the Trustee shall be entitled to receive from
such Holders reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with any such direction.
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SECTION 813. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series may on behalf of the Holders of all the
Securities of such series waive any past default hereunder with respect to such
series and its consequences, except a default
(a) in the payment of the principal of or premium, if any, or
interest, if any, on any Security of such series, or
(b) in respect of a covenant or provision hereof which under Section
1202 cannot be modified or amended without the consent of the Holder of
each Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and any and
all Events of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
SECTION 814. UNDERTAKING FOR COSTS.
The Company and the Trustee agree, and each Holder by his acceptance
thereof shall be deemed to have agreed, that any court may in its discretion
require, in any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 10% in aggregate
principal amount of the Outstanding Securities of all series in respect of which
such suit may be brought, considered as one class, or to any suit instituted by
any Holder for the enforcement of the payment of the principal of or premium, if
any, or interest, if any, on any Security on or after the Stated Maturity or
Maturities expressed in such Security (or, in the case of redemption, on or
after the Redemption Date).
SECTION 815. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of
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any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
ARTICLE NINE
THE TRUSTEE
SECTION 901. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The Trustee shall have and be subject to all the duties and
responsibilities specified with respect to an indenture trustee in the
Trust Indenture Act and no implied covenants or obligations shall be read
into this Indenture against the Trustee. For purposes of Sections 315(a)
and 315(c) of the Trust Indenture Act, the term "default" is hereby defined
as an Event of Default which has occurred and is continuing.
(b) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of
its rights or powers, if it shall have reasonable grounds for believing
that repayment of such funds or adequate indemnity against such risk or
liability is not reasonably assured to it.
(c) Notwithstanding anything contained in this Indenture to the
contrary, the duties and responsibilities of the Trustee under this
Indenture shall be subject to the protections, exculpations and limitations
on liability afforded to the Trustee under the provisions of the Trust
Indenture Act.
(d) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of
this Section.
SECTION 902. NOTICE OF DEFAULTS.
The Trustee shall give notice of any default hereunder with respect to
the Securities of any series to the Holders of Securities of such series in the
manner and to the extent required to do so by the Trust Indenture Act, unless
such default shall have been cured or waived; provided, however, that in the
case of any default of the character specified in Section 801(c), no such notice
to Holders shall be given until at least 45 days after the occurrence thereof.
For the purpose of this Section, the term "default" means any event which is, or
after notice or lapse of time, or both, would become, an Event of Default.
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SECTION 903. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 901 and to the applicable
provisions of the Trust Indenture Act:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting in good faith upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness or
other paper or document reasonably believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order, or as
otherwise expressly provided herein, and any resolution of the Board of
Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad
faith on its part, rely upon an Officer's Certificate;
(d) the Trustee may consult with counsel and the written advice of
such counsel or any Opinion of Counsel shall be full and complete
authorization and protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any Holder pursuant to this Indenture, unless such Holder shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with
such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall (subject to applicable legal requirements) be entitled to examine,
during normal business hours, the books, records and premises of the
Company, personally or by agent or attorney;
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(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys, and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by
it hereunder; and
(h) the Trustee shall not be charged with knowledge of any default or
Event of Default, as the case may be, with respect to the Securities of any
series for which it is acting as Trustee unless either (1) a Responsible
Officer of the Trustee shall have actual knowledge of the default or Event
of Default, as the case may be, or (2) written notice of such default or
Event of Default, as the case may be, shall have been given to the Trustee
by the Company, any other obligor on such Securities or by any Holder of
such Securities.
SECTION 904. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Securities (except the
Trustee's certificates of authentication) shall be taken as the statements of
the Company, and neither the Trustee nor any Authenticating Agent assumes
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture or of the Securities. Neither the
Trustee nor any Authenticating Agent shall be accountable for the use or
application by the Company of Securities or the proceeds thereof.
SECTION 905. MAY HOLD SECURITIES.
Each of the Trustee, any Authenticating Agent, any Paying Agent, any
Security Registrar or any other agent of the Company, in its individual or any
other capacity, may become the owner or pledgee of Securities and, subject to
Sections 908 and 913, may otherwise deal with the Company with the same rights
it would have if it were not the Trustee, Authenticating Agent, Paying Agent,
Security Registrar or such other agent.
SECTION 906. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated
from other funds, except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
expressly provided herein or otherwise agreed with, and for the sole benefit of,
the Company.
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SECTION 907. COMPENSATION AND REIMBURSEMENT.
The Company shall
(a) pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which compensation
shall not be limited by any provision of law in regard to the compensation
of a trustee of an express trust);
(b) except as otherwise expressly provided herein, reimburse
the Trustee upon its request for all reasonable expenses, disbursements and
advances reasonably incurred or made by the Trustee in accordance with any
provision of this Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel), except to the extent
that any such expense, disbursement or advance may be attributable to the
Trustee's negligence, wilful misconduct or bad faith; and
(c) indemnify the Trustee for, and hold it harmless from and against,
any loss, liability or expense reasonably incurred by it arising out of or
in connection with the acceptance or administration of the trust or trusts
hereunder or the performance of its duties hereunder, including the
reasonable costs and expenses of defending itself against any claim or
liability in connection with the exercise or performance of any of its
powers or duties hereunder, except to the extent any such loss, liability
or expense may be attributable to its negligence, wilful misconduct or bad
faith.
As security for the performance of the obligations of the Company
under this Section, the Trustee shall have a lien prior to the Securities upon
all property and funds held or collected by the Trustee as such other than
property and funds held in trust under Section 703 (except as otherwise provided
in Section 703). "Trustee" for purposes of this Section shall include any
predecessor Trustee; provided, however, that the negligence, wilful misconduct
or bad faith of any Trustee hereunder shall not affect the rights of any other
Trustee hereunder.
When the Trustee incurs expenses or renders services in connection
with an Event of Default specified in Section 801(d) or Section 801(e), the
expenses (including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency or
other similar law.
SECTION 908. DISQUALIFICATION; CONFLICTING INTERESTS.
If the Trustee shall have or acquire any conflicting interest within
the meaning of the Trust Indenture Act, it shall either eliminate such
conflicting interest or resign to the extent, in the manner and with the effect,
and subject to the conditions, provided in the Trust Indenture Act and this
Indenture. For purposes of Section 310(b)(1) of the Trust Indenture Act and to
the extent permitted thereby, the Trustee, in its capacity as trustee in respect
of the
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Securities of any series, shall not be deemed to have a conflicting interest
arising from its capacity as trustee in respect of the Securities of any other
series or any securities of any series issued under the Indenture (For Unsecured
Debt Securities Series A) dated as of October 1, 1997 of the Company to the
Trustee or the Indenture (For Unsecured Debt Securities Series B) dated as of
October 1, 1997 of the Company to the Trustee.
SECTION 909. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be
(a) a corporation organized and doing business under the laws of the
United States, any State or Territory thereof or the District of Columbia,
authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000 and subject to
supervision or examination by Federal or State authority, or
(b) if and to the extent permitted by the Commission by rule,
regulation or order upon application, a corporation or other Person
organized and doing business under the laws of a foreign government,
authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000 or the Dollar
equivalent of the applicable foreign currency and subject to supervision or
examination by authority of such foreign government or a political
subdivision thereof substantially equivalent to supervision or examination
applicable to United States institutional trustees,
and, in either case, qualified and eligible under this Article and the Trust
Indenture Act. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of such supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 910. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 911.
(b) The Trustee may resign at any time with respect to the Securities
of one or more series by giving written notice thereof to the Company. If
the instrument of acceptance by a successor Trustee required by Section 911
shall not have been
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delivered to the Trustee within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of competent
jurisdiction for the appointment of a successor Trustee with respect to the
Securities of such series.
(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in principal
amount of the Outstanding Securities of such series delivered to the
Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 908 after written
request therefor by the Company or by any Holder who has been a bona fide
Holder for at least six months, or
(2) the Trustee shall cease to be eligible under Section 909 and shall
fail to resign after written request therefor by the Company or by any such
Holder, or
(3) the Trustee shall become incapable of acting or shall be adjudged
a bank rupt or insolvent or a receiver of the Trustee or of its property
shall be appointed or any public officer shall take charge or control of
the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (x) the Company by a Board Resolution may remove
the Trustee with respect to all Securities or (y) subject to Section 814,
any Holder who has been a bona fide Holder for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the removal of the Trustee with respect to all
Securities and the appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause
(other than as contemplated in clause (y) in Subsection (d) of this
Section), with respect to the Securities of one or more series, the
Company, by a Board Resolution, shall promptly appoint a successor Trustee
or Trustees with respect to the Securities of that or those series (it
being understood that any such successor Trustee may be appointed with
respect to the Securities of one or more or all of such series and that at
any time there shall be only one Trustee with respect to the Securities of
any particular series) and shall comply with the applicable requirements of
Section 911. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee with
respect to the Securities of any series shall be appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities of
such series delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment in accordance with the applicable requirements of Section 911,
become the successor Trustee with respect to the Securities of such series
and to that extent supersede the successor Trustee ap-
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pointed by the Company. If no successor Trustee with respect to the
Securities of any series shall have been so appointed by the Company or the
Holders and accepted appointment in the manner required by Section 911, any
Holder who has been a bona fide Holder of a Security of such series for at
least six months may, on behalf of itself and all others similarly
situated, petition any court of competent jurisdiction for the appointment
of a successor Trustee with respect to the Securities of such series.
(f) So long as no event which is, or after notice or lapse of time, or
both, would become, an Event of Default shall have occurred and be
continuing, and except with respect to a Trustee appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
pursuant to Subsection (e) of this Section, if the Company shall have
delivered to the Trustee (i) a Board Resolution appointing a successor
Trustee, effective as of a date specified therein, and (ii) an instrument
of acceptance of such appointment, effective as of such date, by such
successor Trustee in accordance with Section 911, the Trustee shall be
deemed to have resigned as contemplated in Subsection (b) of this Section,
the successor Trustee shall be deemed to have been appointed by the Company
pursuant to Subsection (e) of this Section and such appointment shall be
deemed to have been accepted as contemplated in Section 911, all as of such
date, and all other provisions of this Section and Section 911 shall be
applicable to such resignation, appointment and acceptance except to the
extent inconsistent with this Subsection (f).
(g) The Company (or, should the Company fail so to act promptly, the
successor trustee at the expense of the Company) shall give notice of each
resignation and each removal of the Trustee with respect to the Securities
of any series and each appointment of a successor Trustee with respect to
the Securities of any series by mailing written notice of such event by
first-class mail, postage prepaid, to all Holders of Securities of such
series as their names and addresses appear in the Security Register. Each
notice shall include the name of the successor Trustee with respect to the
Securities of such series and the address of its corporate trust office.
SECTION 911. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of all series, every such successor Trustee so
appointed shall execute, acknowledge and deliver to the Company and to the
retiring Trustee an instrument accepting such appointment, and thereupon
the resignation or removal of the retiring Trustee shall become effective
and such successor Trustee, without any further act, deed or conveyance,
shall become vested with all the rights, powers, trusts and duties of the
retiring Trustee; but, on the request of the Company or the successor
Trustee, such retiring Trustee shall, upon payment of all sums owed to it,
execute and deliver an instrument transferring to such successor Trustee
all the rights, powers and trusts of the retiring Trustee and shall duly
assign, transfer and deliver to such successor Trustee all property and
money held by such retiring Trustee hereunder.
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(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company,
the retiring Trustee and each successor Trustee with respect to the
Securities of one or more series shall execute and deliver an indenture
supplemental hereto wherein each successor Trustee shall accept such
appointment and which (1) shall contain such provisions as shall be
necessary or desirable to transfer and confirm to, and to vest in, each
successor Trustee all the rights, powers, trusts and duties of the retiring
Trustee with respect to the Securities of that or those series to which the
appointment of such successor Trustee relates, (2) if the retiring Trustee
is not retiring with respect to all Securities, shall contain such
provisions as shall be deemed necessary or desirable to confirm that all
the rights, powers, trusts and duties of the retiring Trustee with respect
to the Securities of that or those series as to which the retiring Trustee
is not retiring shall continue to be vested in the retiring Trustee and (3)
shall add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein
or in such supplemental indenture shall constitute such Trustees co-
trustees of the same trust and that each such Trustee shall be trustee of a
trust or trusts hereunder separate and apart from any trust or trusts
hereunder administered by any other such Trustee; and upon the execution
and delivery of such supplemental indenture the resignation or removal of
the retiring Trustee shall become effective to the extent provided therein
and each such successor Trustee, without any further act, deed or
conveyance, shall become vested with all the rights, powers, trusts and
duties of the retiring Trustee with respect to the Securities of that or
those series to which the appointment of such suc cessor Trustee relates;
but, on request of the Company or any successor Trustee, such retiring
Trustee, upon payment of all sums owed to it, shall duly assign, transfer
and deliver to such successor Trustee all property and money held by such
retiring Trustee hereunder with respect to the Securities of that or those
series to which the appointment of such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall
execute any instruments which fully vest in and confirm to such successor
Trustee all such rights, powers and trusts referred to in Subsection (a) or
(b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 912. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all the corporate trust business
of the Trustee, shall be the successor of the Trustee
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hereunder, provided such corporation shall be otherwise qualified and eligible
under this Article, without the execution or filing of any paper or any further
act on the part of any of the parties hereto. In case any Securities shall have
been authenticated, but not delivered, by the Trustee then in office, any
successor by merger, conversion or consolidation to such authenticating Trustee
may adopt such authentication and deliver the Securities so authenticated with
the same effect as if such successor Trustee had itself authenticated such
Securities.
SECTION 913. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If the Trustee shall be or become a creditor of the Company or any
other obligor upon the Securities (other than by reason of a relationship
described in Section 311(b) of the Trust Indenture Act), the Trustee shall be
subject to any and all applicable provisions of the Trust Indenture Act
regarding the collection of claims against the Company or such other obligor.
For purposes of Section 311(b) of the Trust Indenture Act:
(a) the term "cash transaction" means any transaction in which full
payment for goods or securities sold is made within seven days after
delivery of the goods or securities in currency or in checks or other
orders drawn upon banks or bankers and payable upon demand;
(b) the term "self-liquidating paper" means any draft, bill of
exchange, acceptance or obligation which is made, drawn, negotiated or
incurred by the Company for the purpose of financing the purchase,
processing, manufacturing, shipment, storage or sale of goods, wares or
merchandise and which is secured by documents evidencing title to,
possession of, or a lien upon, the goods, wares or merchandise or the
receivables or proceeds arising from the sale of the goods, wares or
merchandise previously constituting the security, provided the security is
received by the Trustee simultaneously with the creation of the creditor
relationship with the Company arising from the making, drawing, negotiating
or incurring of the draft, bill of exchange, acceptance or obligation.
SECTION 914. CO-TRUSTEES AND SEPARATE TRUSTEES.
At any time or times, for the purpose of meeting the legal
requirements of any applicable jurisdiction, the Company and the Trustee shall
have power to appoint, and, upon the written request of the Trustee or of the
Holders of at least 33% in principal amount of the Securities then Outstanding,
the Company shall for such purpose join with the Trustee in the execution and
delivery of all instruments and agreements necessary or proper to appoint, one
or more Persons approved by the Trustee either to act as co-trustee, jointly
with the Trustee, or to act as separate trustee, in either case with such powers
as may be provided in the instrument of appointment, and to vest in such Person
or Persons, in the capacity aforesaid, any property, title, right or power
deemed necessary or desirable, subject to the other provisions of this Section.
If the Company does not join in such appointment within 15 days after the
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receipt by it of a request so to do, or if an Event of Default shall have
occurred and be continuing, the Trustee alone shall have power to make such
appointment.
Should any written instrument or instruments from the Company be
required by any co-trustee or separate trustee so appointed to more fully
confirm to such co-trustee or separate trustee such property, title, right or
power, any and all such instruments shall, on request, be executed, acknowledged
and delivered by the Company.
Every co-trustee or separate trustee shall, to the extent permitted by
law, but to such extent only, be appointed subject to the following conditions:
(a) the Securities shall be authenticated and delivered, and all
rights, powers, duties and obligations hereunder in respect of the custody
of securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustee hereunder, shall be exercised
solely, by the Trustee;
(b) the rights, powers, duties and obligations hereby conferred or
imposed upon the Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed
either by the Trustee or by the Trustee and such co-trustee or separate
trustee jointly, as shall be provided in the instrument appointing such co-
trustee or separate trustee, except to the extent that under any law of any
jurisdiction in which any particular act is to be performed, the Trustee
shall be incompetent or unqualified to perform such act, in which event
such rights, powers, duties and obligations shall be exercised and
performed by such co-trustee or separate trustee;
(c) the Trustee at any time, by an instrument in writing executed by
it, with the concurrence of the Company, may accept the resignation of or
remove any co-trustee or separate trustee appointed under this Section,
and, if an Event of Default shall have occurred and be continuing, the
Trustee shall have power to accept the resignation of, or remove, any such
co-trustee or separate trustee without the concurrence of the Company. Upon
the written request of the Trustee, the Company shall join with the Trustee
in the execution and delivery of all instruments and agreements necessary
or proper to effectuate such resignation or removal. A successor to any co-
trustee or separate trustee so resigned or removed may be appointed in the
manner provided in this Section;
(d) no co-trustee or separate trustee hereunder shall be personally
liable by reason of any act or omission of the Trustee, or any other such
trustee hereunder; and
(e) any Act of Holders delivered to the Trustee shall be deemed to
have been delivered to each such co-trustee and separate trustee.
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SECTION 915. APPOINTMENT OF AUTHENTICATING AGENT.
The Trustee may appoint an Authenticating Agent or Agents with respect
to the Securities of one or more series, or Tranche thereof, which shall be
authorized to act on behalf of the Trustee to authenticate Securities of such
series or Tranche issued upon original issuance and upon exchange, registration
of transfer or partial redemption thereof or pursuant to Section 306, and
Securities so authenticated shall be entitled to the benefits of this Indenture
and shall be valid and obligatory for all purposes as if authenticated by the
Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States, any State or territory thereof or the
District of Columbia, authorized under such laws to act as Authenticating Agent,
having a combined capital and surplus of not less than $50,000,000 and subject
to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice of
resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company. Any successor Authenticating
Agent upon acceptance of its appointment hereunder shall become vested with all
the rights, powers and duties of its predecessor hereunder, with like effect as
if originally named as an Authenticating Agent. No successor Authenticating
Agent shall be appointed unless eligible under the provisions of this Section.
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The Trustee agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section, and the
Trustee shall be entitled to be reimbursed for such payments, in accordance
with, and subject to the provisions of, Section 907.
The provisions of Sections 308, 904 and 905 shall be applicable to
each Authenticating Agent.
If an appointment with respect to the Securities of one or more series
shall be made pursuant to this Section, the Securities of such series may have
endorsed thereon, in addition to the Trustee's certificate of authentication, an
alternate certificate of authentication substantially in the following form:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
Dated: -------------------------------
As Trustee
By
------------------------------
As Authenticating
Agent
By
------------------------------
Authorized Signatory
If all of the Securities of a series may not be originally issued at
one time, and if the Trustee does not have an office capable of authenticating
Securities upon original issuance located in a Place of Payment where the
Company wishes to have Securities of such series authenticated upon original
issuance, the Trustee, if so requested by the Company in writing (which writing
need not comply with Section 102 and need not be accompanied by an Opinion of
Counsel), shall appoint, in accordance with this Section and in accordance with
such procedures as shall be acceptable to the Trustee, an Authenticating Agent
having an office in a Place of Payment designated by the Company with respect to
such series of Securities.
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ARTICLE TEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 1001. LISTS OF HOLDERS.
Semiannually, not later than June 1 and December 1 in each year,
commencing December 1, 1998, and at such other times as the Trustee may request
in writing, the Company shall furnish or cause to be furnished to the Trustee
information as to the names and addresses of the Holders, and the Trustee shall
preserve such information and similar information received by it in any other
capacity and afford to the Holders access to information so preserved by it, all
to such extent, if any, and in such manner as shall be required by the Trust
Indenture Act; provided, however, that no such list need be furnished so long as
the Trustee shall be the Security Registrar.
SECTION 1002. REPORTS BY TRUSTEE AND COMPANY.
Not later than November 1 in each year, commencing November 1, 1998,
the Trustee shall transmit to the Holders, the Commission and each securities
exchange upon which any Securities are listed, a report, dated as of the next
preceding September 15, with respect to any events and other matters described
in Section 313(a) of the Trust Indenture Act, in such manner and to the extent
required by the Trust Indenture Act. The Trustee shall transmit to the Holders,
the Commission and each securities exchange upon which any Securities are
listed, and the Company shall file with the Trustee (within 30 days after filing
with the Commission in the case of reports which pursuant to the Trust Indenture
Act must be filed with the Commission and furnished to the Trustee) and transmit
to the Holders, such other information, reports and other documents, if any, at
such times and in such manner, as shall be required by the Trust Indenture Act.
The Company shall notify the Trustee of the listing of any Securities on any
securities exchange.
ARTICLE ELEVEN
CONSOLIDATION, MERGER, CONVEYANCE OR OTHER TRANSFER
SECTION 1101. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company shall not consolidate with or merge into any other
corporation, or convey or otherwise transfer or lease its properties and assets
substantially as an entirety to any Person, unless
(a) the corporation formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance or transfer,
or which leases, the
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properties and assets of the Company substantially as an entirety shall be
a Person organized and validly existing under the laws of the United
States, any State thereof or the District of Columbia, and shall expressly
assume, by an indenture supplemental hereto, executed and delivered to the
Trustee, in form satisfactory to the Trustee, the due and punctual payment
of the principal of and premium, if any, and interest, if any, on all
Outstanding Securities and the performance of every covenant of this
Indenture on the part of the Company to be performed or observed;
(b) immediately after giving effect to such transaction no Event of
Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have occurred and be continuing; and
(c) the Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, or other transfer or lease and such
supplemental indenture comply with this Article and that all conditions
precedent herein provided for relating to such transactions have been
complied with.
SECTION 1102. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation by the Company with or merger by the Company
into any other corporation or any conveyance, or other transfer or lease of the
properties and assets of the Company substantially as an entirety in accordance
with Section 1101, the successor corporation formed by such consolidation or
into which the Company is merged or the Person to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein,
and thereafter, except in the case of a lease, the predecessor Person shall be
relieved of all obligations and covenants under this Indenture and the
Securities Outstanding hereunder.
ARTICLE TWELVE
SUPPLEMENTAL INDENTURES
SECTION 1201. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company and the Trustee, at
any time and from time to time, may enter into one or more indentures
supplemental hereto, in form satisfactory to the Trustee, for any of the
following purposes:
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(a) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company herein
and in the Securities, all as provided in Article Eleven; or
(b) to add one or more covenants of the Company or other provisions
for the benefit of all Holders or for the benefit of the Holders of, or to
remain in effect only so long as there shall be Outstanding, Securities of
one or more specified series, or one or more specified Tranches thereof, or
to surrender any right or power herein conferred upon the Company; or
(c) to add any additional Events of Default with respect to all or
any series of Securities Outstanding hereunder; or
(d) to change or eliminate any provision of this Indenture or to add
any new provision to this Indenture; provided, however, that if such
change, elimination or addition shall adversely affect the interests of the
Holders of Securities of any series or Tranche Outstanding on the date of
such indenture supplemental hereto in any material respect, such change,
elimination or addition shall become effective with respect to such series
or Tranche only pursuant to the provisions of Section 1202 hereof or when
no Security of such series or Tranche remains Outstanding; or
(e) to provide collateral security for all but not part of the
Securities; or
(f) to establish the form or terms of Securities of any series or
Tranche as contemplated by Sections 201 and 301; or
(g) to provide for the authentication and delivery of bearer
securities and coupons appertaining thereto representing interest, if any,
thereon and for the procedures for the registration, exchange and
replacement thereof and for the giving of notice to, and the solicitation
of the vote or consent of, the holders thereof, and for any and all other
matters incidental thereto; or
(h) to evidence and provide for the acceptance of appointment
hereunder by a separate or successor Trustee or co-trustee with respect to
the Securities of one or more series and to add to or change any of the
provisions of this Indenture as shall be necessary to provide for or
facilitate the administration of the trusts hereunder by more than one
Trustee, pursuant to the requirements of Section 911(b); or
(i) to provide for the procedures required to permit the Company to
utilize, at its option, a noncertificated system of registration for all,
or any series or Tranche of, the Securities; or
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(j) to change any place or places where (1) the principal of and
premium, if any, and interest, if any, on all or any series of Securities,
or any Tranche thereof, shall be payable, (2) all or any series of
Securities, or any Tranche thereof, may be surrendered for registration of
transfer, (3) all or any series of Securities, or any Tranche thereof, may
be surrendered for exchange and (4) notices and demands to or upon the
Company in respect of all or any series of Securities, or any Tranche
thereof, and this Indenture may be served; or
(k) to cure any ambiguity, to correct or supplement any provision
herein which may be defective or inconsistent with any other provision
herein, or to make any other changes to the provisions hereof or to add
other provisions with respect to matters or questions arising under this
Indenture, provided that such other changes or additions shall not
adversely affect the interests of the Holders of Securities of any series
or Tranche in any material respect.
Without limiting the generality of the foregoing, if the Trust
Indenture Act as in effect at the date of the execution and delivery of this
Indenture or at any time thereafter shall be amended and
(x) if any such amendment shall require one or more changes to any
provisions hereof or the inclusion herein of any additional provisions, or
shall by operation of law be deemed to effect such changes or incorporate
such provisions by reference or otherwise, this Indenture shall be deemed
to have been amended so as to conform to such amendment to the Trust
Indenture Act, and the Company and the Trustee may, without the consent of
any Holders, enter into an indenture supplemental hereto to effect or
evidence such changes or additional provisions; or
(y) if any such amendment shall permit one or more changes to, or the
elimination of, any provisions hereof which, at the date of the execution
and delivery hereof or at any time thereafter, are required by the Trust
Indenture Act to be contained herein, this Indenture shall be deemed to
have been amended to effect such changes or elimination, and the Company
and the Trustee may, without the consent of any Holders, enter into an
indenture supplemental hereto to evidence such amendment hereof.
SECTION 1202. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of a majority in aggregate principal
amount of the Securities of all series then Outstanding under this Indenture,
considered as one class, by Act of said Holders delivered to the Company and the
Trustee, the Company, when authorized by a Board Resolution, and the Trustee may
enter into an indenture or indentures supplemental hereto for the purpose of
adding any provisions to, or changing in any manner or eliminating
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any of the provisions of, this Indenture or modifying in any manner the rights
of the Holders of Securities of such series under the Indenture; provided,
however, that if there shall be Securities of more than one series Outstanding
hereunder and if a proposed supplemental indenture shall directly affect the
rights of the Holders of Securities of one or more, but less than all, of such
series, then the consent only of the Holders of a majority in aggregate
principal amount of the Outstanding Securities of all series so directly
affected, considered as one class, shall be required; and provided, further,
that if the Securities of any series shall have been issued in more than one
Tranche and if the proposed supplemental indenture shall directly affect the
rights of the Holders of Securities of one or more, but less than all, of such
Tranches, then the consent only of the Holders of a majority in aggregate
principal amount of the Outstanding Securities of all Tranches so directly
affected, considered as one class, shall be required; and provided, further,
that no such supplemental indenture shall:
(a) change the Stated Maturity of the principal of, or any installment
of principal of or interest on, any Security, or reduce the principal
amount thereof or the rate of interest thereon (or the amount of any
installment of interest thereon) or change the method of calculating such
rate or reduce any premium payable upon the redemption thereof, or reduce
the amount of the principal of a Discount Security that would be due and
payable upon a declaration of acceleration of the Maturity thereof pursuant
to Section 802, or change the coin or currency (or other property), in
which any Security or any premium or the interest thereon is payable, or
impair the right to institute suit for the enforcement of any such payment
on or after the Stated Maturity of any Security (or, in the case of
redemption, on or after the Redemption Date), without, in any such case,
the consent of the Holder of such Security, or
(b) reduce the percentage in principal amount of the Outstanding
Securities of any series, or any Tranche thereof, the consent of the
Holders of which is required for any such supplemental indenture, or the
consent of the Holders of which is required for any waiver of compliance
with any provision of this Indenture or of any default hereunder and its
consequences, or reduce the requirements of Section 1304 for quorum or
voting, without, in any such case, the consent of the Holders of each
Outstanding Security of such series or Tranche, or
(c) modify any of the provisions of this Section, Section 607 or
Section 813 with respect to the Securities of any series, or any Tranche
thereof, except to increase the percentages in principal amount referred to
in this Section or such other Sections or to provide that other provisions
of this Indenture cannot be modified or waived without the consent of the
Holder of each Outstanding Security affected thereby; provided, however,
that this clause shall not be deemed to require the consent of any Holder
with respect to changes in the references to "the Trustee" and concomitant
changes in this Section, or the deletion of this proviso, in accordance
with the requirements of Sections 911(b), 914 and 1201(h).
<PAGE>
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A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular series of Securities, or one or more Tranches
thereof, or which modifies the rights of the Holders of Securities of such
series with respect to such covenant or other provision, shall be deemed not to
affect the rights under this Indenture of the Holders of Securities of any other
series or Tranche.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof. A waiver by a
Holder of such Holder's right to consent under this Section shall be deemed to
be a consent of such Holder.
SECTION 1203. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 901) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties, immunities or liabilities under this Indenture or
otherwise.
SECTION 1204. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby. Any supplemental indenture permitted by this Article may
restate this Indenture in its entirety, and, upon the execution and delivery
thereof, any such restatement shall supersede this Indenture as theretofore in
effect for all purposes.
SECTION 1205. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 1206. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities of any series, or any Tranche thereof, authenticated and
delivered after the execution of any supplemental indenture pursuant to this
Article may, and shall if required by the Trustee, bear a notation in form
approved by the Trustee as to any matter provided for in such supplemental
indenture. If the Company shall so determine, new
<PAGE>
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Securities of any series, or any Tranche thereof, so modified as to conform, in
the opinion of the Trustee and the Company, to any such supplemental indenture
may be prepared and executed by the Company and authenticated and delivered by
the Trustee in exchange for Outstanding Securities of such series or Tranche.
SECTION 1207. MODIFICATION WITHOUT SUPPLEMENTAL INDENTURE.
If the terms of any particular series of Securities shall have been
established in a Board Resolution or an Officer's Certificate as contemplated by
Section 301, and not in an indenture supplemental hereto, additions to, changes
in or the elimination of any of such terms may be effected by means of a
supplemental Board Resolution or Officer's Certificate, as the case may be,
delivered to, and accepted by, the Trustee; provided, however, that such
supplemental Board Resolution or Officer's Certificate shall not be accepted by
the Trustee or otherwise be effective unless all conditions set forth in this
Indenture which would be required to be satisfied if such additions, changes or
elimination were contained in a supplemental indenture shall have been
appropriately satisfied. Upon the acceptance thereof by the Trustee, any such
supplemental Board Resolution or Officer's Certificate shall be deemed to be a
"supplemental indenture" for purposes of Section 1204 and 1206.
ARTICLE THIRTEEN
MEETINGS OF HOLDERS; ACTION WITHOUT MEETING
SECTION 1301. PURPOSES FOR WHICH MEETINGS MAY BE CALLED.
A meeting of Holders of Securities of one or more, or all, series, or
any Tranche or Tranches thereof, may be called at any time and from time to time
pursuant to this Article to make, give or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be made, given or taken by Holders of Securities of such
series or Tranches.
SECTION 1302. CALL, NOTICE AND PLACE OF MEETINGS.
(a) The Trustee may at any time call a meeting of Holders of
Securities of one or more, or all, series, or any Tranche or Tranches
thereof, for any purpose specified in Section 1301, to be held at such time
and at such place in the Borough of Manhattan, The City of New York, as the
Trustee shall determine, or, with the approval of the Company, at any other
place. Notice of every such meeting, setting forth the time and the place
of such meeting and in general terms the action proposed to be taken at
such meeting, shall be given, in the manner provided in Section 106, not
less than 21 nor more than 180 days prior to the date fixed for the
meeting.
<PAGE>
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(b) If the Trustee shall have been requested to call a meeting of the
Holders of Securities of one or more, or all, series, or any Tranche or
Tranches thereof, by the Company or by the Holders of 33% in aggregate
principal amount of all of such series and Tranches, considered as one
class, for any purpose specified in Section 1301, by written request
setting forth in reasonable detail the action proposed to be taken at the
meeting, and the Trustee shall not have given the notice of such meeting
within 21 days after receipt of such request or shall not thereafter
proceed to cause the meeting to be held as provided herein, then the
Company or the Holders of Securities of such series and Tranches in the
amount above specified, as the case may be, may determine the time and the
place in the Borough of Manhattan, The City of New York, or in such other
place as shall be determined or approved by the Company, for such meeting
and may call such meeting for such purposes by giving notice thereof as
provided in Subsection (a) of this Section.
(c) Any meeting of Holders of Securities of one or more, or all,
series, or any Tranche or Tranches thereof, shall be valid without notice
if the Holders of all Outstanding Securities of such series or Tranches are
present in person or by proxy and if representatives of the Company and the
Trustee are present, or if notice is waived in writing before or after the
meeting by the Holders of all Outstanding Securities of such series, or any
Tranche or Tranches thereof, or by such of them as are not present at the
meeting in person or by proxy, and by the Company and the Trustee.
SECTION 1303. PERSONS ENTITLED TO VOTE AT MEETINGS.
To be entitled to vote at any meeting of Holders of Securities of one
or more, or all, series, or any Tranche or Tranches thereof, a Person shall be
(a) a Holder of one or more Outstanding Securities of such series or Tranches,
or (b) a Person appointed by an instrument in writing as proxy for a Holder or
Holders of one or more Outstanding Securities of such series or Tranches by such
Holder or Holders. The only Persons who shall be entitled to attend any meeting
of Holders of Securities of any series or Tranche shall be the Persons entitled
to vote at such meeting and their counsel, any representatives of the Trustee
and its counsel and any representatives of the Company and its counsel.
SECTION 1304. QUORUM; ACTION.
The Persons entitled to vote a majority in aggregate principal amount
of the Outstanding Securities of the series and Tranches with respect to which a
meeting shall have been called as hereinbefore provided, considered as one
class, shall constitute a quorum for a meeting of Holders of Securities of such
series and Tranches; provided, however, that if any action is to be taken at
such meeting which this Indenture expressly provides may be taken by the Holders
of a specified percentage, which is less than a majority, in principal amount of
the Outstanding Securities of such series and Tranches, considered as one class,
the Persons entitled to vote such specified percentage in principal amount of
the Outstanding Securities of such
<PAGE>
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series and Tranches, considered as one class, shall constitute a quorum. In the
absence of a quorum within one hour of the time appointed for any such meeting,
the meeting shall, if convened at the request of Holders of Securities of such
series and Tranches, be dissolved. In any other case the meeting may be
adjourned for such period as may be determined by the chairman of the meeting
prior to the adjournment of such meeting. In the absence of a quorum at any such
adjourned meeting, such adjourned meeting may be further adjourned for such
period as may be determined by the chairman of the meeting prior to the
adjournment of such adjourned meeting. Except as provided by Section 1305(e),
notice of the reconvening of any meeting adjourned for more than 30 days shall
be given as provided in Section 1302(a) not less than 10 days prior to the date
on which the meeting is scheduled to be reconvened. Notice of the reconvening of
an adjourned meeting shall state expressly the percentage, as provided above, of
the principal amount of the Outstanding Securities of such series and Tranches
which shall constitute a quorum.
Except as limited by Section 1202, any resolution presented to a
meeting or adjourned meeting duly reconvened at which a quorum is present as
aforesaid may be adopted only by the affirmative vote of the Holders of a
majority in aggregate principal amount of the Outstanding Securities of the
series and Tranches with respect to which such meeting shall have been called,
considered as one class; provided, however, that, except as so limited, any
resolution with respect to any action which this Indenture expressly provides
may be taken by the Holders of a specified percentage, which is less than a
majority, in principal amount of the Outstanding Securities of such series and
Tranches, considered as one class, may be adopted at a meeting or an adjourned
meeting duly reconvened and at which a quorum is present as aforesaid by the
affirmative vote of the Holders of such specified percentage in principal amount
of the Outstanding Securities of such series and Tranches, considered as one
class.
Any resolution passed or decision taken at any meeting of Holders of
Securities duly held in accordance with this Section shall be binding on all the
Holders of Securities of the series and Tranches with respect to which such
meeting shall have been held, whether or not present or represented at the
meeting.
SECTION 1305. ATTENDANCE AT MEETINGS; DETERMINATION OF VOTING RIGHTS;
CONDUCT AND ADJOURNMENT OF MEETINGS.
(a) Attendance at meetings of Holders of Securities may be in person
or by proxy; and, to the extent permitted by law, any such proxy shall
remain in effect and be binding upon any future Holder of the Securities
with respect to which it was given unless and until specifically revoked by
the Holder or future Holder of such Securities before being voted.
(b) Notwithstanding any other provisions of this Indenture, the
Trustee may make such reasonable regulations as it may deem advisable for
any meeting of Holders of Securities in regard to proof of the holding of
such Securities and of the appointment
<PAGE>
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of proxies and in regard to the appointment and duties of inspectors of
votes, the submission and examination of proxies, certificates and other
evidence of the right to vote, and such other matters concerning the
conduct of the meeting as it shall deem appropriate. Except as otherwise
permitted or required by any such regulations, the holding of Securities
shall be proved in the manner specified in Section 104 and the appointment
of any proxy shall be proved in the manner specified in Section 104. Such
regulations may provide that written instruments appointing proxies,
regular on their face, may be presumed valid and genuine without the proof
specified in Section 104 or other proof.
(c) The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been
called by the Company or by Holders as provided in Section 1302(b), in
which case the Company or the Holders of Securities of the series and
Tranches calling the meeting, as the case may be, shall in like manner
appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by vote of the Persons entitled
to vote a majority in aggregate principal amount of the Outstanding
Securities of all series and Tranches represented at the meeting,
considered as one class.
(d) At any meeting each Holder or proxy shall be entitled to one vote
for each $1 principal amount of Securities held or represented by him;
provided, however, that no vote shall be cast or counted at any meeting in
respect of any Security challenged as not Outstanding and ruled by the
chairman of the meeting to be not Outstanding. The chairman of the meeting
shall have no right to vote, except as a Holder of a Security or proxy.
(e) Any meeting duly called pursuant to Section 1302 at which a quorum
is present may be adjourned from time to time by Persons entitled to vote a
majority in aggregate principal amount of the Outstanding Securities of all
series and Tranches represented at the meeting, considered as one class;
and the meeting may be held as so adjourned without further notice.
SECTION 1306. COUNTING VOTES AND RECORDING ACTION OF MEETINGS.
The vote upon any resolution submitted to any meeting of Holders shall
be by written ballots on which shall be subscribed the signatures of the Holders
or of their representatives by proxy and the principal amounts and serial
numbers of the Outstanding Secu rities, of the series and Tranches with respect
to which the meeting shall have been called, held or represented by them. The
permanent chairman of the meeting shall appoint two inspectors of votes who
shall count all votes cast at the meeting for or against any resolution and who
shall make and file with the secretary of the meeting their verified written
reports of all votes cast at the meeting. A record of the proceedings of each
meeting of Holders shall be prepared by the secretary of the meeting and there
shall be attached to said record the original reports of the
<PAGE>
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inspectors of votes on any vote by ballot taken thereat and affidavits by one or
more persons having knowledge of the facts setting forth a copy of the notice of
the meeting and showing that said notice was given as provided in Section 1302
and, if applicable, Section 1304. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company, and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
SECTION 1307. ACTION WITHOUT MEETING.
In lieu of a vote of Holders at a meeting as hereinbefore contemplated
in this Article, any request, demand, authorization, direction, notice, consent,
waiver or other action may be made, given or taken by Holders by written
instruments as provided in Section 104.
ARTICLE FOURTEEN
IMMUNITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS AND DIRECTORS
SECTION 1401. LIABILITY SOLELY CORPORATE.
No recourse shall be had for the payment of the principal of or
premium, if any, or interest, if any, on any Securities, or any part thereof, or
for any claim based thereon or otherwise in respect thereof, or of the
indebtedness represented thereby, or upon any obligation, covenant or agreement
under this Indenture, against any incorporator, shareholder, officer or
director, as such, past, present or future of the Company or of any predecessor
or successor corporation (either directly or through the Company or a
predecessor or successor corporation), whether by virtue of any constitutional
provision, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly agreed and under stood that this
Indenture and all the Securities are solely corporate obligations, and that no
personal liability whatsoever shall attach to, or be incurred by, any
incorporator, shareholder, officer or director, past, present or future, of the
Company or of any predecessor or successor corporation, either directly or
indirectly through the Company or any predecessor or successor corporation,
because of the indebtedness hereby authorized or under or by reason of any of
the obligations, covenants or agreements contained in this Indenture or in any
of the Securities or to be implied herefrom or therefrom, and that any such
personal liability is hereby expressly waived and released as a condition of,
and as part of the consideration for, the execution of this Indenture and the
issuance of the Securities.
ARTICLE FIFTEEN
SECURITIES OF THE FIRST SERIES AND SECOND SERIES
<PAGE>
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SECTION 1501. DESIGNATION OF SECURITIES OF THE FIRST SERIES.
There is hereby created a series of Securities designated "6.375%
Series C Senior Notes due 2008" (herein sometimes referred to as "Securities of
the First Series") and limited in aggregate principal amount (except as
contemplated in Section 201(b) hereof) to Two Hundred Million Dollars
($200,000,000). The form and terms of the Securities of the First Series shall
be established in an Officer's Certificate.
SECTION 1502. DESIGNATION OF SECURITIES OF THE SECOND SERIES.
There is hereby created a series of Securities designated "6.375%
Series C Exchange Senior Notes due 2008" (herein sometimes referred to as
"Securities of the Second Series") and limited in aggregate principal amount
(except as contemplated in Section 201(b) hereof) to Two Hundred Million Dollars
($200,000,000). The form and terms of the Securities of the Second Series shall
be established in an Officer's Certificate.
--------------------------
This instrument may be executed in any number of counterparts, each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the day and year first above written.
TEXAS UTILITIES COMPANY
By: /s/ Robert S. Shapard
-------------------------------------
ROBERT S. SHAPARD
Treasurer
<PAGE>
THE BANK OF NEW YORK, Trustee
By: /s/ W. N. Gitlin
-------------------------------------
W.N. GITLIN
Vice President
<PAGE>
STATE OF TEXAS )
) ss.:
COUNTY OF DALLAS )
On the 12th day of January, 1998, before me personally came Robert S.
Shapard, to me known, who, being by me duly sworn, did depose and say that he is
the Treasurer of Texas Utilities Company, one of the corporations described in
and which executed the foregoing instrument; and that he signed his name thereto
by authority of the Board of Directors of said corporation.
/s/ LeNae B Davis
---------------------------------------
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the _____ day of January, 1998, before me personally came W.N.
Gitlin, to me known, who, being by me duly sworn, did depose and say that he is
a Vice President of The Bank of New York, one of the corporations described in
and which executed the foregoing instrument; and that he signed his name thereto
by authority of the Board of Directors of said corporation.
/s/ Moira Feeney
--------------------------------------
Moira Feeney
Notary Public, State of New York
<PAGE>
EXHIBIT 4(gg)
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT
Dated January 13, 1998
among
TEXAS UTILITIES COMPANY
and
SALOMON BROTHERS INC
and
GOLDMAN, SACHS & CO.
and
LEHMAN BROTHERS INC.
________________
as Initial Purchasers
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of January 13, 1998 between TEXAS UTILITIES COMPANY, a Texas corporation
(the "Company"), and SALOMON BROTHERS INC ("Salomon Brothers") and GOLDMAN,
SACHS & CO. and LEHMAN BROTHERS INC. (collectively, the "Initial Purchasers").
This Agreement is made pursuant to the Purchase Agreement dated January 8,
1998 (the "Purchase Agreement"), among the Company, as issuer of the 6.375%
Series C Senior Notes due 2008 (the "Notes"), and the Initial Purchasers, which
provides for, among other things, the sale by the Company to the Initial
Purchasers of $200,000,000 principal amount of the Notes. In order to induce
the Initial Purchasers to enter into the Purchase Agreement, the Company has
agreed to provide to the Initial Purchasers and their direct and indirect
transferees the registration rights set forth in this Agreement. The execution
and delivery of this Agreement is a condition to the closing under the Purchase
Agreement.
In consideration of the foregoing, the parties hereto agree as follows:
1. Definitions.
As used in this Agreement, the following capitalized defined terms shall
have the following meanings:
"Additional Interest" shall have the meaning set forth in Section 2(e)
hereof.
"Advice" shall have the meaning set forth in the last paragraph of Section
3 hereof.
"Applicable Period" shall have the meaning set forth in Section 3(t)
hereof.
"Business Day" shall mean a day other than (i) a Saturday or a Sunday, (ii)
a day on which banks in New York, New York are authorized or obligated by law or
executive order to remain closed or (iii) a day on which the Trustee's principal
corporate trust office is closed for business.
"Closing Date" shall mean the Closing Date as defined in the Purchase
Agreement.
"Company" shall have the meaning set forth in the preamble to this
Agreement and also includes the Company's successors and permitted assigns.
"Depositary" shall mean The Depository Trust Company, or any other
depositary appointed by the Trust; provided, however, that such depositary must
have an address in the Borough of Manhattan, in The City of New York.
"Effectiveness Period" shall have the meaning set forth in Section 2(b)
hereof.
"Eligible Holder" shall have the meaning set forth in Section 2(a) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended
from time to time.
"Exchange Offer" shall mean the offer by the Company to the Holders to
exchange the Registrable Securities for a like principal amount of Exchange
Securities pursuant to Section 2(a) hereof.
"Exchange Offer Registration" shall mean a registration under the
Securities Act effected pursuant to Section 2(a) hereof.
"Exchange Offer Registration Statement" shall mean an exchange offer
registration statement on Form S-4 (or, if applicable, on another appropriate
form), and all amendments and supplements to such registration statement, in
each case including the Prospectus contained therein, all exhibits thereto and
all material incorporated by reference therein.
"Exchange Period" shall have the meaning set forth in Section 2(a) hereof.
<PAGE>
"Exchange Notes" shall mean the 6.375% Series C Senior Notes due 2008
containing terms identical to the Notes (except that they will not contain terms
with respect to the transfer restrictions under the Securities Act and will not
provide for any Additional Interest to be payable with respect thereto).
"Holder" shall mean the Initial Purchasers, for so long as they own any
Registrable Securities, and each of their respective successors, assigns and
direct and indirect transferees who become registered owners of Registrable
Securities under the Indenture.
"Indenture" shall mean the Indenture (for Unsecured Debt Securities Series
C) relating to the Notes and the Exchange Notes dated as of January 1, 1998
between the Company, as issuer, and The Bank of New York, as the Trustee, as the
same may be amended from time to time in accordance with the terms thereof.
"Initial Purchasers" shall have the meaning set forth in the preamble of
this Agreement.
"Inspectors" shall have the meaning set forth in Section 3(n) hereof.
"Issue Date" shall mean the date of original issuance of the Notes.
"Majority Holders" shall mean the Holders of a majority of the aggregate
principal amount of outstanding Notes.
"Notes" shall have the meaning set forth in the preamble to this Agreement.
"Participating Broker-Dealer" shall have the meaning set forth in Section
3(t) hereof.
"Person" shall mean an individual, partnership, corporation, trust or
unincorporated organization, limited liability company, or a government or
agency or political subdivision thereof.
"Prospectus" shall mean the prospectus included in a Registration
Statement, including any preliminary prospectus, and any such prospectus as
amended or supplemented by any prospectus supplement, including a prospectus
supplement with respect to the terms of the offering of any portion of the
Registrable Securities covered by a Shelf Registration Statement, and by all
other amendments and supplements to a prospectus, including post-effective
amendments, and in each case including all material incorporated by reference
therein.
"Purchase Agreement" shall have the meaning set forth in the preamble of
this Agreement.
"Records" shall have the meaning set forth in Section 3(n) hereof.
"Registrable Securities" shall mean the Notes; provided, however, that the
Notes shall cease to be Registrable Securities when (i) a Registration Statement
with respect to such Notes shall have been declared effective under the
Securities Act and such Notes shall have been disposed of pursuant to such
Registration Statement, (ii) such Notes shall have been sold to the public
pursuant to Rule 144(k) (or any similar provision then in force, but not Rule
144A) under the Securities Act, (iii) such Notes shall have ceased to be
outstanding, (iv) such Notes have been exchanged for Exchange Notes upon
consummation of the Exchange Offer and are thereafter freely tradable by the
holder thereof (other than an affiliate of the Company) or (v) two years (or
such shorter period as may hereafter be provided in Rule 144(k) under the
Securities Act (or similar rule)) have elapsed since the date of original
issuances of the Notes.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance by the Company with this Agreement, including,
without limitation: (i) all SEC or National Association of Securities Dealers,
Inc. (the "NASD") registration and filing fees; (ii) all fees and expenses
incurred in connection with compliance with state securities or blue sky laws
(including reasonable fees and disbursements of counsel for any underwriters or
Holders in connection with blue sky qualification of any of the Exchange Notes
or Registrable Securities)
2
<PAGE>
and compliance with the rules of the NASD in an amount not exceeding $15,000 in
the aggregate, (iii) all expenses of any Persons in preparing or assisting in
preparing, word processing, printing and distributing any Registration
Statement, any Prospectus and any amendments or supplements thereto, and in
preparing or assisting in preparing, printing and distributing any Registration
Statement, any Prospectus and any amendments or supplements thereto, and in
preparing or assisting in preparing, printing and distributing any underwriting
agreements, securities sales agreements and other documents relating to the
performance of and compliance with this Agreement, (iv) all rating agency fees,
(v) the fees and disbursements of counsel for the Company, of Winthrop, Stimson,
Putnam & Roberts, as counsel for the Holders hereunder in connection with the
Exchange Offer, and of the independent certified public accountants of the
Company, including the expenses of any "cold comfort" letters required by or
incident to such performance and compliance, (vi) the fees and expenses of the
Trustee, and any paying agent, exchange agent or custodian, (vii) all fees and
expenses incurred in connection with the listing, if any, of any of the
Registrable Securities or the Exchange Notes on any securities exchange or
exchanges and (viii) the reasonable fees and expenses of any special experts
retained by the Company in connection with any Registration Statement.
"Registration Statement" shall mean any registration statement of the
Company which covers any of the Exchange Notes or Registrable Securities
pursuant to the provisions of this Agreement, and all amendments and supplements
to any such Registration Statement, including post-effective amendments, in each
case including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"Rule 144(k) Period" shall mean the period of two years (or such shorter
period as may hereafter be provided in Rule 144(k) under the Securities Act (or
similar successor rule)) commencing on the Issue Date.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time.
"Shelf Registration" shall mean a registration effected pursuant to Section
2(b) hereof.
"Shelf Registration Event" shall have the meaning set forth in Section 2b
hereof.
"Shelf Registration Event Date" shall have the meaning set forth in Section
2(b) hereof.
"Shelf Registration Statement" shall mean a "shelf" registration statement
of the Company pursuant to the provisions of Section 2(b) hereof which covers
all of the Registrable Securities, on an appropriate form under Rule 415 under
the Securities Act, or any similar rule that may be adopted by the SEC, and all
amendments and supplements to such registration statement, including post-
effective amendments, in each case including the Prospectus contained therein,
all exhibits thereto and all material incorporated by reference therein.
"TIA" shall mean the Trust Indenture Act of 1939, as amended from time to
time.
"Trustee" shall mean The Bank of New York, and any successor thereto, as
trustee under the Indenture.
2. Registration Under the Securities Act.
(a) Exchange Offer. To the extent not prohibited by any applicable
law or applicable interpretation of the staff of the SEC, the Company shall, for
the benefit of the Holders, at the Company's cost, (i) cause to be filed with
the SEC an Exchange Offer Registration Statement on an appropriate form under
the Securities Act covering the Exchange Offer, (ii) use its reasonable best
efforts to cause such Exchange Offer Registration Statement to be declared
effective under the Securities Act by the
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SEC not later than the date which is 180 days after the Issue Date, and
(iii) use its reasonable best efforts to keep such Exchange Offer Registration
Statement effective for not less than 30 calendar days (or longer if required by
applicable law) after the date notice of the Exchange Offer is mailed to the
Holders. Upon the effectiveness of the Exchange Offer Registration Statement,
the Company shall promptly commence the Exchange Offer, it being the objective
of such Exchange Offer to enable each Holder electing to exchange Registrable
Securities for a like principal amount of Exchange Notes (assuming that such
Holder is not an affiliate of the Company within the meaning of Rule 405 under
the Securities Act and is not a broker-dealer tendering Registrable Securities
acquired directly from the Company for its own account, acquires the Exchange
Securities in the ordinary course of such Holder's business and has no
arrangements or understandings with any Person to participate in the Exchange
Offer for the purpose of distributing the Exchange Securities) (any Holder
meeting all such requirements, hereinafter an "Eligible Holder"), and to
transfer such Exchange Securities from and after their receipt without any
limitations or restrictions under the Securities Act and under state securities
or blue sky laws.
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming part
of the Exchange Offer Registration Statement, together with an
appropriate letter of transmittal and related documents (together, the
"Notice");
(ii) use its reasonable best efforts to keep the Exchange
Offer open for acceptance for a period of not less than 30 days after
the date Notice thereof is mailed to the Holders (or longer if
required by applicable law) (such period referred to herein as the
"Exchange Period");
(iii) utilize the services of the Depositary for the Exchange
Offer;
(iv) permit Holders to withdraw, at any time prior to the
close of business, New York time, on the last Business Day of the
Exchange Period, any Notes tendered for exchange by sending to the
institution specified in the Notice, a telegram, telex, facsimile
transmission or letter, received before aforesaid time, setting forth
the name of such Holder, the principal amount of Notes delivered for
exchange, and a statement that such Holder is withdrawing his election
to have such Notes exchanged;
(v) notify each Holder by means of the Notice that any Note
not tendered by such Holder in the Exchange Offer will remain
outstanding and continue to accrue interest, but will not retain any
rights under this Agreement (except in the case of the Initial
Purchasers and Participating Broker-Dealers as provided herein); and
(vi) otherwise comply in all respects with all applicable laws
relating to the Exchange Offer.
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As soon as practicable after the close of the Exchange Offer, the
Company shall:
accept for exchange all Notes or portions thereof tendered and
not validly withdrawn pursuant to the Exchange Offer;
deliver, or cause to be delivered, to the Trustee for
cancellation all Notes or portions thereof so accepted for exchange by
the Company; and
issue, and cause the Trustee to promptly authenticate and deliver
to each Holder, Exchange Notes equal in principal amount to the
principal amount of the Notes surrendered by such Holder.
Interest on each Exchange Note issued pursuant to the Registered
Exchange Offer will accrue from the last date on which interest was paid on the
Note surrendered in exchange therefor or, if no interest has been paid on such
Note, from the Issue Date. To the extent not prohibited by any law or
applicable interpretation of the staff of the SEC, the Company shall use its
reasonable best efforts to complete the Exchange Offer as provided above, and
shall comply with the applicable requirements of the Securities Act, the
Exchange Act and other applicable laws in connection with the Exchange Offer.
The Exchange Offer shall not be subject to any conditions, other than that the
Exchange Offer does not violate applicable law or any applicable interpretation
of the staff of the SEC and that each Holder tendering Notes for exchange shall
be an Eligible Holder. Each Holder of Registrable Securities who wishes to
exchange such Registrable Securities for Exchange Notes in the Exchange Offer
will be required to make certain customary representations in connection
therewith, including representations that (i) it is not an affiliate of the
Company, (ii) the Exchange Notes to be received by it were acquired in the
ordinary course of its business and (iii) at the time of the Exchange Offer, it
has no arrangement with any person to participate in the distribution (within
the meaning of the Securities Act) of the Exchange Notes. Each Holder hereby
acknowledges and agrees that any Participating Broker-Dealer and any such Holder
using the Exchange Offer to participate in a distribution of the Exchange Notes:
(1) could not under SEC policy as in effect on the date of this Agreement rely
on the position of the SEC enunciated in Morgan Stanley and Co., Inc. (available
June 5, 1991) and Exxon Capital Holdings Corporation (available May 13, 1988),
as interpreted in the SEC's letter to Shearman & Sterling dated July 2, 1993,
and similar no-action letters (including any no-action letter obtained based on
the representations in clause (i) above), and (2) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with the secondary resale transaction and that such a secondary
resale transaction should be covered by an effective registration statement
containing the selling security holder information required by Item 507 and 508,
as applicable, of Regulation S-K if the resales are of Exchange Notes obtained
by such Holder in exchange for Notes acquired by such Holder directly from the
Company.
Upon consummation of the Exchange Offer in accordance with this
Section 2(a), the provisions of this Agreement shall continue to apply, mutatis
mutandis, solely with respect to Registrable Securities that are Exchange Notes
held by Participating Broker-Dealers, and the Company shall have no further
obligation to register the Registrable Securities (other than pursuant to
Section 2(b)(iii)) pursuant to Section 2(b) of this Agreement.
(b) Shelf Registration. In the event that (i) the Company is not
permitted to effect the Exchange Offer because of any change in law or in
currently prevailing interpretations of the staff of the SEC, (ii) the Exchange
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Offer Registration Statement is not declared effective within 180 days of the
Issue Date, or (iii) (1) any Initial Purchaser is not permitted, in the
reasonable opinion of Winthrop, Stimson, Putnam & Roberts, pursuant to
applicable law or applicable interpretations of the staff of the SEC, to
participate in the Exchange Offer and thereby receive securities that are freely
tradeable without restriction under the Securities Act and applicable blue sky
or state securities laws, (2) such Initial Purchaser requests registration of
Registrable Securities held by such Initial Purchaser and (3) such Initial
Purchaser's request is received by the Company no later than the later of (A)
the date of filing of the Exchange Offer Registration Statement and (B) 120 days
following the Issue Date (any of the events specified in (i) - (iii) being a
"Shelf Registration Event" and the date of occurrence thereof, the "Shelf
Registration Event Date"), the Company shall promptly deliver to the Holders and
the Trustee written notice thereof and, at its cost, file as promptly as
practicable after such Shelf Registration Event Date, and, in any event, within
45 days after such Shelf Registration Event Date (which shall be no earlier than
90 days after the Closing Date) a Shelf Registration Statement providing for the
sale by the holders of all of the Registrable Securities, and shall use its
reasonable best efforts to have such Shelf Registration Statement declared
effective by the SEC as soon as practicable; provided, however that if the Shelf
Registration Event is pursuant to clause (iii), the Company may register such
Registrable Securities together with the Exchange Offer Registration Statement,
filed pursuant to Section 2(a), and the requirements as to timing applicable
thereto. No Holder of Registrable Securities shall be entitled to include any of
its Registrable Securities in any Shelf Registration pursuant to this Agreement
unless and until such Holder agrees in writing to be bound by all of the
provisions of this Agreement applicable to such Holder and furnishes to the
Company in writing, within 15 days after receipt of a request therefor, such
information as the Company may, after conferring with counsel with regard to
information relating to Holders that would be required by the SEC to be included
in such Shelf Registration Statement or Prospectus included therein, reasonably
request for inclusion in any Shelf Registration Statement or Prospectus included
therein. Each Holder as to which any Shelf Registration is being effected agrees
promptly to furnish to the Company all information with respect to such Holder
necessary to make the information previously furnished to the Company by such
Holder not materially misleading.
The Company agrees to use its reasonable best efforts to keep the Shelf
Registration Statement continuously effective for the Rule 144(k) Period
(subject to extension pursuant to the last paragraph of Section 3 hereof) or for
such shorter period which will terminate when all of the securities covered by
the Shelf Registration Statement have been sold pursuant to the Shelf
Registration Statement or cease to be Registrable Securities ( the
"Effectiveness Period"). The Company shall not permit any securities other than
Registrable Securities to be included in the Shelf Registration. The Company
will, in the event a Shelf Registration Statement is declared effective, provide
to each Holder a reasonable number of copies of the Prospectus which is a part
of the Shelf Registration Statement and notify each such Holder when the Shelf
Registration has become effective. The Company further agrees, if necessary,
to supplement or amend the Shelf Registration Statement, if required by the
rules, regulations or instructions applicable to the registration form used by
the Company for such Shelf Registration Statement or by the Securities Act or by
any other rules and regulations thereunder for shelf registrations, and the
Company agrees to furnish to the Holders of Registrable Securities copies of any
such supplement or amendment promptly after its being used or filed with the
SEC.
(c) Expenses. The Company shall pay all Registration Expenses in
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connection with the registration pursuant to Section 2(a) or 2(b) hereof. Except
as provided herein, each Holder shall pay all expenses of its counsel,
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of such Holder's Registrable Securities pursuant to the
Shelf Registration Statement.
(d) Effective Registration Statement. An Exchange Offer
Registration Statement pursuant to Section 2(a) hereof or a Shelf Registration
Statement pursuant to Section 2(b) hereof (or a combination of the two) will not
be deemed to have become effective unless it has been declared effective by the
SEC; provided, however, that if, after it has been declared effective, the
offering of Registrable Securities pursuant to a Shelf Registration Statement is
interfered with by any stop order, injunction or other order or requirement of
the SEC or any other governmental agency or court, such Registration Statement
will be deemed not to have been effective during the period of such
interference, until the offering of Registrable Securities pursuant to such
Registration Statement may legally resume. The Company will be deemed not to
have used its reasonable best efforts to cause the Exchange Offer Registration
Statement or the Shelf Registration Statement, as the case may be, to become, or
to remain, effective during the requisite period if the Company voluntarily
takes any action that would result in any such Registration Statement not being
declared effective or in the Holders of Registrable Securities covered thereby
not being able to exchange or offer and sell such Registrable Securities during
that period unless such action is required by applicable law.
(e) Additional Interest. In the event that:
(i) notwithstanding that the Company has consummated or will
consummate an Exchange Offer, the Company is required to file a Shelf
Registration Statement and such Shelf Registration Statement is not
filed on or prior to the date required by Section 2(b) hereof, then
commencing on the day after the applicable required filing date,
additional interest shall accrue on the principal amount of the Notes
("Additional Interest") at a rate of 0.25% per annum; or
(ii) (A) the Exchange Offer Registration Statement is not
declared effective by the SEC on or prior to the 180th day after the
Issue Date or (B) whether or not the Company has consummated or will
consummate an Exchange Offer, the Company is required to file a Shelf
Registration Statement and such Shelf Registration Statement is not
declared effective by the SEC on or prior to the 30th day after the
date such Shelf Registration Statement was required to be filed, then,
commencing on the 181st day after the Issue Date or the 31st day after
the applicable required filing date, as the case may be, Additional
Interest shall accrue on the principal amount of the Notes at a rate
of 0.25% per annum; or
(iii) (A) the Company has not exchanged the Exchange Notes for
the Notes validly tendered, in accordance with the terms of the
Exchange Offer, on or prior to the 40th day after the date on which
the Exchange Offer Registration Statement was declared effective or
(B) the Shelf
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Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the
expiration of the Rule 144(k) Period (other than after such time as
all Notes have been disposed of thereunder or otherwise cease to be
Registrable Securities), then Additional Interest shall accrue on the
principal amount of Notes, at a rate of 0.25% per annum, commencing on
the 41/st/ day after the date on which the Exchange Offer Registration
Statement was declared effective or the day such Shelf Registration
Statement ceases to be effective, as the case may be ;
provided, however, that the Additional Interest rate on the Notes may
not exceed in the aggregate 0.25% per annum; provided further,
however, that (1) upon the filing of the Shelf Registration Statement
(in the case of clause (i) above), (2) upon the effectiveness of the
Exchange Offer Registration Statement or a Shelf Registration
Statement (in the case of clause (ii) above), (3) upon the exchange of
Exchange Notes for all Notes tendered (in the case of clause (iii)(A)
above), or upon the effectiveness of the Shelf Registration Statement
which had ceased to remain effective (in the case of clause (iii) (B)
above), or (4) upon the expiration of the Rule 144(k) Period,
Additional Interest on the Notes as a result of such clause (or the
relevant subclause thereof), as the case may be, shall cease to
accrue.
Any amounts of Additional Interest due pursuant to Section 2(e)(i),
(ii) or (iii) above will be payable in cash on the relevant payment dates for
the payment of interest pursuant to the Indenture.
(f) Specific Enforcement. Without limiting the remedies available
to the Holders, the Company acknowledges that any failure of the Company to
comply with its obligations under Section 2(a) and Section 2(b) hereof may
result in material irreparable injury to the Holders for which there is no
adequate remedy at law, that it would not be possible to measure damages for
such injuries precisely and that, in the event of any such failure, any Holder
may obtain such relief as may be required to specifically enforce the Company's
obligations under Section 2(a) and Section 2(b) hereof.
3. Registration Procedures.
In connection with the obligations of the Company with respect to the
Registration Statements pursuant to Sections 2(a) and 2(b) hereof, the Company
shall:
(a) prepare and file with the SEC a Registration Statement or
Registration Statements as prescribed by Sections 2(a) and 2(b) hereof within
(in the case of Section 2(b) hereof) the relevant time period specified and on
the appropriate form(s) under the Securities Act, which form(s) (i) shall be
selected by the Company, (ii) shall, in the case of a Shelf Registration, be
available for the sale of the Registrable Securities by the selling Holders
thereof and (iii) shall comply as to form in all material respects with the
requirements of the applicable form and include all financial statements
required by the SEC to be filed therewith; and use its reasonable best efforts
to cause such Registration Statement(s) to become effective and remain effective
in accordance with Section 2 hereof; provided, however, that if (1) such filing
is pursuant to Section 2(b), or (2) a Prospectus contained in an Exchange Offer
Registration Statement filed pursuant to Section 2(a) is required to be
delivered under the Securities Act by any Participating Broker-Dealer who seeks
to sell Exchange Notes, before filing any Registration Statement or Prospectus
or any amendments or supplements thereto, the Company shall furnish to and
afford the Holders of the
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Registrable Securities and each such Participating Broker-Dealer, as the case
may be, covered by such Registration Statement, their counsel and the managing
underwriters, if any, a reasonable opportunity to review copies of all such
documents (including copies of any documents to be incorporated by reference
therein and all exhibits thereto) proposed to be filed. The Company shall not
file any Registration Statement or Prospectus or any amendments or supplements
thereto in respect of which the Holders must be afforded an opportunity to
review prior to the filing of such document if the Majority Holders or such
Participating Broker-Dealer, as the case may be, their counsel or the managing
underwriters, if any, shall reasonably object;
(b) prepare and file with the SEC such amendments and post-effective
amendments to each Registration Statement as may be necessary to keep such
Registration Statement effective for the Effectiveness Period or the Applicable
Period, as the case may be, and cause each Prospectus to be supplemented, if so
determined by the Company or requested by the SEC, by any required prospectus
supplement and as so supplemented to be filed pursuant to Rule 424 (or any
similar provision then in force) under the Securities Act, and comply with the
provisions of the Securities Act, the Exchange Act and the rules and regulations
promulgated thereunder applicable to it with respect to the disposition of all
securities covered by each Registration Statement during the Effectiveness
Period or the Applicable Period, as the case may be, in accordance with the
intended method or methods of distribution by the selling Holders thereof
described in this Agreement (including sales by any Participating Broker-
Dealer);
(c) in the case of a Shelf Registration, (i) notify each Holder of
Registrable Securities included in the Shelf Registration Statement, at least
three Business Days prior to filing, that a Shelf Registration Statement with
respect to the Registrable Securities is being filed and advising such Holder
that the distribution of Registrable Securities will be made in accordance with
the method selected by the Majority Holders, (ii) furnish to each Holder of
Registrable Securities included in the Shelf Registration Statement and to each
underwriter of an underwritten offering of Registrable Securities, if any,
without charge, as many copies of each Prospectus, including each preliminary
Prospectus, and any amendment or supplement thereto and such other documents as
such Holder or underwriter may reasonably request, in order to facilitate the
public sale or other disposition of the Registrable Securities, (iii) consent to
the use of the Prospectus or any amendment or supplement thereto by each of the
selling Holders of Registrable Securities included in the Shelf Registration
Statement in connection with the offering and sale of the Registrable Securities
covered by the Prospectus or any amendment or supplement thereto and (iv)
furnish to each Holder of Registrable Securities either a summary of the terms
of this Agreement or a copy of this Agreement;
(d) in the case of a Shelf Registration, to register or qualify the
Registrable Securities under all applicable state securities or "blue sky" laws
of such jurisdictions by the time the applicable Registration Statement is
declared effective by the SEC as any Holder of Registrable Securities covered by
a Registration Statement and each underwriter of an underwritten offering of
Registrable Securities shall reasonably request in writing in advance of such
date of effectiveness; provided, however, that the Company shall not be required
to (i) qualify as a
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foreign corporation or as a dealer in securities in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(d), (ii) file
any general consent to service of process in any jurisdiction where it would not
otherwise be subject to such service of process or (iii) file annual reports or
comply with any other requirements deemed by the Company in its reasonable
judgment to be unduly burdensome;
(e) in the case of (1) a Shelf Registration or (2) Participating
Broker-Dealers from whom the Company has received prior written notice that they
will be utilizing the Prospectus contained in the Exchange Offer Registration
Statement as provided in Section 3(t) hereof, are seeking to sell Exchange Notes
and are required to deliver Prospectuses, notify each Holder of Registrable
Securities, or each such Participating Broker-Dealer, as the case may be, their
counsel and the managing underwriters, if any, promptly and promptly confirm
such notice in writing (i) when a Registration Statement has become effective
and when any post-effective amendments and supplements thereto become effective,
(ii) of any request by the SEC or any state securities authority for amendments
and supplements to a Registration Statement or Prospectus or for additional
information after the Registration Statement has become effective, (iii) of the
issuance by the SEC or any state securities authority of any stop order
suspending the effectiveness of a Registration Statement or the qualification of
the Registrable Securities or the Exchange Notes to be offered or sold by any
Participating Broker-Dealer in any jurisdiction described in paragraph 3(d)
hereof or the initiation of any proceedings for that purpose, (iv) in the case
of a Shelf Registration, if, between the effective date of a Registration
Statement and the closing of any sale of Registrable Securities covered thereby,
the representations and warranties of the Company contained in any purchase
agreement, securities sales agreement or other similar agreement, if any cease
to be true and correct in all material respects, (v) of the happening of any
event or the failure of any event to occur or the discovery of any facts or
otherwise, during the Effectiveness Period which makes any statement made in
such Registration Statement or the related Prospectus untrue in any material
respect or which causes such Registration Statement or Prospectus to omit to
state a material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading and (vi) when the
Company reasonably determines that a post-effective amendment to the
Registration Statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of a Registration Statement at the earliest
possible moment;
(g) in the case of a Shelf Registration, furnish to each Holder of
Registrable Securities included within the coverage of such Shelf Registration
Statement, without charge, at least one conformed copy of each Registration
Statement relating to such Shelf Registration and any post-effective amendment
thereto (without documents incorporated therein by reference or exhibits
thereto, unless requested);
(h) in the case of a Shelf Registration, cooperate with the selling
Holders of Registrable Securities to
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facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any restrictive legends and in
such denominations (consistent with the provisions of the Indenture) and
registered in such names as the selling Holders or the underwriters, if any, may
reasonably request at least two Business Days prior to the closing of any sale
of Registrable Securities pursuant to such Shelf Registration Statement;
(i) in the case of a Shelf Registration or an Exchange Offer
Registration, upon the occurrence of any circumstance contemplated by Section
3(e)(ii), 3(e)(iii), 3(e)(v) or 3(e)(vi) hereof, prepare a supplement or post-
effective amendment to a Registration Statement or the related Prospectus or any
document incorporated therein by reference or file any other required document
so that, as thereafter delivered to the purchasers of the Registrable
Securities, such Prospectus will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading and
notify each Holder to suspend use of the Prospectus as promptly as practicable
after the occurrence of such an event, and each Holder hereby agrees to suspend
use of the Prospectus until the Company has amended or supplemented the
Prospectus to correct such misstatement or omission;
(j) in the case of a Shelf Registration, a reasonable time prior to
the filing of any document which is to be incorporated by reference into a
Registration Statement or a Prospectus after the initial filing of a
Registration Statement, provide a reasonable number of copies of such document
to the Holders and make such of the representatives of the Company as shall be
reasonably requested by the Holders of Registrable Securities or the Initial
Purchasers on behalf of such Holders available for reasonable discussion of such
document;
(k) obtain a CUSIP number for all Exchange Notes, no later than the
effective date of a Registration Statement, and provide the Trustee with printed
certificates for the Exchange Notes or the Registrable Securities, as the case
may be, in a form eligible for deposit with the Depositary;
(l) cause the Indenture to be qualified under the TIA in connection
with the registration of the Exchange Notes or Registrable Securities, as the
case may be, and effect such changes to such documents as may be required for
them to be so qualified in accordance with the terms of the TIA and execute, and
use its reasonable best efforts to cause the Trustee to execute, all documents
as may be required to effect such changes, and all other forms and documents
required to be filed with the SEC to enable such documents to be so qualified in
a timely manner;
(m) in the case of a Shelf Registration, enter into such agreements
(including underwriting agreements) as are customary in underwritten offerings
and consistent with the terms of the Purchase Agreement and take all such other
appropriate actions as are reasonably requested in order to expedite or
facilitate the registration or the disposition of such Registrable Securities,
and in such connection, whether or not an underwriting agreement is entered into
and whether or not the registration is with respect to an underwritten offering,
if requested by (x) any Initial
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Purchaser, in the case where an Initial Purchaser holds Registrable Securities
acquired by it as part of its initial distribution and (y) other Holders of
Notes covered thereby: (i) make such representations and warranties to Holders
of such Registrable Securities and the underwriters (if any), with respect to
the business of the Company and its subsidiaries as then conducted and the
Registration Statement, Prospectus and documents, if any, incorporated or deemed
to be incorporated by reference therein, in each case, as are customarily made
by issuers to underwriters in underwritten offerings, and confirm the same if
and when requested; (ii) obtain opinions of counsel to the Company and updates
thereof (which may be in the form of a reliance letter) in form and substance
reasonably satisfactory to the managing underwriters (if any) and the Holders of
a majority in principal amount of the Registrable Securities being sold,
addressed to each selling Holder and the underwriters (if any) covering the
matters customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such underwriters (it being
agreed that the matters to be covered by such opinions may be subject to
customary qualifications and exceptions); (iii) obtain "cold comfort" letters
and updates thereof in form and substance reasonably satisfactory to the
managing underwriters (if any) from the independent certified public accountants
of the Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data are, or are required
to be, included in the Registration Statement), addressed to each of such
underwriters, such letters to be in customary form and covering matters of the
type customarily covered in "cold comfort" letters in connection with
underwritten offerings and such other matters as reasonably requested by such
underwriters in accordance with Statement on Auditing Standards No. 72 and (iv)
if an underwriting agreement is entered into, the same shall contain
indemnification provisions and procedures no less favorable than those set forth
in Section 4 hereof (or such other provisions and procedures acceptable to
Holders of a majority in aggregate principal amount of Registrable Securities
covered by such Registration Statement and the managing underwriters or agents)
with respect to all parties to be indemnified pursuant to said Section
(including, without limitation, such underwriters and selling Holders). The
above shall be done at each closing under such underwriting agreement or, as and
to the extent required thereunder and as consistent with the terms of, the
Purchase Agreement;
(n) if (1) a Shelf Registration is filed pursuant to Section 2(b)
or (2) a Prospectus contained in an Exchange Offer Registration Statement filed
pursuant to Section 2(a) is required to be delivered under the Securities Act by
any Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, make reasonably available for inspection by any selling
Holder of such Registrable Securities being sold, or each such Participating
Broker-Dealer, as the case may be, any underwriter participating in any such
disposition of Registrable Securities, if any, and any attorney, accountant or
other agent retained by any such selling Holder or each such Participating
Broker-Dealer, as the case may be, or underwriter (collectively, the
"Inspectors"), at the offices where normally kept, during reasonable business
hours, all financial and other records, pertinent corporate documents and
properties of the Company and its subsidiaries (collectively, the "Records") as
shall be reasonably necessary to enable them to exercise any applicable due
diligence responsibilities, and cause the officers, directors and employees of
the Company and its subsidiaries to supply all relevant information in each case
reasonably requested by any such Inspector in connection with such Registration
Statement; provided,
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however, that the foregoing inspection and information gathering shall be
coordinated on behalf of all such parties by Company-designated Holders'
counsel, at the expense of such parties as described in Section 2(c) hereof.
Records which the Company determines, in good faith, to be confidential and any
records which it notifies the Inspectors are confidential shall not be disclosed
by the Inspectors unless (i) the disclosure of such Records is necessary to
avoid or correct a material misstatement or omission in such Registration
Statement, provided that the Company shall be consulted prior to any such
disclosure, (ii) the release of such Records is ordered pursuant to a subpoena
or other order from a court of competent jurisdiction or is necessary in
connection with any action, suit or proceeding or (iii) the information in such
Records has been made available to the public. Each selling Holder of such
Registrable Securities and each such Participating Broker-Dealer will be
required to agree in writing that information obtained by it or any Inspector
retained by it as a result of such inspections shall be deemed confidential and
shall not be used by it or any Inspector retained by it as the basis for any
market transactions in the securities of the Company unless and until such is
made generally available to the public. Each selling Holder of such Registrable
Securities and each such Participating Broker-Dealer will be required to further
agree in writing that it will, upon learning that disclosure of such Records is
sought in a court of competent jurisdiction, give notice to the Company and
allow the Company at its expense to undertake appropriate action to prevent
disclosure of the Records deemed confidential;
(o) comply with all applicable rules and regulations of the SEC so
long as any provision of this Agreement shall be applicable and make generally
available to its security holders earning statements satisfying the provisions
of Section 11(a) of the Securities Act and Rule 158 thereunder (or any similar
rule promulgated under the Securities Act), with such adjustments as are
necessary to reflect the merger transactions in August 1997 involving the
Company and the predecessors of the Company, no later than 60 days after the end
of any 12-month period (or 120 days after the end of any 12-month period if such
period is a fiscal year) (i) commencing at the end of any fiscal quarter in
which Registrable Securities are sold to underwriters in a firm commitment or
best efforts underwritten offering and (ii) if not sold to underwriters in such
an offering, commencing on the first day of the first fiscal quarter of the
Company after the effective date of a Registration Statement, which statements
shall cover said 12-month periods;
(p) upon consummation of an Exchange Offer, if requested by the
Trustee, obtain an opinion of counsel to the Company addressed to the Trustee
for the benefit of all Holders of Registrable Securities participating in the
Exchange Offer and which includes an opinion that (i) the Company has duly
authorized, executed and delivered the Exchange Notes, and (ii) each of the
Exchange Notes constitutes a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms (with customary
exceptions);
(q) if an Exchange Offer is to be consummated, upon delivery of the
Registrable Securities by Holders to the Company (or to such other Person as
directed by the Company), in exchange for the Exchange Notes, mark, or cause to
be marked, on such Registrable Securities delivered by such Holders that such
Registrable Securities are being cancelled in exchange for the Exchange
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Notes, and in no event shall such Registrable Securities be marked as paid or
otherwise satisfied;
(r) cooperate with each seller of Registrable Securities covered by
any Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Securities covered by a Registration Statement
contemplated hereby;
(s) use its reasonable best efforts to take all other steps
necessary to effect the registration of the Registrable Securities covered by a
Registration Statement contemplated hereby;
(t) (A) in the case of the Exchange Offer Registration Statement (i)
(a) indicate in a "Plan of Distribution" section contained in the Prospectus
contained in the Exchange Offer Registration Statement that any broker or dealer
registered under the Exchange Act who holds Notes that are Registrable
Securities and that were acquired for its own account as a result of market-
making activities or other trading activities (other than Registrable Securities
acquired directly from the Company) (such broker or dealer, a "Participating
Broker-Dealer"), may exchange such Notes pursuant to the Exchange Offer;
however, such Participating Broker-Dealer may be deemed to be an "underwriter"
within the meaning of the Securities Act and must, therefore, deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resales of the Exchange Notes received by such Participating Broker-Dealer in
the Exchange Offer, which prospectus delivery requirement may be satisfied by
the delivery by such Participating Broker-Dealer of the Prospectus contained in
the Exchange Offer Registration Statement and (b) include in such "Plan of
Distribution" section all other information with respect to such resales by
Participating Broker-Dealers that the SEC may require in order to permit such
resales pursuant thereto, but such "Plan of Distribution" shall not name any
such Participating Broker-Dealer or disclose the amount of Exchange Notes held
by any such Participating Broker-Dealer except to the extent required by the
Commission as a result of a change in policy announced after the date of this
Agreement, (ii) furnish to each Participating Broker-Dealer who has delivered to
the Company the notice referred to in Section 3(e), without charge, as many
copies of each Prospectus included in the Exchange Offer Registration Statement,
including any preliminary prospectus, and any amendment or supplement thereto,
as such Participating Broker-Dealer may reasonably request (the Company hereby
consents to the use of the Prospectus forming part of the Exchange Offer
Registration Statement or any amendment or supplement thereto by any Person
subject to the prospectus delivery requirements of the Securities Act, including
all Participating Broker-Dealers, in connection with the sale or transfer of the
Exchange Notes covered by the Prospectus or any amendment of supplement
thereto), (iii) use its reasonable best efforts to keep the Exchange Offer
Registration Statement effective and to amend and supplement the Prospectus
contained therein in order to permit such Prospectus to be lawfully delivered by
all Persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as such Persons must comply with such requirements
under the Securities Act and applicable rules and regulations in order to resell
the Exchange Notes; provided, however, that such period shall not be required to
exceed 90 days (or such longer period if extended pursuant to the last sentence
of Section 3 hereof) (the "Applicable Period") and (iv) include in the
transmittal letter or similar documentation to be executed by an exchange
offeree
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<PAGE>
in order to participate in the Exchange Offer (x) the following provision:
"If the exchange offeree is a broker-dealer holding Registrable
Notes acquired for its own account as a result of market-making
activities or other trading activities, it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any
resale of Exchange Notes received in respect of such Registrable
Securities pursuant to the Exchange Offer,"
and (y) a statement to the effect that by a broker-dealer making the
acknowledgement described in clause (x) and by delivering a Prospectus in
connection with the exchange of Registrable Securities, the broker-dealer will
not be deemed to admit that it is an underwriter within the meaning of the
Securities Act; and
(B) in the case of any Exchange Offer Registration Statement, deliver
to the Initial Purchasers or to another representative of the Participating
Broker-Dealers, if requested by any such Initial Purchasers or such other
representative of the Participating Broker-Dealers, on behalf of the
Participating Broker-Dealers upon consummation of the Exchange Offer (i) an
opinion of counsel in form and substance reasonably satisfactory to the Initial
Purchasers or such other representative of the Participating Broker-Dealers,
covering the matters customarily covered in opinions requested in connection
with Exchange Offer Registration Statements and such other matters as may be
reasonably requested (it being agreed that the matters to be covered by such
opinion may be subject to customary qualifications and exceptions), (ii) an
officers' certificate containing certifications substantially similar to those
set forth in certificates delivered pursuant to Section 8 of the Purchase
Agreement and such additional certifications as are customarily delivered in a
public offering of debt securities and (iii) as well as upon the effectiveness
of the Exchange Offer Registration Statement, a comfort letter, in each case, in
customary form as permitted by Statement on Auditing Standards No. 72 and with
such variations necessary to reflect the merger transactions in August 1997
involving the Company and the predecessors of the Company. Each of the
foregoing shall be consistent with the terms of the Purchase Agreement.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish to the Company such
information regarding such seller as may be required by the Staff of the SEC to
be included in a Registration Statement. The Company may exclude from such
registration the Registrable Securities of any seller who unreasonably fails to
furnish such information within a reasonable time after receiving such request.
The Company shall have no obligation to register under the Securities Act the
Registrable Securities of a seller who so fails to furnish such information.
In the case of (1) a Shelf Registration Statement or (2) Participating
Broker-Dealers who have notified the Company that they will be utilizing the
Prospectus contained in the Exchange Offer Registration Statement as provided in
Section 3(t) hereof, are seeking to sell Exchange Notes and are required to
deliver Prospectuses, each Holder agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
3(e)(ii), 3(e)(iii), 3(e)(v) or 3(e)(vi) hereof, such Holder will forthwith
discontinue disposition of Registrable Securities pursuant to a Registration
Statement until such Holder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 3(i) hereof or until it is advised in
writing (the "Advice") by the Company that the use of the applicable Prospectus
may be resumed, and, if so directed by the Company, such Holder will deliver to
the Company (at the Company's expense) all copies in such Holder's possession,
other than permanent file copies then in such Holder's possession, of the
Prospectus covering such Registrable Securities or Exchange Notes, as the case
may be, current at the time of receipt of such notice. If the Company shall
give any such notice to suspend the disposition of Registrable Securities
15
<PAGE>
or Exchange Notes, as the case may be, pursuant to a Registration Statement, the
Company shall file and use its best efforts to have declared effective (if an
amendment) as soon as practicable an amendment or supplement to the Registration
Statement and shall extend the period during which such Registration Statement
shall be maintained effective pursuant to this Agreement by the number of days
in the period from and including the date of the giving of such notice to and
including the date when the Company shall have made available to the Holders (x)
copies of the supplemented or amended Prospectus necessary to resume such
dispositions or (y) the Advice.
4. Indemnification.
(a) In connection with any Registration Statement, the Company shall
indemnify and hold harmless each Initial Purchaser, each Holder, each
underwriter who participates in an offering of the Registrable Securities, each
Participating Broker-Dealer, and each Person, if any, who controls any of such
parties within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act (each an "Indemnified Party") from and against any and all
losses, claims, damages or liabilities, joint or several, to which they or any
of them may become subject under the Securities Act or any other statute or
common law and shall reimburse each such Indemnified Party for any legal or
other expenses (including, to the extent hereinafter provided, reasonable
counsel fees) incurred by them in connection with investigating any such losses,
claims, damages or liabilities or in connection with defending any actions,
insofar as such losses, claims, damages, liabilities, expenses or actions arise
out of or are based upon any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or Prospectus, or in a
Registration Statement, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that the indemnity agreement contained in this
Section 4 as to any Indemnified Party shall not apply to any such losses,
claims, damages, liabilities, expenses or actions arising out of, or based upon,
any such untrue statement or alleged untrue statement, or any such omission or
alleged omission, if such statement or omission was made in reliance upon
information furnished in writing to the Company by such Indemnified Party for
use in connection with the preparation of the Registration Statement or the
Prospectus or any amendment or supplement to either thereof, or arising out of,
or based upon, statements in or omissions from the part of the Registration
Statement which shall constitute the Statement of Eligibility and Qualification
of the Trustee under the TIA; and provided further, that the indemnity agreement
contained in this Section 4 with respect to the Prospectus (if the Company shall
have furnished any amendment or supplement thereto) shall not inure to the
benefit of any Indemnified Party on account of any such losses, claims, damages,
liabilities, expenses or actions arising from the sale of Registrable Securities
to any person if a copy of the Prospectus (exclusive of any documents
incorporated by reference) shall not have been given or sent to such person by
or on behalf of such Indemnified Party with or prior to the written confirmation
of the sale involved unless, with respect to the delivery of any amendment or
supplement to the Prospectus, the alleged omission or alleged untrue statement
was not corrected in such amendment or supplement at the time of such written
confirmation. The indemnity agreement of the Company contained in this Section 4
shall remain
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<PAGE>
operative and in full force and effect regardless of any termination of this
Agreement or of any investigation made by or on behalf of any Indemnified Party,
and shall survive the registration of the Registrable Securities.
(b) Each Holder shall indemnify, defend and hold harmless the
Company and any underwriter and other selling Holder, and their respective
officers and directors, and each person who controls the Company or any
underwriter or any other selling Holder within the meaning of Section 15 of the
Securities Act, from and against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Securities Act or any other statute or common law and shall reimburse
each of them for any legal or other expenses (including, to the extent
hereinafter provided, reasonable counsel fees) incurred by them in connection
with investigating any such losses, claims, damages or liabilities or in
connection with defending any actions, insofar as such losses, claims, damages,
liabilities, expenses or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in a
Registration Statement or the Prospectus, or the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, if such statement or omission was made in
reliance upon information furnished in writing to the Company by or on behalf of
such Holder, for use in connection with the preparation of the Registration
Statement or the Prospectus or any amendment or supplement to either thereof.
The indemnity agreement of the respective Holders contained in this Section 4
shall remain operative and in full force and effect regardless of any
termination of this Agreement or of any investigation made by or on behalf of
the Company, any underwriter, or any other selling Holder, or their respective
directors or officers, or any such controlling person, and shall survive the
registration of the Registrable Securities; provided, however, that, in the case
of a Shelf Registration Statement, no such Holder shall be liable for any claims
hereunder in excess of the amount of net proceeds received by such Holder from
the sale of Registrable Securities pursuant to such Shelf Registration
Statement.
(c) The Company and the Holders each shall, upon the receipt of
notice of the commencement of any action against it or any person controlling it
as aforesaid, in respect of which indemnity may be sought on account of any
indemnity agreement contained herein, promptly give written notice of the
commencement thereof to the party or parties against whom indemnity shall be
sought hereunder, but the omission so to notify such indemnifying party or
parties of any such action shall not relieve such indemnifying party or parties
from any liabilities which it or they may have to the indemnified party
otherwise than on account of such indemnity agreement. In case such notice of
any such action shall be so given, such indemnifying party shall be entitled to
participate at its own expense in the defense, or, if it so elects, to assume
(in conjunction with any other indemnifying parties) the defense of such action,
in which event such defense shall be conducted by counsel chosen by such
indemnifying party or parties and satisfactory to the indemnified party or
parties who shall be defendant or defendants in such action, and such defendant
or defendants shall bear the fees and expenses of any additional counsel
retained by them; but if the indemnifying party shall elect not to assume the
defense of such action, such indemnifying party will reimburse such indemnified
party or parties for the reasonable fees and expenses of any counsel retained by
them; provided, however, if the defendants in any such
17
<PAGE>
action include both the indemnified party and the indemnifying party and counsel
for the indemnifying party shall have reasonably concluded that there may be a
conflict of interest involved in the representation by such counsel of both the
indemnifying party and the indemnified party, the indemnified party or parties
shall have the right to select separate counsel, satisfactory to the
indemnifying party, to participate in the defense of such action on behalf of
such indemnified party or parties (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel representing the indemnified parties who are parties to such
action).
(d) If the indemnification provided for in (a) or (b) above shall be
unenforceable under applicable law by an indemnified party, each indemnifying
party agrees to contribute to such indemnified party with respect to any and all
losses, claims, damages, liabilities and expenses for which each such
indemnification provided for in (a) or (b) above shall be unenforceable, in such
proportion as shall be appropriate to reflect the relative fault of each
indemnifying party on the one hand and the indemnified party on the other in
connection with the statement or omissions which have resulted in such losses,
claims, damages, liabilities and expenses, as well as any other relevant
equitable considerations; provided, however, that no indemnified party guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any indemnifying party
not guilty of such fraudulent misrepresentation. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by such indemnifying party or
the indemnified party and each such party's relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement or
omission. The Company and each of the Holders agree that it would not be just
and equitable if contributions pursuant to this paragraph (d) were to be
determined by pro rata allocation (even if the Holders were treated as one
entity for such purpose) or by any other method of allocation which does not
taken account of the equitable consideration referred to above.
5. Participation in Underwritten Registrations. No Holder may
participate in any underwritten registration hereunder unless such Holder (a)
agrees to sell such Holder's Registrable Securities on the basis provided in any
underwriting arrangements approved by the Persons entitled hereunder to approve
such arrangements and (b) completes and executes all reasonable questionnaires,
powers of attorney, indemnities, underwriting agreements, lock-up letters and
other documents reasonably required under the terms of such underwriting
arrangements.
6. Selection of Underwriters. The Holders of Registrable Securities
covered by the Shelf Registration Statement who desire to do so may sell the
securities covered by such Shelf Registration in an underwritten offering. In
any such underwritten offering, the underwriter or underwriters and manager or
managers that will administer the offering will be selected by the Holders of a
majority in aggregate principal amount of the Registrable Securities included in
such offering; provided, however, that such underwriters and managers must be
reasonably satisfactory to the Company.
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<PAGE>
7. Miscellaneous.
(a) Rule 144 and Rule 144A. For so long as the Company is subject
to the reporting requirements of Section 13 or 15 of the Exchange Act and any
Registrable Securities remain outstanding, the Company will file the reports
required to be filed by it under the Securities Act and Section 13(a) or 15(d)
of the Exchange Act and the rules and regulations adopted by the SEC thereunder.
If the Company ceases to be so required to file such reports, it will, upon the
request of any Holder of Registrable Securities (a) make publicly available such
information as is necessary to permit sales of their securities pursuant to Rule
144 under the Securities Act, (b) deliver such information to prospective
purchasers as is necessary to permit sales of their securities pursuant to Rule
144A under the Securities Act and take such further action as any Holder of
Registrable Securities may reasonably request and (c) take such further action
that is reasonable in the circumstances, in each case, to the extent required
from time to time to enable such Holder to sell its Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (i) Rule 144 under the Securities Act, as such rule may
be amended from time to time, (ii) Rule 144A under the Securities Act, as such
rule may be amended from time to time or (iii) any similar rules or regulations
hereafter adopted by the SEC. Upon the request of any Holder of Registrable
Securities, the Company will deliver to such Holder a written statement as to
whether it has complied with such requirements.
(b) No Inconsistent Agreements. The Company has not entered into
nor will the Company on or after the date of this Agreement enter into any
agreement which is inconsistent with the rights granted to the Holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
the Company's other issued and outstanding securities under any such agreements.
(c) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers of consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable Securities affected by such amendment, modification, supplement,
waiver or departure; provided no departure with respect to the provisions of
Section 4 hereof shall be effective as against any Holder of Registrable
Securities without the unanimous consent of the Holders. Notwithstanding the
foregoing sentence, (i) this Agreement may be amended, without the consent of
any Holder of Registrable Securities, by written agreement signed by the Company
and Salomon Brothers, to cure any ambiguity, correct or supplement any provision
of this Agreement that may be inconsistent with any other provision of this
Agreement or to make any other provisions with respect to matters or questions
arising under this Agreement which shall not be inconsistent with other
provisions of this Agreement, (ii) this Agreement may be amended, modified or
supplemented, and waivers and consents to departures from the provisions
19
<PAGE>
hereof may be given, by written agreement signed by the Company and Salomon
Brothers to the extent that any such amendment, modification, supplement, waiver
or consent is, in their reasonable judgment, necessary or appropriate to comply
with applicable law (including any interpretation of the Staff of the SEC) or
any change therein and (iii) to the extent any provision of this Agreement
relates to the Initial Purchasers, such provision may be amended, modified or
supplemented, and waivers or consents to departures from such provisions may be
given, by written agreement signed by Salomon Brothers and the Company.
(d) Notices. All notices and other communications provided for or
permitted hereunder shall be made in writing by hand-delivery, registered first-
class mail, telex, telecopier, or any courier guaranteeing overnight delivery
(i) if to a Holder, at the most current address given by such Holder to the
Company by means of a notice given in accordance with the provisions of this
Section 7(d), which address initially is, with respect to the Initial
Purchasers, the address set forth in the Purchase Agreement and (ii) if to the
Company, initially at the Company's address set forth in the Purchase Agreement
and thereafter at such other address, notice of which is given in accordance
with the provisions of this Section 7(d).
All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; five Business
Days after being deposited in the mail, postage prepaid, if mailed; when
answered back, if telexed; when receipt is acknowledged, if telecopied; and on
the next Business Day, if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications shall be
concurrently delivered by the Person giving the same to the Trustee, at the
address specified in the Indenture.
(e) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of the
Initial Purchasers, including, without limitation and without the need for an
express assignment, subsequent Holders; provided, however, that nothing herein
shall be deemed to permit any assignment, transfer or other disposition of
Registrable Securities in violation of the terms of the Purchase Agreement or
the Indenture. If any transferee of any Holder shall acquire Registrable
Securities, in any manner, whether by operation of law or otherwise, such
Registrable Securities shall be held subject to all of the terms of this
Agreement, and by taking and holding such Registrable Securities, such Person
shall be conclusively deemed to have agreed to be bound by and to perform all of
the terms and provisions of this Agreement and such Person shall be entitled to
receive the benefits hereof.
(f) Third Party Beneficiary. Each of the Initial Purchasers shall
be a third party beneficiary of the agreements made hereunder between the
Company and the Holders and shall have the right to enforce such agreements
directly to the extent it deems such enforcement necessary or advisable to
protect its rights or the rights of Holders hereunder.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an
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original and all of which taken together shall constitute one and the same
agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN MADE
IN THE STATE OF NEW YORK. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT, AND
THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY
PROVISIONS RELATING TO CONFLICTS OF LAWS. EACH OF THE PARTIES HERETO AGREES TO
SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(j) Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
(k) Securities Held by the Company or its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
any of its affiliates (as such term is defined in Rule 405 under the Securities
Act) shall not be counted in determining whether such consent or approval was
given by the Holders of such required percentage.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
TEXAS UTILITIES COMPANY
By: /s/ Robert S. Shapard
---------------------------------------------
Name: Robert S. Shapard
Title: Treasurer
Confirmed and accepted as of
the date first above written:
SALOMON BROTHERS INC
By: /s/ Joyce E. Erony
---------------------------------
Name: Joyce E. Erony
Title: Director
GOLDMAN, SACHS & CO.
By: /s/ Goldman, Sachs & Co.
---------------------------------
Name: Goldman,Sachs & Co.
Title:
LEHMAN BROTHERS INC.
By:/s/ M. Antonia Paterno Castello
---------------------------------
Name: M. Antonia Paterno Castello
Title: Managing Director
<PAGE>
EXHIBIT 4 (hh)
TEXAS UTILITIES COMPANY
OFFICER'S CERTIFICATE
Robert S. Shapard, the Treasurer of Texas Utilities Company (the
"Company"), pursuant to the authority granted in the Board Resolutions of the
Company dated August 14 and August 15, 1997, and Sections 201, 301 1501 and 1502
of the Indenture defined herein, does hereby certify to The Bank of New York
(the "Trustee"), as Trustee under the Indenture of the Company (For Unsecured
Debt Securities Series C) dated as of January 1, 1998 (the "Indenture") that:
1. The securities of the first series to be issued under the Indenture
shall be designated "6.375% Series C Senior Notes due 2008" (the
"Senior Notes of the First Series"). The securities of the second
series to be issued under the Indenture shall be designated "6.375%
Series C Exchange Senior Notes due 2008" (the "Senior Notes of the
Second Series," and together with the Senior Notes of the First Series,
the "Senior Notes of the First and Second Series"). (The term "Senior
Notes of the First or Second Series" shall refer to either Senior Notes
of the First Series or Senior Notes of the Second Series, except as
otherwise noted.) All capitalized terms used in this certificate which
are not defined herein but are defined in the Indenture shall have the
meanings set forth in the Indenture;
2. The Senior Notes of the First and Second Series shall be limited in
aggregate principal amount to $200,000,000 at any time Outstanding,
except as contemplated in Section 301(b) of the Indenture;
3. The Senior Notes of the First and Second Series shall mature and the
principal shall be due and payable together with all accrued and unpaid
interest thereon on January 1, 2008;
4. The Senior Notes of the First and Second Series shall be issued in the
denominations of $5,000 and in integral multiples of $1,000 in excess
thereof.
5. The Senior Notes of the First and Second Series shall bear interest at
the rate of 6.375% per annum payable semi-annually on January 1 and
July 1 of each year (each, an "Interest Payment Date"). Interest on the
Senior Notes of the First Series will accrue from January 13, 1998, but
if interest has been paid on such Senior Notes of the First Series,
then from the most recent Interest Payment Date to which interest has
been paid or duly provided for. Interest on the Senior Notes of the
Second Series will accrue from the most recent Interest Payment Date to
which interest has been paid on or duly provided for with respect to
the Senior Notes of the First Series, or if no such interest has been
paid or duly provided for, from January 13, 1998, but if interest has
been paid on or duly provided for with respect to such Senior Notes of
the Second Series, then from the most recent Interest Payment Date to
which interest has been paid or duly provided for. In the event that
any Interest Payment Date is not a Business Day, then payment of
interest payable on such date will be made on the next succeeding day
which is a
<PAGE>
Business Day (and without any interest or other payment in respect of
such delay), with the same force and effect as if made on such Interest
Payment Date;
6. Each installment of interest on a Senior Note of the First or Second
Series shall be payable to the Person in whose name such Senior Note of
the First or Second Series is registered at the close of business on
the 15th day of the calendar month next preceding the corresponding
Interest Payment Date (the "Regular Record Date") for the Senior Notes
of the First or Second Series. Any installment of interest on the
Senior Notes of the First or Second Series not punctually paid or duly
provided for shall forthwith cease to be payable to the Holders of such
Senior Notes of the First or Second Series on such Regular Record Date,
and may be paid to the Persons in whose name such Senior Notes of the
First or Second Series are registered at the close of business on a
Special Record Date to be fixed by the Trustee for the payment of such
Defaulted Interest. Notice of such Defaulted Interest and Special
Record Date shall be given to the Holders of such Senior Notes of the
First or Second Series not less than 10 days prior to such Special
Record Date, or may be paid at any time in any other lawful manner not
inconsistent with the requirements of any securities exchange on which
such Senior Notes of the First or Second Series may be listed, and upon
such notice as may be required by such exchange, all as more fully
provided in the Indenture;
7. The principal and each installment of interest on the Senior Notes of
the First and Second Series shall be payable at, and registration and
registration of transfers and exchanges in respect of the Senior Notes
of the First and Second Series may be effected at, the office or agency
of the Company in The City of New York; provided that payment of
interest may be made at the option of the Company by check mailed to
the address of the persons entitled thereto. Notices and demands to or
upon the Company in respect of the Senior Notes of the First and Second
Series may be served at the office or agency of the Company in The City
of New York. The Corporate Trust Office of the Trustee will initially
be the agency of the Company for such payment, registration and
registration of transfers and exchanges and service of notices and
demands and the Company hereby appoints the Trustee as its agent for
all such purposes; provided, however, that the Company reserves the
right to change, by one or more Officer's Certificates, any such office
or agency and such agent. The Trustee will be the Security Registrar
and the Paying Agent for the Senior Notes of the First and Second
Series;
8. The Senior Notes of the First Series will not be redeemable prior to
maturity; the Senior Notes of the Second Series will not be redeemable
prior to maturity;
9. The Senior Notes of the First Series will be initially issued pursuant
to Section 4(2) of the Securities Act of 1933, as amended (the
"Securities Act"), in global form registered in the name of Cede & Co.
(as nominee for The Depository Trust Company ("DTC"), New York, New
York). The Senior Notes of the First Series in global form shall bear
the depository legend in substantially the form set forth in Exhibit A
hereto. The Senior Notes of the First Series shall contain restrictions
on transfer, substantially as described in the form set forth in
Exhibit A hereto. Each Senior Note of the First Series, whether in a
global form or in a certificated form, shall bear the non-registration
legend and the registration rights legend in substantially the form set
forth in such form, unless otherwise agreed by the Company, such
agreement to be confirmed in writing to the Trustee. Nothing in the
Indenture, the Senior
-2-
<PAGE>
Notes of the First Series or this certificate shall be construed to
require the Company to register any Senior Notes of the First Series
under the Securities Act, unless otherwise expressly agreed by the
Company, confirmed in writing to the Trustee, or to make any transfer
of such Senior Notes of the First Series in violation of applicable
law. The Company will enter into a registration rights agreement with
the initial purchasers of the Senior Notes of the First Series pursuant
to which, among other things, the Senior Notes of the First Series may
be exchanged for Senior Notes of the Second Series registered under the
Securities Act.
10. It is contemplated that beneficial interests in Senior Notes of the
First Series owned by qualified institutional buyers (as defined in
Rule 144A under the Securities Act)("QIBs") or sold to QIBs in reliance
upon Rule 144A under the Securities Act will be represented by a global
certificate registered in the name of Cede & Co., as registered owner
and as nominee for DTC; beneficial interests in Senior Notes of the
First Series sold to foreign purchasers pursuant to Regulation S under
the Securities Act will be evidenced by one or more separate global
certificates (each the "Regulation S Global Certificate") and will be
registered in the name of Cede & Co., as registered owner and as
nominee for DTC for the accounts of Euroclear and Cedel Bank; prior to
the 40th day after the date of initial issuance of the Senior Notes of
the First Series, beneficial interests in the Regulation S Global
Certificate may be held only through Euroclear or Cedel Bank; Senior
Notes of the First Series acquired by Institutional Accredited
Investors (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) ("IAIs") and other eligible transferees, who are not
QIBs and who are not foreign purchasers pursuant to Regulation S under
the Securities Act, will be in certificated form. The Trustee, the
Security Registrar and the Company will have no responsibility under
the Indenture for transfers of beneficial interests in the Senior Notes
of the First and Second Series.
In connection with any transfer of Senior Notes of the First Series,
the Trustee, the Security Registrar and the Company shall be under no
duty to inquire into, may conclusively presume the correctness of, and
shall be fully protected in relying upon the certificates and other
information (in the forms attached hereto as Exhibit A, for use in
connection with the transfer of the Senior Notes of the First Series in
certificated form, or Exhibit C, for use in connection with the
transfer of beneficial interests in one global certificate to another
global certificate or to a Senior Note of the First Series in
certificated form, or otherwise) received from the Holders and any
transferees of any Senior Notes of the First Series regarding the
validity, legality and due authorization of any such transfer, the
eligibility of the transferee to receive such Security and any other
facts and circumstances related to such transfer;
11. No service charge shall be made for the registration of transfer or
exchange of the Senior Notes of the First and Second Series; provided,
however, that the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in
connection with the exchange or transfer;
12. If the Company shall make any deposit of money and/or Eligible
Obligations with respect to any Senior Notes of the First or Second
Series, or any portion of the principal amount thereof, as contemplated
by Section 701 of the Indenture, the Company shall not deliver an
Officer's Certificate described in clause (z) in the first paragraph of
said Section 701 unless the Company shall also deliver to the Trustee,
together with such Officer's Certificate, either:
-3-
<PAGE>
(A) an instrument wherein the Company, notwithstanding the
satisfaction and discharge of its indebtedness in respect of the Senior
Notes of the First or Second Series, shall assume the obligation (which
shall be absolute and unconditional) to irrevocably deposit with the
Trustee or Paying Agent such additional sums of money, if any, or
additional Eligible Obligations (meeting the requirements of Section
701), if any, or any combination thereof, at such time or times, as
shall be necessary, together with the money and/or Eligible Obligations
theretofore so deposited, to pay when due the principal of and premium,
if any, and interest due and to become due on such Senior Notes of the
First or Second Series or portions thereof, all in accordance with and
subject to the provisions of said Section 701; provided, however, that
such instrument may state that the obligation of the Company to make
additional deposits as aforesaid shall be subject to the delivery to
the Company by the Trustee of a notice asserting the deficiency
accompanied by an opinion of an independent public accountant of
nationally recognized standing, selected by the Trustee, showing the
calculation thereof; or
(B) an Opinion of Counsel to the effect that, as a result of a
change in law occurring after the date of this certificate, the Holders
of such Senior Notes of the First or Second Series, or portions of the
principal amount thereof, will not recognize income, gain or loss for
United States federal income tax purposes as a result of the
satisfaction and discharge of the Company's indebtedness in respect
thereof and will be subject to United States federal income tax on the
same amounts, at the same times and in the same manner as if such
satisfaction and discharge had not been effected.
13. The obligations of the Company under the Senior Notes of the First and
Second Series and under the Indenture to the extent related to such
series will be subject to assignment by the Company to and assumption
by a wholly owned Subsidiary of the Company at any time, as provided in
the form set forth in Exhibit A hereto with respect to the Senior Notes
of the First Series, and in the form set forth in Exhibit B hereto in
the respect to the Senior Notes of the Second Series.
In the event that such Subsidiary assumes the obligations under the
Senior Notes of the First and Second Series, the Company will
unconditionally guarantee payment of the Senior Notes of the First and
Second Series and will execute a guarantee in form and substance
satisfactory to the Trustee. Pursuant to the guarantee, the Company
will fully and unconditionally guarantee the payment of the obligations
of such assuming Subsidiary under the Senior Notes of the First and
Second Series and under the Indenture, including, without limitation,
payment, as and when due, of the principal of, premium, if any, and
interest on, the Senior Notes of the First and Second Series. Other
than the obligation to make such payments, the Company will be released
and discharged from all of its other obligations under the Indenture.
The foregoing assignment and assumption shall be in compliance with
applicable law including the Securities Act.
-4-
<PAGE>
14. The Senior Notes of the First Series shall have such other terms and
provisions as are provided in the form set forth in Exhibit A hereto,
and shall be issued in substantially such form; the Senior Notes of the
Second Series shall have such other terms and provisions as are
provided in the form set forth in Exhibit B hereto, and shall be issued
in substantially such form.
15. The undersigned has read all of the covenants and conditions contained
in the Indenture relating to the issuance of the Senior Notes of the
First and Second Series and the definitions in the Indenture relating
thereto and in respect of which this certificate is made;
16. The statements contained in this certificate are based upon the
familiarity of the undersigned with the Indenture, the documents
accompanying this certificate, and upon discussions by the undersigned
with officers and employees of the Company familiar with the matters
set forth herein;
17. In the opinion of the undersigned, he has made such examination or
investigation as is necessary to enable him to express an informed
opinion whether or not such covenants and conditions have been complied
with; and
18. In the opinion of the undersigned, such conditions and covenants and
conditions precedent, if any (including any covenants compliance with
which constitutes a condition precedent) to the authentication and
delivery of the Senior Notes of the First and Second Series requested
in the accompanying Company Order have been complied with.
IN WITNESS WHEREOF, I have executed this Officer's Certificate this
13th day of January, 1998.
/s/ Robert S. Shapard
------------------------------------
Treasurer
-5-
<PAGE>
EXHIBIT A
[depository legend]
Unless this Certificate is presented by an authorized representative of
The Depository Trust Company, a New York corporation ("DTC"), to the Company or
its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.
[non-registration legend]
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS SECURITY,
AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED OTHER THAN (1) TO THE COMPANY, (2) IN A
TRANSACTION ENTITLED TO AN EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144
UNDER THE SECURITIES ACT, (3) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM
THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE, PLEDGE OR
OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS INDICATED BY THE BOX
CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
SECURITY), (4) IN AN OFFSHORE TRANSACTION IN ACCORDANCE WITH RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE
TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), OR
(5) TO AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AS INDICATED BY THE BOX
CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS
SECURITY) THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR
DISTRIBUTION, AND A CERTIFICATE IN THE FORM ATTACHED TO THIS SECURITY IS
DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE TRUSTEE IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED
STATES. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS SECURITY AGREES IT
WILL FURNISH TO THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND OTHER
INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY IT OF
THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY
THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
OR (2) AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS
SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) A NON-U.S.
PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF,
<PAGE>
OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH (o)(2) OF RULE 902
UNDER, REGULATION S UNDER THE SECURITIES ACT."
[registration rights legend]
The Holder of this Security, by acceptance hereof, will be deemed to
have agreed to be bound by the provisions of the Registration Rights Agreement
dated January 13, 1998, between the Company and the initial purchasers of this
Security.
NO._______________ CUSIP NO.__________
[FORM OF FACE OF SENIOR NOTE]
TEXAS UTILITIES COMPANY
6.375% SERIES C SENIOR NOTES DUE 2008
TEXAS UTILITIES COMPANY, a corporation duly organized and existing
under the laws of the State of Texas (herein referred to as the "Company", which
term includes any successor Person under the Indenture), for value received,
hereby promises to pay to
or registered assigns, the principal sum of ____________________ Dollars on
January 1, 2008, and to pay interest on said principal sum semi-annually on
January 1 and July 1 of each year (each an Interest Payment Date) at the rate of
6.375% per annum until the principal hereof is paid or made available for
payment. Interest on the Securities of this series will accrue from January 13,
1998, to the first Interest Payment Date, and thereafter will accrue from the
last Interest Payment Date to which interest has been paid or duly provided for.
In the event that any Interest Payment Date is not a Business Day, then payment
of interest payable on such date will be made on the next succeeding day which
is a Business Day (and without any interest or other payment in respect of such
delay) with the same force and effect as if made on the Interest Payment Date.
The interest so payable, and punctually paid or duly provided for, on any
Interest Payment Date will, as provided in such Indenture, be paid to the Person
in whose name this Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest, which shall be the 15th day of the calendar month next preceding such
Interest Payment Date. Any such interest not so punctually paid or duly provided
for will forthwith cease to be payable to the Holder on such Regular Record Date
and may either be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities of this series
not less than 10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities of this series may be listed, and
upon such notice as may be required by such exchange, all as more fully provided
in the Indenture referred to on the reverse hereof.
Payment of the principal of (and premium, if any) and interest
on this Security will be made at the office or agency of the Company maintained
for that purpose in The City of New York, the State of New York in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, provided, however, that, at the
option of the
A-2
<PAGE>
Company, interest on this Security may be paid by check mailed to the address of
the person entitled thereto, as such address shall appear on the Security
Register.
A-3
<PAGE>
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by manual signature,
this Security shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.
TEXAS UTILITIES COMPANY
By:______________________________
ATTEST:
- ----------------------------
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
THE BANK OF NEW YORK, as Trustee
By:______________________________
Authorized Signatory
A-4
<PAGE>
[FORM OF REVERSE OF SENIOR NOTE]
This Security is one of a duly authorized issue of securities
of the Company (herein called the "Securities"), issued and to be issued in one
or more series under an Indenture (for Unsecured Debt Securities Series C),
dated as of January 1, 1998 (herein, together with any amendments thereto,
called the "Indenture", which term shall have the meaning assigned to it in such
instrument), between the Company and The Bank of New York, as Trustee (herein
called the "Trustee", which term includes any successor trustee under the
Indenture), and reference is hereby made to the Indenture, including the Board
Resolutions and Officer's Certificate filed with the Trustee on January 13, 1998
creating the series designated on the face hereof, for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the Holders of the Securities and of the terms upon
which the Securities are, and are to be, authenticated and delivered. This
Security is one of the series designated on the face hereof, limited in
aggregate principal amount to $200,000,000.
REDEMPTION
The Securities of this series will not be redeemable prior to
maturity.
The Indenture contains provisions for defeasance at any time
of the entire indebtedness of this Security upon compliance with certain
conditions set forth in the Indenture.
If an Event of Default with respect to Securities of this
series shall occur and be continuing, the principal of the Securities of this
series may be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities of
each series to be affected under the Indenture at any time by the Company and
the Trustee with the consent of the Holders of a majority in principal amount of
the Securities at the time Outstanding of all series to be affected. The
Indenture also contains provisions permitting the Holders of specified
percentages in principal amount of the Securities of each series at the time
Outstanding, on behalf of the Holders of all Securities of such series, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.
As provided in and subject to the provisions of the Indenture,
the Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously given
the Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of a majority in aggregate principal
amount of the Securities of all series at the time Outstanding in respect of
which an Event of Default shall have occurred and be continuing shall have made
written request to the Trustee to institute proceedings in respect of such Event
of Default as Trustee and offered the Trustee reasonable indemnity, and the
Trustee shall not have received from the Holders of a majority in aggregate
principal amount of Securities of all series at the time Outstanding in respect
of which an Event of Default shall have occurred and be continuing a direction
inconsistent with such request, and shall have failed to institute any such
proceeding, for 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to any
A-5
<PAGE>
suit instituted by the Holder of this Security for the enforcement of any
payment of principal hereof or any premium or interest hereon on or after the
respective due dates expressed herein.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and any
premium and interest on this Security at the times, place and rate, and in the
coin or currency, herein prescribed.
The Securities of this series are issuable only in registered
form without coupons in denominations of $5,000 and in integral multiples of
$1,000 in excess thereof. As provided in the Indenture and subject to certain
limitations therein set forth, Securities of this series are exchangeable for a
like aggregate principal amount of Securities of this series and of like tenor
and of authorized denominations, as requested by the Holder surrendering the
same.
No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
The Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Security is registered as the
absolute owner hereof for all purposes, whether or not this Security be overdue,
and neither the Company, the Trustee nor any such agent shall be affected by
notice to the contrary.
Unless an Event of Default, or an event which, after notice or
lapse of time or both, would become an Event of Default, shall have occurred and
be continuing, the obligations of the Company under the Securities of this
series and the Indenture to the extent related to such series may be assigned by
the Company to, and be assumed in whole, on a full recourse basis, by a wholly
owned Subsidiary of the Company at any time; provided, however, that such
assumption shall be subject to, and permitted only upon the fulfillment and
satisfaction of, the following terms and conditions: (a) an assumption agreement
and a supplemental indenture to the Indenture evidencing such assumption shall
be in substance and form reasonably satisfactory to the Trustee and shall, inter
alia, include modifications and amendments to the Indenture making the
obligations under the Securities of this series and under the Indenture to the
extent related to such series primary obligations of such Subsidiary,
substituting such Subsidiary of the Company for the Company in the form of the
Securities of this series and in provisions of the Indenture to the extent
related to such series and releasing and discharging the Company from its
obligations under the Securities of this series and the Indenture to the extent
related to such series; and (b) the Trustee shall have received (i) an executed
counterpart of such assumption agreement and supplemental indenture; (ii)
evidence satisfactory to the Trustee and the Company that all necessary
authorizations, consents, orders, approvals, waivers, filings and declarations
of or with, Federal, state, county, municipal, regional or other governmental
authorities, agencies or boards (collectively, "Governmental Actions") relating
to such assumption have been duly obtained and are in full force and effect,
(iii) evidence satisfactory to the Trustee that any security interest intended
to be created by the Indenture is not in any material way adversely affected or
impaired by any of the agreements or transactions relating to such assumption
and (iv) an Opinion of Counsel for such Subsidiary, reasonably satisfactory in
substance, scope and form to the Trustee and the Company, to the effect that (A)
the supplemental indenture evidencing such assumption has been duly authorized,
executed and delivered by such Subsidiary, (B) the execution and delivery by
such Subsidiary of such supplemental indenture and the consummation of the
transactions contemplated thereby do not contravene any provision of law or any
governmental rule applicable to such Subsidiary or any provision of such
Subsidiary's charter documents or by-laws and do not contravene any provision
of, or constitute a default under, or result in the creation or imposition of
any lien upon any of such Subsidiary's properties or assets under any indenture,
mortgage, contract or other agreement to which such Subsidiary is a party or by
which such Subsidiary or any of its properties may be bound or
A-6
<PAGE>
affected, (C) all necessary Governmental Actions relating to such assumption
have been duly obtained and are in full force and effect and (D) such agreement
and supplemental indenture constitute the legal, valid and binding obligations
of such Subsidiary, enforceable in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws at the time in
effect affecting the rights of creditors generally.
At the time of such assumption the Company will
unconditionally guarantee payment of the Securities of this series and will
execute a guarantee in form and substance satisfactory to the Trustee. Pursuant
to the guarantee, the Company will fully and unconditionally guarantee the
payment of the obligations of such assuming Subsidiary under the Securities of
this series and under the Indenture, including, without limitation, payment, as
and when due, of the principal of, premium, if any, and interest on, the
Securities of this series. Other than the obligation to make such payments, the
Company shall be released and discharged from all other obligations under the
Indenture.
All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
A-7
<PAGE>
[CERTIFICATE OF TRANSFER]
6.375% SERIES C SENIOR NOTES DUE 2008
FOR VALUE RECEIVED, the undersigned sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------------------------
- ----------------------------------------
-----------------------------------------------------------
Name and address of assignee must be printed or typewritten.
- --------------------------------------------------------------------------------
the within Security of the Company and does hereby irrevocable constitute and
appoint
- --------------------------------------------------------------------------------
to transfer the said Security on the books of the within-named Company, with
full power of substitution in the premises.
The undersigned certifies that said Security is being resold, pledged or
otherwise transferred as follows: (check one)
|_| to the Company;
|_| to a Person whom the undersigned reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act") purchasing
for its own account or for the account of a qualified institutional
buyer to whom notice is given that the resale, pledge or other transfer
is being made in reliance on Rule 144A;
|_| in an offshore transaction in accordance with Rule 904 of Regulation S
under the Securities Act;
|_| to an institution that is an "accredited investor" as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act that is acquiring
this Security for investment purposes and not for distribution; (attach
a copy of an Accredited Investor Certificate in the form annexed signed
by an authorized officer of the transferee)
|_| as otherwise permitted by the non-registration legend appearing on this
Security; or
|_| as otherwise agreed by the Company, confirmed in writing to the
Trustee, as follows: [describe]
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Dated:
--------------------------------- -------------------------------
A-8
<PAGE>
[FORM OF ACCREDITED INVESTOR CERTIFICATE]
[Transferor Name and Address]
Ladies and Gentlemen:
In connection with our proposed purchase of 6.375% Series C Senior Notes due
2008 (the "Senior Notes") issued by Texas Utilities Company ("Issuer"), we
confirm that:
1. We have received a copy of the Offering Memorandum (the
"Offering Memorandum") relating to the Senior Notes and such other
information as we deem necessary in order to make our investment
decision. We acknowledge that we have read and agree to the matters
stated under the caption NOTICE TO INVESTORS in such Offering
Memorandum, and the restrictions on duplication or circulation of, or
disclosure relating to, such Offering Memorandum.
2. We understand that any subsequent transfer of the Senior
Notes is subject to certain restrictions and conditions set forth in
the Indenture relating to Senior Notes (the "Indenture") and that any
subsequent transfer of the Senior Notes is subject to certain
restrictions and conditions set forth under NOTICE TO INVESTORS in the
Offering Memorandum and the undersigned agrees to be bound by, and not
to resell, pledge or otherwise transfer the Senior Notes except in
compliance with such restrictions and conditions and the Securities Act
of 1933, as amended ("Securities Act").
3. We understand that the offer and sale of the Senior Notes
have not been registered under the Securities Act, and that the Senior
Notes may not be offered or sold except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for
which we are acting as hereinafter stated, that if we sell any Senior
Notes, we will do so only (A) to the Company, (B) in accordance with
Rule 144A under the Securities Act to a "qualified institutional buyer"
(as defined therein), (C) to an institutional "accredited investor" (as
defined below) that, prior to such transfer, furnishes to the Trustee
(as defined in the Indenture) a signed letter containing certain
representations and agreements relating to the restrictions on transfer
of the Senior Notes (substantially in the form of this letter) and, if
such transfer is in respect of an aggregate principal amount of Senior
Notes at the time of transfer of less than $100,000, an opinion of
counsel acceptable to the Issuer that such transfer is in compliance
with the Securities Act, (D) outside the United States in accordance
with Rule 904 of Regulation S under the Securities Act, (E) pursuant to
the exemption from registration provided by Rule 144 under the
Securities Act (if available), or (F) pursuant to an effective
registration statement under the Securities Act, and we further agree
to provide to any person purchasing any of the Senior Notes from us a
notice advising such purchaser that resales of the Senior Notes are
restricted as stated herein.
4. We understand that, on any proposed resale of any Senior
Notes, we will be required to furnish to the Trustee and Issuer such
certifications, legal opinions and other information as the Trustee and
Issuer may reasonably require to confirm that the proposed sale
complies with the foregoing restrictions. We further understand that
the Senior Notes purchased by us will bear a legend to the foregoing
effect.
A-9
<PAGE>
5. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act) and have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of our
investment in the Senior Notes, and we and any accounts for which are
acting are each able to bear the economic risk of our or its
investment.
6. We are acquiring the Senior Notes purchased by us for our
own account or for one or more accounts (each of which is an
institutional "accredited investor") as to each of which we exercise
sole investment discretion.
You, the Issuer and the Trustee are entitled to rely upon this letter
and are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.
Very truly yours,
By:
----------------------------
Name:
Title:
A-10
<PAGE>
EXHIBIT B
[depository legend]
[Unless this Certificate is presented by an authorized representative
of The Depository Trust Company, a New York corporation ("DTC"), to the Company
or its agent for registration of transfer, exchange, or payment, and any
certificate issued is registered in the name of Cede & Co. or in such other name
as is requested by an authorized representative of DTC (and any payment is made
to Cede & Co. or to such other entity as is requested by an authorized
representative of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the registered owner
hereof, Cede & Co., has an interest herein.]
NO. CUSIP NO.
--------------- --------------
[FORM OF FACE OF EXCHANGE SENIOR NOTE]
TEXAS UTILITIES COMPANY
6.375% SERIES C EXCHANGE SENIOR NOTES DUE 2008
TEXAS UTILITIES COMPANY, a corporation duly organized and existing
under the laws of the State of Texas (herein referred to as the "Company", which
term includes any successor Person under the Indenture), for value received,
hereby promises to pay to
or registered assigns, the principal sum of ____________________ Dollars on
January 1, 2008, and to pay interest on said principal sum semi-annually on
January 1 and July 1 of each year (each an Interest Payment Date) at the rate of
6.375% per annum until the principal hereof is paid or made available for
payment. Interest on the Securities of this series will accrue from
________________, to the first Interest Payment Date, and thereafter will accrue
from the last Interest Payment Date to which interest has been paid or duly
provided for. In the event that any Interest Payment Date is not a Business Day,
then payment of interest payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of such delay) with the same force and effect as if made on
the Interest Payment Date. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in such Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the 15th day of the
calendar month next preceding such Interest Payment Date. Any such interest not
so punctually paid or duly provided for will forthwith cease to be payable to
the Holder on such Regular Record Date and may either be paid to the Person in
whose name this Security (or one or more Predecessor Securities) is registered
at the close of business on a Special Record Date for the payment of such
Defaulted Interest to be fixed by the Trustee, notice whereof shall be given to
Holders of Securities of this series not less than 10 days prior to such Special
Record Date, or be paid at any time in any other lawful manner not inconsistent
with the requirements of any securities exchange on which the Securities of this
series may be listed, and upon such notice as may be required by such exchange,
all as more fully provided in the Indenture referred to on the reverse hereof.
Payment of the principal of (and premium, if any) and interest
on this Security will be made at the office or agency of the Company maintained
for that purpose in The City of New York, the State of New York in such coin or
currency of the United States of America as at the time of payment
B-1
<PAGE>
is legal tender for payment of public and private debts, provided, however,
that, at the option of the Company, interest on this Security may be paid by
check mailed to the address of the person entitled thereto, as such address
shall appear on the Security Register.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by manual signature,
this Security shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.
TEXAS UTILITIES COMPANY
By:
---------------------------------
ATTEST:
- ----------------------------
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
THE BANK OF NEW YORK, as Trustee
By:
-------------------------------
Authorized Signatory
B-2
<PAGE>
[FORM OF REVERSE OF EXCHANGE SENIOR NOTE]
This Security is one of a duly authorized issue of securities
of the Company (herein called the "Securities"), issued and to be issued in one
or more series under an Indenture (for Unsecured Debt Securities Series C),
dated as of January 1, 1998 (herein, together with any amendments thereto,
called the "Indenture", which term shall have the meaning assigned to it in such
instrument), between the Company and The Bank of New York, as Trustee (herein
called the "Trustee", which term includes any successor trustee under the
Indenture), and reference is hereby made to the Indenture, including the Board
Resolutions and Officer's Certificate filed with the Trustee on January 13, 1998
creating the series designated on the face hereof, for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the Holders of the Securities and of the terms upon
which the Securities are, and are to be, authenticated and delivered. This
Security is one of the series designated on the face hereof, limited in
aggregate principal amount to $200,000,000.
REDEMPTION
The Securities of this series will not be redeemable prior to
maturity.
The Indenture contains provisions for defeasance at any time
of the entire indebtedness of this Security upon compliance with certain
conditions set forth in the Indenture.
If an Event of Default with respect to Securities of this
series shall occur and be continuing, the principal of the Securities of this
series may be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities of
each series to be affected under the Indenture at any time by the Company and
the Trustee with the consent of the Holders of a majority in principal amount of
the Securities at the time Outstanding of all series to be affected. The
Indenture also contains provisions permitting the Holders of specified
percentages in principal amount of the Securities of each series at the time
Outstanding, on behalf of the Holders of all Securities of such series, to waive
compliance by the Company with certain provisions of the Indenture and certain
past defaults under the Indenture and their consequences. Any such consent or
waiver by the Holder of this Security shall be conclusive and binding upon such
Holder and upon all future Holders of this Security and of any Security issued
upon the registration of transfer hereof or in exchange herefor or in lieu
hereof, whether or not notation of such consent or waiver is made upon this
Security.
As provided in and subject to the provisions of the Indenture,
the Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously given
the Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of a majority in aggregate principal
amount of the Securities of all series at the time Outstanding in respect of
which an Event of Default shall have occurred and be continuing shall have made
written request to the Trustee to institute proceedings in respect of such Event
of Default as Trustee and offered the Trustee reasonable indemnity, and the
Trustee shall not have received from the Holders of a majority in aggregate
principal amount of Securities of all series at the time Outstanding in respect
of which an Event of Default shall have occurred and be continuing a direction
inconsistent with such request, and shall have failed to institute any such
proceeding, for 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to any
B-3
<PAGE>
suit instituted by the Holder of this Security for the enforcement of any
payment of principal hereof or any premium or interest hereon on or after the
respective due dates expressed herein.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and any
premium and interest on this Security at the times, place and rate, and in the
coin or currency, herein prescribed.
The Securities of this series are issuable only in registered
form without coupons in denominations of $5,000 and in integral multiples of
$1,000 in excess thereof. As provided in the Indenture and subject to certain
limitations therein set forth, Securities of this series are exchangeable for a
like aggregate principal amount of Securities of this series and of like tenor
and of authorized denominations, as requested by the Holder surrendering the
same.
No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
The Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Security is registered as the
absolute owner hereof for all purposes, whether or not this Security be overdue,
and neither the Company, the Trustee nor any such agent shall be affected by
notice to the contrary.
Unless an Event of Default, or an event which, after notice or
lapse of time or both, would become an Event of Default, shall have occurred and
be continuing, the obligations of the Company under the Securities of this
series and the Indenture to the extent related to such series may be assigned by
the Company to, and be assumed in whole, on a full recourse basis, by a wholly
owned Subsidiary of the Company at any time; provided, however, that such
assumption shall be subject to, and permitted only upon the fulfillment and
satisfaction of, the following terms and conditions: (a) an assumption agreement
and a supplemental indenture to the Indenture evidencing such assumption shall
be in substance and form reasonably satisfactory to the Trustee and shall, inter
alia, include modifications and amendments to the Indenture making the
obligations under the Securities of this series and under the Indenture to the
extent related to such series primary obligations of such Subsidiary,
substituting such Subsidiary of the Company for the Company in the form of the
Securities of this series and in provisions of the Indenture to the extent
related to such series and releasing and discharging the Company from its
obligations under the Securities of this series and the Indenture to the extent
related to such series; and (b) the Trustee shall have received (i) an executed
counterpart of such assumption agreement and supplemental indenture; (ii)
evidence satisfactory to the Trustee and the Company that all necessary
authorizations, consents, orders, approvals, waivers, filings and declarations
of or with, Federal, state, county, municipal, regional or other governmental
authorities, agencies or boards (collectively, "Governmental Actions") relating
to such assumption have been duly obtained and are in full force and effect,
(iii) evidence satisfactory to the Trustee that any security interest intended
to be created by the Indenture is not in any material way adversely affected or
impaired by any of the agreements or transactions relating to such assumption
and (iv) an Opinion of Counsel for such Subsidiary, reasonably satisfactory in
substance, scope and form to the Trustee and the Company, to the effect that (A)
the supplemental indenture evidencing such assumption has been duly authorized,
executed and delivered by such Subsidiary, (B) the execution and delivery by
such Subsidiary of such supplemental indenture and the consummation of the
transactions contemplated thereby do not contravene any provision of law or any
governmental rule applicable to such Subsidiary or any provision of such
Subsidiary's charter documents or by-laws and do not contravene any provision
of, or constitute a default under, or result in the creation or imposition of
any lien upon any of such Subsidiary's properties or assets under any indenture,
mortgage, contract or other agreement to which such Subsidiary is a party or by
which such Subsidiary or any of its properties may be bound or
<PAGE>
affected, (C) all necessary Governmental Actions relating to such assumption
have been duly obtained and are in full force and effect and (D) such agreement
and supplemental indenture constitute the legal, valid and binding obligations
of such Subsidiary, enforceable in accordance with their respective terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws at the time in
effect affecting the rights of creditors generally.
At the time of such assumption the Company will
unconditionally guarantee payment of the Securities of this series and will
execute a guarantee in form and substance satisfactory to the Trustee. Pursuant
to the guarantee, the Company will fully and unconditionally guarantee the
payment of the obligations of such assuming Subsidiary under the Securities of
this series and under the Indenture, including, without limitation, payment, as
and when due, of the principal of, premium, if any, and interest on, the
Securities of this series. Other than the obligation to make such payments, the
Company shall be released and discharged from all other obligations under the
Indenture.
All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
B-5
<PAGE>
FOR VALUE RECEIVED, the undersigned sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------------------------
- ----------------------------------------
------------------------------------------------------------
Name and address of assignee must be printed or typewritten.
- --------------------------------------------------------------------------------
the within Security of the Company and does hereby irrevocable constitute and
appoint
- --------------------------------------------------------------------------------
to transfer the said Security on the books of the within-named Company, with
full power of substitution in the premises.
--------------------------------------------------------------------
--------------------------------------------------------------------
Dated:
------------------------------ --------------------------------
B-6
<PAGE>
EXHIBIT C
[CERTIFICATE OF TRANSFER]
TEXAS UTILITIES COMPANY
6.375% SERIES C SENIOR NOTES DUE 2008
PRINCIPAL AMOUNT: $_______________
FOR VALUE RECEIVED, the undersigned sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------------
- -------------------------------------------
-------------------------------------------------------------
Name and address of assignee must be printed or typewritten.
- -------------------------------------------------------------------------------
the referenced Security of the Company and does hereby irrevocable constitute
and appoint
- -------------------------------------------------------------------------------
to transfer the said Security on the books of the within-named Company, with
full power of substitution in the premises.
The undersigned certifies that said Security is being resold, pledged or
otherwise transferred as follows: (check one)
|_| to the Company;
|_| to a Person whom the undersigned reasonably believes is a qualified
institutional buyer within the meaning of Rule 144A under the
Securities Act of 1933, as amended (the "Securities Act") purchasing
for its own account or for the account of a qualified institutional
buyer to whom notice is given that the resale, pledge or other transfer
is being made in reliance on Rule 144A;
|_| in an offshore transaction in accordance with Rule 904 of Regulation S
under the Securities Act;
|_| to an institution that is an "accredited investor" as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act that is acquiring
this Security for investment purposes and not for distribution; (attach
a copy of an Accredited Investor Certificate in the form annexed signed
by an authorized officer of the transferee)
|_| as otherwise permitted by the non-registration legend appearing on this
Security; or
|_| as otherwise agreed by the Company, confirmed in writing to the
Trustee, as follows: [describe]
-----------------------------------------------------------------------
-----------------------------------------------------------------------
Dated:
---------------------------------- ----------------------------------
All terms used in this certificate which are defined in the
Indenture pursuant to which said Security was issued shall have the meanings
assigned to them in the Indenture.
C-1
<PAGE>
[FORM OF ACCREDITED INVESTOR CERTIFICATE]
[Transferor Name and Address]
Ladies and Gentlemen:
In connection with our proposed purchase of 6.375% Series C Senior Notes due
2008 (the "Senior Notes") issued by Texas Utilities Company ("Issuer"), we
confirm that:
1. We have received a copy of the Offering Memorandum (the
"Offering Memorandum") relating to the Senior Notes and such other
information as we deem necessary in order to make our investment
decision. We acknowledge that we have read and agree to the matters
stated under the caption NOTICE TO INVESTORS in such Offering
Memorandum, and the restrictions on duplication or circulation of, or
disclosure relating to, such Offering Memorandum.
2. We understand that any subsequent transfer of the Senior
Notes is subject to certain restrictions and conditions set forth in
the Indenture relating to Senior Notes (the "Indenture") and that any
subsequent transfer of the Senior Notes is subject to certain
restrictions and conditions set forth under NOTICE TO INVESTORS in the
Offering Memorandum and the undersigned agrees to be bound by, and not
to resell, pledge or otherwise transfer the Senior Notes except in
compliance with such restrictions and conditions and the Securities Act
of 1933, as amended ("Securities Act").
3. We understand that the offer and sale of the Senior Notes
have not been registered under the Securities Act, and that the Senior
Notes may not be offered or sold except as permitted in the following
sentence. We agree, on our own behalf and on behalf of any accounts for
which we are acting as hereinafter stated, that if we sell any Senior
Notes, we will do so only (A) to the Company, (B) in accordance with
Rule 144A under the Securities Act to a "qualified institutional buyer"
(as defined therein), (C) to an institutional "accredited investor" (as
defined below) that, prior to such transfer, furnishes to the Trustee
(as defined in the Indenture) a signed letter containing certain
representations and agreements relating to the restrictions on transfer
of the Senior Notes (substantially in the form of this letter) and, if
such transfer is in respect of an aggregate principal amount of Senior
Notes at the time of transfer of less than $100,000, an opinion of
counsel acceptable to the Issuer that such transfer is in compliance
with the Securities Act, (D) outside the United States in accordance
with Rule 904 of Regulation S under the Securities Act, (E) pursuant to
the exemption from registration provided by Rule 144 under the
Securities Act (if available), or (F) pursuant to an effective
registration statement under the Securities Act, and we further agree
to provide to any person purchasing any of the Senior Notes from us a
notice advising such purchaser that resales of the Senior Notes are
restricted as stated herein.
4. We understand that, on any proposed resale of any Senior
Notes, we will be required to furnish to the Trustee and Issuer such
certifications, legal opinions and other information as the Trustee and
Issuer may reasonably require to confirm that the proposed sale
complies with the foregoing restrictions. We further understand that
the Senior Notes purchased by us will bear a legend to the foregoing
effect.
C-2
<PAGE>
5. We are an institutional "accredited investor" (as defined
in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities
Act) and have such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of our
investment in the Senior Notes, and we and any accounts for which are
acting are each able to bear the economic risk of our or its
investment.
6. We are acquiring the Senior Notes purchased by us for our
own account or for one or more accounts (each of which is an
institutional "accredited investor") as to each of which we exercise
sole investment discretion.
You, the Issuer and the Trustee are entitled to rely upon this letter
and are irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceeding or official inquiry
with respect to the matters covered hereby.
Very truly yours,
By:____________________
Name:
Title:
C-3
<PAGE>
EXHIBIT 4 (ll)
ENSERCH Corporation
OFFICER'S CERTIFICATE
Robert S. Shapard, the Treasurer of ENSERCH Corporation (the
"Company"), pursuant to the authority granted in the Board Resolutions of the
Company dated December 17, 1997, and Sections 201 and 301 of the Indenture
defined herein, does hereby certify to The Bank of New York (the "Trustee"), as
Trustee under the Indenture of the Company (For Unsecured Debt Securities) dated
as of January 1, 1998 (the "Indenture") that:
1. The securities of the first series to be issued under the Indenture
shall be designated "6 1/4% Series A Notes due January 1, 2003" (the
"Series A Notes"). All capitalized terms used in this certificate which
are not defined herein but are defined in the Indenture shall have the
meanings set forth in the Indenture;
2. The Series A Notes shall be limited in aggregate principal
amount to $125,000,000 at any time Outstanding, except as
contemplated in Section 301(b) of the Indenture;
3. The Series A Notes shall mature and the principal shall be due
and payable together with all accrued and unpaid interest
thereon on January 1, 2003;
4. The Series A Notes shall bear interest, at the rate of 6 1/4%
per annum payable semi-annually on July 1 and January 1 of
each year (each, an "Interest Payment Date") commencing July
1, 1998. The amount of interest payable for any such period
will be computed on the basis of a 360-day year of twelve 30-
day months. Interest on the Series A Notes will accrue from
the date of issuance thereof but if interest has been paid on
such Series A Notes, then from the most recent Interest
Payment Date to which interest has been paid or duly provided
for. In the event that any Interest Payment Date is not a
Business Day, then payment of interest payable on such date
will be made on the next succeeding day which is a Business
Day (and without any interest or other payment in respect of
such delay), with the same force and effect as if made on such
Interest Payment Date;
5. Each installment of interest on a Series A Note shall be
payable to the Person in whose name such Series A Note is
registered at the close of business on the 15th day of the
calender month next preceding the corresponding Interest
Payment Date (the "Regular Record Date") for the Series A
Notes. Any installment of interest on the Series A Notes not
punctually paid or duly provided for shall forthwith cease to
be payable to the Holders of such Series A Notes on such
Regular Record Date, and may be paid to the Persons in whose
name the Series A Notes are registered at the close of
business on a Special Record Date to be fixed by the Trustee
for the payment of such Defaulted Interest. Notice of such
Defaulted Interest and Special Record Date shall be given to
<PAGE>
the Holders of the Series A Notes not less than 10 days prior
to such Special Record Date, or may be paid at any time in any
other lawful manner not inconsistent with the requirements of
any securities exchange on which the Series A Notes may be
listed, and upon such notice as may be required by such
exchange, all as more fully provided in the Indenture;
6. The principal and each installment of interest on the Series A
Notes shall be payable at, and registration and registration
of transfers and exchanges in respect of the Series A Notes
may be effected at, the office or agency of the Company in The
City of New York; provided that payment of interest may be
made at the option of the Company by check mailed to the
address of the persons entitled thereto. Notices and demands
to or upon the Company in respect of the Series A Notes may be
served at the office or agency of the Company in The City of
New York. The Corporate Trust Office of the Trustee will
initially be the agency of the Company for such payment,
registration and registration of transfers and exchanges and
service of notices and demands and the Company hereby appoints
the Trustee as its agent for all such purposes; provided,
however, that the Company reserves the right to change, by one
or more Officer's Certificates, any such office or agency and
such agent. The Trustee will be the Security Registrar and the
Paying Agent for the Series A Notes;
7. The Series A Notes will be redeemable as a whole at any time
or in part from time to time, at the option of the Company, at
a Redemption Price equal to the greater of (i) 100% of the
principal amount of such Series A Notes, and (ii) the sum of
the present values of the remaining scheduled payments of
principal and interest thereon from the Redemption Date to the
maturity date, computed by discounting such payments, in each
case, to the Redemption Date on a semiannual basis (assuming a
360-day year consisting of twelve 30-day months) at the
Treasury Rate plus 10 basis points, plus, in each case,
accrued interest on the principal amount thereof to the
Redemption Date.
"Treasury Rate" means, with respect to any Redemption Date,
the rate per annum equal to the semiannual equivalent yield to
maturity of the Comparable Treasury Issue, assuming a price
for the Comparable Treasury Issue (expressed as a percentage
of its principal amount) equal to the Comparable Treasury
Price for such Redemption Date.
"Comparable Treasury Issue" means the United States Treasury
security selected by an Independent Investment Banker as
having a maturity comparable to the remaining term of the
Series A Notes to be redeemed that would be utilized, at the
time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities
of comparable maturity to the remaining term of such Series A
Notes. "Independent Investment Banker" means one of the
Reference Treasury Dealers appointed by the Trustee after
consultation with the Company.
"Comparable Treasury Price" means, with respect to any
Redemption Date, (i) the average of the bid and asked prices
for the Comparable Treasury Issue (expressed in each case as a
percentage of its principal amount) on the third business day
preceding such Redemption Date, as set forth in the daily
statistical release (or any successor
-2-
<PAGE>
release) published by the Federal Reserve Bank of New York and
designated "Composite 3:30 p.m. Quotations for U.S. Government
Securities" or (ii) if such release (or any successor release)
is not published or does not contain such prices on such
business day, the average of the Reference Treasury Dealer
Quotations actually obtained by the Trustee for such
Redemption Date. "Reference Treasury Dealer Quotations" means,
with respect to each Reference Treasury Dealer and any
Redemption Date, the average, as determined by the Trustee, of
the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal
amount) quoted in writing to the Trustee by such Reference
Treasury Dealer at 5:00 p.m. on the third business day
preceding such Redemption Date.
"Reference Treasury Dealer" means each of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co.,
Lehman Brothers, Inc. and Salomon Brothers Inc and their
respective successors; provided, however, that if any of the
foregoing shall cease to be a primary U.S. Government
securities dealer in New York City (a "Primary Treasury
Dealer"), the Company shall substitute therefor another
Primary Treasury Dealer.
Notice of any redemption of Series A Notes will be mailed at
least 30 days but no more than 60 days before the Redemption
Date to each holder of Series A Notes to be redeemed.
Unless the Company defaults in payment of the Redemption
Price, on and after the Redemption Date interest will cease to
accrue on the Series A Notes or portions thereof called for
redemption.
The Company shall deliver to the Trustee before any Redemption
Date for Series A Notes its calculation of the Redemption
Price applicable to such redemption. Except with respect to
the obligations of the Trustee expressly set forth in the
foregoing definitions of "Comparable Treasury Issue" and
"Comparable Treasury Price," the Trustee shall be under no
duty to inquire into, may presume the correctness of, and
shall be fully protected in acting upon the Company's
calculation of any Redemption Price of the Series A Notes.
In lieu of stating the Redemption Price, notices of redemption
of Series A Notes shall state substantially the following:
"The Redemption Price of the Series A Notes to be redeemed
shall equal the greater of (i) 100% of the principal amount of
such Series A Notes, and (ii) the sum of the present values of
the remaining scheduled payments of principal and interest
thereon from the Redemption Date to the maturity date,
computed by discounting such payments, in each case, to the
Redemption Date on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate (as
defined in the Indenture) plus 10 basis points."
Except as provided herein, Article Four of the Indenture shall
apply to redemptions of Series A Notes.
-3-
<PAGE>
8. The Series A Notes will be originally issued in global form
payable to Cede & Co. and will, unless and until the Series A
Notes are exchanged in whole or in part for certificated
Series A Notes registered in the names of various beneficial
holders thereof (in accordance with the conditions set forth
in the legend appearing in the form of the Series A Notes,
hereto attached as Exhibit A), contain restrictions on
transfer, substantially as described in such form;
9. No service charge shall be made for the registration of
transfer or exchange of the Series A Notes; provided, however,
that the Company may require payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed
in connection with the exchange or transfer;
10. If the Company shall make any deposit of money and/or Eligible
Obligations with respect to any Series A Notes, or any portion
of the principal amount thereof, as contemplated by Section
701 of the Indenture, the Company shall not deliver an
Officer's Certificate described in clause (z) in the first
paragraph of said Section 701 unless the Company shall also
deliver to the Trustee, together with such Officer's
Certificate, either:
(A) an instrument wherein the Company,
notwithstanding the satisfaction and discharge of its
indebtedness in respect of the Series A Notes, shall assume
the obligation (which shall be absolute and unconditional) to
irrevocably deposit with the Trustee or Paying Agent such
additional sums of money, if any, or additional Eligible
Obligations (meeting the requirements of Section 701), if any,
or any combination thereof, at such time or times, as shall be
necessary, together with the money and/or Eligible Obligations
theretofore so deposited, to pay when due the principal of and
premium, if any, and interest due and to become due on such
Series A Notes or portions thereof, all in accordance with and
subject to the provisions of said Section 701; provided,
however, that such instrument may state that the obligation of
the Company to make additional deposits as aforesaid shall be
subject to the delivery to the Company by the Trustee of a
notice asserting the deficiency accompanied by an opinion of
an independent public accountant of nationally recognized
standing, selected by the Trustee, showing the calculation
thereof; or
(B) an Opinion of Counsel to the effect that, as a
result of a change in law occurring after the date of this
certificate, the Holders of such Series A Notes, or portions
of the principal amount thereof, will not recognize income,
gain or loss for United States federal income tax purposes as
a result of the satisfaction and discharge of the Company's
indebtedness in respect thereof and will be subject to United
States federal income tax on the same amounts, at the same
times and in the same manner as if such satisfaction and
discharge had not been effected.
11. The Series A Notes shall have such other terms and provisions
as are provided in the form set forth in Exhibit A hereto, and
shall be issued in substantially such form;
-4-
<PAGE>
12. The undersigned has read all of the covenants and conditions
contained in the Indenture relating to the issuance of the
Series A Notes and the definitions in the Indenture relating
thereto and in respect of which this certificate is made;
13. The statements contained in this certificate are based upon
the familiarity of the undersigned with the Indenture, the
documents accompanying this certificate, and upon discussions
by the undersigned with officers and employees of the Company
familiar with the matters set forth herein;
14. In the opinion of the undersigned, he has made such
examination or investigation as is necessary to enable him to
express an informed opinion whether or not such covenants and
conditions have been complied with; and
15. In the opinion of the undersigned, such conditions and
covenants and conditions precedent, if any (including any
covenants compliance with which constitutes a condition
precedent) to the authentication and delivery of the Series A
Notes requested in the accompanying Company Order have been
complied with.
-5-
<PAGE>
IN WITNESS WHEREOF, I have executed this Officer's Certificate this
30th day of January, 1998.
/s/ Robert S. Shapard
------------------------------------
Robert S. Shapard
Treasurer
-6-
<PAGE>
No._______________
Cusip No.__________
EXHIBIT A
[FORM OF FACE OF SERIES A NOTE]
[(SEE LEGEND AT THE END OF THIS SECURITY FOR
RESTRICTIONS ON TRANSFERABILITY AND CHANGE OF FORM)]
ENSERCH CORPORATION
6 1/4% SERIES A NOTES DUE JANUARY 1, 2003
ENSERCH CORPORATION, a corporation duly organized and existing under
the laws of the State of Texas (herein referred to as the "Company", which term
includes any successor Person under the Indenture), for value received, hereby
promises to pay to [Cede & Co.] or registered assigns, the principal sum of
_______________________________________________Dollars on January 1, 2003, and
to pay interest on said principal sum, semi-annually on July 1 and January 1 of
each year, commencing July 1, 1998, at the rate of 6 1/4% per annum until the
principal hereof is paid or made available for payment. The amount of interest
payable on any Interest Payment Date shall be computed on the basis of a 360-day
year of twelve 30-day months. Interest on the Securities of this series will
accrue from January 30, 1998, to the first Interest Payment Date, and thereafter
will accrue from the last Interest Payment Date to which interest has been paid
or duly provided for. In the event that any Interest Payment Date is not a
Business Day, then payment of interest payable on such date will be made on the
next succeeding day which is a Business Day (and without any interest or other
payment in respect of such delay) with the same force and effect as if made on
the Interest Payment Date. The interest so payable, and punctually paid or duly
provided for, on any Interest Payment Date will, as provided in such Indenture,
be paid to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the 15th day of the calendar month next
preceding such Interest Payment Date. Any such interest not so punctually paid
or duly provided for will forthwith cease to be payable to the Holder on such
Regular Record Date and may either be paid to the Person in whose name this
Security (or one or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice whereof shall be given to Holders of Securities
of this series not less than 10 days prior to such Special Record Date, or be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities of this series
may be listed, and upon such notice as may be required by such exchange, all as
more fully provided in the Indenture referred to on the reverse hereof.
Payment of the principal of (and premium, if any) and interest
on this Security will be made at the office or agency of the Company maintained
for that purpose in The City of New York, the State of New York in such coin or
currency of the United States of America as at the time of payment is legal
tender for payment of public and private debts, provided, however, that, at the
option of the Company, interest on this Security may be paid by check mailed to
the address of the person entitled thereto, as such address shall appear on the
Security Register.
<PAGE>
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by manual signature,
this Security shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to
be duly executed.
ENSERCH CORPORATION
By:_______________________
ATTEST:
____________________________
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
THE BANK OF NEW YORK, as Trustee
By:_______________________
Authorized Signatory
-2-
<PAGE>
[FORM OF REVERSE OF SERIES A NOTE]
This Security is one of a duly authorized issue of securities
of the Company (herein called the "Securities"), issued and to be issued in one
or more series under an Indenture, dated as of January 1, 1998 (herein, together
with any amendments thereto, called the "Indenture", which term shall have the
meaning assigned to it in such instrument), between the Company and The Bank of
New York, as Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), and reference is hereby made to the
Indenture, including the Board Resolutions and Officer's Certificate filed with
the Trustee on January 30, 1998 creating the series designated on the face
hereof, for a statement of the respective rights, limitations of rights, duties
and immunities thereunder of the Company, the Trustee and the Holders of the
Securities and of the terms upon which the Securities are, and are to be,
authenticated and delivered. This Security is one of the series designated on
the face hereof, limited in aggregate principal amount to $125,000,000.
The Securities of this series will be redeemable as a whole at
any time or in part from time to time, at the option of the Company, at a
Redemption Price equal to the greater of (i) 100% of the principal amount of
such Securities of this series, and (ii) the sum of the present values of the
remaining scheduled payments of principal and interest thereon from the
Redemption Date to the maturity date, computed by discounting such payments, in
each case, to the Redemption Date on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the Treasury Rate plus 10 basis points,
plus, in each case, accrued interest on the principal amount thereof to the
Redemption Date.
"Treasury Rate" means, with respect to any Redemption Date,
the rate per annum equal to the semiannual equivalent yield to
maturity of the Comparable Treasury Issue, assuming a price
for the Comparable Treasury Issue (expressed as a percentage
of its principal amount) equal to the Comparable Treasury
Price for such Redemption Date.
"Comparable Treasury Issue" means the United States Treasury
security selected by an Independent Investment Banker as
having a maturity comparable to the remaining term of the
Securities of this series to be redeemed that would be
utilized, at the time of selection and in accordance with
customary financial practice, in pricing new issues of
corporate debt securities of comparable maturity to the
remaining term of such Securities of this series. "Independent
Investment Banker" means one of the Reference Treasury Dealers
appointed by the Trustee after consultation with the Company.
"Comparable Treasury Price" means, with respect to any
Redemption Date, (i) the average of the bid and asked prices
for the Comparable Treasury Issue (expressed in each case as a
percentage of its principal amount) on the third business day
preceding such Redemption Date, as set forth in the daily
statistical release (or any successor release) published by
the Federal Reserve Bank of New York and designated "Composite
3:30 p.m. Quotations for U.S. Government Securities" or (ii)
if such release (or any successor release) is not published or
does not contain such prices on such business day, the average
of the Reference Treasury Dealer Quotations actually obtained
by the Trustee for such Redemption Date. "Reference Treasury
Dealer Quotations" means, with respect to each Reference
Treasury Dealer and any Redemption Date, the average, as
determined by the Trustee, of the bid and asked prices for the
Comparable Treasury Issue (expressed in each case as a
percentage of its
-3-
<PAGE>
principal amount) quoted in writing to the Trustee by such
Reference Treasury Dealer at 5:00 p.m. on the third business
day preceding such Redemption Date.
"Reference Treasury Dealer" means each of Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co.,
Lehman Brothers, Inc. and Salomon Brothers Inc. and their
respective successors; provided, however, that if any of the
foregoing shall cease to be a primary U.S. Government
securities dealer in New York City (a "Primary Treasury
Dealer"), the Company shall substitute therefor another
Primary Treasury Dealer.
Notice of any redemption will be mailed at least 30 days but
no more than 60 days before the Redemption Date to each holder
of Securities of this series to be redeemed.
Unless the Company defaults in payment of the Redemption
Price, on and after the Redemption Date interest will cease to
accrue on the Securities of this series or portions thereof
called for redemption.
The Indenture contains provisions for defeasance at any time
of the entire indebtedness of this Security upon compliance with certain
conditions set forth in the Indenture, including the Officer's Certificate
described above.
If an Event of Default with respect to Securities of this
series shall occur and be continuing, the principal of the Securities of this
series may be declared due and payable in the manner and with the effect
provided in the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights and
obligations of the Company and the rights of the Holders of the Securities of
each series to be affected under the Indenture at any time by the Company and
the Trustee with the consent of the Holders of a majority in principal amount of
the Securities at the time Outstanding of all series to be affected. The
Indenture contains provisions permitting the Holders of a majority in aggregate
principal amount of the Securities of all series then Outstanding to waive
compliance by the Company with certain restrictive provisions of the Indenture.
The Indenture also contains provisions permitting the Holders of specified
percentages in principal amount of the Securities of each series at the time
Outstanding, on behalf of the Holders of all Securities of such series, to waive
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Security and of any
Security issued upon the registration of transfer hereof or in exchange herefor
or in lieu hereof, whether or not notation of such consent or waiver is made
upon this Security.
As provided in and subject to the provisions of the Indenture,
the Holder of this Security shall not have the right to institute any proceeding
with respect to the Indenture or for the appointment of a receiver or trustee or
for any other remedy thereunder, unless such Holder shall have previously given
the Trustee written notice of a continuing Event of Default with respect to the
Securities of this series, the Holders of a majority in aggregate principal
amount of the Securities of all series at the time Outstanding in respect of
which an Event of Default shall have occurred and be continuing shall have made
written request to the Trustee to institute proceedings in respect of such Event
of Default as Trustee and offered the Trustee reasonable indemnity, and the
Trustee shall not have received from the Holders of a majority in aggregate
principal amount of Securities of all series at the time Outstanding in respect
of which an Event of Default shall have occurred and be continuing a
-4-
<PAGE>
direction inconsistent with such request, and shall have failed to institute any
such proceeding, for 60 days after receipt of such notice, request and offer of
indemnity. The foregoing shall not apply to any suit instituted by the Holder of
this Security for the enforcement of any payment of principal hereof or any
premium or interest hereon on or after the respective due dates expressed
herein.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and any
premium and interest on this Security at the times, place and rate, and in the
coin or currency, herein prescribed.
The Securities of this series are issuable only in registered
form without coupons in denominations of $1,000 and any integral multiple
thereof. As provided in the Indenture and subject to certain limitations therein
set forth, Securities of this series are exchangeable for a like aggregate
principal amount of Securities of this series and of like tenor and of
authorized denominations, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
The Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Security is registered as the
absolute owner hereof for all purposes, whether or not this Security be overdue,
and neither the Company, the Trustee nor any such agent shall be affected by
notice to the contrary.
All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the Indenture.
-5-
<PAGE>
[LEGEND
Unless and until this Security is exchanged in whole or in part for
certificated Securities registered in the names of the various beneficial
holders hereof as then certified to the Trustee by The Depository Trust Company
(55 Water Street, New York, New York) or its successor (the "Depositary"), this
Security may not be transferred except as a whole by the Depositary to a nominee
of the Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
Unless this certificate is presented by an authorized representative of
the Depositary to the Company or its agent for registration of transfer,
exchange or payment, and any certificate to be issued is registered in the name
of Cede & Co., or such other name as requested by an authorized representative
of the Depositary and any amount payable thereunder is made payable to Cede &
Co., or such other name, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof,
Cede & Co., has an interest herein.
This Security may be exchanged for certificated Securities registered
in the names of the various beneficial owners hereof if (a) the Depositary is at
any time unwilling or unable to continue as depositary and a successor
depositary is not appointed by the Company within 90 days, or (b) the Company
elects to issue certificated Securities to beneficial owners. Any such exchange
shall be made upon receipt by the Trustee of a Company Order therefor and
certificated Securities of this series shall be registered in such names and in
such denominations as shall be certified to the Company and the Trustee by the
Depositary.]
<PAGE>
EXHIBIT 4 (kk)
------------------------------------------
ENSERCH CORPORATION
TO
THE BANK OF NEW YORK
---------
INDENTURE
(FOR UNSECURED DEBT SECURITIES)
DATED AS OF JANUARY 1, 1998
------------------------------------------
<PAGE>
i
TABLE OF CONTENTS
PARTIES................................................................... 1
RECITAL OF THE COMPANY.................................................... 1
ARTICLE ONE............................................................... 1
Definitions and Other Provisions of General Application................... 1
SECTION 101. Definitions........................................ 1
Act ............................................... 2
Affiliate............................................... 2
Authenticating Agent.................................... 2
Authorized Officer...................................... 2
Board of Directors...................................... 2
Board Resolution........................................ 2
Business Day............................................ 2
Commission.............................................. 3
Company ............................................... 3
Company Request or Company Order........................ 3
Corporate Trust Office.................................. 3
corporation............................................. 3
Defaulted Interest...................................... 3
Discount Security....................................... 3
Dollar or $............................................. 3
Eligible Obligations.................................... 3
Event of Default........................................ 3
Governmental Authority.................................. 4
Government Obligations.................................. 4
Holder ............................................... 4
Indenture............................................... 4
Interest Payment Date................................... 4
Maturity ............................................... 4
Officer's Certificate................................... 4
Opinion of Counsel...................................... 4
Outstanding............................................. 5
Paying Agent............................................ 6
Periodic Offering....................................... 6
Person ............................................... 6
Place of Payment........................................ 6
Predecessor Security.................................... 6
Redemption Date......................................... 6
Redemption Price........................................ 6
Regular Record Date..................................... 6
Required Currency....................................... 6
Responsible Officer..................................... 6
Note: This table of contents shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE>
ii
Securities.............................................. 7
Security Register and Security Registrar................ 7
Special Record Date..................................... 7
Stated Interest Rate.................................... 7
Stated Maturity......................................... 7
Tranche ............................................... 7
Trust Indenture Act..................................... 7
Trustee ............................................... 7
United States........................................... 7
SECTION 102. Compliance Certificates and Opinions............... 7
SECTION 103. Form of Documents Delivered to Trustee............. 8
SECTION 104. Acts of Holders.................................... 9
SECTION 105. Notices, etc. to Trustee and Company............... 11
SECTION 106. Notice to Holders of Securities; Waiver............ 12
SECTION 107. Conflict with Trust Indenture Act.................. 12
SECTION 108. Effect of Headings and Table of Contents........... 12
SECTION 109. Successors and Assigns............................. 12
SECTION 110. Separability Clause................................ 13
SECTION 111. Benefits of Indenture.............................. 13
SECTION 112. Governing Law...................................... 13
SECTION 113. Legal Holidays..................................... 13
ARTICLE TWO............................................................... 13
Security Forms............................................................ 13
SECTION 201. Forms Generally.................................... 13
SECTION 202. Form of Trustee's Certificate of Authentication.... 14
ARTICLE THREE............................................................. 14
The Securities............................................................ 14
SECTION 301. Amount Unlimited; Issuable in Series............... 14
SECTION 302. Denominations...................................... 18
SECTION 303. Execution, Authentication, Delivery and Dating..... 18
SECTION 304. Temporary Securities............................... 21
SECTION 305. Registration, Registration of Transfer and Exchange 22
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities... 23
SECTION 307. Payment of Interest; Interest Rights Preserved..... 24
SECTION 308. Persons Deemed Owners.............................. 25
SECTION 309. Cancellation by Security Registrar................. 25
SECTION 310. Computation of Interest............................ 26
SECTION 311. Payment to Be in Proper Currency................... 26
ARTICLE FOUR.............................................................. 26
Redemption of Securities.................................................. 26
<PAGE>
iii
SECTION 401. Applicability of Article........................... 26
SECTION 402. Election to Redeem; Notice to Trustee.............. 27
SECTION 403. Selection of Securities to Be Redeemed............. 27
SECTION 404. Notice of Redemption............................... 27
SECTION 405. Securities Payable on Redemption Date.............. 29
SECTION 406. Securities Redeemed in Part........................ 29
ARTICLE FIVE.............................................................. 30
Sinking Funds............................................................. 30
SECTION 501. Applicability of Article........................... 30
SECTION 502. Satisfaction of Sinking Fund Payments with
Securities......................................... 30
SECTION 503. Redemption of Securities for Sinking Fund.......... 30
ARTICLE SIX............................................................... 31
Covenants................................................................. 31
SECTION 601. Payment of Principal, Premium and Interest......... 31
SECTION 602. Maintenance of Office or Agency.................... 31
SECTION 603. Money for Securities Payments to Be Held in Trust.. 32
SECTION 604. Corporate Existence................................ 34
SECTION 605. Maintenance of Properties.......................... 34
SECTION 606. Annual Officer's Certificate as to Compliance...... 34
SECTION 607. Waiver of Certain Covenants........................ 34
ARTICLE SEVEN............................................................. 35
Satisfaction and Discharge................................................ 35
SECTION 701. Satisfaction and Discharge of Securities........... 35
SECTION 702. Satisfaction and Discharge of Indenture............ 37
SECTION 703. Application of Trust Money......................... 38
ARTICLE EIGHT............................................................. 39
Events of Default; Remedies............................................... 39
SECTION 801. Events of Default.................................. 39
SECTION 802. Acceleration of Maturity; Rescission and Annulment. 40
SECTION 803. Collection of Indebtedness and Suits for
Enforcement by Trustee............................. 41
SECTION 804. Trustee May File Proofs of Claim................... 42
SECTION 805. Trustee May Enforce Claims Without Possession of
Securities......................................... 43
SECTION 806. Application of Money Collected..................... 43
SECTION 807. Limitation on Suits................................ 43
SECTION 808. Unconditional Right of Holders to Receive
Principal, Premium and Interest.................... 44
SECTION 809. Restoration of Rights and Remedies................. 44
SECTION 810. Rights and Remedies Cumulative..................... 45
<PAGE>
iv
SECTION 811. Delay or Omission Not Waiver....................... 45
SECTION 812. Control by Holders of Securities................... 45
SECTION 813. Waiver of Past Defaults............................ 45
SECTION 814. Undertaking for Costs.............................. 46
SECTION 815. Waiver of Stay or Extension Laws................... 46
ARTICLE NINE.............................................................. 47
The Trustee............................................................... 47
SECTION 901. Certain Duties and Responsibilities................ 47
SECTION 902. Notice of Defaults................................. 47
SECTION 903. Certain Rights of Trustee.......................... 48
SECTION 904. Not Responsible for Recitals or Issuance of
Securities......................................... 49
SECTION 905. May Hold Securities................................ 49
SECTION 906. Money Held in Trust................................ 49
SECTION 907. Compensation and Reimbursement..................... 49
SECTION 908. Disqualification; Conflicting Interests............ 50
SECTION 909. Corporate Trustee Required; Eligibility............ 51
SECTION 910. Resignation and Removal; Appointment of Successor.. 51
SECTION 911. Acceptance of Appointment by Successor............. 53
SECTION 912. Merger, Conversion, Consolidation or Succession to
Business........................................... 54
SECTION 913. Preferential Collection of Claims Against Company.. 55
SECTION 914. Co-trustees and Separate Trustees.................. 55
SECTION 915. Appointment of Authenticating Agent................ 56
ARTICLE TEN............................................................... 58
Holders' Lists and Reports by Trustee and Company......................... 58
SECTION 1001. Lists of Holders.................................. 58
SECTION 1002. Reports by Trustee and Company.................... 59
ARTICLE ELEVEN............................................................ 59
Consolidation, Merger, Conveyance or Other Transfer ...................... 59
SECTION 1101. Company May Consolidate, etc., Only on Certain
Terms............................................. 59
SECTION 1102. Successor Corporation Substituted................. 60
ARTICLE TWELVE............................................................ 60
Supplemental Indentures................................................... 60
SECTION 1201. Supplemental Indentures Without Consent of Holders 60
SECTION 1202. Supplemental Indentures With Consent of Holders... 62
SECTION 1203. Execution of Supplemental Indentures.............. 64
SECTION 1204. Effect of Supplemental Indentures................. 64
SECTION 1205. Conformity With Trust Indenture Act............... 64
SECTION 1206. Reference in Securities to Supplemental
Indentures........................................ 64
<PAGE>
v
SECTION 1207. Modification Without Supplemental Indenture....... 64
ARTICLE THIRTEEN.......................................................... 65
Meetings of Holders; Action Without Meeting............................... 65
SECTION 1301. Purposes for Which Meetings May Be Called......... 65
SECTION 1302. Call, Notice and Place of Meetings................ 65
SECTION 1303. Persons Entitled to Vote at Meetings.............. 66
SECTION 1304. Quorum; Action.................................... 66
SECTION 1305. Attendance at Meetings; Determination of Voting
Rights; Conduct and Adjournment of Meetings....... 67
SECTION 1306. Counting Votes and Recording Action of Meetings... 68
SECTION 1307. Action Without Meeting............................ 69
ARTICLE FOURTEEN.......................................................... 69
Immunity of Incorporators, Shareholders, Officers and Directors........... 69
SECTION 1401. Liability Solely Corporate........................ 69
Testimonium............................................................... 70
Signatures................................................................ 70
Acknowledgements.......................................................... 71
<PAGE>
ENSERCH CORPORATION
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT OF 1939
AND INDENTURE, DATED AS OF JANUARY 1, 1998
TRUST INDENTURE ACT SECTION INDENTURE SECTION
ss.310 (a)(1)...................................................... 909
(a)(2)...................................................... 909
(a)(3)...................................................... 914
(a)(4).................................................. Not Applicable
(b)......................................................... 908
910
ss.311 (a)......................................................... 913
(b)......................................................... 913
(c)......................................................... 913
ss.312 (a)........................................................ 1001
(b)........................................................ 1001
(c)........................................................ 1001
ss.313 (a)........................................................ 1002
(b)........................................................ 1002
(c)........................................................ 1002
ss.314 (a)........................................................ 1002
(a)(4)..................................................... 606
(b)..................................................... Not Applicable
(c)(1)...................................................... 102
(c)(2)...................................................... 102
(c)(3).................................................. Not Applicable
(d)..................................................... Not Applicable
(e)......................................................... 102
ss.315 (a)......................................................... 901
903
(b)......................................................... 902
(c)......................................................... 901
(d)......................................................... 901
(e)......................................................... 814
ss.316 (a)......................................................... 812
813
(a)(1)(A)................................................... 802
812
(a)(1)(B)................................................... 813
(a)(2).................................................. Not Applicable
(b)......................................................... 808
ss.317 (a)(1)...................................................... 803
(a)(2)...................................................... 804
(b)......................................................... 603
ss.318 (a)......................................................... 107
<PAGE>
INDENTURE, dated as of January 1, 1998, between ENSERCH CORPORATION, a
corporation duly organized and existing under the laws of the State of Texas
(herein called the "Company"), having its principal office at 1601 Bryan Street,
Dallas, Texas 75201, and THE BANK OF NEW YORK, a banking corporation of the
State of New York, having its principal corporate trust office at 101 Barclay
Street, New York, New York 10286, as Trustee (herein called the "Trustee").
RECITAL OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured
debentures, notes or other evidences of indebtedness (herein called the
"Securities"), in an unlimited aggregate principal amount to be issued in one or
more series as contemplated herein; and all acts necessary to make this
Indenture a valid agreement of the Company have been performed.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires, capitalized terms used herein
shall have the meanings assigned to them in Article One of this Indenture.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities or of any
series thereof, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned
to them in this Article and include the plural as well as the singular;
(b) all terms used herein without definition which are defined in
the Trust Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted accounting
principles in the United States, and, except as otherwise herein expressly
provided, the term "generally accepted accounting
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principles" with respect to any computation required or permitted
hereunder shall mean such accounting principles as are generally accepted
in the United States at the date of such computation or, at the election
of the Company from time to time, at the date of the execution and
delivery of this Indenture; provided, however, that in determining
generally accepted accounting principles applicable to the Company, the
Company shall, to the extent required, conform to any order, rule or
regulation of any administrative agency, regulatory authority or other
governmental body having jurisdiction over the Company; and
(d) the words "herein", "hereof" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision.
Certain terms, used principally in Article Nine, are defined in that
Article.
"ACT", when used with respect to any Holder of a Security, has the
meaning specified in Section 104.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"CONTROL" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or through one or
more intermediaries, whether through the ownership of voting securities, by
contract or otherwise; and the terms "CONTROLLING" and "CONTROLLED" have
meanings correlative to the foregoing.
"AUTHENTICATING AGENT" means any Person (other than the Company
or an Affiliate of the Company) authorized by the Trustee pursuant to Section
915 to act on behalf of the Trustee to authenticate one or more series of
Securities.
"AUTHORIZED OFFICER" means the Chairman of the Board, the President, any
Vice President, the Treasurer, any Assistant Treasurer, or any other officer or
agent of the Company duly authorized by the Board of Directors to act in respect
of matters relating to this Indenture.
"BOARD OF DIRECTORS" means either the board of directors of the Company
or any committee thereof duly authorized to act in respect of matters relating
to this Indenture.
"BOARD RESOLUTION" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"BUSINESS DAY", when used with respect to a Place of Payment or any
other particular location specified in the Securities or this Indenture, means
any day, other than a Saturday or Sunday, which is not a day on which banking
institutions or trust companies in such Place of
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Payment or other location are generally authorized or required by law,
regulation or executive order to remain closed, except as may be otherwise
specified as contemplated by Section 301.
"COMMISSION" means the Securities and Exchange Commission, as
from time to time constituted, created under the Securities Exchange Act of
1934, as amended, or, if at any time after the date of execution and delivery of
this Indenture such Commission is not existing and performing the duties now
assigned to it under the Trust Indenture Act, then the body, if any, per forming
such duties at such time.
"COMPANY" means the Person named as the "Company" in the first
paragraph of this Indenture until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"COMPANY REQUEST" or "COMPANY ORDER" means a written request or
order signed in the name of the Company by an Authorized Officer and delivered
to the Trustee.
"CORPORATE TRUST OFFICE" means the office of the Trustee at which
at any particular time its corporate trust business shall be principally
administered, which office at the date of execution and delivery of this
Indenture is located at 101 Barclay Street, New York, New York 10286.
"CORPORATION" means a corporation, association, company, joint
stock company or business trust.
"DEFAULTED INTEREST" has the meaning specified in Section 307.
"DISCOUNT SECURITY" means any Security which provides for an
amount less than the principal amount thereof to be due and payable upon a
declaration of acceleration of the Maturity thereof pursuant to Section 802.
"Interest" with respect to a Discount Security means interest, if any, borne by
such Security at a Stated Interest Rate.
"DOLLAR" or "$" means a dollar or other equivalent unit in such
coin or currency of the United States as at the time shall be legal tender for
the payment of public and private debts.
"ELIGIBLE OBLIGATIONS" means:
(a) with respect to Securities denominated in Dollars,
Government Obligations; or
(b) with respect to Securities denominated in a currency other
than Dollars or in a composite currency, such other obligations or
instruments as shall be specified with respect to such Securities, as
contemplated by Section 301.
"EVENT OF DEFAULT" has the meaning specified in Section 801.
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"GOVERNMENTAL AUTHORITY" means the government of the United States or
of any State or Territory thereof or of the District of Columbia or of any
county, municipality or other political subdivision of any of the foregoing, or
any department, agency, authority or other instrumentality of any of the
foregoing.
"GOVERNMENT OBLIGATIONS" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States
and entitled to the benefit of the full faith and credit thereof; and
(b) certificates, depositary receipts or other instruments
which evidence a direct ownership interest in obligations described in
clause (a) above or in any specific interest or principal payments due
in respect thereof; provided, however, that the custodian of such
obligations or specific interest or principal payments shall be a bank
or trust company (which may include the Trustee or any Paying Agent)
subject to Federal or state supervision or examination with a combined
capital and surplus of at least $50,000,000; and provided, further,
that except as may be otherwise required by law, such custodian shall
be obligated to pay to the holders of such certificates, depositary
receipts or other instruments the full amount received by such
custodian in respect of such obligations or specific payments and shall
not be permitted to make any deduction therefrom.
"HOLDER" means a Person in whose name a Security is registered in the
Security Register.
"INDENTURE" means this instrument as originally executed and delivered
and as it may from time to time be supplemented or amended by one or more
indentures supplemental hereto entered into pursuant to the applicable
provisions hereof and shall include the terms of a particular series of
Securities established as contemplated by Section 301.
"INTEREST PAYMENT DATE", when used with respect to any Security, means
the Stated Maturity of an installment of interest on such Security.
"MATURITY", when used with respect to any Security, means the date on
which the principal of such Security or an installment of principal becomes due
and payable as provided in such Security or in this Indenture, whether at the
Stated Maturity, by declaration of acceleration, upon call for redemption or
otherwise.
"OFFICER'S CERTIFICATE" means a certificate signed by an Authorized
Officer and delivered to the Trustee.
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"OPINION OF COUNSEL" means a written opinion of counsel, who may be
counsel for the Company, or other counsel acceptable to the Trustee.
"OUTSTANDING", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(a) Securities theretofore canceled or delivered to the
Security Registrar for cancellation;
(b) Securities deemed to have been paid in accordance with
Section 701; and
(c) Securities which have been paid pursuant to Section 306 or
in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to
the Trustee proof satisfactory to it and the Company that such
Securities are held by a bona fide purchaser or purchasers in whose
hands such Securities are valid obligations of the Company;
provided, however, that in determining whether or not the Holders of the
requisite principal amount of the Securities Outstanding under this Indenture,
or the Outstanding Securities of any series or Tranche, have given any request,
demand, authorization, direction, notice, consent or waiver hereunder or whether
or not a quorum is present at a meeting of Holders of Securities,
(x) Securities owned by the Company or any other obligor upon
the Securities or any Affiliate of the Company or of such other obligor
(unless the Company, such Affiliate or such obligor owns all Securities
Outstanding under this Indenture, or (except for the purposes of
actions to be taken by Holders of (i) more than one series voting as a
class under Section 812 or (ii) more than one series or more than one
Tranche, as the case may be, voting as a class under Section 1202) all
Outstanding Securities of each such series and each such Tranche, as
the case may be, determined without regard to this clause (x)) shall be
disregarded and deemed not to be Out standing, except that, in
determining whether the Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent or
waiver or upon any such determination as to the presence of a quorum,
only Securities which the Trustee knows to be so owned shall be so
disregarded; provided, however, that Securities so owned which have
been pledged in good faith may be regarded as Outstanding if the
pledgee establishes to the satisfaction of the Trustee the pledgee's
right so to act with respect to such Securities and that the pledgee is
not the Company or any other obligor upon the Securities or any
Affiliate of the Company or of such other obligor; and
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(y) the principal amount of a Discount Security that shall be
deemed to be Outstanding for such purposes shall be the amount of the
principal thereof that would be due and payable as of the date of such
determination upon a declaration of acceleration of the Maturity
thereof pursuant to Section 802;
provided, further, that, in the case of any Security the principal of which is
payable from time to time without presentment or surrender, the principal amount
of such Security that shall be deemed to be Outstanding at any time for all
purposes of this Indenture shall be the original principal amount thereof less
the aggregate amount of principal thereof theretofore paid.
"PAYING AGENT" means any Person, including the Company, authorized by
the Company to pay the principal of, and premium, if any, or interest, if any,
on any Securities on behalf of the Company.
"PERIODIC OFFERING" means an offering of Securities of a series from
time to time any or all of the specific terms of which Securities, including
without limitation the rate or rates of interest, if any, thereon, the Stated
Maturity or Maturities thereof and the redemption pro visions, if any, with
respect thereto, are to be determined by the Company or its agents upon the
issuance of such Securities.
"PERSON" means any individual, corporation, partnership, joint venture,
trust or unincorporated organization or any Governmental Authority.
"PLACE OF PAYMENT", when used with respect to the Securities of any
series, or any Tranche thereof, means the place or places, specified as
contemplated by Section 301, at which, subject to Section 602, principal of and
premium, if any, and interest, if any, on the Securities of such series or
Tranche are payable.
"PREDECESSOR SECURITY" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed (to the extent
lawful) to evidence the same debt as the mutilated, destroyed, lost or stolen
Security.
"REDEMPTION DATE", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"REDEMPTION PRICE", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"REGULAR RECORD DATE" for the interest payable on any Interest Payment
Date on the Securities of any series means the date specified for that purpose
as contemplated by Section 301.
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"REQUIRED CURRENCY" has the meaning specified in Section 311.
"RESPONSIBLE OFFICER", when used with respect to the Trustee, means any
officer of the Trustee assigned by the Trustee to administer its corporate trust
matters.
"SECURITIES" has the meaning stated in the first recital of this
Indenture and more particularly means any securities authenticated and delivered
under this Indenture.
"SECURITY REGISTER" and "SECURITY REGISTRAR" have the respective
meanings specified in Section 305.
"SPECIAL RECORD DATE" for the payment of any Defaulted Interest on the
Securities of any series means a date fixed by the Trustee pursuant to Section
307.
"STATED INTEREST RATE" means a rate (whether fixed or variable) at
which an obligation by its terms is stated to bear simple interest. Any
calculation or other determination to be made under this Indenture by reference
to the Stated Interest Rate on a Security shall be made without regard to the
effective interest cost to the Company of such Security and without regard to
the Stated Interest Rate on, or the effective cost to the Company of, any other
indebtedness in respect of which the Company's obligations are evidenced or
secured in whole or in part by such Security.
"STATED MATURITY", when used with respect to any obligation or any
installment of principal thereof or interest thereon, means the date on which
the principal of such obligation or such installment of principal or interest is
stated to be due and payable (without regard to any provisions for redemption,
prepayment, acceleration, purchase or extension).
"TRANCHE" means a group of Securities which (a) are of the same series
and (b) have identical terms except as to principal amount and/or date of
issuance.
"TRUST INDENTURE ACT" means, as of any time, the Trust Indenture Act of
1939, or any successor statute, as in effect at such time.
"TRUSTEE" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
with respect to one or more series of Securities pursuant to the applicable
provisions of this Indenture, and thereafter "Trustee" shall mean or include
each Person who is then a Trustee hereunder, and if at any time there is more
than one such Person, "Trustee" as used with respect to the Securities of any
series shall mean the Trustee with respect to Securities of that series.
"UNITED STATES" means the United States of America, its Territories,
its possessions and other areas subject to its political jurisdiction.
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SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Except as otherwise expressly provided in this Indenture, upon
any application or request by the Company to the Trustee to take any action
under any provision of this Indenture, the Company shall, if requested by the
Trustee, furnish to the Trustee an Officer's Certificate stating that all
conditions precedent, if any, provided for in this Indenture relating to the
proposed action (including any covenants compliance with which constitutes a
condition precedent) have been complied with and an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent, if any, have
been complied with, except that in the case of any such application or request
as to which the furnishing of such documents is speci fically required by any
provision of this Indenture relating to such particular application or request,
no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(a) a statement that each Person signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of each such Person, such
Person has made such examination or investigation as is necessary to
enable such Person to express an informed opinion as to whether or not
such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each such
Person, such condition or covenant has been complied with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
In any case where several matters are required to be certified
by, or covered by an opinion of, any specified Person, it is not necessary that
all such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the
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certificate or opinion or representations with respect to the matters upon which
such Officer's Certificate or opinion are based are erroneous. Any such
certificate or Opinion of Counsel may be based, insofar as it relates to factual
matters, upon a certificate or opinion of, or representations by, an officer or
officers of the Company stating that the information with respect to such
factual matters is in the possession of the Company, unless such counsel knows,
or in the exercise of reasonable care should know, that the certificate or
opinion or representations with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be consolidated
and form one instrument.
Whenever, subsequent to the receipt by the Trustee of any
Board Resolution, Officer's Certificate, Opinion of Counsel or other document or
instrument, a clerical, typographical or other inadvertent or unintentional
error or omission shall be discovered therein, a new document or instrument may
be substituted therefor in corrected form with the same force and effect as if
originally filed in the corrected form and, irrespective of the date or dates of
the actual execution and/or delivery thereof, such substitute document or
instrument shall be deemed to have been executed and/or delivered as of the date
or dates required with respect to the document or instrument for which it is
substituted. Anything in this Indenture to the contrary notwithstanding, if any
such corrective document or instrument indicates that action has been taken by
or at the request of the Company which could not have been taken had the
original document or instrument not contained such error or omission, the action
so taken shall not be invalidated or otherwise rendered ineffective but shall be
and remain in full force and effect, except to the extent that such action was a
result of willful misconduct or bad faith. Without limiting the generality of
the foregoing, any Securities issued under the authority of such defective
document or instrument shall nevertheless be the valid obligations of the
Company entitled to the benefits of this Indenture equally and ratably with all
other Outstanding Securities, except as aforesaid.
SECTION 104. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice,
consent, election, waiver or other action provided by this Indenture to
be made, given or taken by Holders may be embodied in and evidenced by
one or more instruments of substantially similar tenor signed by such
Holders in person or by an agent duly appointed in writing or,
alternatively, may be embodied in and evidenced by the record of
Holders voting in favor thereof, either in person or by proxies duly
appointed in writing, at any meeting of Holders duly called and held in
accordance with the provisions of Article Thirteen, or a combination of
such instruments and any such record. Except as herein otherwise
expressly provided, such action shall become effective when such
instrument or instruments or record or both are delivered to the
Trustee and, where it is hereby expressly required, to the Company.
Such instrument
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or instruments and any such record (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Holders signing such instrument or instruments and so voting at any
such meeting. Proof of execution of any such instrument or of a writing
appointing any such agent, or of the holding by any Person of a
Security, shall be sufficient for any purpose of this Indenture and
(subject to Section 901) conclusive in favor of the Trustee and the
Company, if made in the manner provided in this Section. The record of
any meeting of Holders shall be proved in the manner provided in
Section 1306.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness
of such execution or by a certificate of a notary public or other
officer authorized by law to take acknowledgments of deeds, certifying
that the individual signing such instrument or writing acknowledged to
him the execution thereof or may be proved in any other manner which
the Trustee and the Company deem sufficient. Where such execution is by
a signer acting in a capacity other than his individual capacity, such
certificate or affidavit shall also constitute sufficient proof of his
authority.
(c) The principal amount (except as otherwise contemplated in
clause (y) of the first proviso to the definition of Outstanding) and
serial numbers of Securities held by any Person, and the date of
holding the same, shall be proved by the Security Register.
(d) Any request, demand, authorization, direction, notice,
consent, election, waiver or other Act of a Holder shall bind every
future Holder of the same Security and the Holder of every Security
issued upon the registration of transfer thereof or in exchange
therefor or in lieu thereof in respect of anything done, omitted or
suffered to be done by the Trustee or the Company in reliance thereon,
whether or not notation of such action is made upon such Security.
(e) Until such time as written instruments shall have been
delivered to the Trustee with respect to the requisite percentage of
principal amount of Securities for the action contemplated by such
instruments, any such instrument executed and delivered by or on behalf
of a Holder may be revoked with respect to any or all of such
Securities by written notice by such Holder or any subsequent Holder,
proven in the manner in which such instrument was proven.
(f) Securities of any series, or any Tranche thereof,
authenticated and delivered after any Act of Holders may, and shall if
required by the Trustee, bear a notation in form approved by the
Trustee as to any action taken by such Act of Holders. If the Company
shall so determine, new Securities of any series, or any Tranche
thereof, so modified as to conform, in the opinion of the Trustee and
the Company, to such action may be prepared and executed by the Company
and
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authenticated and delivered by the Trustee in exchange for Outstanding
Securities of such series or Tranche.
(g) If the Company shall solicit from Holders any request,
demand, authorization, direction, notice, consent, waiver or other Act,
the Company may, at its option, fix in advance a record date for the
determination of Holders entitled to give such request, demand,
authorization, direction, notice, consent, waiver or other Act, but the
Company shall have no obligation to do so. If such a record date is
fixed, such request, demand, authorization, direction, notice, consent,
waiver or other Act may be given before or after such record date, but
only the Holders of record at the close of business on the record date
shall be deemed to be Holders for the purposes of determining whether
Holders of the requisite proportion of the Outstanding Securities have
authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Outstanding Securities shall be computed as of the
record date.
SECTION 105. NOTICES, ETC. TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice,
consent, election, waiver or Act of Holders or other document provided or
permitted by this Indenture to be made upon, given or furnished to, or filed
with, the Trustee by any Holder or by the Company, or the Company by the Trustee
or by any Holder, shall be sufficient for every purpose hereunder (unless
otherwise herein expressly provided) if in writing and delivered personally to
an officer or other responsible employee of the addressee, or transmitted by
facsimile transmission or other direct written electronic means to such
telephone number or other electronic communications address as the parties
hereto shall from time to time designate, or transmitted by certified or
registered mail, charges prepaid, to the applicable address set opposite such
party's name below or to such other address as either party hereto may from time
to time designate:
If to the Trustee, to:
The Bank of New York
101 Barclay Street - 21W
New York, New York 10286
Attention: Vice President, Corporate Trust
Administration
Telephone: (212) 815-5375
Telecopy: (212) 815-5915
If to the Company, to:
ENSERCH Corporation
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1601 Bryan Street
Dallas, Texas 75201
Attention: __________
Telephone:
Telecopy:
Any communication contemplated herein shall be deemed to have
been made, given, furnished and filed if personally delivered, on the date of
delivery, if transmitted by facsimile transmission or other direct written
electronic means, on the date of transmission, and if transmitted by certified
or registered mail, on the date of receipt.
SECTION 106. NOTICE TO HOLDERS OF SECURITIES; WAIVER.
Except as otherwise expressly provided herein, where this
Indenture provides for notice to Holders of any event, such notice shall be
sufficiently given, and shall be deemed given, to Holders if in writing and
mailed, first-class postage prepaid, to each Holder affected by such event, at
the address of such Holder as it appears in the Security Register, not later
than the latest date, if any, and not earlier than the earliest date, if any,
prescribed for the giving of such notice.
In case by reason of the suspension of regular mail service or
by reason of any other cause it shall be impracticable to give such notice to
Holders by mail, then such notification as shall be made with the approval of
the Trustee shall constitute a sufficient no tification for every purpose
hereunder. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders.
Any notice required by this Indenture may be waived in writing
by the Person entitled to receive such notice, either before or after the event
otherwise to be specified therein, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
SECTION 107. CONFLICT WITH TRUST INDENTURE ACT.
If any provision of this Indenture limits, qualifies or
conflicts with another provision hereof which is required or deemed to be
included in this Indenture by, or is otherwise governed by, any of the
provisions of the Trust Indenture Act, such other provision shall control; and
if any provision hereof otherwise conflicts with the Trust Indenture Act, the
Trust Indenture Act shall control.
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SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings in this Indenture and the Table
of Contents are for convenience only and shall not affect the construction
hereof.
SECTION 109. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company
and Trustee shall bind their respective successors and assigns, whether so
expressed or not.
SECTION 110. SEPARABILITY CLAUSE.
In case any provision in this Indenture or the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. BENEFITS OF INDENTURE.
Nothing in this Indenture or the Securities, express or implied,
shall give to any Person, other than the parties hereto, their successors
hereunder and the Holders, any benefit or any legal or equitable right, remedy
or claim under this Indenture.
SECTION 112. GOVERNING LAW.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, EXCEPT TO THE
EXTENT THAT THE LAW OF ANY OTHER JURISDICTION SHALL BE MANDATORILY APPLICABLE.
SECTION 113. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date
or Stated Maturity of any Security shall not be a Business Day at any Place of
Payment, then (notwithstanding any other provision of this Indenture or of the
Securities other than a provision in Securities of any series, or any Tranche
thereof, or in the Board Resolution or Officer's Certificate which establishes
the terms of the Securities of such series or Tranche, which specifically states
that such provision shall apply in lieu of this Section) payment of interest or
principal and premium, if any, need not be made at such Place of Payment on such
date, but may be made on the next succeeding Business Day at such Place of
Payment, with the same force and effect, and in the same amount, as if made on
the Interest Payment Date or Redemption Date, or at the Stated Maturity, as the
case may be, and, if such payment is made or duly provided for on such Business
Day, no interest shall accrue on the amount so payable for the period from and
after such Interest Payment Date, Redemption Date or Stated Maturity, as the
case may be, to such Business Day.
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ARTICLE TWO
SECURITY FORMS
SECTION 201. FORMS GENERALLY.
The definitive Securities of each series shall be in substantially
the form or forms thereof established in the indenture supplemental hereto
establishing such series or in a Board Resolution establishing such series, or
in an Officer's Certificate pursuant to such supplemental indenture or Board
Resolution, in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture, and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may be required to comply
with the rules of any securities exchange or as may, consistently herewith, be
determined by the officers executing such Secu rities, as evidenced by their
execution of the Securities. If the form or forms of Securities of any series
are established in a Board Resolution or in an Officer's Certificate pursuant to
a Board Resolution, such Board Resolution and Officer's Certificate, if any,
shall be delivered to the Trustee at or prior to the delivery of the Company
Order contemplated by Section 303 for the authentication and delivery of such
Securities.
Unless otherwise specified as contemplated by Sections 301 or
1201(g), the Securities of each series shall be issuable in registered form
without coupons. The definitive Securities shall be produced in such manner as
shall be determined by the officers executing such Securities, as evidenced by
their execution thereof.
SECTION 202. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
The Trustee's certificate of authentication shall be in
substantially the form set forth below:
This is one of the Securities of the series
designated therein referred to in the within-mentioned
Indenture.
Dated:
---------------------------------
as Trustee
By:
-----------------------------
Authorized Signatory
<PAGE>
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ARTICLE THREE
THE SECURITIES
SECTION 301. AMOUNT UNLIMITED; ISSUABLE IN SERIES.
The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is unlimited.
The Securities may be issued in one or more series. Subject to
the last paragraph of this Section, prior to the authentication and delivery of
Securities of any series there shall be established by specification in a
supplemental indenture or in a Board Resolution, or in an Officer's Certificate
pursuant to a supplemental indenture or a Board Resolution:
(a) the title of the Securities of such series (which shall
distinguish the Securities of such series from Securities of all other
series);
(b) any limit upon the aggregate principal amount of the
Securities of such series which may be authenticated and delivered
under this Indenture (except for Securities authenticated and delivered
upon registration of transfer of, or in exchange for, or in lieu of,
other Securities of such series pursuant to Section 304, 305, 306, 406
or 1206 and except for any Securities which, pursuant to Section 303,
are deemed never to have been authenticated and delivered hereunder);
(c) the Person or Persons (without specific identification) to
whom interest on Securities of such series, or any Tranche thereof,
shall be payable on any Interest Payment Date, if other than the
Persons in whose names such Securities (or one or more Predecessor
Securities) are registered at the close of business on the Regular
Record Date for such interest;
(d) the date or dates on which the principal of the Securities
of such series, or any Tranche thereof, is payable or any formulary or
other method or other means by which such date or dates shall be
determined, by reference to an index or other fact or event
ascertainable outside of this Indenture or otherwise (without regard to
any provisions for redemption, prepayment, acceleration, purchase or
extension);
(e) the rate or rates at which the Securities of such series,
or any Tranche thereof, shall bear interest, if any (including the rate
or rates at which overdue principal shall bear interest, if different
from the rate or rates at which such Securities shall bear interest
prior to Maturity, and, if applicable, the rate or rates at which
overdue premium or interest shall bear interest, if any), or any
formulary or other method or other means by which such rate or rates
shall be determined, by reference
<PAGE>
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to an index or other fact or event ascertainable outside of this
Indenture or otherwise; the date or dates from which such interest
shall accrue; the Interest Payment Dates on which such interest shall
be payable and the Regular Record Date, if any, for the interest
payable on such Securities on any Interest Payment Date; and the basis
of computation of interest, if other than as provided in Section 310;
(f) the place or places at which or methods by which (1) the
principal of and premium, if any, and interest, if any, on Securities
of such series, or any Tranche thereof, shall be payable, (2)
registration of transfer of Securities of such series, or any Tranche
thereof, may be effected, (3) exchanges of Securities of such series,
or any Tranche thereof, may be effected and (4) notices and demands to
or upon the Company in respect of the Securities of such series, or any
Tranche thereof, and this Indenture may be served; the Security
Registrar for such series or Tranche; and if such is the case, that the
principal of such Securities shall be payable without presentment or
surrender thereof;
(g) the period or periods within which, or the date or dates
on which, the price or prices at which and the terms and conditions
upon which the Securities of such series, or any Tranche thereof, may
be redeemed, in whole or in part, at the option of the Company and any
restrictions on such redemptions, including but not limited to a
restriction on a partial redemption by the Company of the Securities of
any series, or any Tranche thereof, resulting in delisting of such
Securities from any national exchange;
(h) the obligation or obligations, if any, of the Company to
redeem or purchase the Securities of such series, or any Tranche
thereof, pursuant to any sinking fund or other mandatory redemption
provisions or at the option of a Holder thereof and the period or
periods within which or the date or dates on which, the price or prices
at which and the terms and conditions upon which such Securities shall
be redeemed or purchased, in whole or in part, pursuant to such
obligation, and applicable exceptions to the requirements of Section
404 in the case of mandatory redemption or redemption at the option of
the Holder;
(i) the denominations in which Securities of such series, or
any Tranche thereof, shall be issuable if other than denominations of
$1,000 and any integral multiple thereof;
(j) the currency or currencies, including composite
currencies, in which payment of the principal of and premium, if any,
and interest, if any, on the Securities of such series, or any Tranche
thereof, shall be payable (if other than in Dollars);
(k) if the principal of or premium, if any, or interest, if
any, on the Securities of such series, or any Tranche thereof, are to
be payable, at the election of the
<PAGE>
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Company or a Holder thereof, in a coin or currency other than that in
which the Securities are stated to be payable, the period or periods
within which and the terms and conditions upon which, such election may
be made;
(l) if the principal of or premium, if any, or interest, if
any, on the Securities of such series, or any Tranche thereof, are to
be payable, or are to be payable at the election of the Company or a
Holder thereof, in securities or other property, the type and amount of
such securities or other property, or the formulary or other method or
other means by which such amount shall be determined, and the period or
periods within which, and the terms and conditions upon which, any such
election may be made;
(m) if the amount payable in respect of principal of or
premium, if any, or interest, if any, on the Securities of such series,
or any Tranche thereof, may be determined with reference to an index or
other fact or event ascertainable outside of this Indenture, the manner
in which such amounts shall be determined to the extent not established
pursuant to clause (e) of this paragraph;
(n) if other than the principal amount thereof, the portion of
the principal amount of Securities of such series, or any Tranche
thereof, which shall be payable upon declaration of acceleration of the
Maturity thereof pursuant to Section 802;
(o) any Events of Default, in addition to those specified in
Section 801, with respect to the Securities of such series, and any
covenants of the Company for the benefit of the Holders of the
Securities of such series, or any Tranche thereof, in addition to those
set forth in Article Six;
(p) the terms, if any, pursuant to which the Securities of
such series, or any Tranche thereof, may be converted into or exchanged
for shares of capital stock or other securities of the Company or any
other Person;
(q) the obligations or instruments, if any, which shall be
considered to be Eligible Obligations in respect of the Securities of
such series, or any Tranche thereof, denominated in a currency other
than Dollars or in a composite currency, and any additional or
alternative provisions for the reinstatement of the Company's
indebtedness in respect of such Securities after the satisfaction and
discharge thereof as provided in Section 701;
(r) if the Securities of such series, or any Tranche thereof,
are to be issued in global form, (i) any limitations on the rights of
the Holder or Holders of such Securities to transfer or exchange the
same or to obtain the registration of transfer thereof, (ii) any
limitations on the rights of the Holder or Holders thereof to obtain
<PAGE>
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certificates therefor in definitive form in lieu of temporary form and
(iii) any and all other matters incidental to such Securities;
(s) if the Securities of such series, or any Tranche thereof,
are to be issuable as bearer securities, any and all matters incidental
thereto which are not specifically addressed in a supplemental
indenture as contemplated by clause (g) of Section 1201;
(t) to the extent not established pursuant to clause (r) of
this paragraph, any limitations on the rights of the Holders of the
Securities of such Series, or any Tranche thereof, to transfer or
exchange such Securities or to obtain the registration of transfer
thereof; and if a service charge will be made for the registration of
transfer or exchange of Securities of such series, or any Tranche
thereof, the amount or terms thereof;
(u) any exceptions to Section 113, or variation in the
definition of Business Day, with respect to the Securities of such
series, or any Tranche thereof; and
(v) any other terms of the Securities of such series, or any
Tranche thereof, not inconsistent with the provisions of this
Indenture.
With respect to Securities of a series subject to a Periodic
Offering, the indenture supplemental hereto or the Board Resolution which
establishes such series, or the Officer's Certificate pursuant to such
supplemental indenture or Board Resolution, as the case may be, may provide
general terms or parameters for Securities of such series and provide either
that the specific terms of Securities of such series, or any Tranche thereof,
shall be specified in a Company Order or that such terms shall be determined by
the Company or its agents in accordance with procedures specified in a Company
Order as contemplated by the clause (b) of Section 303.
SECTION 302. DENOMINATIONS.
Unless otherwise provided as contemplated by Section 301 with
respect to any series of Securities, or any Tranche thereof, the Securities of
each series shall be issuable in denominations of $1,000 and any integral
multiple thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
Unless otherwise provided as contemplated by Section 301 with
respect to any series of Securities, or any Tranche thereof, the Securities
shall be executed on behalf of the Company by an Authorized Officer and may have
the corporate seal of the Company affixed thereto or reproduced thereon attested
by any other Authorized Officer or by the Secretary or an Assistant Secretary of
the Company. The signature of any or all of these officers on the Securities may
be manual or facsimile.
<PAGE>
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Securities bearing the manual or facsimile signatures of
individuals who were at the time of execution Authorized Officers or the
Secretary or an Assistant Secretary of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
The Trustee shall authenticate and deliver Securities of a
series, for original issue, at one time or from time to time in accordance with
the Company Order referred to below, upon receipt by the Trustee of:
(a) the instrument or instruments establishing the form or
forms and terms of such series, as provided in Sections 201 and 301;
(b) a Company Order requesting the authentication and delivery
of such Securities and, to the extent that the terms of such Securities
shall not have been established in an indenture supplemental hereto or
in a Board Resolution, or in an Officer's Certificate pursuant to a
supplemental indenture or Board Resolution, all as contemplated by
Sections 201 and 301, either (i) establishing such terms or (ii) in the
case of Securities of a series subject to a Periodic Offering,
specifying procedures, acceptable to the Trustee, by which such terms
are to be established (which procedures may provide, to the extent
acceptable to the Trustee, for authentication and delivery pursuant to
oral or electronic instructions from the Company or any agent or agents
thereof, which oral instructions are to be promptly confirmed
electronically or in writing), in either case in accordance with the
instrument or instruments delivered pursuant to clause (a) above;
(c) the Securities of such series, executed on behalf of the
Company by an Authorized Officer;
(d) an Opinion of Counsel to the effect that:
(i) the form or forms of such Securities have been
duly authorized by the Company and have been established in
conformity with the provisions of this Indenture;
(ii) the terms of such Securities have been duly
authorized by the Company and have been established in
conformity with the provisions of this Indenture; and
(iii) such Securities, when authenticated and
delivered by the Trustee and issued and delivered by the
Company in the manner and subject to any conditions specified
in such Opinion of Counsel, will have been duly issued under
this Indenture and will constitute valid and legally binding
obligations
<PAGE>
-20-
of the Company, entitled to the benefits provided by this
Indenture, and enforceable in accordance with their terms,
subject, as to enforcement, to laws relating to or affecting
generally the enforcement of creditors' rights, including,
without limitation, bankruptcy and insolvency laws and to
general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at
law);
provided, however, that, with respect to Securities of a series subject to a
Periodic Offering, the Trustee shall be entitled to receive such Opinion of
Counsel only once at or prior to the time of the first authentication of such
Securities (provided that such Opinion of Counsel addresses the authentication
and delivery of all Securities of such series) and that in lieu of the opinions
described in clauses (ii) and (iii) above Counsel may opine that:
(x) when the terms of such Securities shall have been
established pursuant to a Company Order or Orders or pursuant
to such procedures (acceptable to the Trustee) as may be
specified from time to time by a Company Order or Orders, all
as contemplated by and in accordance with the instrument or
instruments delivered pursuant to clause (a) above, such terms
will have been duly authorized by the Company and will have
been established in conformity with the provisions of this
Indenture; and
(y) such Securities, when authenticated and delivered
by the Trustee in accordance with this Indenture and the
Company Order or Orders or specified procedures referred to in
paragraph (x) above and issued and delivered by the Company in
the manner and subject to any conditions specified in such
Opinion of Counsel, will have been duly issued under this In
denture and will constitute valid and legally binding
obligations of the Company, entitled to the benefits provided
by the Indenture, and enforceable in accordance with their
terms, subject, as to enforcement, to laws relating to or
affecting generally the enforcement of creditors' rights,
including, without limitation, bankruptcy and insolvency laws,
and to general principles of equity (regardless of whether
such enforceability is considered in a proceeding in equity or
at law).
With respect to Securities of a series subject to a Periodic
Offering, the Trustee may conclusively rely, as to the authorization by the
Company of any of such Securities, the form, terms thereof and the legality,
validity, binding effect and enforceability thereof, and compliance of the
authentication and delivery thereof with the terms and conditions of this
Indenture, upon the Opinion of Counsel and other documents delivered pursuant to
Sections 201 and 301 and this Section, as applicable, at or prior to the time of
the first authentication of Securities of such series unless and until such
opinion or other documents have been superseded or revoked or expire by their
terms. In connection with the authentication and delivery of Securities of a
series subject to a Periodic Offering, the Trustee shall be entitled to
<PAGE>
-21-
assume that the Company's instructions to authenticate and deliver such
Securities do not violate any applicable law or any applicable rule, regulation
or order of any Governmental Authority having jurisdiction over the Company.
If the form or terms of the Securities of any series have been
established by or pursuant to a Board Resolution or an Officer's Certificate as
permitted by Sections 201 or 301, the Trustee shall not be required to
authenticate such Securities if the issuance of such Securities pursuant to this
Indenture will materially or adversely affect the Trustee's own rights, duties
or immunities under the Securities and this Indenture or otherwise in a manner
which is not reasonably acceptable to the Trustee.
Unless otherwise specified as contemplated by Section 301 with
respect to any series of Securities, or any Tranche thereof, each Security shall
be dated the date of its authentication.
Unless otherwise specified as contemplated by Section 301 with
respect to any series of Securities, no Security shall be entitled to any
benefit under this Indenture or be valid or obligatory for any purpose unless
there appears on such Security a certificate of authentication substantially in
the form provided for herein executed by the Trustee or an Authenticating Agent
by manual signature, and such certificate upon any Security shall be conclusive
evidence, and the only evidence, that such Security has been duly authenticated
and delivered hereunder and is entitled to the benefits of this Indenture.
Notwithstanding the foregoing, if any Security shall have been authenticated and
delivered hereunder to the Company, or any Person acting on its behalf, but
shall never have been issued and sold by the Company, and the Company shall
deliver such Security to the Trustee for cancellation as provided in Section 309
together with a written statement (which need not comply with Section 102 and
need not be accompanied by an Opinion of Counsel) stating that such Security has
never been issued and sold by the Company, for all purposes of this Indenture
such Security shall be deemed never to have been authenticated and delivered
hereunder and shall never be entitled to the benefits hereof.
SECTION 304. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities of any series, or
any Tranche thereof, the Company may execute, and upon Company Order the Trustee
shall authenticate and deliver, temporary Securities which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any authorized
denomination, substantially of the tenor of the defi nitive Securities in lieu
of which they are issued, with such appropriate insertions, omissions,
substitutions and other variations as the officers executing such Securities may
determine, as evidenced by their execution of such Securities; provided,
however, that temporary Securities need not recite specific redemption, sinking
fund, conversion or exchange provisions.
<PAGE>
-22-
Unless otherwise specified as contemplated by Section 301 with
respect to the Securities of any series, or any Tranche thereof, after the
preparation of definitive Securities of such series or Tranche, the temporary
Securities of such series or Tranche shall be exchangeable, without charge to
the Holder thereof, for definitive Securities of such series or Tranche upon
surrender of such temporary Securities at the office or agency of the Company
maintained pursuant to Section 602 in a Place of Payment for such Securities.
Upon such surrender of temporary Securities for such exchange, the Company
shall, except as aforesaid, execute and the Trustee shall authenticate and
deliver in exchange therefor definitive Securities of the same series and
Tranche of authorized denominations and of like tenor and aggregate principal
amount.
Until exchanged in full as hereinabove provided, temporary
Securities shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities of the same series and Tranche and of like
tenor authenticated and delivered hereunder.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause to be kept in each office designated
pursuant to Section 602, with respect to the Securities of each series, a
register (all registers kept in accordance with this Section being collectively
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities of such series, or any Tranche thereof, and the registration of
transfer thereof. The Company shall designate one Person to maintain the
Security Register for the Securities of each series on a consolidated basis, and
such Person is referred to herein, with respect to such series, as the "Security
Registrar." Anything herein to the contrary notwithstanding, the Company may
designate one or more of its offices as an office in which a register with
respect to the Securities of one or more series shall be maintained, and the
Company may designate itself the Security Registrar with respect to one or more
of such series. The Security Register shall be open for inspection by the
Trustee and the Company at all reasonable times.
Except as otherwise specified as contemplated by Section 301 with
respect to the Securities of any series, or any Tranche thereof, upon surrender
for registration of transfer of any Security of such series or Tranche at the
office or agency of the Company maintained pursuant to Section 602 in a Place of
Payment for such series or Tranche, the Company shall execute, and the Trustee
shall authenticate and deliver, in the name of the designated transferee or
transferees, one or more new Securities of the same series and Tranche, of
authorized denominations and of like tenor and aggregate principal amount.
Except as otherwise specified as contemplated by Section 301 with
respect to the Securities of any series, or any Tranche thereof, any Security of
such series or Tranche may be exchanged at the option of the Holder, for one or
more new Securities of the same series and Tranche, of authorized denominations
and of like tenor and aggregate principal
<PAGE>
-23-
amount, upon surrender of the Securities to be exchanged at any such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.
All Securities delivered upon any registration of transfer or
exchange of Securities shall be valid obligations of the Company, evidencing the
same debt, and entitled to the same benefits under this Indenture, as the
Securities surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company, the Trustee or
the Security Registrar) be duly endorsed or shall be accompanied by a written
instrument of transfer in form satisfactory to the Company, the Trustee or the
Security Registrar, as the case may be, duly executed by the Holder thereof or
his attorney duly authorized in writing.
Unless otherwise specified as contemplated by Section 301 with
respect to Securities of any series, or any Tranche thereof, no service charge
shall be made for any regis tration of transfer or exchange of Securities, but
the Company may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of
transfer or exchange of Securities, other than exchanges pursuant to Section
304, 406 or 1206 not involving any transfer.
The Company shall not be required to execute or to provide for
the registration of transfer of or the exchange of (a) Securities of any series,
or any Tranche thereof, during a period of 15 days immediately preceding the
date notice is to be given identifying the serial numbers of the Securities of
such series or Tranche called for redemption or (b) any Security so selected for
redemption in whole or in part, except the unredeemed portion of any Security
being redeemed in part.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of the same series and Tranche, and of like tenor and
principal amount and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (a)
evidence to their satisfaction of the ownership of and the destruction, loss or
theft of any Security and (b) such security or indemnity as may be reasonably
required by them to save each of them and any agent of either of them harmless,
then, in the absence of notice to the Company or the Trustee that such Security
is held by a Person purporting to be the owner of such Security, the Company
shall execute and the Trustee shall authenticate and deliver, in lieu of any
such
<PAGE>
-24-
destroyed, lost or stolen Security, a new Security of the same series and
Tranche, and of like tenor and principal amount and bearing a number not
contemporaneously outstanding.
Notwithstanding the foregoing, in case any such mutilated,
destroyed, lost or stolen Security has become or is about to become due and
payable, the Company in its discretion may, instead of issuing a new Security,
pay such Security.
Upon the issuance of any new Security under this Section, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
reasonable expenses (including the fees and expenses of the Trustee) connected
therewith.
Every new Security of any series issued pursuant to this Section
in lieu of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the destroyed,
lost or stolen Security shall be at any time enforceable by anyone other than
the Holder of such new Security, and any such new Security shall be entitled to
all the benefits of this Indenture equally and proportionately with any and all
other Securities of such series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Unless otherwise specified as contemplated by Section 301 with
respect to the Securities of any series, or any Tranche thereof, interest on any
Security which is payable, and is punctually paid or duly provided for, on any
Interest Payment Date shall be paid to the Person in whose name that Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest.
Any interest on any Security of any series which is payable, but
is not punctually paid or duly provided for, on any Interest Payment Date
(herein called "Defaulted Interest") shall forthwith cease to be payable to the
Holder on the related Regular Record Date by virtue of having been such Holder,
and such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities of such series
(or their respective Predecessor Securities) are registered at the
close of business on a date (herein called a "Special Record Date") for
the payment of such Defaulted Interest, which shall be fixed in the
following manner. The Company shall notify the Trustee in writing of
the amount of Defaulted Interest proposed to be paid on each Security
of such series and the date of
<PAGE>
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the proposed payment, and at the same time the Company shall deposit
with the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or shall make
arrangements satisfactory to the Trustee for such deposit on or prior
to the date of the proposed payment, such money when deposited to be
held in trust for the benefit of the Persons entitled to such Defaulted
Interest as in this clause provided. Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest which
shall be not more than 15 days and not less than 10 days prior to the
date of the proposed payment and not less than 10 days after the
receipt by the Trustee of the notice of the proposed payment. The
Trustee shall promptly notify the Company of such Special Record Date
and, in the name and at the expense of the Company, shall promptly
cause notice of the proposed payment of such Defaulted Interest and the
Special Record Date therefor to be mailed, first-class postage prepaid,
to each Holder of Securities of such series at the address of such
Holder as it appears in the Security Register, not less than 10 days
prior to such Special Record Date. Notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor having
been so mailed, such Defaulted Interest shall be paid to the Persons in
whose names the Securities of such series (or their respective
Predecessor Securities) are registered at the close of business on such
Special Record Date.
(b) The Company may make payment of any Defaulted Interest on
the Securities of any series in any other lawful manner not
inconsistent with the requirements of any securities exchange on which
such Securities may be listed, and upon such notice as may be required
by such exchange, if, after notice given by the Company to the Trustee
of the proposed payment pursuant to this clause, such manner of payment
shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section and
Section 305, each Security delivered under this Indenture upon registration of
transfer of or in exchange for or in lieu of any other Security shall carry the
rights to interest accrued and unpaid, and to accrue, which were carried by such
other Security.
SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the absolute
owner of such Security for the purpose of receiving payment of principal of and
premium, if any, and (subject to Sections 305 and 307) interest, if any, on such
Security and for all other purposes whatsoever, whether or not such Security be
overdue, and neither the Company, the Trustee nor any agent of the Company or
the Trustee shall be affected by notice to the contrary.
<PAGE>
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SECTION 309. CANCELLATION BY SECURITY REGISTRAR.
All Securities surrendered for payment, redemption, registration
of transfer or exchange shall, if surrendered to any Person other than the
Security Registrar, be delivered to the Security Registrar and, if not
theretofore canceled, shall be promptly canceled by the Security Registrar. The
Company may at any time deliver to the Security Registrar for cancellation any
Securities previously authenticated and delivered hereunder which the Company
may have acquired in any manner whatsoever or which the Company shall not have
issued and sold, and all Securities so delivered shall be promptly canceled by
the Security Registrar. No Securities shall be authenticated in lieu of or in
exchange for any Securities canceled as provided in this Section, except as
expressly permitted by this Indenture. All canceled Securities held by the
Security Registrar shall be disposed of in accordance with a Company Order
delivered to the Security Registrar and the Trustee, and the Security Registrar
shall promptly deliver a certificate of disposition to the Trustee and the
Company unless, by a Company Order, similarly delivered, the Company shall
direct that canceled Securities be returned to it. The Security Registrar shall
promptly deliver evidence of any cancellation of a Security in accordance with
this Section 309 to the Trustee and the Company.
SECTION 310. COMPUTATION OF INTEREST.
Except as otherwise specified as contemplated by Section 301
for Securities of any series, or any Tranche thereof, interest on the Securities
of each series shall be computed on the basis of a 360-day year consisting of
twelve 30-day months and for any period shorter than a full month, on the basis
of the actual number of days elapsed in such period.
SECTION 311. PAYMENT TO BE IN PROPER CURRENCY.
In the case of the Securities of any series, or any Tranche
thereof, denominated in any currency other than Dollars or in a composite
currency (the "Required Currency"), except as otherwise specified with respect
to such Securities as contemplated by Section 301, the obligation of the Company
to make any payment of the principal thereof, or the premium or interest
thereon, shall not be discharged or satisfied by any tender by the Company, or
re covery by the Trustee, in any currency other than the Required Currency,
except to the extent that such tender or recovery shall result in the Trustee
timely holding the full amount of the Required Currency then due and payable. If
any such tender or recovery is in a currency other than the Required Currency,
the Trustee may take such actions as it considers appropriate to exchange such
currency for the Required Currency. The costs and risks of any such exchange,
including without limitation the risks of delay and exchange rate fluctuation,
shall be borne by the Company, the Company shall remain fully liable for any
shortfall or delinquency in the full amount of Required Currency then due and
payable, and in no circumstances shall the Trustee be liable therefor except in
the case of its negligence or willful misconduct.
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ARTICLE FOUR
REDEMPTION OF SECURITIES
SECTION 401. APPLICABILITY OF ARTICLE.
Securities of any series, or any Tranche thereof, which are
redeemable before their Stated Maturity shall be redeemable in accordance with
their terms and (except as otherwise specified as contemplated by Section 301
for Securities of such series or Tranche) in accordance with this Article.
SECTION 402. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities shall be
evidenced by a Board Resolution or an Officer's Certificate. The Company shall,
at least 45 days prior to the Redemption Date fixed by the Company (unless a
shorter notice shall be satisfactory to the Trustee), notify the Trustee in
writing of such Redemption Date and of the principal amount of such Securities
to be redeemed. In the case of any redemption of Securities (a) prior to the
expiration of any restriction on such redemption provided in the terms of such
Securities or elsewhere in this Indenture or (b) pursuant to an election of the
Company which is subject to a condition specified in the terms of such
Securities, the Company shall furnish the Trustee with an Officer's Certificate
evidencing compliance with such restriction or condition.
SECTION 403. SELECTION OF SECURITIES TO BE REDEEMED.
If less than all the Securities of any series, or any Tranche
thereof, are to be redeemed, the particular Securities to be redeemed shall be
selected by the Trustee from the Outstanding Securities of such series or
Tranche not previously called for redemption, by such method as shall be
provided for any particular series, or, in the absence of any such provision, by
such method as the Trustee shall deem fair and appropriate and which may provide
for the selection for redemption of portions (equal to the minimum authorized
denomination for Securities of such series or Tranche or any integral multiple
thereof) of the principal amount of Securities of such series or Tranche of a
denomination larger than the minimum authorized denomination for Securities of
such series or Tranche; provided, however, that if, as indicated in an Officer's
Certificate, the Company shall have offered to purchase all or any principal
amount of the Securities then Outstanding of any series, or any Tranche thereof,
and less than all of such Securities as to which such offer was made shall have
been tendered to the Company for such purchase, the Trustee, if so directed by
Company Order, shall select for redemption all or any principal amount of such
Securities which have not been so tendered.
The Trustee shall promptly notify the Company and the Security
Registrar in writing of the Securities selected for redemption and, in the case
of any Securities selected to be redeemed in part, the principal amount thereof
to be redeemed.
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For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to the redemption of Securities
shall relate, in the case of any Securities redeemed or to be redeemed only in
part, to the portion of the principal amount of such Securities which has been
or is to be redeemed.
SECTION 404. NOTICE OF REDEMPTION.
Notice of redemption shall be given in the manner provided in
Section 106 to the Holders of the Securities to be redeemed not less than 30 nor
more than 60 days prior to the Redemption Date.
All notices of redemption shall state:
(a) the Redemption Date,
(b) the Redemption Price,
(c) if less than all the Securities of any series or Tranche
are to be redeemed, the identification of the particular Securities to
be redeemed and the portion of the principal amount of any Security to
be redeemed in part,
(d) that on the Redemption Date the Redemption Price, together
with accrued interest, if any, to the Redemption Date, will become due
and payable upon each such Security to be redeemed and, if applicable,
that interest thereon will cease to accrue on and after said date,
(e) the place or places where such Securities are to be
surrendered for payment of the Redemption Price and accrued interest,
if any, unless it shall have been specified as contemplated by Section
301 with respect to such Securities that such surrender shall not be
required,
(f) that the redemption is for a sinking or other fund, if
such is the case, and
(g) such other matters as the Company shall deem desirable
or appropriate.
Unless otherwise specified with respect to any Securities in
accordance with Section 301, with respect to any notice of redemption of
Securities at the election of the Company, unless, upon the giving of such
notice, such Securities shall be deemed to have been paid in accordance with
Section 701, such notice may state that such redemption shall be conditional
upon the receipt by the Paying Agent or Agents for such Securities, on or prior
to the date fixed for such redemption, of money sufficient to pay the principal
of and premium, if any, and interest, if any, on such Securities and that if
such money shall not have been so received such notice shall be of no force or
effect and the Company shall not be required to
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redeem such Securities. In the event that such notice of redemption contains
such a condition and such money is not so received, the redemption shall not be
made and within a reasonable time thereafter notice shall be given, in the
manner in which the notice of redemption was given, that such money was not so
received and such redemption was not required to be made, and the Paying Agent
or Agents for the Securities otherwise to have been redeemed shall promptly
return to the Holders thereof any of such Securities which had been surrendered
for payment upon such redemption.
Notice of redemption of Securities to be redeemed at the
election of the Company, and any notice of non-satisfaction of a condition for
redemption as aforesaid, shall be given by the Company or, at the Company's
request, by the Security Registrar in the name and at the expense of the
Company. Notice of mandatory redemption of Securities shall be given by the
Security Registrar in the name and at the expense of the Company.
SECTION 405. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, and the
conditions, if any, set forth in such notice having been satisfied, the
Securities or portions thereof so to be redeemed shall, on the Redemption Date,
become due and payable at the Redemption Price therein specified, and from and
after such date (unless, in the case of an unconditional notice of redemption,
the Company shall default in the payment of the Redemption Price and accrued
interest, if any) such Securities or portions thereof, if interest-bearing,
shall cease to bear interest. Upon surrender of any such Security for redemption
in accordance with such notice, such Security or portion thereof shall be paid
by the Company at the Redemption Price, together with accrued interest, if any,
to the Redemption Date; provided, however, that no such surrender shall be a
condition to such payment if so specified as contemplated by Section 301 with
respect to such Security; and provided, further, that except as otherwise
specified as contemplated by Section 301 with respect to such Security, any
installment of interest on any Security the Stated Maturity of which installment
is on or prior to the Redemption Date shall be payable to the Holder of such
Security, or one or more Predecessor Securities, registered as such at the close
of business on the related Regular Record Date according to the terms of such
Security and subject to the provisions of Section 307.
SECTION 406. SECURITIES REDEEMED IN PART.
Upon the surrender of any Security which is to be redeemed only in
part at a Place of Payment therefor (with, if the Company or the Trustee so
requires, due endorsement by, or a written instrument of transfer in form
satisfactory to the Company and the Trustee duly executed by, the Holder thereof
or his attorney duly authorized in writing), the Company shall execute, and the
Trustee shall authenticate and deliver to the Holder of such Security, without
service charge, a new Security or Securities of the same series and Tranche, of
any authorized denomination requested by such Holder and of like tenor and in
aggregate principal amount
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equal to and in exchange for the unredeemed portion of the principal of the
Security so surrendered.
ARTICLE FIVE
SINKING FUNDS
SECTION 501. APPLICABILITY OF ARTICLE.
The provisions of this Article shall be applicable to any
sinking fund for the retirement of the Securities of any series, or any Tranche
thereof, except as otherwise specified as contemplated by Section 301 for
Securities of such series or Tranche.
The minimum amount of any sinking fund payment provided for by
the terms of Securities of any series, or any Tranche thereof, is herein
referred to as a "mandatory sinking fund payment", and any payment in excess of
such minimum amount provided for by the terms of Securities of any series, or
any Tranche thereof, is herein referred to as an "optional sinking fund
payment". If provided for by the terms of Securities of any series, or any
Tranche thereof, the cash amount of any sinking fund payment may be subject to
reduction as provided in Section 502. Each sinking fund payment shall be applied
to the redemption of Securities of the series or Tranche in respect of which it
was made as provided for by the terms of such Securities.
SECTION 502. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES.
The Company (a) may deliver to the Trustee Outstanding
Securities (other than any previously called for redemption) of a series or
Tranche in respect of which a mandatory sinking fund payment is to be made and
(b) may apply as a credit Securities of such series or Tranche which have been
redeemed either at the election of the Company pursuant to the terms of such
Securities or through the application of permitted optional sinking fund
payments pursuant to the terms of such Securities, in each case in satisfaction
of all or any part of such mandatory sinking fund payment with respect to the
Securities of such series; provided, however, that no Securities shall be
applied in satisfaction of a mandatory sinking fund payment if such Securities
shall have been previously so applied. Securities so applied shall be received
and credited for such purpose by the Trustee at the Redemption Price specified
in such Securities for redemption through operation of the sinking fund and the
amount of such mandatory sinking fund payment shall be reduced accordingly.
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SECTION 503. REDEMPTION OF SECURITIES FOR SINKING FUND.
Not less than 45 days prior to each sinking fund payment date
for the Securities of any series, or any Tranche thereof, the Company shall
deliver to the Trustee an Officer's Certificate specifying:
(a) the amount of the next succeeding mandatory sinking fund
payment for such series or Tranche;
(b) the amount, if any, of the optional sinking fund payment
to be made together with such mandatory sinking fund payment;
(c) the aggregate sinking fund payment;
(d) the portion, if any, of such aggregate sinking fund
payment which is to be satisfied by the payment of cash;
(e) the portion, if any, of such aggregate sinking fund
payment which is to be satisfied by delivering and crediting Securities
of such series or Tranche pursuant to Section 502 and stating the basis
for such credit and that such Securities have not previously been so
credited, and the Company shall also deliver to the Trustee any
Securities to be so delivered. If the Company shall not deliver such
Officer's Certificate, the next succeeding sinking fund payment for
such series shall be made entirely in cash in the amount of the
mandatory sinking fund payment. Not less than 30 days before each such
sinking fund payment date the Trustee shall select the Securities to be
redeemed upon such sinking fund payment date in the manner specified in
Section 403 and cause notice of the redemption thereof to be given in
the name of and at the expense of the Company in the manner provided in
Section 404. Such notice having been duly given, the redemption of such
Securities shall be made upon the terms and in the manner stated in
Sections 405 and 406.
ARTICLE SIX
COVENANTS
SECTION 601. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company shall pay the principal of and premium, if any,
and interest, if any, on the Securities of each series in accordance with the
terms of such Securities and this Indenture.
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SECTION 602. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in each Place of Payment for the
Securities of each series, or any Tranche thereof, an office or agency where
payment of such Securities shall be made, where the registration of transfer or
exchange of such Securities may be effected and where notices and demands to or
upon the Company in respect of such Securities and this Indenture may be served.
The Company shall give prompt written notice to the Trustee of the location, and
any change in the location, of each such office or agency and prompt notice to
the Holders of any such change in the manner specified in Section 106. If at any
time the Company shall fail to maintain any such required office or agency in
respect of Securities of any series, or any Tranche thereof, or shall fail to
furnish the Trustee with the address thereof, payment of such Securities shall
be made, registration of transfer or exchange thereof may be effected and
notices and demands in respect thereof may be served at the Corporate Trust
Office of the Trustee, and the Company hereby appoints the Trustee as its agent
for all such purposes in any such event.
The Company may also from time to time designate one or more other
offices or agencies with respect to the Securities of one or more series, or any
Tranche thereof, for any or all of the foregoing purposes and may from time to
time rescind such designations; provided, however, that, unless otherwise
specified as contemplated by Section 301 with respect to the Securities of such
series or Tranche, no such designation or rescission shall in any manner relieve
the Company of its obligation to maintain an office or agency for such purposes
in each Place of Payment for such Securities in accordance with the requirements
set forth above. The Company shall give prompt written notice to the Trustee,
and prompt notice to the Holders in the manner specified in Section 106, of any
such designation or rescission and of any change in the location of any such
other office or agency.
Anything herein to the contrary notwithstanding, any office or
agency required by this Section may be maintained at an office of the Company,
in which event the Company shall perform all functions to be performed at such
office or agency.
SECTION 603. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent
with respect to the Securities of any series, or any Tranche thereof, it shall,
on or before each due date of the principal of and premium, if any, and
interest, if any, on any of such Securities, segregate and hold in trust for the
benefit of the Persons entitled thereto a sum sufficient to pay the principal
and premium or interest so becoming due until such sums shall be paid to such
Persons or otherwise disposed of as herein provided. The Company shall promptly
notify the Trustee of any failure by the Company (or any other obligor on such
Securities) to make any payment of principal of or premium, if any, or interest,
if any, on such Securities.
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Whenever the Company shall have one or more Paying Agents for
the Securities of any series, or any Tranche thereof, it shall, on or before
each due date of the principal of and premium, if any, and interest, if any, on
such Securities, deposit with such Paying Agents sums sufficient (without
duplication) to pay the principal and premium or interest so becoming due, such
sums to be held in trust for the benefit of the Persons entitled to such
principal, premium or interest, and (unless such Paying Agent is the Trustee)
the Company shall promptly notify the Trustee of any failure by it so to act.
The Company shall cause each Paying Agent for the Securities
of any series, or any Tranche thereof, other than the Company or the Trustee, to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent shall:
(a) hold all sums held by it for the payment of the principal
of and premium, if any, or interest, if any, on such Securities in
trust for the benefit of the Persons entitled thereto until such sums
shall be paid to such Persons or otherwise disposed of as herein
provided;
(b) give the Trustee notice of any failure by the Company (or
any other obligor upon such Securities) to make any payment of
principal of or premium, if any, or interest, if any, on such
Securities; and
(c) at any time during the continuance of any such failure,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent and furnish to the
Trustee such information as it possesses regarding the names and
addresses of the Persons entitled to such sums.
The Company may at any time pay, or by Company Order direct
any Paying Agent to pay, to the Trustee all sums held in trust by the Company or
such Paying Agent, such sums to be held by the Trustee upon the same trusts as
those upon which such sums were held by the Company or such Paying Agent and, if
so stated in a Company Order delivered to the Trustee, in accordance with the
provisions of Article Seven; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of and
premium, if any, or interest, if any, on any Security and remaining unclaimed
for two years after such principal and premium, if any, or interest has become
due and payable shall be paid to the Company on Company Request, or, if then
held by the Company, shall be discharged from such trust; and, upon such payment
or discharge, the Holder of such Security shall, as an unsecured general
creditor and not as a Holder of an Outstanding Security, look only to the
Company for payment of the amount so due and payable and remaining unpaid, and
all liability of the Trustee or such
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Paying Agent with respect to such trust money, and all liability of the Company
as trustee thereof, shall thereupon cease; provided, however, that the Trustee
or such Paying Agent, before being required to make any such payment to the
Company, may at the expense of the Company cause to be mailed, on one occasion
only, notice to such Holder that such money remains unclaimed and that, after a
date specified therein, which shall not be less than 30 days from the date of
such mailing, any unclaimed balance of such money then remaining will be paid to
the Company.
SECTION 604. CORPORATE EXISTENCE.
Subject to the rights of the Company under Article Eleven, the
Company shall do or cause to be done all things necessary to preserve and keep
in full force and effect its corporate existence.
SECTION 605. MAINTENANCE OF PROPERTIES.
The Company shall cause (or, with respect to property owned in
common with others, make reasonable effort to cause) all its properties used or
useful in the conduct of its business to be maintained and kept in good
condition, repair and working order and shall cause (or, with respect to
property owned in common with others, make reasonable effort to cause) to be
made all necessary repairs, renewals, replacements, betterments and improvements
thereof, all as, in the judgment of the Company, may be necessary so that the
business carried on in connection therewith may be properly conducted; provided,
however, that nothing in this Section shall prevent the Company from
discontinuing, or causing the discontinuance of, the operation and maintenance
of any of its properties if such discontinuance is, in the judgment of the
Company, desirable in the conduct of its business.
SECTION 606. ANNUAL OFFICER'S CERTIFICATE AS TO COMPLIANCE.
Not later than June 1 in each year, commencing June 1, 1998,
the Company shall deliver to the Trustee an Officer's Certificate which need not
comply with Section 102, executed by the principal executive officer, the
principal financial officer or the principal accounting officer of the Company,
as to such officer's knowledge of the Company's compliance with all conditions
and covenants under this Indenture, such compliance to be determined without
regard to any period of grace or requirement of notice under this Indenture.
SECTION 607. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with
any term, provision or condition set forth in (a) Section 602 or any additional
covenant or restriction specified with respect to the Securities of any series,
or any Tranche thereof, as contemplated by Section 301, if before the time for
such compliance the Holders of a majority in aggregate principal amount of the
Outstanding Securities of all series and Tranches with respect to which
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compliance with Section 602 or such additional covenant or restriction is to be
omitted, considered as one class, shall, by Act of such Holders, either waive
such compliance in such instance or generally waive compliance with such term,
provision or condition and (b) Section 604, 605 or Article Eleven if before the
time for such compliance the Holders of a majority in principal amount of
Securities Outstanding under this Indenture shall, by Act of such Holders,
either waive such compliance in such instance or generally waive compliance with
such term, provision or condition; but, in the case of (a) or (b), no such
waiver shall extend to or affect such term, provision or condition except to the
extent so expressly waived, and, until such waiver shall become effective, the
obligations of the Company and the duties of the Trustee in respect of any such
term, provision or condition shall remain in full force and effect.
ARTICLE SEVEN
SATISFACTION AND DISCHARGE
SECTION 701. SATISFACTION AND DISCHARGE OF SECURITIES.
Any Security or Securities, or any portion of the principal
amount thereof, shall be deemed to have been paid for all purposes of this
Indenture, and the entire indebtedness of the Company in respect thereof shall
be deemed to have been satisfied and discharged, if there shall have been
irrevocably deposited with the Trustee or any Paying Agent (other than the
Company), in trust:
(a) money in an amount which shall be sufficient, or
(b) in the case of a deposit made prior to the Maturity of
such Securities or portions thereof, Eligible Obligations, which shall
not contain provisions permitting the redemption or other prepayment
thereof at the option of the issuer thereof, the princi pal of and the
interest on which when due, without any regard to reinvestment thereof,
will provide moneys which, together with the money, if any, deposited
with or held by the Trustee or such Paying Agent, shall be sufficient,
or
(c) a combination of (a) or (b) which shall be sufficient,
to pay when due the principal of and premium, if any, and interest, if any, due
and to become due on such Securities or portions thereof on or prior to
Maturity; provided, however, that in the case of the provision for payment or
redemption of less than all the Securities of any series or Tranche, such
Securities or portions thereof shall have been selected by the Trustee as
provided herein and, in the case of a redemption, the notice requisite to the
validity of such redemption shall have been given or irrevocable authority shall
have been given by the Company to the Trustee to give such notice, under
arrangements satisfactory to the Trustee;
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and provided, further, that the Company shall have delivered to the Trustee and
such Paying Agent:
(x) if such deposit shall have been made prior to the
Maturity of such Securities, a Company Order stating that the
money and Eligible Obligations deposited in accordance with
this Section shall be held in trust, as provided in Section
703; and
(y) if Eligible Obligations shall have been
deposited, an Opinion of Counsel that the obligations so
deposited constitute Eligible Obligations and do not contain
provisions permitting the redemption or other prepayment at
the option of the issuer thereof, and an opinion of an
independent public accountant of nationally recognized
standing, selected by the Company, to the effect that the
requirements set forth in clause (b) above have been
satisfied; and
(z) if such deposit shall have been made prior to the
Maturity of such Securities, an Officer's Certificate stating
the Company's intention that, upon delivery of such Officer's
Certificate, its indebtedness in respect of such Securities or
portions thereof will have been satisfied and discharged as
contemplated in this Section.
Upon the deposit of money or Eligible Obligations, or both, in
accordance with this Section, together with the documents required by clauses
(x), (y) and (z) above, the Trustee shall, upon receipt of a Company Request,
acknowledge in writing that the Security or Securities or portions thereof with
respect to which such deposit was made are deemed to have been paid for all
purposes of this Indenture and that the entire indebtedness of the Company in
respect thereof has been satisfied and discharged as contemplated in this
Section. In the event that all of the conditions set forth in the preceding
paragraph shall have been satisfied in respect of any Securities or portions
thereof except that, for any reason, the Officer's Certificate specified in
clause (z) shall not have been delivered, such Securities or portions thereof
shall nevertheless be deemed to have been paid for all purposes of this
Indenture, and the Holders of such Securities or portions thereof shall
nevertheless be no longer entitled to the benefits of this Indenture or of any
of the covenants of the Company under Article Six (except the covenants
contained in Sections 602 and 603) or any other covenants made in respect of
such Securities or portions thereof as contemplated by Section 301, but the
indebtedness of the Company in respect of such Securities or portions thereof
shall not be deemed to have been satisfied and discharged prior to Maturity for
any other purpose, and the Holders of such Securities or portions thereof shall
continue to be entitled to look to the Company for payment of the indebtedness
represented thereby; and, upon Company Request, the Trustee shall acknowledge in
writing that such Securities or portions thereof are deemed to have been paid
for all purposes of this Indenture.
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If payment at Stated Maturity of less than all of the
Securities of any series, or any Tranche thereof, is to be provided for in the
manner and with the effect provided in this Section, the Security Registrar
shall select such Securities, or portions of principal amount thereof, in the
manner specified by Section 403 for selection for redemption of less than all
the Securities of a series or Tranche.
In the event that Securities which shall be deemed to have
been paid for purposes of this Indenture, and, if such is the case, in respect
of which the Company's indebtedness shall have been satisfied and discharged,
all as provided in this Section do not mature and are not to be redeemed within
the 60 day period commencing with the date of the deposit of moneys or Eligible
Obligations, as aforesaid, the Company shall, as promptly as practicable, give a
notice, in the same manner as a notice of redemption with respect to such
Securities, to the Holders of such Securities to the effect that such deposit
has been made and the effect thereof.
Notwithstanding that any Securities shall be deemed to have
been paid for purposes of this Indenture, as aforesaid, the obligations of the
Company and the Trustee in respect of such Securities under Sections 304, 305,
306, 404, 503 (as to notice of redemption), 602, 603, 907 and 915 and this
Article Seven shall survive.
The Company shall pay, and shall indemnify the Trustee or any
Paying Agent with which Eligible Obligations shall have been deposited as
provided in this Section against, any tax, fee or other charge imposed on or
assessed against such Eligible Obligations or the principal or interest received
in respect of such Eligible Obligations, including, but not limited to, any such
tax payable by any entity deemed, for tax purposes, to have been created as a
result of such deposit.
Anything herein to the contrary notwithstanding, (a) if, at
any time after a Security would be deemed to have been paid for purposes of this
Indenture, and, if such is the case, the Company's indebtedness in respect
thereof would be deemed to have been satisfied or discharged, pursuant to this
Section (without regard to the provisions of this paragraph), the Trustee or any
Paying Agent, as the case may be, shall be required to return the money or
Eligible Obligations, or combination thereof, deposited with it as aforesaid to
the Company or its representative under any applicable Federal or State
bankruptcy, insolvency or other similar law, such Security shall thereupon be
deemed retroactively not to have been paid and any satisfaction and discharge of
the Company's indebtedness in respect thereof shall retroactively be deemed not
to have been effected, and such Security shall be deemed to remain Outstanding
and (b) any satisfaction and discharge of the Company's indebtedness in respect
of any Security shall be subject to the provisions of the last paragraph of
Section 603.
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SECTION 702. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall upon Company Request cease to be of
further effect (except as hereinafter expressly provided), and the Trustee, at
the expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture, when
(a) no Securities remain Outstanding hereunder; and
(b) the Company has paid or caused to be paid all other sums
payable hereunder by the Company;
provided, however, that if, in accordance with the last paragraph of Section
701, any Security, previously deemed to have been paid for purposes of this
Indenture, shall be deemed retroactively not to have been so paid, this
Indenture shall thereupon be deemed retroactively not to have been satisfied and
discharged, as aforesaid, and to remain in full force and effect, and the
Company shall execute and deliver such instruments as the Trustee shall
reasonably request to evidence and acknowledge the same.
Notwithstanding the satisfaction and discharge of this
Indenture as aforesaid, the obligations of the Company and the Trustee under
Sections 304, 305, 306, 404, 503 (as to notice of redemption), 602, 603, 907 and
915 and this Article Seven shall survive.
Upon satisfaction and discharge of this Indenture as provided
in this Section, the Trustee shall assign, transfer and turn over to the
Company, subject to the lien provided by Section 907, any and all money,
securities and other property then held by the Trustee for the benefit of the
Holders of the Securities other than money and Eligible Obligations held by the
Trustee pursuant to Section 703.
SECTION 703. APPLICATION OF TRUST MONEY.
Neither the Eligible Obligations nor the money deposited
pursuant to Section 701, nor the principal or interest payments on any such
Eligible Obligations, shall be with drawn or used for any purpose other than,
and shall be held in trust for, the payment of the principal of and premium, if
any, and interest, if any, on the Securities or portions of principal amount
thereof in respect of which such deposit was made, all subject, however, to the
provisions of Section 603; provided, however, that, so long as there shall not
have occurred and be continuing an Event of Default, any cash received from such
principal or interest payments on such Eligible Obligations, if not then needed
for such purpose, shall, to the extent practicable and upon Company Request, be
invested in Eligible Obligations of the type described in clause (b) in the
first paragraph of Section 701 maturing at such times and in such amounts as
shall be sufficient, together with any other moneys and the principal of and
interest on any other Eligible Obligations then held by the Trustee, to pay when
due the principal of
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and premium, if any, and interest, if any, due and to become due on such
Securities or portions thereof on and prior to the Maturity thereof, and
interest earned from such reinvestment shall be paid over to the Company as
received, free and clear of any trust, lien or pledge under this Indenture
except the lien provided by Section 907; and provided, further, that, so long as
there shall not have occurred and be continuing an Event of Default, any moneys
held in accordance with this Section on the Maturity of all such Securities in
excess of the amount required to pay the principal of and premium, if any, and
interest, if any, then due on such Securities shall be paid over to the Company
free and clear of any trust, lien or pledge under this Indenture except the lien
provided by Section 907; and provided, further, that if an Event of Default
shall have occurred and be continuing, moneys to be paid over to the Company
pursuant to this Section shall be held until such Event of Default shall have
been waived or cured.
ARTICLE EIGHT
EVENTS OF DEFAULT; REMEDIES
SECTION 801. EVENTS OF DEFAULT.
"Event of Default", wherever used herein with respect to
Securities of any series, means any one of the following events:
(a) failure to pay interest, if any, on any Security of such
series within 30 days after the same becomes due and payable; or
(b) failure to pay the principal of or premium, if any, on any
Security of such series at its Maturity; or
(c) failure to perform or breach of any covenant or warranty
of the Company in this Indenture (other than a covenant or warranty a
default in the performance of which or breach of which is elsewhere in
this Section specifically dealt with or which has expressly been
included in this Indenture solely for the benefit of one or more series
of Securities other than such series) for a period of 90 days after
there has been given, by registered or certified mail, to the Company
by the Trustee, or to the Com pany and the Trustee by the Holders of at
least 33% in principal amount of the Outstanding Securities of such
series, a written notice specifying such default or breach and
requiring it to be remedied and stating that such notice is a "Notice
of Default" hereunder, unless the Trustee, or the Trustee and the
Holders of a principal amount of Securities of such series not less
than the principal amount of Securities the Holders of which gave such
notice, as the case may be, shall agree in writing to an extension of
such period prior to its expiration; provided, however, that the
Trustee, or the Trustee and the Holders of such principal amount of
Securities of such series, as the case may
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be, shall be deemed to have agreed to an extension of such period if
corrective action is initiated by the Company within such period and is
being diligently pursued; or
(d) the entry by a court having jurisdiction in the premises
of (1) a decree or order for relief in respect of the Company in an
involuntary case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or (2) a
decree or order adjudging the Company a bankrupt or insolvent, or
approving as properly filed a petition by one or more Persons other
than the Company seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company under any applicable
Federal or State law, or appointing a custodian, receiver, liquidator,
assignee, trustee, sequestrator or other similar official for the
Company or for any substantial part of its property, or ordering the
winding up or liquidation of its affairs, and any such decree or order
for relief or any such other decree or order shall have remained
unstayed and in effect for a period of 90 consecutive days; or
(e) the commencement by the Company of a voluntary case or
proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by
it to the entry of a decree or order for relief in respect of the
Company in a case or proceeding under any applicable Federal or State
bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against
it, or the filing by it of a petition or answer or consent seeking
reorganization or relief under any applicable Federal or State law, or
the consent by it to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee,
trustee, sequestrator or similar official of the Company or of any
substantial part of its property, or the making by it of an assignment
for the benefit of creditors, or the ad mission by it in writing of its
inability to pay its debts generally as they become due, or the
authorization of such action by the Board of Directors; or
(f) any other Event of Default specified with respect to
Securities of such series.
SECTION 802. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default due to the default in payment of
principal of, or interest on, any series of Securities or due to the default in
the performance or breach of any other covenant or warranty of the Company
applicable to the Securities of such series but not applicable to all
Outstanding Securities shall have occurred and be continuing, either the Trustee
or the Holders of not less than 33% in principal amount of the Securities of
such series may then declare the principal amount (or, if any of the Securities
of such series are Discount Securities, such portion of the principal amount as
may be specified in the terms thereof as
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contemplated by Section 301) of all Securities of such series and interest
accrued thereon to be due and payable immediately. If an Event of Default due to
default in the performance of any other of the covenants or agreements herein
applicable to all Outstanding Securities or an Event of Default specified in
Section 801(d) or (e) shall have occurred and be continuing, either the Trustee
or the Holders of not less than 33% in principal amount of all Securities then
Outstanding (considered as one class), and not the Holders of the Securities of
any one of such series, may declare the principal of all Securities and interest
accrued thereon to be due and payable immediately. As a consequence of each such
declaration (herein referred to as a declaration of acceleration) with respect
to Securities of any series, the principal amount (or portion thereof in the
case of Discount Securities) of such Securities and interest accrued thereon
shall become due and payable immediately.
At any time after such a declaration of acceleration with
respect to Securities of any series shall have been made and before a judgment
or decree for payment of the money due shall have been obtained by the Trustee
as hereinafter in this Article provided, the Event or Events of Default giving
rise to such declaration of acceleration shall, without further act, be deemed
to have been waived, and such declaration and its consequences shall, without
further act, be deemed to have been rescinded and annulled, if
(a) the Company shall have paid or deposited with the Trustee
a sum sufficient to pay
(1) all overdue interest on all Securities of such
series;
(2) the principal of and premium, if any, on any
Securities of such series which have become due otherwise than
by such declaration of acceleration and interest thereon at
the rate or rates prescribed therefor in such Securities;
(3) to the extent that payment of such interest is
lawful, interest upon overdue interest, if any, at the rate or
rates prescribed therefor in such Securities;
(4) all amounts due to the Trustee under Section 907;
and
(b) any other Event or Events of Default with respect to
Securities of such series, other than the nonpayment of the principal
of Securities of such series which shall have become due solely by such
declaration of acceleration, shall have been cured or waived as
provided in Section 813.
No such rescission shall affect any subsequent Event of Default or impair any
right consequent thereon.
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SECTION 803. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
If an Event of Default described in clause (a) or (b) of
Section 801 shall have occurred and be continuing, the Company shall, upon
demand of the Trustee, pay to it, for the benefit of the Holders of the
Securities of the series with respect to which such Event of Default shall have
occurred, the whole amount then due and payable on such Securities for principal
and premium, if any, and interest, if any, and, to the extent permitted by law,
interest on any overdue principal and interest, at the rate or rates prescribed
therefor in such Securities, and, in addition thereto, such further amount as
shall be sufficient to cover any amounts due to the Trustee under Section 907.
If the Company shall fail to pay such amounts forthwith upon
such demand, the Trustee, in its own name and as trustee of an express trust,
may institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon such Securities
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company or any other obligor upon such
Securities, wherever situated.
If an Event of Default with respect to Securities of any
series shall have occurred and be continuing, the Trustee may in its discretion
proceed to protect and enforce its rights and the rights of the Holders of
Securities of such series by such appropriate judicial proceedings as the
Trustee shall deem most effectual to protect and enforce any such rights,
whether for the specific enforcement of any covenant or agreement in this
Indenture or in aid of the exercise of any power granted herein, or to enforce
any other proper remedy.
SECTION 804. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment, composition or
other judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of
principal, premium, if any, and interest, if any, owing and unpaid in
respect of the Securities and to file such other papers or documents as
may be necessary or advisable in order to have the claims of the
Trustee (including any claim for amounts due to the Trustee under
Section 907) and of the Holders allowed in such judicial proceeding,
and
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(b) to collect and receive any moneys or other property
payable or deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amounts due it under Section 907.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting the
Securities or the rights of any Holder thereof or to authorize the Trustee to
vote in respect of the claim of any Holder in any such proceeding.
SECTION 805. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the possession
of any of the Securities or the production thereof in any proceeding relating
thereto, and any such proceeding instituted by the Trustee shall be brought in
its own name as trustee of an express trust, and any recovery of judgment shall,
after provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders in respect of which such judgment has been
recovered.
SECTION 806. APPLICATION OF MONEY COLLECTED.
Any money collected by the Trustee pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
or premium, if any, or interest, if any, upon pre sentation of the Securities in
respect of which or for the benefit of which such money shall have been
collected and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 907;
SECOND: To the payment of the amounts then due and unpaid upon
the Securities for principal of and premium, if any, and interest, if
any, in respect of which or for the benefit of which such money has
been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal, premium, if any, and interest, if any, respectively; and
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THIRD: To the payment of the remainder, if any, to the Company
or to whomsoever may be lawfully entitled to receive the same or as a
court of competent jurisdiction may direct.
SECTION 807. LIMITATION ON SUITS.
No Holder shall have any right to institute any proceeding,
judicial or otherwise, with respect to this Indenture, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless:
(a) such Holder shall have previously given written notice to
the Trustee of a continuing Event of Default with respect to the
Securities of such series;
(b) the Holders of a majority in aggregate principal amount of
the Outstanding Securities of all series in respect of which an Event
of Default shall have occurred and be continuing, considered as one
class, shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as
Trustee hereunder;
(c) such Holder or Holders shall have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity shall have failed to institute any such
proceeding; and
(e) no direction inconsistent with such written request shall
have been given to the Trustee during such 60-day period by the Holders
of a majority in aggregate principal amount of the Outstanding
Securities of all series in respect of which an Event of Default shall
have occurred and be continuing, considered as one class;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all of such
Holders.
SECTION 808. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
PREMIUM AND INTEREST.
Notwithstanding any other provision in this Indenture, the
Holder of any Security shall have the right, which is absolute and
unconditional, to receive payment of the
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principal of and premium, if any, and (subject o Section 307) interest, if any,
on such Security on the Stated Maturity or Maturities expressed in such Security
(or, in the case of redemption, on the Redemption Date) and to institute suit
for the enforcement of any such payment, and such rights shall not be impaired
without the consent of such Holder.
SECTION 809. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture and such proceeding shall have
been discontinued or abandoned for any reason, or shall have been determined
adversely to the Trustee or to such Holder, then and in every such case, subject
to any determination in such proceeding, the Company, and Trustee and such
Holder shall be restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of the Trustee and such Holder
shall continue as though no such proceeding had been instituted.
SECTION 810. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided in the last paragraph of Section
306, no right or remedy herein conferred upon or reserved to the Trustee or to
the Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 811. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 812. CONTROL BY HOLDERS OF SECURITIES.
If an Event of Default shall have occurred and be continuing
in respect of a series of Securities, the Holders of a majority in principal
amount of the Outstanding Securities of such series shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee, with respect to the Securities of such series; provided, however, that
if an Event of Default shall have occurred and be continuing with respect to
more than one series of Securities, the Holders of a majority in aggregate
principal amount of the Outstanding
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Securities of all such series, considered as one class, shall have the right to
make such direction, and not the Holders of the Securities of any one of such
series; and provided, further, that such direction shall not be in conflict with
any rule of law or with this Indenture. The Trustee may take any other action,
deemed proper by the Trustee, which is not inconsistent with any such direction.
Before proceeding to exercise any right or power hereunder at the direction of
such Holders, the Trustee shall be entitled to receive from such Holders
reasonable security or indemnity against the costs, expenses and liabilities
which might be incurred by it in compliance with any such direction.
SECTION 813. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in principal amount of
the Outstanding Securities of any series may on behalf of the Holders of all the
Securities of such series waive any past default hereunder with respect to such
series and its consequences, except a default
(a) in the payment of the principal of or premium, if any, or
interest, if any, on any Security of such series, or
(b) in respect of a covenant or provision hereof which under
Section 1202 cannot be modified or amended without the consent of the
Holder of each Outstanding Security of such series affected.
Upon any such waiver, such default shall cease to exist, and
any and all Events of Default arising therefrom shall be deemed to have been
cured, for every purpose of this Indenture; but no such waiver shall extend to
any subsequent or other default or impair any right consequent thereon.
SECTION 814. UNDERTAKING FOR COSTS.
The Company and the Trustee agree, and each Holder by his
acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Company, to any suit instituted by the Trustee, to any suit instituted by any
Holder, or group of Holders, holding in the aggregate more than 10% in aggregate
principal amount of the Outstanding Securities of all series in respect of which
such suit may be brought, considered as one class, or to any suit instituted by
any Holder for the enforcement of the payment of the principal of or premium, if
any, or interest, if any, on any Security on or after
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the Stated Maturity or Maturities expressed in such Security (or, in the case of
redemption, on or after the Redemption Date).
SECTION 815. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, or plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Company (to the extent
that it may lawfully do so) hereby expressly waives all benefit or advantage of
any such law and covenants that it will not hinder, delay or impede the
execution of any power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been enacted.
ARTICLE NINE
THE TRUSTEE
SECTION 901. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) The Trustee shall have and be subject to all the duties
and responsibilities specified with respect to an indenture trustee in
the Trust Indenture Act and no implied covenants or obligations shall
be read into this Indenture against the Trustee. For purposes of
Sections 315(a) and 315(c) of the Trust Indenture Act, the term
"default" is hereby defined as an Event of Default which has occurred
and is continuing.
(b) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder, or in the
exercise of any of its rights or powers, if it shall have reasonable
grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to
it.
(c) Notwithstanding anything contained in this Indenture to
the contrary, the duties and responsibilities of the Trustee under this
Indenture shall be subject to the protections, exculpations and
limitations on liability afforded to the Trustee under the provisions
of the Trust Indenture Act.
(d) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject to
the provisions of this Section.
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SECTION 902. NOTICE OF DEFAULTS.
The Trustee shall give notice of any default hereunder with
respect to the Securities of any series to the Holders of Securities of such
series in the manner and to the extent required to do so by the Trust Indenture
Act, unless such default shall have been cured or waived; provided, however,
that in the case of any default of the character specified in Section 801(c), no
such notice to Holders shall be given until at least 45 days after the
occurrence thereof. For the purpose of this Section, the term "default" means
any event which is, or after notice or lapse of time, or both, would become, an
Event of Default.
SECTION 903. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 901 and to the applicable
provisions of the Trust Indenture Act:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting in good faith upon any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document reasonably believed by it to be genuine and
to have been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order,
or as otherwise expressly provided herein, and any resolution of the
Board of Directors may be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officer's
Certificate;
(d) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any Holder pursuant to this Indenture, unless such
Holder shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
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(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall (subject to applicable legal
requirements) be entitled to examine, during normal business hours, the
books, records and premises of the Company, personally or by agent or
attorney;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys, and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder; and
(h) the Trustee shall not be charged with knowledge of any
default or Event of Default, as the case may be, with respect to the
Securities of any series for which it is acting as Trustee unless
either (1) a Responsible Officer of the Trustee shall have actual
knowledge of the default or Event of Default, as the case may be, or
(2) written notice of such default or Event of Default, as the case may
be, shall have been given to the Trustee by the Company, any other
obligor on such Securities or by any Holder of such Securities.
SECTION 904. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Securities (except
the Trustee's certificates of authentication) shall be taken as the statements
of the Company, and neither the Trustee nor any Authenticating Agent assumes
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture or of the Securities. Neither the
Trustee nor any Authenticating Agent shall be accountable for the use or
application by the Company of Securities or the proceeds thereof.
SECTION 905. MAY HOLD SECURITIES.
Each of the Trustee, any Authenticating Agent, any Paying
Agent, any Security Registrar or any other agent of the Company, in its
individual or any other capacity, may become the owner or pledgee of Securities
and, subject to Sections 908 and 913, may otherwise deal with the Company with
the same rights it would have if it were not the Trustee, Authenticating Agent,
Paying Agent, Security Registrar or such other agent.
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SECTION 906. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be
segregated from other funds, except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as expressly provided herein or otherwise agreed with, and for the sole
benefit of, the Company.
SECTION 907. COMPENSATION AND REIMBURSEMENT.
The Company shall
(a) pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law in regard to
the compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein, reimburse
the Trustee upon its request for all reasonable expenses, disbursements
and advances reasonably incurred or made by the Trustee in accordance
with any provision of this Indenture (including the reasonable
compensation and the expenses and disbursements of its agents and
counsel), except to the extent that any such expense, disbursement or
advance may be attributable to the Trustee's negligence, wilful
misconduct or bad faith; and
(c) indemnify the Trustee for, and hold it harmless from and
against, any loss, liability or expense reasonably incurred by it
arising out of or in connection with the acceptance or administration
of the trust or trusts hereunder or the performance of its duties
hereunder, including the reasonable costs and expenses of defending
itself against any claim or liability in connection with the exercise
or performance of any of its powers or duties hereunder, except to the
extent any such loss, liability or expense may be attributable to its
negligence, wilful misconduct or bad faith.
As security for the performance of the obligations of the
Company under this Section, the Trustee shall have a lien prior to the
Securities upon all property and funds held or collected by the Trustee as such
other than property and funds held in trust under Section 703 (except as
otherwise provided in Section 703). "Trustee" for purposes of this Section shall
include any predecessor Trustee; provided, however, that the negligence, wilful
misconduct or bad faith of any Trustee hereunder shall not affect the rights of
any other Trustee hereunder.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 801(d) or Section
801(e), the expenses (including the reasonable charges and expenses of its
counsel) and the compensation for the services are intended to constitute
expenses of administration under any applicable Federal or State bankruptcy,
insolvency or other similar law.
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SECTION 908. DISQUALIFICATION; CONFLICTING INTERESTS.
If the Trustee shall have or acquire any conflicting interest
within the meaning of the Trust Indenture Act, it shall either eliminate such
conflicting interest or resign to the extent, in the manner and with the effect,
and subject to the conditions, provided in the Trust Indenture Act and this
Indenture. For purposes of Section 310(b)(1) of the Trust Indenture Act and to
the extent permitted thereby, the Trustee, in its capacity as trustee in respect
of the Securities of any series, shall not be deemed to have a conflicting
interest arising from its capacity as trustee in respect of the Securities of
any other series.
SECTION 909. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be
(a) a corporation organized and doing business under the laws
of the United States, any State or Territory thereof or the District of
Columbia, authorized under such laws to exercise corporate trust
powers, having a combined capital and surplus of at least $50,000,000
and subject to supervision or examination by Federal or State
authority, or
(b) if and to the extent permitted by the Commission by rule,
regulation or order upon application, a corporation or other Person
organized and doing business under the laws of a foreign government,
authorized under such laws to exercise corporate trust powers, having a
combined capital and surplus of at least $50,000,000 or the Dollar
equivalent of the applicable foreign currency and subject to
supervision or examination by authority of such foreign government or a
political subdivision thereof substantially equivalent to supervision
or examination applicable to United States institutional trustees,
and, in either case, qualified and eligible under this Article and the Trust
Indenture Act. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of such supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 910. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the successor
Trustee in accordance with the applicable requirements of Section 911.
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(b) The Trustee may resign at any time with respect to the
Securities of one or more series by giving written notice thereof to
the Company. If the instrument of acceptance by a successor Trustee
required by Section 911 shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the
resigning Trustee may petition any court of competent jurisdiction for
the appointment of a successor Trustee with respect to the Securities
of such series.
(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in
principal amount of the Outstanding Securities of such series delivered
to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 908 after
written request therefor by the Company or by any Holder who has been
a bona fide Holder for at least six months, or
(2) the Trustee shall cease to be eligible under Section 909
and shall fail to resign after written request therefor by the
Company or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bank rupt or insolvent or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation,
then, in any such case, (x) the Company by a Board Resolution may
remove the Trustee with respect to all Securities or (y) subject to
Section 814, any Holder who has been a bona fide Holder for at least
six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the
removal of the Trustee with respect to all Securities and the
appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of
Trustee for any cause (other than as contemplated in clause (y) in
subsection (d) of this Section), with respect to the Securities of
one or more series, the Company, by a Board Resolution, shall
promptly appoint a successor Trustee or Trustees with respect to the
Securities of that or those series (it being understood that any such
successor Trustee may be appointed with respect to the Securities of
one or more or all of such series and that at any time there shall be
only one Trustee with respect to the Securities of any particular
series) and shall comply with the applicable requirements of Section
911. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee
with respect to the Securities of any series shall be appointed by
Act of the Holders of a majority in principal amount of the
Outstanding Securities of such
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series delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance
of such appointment in accordance with the applicable requirements of
Section 911, become the successor Trustee with respect to the
Securities of such series and to that extent supersede the successor
Trustee ap pointed by the Company. If no successor Trustee with
respect to the Securities of any series shall have been so appointed
by the Company or the Holders and accepted appointment in the manner
required by Section 911, any Holder who has been a bona fide Holder
of a Security of such series for at least six months may, on behalf
of itself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee
with respect to the Securities of such series.
(f) So long as no event which is, or after notice or lapse of
time, or both, would become, an Event of Default shall have occurred
and be continuing, and except with respect to a Trustee appointed by
Act of the Holders of a majority in principal amount of the
Outstanding Securities pursuant to subsection (e) of this Section, if
the Company shall have delivered to the Trustee (i) a Board
Resolution appointing a successor Trustee, effective as of a date
specified therein, and (ii) an instrument of acceptance of such
appointment, effective as of such date, by such successor Trustee in
accordance with Section 911, the Trustee shall be deemed to have
resigned as contemplated in subsection (b) of this Section, the
successor Trustee shall be deemed to have been appointed by the
Company pursuant to subsection (e) of this Section and such
appointment shall be deemed to have been accepted as contemplated in
Section 911, all as of such date, and all other provisions of this
Section and Section 911 shall be applicable to such resignation,
appointment and acceptance except to the extent inconsistent with
this subsection (f).
(g) The Company (or, should the Company fail so to act
promptly, the successor trustee at the expense of the Company) shall
give notice of each resignation and each removal of the Trustee with
respect to the Securities of any series and each appointment of a
successor Trustee with respect to the Securities of any series by
mailing written notice of such event by first-class mail, postage
prepaid, to all Holders of Securities of such series as their names
and addresses appear in the Security Register. Each notice shall
include the name of the successor Trustee with respect to the
Securities of such series and the address of its corporate trust
office.
SECTION 911. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor
Trustee with respect to the Securities of all series, every such
successor Trustee so appointed shall execute, acknowledge and deliver
to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the
retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties
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of the retiring Trustee; but, on the request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of all
sums owed to it, execute and deliver an instrument transferring to
such successor Trustee all the rights, powers and trusts of the
retiring Trustee and shall duly assign, transfer and deliver to such
successor Trustee all property and money held by such retiring
Trustee hereunder.
(b) In case of the appointment hereunder of a successor
Trustee with respect to the Securities of one or more (but not all)
series, the Company, the retiring Trustee and each successor Trustee
with respect to the Securities of one or more series shall execute
and deliver an indenture supplemental hereto wherein each successor
Trustee shall accept such appointment and which (1) shall contain
such provisions as shall be necessary or desirable to transfer and
confirm to, and to vest in, each successor Trustee all the rights,
powers, trusts and duties of the retiring Trustee with respect to the
Securities of that or those series to which the appointment of such
successor Trustee relates, (2) if the retiring Trustee is not
retiring with respect to all Securities, shall contain such
provisions as shall be deemed necessary or desirable to confirm that
all the rights, powers, trusts and duties of the retiring Trustee
with respect to the Securities of that or those series as to which
the retiring Trustee is not retiring shall continue to be vested in
the retiring Trustee and (3) shall add to or change any of the
provisions of this Indenture as shall be necessary to provide for or
facilitate the administration of the trusts hereunder by more than
one Trustee, it being understood that nothing herein or in such
supplemental indenture shall constitute such Trustees co-trustees of
the same trust and that each such Trustee shall be trustee of a trust
or trusts hereunder separate and apart from any trust or trusts
hereunder administered by any other such Trustee; and upon the
execution and delivery of such supplemental indenture the resignation
or removal of the retiring Trustee shall become effective to the
extent provided therein and each such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee with
respect to the Securities of that or those series to which the
appointment of such suc cessor Trustee relates; but, on request of
the Company or any successor Trustee, such retiring Trustee, upon
payment of all sums owed to it, shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such
retiring Trustee hereunder with respect to the Securities of that or
those series to which the appointment of such successor Trustee
relates.
(c) Upon request of any such successor Trustee, the Company
shall execute any instruments which fully vest in and confirm to such
successor Trustee all such rights, powers and trusts referred to in
subsection (a) or (b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless
at the time of such acceptance such successor Trustee shall be
qualified and eligible under this Article.
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SECTION 912. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all the corporate
trust business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.
SECTION 913. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If the Trustee shall be or become a creditor of the Company or
any other obligor upon the Securities (other than by reason of a relationship
described in Section 311(b) of the Trust Indenture Act), the Trustee shall be
subject to any and all applicable provisions of the Trust Indenture Act
regarding the collection of claims against the Company or such other obligor.
For purposes of Section 311(b) of the Trust Indenture Act:
(a) the term "cash transaction" means any transaction in which
full payment for goods or securities sold is made within seven days
after delivery of the goods or securities in currency or in checks or
other orders drawn upon banks or bankers and payable upon demand;
(b) the term "self-liquidating paper" means any draft, bill of
exchange, acceptance or obligation which is made, drawn, negotiated
or incurred by the Company for the purpose of financing the purchase,
processing, manufacturing, shipment, storage or sale of goods, wares
or merchandise and which is secured by documents evidencing title to,
possession of, or a lien upon, the goods, wares or merchandise or the
receivables or proceeds arising from the sale of the goods, wares or
merchandise previously constituting the security, provided the
security is received by the Trustee simultaneously with the creation
of the creditor relationship with the Company arising from the
making, drawing, negotiating or incurring of the draft, bill of
exchange, acceptance or obligation.
SECTION 914. CO-TRUSTEES AND SEPARATE TRUSTEES.
At any time or times, for the purpose of meeting the legal
requirements of any applicable jurisdiction, the Company and the Trustee shall
have power to appoint, and, upon the written request of the Trustee or of the
Holders of at least 33% in principal amount of the Securities then Outstanding,
the Company shall for such purpose join with the Trustee in the
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execution and delivery of all instruments and agreements necessary or proper to
appoint, one or more Persons approved by the Trustee either to act as
co-trustee, jointly with the Trustee, or to act as separate trustee, in either
case with such powers as may be provided in the instrument of appointment, and
to vest in such Person or Persons, in the capacity aforesaid, any property,
title, right or power deemed necessary or desirable, subject to the other
provisions of this Section. If the Company does not join in such appointment
within 15 days after the receipt by it of a request so to do, or if an Event of
Default shall have occurred and be continuing, the Trustee alone shall have
power to make such appointment.
Should any written instrument or instruments from the Company
be required by any co-trustee or separate trustee so appointed to more fully
confirm to such co-trustee or separate trustee such property, title, right or
power, any and all such instruments shall, on request, be executed, acknowledged
and delivered by the Company.
Every co-trustee or separate trustee shall, to the extent
permitted by law, but to such extent only, be appointed subject to the following
conditions:
(a) the Securities shall be authenticated and delivered, and
all rights, powers, duties and obligations hereunder in respect of
the custody of securities, cash and other personal property held by,
or required to be deposited or pledged with, the Trustee hereunder,
shall be exercised solely, by the Trustee;
(b) the rights, powers, duties and obligations hereby
conferred or imposed upon the Trustee in respect of any property
covered by such appointment shall be conferred or imposed upon and
exercised or performed either by the Trustee or by the Trustee and
such co-trustee or separate trustee jointly, as shall be provided in
the instrument appointing such co-trustee or separate trustee, except
to the extent that under any law of any jurisdiction in which any
particular act is to be performed, the Trustee shall be incompetent
or unqualified to perform such act, in which event such rights,
powers, duties and obligations shall be exercised and performed by
such co-trustee or separate trustee;
(c) the Trustee at any time, by an instrument in writing
executed by it, with the concurrence of the Company, may accept the
resignation of or remove any co-trustee or separate trustee appointed
under this Section, and, if an Event of Default shall have occurred
and be continuing, the Trustee shall have power to accept the
resignation of, or remove, any such co-trustee or separate trustee
without the concurrence of the Company. Upon the written request of
the Trustee, the Company shall join with the Trustee in the execution
and delivery of all instruments and agreements necessary or proper to
effectuate such resignation or removal. A successor to any co-trustee
or separate trustee so resigned or removed may be appointed in the
manner provided in this Section;
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(d) no co-trustee or separate trustee hereunder shall be
personally liable by reason of any act or omission of the Trustee, or
any other such trustee hereunder; and
(e) any Act of Holders delivered to the Trustee shall be
deemed to have been delivered to each such co-trustee and separate
trustee.
SECTION 915. APPOINTMENT OF AUTHENTICATING AGENT.
The Trustee may appoint an Authenticating Agent or Agents with
respect to the Securities of one or more series, or Tranche thereof, which shall
be authorized to act on behalf of the Trustee to authenticate Securities of such
series or Tranche issued upon original issuance and upon exchange, registration
of transfer or partial redemption thereof or pursuant to Section 306, and
Securities so authenticated shall be entitled to the benefits of this Indenture
and shall be valid and obligatory for all purposes as if authenticated by the
Trustee hereunder. Wherever reference is made in this Indenture to the
authentication and delivery of Securities by the Trustee or the Trustee's
certificate of authentication, such reference shall be deemed to include
authentication and delivery on behalf of the Trustee by an Authenticating Agent
and a certificate of authentication executed on behalf of the Trustee by an
Authenticating Agent. Each Authenticating Agent shall be acceptable to the
Company and shall at all times be a corporation organized and doing business
under the laws of the United States, any State or territory thereof or the
District of Columbia, authorized under such laws to act as Authenticating Agent,
having a combined capital and surplus of not less than $50,000,000 and subject
to supervision or examination by Federal or State authority. If such
Authenticating Agent publishes reports of condition at least annually, pursuant
to law or to the requirements of said supervising or examining authority, then
for the purposes of this Section, the combined capital and surplus of such
Authenticating Agent shall be deemed to be its combined capital and surplus as
set forth in its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, such Authenticating Agent shall resign immediately
in the manner and with the effect specified in this Section.
Any corporation into which an Authenticating Agent may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which such
Authenticating Agent shall be a party, or any corporation succeeding to the
corporate agency or corporate trust business of an Authenticating Agent, shall
continue to be an Authenticating Agent, provided such corporation shall be
otherwise eligible under this Section, without the execution or filing of any
paper or any further act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving
written notice thereof to the Trustee and to the Company. The Trustee may at any
time terminate the agency of an Authenticating Agent by giving written notice
thereof to such Authenticating Agent and to the Company. Upon receiving such a
notice of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
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provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company. Any successor Authenticating
Agent upon acceptance of its appointment hereunder shall become vested with all
the rights, powers and duties of its predecessor hereunder, with like effect as
if originally named as an Authenticating Agent. No successor Authenticating
Agent shall be appointed unless eligible under the provisions of this Section.
The Trustee agrees to pay to each Authenticating Agent from
time to time reasonable compensation for its services under this Section, and
the Trustee shall be entitled to be reimbursed for such payments, in accordance
with, and subject to the provisions of, Section 907.
The provisions of Sections 308, 904 and 905 shall be
applicable to each Authenticating Agent.
If an appointment with respect to the Securities of one or
more series shall be made pursuant to this Section, the Securities of such
series may have endorsed thereon, in addition to the Trustee's certificate of
authentication, an alternate certificate of authentication substantially in the
following form:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
Dated: ________________________
As Trustee
By______________________
As Authenticating
Agent
By______________________
Authorized Signatory
If all of the Securities of a series may not be originally
issued at one time, and if the Trustee does not have an office capable of
authenticating Securities upon original issuance located in a Place of Payment
where the Company wishes to have Securities of such series authenticated upon
original issuance, the Trustee, if so requested by the Company in writing (which
writing need not comply with Section 102 and need not be accompanied by an
Opinion of Counsel), shall appoint, in accordance with this Section and in
accordance with such procedures as shall be acceptable to the Trustee, an
Authenticating Agent having an office in a Place of Payment designated by the
Company with respect to such series of Securities.
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ARTICLE TEN
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 1001. LISTS OF HOLDERS.
Semiannually, not later than June 1 and December 1 in each
year, commencing June 1, 1998, and at such other times as the Trustee may
request in writing, the Company shall furnish or cause to be furnished to the
Trustee information as to the names and addresses of the Holders, and the
Trustee shall preserve such information and similar information received by it
in any other capacity and afford to the Holders access to information so
preserved by it, all to such extent, if any, and in such manner as shall be
required by the Trust Indenture Act; provided, however, that no such list need
be furnished so long as the Trustee shall be the Security Registrar.
SECTION 1002. REPORTS BY TRUSTEE AND COMPANY.
Not later than November 1 in each year, commencing November 1,
1998, the Trustee shall transmit to the Holders, the Commission and each
securities exchange upon which any Securities are listed, a report, dated as of
the next preceding September 15, with respect to any events and other matters
described in Section 313(a) of the Trust Indenture Act, in such manner and to
the extent required by the Trust Indenture Act. The Trustee shall transmit to
the Holders, the Commission and each securities exchange upon which any
Securities are listed, and the Company shall file with the Trustee (within 30
days after filing with the Commission in the case of reports which pursuant to
the Trust Indenture Act must be filed with the Commission and furnished to the
Trustee) and transmit to the Holders, such other information, reports and other
documents, if any, at such times and in such manner, as shall be required by the
Trust Indenture Act. The Company shall notify the Trustee of the listing of any
Securities on any securities exchange.
ARTICLE ELEVEN
CONSOLIDATION, MERGER, CONVEYANCE OR OTHER TRANSFER
SECTION 1101. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company shall not consolidate with or merge into any other
Person, or convey or otherwise transfer or lease its properties and assets
substantially as an entirety to any Person, unless
(a) the Person formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance or
transfer, or which leases, the
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properties and assets of the Company substantially as an entirety
shall be a Person organized and validly existing under the laws of
the United States, any State thereof or the District of Columbia, and
shall expressly assume, by an indenture supplemental hereto, executed
and delivered to the Trustee, in form satisfactory to the Trustee,
the due and punctual payment of the principal of and premium, if any,
and interest, if any, on all Outstanding Securities and the
performance of every covenant of this Indenture on the part of the
Company to be performed or observed;
(b) immediately after giving effect to such transaction no
Event of Default, and no event which, after notice or lapse of time
or both, would become an Event of Default, shall have occurred and be
continuing; and
(c) the Company shall have delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel, each stating that
such consolidation, merger, conveyance, or other transfer or lease
and such supplemental indenture comply with this Article and that all
conditions precedent herein provided for relating to such
transactions have been complied with.
SECTION 1102. SUCCESSOR PERSON SUBSTITUTED.
Upon any consolidation by the Company with or merger by the
Company into any other Person or any conveyance, or other transfer or lease of
the properties and assets of the Company substantially as an entirety in
accordance with Section 1101, the successor Person formed by such consolidation
or into which the Company is merged or the Person to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein,
and thereafter, except in the case of a lease, the predecessor Person shall be
relieved of all obligations and covenants under this Indenture and the
Securities Outstanding hereunder.
ARTICLE TWELVE
SUPPLEMENTAL INDENTURES
SECTION 1201. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company and the
Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto, in form satisfactory to the Trustee, for any of
the following purposes:
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(a) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of
the Company herein and in the Securities, all as provided in Article
Eleven; or
(b) to add one or more covenants of the Company or other
provisions for the benefit of all Holders or for the benefit of the
Holders of, or to remain in effect only so long as there shall be
Outstanding, Securities of one or more specified series, or one or
more specified Tranches thereof, or to surrender any right or power
herein conferred upon the Company; or
(c) to add any additional Events of Default with respect to
all or any series of Securities Outstanding hereunder; or
(d) to change or eliminate any provision of this Indenture or
to add any new provision to this Indenture; provided, however, that
if such change, elimination or addition shall adversely affect the
interests of the Holders of Securities of any series or Tranche
Outstanding on the date of such indenture supplemental hereto in any
material respect, such change, elimination or addition shall become
effective with respect to such series or Tranche only pursuant to the
provisions of Section 1202 hereof or when no Security of such series
or Tranche remains Outstanding; or
(e) to provide collateral security for all but not part of the
Securities; or
(f) to establish the form or terms of Securities of any series
or Tranche as contemplated by Sections 201 and 301; or
(g) to provide for the authentication and delivery of bearer
securities and coupons appertaining thereto representing interest, if
any, thereon and for the procedures for the registration, exchange
and replacement thereof and for the giving of notice to, and the
solicitation of the vote or consent of, the holders thereof, and for
any and all other matters incidental thereto; or
(h) to evidence and provide for the acceptance of appointment
hereunder by a separate or successor Trustee or co-trustee with
respect to the Securities of one or more series and to add to or
change any of the provisions of this Indenture as shall be necessary
to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, pursuant to the requirements of
Section 911(b); or
(i) to provide for the procedures required to permit the
Company to utilize, at its option, a noncertificated system of
registration for all, or any series or Tranche of, the Securities; or
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(j) to change any place or places where (1) the principal of
and premium, if any, and interest, if any, on all or any series of
Securities, or any Tranche thereof, shall be payable, (2) all or any
series of Securities, or any Tranche thereof, may be surrendered for
registration of transfer, (3) all or any series of Securities, or any
Tranche thereof, may be surrendered for exchange and (4) notices and
demands to or upon the Company in respect of all or any series of
Securities, or any Tranche thereof, and this Indenture may be served;
or
(k) to cure any ambiguity, to correct or supplement any
provision herein which may be defective or inconsistent with any
other provision herein, or to make any other changes to the
provisions hereof or to add other provisions with respect to matters
or questions arising under this Indenture, provided that such other
changes or additions shall not adversely affect the interests of the
Holders of Securities of any series or Tranche in any material
respect.
Without limiting the generality of the foregoing, if the Trust
Indenture Act as in effect at the date of the execution and delivery of this
Indenture or at any time thereafter shall be amended and
(x) if any such amendment shall require one or more
changes to any provisions hereof or the inclusion herein of
any additional provisions, or shall by operation of law be
deemed to effect such changes or incorporate such provisions
by reference or otherwise, this Indenture shall be deemed to
have been amended so as to conform to such amendment to the
Trust Indenture Act, and the Company and the Trustee may,
without the consent of any Holders, enter into an indenture
supplemental hereto to effect or evidence such changes or
additional provisions; or
(y) if any such amendment shall permit one or more
changes to, or the elimination of, any provisions hereof
which, at the date of the execution and delivery hereof or at
any time thereafter, are required by the Trust Indenture Act
to be contained herein, this Indenture shall be deemed to have
been amended to effect such changes or elimination, and the
Company and the Trustee may, without the consent of any
Holders, enter into an indenture supplemental hereto to
evidence such amendment hereof.
SECTION 1202. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of a majority in aggregate
principal amount of the Securities of all series then Outstanding under this
Indenture, considered as one class, by Act of said Holders delivered to the
Company and the Trustee, the Company, when authorized by a Board Resolution, and
the Trustee may enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to, or changing in any manner or
eliminating
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any of the provisions of, this Indenture or modifying in any manner the rights
of the Holders of Securities of such series under the Indenture; provided,
however, that if there shall be Securities of more than one series Outstanding
hereunder and if a proposed supplemental indenture shall directly affect the
rights of the Holders of Securities of one or more, but less than all, of such
series, then the consent only of the Holders of a majority in aggregate
principal amount of the Outstanding Securities of all series so directly
affected, considered as one class, shall be required; and provided, further,
that if the Securities of any series shall have been issued in more than one
Tranche and if the proposed supplemental indenture shall directly affect the
rights of the Holders of Securities of one or more, but less than all, of such
Tranches, then the consent only of the Holders of a majority in aggregate
principal amount of the Outstanding Securities of all Tranches so directly
affected, considered as one class, shall be required; and provided, further,
that no such supplemental indenture shall:
(a) change the Stated Maturity of the principal of, or any
installment of principal of or interest on, any Security, or reduce
the principal amount thereof or the rate of interest thereon (or the
amount of any installment of interest thereon) or change the method
of calculating such rate or reduce any premium payable upon the
redemption thereof, or reduce the amount of the principal of a
Discount Security that would be due and payable upon a declaration of
acceleration of the Maturity thereof pursuant to Section 802, or
change the coin or currency (or other property), in which any
Security or any premium or the interest thereon is payable, or impair
the right to institute suit for the enforcement of any such payment
on or after the Stated Maturity of any Security (or, in the case of
redemption, on or after the Redemption Date), without, in any such
case, the consent of the Holder of such Security, or
(b) reduce the percentage in principal amount of the
Outstanding Securities of any series, or any Tranche thereof, the
consent of the Holders of which is required for any such supplemental
indenture, or the consent of the Holders of which is required for any
waiver of compliance with any provision of this Indenture or of any
default hereunder and its consequences, or reduce the requirements of
Section 1304 for quorum or voting, without, in any such case, the
consent of the Holders of each Outstanding Security of such series or
Tranche, or
(c) modify any of the provisions of this Section, Section 607
or Section 813 with respect to the Securities of any series, or any
Tranche thereof, except to increase the percentages in principal
amount referred to in this Section or such other Sections or to
provide that other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Security
affected thereby; provided, however, that this clause shall not be
deemed to require the consent of any Holder with respect to changes
in the references to "the Trustee" and concomitant changes in this
Section, or the deletion of this proviso, in accordance with the
requirements of Sections 911(b), 914 and 1201(h).
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A supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular series of Securities, or one or more Tranches
thereof, or which modifies the rights of the Holders of Securities of such
series with respect to such covenant or other provision, shall be deemed not to
affect the rights under this Indenture of the Holders of Securities of any other
series or Tranche.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof. A
waiver by a Holder of such Holder's right to consent under this Section shall be
deemed to be a consent of such Holder.
SECTION 1203. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and (subject to Section 901) shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties, immunities or liabilities under this
Indenture or otherwise.
SECTION 1204. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes; and
every Holder of Securities theretofore or thereafter authenticated and delivered
hereunder shall be bound thereby. Any supplemental indenture permitted by this
Article may restate this Indenture in its entirety, and, upon the execution and
delivery thereof, any such restatement shall supersede this Indenture as
theretofore in effect for all purposes.
SECTION 1205. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article
shall conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 1206. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities of any series, or any Tranche thereof,
authenticated and delivered after the execution of any supplemental indenture
pursuant to this Article may, and shall if required by the Trustee, bear a
notation in form approved by the Trustee as to any matter provided for in such
supplemental indenture. If the Company shall so determine, new
<PAGE>
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Securities of any series, or any Tranche thereof, so modified as to conform, in
the opinion of the Trustee and the Company, to any such supplemental indenture
may be prepared and executed by the Company and authenticated and delivered by
the Trustee in exchange for Outstanding Securities of such series or Tranche.
SECTION 1207. MODIFICATION WITHOUT SUPPLEMENTAL INDENTURE.
If the terms of any particular series of Securities shall have
been established in a Board Resolution or an Officer's Certificate as
contemplated by Section 301, and not in an indenture supplemental hereto,
additions to, changes in or the elimination of any of such terms may be effected
by means of a supplemental Board Resolution or Officer's Certificate, as the
case may be, delivered to, and accepted by, the Trustee; provided, however, that
such supplemental Board Resolution or Officer's Certificate shall not be
accepted by the Trustee or otherwise be effective unless all conditions set
forth in this Indenture which would be required to be satisfied if such
additions, changes or elimination were contained in a supplemental indenture
shall have been appropriately satisfied. Upon the acceptance thereof by the
Trustee, any such supplemental Board Resolution or Officer's Certificate shall
be deemed to be a "supplemental indenture" for purposes of Section 1204 and
1206.
ARTICLE THIRTEEN
MEETINGS OF HOLDERS; ACTION WITHOUT MEETING
SECTION 1301. PURPOSES FOR WHICH MEETINGS MAY BE CALLED.
A meeting of Holders of Securities of one or more, or all,
series, or any Tranche or Tranches thereof, may be called at any time and from
time to time pursuant to this Article to make, give or take any request, demand,
authorization, direction, notice, consent, waiver or other action provided by
this Indenture to be made, given or taken by Holders of Securities of such
series or Tranches.
SECTION 1302. CALL, NOTICE AND PLACE OF MEETINGS.
(a) The Trustee may at any time call a meeting of Holders of
Securities of one or more, or all, series, or any Tranche or Tranches
thereof, for any purpose specified in Section 1301, to be held at
such time and at such place in the Borough of Manhattan, The City of
New York, as the Trustee shall determine, or, with the approval of
the Company, at any other place. Notice of every such meeting,
setting forth the time and the place of such meeting and in general
terms the action proposed to be taken at such meeting, shall be
given, in the manner provided in Section 106, not less than 21 nor
more than 180 days prior to the date fixed for the meeting.
<PAGE>
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(b) If the Trustee shall have been requested to call a meeting
of the Holders of Securities of one or more, or all, series, or any
Tranche or Tranches thereof, by the Company or by the Holders of 33%
in aggregate principal amount of all of such series and Tranches,
considered as one class, for any purpose specified in Section 1301,
by written request setting forth in reasonable detail the action
proposed to be taken at the meeting, and the Trustee shall not have
given the notice of such meeting within 21 days after receipt of such
request or shall not thereafter proceed to cause the meeting to be
held as provided herein, then the Company or the Holders of
Securities of such series and Tranches in the amount above specified,
as the case may be, may determine the time and the place in the
Borough of Manhattan, The City of New York, or in such other place as
shall be determined or approved by the Company, for such meeting and
may call such meeting for such purposes by giving notice thereof as
provided in subsection (a) of this Section.
(c) Any meeting of Holders of Securities of one or more, or
all, series, or any Tranche or Tranches thereof, shall be valid
without notice if the Holders of all Outstanding Securities of such
series or Tranches are present in person or by proxy and if
representatives of the Company and the Trustee are present, or if
notice is waived in writing before or after the meeting by the
Holders of all Outstanding Securities of such series, or any Tranche
or Tranches thereof, or by such of them as are not present at the
meeting in person or by proxy, and by the Company and the Trustee.
SECTION 1303. PERSONS ENTITLED TO VOTE AT MEETINGS.
To be entitled to vote at any meeting of Holders of Securities
of one or more, or all, series, or any Tranche or Tranches thereof, a Person
shall be (a) a Holder of one or more Outstanding Securities of such series or
Tranches, or (b) a Person appointed by an instrument in writing as proxy for a
Holder or Holders of one or more Outstanding Securities of such series or
Tranches by such Holder or Holders. The only Persons who shall be entitled to
attend any meeting of Holders of Securities of any series or Tranche shall be
the Persons entitled to vote at such meeting and their counsel, any
representatives of the Trustee and its counsel and any representatives of the
Company and its counsel.
SECTION 1304. QUORUM; ACTION.
The Persons entitled to vote a majority in aggregate principal
amount of the Outstanding Securities of the series and Tranches with respect to
which a meeting shall have been called as hereinbefore provided, considered as
one class, shall constitute a quorum for a meeting of Holders of Securities of
such series and Tranches; provided, however, that if any action is to be taken
at such meeting which this Indenture expressly provides may be taken by the
Holders of a specified percentage, which is less than a majority, in principal
amount of the Outstanding Securities of such series and Tranches, considered as
one class, the Persons entitled to vote such specified percentage in principal
amount of the Outstanding Securities of such
<PAGE>
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series and Tranches, considered as one class, shall constitute a quorum. In the
absence of a quorum within one hour of the time appointed for any such meeting,
the meeting shall, if convened at the request of Holders of Securities of such
series and Tranches, be dissolved. In any other case the meeting may be
adjourned for such period as may be determined by the chairman of the meeting
prior to the adjournment of such meeting. In the absence of a quorum at any such
adjourned meeting, such adjourned meeting may be further adjourned for such
period as may be determined by the chairman of the meeting prior to the
adjournment of such adjourned meeting. Except as provided by Section 1305(e),
notice of the reconvening of any meeting adjourned for more than 30 days shall
be given as provided in Section 1302(a) not less than 10 days prior to the date
on which the meeting is scheduled to be reconvened. Notice of the reconvening of
an adjourned meeting shall state expressly the percentage, as provided above, of
the principal amount of the Outstanding Securities of such series and Tranches
which shall constitute a quorum.
Except as limited by Section 1202, any resolution presented to
a meeting or adjourned meeting duly reconvened at which a quorum is present as
aforesaid may be adopted only by the affirmative vote of the Holders of a
majority in aggregate principal amount of the Outstanding Securities of the
series and Tranches with respect to which such meeting shall have been called,
considered as one class; provided, however, that, except as so limited, any
resolution with respect to any action which this Indenture expressly provides
may be taken by the Holders of a specified percentage, which is less than a
majority, in principal amount of the Outstanding Securities of such series and
Tranches, considered as one class, may be adopted at a meeting or an adjourned
meeting duly reconvened and at which a quorum is present as aforesaid by the
affirmative vote of the Holders of such specified percentage in principal amount
of the Outstanding Securities of such series and Tranches, considered as one
class.
Any resolution passed or decision taken at any meeting of
Holders of Securities duly held in accordance with this Section shall be binding
on all the Holders of Securities of the series and Tranches with respect to
which such meeting shall have been held, whether or not present or represented
at the meeting.
SECTION 1305. ATTENDANCE AT MEETINGS; DETERMINATION OF VOTING RIGHTS;
CONDUCT AND ADJOURN MENT OF MEETINGS.
(a) Attendance at meetings of Holders of Securities may be in
person or by proxy; and, to the extent permitted by law, any such
proxy shall remain in effect and be binding upon any future Holder of
the Securities with respect to which it was given unless and until
specifically revoked by the Holder or future Holder of such
Securities before being voted.
(b) Notwithstanding any other provisions of this Indenture,
the Trustee may make such reasonable regulations as it may deem
advisable for any meeting of Holders of Securities in regard to proof
of the holding of such Securities and of the appointment
<PAGE>
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of proxies and in regard to the appointment and duties of inspectors
of votes, the submission and examination of proxies, certificates and
other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall deem appropriate.
Except as otherwise permitted or required by any such regulations,
the holding of Securities shall be proved in the manner specified in
Section 104 and the appointment of any proxy shall be proved in the
manner specified in Section 104. Such regulations may provide that
written instruments appointing proxies, regular on their face, may be
presumed valid and genuine without the proof specified in Section 104
or other proof.
(c) The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been
called by the Company or by Holders as provided in Section 1302(b),
in which case the Company or the Holders of Securities of the series
and Tranches calling the meeting, as the case may be, shall in like
manner appoint a temporary chairman. A permanent chairman and a
permanent secretary of the meeting shall be elected by vote of the
Persons entitled to vote a majority in aggregate principal amount of
the Outstanding Securities of all series and Tranches represented at
the meeting, considered as one class.
(d) At any meeting each Holder or proxy shall be entitled to
one vote for each $1 principal amount of Securities held or
represented by him; provided, however, that no vote shall be cast or
counted at any meeting in respect of any Security challenged as not
Outstanding and ruled by the chairman of the meeting to be not
Outstanding. The chairman of the meeting shall have no right to vote,
except as a Holder of a Security or proxy.
(e) Any meeting duly called pursuant to Section 1302 at which
a quorum is present may be adjourned from time to time by Persons
entitled to vote a majority in aggregate principal amount of the
Outstanding Securities of all series and Tranches represented at the
meeting, considered as one class; and the meeting may be held as so
adjourned without further notice.
SECTION 1306. COUNTING VOTES AND RECORDING ACTION OF MEETINGS.
The vote upon any resolution submitted to any meeting of
Holders shall be by written ballots on which shall be subscribed the signatures
of the Holders or of their representatives by proxy and the principal amounts
and serial numbers of the Outstanding Secu rities, of the series and Tranches
with respect to which the meeting shall have been called, held or represented by
them. The permanent chairman of the meeting shall appoint two inspectors of
votes who shall count all votes cast at the meeting for or against any
resolution and who shall make and file with the secretary of the meeting their
verified written reports of all votes cast at the meeting. A record of the
proceedings of each meeting of Holders shall be prepared by the secretary of the
meeting and there shall be attached to said record the original reports of the
<PAGE>
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inspectors of votes on any vote by ballot taken thereat and affidavits by one or
more persons having knowledge of the facts setting forth a copy of the notice of
the meeting and showing that said notice was given as provided in Section 1302
and, if applicable, Section 1304. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company, and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
SECTION 1307. ACTION WITHOUT MEETING.
In lieu of a vote of Holders at a meeting as hereinbefore
contemplated in this Article, any request, demand, authorization, direction,
notice, consent, waiver or other action may be made, given or taken by Holders
by written instruments as provided in Section 104.
ARTICLE FOURTEEN
IMMUNITY OF INCORPORATORS, SHAREHOLDERS, OFFICERS AND DIRECTORS
SECTION 1401. LIABILITY SOLELY CORPORATE.
No recourse shall be had for the payment of the principal of
or premium, if any, or interest, if any, on any Securities, or any part thereof,
or for any claim based thereon or otherwise in respect thereof, or of the
indebtedness represented thereby, or upon any obligation, covenant or agreement
under this Indenture, against any incorporator, shareholder, officer or
director, as such, past, present or future of the Company or of any predecessor
or successor corporation (either directly or through the Company or a
predecessor or successor corporation), whether by virtue of any constitutional
provision, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly agreed and under stood that this
Indenture and all the Securities are solely corporate obligations, and that no
personal liability whatsoever shall attach to, or be incurred by, any
incorporator, shareholder, officer or director, past, present or future, of the
Company or of any predecessor or successor corporation, either directly or
indirectly through the Company or any predecessor or successor corporation,
because of the indebtedness hereby authorized or under or by reason of any of
the obligations, covenants or agreements contained in this Indenture or in any
of the Securities or to be implied herefrom or therefrom, and that any such
personal liability is hereby expressly waived and released as a condition of,
and as part of the consideration for, the execution of this Indenture and the
issuance of the Securities.
<PAGE>
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-------------------------
This instrument may be executed in any number of counterparts,
each of which so executed shall be deemed to be an original, but all such
counterparts shall together constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, all as of the day and year first above written.
ENSERCH CORPORATION
By: /s/ Robert S. Shapard
----------------------------
Treasurer
<PAGE>
THE BANK OF NEW YORK, Trustee
By: /s/ Walter N. Gitlin
----------------------------
Vice President
<PAGE>
STATE OF TEXAS )
) ss.:
COUNTY OF DALLAS )
On the 26th day of January 1998, before me personally came
Robert S. Shapard, to me known, who, being by me duly sworn, did depose and say
that [he] is the Treasurer of ENSERCH Corporation, one of the corporations
described in and which executed the foregoing instrument; and that [he] signed
[his] name thereto by authority of the Board of Directors of said corporation.
/S/ LeNae B. Davis
------------------------------
------------------------------
Notary Public, State of Texas
My Commission Expires
--------
<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
On the 30th day of January, 1998, before me personally came
Walter N. Gitlin, to me known, who, being by me duly sworn, did depose and say
that [he] is a [Vice President] of The Bank of New York, one of the corporations
described in and which executed the foregoing instrument; and that [he] signed
[his] name thereto by authority of the Board of Directors of said corporation.
/s/ Moira Feeney
---------------------------------
-----------------
Notary Public, State of New York
<PAGE>
EXHIBIT 4(mm)
ENSERCH CORPORATION
OFFICER'S CERTIFICATE
Robert S. Shapard, the Treasurer of ENSERCH Corporation (the "Company"),
pursuant to the authority granted in the Board Resolutions of the Company dated
December 17, 1997, and Sections 201 and 301 of the Indenture defined herein,
does hereby certify to The Bank of New York (the "Trustee"), as Trustee under
the Indenture of the Company (For Unsecured Debt Securities) dated as of January
1, 1998 (the "Indenture") that:
1. The securities of the second series to be issued under the Indenture shall
be designated "Remarketed Reset Notes due January 1, 2008" (the "Securities
of the Second Series"). All capitalized terms used in this certificate
which are not defined herein but are defined in Exhibit A hereto shall have
the meanings set forth in Exhibit A; all capitalized terms used in this
certificate which are not defined herein or in Exhibit A hereto but are
defined in the Indenture shall have the meanings set forth in the
Indenture;
2. The Securities of the Second Series shall be limited in aggregate
principal amount to $125,000,000 at any time Outstanding, except as
contemplated in Section 301(b) of the Indenture;
3. The Securities of the Second Series shall mature and the principal
shall be due and payable together with all accrued and unpaid interest
thereon on January 1, 2008;
4. The Securities of the Second Series shall bear interest as provided in
the form of Security of the Second Series attached hereto as Exhibit
A. Upon each Duration/Mode Determination Date, the mode, duration,
Commencement Date, Interest Payment Dates, and other relevant terms
for the next Subsequent Spread Period shall be determined as described
in the form of Security of the Second Series attached hereto as
Exhibit A.
Pursuant to the Remarketing Agreement, Merrill Lynch, Pierce,
Fenner & Smith Incorporated has agreed to act as Remarketing Agent.
The Company, in its sole discretion, will appoint a Rate Agent and may
change the Remarketing Agent and the Rate Agent for any Subsequent
Spread Period at any time on or prior to 3:00 p.m., New York City
time, on the Duration/Mode Determination Date relating thereto. The
Company will
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<PAGE>
deliver to the Trustee a notice of such appointment or change on or
before the next Commencement Date after such appointment or change.
The Company shall deliver to the Trustee on or before any
Commencement Date for Securities of the Second Series a notice stating
the duration, redemption dates, redemption type, redemption prices (if
applicable), the next Commencement Date, Interest Payment Date or
Dates, interest rate mode, Spread, interest rate or rates and any
other relevant terms for the applicable Subsequent Spread Period. The
Trustee shall be under no duty to inquire into, may presume the
correctness of, and shall be fully protected in acting upon the
Company's notice with respect to such Subsequent Spread Period for the
Securities of the Second Series.
5. Each installment of interest on a Security of the Second Series shall
be payable to the Person in whose name such Security of the Second
Series is registered at the close of business on the 15th day of the
calendar month next preceding the corresponding Interest Payment Date
(the "Regular Record Date") for the Securities of the Second Series.
Any installment of interest on the Securities of the Second Series not
punctually paid or duly provided for shall forthwith cease to be
payable to the Holders of such Securities of the Second Series on such
Regular Record Date, and may be paid to the Persons in whose name the
Securities of the Second Series are registered at the close of
business on a Special Record Date to be fixed by the Trustee for the
payment of such Defaulted Interest. Notice of such Defaulted Interest
and Special Record Date shall be given to the Holders of the
Securities of the Second Series not less than 10 days prior to such
Special Record Date, or may be paid at any time in any other lawful
manner not inconsistent with the requirements of any securities
exchange on which the Securities of the Second Series may be listed,
and upon such notice as may be required by such exchange, all as more
fully provided in the Indenture;
6. The principal and each installment of interest on the Securities of
the Second Series shall be payable at, and registration and
registration of transfers and exchanges in respect of the Securities
of the Second Series may be effected at, the office or agency of the
Company in The City of New York; provided that payment of interest may
be made at the option of the Company by check mailed to the address of
the persons entitled thereto. Notices and demands to or upon the
Company in respect of the Securities of the Second Series may be
served at the office or agency of the Company in The City of New York.
The Corporate Trust Office of the Trustee will initially be the agency
of the Company for such payment, registration and registration of
transfers and exchanges and service of notices and demands and the
Company hereby appoints the Trustee as its agent for all such
purposes; provided, however, that the Company reserves the right to
change, by one or more Officer's
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<PAGE>
Certificates, any such office or agency and such agent. The Trustee
will be the Security Registrar and the Paying Agent for the Securities
of the Second Series;
7. The Securities of the Second Series may not be redeemed except as
contemplated in the form of the Security of the Second Series attached
hereto as Exhibit A.
Unless the Company defaults in payment of the Redemption Price, on and
after the Redemption Date interest will cease to accrue on the
Securities of the Second Series or portions thereof called for
redemption.
With respect to any Make-Whole Redemption, the Company shall deliver
to the Trustee before any Redemption Date for Securities of the Second
Series its calculation of the Redemption Price applicable to such
redemption. Except with respect to the obligations of the Trustee
expressly set forth in the definitions of "Comparable Treasury
Price"in Exhibit A hereto, the Trustee shall be under no duty to
inquire into, may presume the correctness of, and shall be fully
protected in acting upon the Company's calculation of any Redemption
Price of the Securities of the Second Series.
In lieu of stating the Redemption Price for a Make-Whole Redemption,
notices of redemption of Securities of the Second Series shall state
substantially the following: "The Redemption Price of the Securities
of the Second Series to be redeemed shall equal the greater of (i)
100% of the principal amount of such Securities of the Second Series,
and (ii) the sum of the present values of the remaining scheduled
payments of principal and interest thereon from the Redemption Date to
the end of the applicable Subsequent Spread Period, computed by
discounting such payments, in each case, to the Redemption Date on a
semiannual basis (assuming a 360-day year consisting of twelve 30-day
months) at the Treasury Yield (as defined in the Indenture) plus the
Reinvestment Spread (as defined in the Indenture)."
Except as provided herein, Article Four of the Indenture shall apply
to redemptions of Securities of the Second Series.
8. The Securities of the Second Series will be originally issued in
global form payable to Cede & Co. and will, unless and until the
Securities of the Second Series are exchanged in whole or in part for
certificated Securities of the Second Series registered in the names
of various beneficial holders thereof (in accordance with the
conditions set forth in the legend appearing in the form of the
Securities of the Second Series, attached hereto as Exhibit A),
contain restrictions on transfer, substantially as described in such
form;
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<PAGE>
9. No service charge shall be made for the registration of transfer or
exchange of the Securities of the Second Series; provided, however,
that the Company may require payment of a sum sufficient to cover any
tax or other governmental charge that may be imposed in connection
with the exchange or transfer;
10. If the Company shall make any deposit of money and/or Eligible
Obligations with respect to any Securities of the Second Series, or
any portion of the principal amount thereof, as contemplated by
Section 701 of the Indenture, the Company shall not deliver an
Officer's Certificate described in clause (z) in the first paragraph
of said Section 701 unless the Company shall also deliver to the
Trustee, together with such Officer's Certificate, either:
(A) an instrument wherein the Company, notwithstanding the
satisfaction and discharge of its indebtedness in respect of the
Securities of the Second Series, shall assume the obligation (which
shall be absolute and unconditional) to irrevocably deposit with the
Trustee or Paying Agent such additional sums of money, if any, or
additional Eligible Obligations (meeting the requirements of Section
701), if any, or any combination thereof, at such time or times, as
shall be necessary, together with the money and/or Eligible
Obligations theretofore so deposited, to pay when due the principal of
and premium, if any, and interest due and to become due on such
Securities of the Second Series or portions thereof, all in accordance
with and subject to the provisions of said Section 701; provided,
however, that such instrument may state that the obligation of the
Company to make additional deposits as aforesaid shall be subject to
the delivery to the Company by the Trustee of a notice asserting the
deficiency accompanied by an opinion of an independent public
accountant of nationally recognized standing, selected by the Trustee,
showing the calculation thereof; or
(B) an Opinion of Counsel to the effect that, as a result of a
change in law occurring after the date of this certificate, the
Holders of such Securities of the Second Series, or portions of the
principal amount thereof, will not recognize income, gain or loss for
United States federal income tax purposes as a result of the
satisfaction and discharge of the Company's indebtedness in respect
thereof and will be subject to United States federal income tax on the
same amounts, at the same times and in the same manner as if such
satisfaction and discharge had not been effected.
11. The Securities of the Second Series shall have such other terms and
provisions as are provided in the form set forth in Exhibit A hereto,
and shall be issued in substantially such form;
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<PAGE>
12. The undersigned has read all of the covenants and conditions contained
in the Indenture relating to the issuance of the Securities of the
Second Series and the definitions in the Indenture relating thereto
and in respect of which this certificate is made;
13. The statements contained in this certificate are based upon the
familiarity of the undersigned with the Indenture, the documents
accompanying this certificate, and upon discussions by the undersigned
with officers and employees of the Company familiar with the matters
set forth herein;
14. In the opinion of the undersigned, he has made such examination or
investigation as is necessary to enable him to express an informed
opinion whether or not such covenants and conditions have been
complied with; and
15. In the opinion of the undersigned, such conditions and covenants and
conditions precedent, if any (including any covenants compliance with
which constitutes a condition precedent) to the authentication and
delivery of the Securities of the Second Series requested in the
accompanying Company Order have been complied with.
- 5 -
<PAGE>
IN WITNESS WHEREOF, I have executed this Officer's Certificate this
30th day of January, 1998.
/s/ Robert S. Shapard
--------------------------------
Robert S. Shapard
Treasurer
- 6 -
<PAGE>
No._______________
Cusip No. [293567 AX 1]
EXHIBIT A
[FORM OF FACE OF SECURITIES OF THE SECOND SERIES]
[(SEE LEGEND AT THE END OF THIS SECURITY FOR
RESTRICTIONS ON TRANSFERABILITY AND CHANGE OF FORM)]
ENSERCH CORPORATION
REMARKETED RESET NOTES DUE JANUARY 1, 2008
ENSERCH CORPORATION, a corporation duly organized and existing under
the laws of the State of Texas (herein referred to as the "Company", which term
includes any successor Person under the Indenture), for value received, hereby
promises to pay to [Cede & Co.] or registered assigns, the principal sum of
____________________________________________________________________________
Dollars on January 1, 2008 (the Maturity Date), and to pay interest on said
principal sum, on April 1, 1998 (the first Interest Payment Date), at the rate
of 5.82% per annum (computed on the basis of the actual number of days elapsed
over a 360-day year) until April 1, 1998 (the first Commencement Date), and
thereafter as provided on the reverse hereof until the principal hereof is paid
or made available for payment. Interest on the Securities of this series will
accrue from January 30, 1998 to but excluding the first Interest Payment Date
(the "Initial Interest Period" and the "Initial Spread Period"), and thereafter
will accrue from and including the last Interest Payment Date to which interest
has been paid or duly provided for. Each installment of interest on a Security
of the Second Series shall be payable to the Person in whose name such Security
of the Second Series is registered at the close of business on the 15th day of
the calendar month next preceding the corresponding Interest Payment Date (the
"Regular Record Date") for the Securities of the Second Series. Any interest not
punctually paid or duly provided for will forthwith cease to be payable to the
Holder on the Regular Record Date and may either be paid to the Person in whose
name this Security (or one or more Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice whereof shall be given to Holders of
Securities of this series not less than 10 days prior to such Special Record
Date, or be paid at any time in any other lawful manner not inconsistent with
the requirements of any securities exchange on which the Securities of this
series may be listed, and upon such notice as may be required by such exchange,
all as more fully provided in the Indenture referred to on the reverse hereof.
Payment of the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company maintained for that
purpose in The City of New York, the State of New York in such coin or currency
of the United States of America as at the time of payment is legal tender for
payment of public and private debts, provided, however, that, at the option of
the Company, interest on this Security may be paid by check mailed to the
address of the person entitled thereto, as such address shall appear on the
Security Register.
<PAGE>
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place .
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
ENSERCH CORPORATION
By:
------------------------------------
ATTEST:
- ----------------------------
[FORM OF CERTIFICATE OF AUTHENTICATION]
CERTIFICATE OF AUTHENTICATION
Dated:
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
THE BANK OF NEW YORK, as Trustee
By:
------------------------------------
Authorized Signatory
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<PAGE>
[FORM OF REVERSE OF SECURITY OF THE SECOND SERIES]
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of January 1, 1998 (herein, together with
any amendments thereto, called the "Indenture", which term shall have the
meaning assigned to it in such instrument), between the Company and The Bank of
New York, as Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), and reference is hereby made to the
Indenture, including the Board Resolutions and Officer's Certificate filed with
the Trustee on January 30, 1998 creating the series designated on the face
hereof, for a statement of the respective rights, limitations of rights, duties
and immunities thereunder of the Company, the Trustee and the Holders of the
Securities and of the terms upon which the Securities are, and are to be,
authenticated and delivered. This Security is one of the series designated on
the face hereof, limited in aggregate principal amount to $125,000,000.
Upon each Duration/Mode Determination Date (as defined below), the mode and
other terms for the next Subsequent Spread Period (as defined below) shall be
determined as described below.
(A) FLOATING RATE MODE:
If the Securities of the Second Series are in Floating Rate Mode, then the
following shall apply:
During the Floating Rate Mode, interest on the Securities of the
Second Series for each Subsequent Spread Period will be payable either
monthly, quarterly, or semi-annually, as specified by the Company on each
Duration/Mode Determination Date. Unless otherwise specified on each
Duration/Mode Determination Date in connection with Securities of the
Second Series in the Floating Rate Mode, interest will be payable, in
arrears, in the case of Securities of the Second Series which pay (i)
monthly, on the first day of each month; (ii) quarterly, on the first day
of each January, April, July and October; and (iii) semi-annually, on the
first day of each January and July. During any Subsequent Spread Period
during which the Securities of the Second Series are in the Floating Rate
Mode, the interest rate on the Securities of the Second Series will be
reset either monthly, quarterly or semi-annually in the case of any
Subsequent Spread Period, and the Securities of the Second Series will bear
interest at a per annum rate (computed on the basis of the actual number of
days elapsed over a 360-day year) equal to LIBOR (as defined below) for the
applicable Interest Period (as defined below), plus the applicable Spread.
Interest on the Securities of the Second Series will accrue from and
including each Interest Payment Date to but excluding the next succeeding
Interest Payment Date or maturity date, as the case may be. The first day
of an Interest Period is referred to herein as an "Interest Reset Date."
If any Interest Payment Date (other than at maturity), Redemption Date
or Interest Reset Date in the Floating Rate Mode would otherwise be a day
that is not a Business Day, such Interest Payment Date, Redemption Date or
Interest Reset Date will be postponed to the next succeeding day that is a
Business Day.
- 3 -
<PAGE>
LIBOR applicable for an Interest Period will be determined by the Rate
Agent (as defined below) as of the second London Business Day (as defined
below) preceding each Interest Reset Date (the "LIBOR Determination Date")
in accordance with the following provisions:
(i) LIBOR will be determined on the basis of the offered rate
for deposits in U.S. Dollars of the applicable Index Maturity
commencing on the second London Business Day immediately following
such LIBOR Determination Date, which appears on Telerate Page 3750
(as defined below) as of approximately 11:00 a.m., London time, on
such LIBOR Determination Date. "Telerate Page 3750" means the
display designated on page "3750" on Dow Jones Markets Limited (or
such other page as may replace the 3750 page on that service or
such other service or services as may be nominated by the British
Bankers' Association for the purpose of displaying London interbank
offered rates for U.S. Dollar deposits). If no such offered rate
appears on Telerate Page 3750, LIBOR for such LIBOR Determination
Date will be determined in accordance with the provisions of
paragraph (ii) below. The term "London Business Day" means any day
on which dealings in deposits in U.S. Dollars are transacted in the
London interbank market.
(ii) With respect to a LIBOR Determination Date on which no
rate appears on Telerate Page 3750 as of approximately 11:00 a.m.,
London time, on such LIBOR Determination Date, the Rate Agent shall
request the principal London offices of each of four major
reference banks in the London interbank market selected by the Rate
Agent (after consultation with the Company) to provide the Rate
Agent with a quotation of the rate at which deposits in U.S.
Dollars of the applicable Index Maturity commencing on the second
London Business Day immediately following such LIBOR Determination
Date, are offered by it to prime banks in the London interbank
market as of approximately 11:00 a.m., London time, on such LIBOR
Determination Date and in a principal amount equal to an amount of
not less than U.S. $1,000,000 that is representative for a single
transaction in such market at such time. If at least two such
quotations are provided, LIBOR for such LIBOR Determination Date
will be the arithmetic mean of such quotations as calculated by the
Rate Agent. If fewer than two quotations are provided, LIBOR for
such LIBOR Determination Date will be the arithmetic mean of the
rates quoted as of approximately 11:00 a.m., New York City time, on
such LIBOR Determination Date by three major banks in The City of
New York selected by the Rate Agent (after consultation with the
Company) for loans in U.S. Dollars to leading European banks, of
the applicable Index Maturity commencing on the second London
Business Day immediately following such LIBOR Determination Date
and in a principal amount equal to an amount of not less than U.S.
$1,000,000 that is representative for a single transaction in such
market at such time; provided, however, that if the banks selected
as aforesaid by the Rate Agent are not quoting as mentioned in this
sentence, LIBOR for such LIBOR Determination Date will be LIBOR
determined with respect to the immediately preceding LIBOR
Determination Date.
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<PAGE>
The Index Maturity applicable to Securities of the Second
Series in the Floating Rate Mode will be, in the case of Securities
of the Second Series paying (i) monthly, one month; (ii) quarterly,
three months; and (iii) semi-annually, six months.
(B) FIXED RATE MODE:
If the Securities of the Second Series are, or are to be, in Fixed
Rate Mode, then the following shall apply:
If the Securities of the Second Series are to be reset to the
Fixed Rate Mode, as agreed to by the Company and the Remarketing
Agent on a Duration/Mode Determination Date, then the applicable
Fixed Rate for the corresponding Subsequent Spread Period will be
determined on the Business Day following the Fixed Rate Spread
Determination Date (the "Fixed Rate Determination Date"), in
accordance with the following provisions: the Fixed Rate will be a
per annum rate and will be determined by 2:00 p.m. New York City
time on such Fixed Rate Determination Date by adding the applicable
Spread (as agreed to by the Company and the Remarketing Agent on
the preceding Fixed Rate Spread Determination Date) to the yield to
maturity (expressed as a bond equivalent, on the basis of a year of
365 or 366 days, as applicable, and applied on a daily basis) of
the applicable United States Treasury security, selected by the
Rate Agent or its agent after consultation with the Remarketing
Agent, as having a maturity comparable to the duration selected for
the following Subsequent Spread Period, which would be used in
accordance with customary financial practice in pricing new issues
of corporate debt securities of comparable maturity to the duration
selected for the following Subsequent Spread Period.
Interest in the Fixed Rate Mode will be computed on the basis
of a 360-day year of twelve 30-day months. Such interest will be
payable semi-annually in arrears on the Interest Payment Dates
(January 1 and July 1, unless otherwise specified by the Company
and the Remarketing Agent on the applicable Duration/Mode
Determination Date) at the applicable Fixed Rate, as determined by
the Company and the Remarketing Agent on the Fixed Rate
Determination Date, beginning on the Commencement Date and for the
duration of the relevant Subsequent Spread Period. Interest on the
Securities of the Second Series will accrue from and including each
Interest Payment Date to but excluding the next succeeding Interest
Payment Date or maturity date, as the case may be.
If any Interest Payment Date or any Redemption Date in the
Fixed Rate Mode falls on a day that is not a Business Day, (in
either case, other than any Interest Payment Date or Redemption
Date that falls on a date that would have been a Commencement Date
but for the postponement of such Commencement Date to the next
Business Day, in which case such date will be postponed to the next
day that is a Business Day), the related payment of principal and
interest will be made on the next succeeding Business Day as if it
were made on the date such payment was due, and no interest will
accrue on the amounts so payable for the period from and after such
dates.
- 5 -
<PAGE>
(C) ADDITIONAL TERMS OF THE SECURITIES OF THE SECOND SERIES:
The following shall apply to Securities of the Second Series in
Floating Rate Mode or Fixed Rate Mode:
"Subsequent Spread Period" shall mean a period of at least
approximately six months and not extending beyond the Maturity
Date, designated by the Company; provided that the first Subsequent
Spread Period may be a period of approximately three months or the
sum of three months plus any integral multiple of six months ending
on or before the maturity date. Each Subsequent Spread Period shall
commence on January 1 or July 1 (or as otherwise specified by the
Company and the Remarketing Agent on the applicable Duration/Mode
Determination Date in connection with the establishment of each
Subsequent Spread Period), as applicable, and shall end on the
calendar day immediately preceding the next Subsequent Spread
Period or January 1, 2008.
"Commencement Date" shall mean the first day of a Subsequent
Spread Period.
"Interest Period" shall mean for any Subsequent Spread
Period, the period from and including the most recent Interest
Payment Date on which interest has been paid to but excluding the
next Interest Payment Date.
The term "Remarketing Agent" means the nationally recognized
broker-dealer selected by the Company to act as Remarketing Agent.
The term "Rate Agent" means the entity selected by the
Company as its agent to determine (i) LIBOR and the interest rate
on the Securities of the Second Series for any Interest Period
and/or (ii) the yield to maturity on the applicable United States
Treasury security that is used in connection with the determination
of the applicable Fixed Rate, and the ensuing applicable Fixed
Rate.
"Tender Date" shall mean the date immediately following the
end of the Initial Spread Period or a Subsequent Spread Period.
If any Commencement Date or Tender Date would otherwise be a
day that is not a Business Day, such Commencement Date or Tender
Date will be postponed to the next succeeding day that is a
Business Day.
The Spread that will be applicable during each Subsequent
Spread Period will be the percentage (a) recommended by the
Remarketing Agent pursuant to the Remarketing Agreement between the
Company and the Remarketing Agent, as the same may be amended or
supplemented, (the "Remarketing Agreement") and (b) agreed to by
the Company. The interest rate mode during each Subsequent Spread
Period shall be either the Floating Rate Mode or the Fixed Rate
Mode, as determined by the Company and the Remarketing Agent.
If the Maturity Date for the Securities of the Second Series
falls on a day that is not a Business Day, the related payment of
principal and interest will be made on the next
- 6 -
<PAGE>
succeeding Business Day as if it were made on the date such payment
was due, and no interest will accrue on the amounts so payable for
the period from and after such dates.
Unless notice of redemption of the Securities of the Second
Series as a whole has been given, the duration, redemption dates,
redemption type (i.e., par, premium or make-whole, including in the
case of make-whole, Reinvestment Spread), redemption prices (if
applicable), Commencement Date, Interest Payment Dates and interest
rate mode (i.e., Fixed Rate Mode or Floating Rate Mode) (and any
other relevant terms) for each Subsequent Spread Period will be
established by 3:00 p.m., New York City time, on the tenth Business
Day prior to the Commencement Date of each Subsequent Spread Period
(the "Duration/Mode Determination Date").
In addition, the Spread for each Subsequent Spread Period
will be established by 3:00 p.m., New York City time, on the eighth
Business Day prior to the Commencement Date of such Subsequent
Spread Period for which Securities of the Second Series will be in
the Floating Rate Mode (the "Floating Rate Spread Determination
Date") or by 12:00 p.m. New York City time on the third Business
Day prior to the Commencement Date of such Subsequent Spread Period
for which Securities of the Second Series will be in the Fixed Rate
Mode (the "Fixed Rate Spread Determination Date").
So long as all of the Securities of the Second Series are
held by The Depositary Trust Company ("DTC") in global form, the
Company will request not later than seven nor more than 15 calendar
days prior to any Duration/Mode Determination Date, that DTC notify
its Participants of such Duration/Mode Determination Date and of
the procedures that must be followed if any beneficial owner of a
Security of the Second Series wishes to tender such owner's
interest in such Security of the Second Series. In the event that
DTC or its nominee is no longer the holder of record of the
Securities of the Second Series, the Company will notify the
registered holders of the Securities of the Second Series of such
information within such period of time. This will be the only
notice given by the Company or the Remarketing Agent with respect
to such Duration/Mode Determination Date and procedures for
tendering Securities of the Second Series or beneficial interests
therein.
The term "Business Day" means any day other than a Saturday
or Sunday or a day on which banking institutions in The City of New
York are required or authorized to close and, in the case of
Securities of the Second Series in the Floating Rate Mode, that is
also a London Business Day.
In the event that the Company and the Remarketing Agent do
not agree on the Spread for any Subsequent Spread Period, then the
Company is required unconditionally to repurchase and retire all of
the Securities of the Second Series on the Tender Date at a price
equal to 100% of the principal amount thereof, together with
accrued interest to the Tender Date.
All percentages resulting from any calculation of any
interest rate for the Securities of the Second Series will be
rounded, if necessary, to the nearest one hundred thousandth of a
percentage point, with five one millionths of a percentage point
- 7 -
<PAGE>
rounded upward and all dollar amounts will be rounded to the
nearest cent, with one-half cent being rounded upward.
The beneficial owners of the Securities of the Second Series
are entitled to tender their beneficial interests in the Securities
of the Second Series on any Tender Date as provided in the
Remarketing Agreement as in effect on January 30, 1998. In the
event that the Remarketing Agent is unable to remarket some or all
of the tendered beneficial interests in the Securities of the
Second Series and chooses not to purchase such tendered beneficial
interests as provided in the Remarketing Agreement, the Company
shall be obligated unconditionally to purchase and retire on the
applicable Tender Date the remaining unsold tendered beneficial
interests in the Securities of the Second Series at a price equal
to 100% of the principal amount, plus accrued interest, to the
applicable Tender Date.
REDEMPTION PROVISIONS
The Securities of the Second Series may not be redeemed prior
to April 1, 1998. On that date, on each Commencement Date and on
those Interest Payment Dates specified as redemption dates by the
Company on the Duration/Mode Determination Date in connection with
any Subsequent Spread Period, the Securities of the Second Series
may be redeemed, at the option of the Company, in whole or in part,
upon notice thereof given at any time during the 30-calendar-day
period ending on the tenth Business Day prior to the Redemption
Date (provided that notice of any partial redemption must be given
at least 15 calendar days prior to the Redemption Date), in
accordance with the redemption type selected on the Duration/Mode
Determination Date. In the event that less than all of the
outstanding Securities of the Second Series are to be redeemed, the
Securities of the Second Series to be redeemed shall be selected by
such method as the Trustee shall deem fair and appropriate. So long
as the Securities of the Second Series are held by DTC in global
form, the Company will give notice to DTC, whose nominee is the
record holder of all of the Securities of the Second Series, and
DTC will determine the principal amount to be redeemed from the
account of each Participant. This will be the only notice given by
the Company or the Remarketing Agent with respect to redemption of
the Securities of the Second Series. A Participant may determine to
redeem from some beneficial owners (which may include a Participant
holding Securities of the Second Series for its own account)
without redeeming from the accounts of other beneficial owners.
The redemption type to be chosen by the Company and the
Remarketing Agent on the Duration/Mode Determination Date may be
one of the following as defined herein: (i) Par Redemption; (ii)
Premium Redemption; or (iii) Make-Whole Redemption. "Par
Redemption" means redemption at a Redemption Price equal to 100% of
the principal amount thereof, plus accrued interest thereon, if
any, to the Redemption Date. "Premium Redemption" means redemption
at a Redemption Price greater than 100% of the principal amount
thereof, plus accrued interest thereon, if any, to the Redemption
Date, as determined on the Duration/Mode Determination Date. "Make-
Whole Redemption" means redemption at a Redemption Price, plus
accrued interest thereon, if any, to the Redemption Date, equal to
the Make-Whole Amount (as defined below), if any, with respect to
such Securities of the Second Series. Unless otherwise specified by
- 8 -
<PAGE>
the Company on any Duration/Mode Determination Date, the redemption
type will be a Par Redemption.
"Make-Whole Amount" means, in connection with any optional
redemption or accelerated payment of any Security of the Second
Series, an amount equal to the greater of (i) 100% of the principal
amount and (ii) the sum of the present values of the remaining
scheduled payments of principal and interest thereon from the
Redemption Date to the end of the applicable Subsequent Spread
Period, computed by discounting such payments, in each case, to the
Redemption Date on a semiannual basis (assuming a 360-day year
consisting of twelve 30-day months) at the applicable Treasury
Yield plus the Reinvestment Spread, plus accrued interest on the
principal amount thereof, if any, to the Redemption Date.
"Treasury Yield" means, with respect to any Redemption Date
applicable to the Securities of the Second Series, the rate per
annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, assuming a price for the Comparable
Treasury Issue (expressed as a percentage of its principal amount)
equal to the applicable Comparable Treasury Price for such
Redemption Date.
"Comparable Treasury Issue" means, with respect to the
Securities of the Second Series, the United States Treasury
security selected by the Remarketing Agent as having a maturity
comparable to the remaining term of the Securities of the Second
Series that would be utilized, at the time of selection and in
accordance with customary financial practice, in pricing new issues
of corporate debt securities of comparable maturity to the
remaining term of the Securities of the Second Series.
"Comparable Treasury Price" means, with respect to any
Redemption Date applicable to the Securities of the Second Series,
(i) the average of the applicable Reference Treasury Dealer
Quotations for such Redemption Date, after excluding the highest
and lowest of such applicable Reference Treasury Dealer Quotations,
or (ii) if the Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any Redemption Date for the
Securities of the Second Series, the average, as determined by the
Trustee, of the bid and asked prices for the Comparable Treasury
Issue for the Securities of the Second Series (expressed in each
case as a percentage of its principal amount) quoted in writing to
the Trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third Business Day preceding such Redemption Date.
"Reference Treasury Dealer" means, with respect to the
Securities of the Second Series offered hereby, at least four
primary U.S. Government securities dealers in New York City as the
Company or the Trustee shall select, which may include the
Remarketing Agent or an affiliate thereof.
"Reinvestment Spread" means, with respect to the Securities
of the Second Series, a number, expressed as a number of basis
points or as a percentage, selected by the Company and agreed to by
the Remarketing Agent on the Duration/Mode Determination Date.
- 9 -
<PAGE>
The Indenture contains provisions for defeasance at any time
of the entire indebtedness of this Security upon compliance with
certain conditions set forth in the Indenture, including the
Officer's Certificate described above.
If an Event of Default with respect to Securities of this
series shall occur and be continuing, the principal of the
Securities of this series may be declared due and payable in the
manner and with the effect provided in the Indenture.
The Indenture permits, with certain exceptions as therein
provided, the amendment thereof and the modification of the rights
and obligations of the Company and the rights of the Holders of the
Securities of each series to be affected under the Indenture at any
time by the Company and the Trustee with the consent of the Holders
of a majority in principal amount of the Securities at the time
Outstanding of all series to be affected. The Indenture contains
provisions permitting the Holders of a majority in aggregate
principal amount of the Securities of all series then Outstanding
to waive compliance by the Company with certain restrictive
provisions of the Indenture. The Indenture also contains provisions
permitting the Holders of specified percentages in principal amount
of the Securities of each series at the time Outstanding, on behalf
of the Holders of all Securities of such series, to waive certain
past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be
conclusive and binding upon such Holder and upon all future Holders
of this Security and of any Security issued upon the registration
of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this
Security.
As provided in and subject to the provisions of the
Indenture, the Holder of this Security shall not have the right to
institute any proceeding with respect to the Indenture or for the
appointment of a receiver or trustee or for any other remedy
thereunder, unless such Holder shall have previously given the
Trustee written notice of a continuing Event of Default with
respect to the Securities of this series, the Holders of a majority
in aggregate principal amount of the Securities of all series at
the time Outstanding in respect of which an Event of Default shall
have occurred and be continuing shall have made written request to
the Trustee to institute proceedings in respect of such Event of
Default as Trustee and offered the Trustee reasonable indemnity,
and the Trustee shall not have received from the Holders of a
majority in aggregate principal amount of Securities of all series
at the time Outstanding in respect of which an Event of Default
shall have occurred and be continuing a direction inconsistent with
such request, and shall have failed to institute any such
proceeding, for 60 days after receipt of such notice, request and
offer of indemnity. The foregoing shall not apply to any suit
instituted by the Holder of this Security for the enforcement of
any payment of principal hereof or any premium or interest hereon
on or after the respective due dates expressed herein.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation
of the Company, which is absolute and unconditional, to pay the
principal of and any premium and interest on this Security at the
times, place and rate, and in the coin or currency, herein
prescribed.
The Securities of this series are issuable only in registered
form without coupons in denominations of $1,000 and any integral
multiple thereof. As provided in the Indenture and subject to
certain limitations therein set forth, Securities of this series
are exchangeable for a like aggregate principal amount of
Securities of this series and of like tenor and of authorized
denominations, as requested by the Holder surrendering the same.
- 10 -
<PAGE>
No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge payable in
connection therewith.
The Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Security is
registered as the absolute owner hereof for all purposes, whether
or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the
contrary.
All terms used in this Security which are defined in the
Indenture shall have the meanings assigned to them in the
Indenture.
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<PAGE>
LEGEND
Unless and until this Security is exchanged in whole or in part for
certificated Securities registered in the names of the various beneficial
holders hereof as then certified to the Trustee by The Depository Trust Company
(55 Water Street, New York, New York) or its successor (the "Depositary"), this
Security may not be transferred except as a whole by the Depositary to a nominee
of the Depositary or by a nominee of the Depositary to the Depositary or another
nominee of the Depositary or by the Depositary or any such nominee to a
successor Depositary or a nominee of such successor Depositary.
Unless this certificate is presented by an authorized representative of the
Depositary to the Company or its agent for registration of transfer, exchange or
payment, and any certificate to be issued is registered in the name of Cede &
Co., or such other name as requested by an authorized representative of the
Depositary and any amount payable thereunder is made payable to Cede & Co., or
such other name, ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co.,
has an interest herein.
This Security may be exchanged for certificated Securities registered in
the names of the various beneficial owners hereof if (a) the Depositary is at
any time unwilling or unable to continue as depositary and a successor
depositary is not appointed by the Company within 90 days, or (b) the Company
elects to issue certificated Securities to beneficial owners. Any such exchange
shall be made upon receipt by the Trustee of a Company Order therefor and
certificated Securities of this series shall be registered in such names and in
such denominations as shall be certified to the Company and the Trustee by the
Depositary.
<PAGE>
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THIS SECURITY IS A BOOK-ENTRY SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE ONLY
IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS
SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO
A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY
OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN SUCH LIMITED
CIRCUMSTANCES.
ENSERCH CORPORATION
7% Notes Due 1999
No. 1 $150,000,000
CUSIP No. 293567 AU 7
ENSERCH Corporation, a corporation duly organized and existing under the
laws of the State of Texas (herein called the "Company", which term includes any
successor corporation under the Indenture hereinafter referred to), for value
received, hereby promises to pay to CEDE & CO., or registered assigns, the
principal sum of ONE HUNDRED FIFTY MILLION DOLLARS on August 15, 1999 and to pay
interest thereon from August 15, 1992 or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, semi-annually on
August 15 and February 15 (each an "Interest Payment Date") in each year,
commencing February 15, 1993 at the rate of 7% per annum, until the principal
hereof is paid or made available for payment, and (to the extent that the
payment of such interest shall be legally enforceable) at the rate of 7% per
annum on any overdue principal and on any overdue installment of interest. The
amount of interest payable on any Interest Payment Date shall be computed on the
basis of a 360-day year of twelve 30-day months. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest, which shall be the August 1 or
February 1 (whether or not a Business Day), as the case may be, next preceding
such Interest Payment Date. Any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Securities of this
series not less than 10 days prior to such Special Record Date, or be paid at
any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities of this series may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in said Indenture.
Payment of the principal of and any such interest on this Security will be
made at the office or agency of the Company maintained for that purpose in the
City of New York, in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts;
provided, however, that at the option of the Company payment of interest may be
- -------- -------
made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
ENSERCH CORPORATION
Dated: August 18, 1992 By /s/ Jerry W. Pinkerton
Vice President
[CORPORATE SEAL] By /s/ A. E. Gallatin
Treasurer
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee
By /s/ Donne Fanning
Authorized Officer
<PAGE>
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of February 15, 1992 (herein called the
"Indenture"), between the Company and The First National Bank of Chicago, as
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee and the
Holders of the Securities and of the terms upon which the Securities are, and
are to be, authenticated and delivered. This Security is a global Book-Entry
Security representing $150,000,000 principal amount of the series of Securities
designated on the face hereof, limited in aggregate principal amount to
$150,000,000.
The Securities of this series are not redeemable in whole or in part at any
time prior to maturity.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture contains provisions for defeasance at any time of (a) the
entire indebtedness of this Security and (b) certain restrictive covenants, in
each case upon compliance by the Company with certain conditions set forth
therein, which provisions apply to this Security.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of at least a majority in principal amount of the
Securities at the time Outstanding of each series to be affected. The Indenture
also contains provisions permitting the Holders of specified percentages in
principal amount of the Securities of each series at the time Outstanding, on
behalf of the Holders of all Securities of such series, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Security shall be conclusive and binding upon such Holder and
upon all future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this
Security at the times, place and rate, and in the coin or currency, herein
prescribed.
As provided in the Indenture and subject to certain limitations herein and
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the principal of and interest
on this Security are payable, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Securities of this series, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
This global Book-Entry Security is exchangeable for Securities in
definitive form only under certain limited circumstances set forth in the
Indenture. Securities of this series so issued are issuable only in registered
form without coupons in denominations of $1,000 and any integral multiple
thereof. As provided in the Indenture and subject to certain limitations herein
and therein set forth, Securities of this series so issued are exchangeable for
a like aggregate principal amount of Securities of this series of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
--------------------
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
the within Security, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - ................... Custodian ........................
(Cust) (Minor)
under Uniform Gifts to Minors Act
........................................................
(State)
Additional abbreviations may also be used though not in the above list.
--------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[________________________________]
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
the within Security of ENSERCH CORPORATION and hereby does irrevocably
constitute and appoint
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Attorney
- ------------------------------------------------------------------------
to transfer the said Security on the books of the within-named Corporation, with
full power of substitution in the premises.
Dated
--------------------------------------------------------
Signature Guaranteed by:
<PAGE>
Exhibit 4 (pp)
<PAGE>
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THIS SECURITY IS A BOOK-ENTRY SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE ONLY
IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS
SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO
A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY
OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN SUCH LIMITED
CIRCUMSTANCES.
ENSERCH CORPORATION
8 7/8% Notes Due 2001
No. 1 $100,000,000
CUSIP No. 293567 AS2
ENSERCH Corporation, a corporation duly organized and existing under the
laws of the State of Texas (herein called the "Company", which term includes any
successor corporation under the Indenture hereinafter referred to), for value
received, hereby promises to pay to CEDE & CO., or registered assigns, the
principal sum of ONE HUNDRED MILLION DOLLARS on March 15, 2001 and to pay
interest thereon from March 15, 1992 or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, semi-annually on
March 15 and September 15 (each an "Interest Payment Date") in each year,
commencing September 15, 1992 at the rate of 8 7/8% per annum, until the
principal hereof is paid or made available for payment, and (to the extent that
the payment of such interest shall be legally enforceable) at the rate of 8 7/8%
per annum on any overdue principal and on any overdue installment of interest.
The amount of interest payable on any Interest Payment Date shall be computed on
the basis of a 360-day year of twelve 30-day months. The interest so payable,
and punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest, which shall be the March 1 or
September 1 (whether or not a Business Day), as the case may be, next preceding
such Interest Payment Date. Any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Securities of this
series not less than 10 days prior to such Special Record Date, or be paid at
any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities of this series may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in said Indenture.
Payment of the principal of and any such interest on this Security will be
made at the office or agency of the Company maintained for that purpose in the
City of New York, in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts;
provided, however, that at the option of the Company payment of interest may be
- -------- -------
made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
ENSERCH CORPORATION
Dated: March 17, 1992 By /s/ Benjamin A. Brown
Vice President
[CORPORATE SEAL] By /s/ A. E. Gallatin
Treasurer
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee
By /s/ L. D.
Authorized Officer
<PAGE>
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of February 15, 1992 (herein called the
"Indenture"), between the Company and The First National Bank of Chicago, as
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee and the
Holders of the Securities and of the terms upon which the Securities are, and
are to be, authenticated and delivered. This Security is a global Book-Entry
Security representing $100,000,000 principal amount of the series of Securities
designated on the face hereof, limited in aggregate principal amount to
$100,000,000.
The Securities of this series are subject to redemption upon not less than
30 days' notice by mail at any time, as a whole or in part, at the election of
the Company, at the following Redemption Prices (expressed as percentages of the
principal amount): If redeemed on or before March 15, 1993, 107.812% and, if
redeemed during the 12-month period beginning March 15 of the years indicated,
Redemption
Year Price
- ---- ----------
1993......................................................... 106.510%
1994......................................................... 105.208
1995......................................................... 103.906
1996......................................................... 102.604
1997......................................................... 101.302
1998......................................................... 100.000
and thereafter at a Redemption Price equal to 100% of the principal amount,
together in the case of any such redemption with accrued interest to the
Redemption Date, but interest installments whose Stated Maturity is on or prior
to such Redemption Date will be payable to the Holders of such Securities, or
one or more Predecessor Securities, of record at the close of business on the
relevant Record Dates referred to on the face hereof, all as provided in the
Indenture.
Notwithstanding the foregoing, the Company may not, prior to March 15,
1997, redeem any Securities of this series as contemplated by the preceding
paragraph as a part of, or in anticipation of, any refunding operation by the
application, directly or indirectly, of money's borrowed having an interest cost
to the Company (calculated in accordance with generally accepted financial
practice) of less than 9.163% per annum.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture contains provisions for defeasance at any time of (a) the
entire indebtedness of this Security and (b) certain restrictive covenants, in
each case upon compliance by the Company with certain conditions set forth
therein, which provisions apply to this Security.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of at least a majority in principal amount of the
Securities at the time Outstanding of each series to be affected. The Indenture
also contains provisions permitting the Holders of specified percentages in
principal amount of the Securities of each series at the time Outstanding, on
behalf of the Holders of all Securities of such series, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Security shall be conclusive and binding upon such Holder and
upon all future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange hereof or in lieu hereof, whether
or not notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this
Security at the times, place and rate, and in the coin or currency, herein
prescribed.
As provided in the Indenture and subject to certain limitations herein and
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the principal of and interest
on this Security are payable, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Securities of this series, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
This global Book-Entry Security is exchangeable for Securities in
definitive form only under certain limited circumstances set forth in the
Indenture. Securities of this series so issued are issuable only in registered
form without coupons in denominations of $1,000 and any integral multiple
thereof. As provided in the Indenture and subject to certain limitations herein
and therein set forth, Securities of this series so issued are exchangeable for
a like aggregate principal amount of Securities of this series of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
--------------------
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
the within Security, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - .............. Custodian ........................
(Cust)
(Minor)
under Uniform Gifts to Minors Act
...................................................
(State)
Additional abbreviations may also be used though not in the above list.
--------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------
- --------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
the within Security of ENSERCH CORPORATION and hereby does irrevocably
constitute and appoint
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- ---------------------------------------------------------------------- Attorney
to transfer the said Security on the books of the within-named Corporation, with
full power of substitution in the premises.
Dated
_____________________________________________________________________________
Signature Guaranteed by:
<PAGE>
Exhibit 4(qq)
<PAGE>
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THIS SECURITY IS A BOOK-ENTRY SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE ONLY
IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS
SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO
A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY
OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN SUCH LIMITED
CIRCUMSTANCES.
ENSERCH CORPORATION
6 3/8% Notes Due 2004
No. 1 $150,000,000
CUSIP No. 293567 AT 0
ENSERCH Corporation, a corporation duly organized and existing under the
laws of the State of Texas (herein called the "Company", which term includes any
successor corporation under the Indenture hereinafter referred to), for value
received, hereby promises to pay to CEDE & CO., or registered assigns, the
principal sum of ONE HUNDRED FIFTY MILLION DOLLARS on February 1, 2004 and to
pay interest thereon from February 1, 1994 or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, semi-annually
on August 1 and February 1 (each an "Interest Payment Date") in each year,
commencing August 1, 1994 at the rate of 6 3/8% per annum, until the principal
hereof is paid or made available for payment, and (to the extent that the
payment of such interest shall be legally enforceable) at the rate of 6 3/8% per
annum on any overdue principal and on any overdue installment of interest. The
amount of interest payable on any Interest Payment Date shall be computed on the
basis of a 360-day year of twelve 30-day months. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in such Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
on the Regular Record Date for such interest, which shall be the July 15 or
January 15 (whether or not a Business Day), as the case may be, next preceding
such Interest Payment Date. Any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Securities of this
series not less than 10 days prior to such Special Record Date, or be paid at
any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities of this series may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in said Indenture.
Payment of the principal of and any such interest on this Security will be
made at the office or agency of the Company maintained for that purpose in the
City of New York, in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts;
provided, however, that at the option of the Company payment of interest may be
- -------- -------
made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
ENSERCH CORPORATION
Dated: February 1, 1994 By /s/ S. R. Singer
Vice President
[CORPORATE SEAL] By /s/ A. E. Gallatin
Treasurer
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee
By /s/ Suzanne A.
Authorized Officer
<PAGE>
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of February 15, 1992 (herein called the
"Indenture"), between the Company and The First National Bank of Chicago, as
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee and the
Holders of the Securities and of the terms upon which the Securities are, and
are to be, authenticated and delivered. This Security is a global Book-Entry
Security representing $150,000,000 principal amount of the series of Securities
designated on the face hereof, limited in aggregate principal amount to
$150,000,000.
The Securities of this series are not redeemable in whole or in part at any
time prior to maturity.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture contains provisions for defeasance at any time of (a) the
entire indebtedness of this Security and (b) certain restrictive covenants, in
each case upon compliance by the Company with certain conditions set forth
therein, which provisions apply to this Security.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of at least a majority in principal amount of the
Securities at the time Outstanding of each series to be affected. The Indenture
also contains provisions permitting the Holders of specified percentages in
principal amount of the Securities of each series at the time Outstanding, on
behalf of the Holders of all Securities of such series, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Security shall be conclusive and binding upon such Holder and
upon all future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this
Security at the times, place and rate, and in the coin or currency, herein
prescribed.
As provided in the Indenture and subject to certain limitations herein and
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the principal of and interest
on this Security are payable, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Securities of this series, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
This global Book-Entry Security is exchangeable for Securities in
definitive form only under certain limited circumstances set forth in the
Indenture. Securities of this series so issued are issuable only in registered
form without coupons in denominations of $1,000 and any integral multiple
thereof. As provided in the Indenture and subject to certain limitations herein
and therein set forth, Securities of this series so issued are exchangeable for
a like aggregate principal amount of Securities of this series of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
--------------------
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
the within Security, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM as tenants in common UNIF GIFT MIN ACT - ...Custodian..
TEN ENT as tenants by the entireties (Cust)
(Minor)
JT TEN as joint tenants with right of under Uniform Gifts to Minors Act
survivorship and not as tenants .................................
in common
(State)
Additional abbreviations may also be used though not in the above list.
--------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------
- --------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
the within Security of ENSERCH CORPORATION and hereby does irrevocably
constitute and appoint
Attorney
- ------------------------------------------------------------------------
to transfer the said Security on the books of the within-named Corporation, with
full power of substitution in the premises.
Dated
--------------------------------
Signature Guaranteed by:
<PAGE>
Exhibit 4 (rr)
<PAGE>
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
THIS SECURITY IS A BOOK-ENTRY SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY. THIS SECURITY IS EXCHANGEABLE FOR SECURITIES REGISTERED
IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR ITS NOMINEE ONLY IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS
SECURITY (OTHER THAN A TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO
A NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY
OR ANOTHER NOMINEE OF THE DEPOSITORY) MAY BE REGISTERED EXCEPT IN SUCH LIMITED
CIRCUMSTANCES.
ENSERCH CORPORATION
7 1/8% Notes Due 2005
No. 1 $150,000,000
CUSIP No. 293567 AV5
ENSERCH Corporation, a corporation duly organized and existing under the
laws of the State of Texas (herein called the "Company", which term includes any
successor corporation under the Indenture hereinafter referred to), for value
received, hereby promises to pay to CEDE & CO., or registered assigns, the
principal sum of ONE HUNDRED FIFTY MILLION DOLLARS on June 15, 2005 and to pay
interest thereon from June 6, 1995 or from the most recent Interest Payment Date
to which interest has been paid or duly provided for, semi-annually on June 15
and December 15 (each an "Interest Payment Date") in each year, commencing
December 15, 1995 at the rate of 7 1/8% per annum, until the principal hereof is
paid or made available for payment, and (to the extent that the payment of such
interest shall be legally enforceable) at the rate of 7 1/8% per annum on any
overdue principal and on any overdue installment of interest. The amount of
interest payable on any Interest Payment Date shall be computed on the basis of
a 360-day year of twelve 30-day months. The interest so payable, and punctually
paid or duly provided for, on any Interest Payment Date will, as provided in
such Indenture, be paid to the Person in whose name this Security (or one or
more Predecessor Securities) is registered at the close of business on the
Regular Record Date for such interest, which shall be the June 1 or December 1
(whether or not a Business Day), as the case may be, next preceding such
Interest Payment Date. Any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Securities of this
series not less than 10 days prior to such Special Record Date, or be paid at
any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities of this series may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in said Indenture.
Payment of the principal of and any such interest on this Security will be
made at the office or agency of the Company maintained for that purpose in the
City of New York, in such coin or currency of the United States of America as at
the time of payment is legal tender for payment of public and private debts;
provided, however, that at the option of the Company payment of interest may be
- -------- -------
made by check mailed to the address of the Person entitled thereto as such
address shall appear in the Security Register.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature, this Security
shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed under its corporate seal.
ENSERCH CORPORATION
Dated: June 6, 1995 By /s/ S. R. Singer
Senior Vice President
[CORPORATE SEAL] By /s/ A. E. Gallatin
Treasurer
This is one of the Securities of the series designated therein referred to
in the within-mentioned Indenture.
THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee
By M Weisman
Authorized Officer
<PAGE>
This Security is one of a duly authorized issue of securities of the
Company (herein called the "Securities"), issued and to be issued in one or more
series under an Indenture, dated as of February 15, 1992 (herein called the
"Indenture"), between the Company and The First National Bank of Chicago, as
Trustee (herein called the "Trustee", which term includes any successor trustee
under the Indenture), to which Indenture and all indentures supplemental thereto
reference is hereby made for a statement of the respective rights, limitations
of rights, duties and immunities thereunder of the Company, the Trustee and the
Holders of the Securities and of the terms upon which the Securities are, and
are to be, authenticated and delivered. This Security is a global Book-Entry
Security representing $150,000,000 principal amount of the series of Securities
designated on the face hereof, limited in aggregate principal amount to
$150,000,000.
The Securities of this series are not redeemable in whole or in part at any
time prior to maturity.
If an Event of Default with respect to Securities of this series shall
occur and be continuing, the principal of the Securities of this series may be
declared due and payable in the manner and with the effect provided in the
Indenture.
The Indenture contains provisions for defeasance at any time of (a) the
entire indebtedness of this Security and (b) certain restrictive covenants, in
each case upon compliance by the Company with certain conditions set forth
therein, which provisions apply to this Security.
The Indenture permits, with certain exceptions as therein provided, the
amendment thereof and the modification of the rights and obligations of the
Company and the rights of the Holders of the Securities of each series to be
affected under the Indenture at any time by the Company and the Trustee with the
consent of the Holders of at least a majority in principal amount of the
Securities at the time Outstanding of each series to be affected. The Indenture
also contains provisions permitting the Holders of specified percentages in
principal amount of the Securities of each series at the time Outstanding, on
behalf of the Holders of all Securities of such series, to waive compliance by
the Company with certain provisions of the Indenture and certain past defaults
under the Indenture and their consequences. Any such consent or waiver by the
Holder of this Security shall be conclusive and binding upon such Holder and
upon all future Holders of this Security and of any Security issued upon the
registration of transfer hereof or in exchange herefor or in lieu hereof,
whether or not notation of such consent or waiver is made upon this Security.
No reference herein to the Indenture and no provision of this Security or
of the Indenture shall alter or impair the obligation of the Company, which is
absolute and unconditional, to pay the principal of and interest on this
Security at the times, place and rate, and in the coin or currency, herein
prescribed.
As provided in the Indenture and subject to certain limitations herein and
therein set forth, the transfer of this Security is registrable in the Security
Register, upon surrender of this Security for registration of transfer at the
office or agency of the Company in any place where the principal of and interest
on this Security are payable, duly endorsed by, or accompanied by a written
instrument of transfer in form satisfactory to the Company and the Security
Registrar duly executed by, the Holder hereof or his attorney duly authorized in
writing, and thereupon one or more new Securities of this series, of authorized
denominations and for the same aggregate principal amount, will be issued to the
designated transferee or transferees.
This global Book-Entry Security is exchangeable for Securities in
definitive form only under certain limited circumstances set forth in the
Indenture. Securities of this series so issued are issuable only in registered
form without coupons in denominations of $1,000 and any integral multiple
thereof. As provided in the Indenture and subject to certain limitations herein
and therein set forth, Securities of this series so issued are exchangeable for
a like aggregate principal amount of Securities of this series of a different
authorized denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of transfer or
exchange, but the Company may require payment of a sum sufficient to cover any
tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name this Security is registered as the owner hereof for all
purposes, whether or not this Security be overdue, and neither the Company, the
Trustee nor any such agent shall be affected by notice to the contrary.
All terms used in this Security which are defined in the Indenture shall
have the meanings assigned to them in the Indenture.
--------------------
ABBREVIATIONS
The following abbreviations, when used in the inscription on the face of
the within Security, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common UNIF GIFT MIN ACT -
TEN ENT - as tenants by the entireties Custodian
(Minor) ----------- -------------
(Cust)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors Act
survivorship and not as tenants _________________________________
in common
(State)
Additional abbreviations may also be used though not in the above list.
--------------------
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------
- --------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- --------------------------------------------------------------------------------
________________________________________________________________________________
________________________________________________________________________________
the within Security of ENSERCH CORPORATION and hereby does irrevocably
constitute and appoint
________________________________________________________________________________
________________________________________________________________________Attorney
to transfer the said Security on the books of the within-named Corporation, with
full power of substitution in the premises.
Dated
--------------------------------
Signature Guaranteed by:
<PAGE>
Exhibit 10(n)
EXECUTION COPY
AMENDMENT
This AMENDMENT, dated as of March 23, 1998, among TEXAS UTILITIES COMPANY,
a Texas corporation (the "BORROWER"), the lenders parties to the Credit
Agreement referred to below (the "LENDERS"), THE CHASE MANHATTAN BANK, as
Competitive Advance Facility Agent (the "CAF AGENT"), and CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION, as administrative agent for the lenders (the
"ADMINISTRATIVE AGENT" and, together with the CAF Agent, the "AGENTS").
PRELIMINARY STATEMENTS:
(1) The Borrowers, the Lenders and the Agents have entered into a $900
million 364-Day Competitive Advance and Revolving Credit Facility Agreement (the
"CREDIT AGREEMENT"), dated as of March 6, 1998. Capitalized terms used but not
defined herein are used with the meanings assigned to them in the Credit
Agreement.
(2) The Borrowers and the Lenders have agreed to amend the Credit Agreement
to increase the amount of the Commitments and to make certain conforming changes
in the Credit Agreement as hereinafter set forth.
SECTION 1. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is,
effective as of the date hereof and subject to the satisfaction of the
conditions precedent set forth in Section 2 hereof, hereby amended as follows:
(a) The cover page to the Credit Agreement and the preamble thereto
are amended by deleting therefrom the figure "$900,000,000" and replacing
it with the figure "$1,650,000,000".
(b) Section 2.01 is amended by deleting therefrom the figure
"$2,000,000,000" and replacing it with the figure "$2,600,000,000".
(c) Section 5.13 is amended by deleting from clause (A) thereof the
figure "$3,100,000,000" and replacing it with the figure "$4,000,000,000".
(d) Schedule 2.01 is deleted in its entirety and replaced by a new
Schedule 2.01 in the form of Exhibit A hereto.
SECTION 2. CONDITIONS OF EFFECTIVENESS. This Amendment shall become
effective when, and only when, the Administrative Agent shall have received
counterparts of this Amendment
1
<PAGE>
2
executed by the Borrower and the Required Lenders, and Section 1 hereof shall
become effective when, and only when, the Administrative Agent shall have
additionally received favorable opinions of Reid & Priest LLP and Worsham,
Forsythe & Wooldridge, L.L.P., each to the effect that this Amendment has been
duly authorized, executed and delivered by the Borrower and confirming the
opinion of such counsel furnished on March 6, 1998 pursuant to Section 4.01(c)
of the Credit Agreement, with references therein to the Credit Agreement to mean
this Amendment and the Credit Agreement, as amended by this Amendment.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The Borrower
confirms and repeats, as of the date hereof and as of the effective date hereof,
the representations and warranties made by the Borrower in Article III of the
Credit Agreement, with references therein to the Credit Agreement to be deemed
to be references to this Amendment and the Credit Agreement, as amended by this
Amendment.
SECTION 4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENTS. Upon the
effectiveness of Section 1 hereof, on and after the date hereof each reference
in the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of
like import referring to the Credit Agreement shall mean and be a reference to
the Credit Agreement, as amended hereby. Except as specifically amended above,
the Credit Agreement is and shall continue to be in full force and effect and is
hereby in all respects ratified and confirmed. The execution, delivery and
effectiveness of this Amendment shall not, except as expressly provided herein,
operate as a waiver of any right, power or remedy of any Lender or any Agent
under the Credit Agreement, nor constitute a waiver of any provision of the
Credit Agreement.
SECTION 5. COSTS AND EXPENSES. The Borrower agrees to pay all reasonable
out-of-pocket expenses incurred by the Agents in connection with entering into
this Amendment (whether or not the transactions hereby contemplated are
consummated), or incurred by the Agents or any Lender in connection with the
enforcement of their rights in connection with this Amendment.
SECTION 6. EXECUTION IN COUNTERPARTS. This Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same agreement.
SECTION 7. GOVERNING LAW. This Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
<PAGE>
S-1
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
TEXAS UTILITIES COMPANY
By /s/ Robert S. Shapard
--------------------------------------
Name: Robert S. Shapard
Title: Treasurer
[SIGNATURE PAGE TO AMENDMENT]
<PAGE>
S-2
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION, as Administrative Agent
By /s/ Thomas Kozlark
---------------------------------------
Name: Thomas Kozlark
Title: Vice President
[SIGNATURE PAGE TO AMENDMENT]
<PAGE>
S-3
THE CHASE MANHATTAN BANK,
as Lender and as Competitive Advance
Facility Agent
By /s/ Allen K. King
---------------------------------------
Name: Allen K. King
Title: Vice-President
[SIGNATURE PAGE TO AMENDMENT]
<PAGE>
S-4
LEHMAN COMMERCIAL PAPER INC.
By /s/ Dennis J. Dee
---------------------------------------
Name: Dennis J. Dee
Title: Vice-President
[SIGNATURE PAGE TO AMENDMENT]
<PAGE>
S-5
MERRILL LYNCH CAPITAL CORPORATION
By /s/ Stephen B. Paras
---------------------------------------
Name: Stephen B. Paras
Title: Vice President
[SIGNATURE PAGE TO AMENDMENT]
<PAGE>
EXHIBIT A
SCHEDULE 2.01
Name Commitment
- ---- ----------
The Chase Manhattan Bank $ 550,000,000.00
Lehman Commercial Paper Inc. 550,000,000.00
Merrill Lynch Capital Corporation 550,000,000.00
- ------------------------------------ =================
TOTAL $1,650,000,000.00
<PAGE>
EXHIBIT 12(a)
TEXAS UTILITIES COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995 1994 1993
Thousands of Dollars, Except Ratios
<S> <C> <C> <C> <C> <C>
EARNINGS:
Net income before preferred dividends $ 688,437 $ 806,964 $(53,731) $ 644,682 $ 483,892
Add: Total federal income taxes 376,898 375,232 (60,035) 326,638 209,544
Fixed charges (see detail below) 854,822 851,482 732,313 752,892 782,439
---------- ---------- -------- ---------- ----------
Total earnings $1,920,157 $2,033,678 $618,547 $1,724,212 $1,475,875
========== ========== ======== ========== ==========
FIXED CHARGES:
Interest on mortgage bonds $ 439,539 $ 486,935 $527,131 $ 567,543 $ 611,090
Interest on other long-term debt 124,227 96,404 102,138 92,524 109,458
Amortization of debt discount, (premium)
and expense 13,146 13,239 10,649 9,591 7,080
Amortization of loss on reacquired debt 24,753 23,124 20,881 19,379 13,283
Other interest charges 161,272 178,191 45,384 37,838 11,891
Preferred trust securities distributions 69,701 33,001 1,801 -- --
Rentals representative of the interest factor 22,184 20,588 24,329 26,017 29,637
---------- ---------- -------- ---------- ----------
Total fixed charges $ 854,822 $ 851,482 $732,313 $ 752,892 $ 782,439
========== ========== ======== ========== ==========
RATIO OF EARNINGS TO FIXED CHARGES 2.3 2.4 0.8 2.3 1.9
=== === === === ===
</TABLE>
<PAGE>
EXHIBIT 12(b)
TEXAS UTILITIES ELECTRIC COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES,
AND TO FIXED CHARGES AND PREFERRED DIVIDENDS
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996 1995 1994 1993
Thousands of Dollars, Except Ratios
<S> <C> <C> <C> <C> <C>
EARNINGS:
Net income $ 771,874 $ 862,695 $ 452,631 $ 658,192 $ 476,526
Add: Total income taxes 409,546 405,499 212,953 342,687 241,740
Fixed charges (see detail below) 618,773 649,295 655,678 688,194 715,609
---------- ---------- ---------- ---------- ----------
Total earnings $1,800,193 $1,917,489 $1,321,262 $1,689,073 $1,433,875
========== ========== ========== ========== ==========
FIXED CHARGES:
Interest on mortgage bonds $439,398 $ 486,791 $ 526,977 $ 567,363 $ 610,999
Interest on other long-term debt 22,124 26,456 44,071 32,183 45,787
Amortization of debt discount, (premium)
and expense 11,053 11,067 9,959 8,615 6,493
Amortization of loss on reacquired debt 24,149 22,520 19,547 17,608 12,471
Other interest charges 30,542 48,872 28,994 36,408 10,222
Preferred trust securities distributions 69,701 33,001 1,801 -- --
Rentals representative of the interest factor 21,806 20,588 24,329 26,017 29,637
---------- ---------- ---------- ---------- ----------
Total fixed charges $ 618,773 $ 649,295 $ 655,678 $ 688,194 $ 715,609
========== ========== ========== ========== ==========
Preferred dividends* 15,439 68,988 93,489 143,233 168,465
---------- ---------- ---------- ---------- ----------
Fixed charges and preferred
dividends $ 634,212 $ 718,283 $ 749,167 $ 831,427 $ 884,074
========== ========== ========== ========== ==========
RATIO OF EARNINGS TO FIXED CHARGES 2.9 3.0 2.0 2.5 2.0
========== ========== ========== ========== ==========
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED DIVIDENDS 2.8 2.7 1.8 2.0 1.6
========== ========== ========== ========== ==========
</TABLE>
. Preferred dividends represent (1) the portion of preferred dividends
deductible for federal income tax purposes, plus (2) the balance of preferred
dividend requirements multiplied by the ratio of pre-tax income to net income.
<PAGE>
EXHIBIT 21
TEXAS UTILITIES COMPANY
(AS OF MARCH 23, 1998)
<TABLE>
<CAPTION>
STATE OR COUNTRY
OF INCORPORATION
<S> <C>
TEXAS UTILITIES COMPANY Texas
TEXAS ENERGY INDUSTRIES, INC. Texas
Texas Utilities Electric Company Texas
TU Electric Capital I Texas
TU Electric Capital II Texas
TU Electric Capital III Texas
TU Electric Capital IV Texas
TU Electric Capital V Texas
Southwestern Electric Service Company Texas
Texas Utilities Australia Pty. Ltd. Australia
Eastern Energy Limited Australia
Australian Tree Management Pty. Ltd. Australia
East Coast Power Pty. Ltd. Australia
Eastcoast Gas Pty. Ltd. (1) Australia
Eastern Facilities Management Pty. Ltd. Australia
Enetech Pty. Ltd. Australia
Global Customer Solutions Pty. Ltd. Australia
TUA (No. 1) Pty. Ltd. Australia
TUA (No. 2) Pty. Ltd. Australia
TUA (No. 3) Pty. Ltd. Australia
TUA (No. 4) Pty. Ltd. Australia
TUA (No. 5) Pty. Ltd. Australia
TUA (No. 6) Pty. Ltd. Australia
TU Australia Pty. Ltd. Australia
Texas Utilities Fuel Company Texas
Texas Utilities Mining Company Texas
Lufkin-Conroe Communications Co. Texas
Lufkin-Conroe Telephone Exchange, Inc. Texas
Lufkin-Conroe Telecommunications Corp. Texas
LCT Long Distance, Inc. Texas
East Texas Fiber Line Incorporated (2) Texas
Texas Utilities Integrated Solutions Inc. Texas
Texas Utilities Services Inc. Texas
Texas Utilities Properties Inc. Texas
Texas Utilities Communications Inc. Delaware
Communications License Holdings I, Inc. Texas
Basic Resources Inc. Texas
Chaco Energy Company New Mexico
Enserch Development Corporation Texas
EDC Catskill Cogeneration, Inc. Delaware
EDC Four Inc. (3) Delaware
EDC Northwest Cogeneration, Inc. Delaware
EDC Palakkad Power Ltd. Cayman Islands
</TABLE>
<PAGE>
<TABLE>
<S> <C>
EDC Palakkad One Holding Company (4) Mauritius
EDC Palakkad Two Holding Company (4) Mauritius
Palakkad Power Generating Company(5) India
EDC Power Marketing, Ltd Texas
EDC Shaoxing Power Ltd. Cayman Islands
Zhejiang Yong-Ke Thermal Power Corporation, Ltd.(6) China
EIL India, L.L.C. (7) India
Ensat Cogeneration Company Texas
Ensat Northwest Cogeneration Company (8) Texas
Electron Fees, Inc. Texas
Enserch Development Corporation Hamakua, Inc. Texas
Enserch Development Corporation Hawaii, Inc. Texas
Enserch International Ltd. Cayman Islands
Lone Star Gas International, Inc. Texas
Lone Star Gas Chile S.A. de C.V. Republic of Chile
National Pipeline Company Texas
Enserch de Mexico S.A. de C.V. (9) Mexico
Enserch de Monterrey S. A. de C. V. (10) Mexico
Enserch International Services, Inc.
ENSERCH CORPORATION Texas
Lone Star Gas Company (an unincorporated division)
Lone Star Pipeline Company (an unincorporated division)
Enserch Processing, Inc. Delaware
Enserch Energy Services, Inc. Texas
Direct Gas Supply Corp. New York
Enserch Energy Services (Canada), Inc. Texas
Enserch Energy Services (New York), Inc. Delaware
Enserch Energy Services Risk Management Company Texas
Enserch Energy Services Trading Company Texas
Enserch Gas Marketing Company Texas
ALEASCO, Inc. Alaska
ENS Claims Management, Inc. Delaware
ENS Holdings I, Inc. Texas
ENS Holdings II, Inc. Texas
ENS Insurance Company Vermont
ENSERCH E&C Holdings, Inc. Nevada
ENS Equipment Corporation Delaware
ENSERCH E&C, Inc. Nevada
ESICORP Constructors International Inc. Delaware
ENS U. K. Limited (11) United Kingdom
ENS Limited (11) United Kingdom
Process Engineering International Ltd. (11) United Kingdom
ESICORP Industries Inc. (Delaware) Delaware
Ebasco Cayman Limited Cayman Islands
Ebasco Services Singapore Pte. Ltd. Singapore
Ebasco Energy A. G. Switzerland
Ebasco Services of Canada Limited Canada
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Engineering International Liquidating Company, Inc. California
Ensat Pipeline Company Texas
Enserch Finance II, Inc. Texas
Enserch Finance N.V. Netherlands Antilles
Enserch Gas Transmission Company Texas
Enserch House, Inc. Texas
Enserch International Investments Limited Delaware
Humphreys and Glasgow Limited United Kingdom
Enserch Shirley, Inc. Delaware
Fleet Star of Texas, L.C. (12) Texas
LS Energy, Inc. Texas
Lone Star Dallas Energy Center, Inc. Texas
Lone Star Energy Services, Inc. Texas
Lone Star Gas Company of Texas, Inc. Texas
TRANSTAR Technologies L.C. Texas
TU FINANCE (NO. 1) LIMITED United Kingdom
TU Finance (No. 2) Limited (13) United Kingdom
TU Acquisitions PLC United Kingdom
</TABLE>
___________________________
(1) 50% owned by Eastern Energy Limited.
(2) 67% owned by Lufkin-Conroe Telecommunications Corp.
(3) 50% owned by Enserch Development Corporation.
(4) 99% owned by EDC Palakkad Power Ltd. and 1% owned by Enserch International
Ltd.
(5) 89% benefically owned by EDC Palakkad One Holding Company and 11%
beneficially owned by EDC Palakkad Two Holding Company.
(6) 70% owned by EDC Shaoxing Power Ltd.
(7) 40% owned by Enserch Development Corporation.
(8) 51% owned by Electron 4/NW, Inc. and 49% owned by Enserch Development
Corporation.
(9) 99% owned by National Pipeline Company and 1% owned by Enserch Development
Corporation.
(10) 99.99% owned by Enserch de Mexico S.A. de C.V. and .01% owned by Enserch
Development Corporation.
(11) 99% owned by parent corporation.
(12) 50% owned by ENSERCH Corporation and 50% owned by FST Holdings, Inc.
(13) 90% owned by TU Finance (No. 1) Limited and 10% owned by Texas Utilities
Services Inc.
Except as noted above, the voting stock of each subsidiary company and their
subsidiaries and affiliates is wholly owned (100%) by its parent or a wholly-
owned affiliate. The financial statements of each subsidiary are included in
the consolidated financial statements except that the equity method of
accounting is used for subsidiaries in which the Company has 50% or less
ownership. Such unconsolidated subsidiaries considered in the aggregate do not
constitute a significant subsidiary.
<PAGE>
AFFILIATES
STATE OR COUNTY
OF INCORPORATION
OR ORGANIZATION
<TABLE>
<S> <C>
American Gas Finance Company, L.L.C. (1) Texas
Enserch SACROC Inc. (2) Texas
ENS Holdings Limited Partnership Texas
FinaStar Partnership Texas
Lavair Cogeneration Limited Partnership Delaware
Gulf Coast Natural Gas Company (3) Texas
Encogen Hawaii, L.P. Hawaii
Encogen Northwest L.P. Delaware
Encogen Four Partners L.P. Delaware
GTE Mobilnet of South Texas, L.P. Texas
GTE Mobilnet of Texas RSA #11, L.P. Texas
GTE Mobilnet of Texas RSA #17, L.P. Texas
Texas RSA #11B Limited Partnership Texas
Compania Mexicana de Gas S.A. de C.V. (4) Mexico
Metrogas S.A. (5) Republic of Chile
ICMC Power Consortium, Inc. (6) New York
</TABLE>
________________________
(1) 5.27% owned by Lone Star Energy Services, Inc.
(2) 99.65% owned by Enserch Finance II, Inc. and .35% owned by ENS Holdings
Limited Partnership.
(3) General partnership: General Partner, Enserch Gas Transmission Company
(50%) and General/Managing Partner, Tejas Gas Transmission Company (50%).
(4) 49% owned by Enserch de Monterrey S.A. de C.V.
(5) 10% owned by Lone Star Gas Chile S.A. de C.V.
(6) 12.93% owned by Enserch Development Corporation.
<PAGE>
Exhibit 23(a)
CONSENT OF COUNSEL TO THE COMPANY
We hereby consent to the incorporation by reference of the statements made
as to matters of law and legal conclusions contained in this Annual Report on
Form 10-K of Texas Utilities Company and Texas Utilities Electric Company for
the fiscal year ended December 31, 1997, under Part I, Item 1--Business--
Regulation and Rules and Environmental Matters, in Texas Utilities Company's
Registration Statement on Form S-3 (No. 333-27989) and on Form S-4 (No. 333-
45999).
WORSHAM, FORSYTHE
& WOOLDRIDGE, L.L.P.
By: /s/ Neil Anderson
-----------------------------
A Partner
March 26, 1998
Dallas, Texas
<PAGE>
Exhibit 23(b)
CONSENT OF COUNSEL TO THE COMPANY
We hereby consent to the incorporation by reference of the statements made
as to matters of law and legal conclusions contained in this Annual Report on
Form 10-K of Texas Utilities Company and Texas Utilities Electric Company for
the fiscal year ended December 31, 1997, under Part I, Item 1--Business--
Regulation and Rules and Environmental Matters, in Texas Utilities Company's
Registration Statement on Form S-3 (Nos. 333-42985 and 33-69554).
WORSHAM, FORSYTHE
& WOOLDRIDGE, L.L.P.
By: /s/ Neil Anderson
-----------------------------
A Partner
March 26, 1998
Dallas, Texas
<PAGE>
EXHIBIT 23(c)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No. 333-
55931 and 333-32831 on Form S-3, and Registration Statement No. 333-45999 on
Form S-4, and Registration Statements No. 333-32831, 333-32833, 333-32835,
333-32837, 333-32839, 333-32841, 333-32843 and 333-45657 on Form S-8 of Texas
Utilities Company of our report dated February 24, 1998, appearing in the Annual
Report on Form 10-K of Texas Utilities Company for the year ended December 31,
1997.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 25, 1998
<PAGE>
EXHIBIT 23(d)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No. 333-
69554 on Form S-3, and Registration Statement No. 33-83976 on Post Effective
Amendment No. 1 to Form S-3, of Texas Utilities Electric Company, of our report
dated February 24, 1998, appearing in the Annual Report on Form 10-K of Texas
Utilities Electric Company for the year ended December 31, 1997.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 25, 1998
<PAGE>
EXHIBIT 23 (e)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No. 333-
43811 on Form S-3 and Registration Statement No. 333-43811-01 on Post Effective
Amendment No. 1 to Form S-3 of our report dated February 24, 1998, appearing in
the Annual Report on Form 10-K of ENSERCH Corporation for the year ended
December 31, 1997.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 25, 1998
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