UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1998
-- 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 in
Commission its Charter; Address of Principal Executive I.R.S. Employer
File Number 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
1-11668 Texas Utilities Electric Company 75-1837355
Energy Plaza, 1601 Bryan Street
Dallas, TX 75201-3411
(214) 812-4600
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each
Exchange on
Registrant Title of Each Class Which Registered
Texas Utilities Common Stock, without par
Company value New York Stock Exchange
The Chicago Stock Exchange
The Pacific Exchange
Growth Prides New York Stock Exchange
Income Prides New York Stock Exchange
TXU Capital I, a 7.25% Preferred Trust New York Stock Exchange
subsidiary of Securities
Texas Utilities
Company
Texas Utilities Depositary Shares, Series A, New York Stock Exchange
Electric Company each representing 1/4 of a
share of $7.50 Cumulative
Preferred Stock, without par
value
Texas Utilities Depositary Shares, Series B, New York Stock Exchange
Electric Company each representing 1/4 of a
share of $7.22 Cumulative
Preferred Stock, without par
value
TU Electric 8.25% Trust Originated New York Stock Exchange
Capital I, a Preferred Securities
subsidiary
of Texas Utilities
Electric Company
TU Electric 8.00% Quarterly Income New York Stock Exchange
Capital III, a Preferred Securities
subsidiary of
Texas Utilities
Electric Company
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. [ ]
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 19, 1999: $12,623,598,116.
Aggregate market value of Texas Utilities Electric Company Common Stock held
by non-affiliates: None
Common Stock outstanding at March 19, 1999:
Texas Utilities Company - 282,332,819 shares, without par value
Texas Utilities Electric Company - 118,714,200 shares, without par value
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement pursuant to Regulation 14A, which
will be filed with the Commission on or about April 5, 1999, 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.
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TABLE OF CONTENTS
Page
____
PART I
Item 1. BUSINESS 1
LEGAL ENTITIES
Texas Utilities Company and Subsidiaries 1
Texas Utilities Electric Company and Subsidiaries 4
ENSERCH Corporation and Subsidiaries 4
TU International Holdings Limited and Subsidiaries 5
Texas Energy Industries, Inc. and Subsidiaries 6
COMPETITIVE STRATEGY 7
OPERATING SEGMENTS 7
US Electric 8
US Gas 20
US Energy Marketing 23
UK/Europe 24
Australia 31
Other Businesses 33
ENVIRONMENTAL MATTERS 34
Item 2. PROPERTIES 37
CAPITAL EXPENDITURES 39
Item 3. LEGAL PROCEEDINGS 40
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 41
EXECUTIVE OFFICERS OF THE COMPANY 42
PART II
Item 5. MARKET FOR EACH REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 43
Item 6. SELECTED FINANCIAL DATA 43
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 44
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK 44
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 44
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 44
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF EACH REGISTRANT 45
Item 11. EXECUTIVE COMPENSATION 48
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 58
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 59
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K 60
APPENDIX A - Financial Information of Texas Utilities Company and
Subsidiaries and Texas Utilities Electric Company
and Subsidiaries
i
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PART I
Item 1. BUSINESS
LEGAL ENTITIES
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
Texas Utilities Company (TUC or the Company), a Texas corporation, is a
holding company whose principal United States (US) operations are conducted
through Texas Utilities Electric Company (TU Electric), ENSERCH Corporation
(ENSERCH), and Texas Energy Industries, Inc. (TEI). Its principal
international operations are conducted through TU International Holdings
Limited (TU International Holdings), whose principal operating subsidiaries
include Eastern Group plc (a subsidiary of TXU Eastern Holdings Limited)
(Eastern Group) in the United Kingdom (UK) and Eastern Energy Limited (Eastern
Energy) in Australia. Through its subsidiaries, the Company engages in the
generation, purchase, transmission, distribution and sale of electricity; the
gathering, processing, transmission and distribution of natural gas; energy
marketing; and telecommunications, retail energy services, international gas
operations, power development and other businesses primarily in the US, UK and
Australia. Additional information concerning subsidiaries and divisions
follows. The Company and its subsidiaries possess all necessary franchises,
licenses and certificates to enable them to conduct their respective
businesses.
For financial reporting and other purposes, the Company is treated herein
as the successor to TEI, the holding company for the US businesses prior to
the August 5, 1997 acquisition of ENSERCH. TEI was organized in 1945 and,
prior to August 5, 1997, was known as Texas Utilities Company. Unless
otherwise specified, all references to the Company which relate to a period
prior to the ENSERCH acquisition shall be deemed to be references to TEI. In
December 1998, TEI transferred ownership of TU Electric to the Company.
At December 31, 1998, the Company and its direct and indirect
wholly-owned subsidiaries had 22,055 full-time employees.
Mergers and Acquisitions
Certain comparisons in this report have been affected by the May 1998
acquisition of The Energy Group PLC (TEG), the August 1997 acquisition of
ENSERCH, and the November 1997 acquisition of Lufkin-Conroe Communications Co.
(LCC) by the Company. In December 1995, the Company, through an indirect
subsidiary, Texas Utilities Australia Pty. Ltd. (TU Australia), acquired
Eastern Energy. Each of these acquisitions was accounted for as a purchase
business combination. The results of operations of each acquired company are
included in the consolidated financial statements of the Company only for the
periods subsequent to their respective dates of acquisition.
In March 1998, the Company made an offer for all the ordinary shares of
TEG. The Company's offer for TEG was declared unconditional on May 19, 1998,
which was determined to be the date the Company acquired TEG. By the end of
August 1998, the Company had acquired all of TEG's outstanding shares. The
Company recorded its approximate 22% equity interest in the net income of TEG
for the period March 1998 to May 19, 1998 and has accounted for TEG and
Eastern Group as consolidated subsidiaries since May 19, 1998.
In October 1998, the Company completed a restructuring of its ownership
of TEG, so that TU Acquisitions Limited (TU Acquisitions), an indirect
subsidiary of the Company, owned Eastern Group through another wholly-owned
subsidiary. In February 1999, that ownership was transferred to TU
International Holdings, a newly formed holding company for TUC's UK/Europe and
Australian companies. TEG has been re-registered as a private limited company
incorporated in England and Wales and is now known as Energy Holdings (No. 3)
Limited.
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Immediately prior to being acquired by the Company, TEG completed the
sale of its US and Australian coal business and US energy marketing operations
(Peabody Sale). The TEG businesses acquired by TUC, which exclude those
representing the Peabody Sale, are referred to as "TEG Businesses Acquired".
The total purchase consideration for the TEG Businesses Acquired was
approximately $7.4 billion, including cash paid of $5.8 billion and non-cash
consideration of $1.6 billion, which consists primarily of the value assigned
to the 37,316,884 shares of TUC common stock issued to those holders of TEG
shares who elected to receive shares of TUC common stock in exchange for their
TEG shares. At the date of the acquisition, TEG had assets of $10.4 billion,
including cash of $3.3 billion, and liabilities of $8.4 billion including a
provision for unfavorable contracts and leases and $5.1 billion in debt. The
process of determining the fair value of assets acquired and liabilities
assumed of TEG has not been completed; however, the excess of the purchase
consideration plus acquisition costs over a preliminary estimate of net fair
value of tangible and identifiable intangible assets acquired and liabilities
assumed resulted in goodwill of $5.4 billion, which is being amortized over
40 years. This amount is subject to revision as additional information about
the fair value of TEG's assets acquired, liabilities assumed and contingencies
existing at the acquisition date becomes known. In particular, there is
uncertainty over the valuation of the electricity distribution system
including metering assets pending finalization of the current distribution
price review and the intention that the metering business market becomes
competitive in 2000. In addition, there is uncertainty over the final
settlement price of the Peabody Sale and the outcome of certain proceedings
concerning the pension scheme.
On August 5, 1997, the merger transactions involving the former Texas
Utilities Company, now known as TEI, and ENSERCH were completed. On November
21, 1997, the Company acquired LCC. The assets and liabilities of each
acquired company, at the respective acquisition date, were adjusted to their
estimated fair values. For each company acquired, the excess of the purchase
price paid over the estimated fair value of the 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 acquired,
liabilities assumed and contingencies existing at the acquisition dates of
ENSERCH and LCC was completed in 1998 and resulted in an overall increase in
goodwill of approximately $60 million over the preliminary allocations
primarily due to refinement of estimates of preacquisition contingencies.
The following summary of unaudited pro forma consolidated results of the
Company's operations reflects the operations of the TEG Businesses Acquired,
ENSERCH and LCC as though each acquisition had occurred at the beginning of
each period presented. Expenses of the acquisitions incurred by the Company,
the 22% equity in earnings of TEG and a one-time windfall tax imposed on TEG
have been eliminated. Amounts are in millions of dollars, except per share
amounts.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1998 1997
----------------------- ------------------------
As Reported Pro forma As Reported Pro forma
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenues $14,736 $17,319 $7,946 $14,794
Operating income 2,463 2,781 1,906 2,719
Net income 740 884 660 842
Average shares outstanding (millions) 265 282 231 286
Earnings per share of common stock
Basic $2.79 $3.13 $2.86 $2.95
Diluted $2.79 $3.13 $2.85 $2.94
</TABLE>
The above pro forma results are based on the most current estimate of the
fair value of assets acquired, liabilities assumed and contingencies existing
as of the acquisition dates of the TEG Businesses Acquired for the 1998 period
and ENSERCH and LCC for the 1997 period. These results are not necessarily
indicative of what the actual results would have been had the acquisitions
occurred at the beginning of these periods. Further, the pro forma results
are not intended to be a projection of the future results of the combined
companies.
2
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On February 24, 1999, TU Australia acquired from the Government of
Victoria, Australia the gas retail business of Kinetik Energy, which has
approximately 400,000 gas customers, and the gas distribution operations of
Westar, which are of similar size. The purchase price was $1.0 billion which
has been principally financed through banks by the Australian holding company
for the Company's Australian operations. A portion of the financing was
provided by a six-month subordinated credit facility guaranteed by the
Company. The Company will pursue 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.
Throughout this document, references to TEG shall mean the consolidated
UK entity acquired in May 1998, and Eastern Group or Eastern Electricity shall
mean the Company's primary continuing operations in the UK and other parts of
Europe subsequent to organizational restructuring of UK/Europe operations.
References to Eastern Energy shall mean the Company's primary operations in
Australia.
The following exchange rates have been used to convert foreign currency
denominated amounts into US dollars:
<TABLE>
<CAPTION>
Income
Statement
Balance Sheet (average for periods
(at December 31,) ended December 31,)
----------------- --------------------------
1998 1997 1998 1997 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
UK pounds sterling $1.6554 - $1.6616 - -
Australian dollars $0.6123 $0.6503 $0.6313 $0.7443 $0.7738
</TABLE>
Subsidiaries
The Company's most significant subsidiaries are as follows:
Texas Utilities Electric Company
ENSERCH Corporation
Lone Star Pipeline Company, a division of ENSERCH Corporation
Lone Star Gas Company, a division of ENSERCH Corporation
Enserch Energy Services, Inc.
TU International Holdings Limited
TXU Eastern Holdings Limited
Eastern Group plc (UK)
Texas Utilities Australia Pty. Ltd.
Eastern Energy Limited (Australia)
Texas Energy Industries, Inc.
3
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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. References herein to TU Electric include its financing subsidiaries
(see Note 9 to Consolidated Financial Statements included in Appendix A to
this report).
TU Electric's service area is located in the north central, eastern and
western parts of Texas, with a population estimated at 6.1 million - about
one-third of the population of Texas. Electric service is provided to over
2.5 million customers in 91 counties and 370 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. The service territory also includes
Dallas-Fort Worth International Airport and 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, 1998, TU Electric had 8,386 full-time employees. Some of
these employees provide services to other subsidiaries of the Company, the
cost of which is billed out to those subsidiaries.
ENSERCH CORPORATION AND SUBSIDIARIES
ENSERCH is an integrated company focused on natural gas. Its major
business operations consist of the gathering, processing, transmission and
distribution of natural gas and the marketing of natural gas and electricity
through the following companies.
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 gas pipeline companies in the US.
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 provided to Lone Star Gas are regulated by the Railroad Commission
of Texas (RRC) while rates for services to other customers are generally
established by competitively negotiated contracts.
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 US and the largest in Texas, Lone
Star Gas provides service through over 24,000 miles of distribution mains.
Through these facilities, it purchases, distributes and sells natural gas to
over 1.37 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 Processing, Inc. (EPI) gathers and processes natural gas to
remove impurities and extract natural gas liquids for sale and sells the
natural gas remaining after processing.
Enserch Energy Services, Inc. (EES) is a wholesale and retail marketer of
natural gas and electricity in several areas of the US. Its primary natural
gas markets, both retail and wholesale, are in Texas, the Northeast, the
Midwest and the West Coast. EES makes physical sales of electricity in the
wholesale market throughout the US excluding the area of the Electric
Reliability Council of Texas (ERCOT). It also provides risk management
services for the energy industry throughout the US.
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References herein to ENSERCH include its financing subsidiary (See Note 9
to Consolidated Financial Statements included in Appendix A to this report.)
At December 31, 1998, ENSERCH and its direct and indirect wholly-owned
subsidiaries had 1,423 full-time employees.
TU INTERNATIONAL HOLDINGS LIMITED AND SUBSIDIARIES
TU International Holdings, an indirect subsidiary of the Company, is a
holding company whose subsidiaries are engaged in international energy
generation, purchase, distribution and sales and international gas
operations. Through its subsidiaries, TU International Holdings owns Eastern
Group, one of the largest integrated electricity and gas groups in the UK and
the principal operating entity in the UK/Europe business segment, and Eastern
Energy, an electric utility which is the principal operating company in
Australia, and the gas retail and distribution operations of Westar/Kinetik in
Australia (acquired in February 1999).
TXU Eastern Holdings Limited's business operations (conducted primarily
through Eastern Group) are divided into energy and networks businesses, as
follows:
(i)The energy business comprising the generation of electricity, the
retailing of electricity and natural gas and the production of natural gas.
The overall financial efficiency of this portfolio of integrated activities is
coordinated and optimized by the energy trading activity.
(ii)The networks business comprising the ownership, management and
operation of electricity distribution networks.
These businesses are carried out primarily in the UK with interests
increasingly being developed throughout the rest of Europe, including
Scandinavia, Germany, the Czech Republic, The Netherlands, Poland and Spain.
Eastern Group's major business operations are conducted through the
following subsidiaries:
Eastern Generation Limited (Eastern Generation), the fourth largest
generator of electricity in the UK, currently owns, operates or has an
interest in ten power stations, representing approximately 9.4% of the UK's
total generating capacity of 72.4 gigawatts (GW) as of December 31, 1998.
Eastern Electricity plc (Eastern Electricity) is the largest supplier
(retailer) and distributor of electricity in England and Wales, with
approximately 3.2 million customers and an authorized area covering
approximately 20,300 square kilometers in the east of England and parts of
north London.
Eastern Natural Gas Limited (Eastern Natural Gas) is one of the largest
suppliers of natural gas in the UK.
Eastern Power and Energy Trading Limited (EPETL) manages for Eastern
Group: (i) the price and volume risks associated with electricity generation,
and with electricity and gas retailing, (ii) the supply of fuels required for
electricity generation, and (iii) the wholesaling and trading of electricity
and natural gas. These exposures are managed by trading EPETL's contract
portfolio and by bidding Eastern Generation's output into the wholesale
trading market for electricity in England and Wales (the Pool). The rules
and procedures for the Pool are currently contained in a Pooling and
Settlement Agreement to which all licensed generators and suppliers are a
party. EPETL also has equity interests in four natural gas producing fields
in the North Sea.
At December 31, 1998, Eastern Group had approximately 7,000 full-time
employees.
In February 1999, TU Australia was transferred from TEI to TU
International Holdings. 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 500,000 customers in a
31,000 square mile distribution service area extending from the outer eastern
5
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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 primary operating subsidiary,
Eastern Energy.
In 1998, TU International Holdings acquired Lone Star Gas International,
Inc. (LSGI) from TEI. LSGI is currently focused in the Mexico Federal
District and in Santiago, Chile, and its operations consist primarily of
ownership in gas distribution systems.
TEXAS ENERGY INDUSTRIES, INC. AND SUBSIDIARIES
TEI is a holding company for certain subsidiaries engaged in or
supporting the purchase, transmission, distribution and sale of electric
energy; telecommunications; retail energy services; power development; and
other businesses.
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 127,000.
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), Lufkin-Conroe Telecommunications Corporation and its subsidiaries
(LCT) and LCT Long-Distance, Inc. (LCTLD). LCTX is an independent local
exchange carrier providing regulated telephone services to its customers for
100 years and has over 105,000 access lines. It also provides access services
to a number of interexchange carriers who provide long-distance services.
LCT owns fiber optic cable systems that it leases to AT&T and provides
Internet access, radio communication tower rentals, cellular mobile telephones
and radio paging services and private branch exchange service to local
customers. LCT is also a communications transport facility provider. LCTLD
provides interexchange long-distance service, with a primary focus on business
customers.
Texas Utilities Communications Inc. provides access to advanced
telecommunications technology, primarily for the Company's expected expansion
of the energy services business and currently holds a 20% ownership interest
in Primeco Communications, Inc.'s Texas operations.
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, customer, procurement and
personnel services and other administrative services, at cost, to the Company
and its other subsidiaries. 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 ENSERCH and
transfer agent and registrar for the preferred securities of the Company and
as agent for participants under the Company's Direct Stock Purchase and
Dividend Reinvestment Plan.
Texas Utilities Properties Inc. (TU Properties) owns, leases and manages
real and personal properties, primarily the Company's corporate headquarters.
Basic Resources Inc. was organized for the purpose of developing natural
resources, primarily energy sources, and other business opportunities.
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Enserch Development Corporation (EDC) develops and finances independent
electric power plant and cogeneration facilities.
COMPETITIVE STRATEGY
The Company has developed a strategy designed to achieve operations of
significant scale in selected regions by integrating and leveraging its
capabilities across multiple products and services. The Company plans to
enhance its leading position in electric, gas, and related services in Texas,
develop broad-based energy and related businesses in other US regions
determined by the Company to be promising, achieve a substantial, broad-based
position in selected international regions, and build on customer
relationships through retail energy and related services.
OPERATING SEGMENTS
Statement of Financial Accounting Standards (SFAS) No. 131, "Disclosures
About Segments of an Enterprise and Related Information," became effective for
reporting purposes at year-end 1998. In accordance with the provisions of
that standard, the Company has five reportable operating segments:
(1) US Electric - operations engaged in the generation, purchase,
transmission, distribution and sale of electric energy primarily in the north
central, eastern and western portions of Texas (primarily TU Electric, SESCO,
Fuel Company and Mining Company operations);
(2) US Gas - operations engaged in the gathering, processing,
transmission and distribution of natural gas and selling of natural gas
liquids primarily within Texas (primarily Lone Star Gas, Lone Star Pipeline
and EPI);
(3) US Energy Marketing - operations engaged in purchasing and selling
natural gas and electricity and providing risk management services for the
energy industry throughout the US (EES);
(4) UK/Europe - operations engaged in the generation, purchase,
distribution and sale of electricity and the purchase and sale of natural gas
primarily in the UK, with additional energy interests throughout the rest of
Europe (primarily Eastern Group);
(5) Australia - operations engaged in the purchase, distribution and sale
of electricity and natural gas and the provision of other energy-related
services primarily in the State of Victoria, Australia (primarily Eastern
Energy); and
Other - non-segment operations consist of telecommunications, retail
energy services, international gas operations, power development and other
energy development activities.
Financial information required hereunder is set forth in Note 17 to
Consolidated Financial Statements included in Appendix A to this report.
TU Electric has only one reportable operating segment.
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US ELECTRIC SEGMENT
GENERAL
US Electric operations are engaged in the generation, purchase,
transmission, distribution and sale of electric energy primarily in the north
central, eastern and western portions of Texas (primarily TU Electric, SESCO,
Fuel Company and Mining Company operations).
<TABLE>
<CAPTION>
US Electric Consolidated Operating Statistics
Years Ended December 31
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
ELECTRIC ENERGY GENERATED AND PURCHASED
(Gigawatt-hours - GWh)
Generated - net station output 97,574 91,298 88,130
Purchased and net interchange 12,205 11,980 13,029
------- ------- -------
Net generated and purchased 109,779 103,278 101,159
Company use, losses, and unaccounted for 6,637 6,255 5,905
------- ------- -------
Total electric energy sales 103,142 97,023 95,254
======= ======= =======
ELECTRIC ENERGY SALES (GWh)
Residential 37,299 33,967 33,469
Commercial 29,617 27,602 26,731
Industrial 25,313 24,785 24,375
Government and municipal 6,652 6,170 6,053
------- ------- -------
Total general business 98,881 92,524 90,628
Other electric utilities 4,261 4,499 4,626
------- ------- -------
Total electric energy sales 103,142 97,023 95,254
======= ======= =======
OPERATING REVENUES (millions of dollars)
Base rate revenues
Residential $2,192 $2,025 $2,028
Commercial 1,327 1,256 1,248
Industrial 593 593 600
Government and municipal 324 301 299
------- ------- -------
Total general business 4,436 4,175 4,175
Other electric utilities 125 139 146
------- ------- -------
Total base rate revenues 4,561 4,314 4,321
Fuel revenue (including over/under-recovered) 1,788 1,697 1,671
Transmission service revenues 126 114 --
Other operating revenues 66 51 85
------- ------- -------
Total operating revenues $6,541 $6,176 $6,077
======= ======= =======
ELECTRIC CUSTOMERS (end of year - in thousands) 2,544 2,490 2,432
Degree days (average for service area)
Percent of normal:
Cooling 130.3% 94.2 % 115.1%
Heating 89.2% 106.0 % 94.0%
</TABLE>
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Generation
TU Electric
Generating Units - At December 31, 1998, TU Electric owned or leased and
operated 80 electric generating units with an aggregate net generating
capability of 21,080 megawatts (MW) (See Item 2. Properties).
The Company and TU Electric
Electricity Peak Load and Generation Capability - The electricity peak
load and net generation capability for TU Electric is contained in the table
below. For SESCO, peak load was 258 MW on August 3, 1998. SESCO generates no
electric energy.
TU Electric
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>
1998 22,579 (c) 21,383 5.1% 20,351 2,228
1997 22,449 (d) 20,351 3.5% 19,229 3,220
1996 22,389 (e) 19,668 2.5% 18,930 3,459
<FN>
(a) The 1998 peak load occurred on August 3. TU Electric's peak load includes
interruptible load at the time of peak of 1,032 MW in 1998, 1,122 MW in 1997
and 738 MW in 1996.
(b) Amount of net capability in excess of firm peak load at the time of peak.
(c) Included in net capability is 1,499 MW of firm purchased capacity, of
which 1,164 MW is cogeneration and small power production, and 335 MW is
short-term firm summer capacity purchased in 1998 from three different
suppliers.
(d) 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.
(e) Included in net capability is 1,164 MW of firm purchased capacity, all of
which is cogeneration and small power production.
</FN>
</TABLE>
The peak load changes for 1998 as compared to 1997 resulted primarily
from customer growth and increased usage due to hotter-than-normal weather.
The peak load changes for 1997 and 1996, 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 14 to Consolidated
Financial Statements included in Appendix A to this report.) Firm peak load
(including interruptible contracts) increases over the next five years are
expected to average approximately 2.2% annually, after consideration of load
management programs.
Resource Estimates - 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 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 integrated resource plan (IRP) 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."
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A 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. In addition, TU Electric has secured additional resources for the years
1999, 2000 and 2001 from various suppliers through short-term (two years or
less) purchased power contracts. (See Fuel Supply and Purchased Power.) Thus,
the immediate need to issue a solicitation for additional resources has been
deferred. TU Electric is continuing to review the need and timing for
purchasing additional resources.
TU Electric requested and received approval from the Public Utility
Commission of Texas (PUC) to expand its Power Cost Recovery tariff to provide
current recovery of acquisition costs for demand-side management resources
acquired in PUC-approved 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.
The resource additions identified in TU Electric's 1999 IRP for the next
five years are as follows:
<TABLE>
<CAPTION>
1999-2003
--------------------------
Firm
Capability
Resource Additions (MW) Percent
----------- --------
<S> <C> <C>
Load management (a) 81 2.4%
Renewable resources (b) 4 0.1
Long-term purchase (c) 25 0.8
Unspecified resources 3,261 96.7
------ -----
Total 3,371 100.0%
====== =====
<FN>
(a) TU Electric 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.
</FN>
</TABLE>
The exact timing of when retail competition will occur in Texas is
unknown at this time. Some states in the US, for example, California and
Pennsylvania, already have retail competition. Many others, including Texas,
are considering it. The issue of retail competition is being discussed
extensively during the current session of the Texas legislature 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) would be speculative. Consequently, TU Electric is
providing only resource information for the next five years (1999-2003).
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<PAGE>
Fuel Supply And Purchased Power -- Net input for the US Electric segment
during 1998 totaled 109,779 GWh of which 97,574 GWh were generated by TU
Electric. Average fuel and purchased power cost (excluding capacity charges)
per kilowatt-hour (kWh) of net input for the US Electric segment (and TU
Electric) were 1.78 (1.77) cents for 1998, 1.85 (1.84) cents for 1997 and
1.79 (1.79) cents for 1996, respectively. 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 kWh Input
----------------------- -------------------------
1998 1997 1996 1998 1997 1996
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Fuel for Electric Generation:
Gas/Oil (a) 36.7% 32.9% 33.0% $2.39 $2.80 $2.66
Lignite/Coal (b) 36.5 38.9 39.6 1.03 1.04 1.03
Nuclear 16.4 17.1 15.0 0.59 0.57 0.56
----- ----- -----
Total/Weighted Average Fuel Cost 89.6 88.9 87.6 $1.52 $1.62 $1.58
Purchased Power (c) 10.4 11.1 12.4
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
<FN>
(a) Fuel oil was an insignificant component of total fuel and purchased power
requirements.
(b) Lignite/coal cost per ton to TU Electric was $13.20 in 1998, $13.24 in 1997
and $13.22 in 1996.
(c) Excludes SESCO's power purchased from TU Electric: 1998 - 934 GWh; 1997 -
543 GWh; and 1996 - 616 GWh .
</FN>
</TABLE>
In 1998, the US Electric segment purchased a net of 12,205 GWh or
approximately 11.1% of its energy requirements. TU Electric and SESCO had
available 1,757 MW of firm purchased capacity under contract, including 335 MW
of short-term capacity to meet the 1998 summer peak and a full requirements
contract to meet the needs of SESCO. TU Electric began receiving energy in
December 1998 under a purchased power contract for energy from wind turbines
equivalent to approximately 35 MW (4 MW of firm capacity at peak). Completion
of the facility is anticipated in 1999. This facility will include four of
the largest commercial wind turbines in the world, rated at 1.65 MW each. TU
Electric has executed or extended contracts with various suppliers to provide
an additional 970 MW, 1,660 MW and 2,160 MW to help meet the summer peaks of
1999, 2000 and 2001, respectively. 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 resource requirements, see Electricity Peak
Load and Generation Capability.
TU Electric has signed a two-year contract to buy 500 MW in 2000 and
1,000 MW in 2001 from the 1,100 MW merchant plant being built by American
National Power, Inc. (ANP) in Midlothian, Texas (26 miles south of Dallas).
This is TU Electric's largest purchase contract so far from a merchant plant
and one of several contracts signed recently to meet projected demand. Also
for the first time, the transmission business is building facilities to
connect a merchant plant to TU Electric's power grid. Lone Star Pipeline's
transportation services are also participating in a contract with ANP to
deliver up to half of the plant's 180 million cubic feet (MMcf) natural gas
maximum daily requirement through its pipeline.
TU Electric and SESCO 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 either
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.)
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The Company and TU Electric
Gas/Oil -- Fuel gas for units at eighteen of the principal generating
stations of TU Electric, having an aggregate net gas/oil capability of 12,955
MW, was provided during 1998 by Fuel Company. Fuel Company supplied
approximately 12% of such fuel gas requirements under contracts with producers
at the wellhead and 88% under contracts with commercial suppliers.
Fuel oil can be stored at seventeen of the principally gas-fueled
generating stations. At December 31, 1998, TU Electric had fuel oil storage
capacity sufficient to accommodate approximately 6.1 million barrels of oil
and had approximately 2.3 million barrels of oil in inventory.
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 generally have required
utilization of fuel oil and gas storage inventories to replace the gas
curtailed. No curtailments were experienced during 1998.
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 undivided 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. 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 1,450 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 26.9 billion cubic feet, with
approximately 12.9 billion cubic feet of gas in inventory at December 31,
1998. 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. One of these gas
storage facilities, the Worsham-Steed facility located in Jack County, Texas
will be retired after withdrawal of the economically recoverable gas.
TU Electric
Lignite/Coal -- 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 476
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 271 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
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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 three-year
contract scheduled to expire on December 31, 2001.
TU Electric currently plans to supplement its lignite fuel at Martin Lake
and Big Brown utilizing western coal to be delivered beginning in the year
2000. Construction of a 25-mile rail spur into Big Brown to facilitate the
delivery of the western coal began in July 1998 and is expected to be
completed by July 2000.
The Company
In the third quarter of 1998, the Company settled its advance royalty
obligations for certain coal reserves with a cash payment of approximately
$136 million and a transfer of rights to the coal reserves and related land.
The advance royalty obligations amounted to $16 million per year through 2017.
TU Electric
Nuclear -- TU Electric owns and operates two nuclear-fueled generating
units at the Comanche Peak nuclear powered electric generating station
(Comanche Peak), each of which is designed for a net capability of 1,150 MW.
The nuclear fuel cycle requires the mining and milling of uranium ore to
provide uranium oxide concentrate (U3O8), the conversion of U3O8 to uranium
hexafluoride (UF6), the enrichment of the UF6 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 (2011). Although TU Electric
cannot predict the future availability of uranium and nuclear fuel services,
TU Electric does not currently expect to have difficulty obtaining U3O8 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 1999 federal
fiscal year, as calculated by the DOE, is approximately $1 million.
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
January 1998, the DOE did not meet its obligation to begin accepting spent
nuclear fuel. The DOE continues to maintain its position that no obligation
to begin acceptance of spent nuclear fuel exists despite a US Court of Appeals
decision affirming the Company's position that such an obligation does exist.
However, Secretary of Energy William Richardson recently testified that the
DOE is evaluating a proposal to take title to nuclear waste immediately and to
pay for storage of such waste at reactor sites until a permanent repository is
available. TU Electric is unable to predict what impact, if any, the DOE's
delay will have on the Company'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.
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TU Electric's onsite spent nuclear fuel storage capability is sufficient
to accommodate the operation of Comanche Peak through the year 2017, while
fully maintaining the capability to off-load the core of one of the
nuclear-fueled generating units. Additional approval from the Nuclear
Regulatory Commission (NRC) will be required to utilize this full storage
capability. TU Electric is currently pursuing options for utilizing a larger
portion of the full storage capability, subject to approval by the NRC.
Transmission
In 1995, TU Electric became the first utility in Texas to functionally
unbundle, or separate, its transmission operations into a business unit. The
unit operates independently within the larger company and has the flexibility
to adapt to changing market and regulatory forces. It is now one of the key
components of the US Electric business segment. 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, the Independent System Operator (ISO) of the
interconnected transmission system of those systems, and is responsible for
ensuring equal access to transmission service by all wholesale market
participants in the ERCOT region.
The function of the transmission business is to provide
non-discriminatory wholesale open access to TU Electric's transmission
facilities through business practices consistent with the standard of conduct
rules enacted by the PUC. The transmission system transverses almost 200,000
square miles of Texas and consists of over 13,000 circuit miles of
transmission line and over 900 substations.
The transmission business supports the operation of the ERCOT ISO and all
ERCOT members, as well as TU Electric's responsibilities and obligations to
its wholesale and retail customers. The transmission business unit has
planning, design, construction, operation, and maintenance responsibility for
the transmission grid and for the load serving substations.
Services are provided under tariffs approved by the PUC and the Federal
Energy Regulatory Commission (FERC). Transmission service offers the use of
the transmission system for delivery of power over facilities operating at
60,000 volts and above. Transformation service offers the use of substation
assets to transform voltage to below 60,000 volts.
Other services offered by the transmission business include: static and
dynamic scheduling and miscellaneous services such as system impact studies,
facilities studies, and maintenance of substations and transmission lines
owned by other parties.
The transmission business is participating with the ISO and other ERCOT
utilities to plan, design and obtain regulatory approval and construct new
transmission lines necessary to increase bulk power transfer capability and to
remove existing limitations on the ERCOT transmission grid.
The principal generating facilities of TU Electric and load centers of TU
Electric and SESCO are connected by 3,863 circuit miles of 345-kilovolt (kV)
transmission lines and 9,327 circuit miles of 138- and 69-kV transmission
lines. SESCO is connected to TU Electric by three 138-kV lines, ten 69-kV
lines and three lines at distribution voltage.
14
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<PAGE>
Distribution
The TU Electric distribution system supplies electricity to approximately
2.5 million customers (including approximately 2.2 million residential
customers and 300,000 commercial and industrial businesses). On average, TU
Electric has added approximately 45,000 customers to its system each year for
the last several years. The electric distribution business consists of the
ownership, management, construction, maintenance and operation of the
distribution network within TU Electric's certificated service area.
TU Electric's distribution network receives electricity from the
transmission grid through approximately 700 power distribution substations and
distributes electricity to end users and wholesale customers through
approximately 2,700 distribution feeders.
The TU Electric distribution network consists of approximately 51,000
miles of overhead and 9,600 miles of underground conductors. The majority of
the distribution system operates at 25 kV and 12.5 kV. Approximately 75% of
the system (in line-miles) is classified as rural, serving approximately 45%
of the system's customers.
REGULATION AND RATES
The Company and TU Electric
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 and
Section 33 which relates to the acquisition of foreign (non-US) utility
companies.
The Company is also subject to various other federal, state and local
regulations. (See discussion below and Environmental Matters.)
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 that are involved in such interstate
activities, except during the continuance of emergencies permitting temporary
or permanent connections or under order of the FERC exempting TU Electric and
SESCO from jurisdiction under the Federal Power Act. TU Electric and SESCO
therefore 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.
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.
Docket 9300 -- The PUC's final order (Order) in connection with TU
Electric's January 1990 rate increase request (Docket 9300) was ultimately
reviewed by the Supreme Court of Texas (Supreme Court). As a result, 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 also was 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
connection with the settlement of Docket 18490, proceedings in the remand of
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Docket 9300 have been stayed prior to January 1, 2000. The Company and TU
Electric cannot predict the outcome of the reconsideration of the Order on
remand by the PUC.
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. 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 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. The current
maximum impact on TU Electric for 1999 is a deficit of $12 million.
Docket 18490 -- The PUC approved the non-unanimous stipulation filed on
December 17, 1997. The stipulation, modified to incorporate changes made by
the PUC, resulted in 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 and additional base rate credits for residential
customers of 1.4% beginning January 1, 1999. Other provisions of the
stipulation (i) impose an annual earnings cap on TU Electric's rate of return
on rate base during 1998 and 1999, based in part on an 11.35% return on
average common equity and a cap on operations and maintenance expense at a
specified level, with any sums earned above the earnings cap being applied as
additional nuclear production depreciation, (ii) allow TU Electric to record
depreciation applicable to transmission and distribution assets in 1998 and
1999 as additional depreciation of nuclear production assets, (iii) establish
an updated cost of service study that includes interruptible customers as
customer classes, (iv) result in the permanent dismissal of pending appeals of
prior PUC orders, if all other parties that have filed appeals of those
dockets also dismiss their appeals, (v) result in the stay of any
proceedings in the remand of Docket 9300 prior to January 1, 2000, and (vi)
flow all gains from off-system sales of electricity in excess of the amount
included in base rates to customers through the fuel factor. Modifications
that were also approved by the PUC include: (i) imputing $16 million of
revenues from discounted rates in the calculation of the return cap, (ii)
limiting the recovery of interest on any new debt issued prior to December 31,
1999 to the interest rate available to TU Electric at its bond rating as of
January 1, 1998 in the calculation of the return cap, (iii) limiting the
amount of annual capital additions to production plant to 1.5% of TU
Electric's net plant in service on December 31, 1996 in the calculation of the
return cap, and (iv) permitting TU Electric, at its discretion, to apply
earnings as additional depreciation of nuclear production assets, after the
determinations have been made under the return cap. Certain parties that did
not sign the stipulation have appealed the PUC's approval by filing suit in
state district court. The Company and TU Electric cannot predict the outcome
of these appeals.
For the year ended December 31, 1998, TU Electric recorded $170 million
as additional depreciation of nuclear production assets, representing 1998
earnings in excess of the stipulated return cap. Including deferred income
tax effects, the net effect was a $143 million reduction in net income for the
year ended December 31, 1998. In addition, for the year there was $183
million of depreciation expense reclassified from transmission and
distribution to nuclear production assets. TU Electric will file with the PUC
its first report, concerning the earnings cap calculation for 1998, by March
31, 1999. Interested parties are allowed to challenge the calculation and the
reasonableness of the underlying costs. The Company and TU Electric are
unable to predict whether any such challenge will be filed or the outcome of
any such challenge.
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
cumulative under- or over-recovery of fuel costs. If the cumulative
difference of the under- or over-recovery, plus interest, exceeds 4% of the
annual estimated fuel costs most recently approved by the PUC, it will be
deemed to be material.
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
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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, 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 (Docket 20285) -- On December 30, 1998,
in accordance with PUC rules, TU Electric filed a petition with the PUC
seeking final reconciliation of all eligible fuel and purchased power expenses
incurred during the reconciliation period of July 1, 1995 through June 30,
1998, amounting to a total of $5.04 billion. The Company and TU Electric are
unable to predict the outcome of such proceeding.
In addition, as permitted by the PUC rules, TU Electric is also seeking
an accounting order from the PUC that will allow certain costs incurred to
facilitate the use of coal as a supplemental fuel at its Monticello plant to
be treated as eligible fuel costs and billed pursuant to TU Electric's fuel
cost factor. By incurring these expenses, the Company and TU Electric believe
they have significantly improved the reliability of the supply of fuel to
Monticello and have, at the same time, lowered the fuel expense that would be
incurred in the absence of these investments.
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
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 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.
TU Electric also offers optional time-of-use rates to residential,
commercial, and industrial customers under rates approved on an interim basis
by the PUC in October 1997, in areas where the PUC retains sole regulatory
jurisdiction. These time-of-use rate options allow participating customers to
plan and manage their electrical energy usage to shift their loads from the TU
Electric on-peak periods to off-peak periods. This reduces TU Electric's
requirements for capacity resources to meet the peak electrical load of all of
its customers. A ruling from the PUC approving these rates is expected by the
second quarter of 1999. On January 15, 1999, the Company applied for approval
of these rates with municipal regulatory authorities in 173 cities, in the
form that it expects the PUC ultimately to approve. A majority of the cities
involved have already approved such rates. The Company and TU Electric
estimate that any decrease in revenue resulting from the implementation of
these rates will be offset by the reduced costs associated with the peak load
reductions achieved.
COMPETITION
General -- The 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, PURA impacts the PUC
and its regulatory practices and encourages increased competition in the
wholesale 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 US Electric segment companies' operations,
it believes that such actions are consistent with the trend toward increased
competition in the energy industry.
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
17
<PAGE>
<PAGE>
competition is affected by a number of variables, including price, reliability
of service, the cost of energy alternatives, new technologies and governmental
regulations.
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 not subject to the traditional governmental regulation
experienced by the utility industry has intensified competition within the
state's wholesale markets and, in multi-certificated areas, retail customer
markets.
In order to remain competitive, the US Electric segment 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 the 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.
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. Amounts invested by TU Electric in certain of its assets could
become stranded costs (i.e., investments and commitments that may not be
recoverable from customers as a result of competitive pricing). To the extent
stranded costs cannot be recovered from customers, it may be necessary for
such costs to be borne 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 US Electric segment companies have continued 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 Operations and Note 2 to
Consolidated Financial Statements included in Appendix A to this report.)
Retail Competition -- At the federal level, the 106th Congress has begun
to examine the possibility of mandated "retail competition," 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.
PURA amendments 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 and 1999,
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 in 1997 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. 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 $5.8
billion to a projected excess of market value over net book value of $3.8
billion.
To date, thirteen states have enacted legislation that provides for
retail competition, and many other states are addressing the issue at this
time. Retail competition has not been implemented in Texas; however, this
issue is currently being addressed in the 76th Texas Legislature. The 1999
session of the Texas legislature is currently in process. Proposed
legislation has been introduced that would restructure the electric utility
industry to, among other matters, authorize competition in the retail market
for electricity, provide for the recovery of certain stranded costs and retain
regulation of the transmission and distribution businesses. While the Company
believes that such legislation could be enacted during the 1999 session, it
cannot predict the result of legislative efforts to restructure the electric
18
<PAGE>
<PAGE>
utility industry in Texas or how such result might affect the Company's
financial position, results of operations or cash flows.
The US Electric segment companies 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, the US Electric segment companies currently have the exclusive right to
provide electric service to the public within their certificated 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. The US Electric segment companies are
pursuing efforts to remain competitive through competitive pricing, economic
development and other initiatives. (See Regulation and Rates.)
The US Electric segment companies are not able to predict the extent of future
competitive developments in the retail market or what impact, if any, such
developments may have on operations.
Wholesale Competition -- 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.
Wholesale competition in the electric utility industry was addressed in the
1995 session of the Texas legislature when PURA was amended to encourage
greater wholesale competition and flexible retail pricing.
Amendments to PURA made during the 1995 session of the Texas legislature
also 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.
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 lost approximately 800 MW of wholesale
load in 1998. In 1998, wholesale revenues represented about 2.5% of TU
Electric's total consolidated operating revenues. TU Electric is unable to
predict the extent of future competitive developments in the wholesale market
or what impact, if any, such developments may have on its operations.
Open-Access Transmission -- At the federal level, the FERC issued Order
No. 888 in April 1996, which requires all FERC-jurisdictional electric public
utilities to offer third parties wholesale transmission services under an
open-access tariff. 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 between ERCOT and the Southwest
Power Pool, which, in October 1997, was accepted by the FERC with minor
modifications.
In February 1996, 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 that is designed to ensure that all market participants pay
on a comparable basis to use the system.
In August 1997, the PUC approved final tariffs for TU Electric's
open-access wholesale transmission service and implemented rates for other
transmission providers within ERCOT. (See Regulation and Rates.) In February
1999, the PUC approved modifications to its rules addressing open-access
wholesale transmission service to allow utilities to revise annually their
transmission rates to reflect rate base additions and updated billing units.
In addition, the rules now clarify the cost responsibility for entities
connecting new resources to the ERCOT transmission grid. These revisions to
the rules were enacted primarily to enhance wholesale competition and provide
for the timely recovery by utilities of their transmission investment. It is
anticipated that the adoption of these rules will have a minimal impact on
open-access transmission rates.
Customers -- There are no individually significant customers upon which
the segment's business or results of operations are highly dependent.
19
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<PAGE>
US GAS SEGMENT
GENERAL
US Gas operations (primarily Lone Star Gas, Lone Star Pipeline and EPI)
are engaged in the gathering, processing, transmission and distribution of
natural gas and selling of related natural gas liquids primarily within
Texas.
<TABLE>
<CAPTION>
US Gas Consolidated Operating Statistics
Years Ended December 31
1998 1997*
----- ------
<S> <C> <C>
SALES VOLUMES
Gas distribution (billion cubic feet) (Bcf):
Residential 77 33
Commercial and industrial 53 24
---- ----
Total gas distribution 130 57
==== ====
Pipeline transportation (Bcf) 599 255
Gas liquids (million barrels) 6 3
OPERATING REVENUES (millions of dollars)
Gas distribution:
Residential $437 $206
Commercial and industrial 245 124
---- ----
Total gas distribution 682 330
Pipeline transportation 121 58
Gas liquids 64 36
Other 75 52
Less intra-segment revenues (78) (48)
---- ----
Total operating revenues $864 $428
==== ====
GAS DISTRIBUTION CUSTOMERS - (end of year - in thousands)
(end of period) 1,379 1,355
HEATING DEGREE DAYS ( % of normal) 89% 119%
<,fn>
*For the period from acquisition (August 5, 1997) to December 31, 1997.
</FN>
</TABLE>
Gas Distribution Peaking -- Lone Star Gas estimates its peak-day
availability from long-term contracts and withdrawals from underground storage
to be 1.5 billion cubic feet (Bcf). Short-term peaking contracts and daily
spot contracts raise this availability level to meet anticipated sales needs.
During 1998, the average daily demand of Lone Star Gas' residential and
commercial customers was 0.3 Bcf. Lone Star Gas' greatest daily demand in
1998 was on December 22 when the arithmetic-mean temperature was 24 degrees F.
and deliveries to all customers reached 2.1 Bcf, including estimated
deliveries to residential and commercial customers of 2.0 Bcf.
20
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<PAGE>
Gas Supply-- 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 available gas supply as of January 1,
1999, was 299 Bcf, which is approximately two and a half times Lone Star Gas'
purchases during 1998. Of this total, 89 Bcf are specific reserves and 34 Bcf
are working gas in storage. Management has calculated that 176 Bcf are
committed to Lone Star Gas under gas supply contracts not related to specific
reserves or fields. In 1998, Lone Star Gas' gas requirement was purchased
from some 265 independent producers and non-affiliated pipeline companies.
To meet peak-day gas demands during winter months, Lone Star Gas utilizes
the service of seven gas storage fields owned by Lone Star Pipeline, all of
which are located in Texas. These fields have a working gas capacity of 47 Bcf
and a storage withdrawal capacity of up to 1.2 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 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.
Lone Star Gas buys gas under long-term and short-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 1999 and
thereafter.
The Lone Star Gas supply program is designed to contract for new supplies
of gas and to recontract targeted expiring sources. 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.
At December 31, 1998, 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 76,000. 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, 1998, EPI had interests in 15 processing plants, 10 of
which were wholly owned, and operated approximately 1,700 miles of gathering
lines.
21
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<PAGE>
REGULATION AND RATES
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 certificate
interstate transmission facilities subject to the jurisdiction of the FERC
under the Natural Gas Act, has no sales for resale under the rate
jurisdiction of the 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 distribution
service 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 has an ongoing
program of analyzing the sufficiency of rates in its various local
distribution systems and requesting rate increases where appropriate.
In August 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 was
separated into different phases, all of which are now resolved. Two of the
phases, conversion to the National Association of Regulatory Utility
Commissioners account numbering system and unbundling, have been dismissed by
the RRC, and one other phase, rate case expense, has been concluded. In the
phase dealing with historic gas cost and gas acquisition practices, the RRC
issued a final order on June 2, 1998 approving a stipulated settlement of the
docket. Lone Star Gas agreed to credit residential and commercial customers
$18 million to be spread over the next two heating seasons (November through
March). The earnings of Lone Star Gas were not affected by the settlement due
to previously established reserves. Lone Star Gas and the intervenors both
agreed to withdraw their appeals of the city gate rate case. The final order
approving the stipulation found that all gas costs flowed through Lone Star
Gas' monthly gas cost adjustment clause prior to October 31, 1997 were just,
reasonable and necessary.
COMPETITION
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. 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 US markets.
Natural gas liquids processing is highly competitive and includes
competition among producers, third-party owners and processors for
cost-sharing and interest-sharing arrangements.
Open Access -- 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.
There are no individually significant customers upon which the segment's
business or results of operations are highly dependent.
22
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US ENERGY MARKETING SEGMENT
GENERAL
US Energy Marketing (EES) operations are engaged in purchasing and
selling natural gas and electricity and providing risk management services for
the energy industry throughout the US, other than within ERCOT.
<TABLE>
<CAPTION>
US Energy Marketing Operating Statistics
Years Ended December 31
1998 1997*
----- ----
<S> <C> <C>
SALES VOLUMES:
Gas (Bcf) 1,115 292
Electric (GWh) 16,268 -
OPERATING REVENUES (millions of dollars) $3,199 $859
<FN>
*For the period from acquisition (August 5, 1997) to December 31, 1997.
</FN>
</TABLE>
Headquartered in Houston, Texas, EES serves the diversified energy
requirements of its clients from five regional centers and 17 local customer
service and support offices located across the US. EES' primary natural gas
markets, both retail and wholesale, are in Texas, the Northeast, the Midwest
and the West Coast. Other than within ERCOT, EES engages in the physical
purchase and sale of electricity in the wholesale markets throughout the US
and is also engaged in power retail marketing, primarily in the Northeast
region of the country.
In the course of providing comprehensive energy products and services to
its diversified client base, EES engages in energy price risk management
activities. In addition to the purchase and sale of these physical
commodities, EES enters into futures contracts; swap agreements where
settlement is based on the difference between a fixed and floating (index
based) price for the underlying commodity; exchange traded options;
over-the-counter options, which are settled in cash or the physical delivery
of the underlying commodity; exchange-of-futures for physical (EFP)
transactions; energy exchange transactions; storage activities; and other
contractual arrangements. EES may buy and sell certain of these instruments
to manage its exposure to price risk from existing contractual commitments as
well as other energy-related assets and liabilities. It may also enter into
contracts to take advantage of arbitrage opportunities. In order to manage
its exposure to the price risk associated with these instruments, EES has
established trading policies and limits and revalues its exposures daily
against these benchmarks. EES also periodically reviews these policies to
ensure they are responsive to changing market and business conditions.
EES' business is not specifically seasonal; however, the results of its
operations are greatly affected by price volatility in the underlying
commodity markets. Price volatility in both natural gas and electric power is
largely a result of supply and demand factors driven by weather conditions and
physical constraints in the deliverability of these commodities. Arbitrage
opportunities resulting from this price volatility are often greatest in the
late summer/early fall and winter months for natural gas and the summer months
for electricity.
COMPETITION
EES pursues opportunities to manage risks for companies outside the
Company's system. 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.
Customers -- There are no individually significant customers upon which
the segment's business or results of operations are highly dependent.
23
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<PAGE>
UK/EUROPE SEGMENT
GENERAL
The UK/Europe operations are conducted primarily by Eastern Group. It's
energy business consists of three core activities: the generation of
electricity, the retailing of electricity and natural gas and production of
natural gas, and the distribution of electricity. This combination of
integrated activities within the electricity and gas industries provides
Eastern Group with opportunities to benefit throughout the electricity and gas
supply chains, from fuel sourcing to customer sales. The overall financial
efficiency of these activities is coordinated and optimized by EPETL. These
activities are carried out primarily in the UK but with interests increasingly
being developed throughout the rest of Europe.
UK/Europe Consolidated Operating Statistics
Year Ended December 31
1998*
SALES VOLUMES
Electric (GWh)
Industrial and commercial 15,459
Residential 7,826
------
Total electric 23,285
======
Units Distributed (GWh) 19,249
======
Gas (Bcf)
Industrial and commercial 51
Residential 21
------
Total gas 72
======
Wholesale Energy Sales
Electricity generated and sold to the Pool(GWh) 51,060
======
Gas (Bcf) 148
======
OPERATING REVENUES (millions of dollars)
Electric
Industrial and commercial $ 1,150
Residential 842
-------
Total electric operating revenues 1,992
Distribution 393
Gas
Industrial and commercial 125
Residential 136
-------
Total gas operating revenues 261
Wholesale energy sales 1,198
Other 98
Less intra-segment revenues (341)
-------
Total operating revenues $ 3,601
=======
CUSTOMERS (end of year - in thousands)
Electric 3,211
Gas 777
* For the period from acquisition (May 19, 1998) to December 31, 1998.
24
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Generation
Almost all electricity generated in England and Wales must be sold to the
electricity trading market in England and Wales (the Pool), and electricity
suppliers must likewise generally buy electricity from the Pool for resale to
their customers. The Pool is operated under a Pooling and Settlement
Agreement to which all licensed generators and suppliers of electricity in the
UK are party. These trading arrangements are currently under review by the UK
government.
Eastern Generation is the fourth largest generator of electricity in the
UK with a share of approximately 9.4% of the total registered generating
capacity in the UK. It currently owns, operates or has an interest in eight
power stations in the UK with an aggregate net generating capability of 6,784
MW. It also has a controlling interest in Nedalo (UK) Limited (Nedalo), the
largest supplier of small (up to one MW) combined heat and power (CHP) plants
in the UK. Eastern Generation has recently acquired two additional CHP plants
with 46 MW of capacity. (See Item 2. Properties). It also has a controlling
interest in Teplarny Brno a.s. a district heating and generation company in
the Czech Republic.
Eastern Group's current portfolio of power stations, predominantly a mix
of combined cycle gas turbines (CCGT) and coal-fired stations, represents both
base load plants, which run throughout most of the year, and mid-merit plants,
which run in high demand periods. Eastern Group's portfolio of power stations
provides flexibility in managing the price and volume risks of its sales
portfolios and has enabled Eastern Group to diversify its fuel supply risk.
In June 1996, Eastern Group assumed operational and commercial control,
through a combination of lease and outright sale from National Power plc
(National Power), of all of the assets and a portion of the liabilities of the
West Burton, Rugeley B and Ironbridge power stations. Eastern Group holds a
99-year lease over the land, buildings and plant at each of those power
stations. Under the leases, Eastern Group was committed to make fixed
payments totaling $1,220 million, of which $558 million was paid at
commencement of the leases. The balance, together with interest, is payable
in 2001. Further payments of approximately $10 per megawatt-hour (MWh),
indexed to inflation, that are linked to output levels from these stations are
also payable to National Power through 2000.
Eastern Group has leased the land, buildings and plant at the Drakelow C
and High Marnham power stations from PowerGen plc (PowerGen) for a period of
99 years, pursuant to agreements entered into in July 1996. PowerGen is
responsible for decommissioning costs should Eastern Group decide to close
these stations during the term of the leases. Eastern Group is committed to
fixed payments totaling $381 million, subject to minor adjustments if
aggregate capacity falls below a certain level. The payments, together with
interest, are payable in installments over eight years beginning in 1996. As
with the National Power leases, further output-related payments of
approximately $10 per MWh, indexed to inflation, are payable to PowerGen for
the first five years of operation by Eastern Group. On November 25, 1998, the
UK Secretary of State for Trade and Industry (Secretary of State) confirmed
that, as a condition for allowing PowerGen to acquire East Midlands
Electricity plc, he would require that the output-related elements of these
lease arrangements be terminated 15 months early. The output -related
payments to PowerGen will now terminate in March 2000.
Electricity and Natural Gas Retailing
Eastern Group is integrating its electricity and gas retailing businesses
into a single operation.
The electricity retailing business involves the sale to customers of
electricity that is purchased from the Pool. Pool price risk is managed on
behalf of the retail business by EPETL. The retail business is charged a
regulated price by transmission and distribution companies, including Eastern
Electricity, for the physical delivery of electricity. Eastern Electricity
supplies electricity to customers in all sectors of the market and is one of
the largest retailers of electricity in England and Wales.
25
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<PAGE>
Ex-Franchise Market -- Eastern Electricity currently supplies electricity
to approximately 3.2 million customers (including approximately 2.9 million
domestic (residential) customers and 250,000 small businesses). The domestic
franchise market in the UK is being progressively opened to competition
beginning September 1998 and is expected to be open to full competition in
June 1999. Eastern Electricity's authorized area, which covers approximately
20,300 square kilometers in the east of England and parts of north London, was
one of four areas in the first group to be opened to competition.
Competitive (Industrial and Commercial) Market -- Eastern Group is an
active participant in the competitive UK electricity market. The competitive
market is made up of customers with over 100 KW of demand which typically
includes large commercial and industrial users. As of December 31, 1998, this
market consisted of over 51,000 sites. Eastern Group estimates that this
represents a market size of approximately $10 billion per year based upon
electricity prices at that date. In addition Eastern Group estimates that more
than 85% of these sites are outside its authorized area and that over 60% of
its electricity sales to the competitive market are to customers outside its
authorized area. At December 31, 1998, Eastern Group had a more than 13%
share of this market.
As a result of UK government action in recent years, the UK natural gas
market is open to competition by competing retailers. Eastern Group, through
Eastern Natural Gas and its subsidiaries, is one of the largest suppliers of
natural gas in the UK. As of December 31, 1998, Eastern Group's market
share by volume was estimated at 12% of gas delivered to the competitive
industrial and commercial market. At December 31, 1998, it was supplying
approximately 780,000 customers in the UK, ranging from residential households
to large commercial companies.
Eastern Group also announced in November 1998 a gas retailing joint
venture in Holland with Energie NoordWest and an electricity trading and
retail joint venture with Lund Energi in Sweden.
Electricity Distribution
Eastern Group's electricity networks business consists of the ownership,
management and operation of the electricity distribution network within
Eastern Group's authorized area. Eastern Group receives electricity in
England and Wales from the transmission system for electricity (National
Grid) and distributes electricity to end users connected to Eastern Group's
power lines.
Almost all electricity customers in Eastern Group's authorized area,
whether franchise or competitive, are connected to and dependent upon Eastern
Group's distribution system. Eastern Group distributes approximately 32
terrawatt hours (Twh) of electricity annually to approximately 3.2 million
customers, representing more than seven million people. Most of the tangible
fixed assets owned by Eastern Group in the UK are currently employed in the
electricity distribution business. The distribution by Eastern Group of
electricity in its authorized area is regulated by its Public Electricity
Supply License (PES License) which, other than in exceptional circumstances,
is due to remain in effect until at least 2025.
Physical Distribution System -- Eastern Group receives electricity from
the National Grid at 21 supply points within its authorized area and three
points in the authorized areas of neighboring regional electricity companies
(RECs). The majority of this electricity is received at 132kV. It is then
distributed to customers through Eastern Group's system of approximately
35,300 kilometers of overhead lines, 53,900 kilometers of underground cable
and numerous transformers and switchgear, through a series of interconnected
networks operating at successively lower voltages. Eastern Group also
receives electricity directly from power stations located in its authorized
area and, from time to time, from customers' own generating plants and
connections with neighboring RECs.
Most of the revenue from use of the distribution system is from Eastern
Group electricity retail operations. The rest is derived from holders of
second tier supply licenses issued pursuant to the Electricity Act of 1989 of
Great Britain (Electricity Act) (Second Tier Supply Licenses) in respect of
the delivery of electricity to their customers located in Eastern Group's
authorized area.
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Energy Trading Business
Typically, holders of PES Licenses issued pursuant to the Electricity Act
in connection with the supply and distribution within an authorized area in
Great Britain are exposed to risk, as they are obliged to supply electricity
to their customers at stable prices but have to purchase almost all the
electricity necessary to supply those customers from the Pool at prices which
are constantly changing. The ownership of generating assets provides a natural
hedge against these risks, as does the use of financial instruments such as
contracts for differences (CfDs).
A CfD is an agreement between two parties calling for payments between
the parties of amounts equal to the product of (a) the difference in each
settlement period between the Pool price and the price specified in the CfD
(strike price) and (b) the amount of electricity provided for in that
settlement period, which is usually expressed in MW of demand. Each
settlement period is one-half hour. CfDs effectively fix the prices a
supplier pays and a generator receives for electricity. In this way, CfDs
reduce the financial risk otherwise associated with the sale and purchase of
electricity through the Pool.
EPETL coordinates the Eastern Group's activities in managing risk. It
provides support to Eastern Group's electricity and natural gas retail
activities, taking into account its electricity and natural gas purchases and
sales and its contract portfolios, including Eastern Group's physical power
station assets and natural gas production interests. EPETL is responsible for
setting the level of bids into the Pool for the output of each of Eastern
Group's generating stations, other than the Barking and CHP plants. EPETL
uses this method to coordinate the operation of Eastern Group's generating
stations with Eastern Group's fuel contract position and its retail and
wholesale electricity and natural gas sales portfolios to Eastern Group's best
advantage. It also coordinates the operation of Eastern Group's power
stations taking into consideration the relative prices in gas and electricity
markets. EPETL also earns revenue by providing risk management services to
other retailers of electricity and gas to assist them in managing their
Pool/market price risk.
EPETL manages Eastern Group's financial exposure to fluctuations in
electricity prices through its portfolio of CfDs, a small number of which are
long-term; bidding both price and volume for Eastern Group's generation
output (other than the Barking and CHP plants) into the Pool for each half
hour of the day; and by deciding with the electricity retailing division the
volume and pricing of sales in the competitive and franchise markets.
The overall electricity position for each half hour of the day is
monitored by EPETL with the goal of optimizing electricity purchases and sales
positions. The resulting net position is subject to risk exposure limits that
are monitored by a risk management team within Eastern Group. EPETL also
carries out credit checks on counterparties. Similar processes and procedures
apply to gas market activities, where Eastern Group has a substantial and
growing retail position, as well as its gas-fired power stations and a number
of long-term and short- term purchase contract positions. Eastern Group's
ability to manage such risk in the future will depend, in part, on the terms
of its supply contracts, its ability to manage an appropriate hedging
strategy, the continuation of an adequate market for hedging instruments and
the performance of its generating and upstream gas assets.
In order to help meet the expected needs of its natural gas wholesale and
retail customers (including its power stations), Eastern Group has entered
into a variety of gas purchase contracts. As of December 31, 1998, the
commitments under long-term purchase contracts amounted to an estimated $2.2
billion, covering periods of up to 16 years. Firm sales commitments,
including estimated power station usage, at the same date amounted to $5.0
billion, covering periods up to 18 years.
EPETL also purchases coal, oil and natural gas for the Eastern Group's UK
power stations and has equity interests in four natural gas producing fields
in the North Sea. In November 1998, Eastern announced a significant expansion
of its North Sea gas interests through an agreement to purchase all of BHP
Petroleum's assets in the southern North Sea for approximately $165 million.
These assets increased Eastern's interest in the Johnston field from
approximately 5% to 35%. In December 1998, Eastern also agreed to purchase
Monument Oil's 20% share of this field for almost $33 million. Both
acquisitions are subject to the approval of the UK Department of Trade and
Industry.
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The energy trading business also trades on the Nord Pool, the electricity
trading market in Scandinavia, and has recently negotiated access to 183 MW of
hydro output in Norway for 55 years, in relation to which Eastern Group has
agreed to pay an up-front fee of up to $290 million.
REGULATION AND RATES
Eastern Group's operations are subject to extensive and changing
regulation in the UK.
The electricity industry in the UK is subject to regulation under, among
other things, the Electricity Act and certain UK and European Union (EU)
competition and environmental legislation. Eastern Group is also subject to
existing UK and EU legislation on competition and regulation in its gas
businesses. In addition, a portion of any profit received by Eastern Group on
its disposal of certain assets vested in it at the time of its privatization
is subject to recovery by the Secretary of State until March 31, 2000.
Eastern Group possesses all of the necessary franchises, licenses and
certificates required to enable it to conduct its businesses.
In March 1998, the Secretary of State published a green paper on utility
regulation, including price controls, for gas, electricity, water and
telecommunications. After a period of consultation, the UK government has
announced that the Office of Electricity Regulation covering England, Wales
and Scotland (OFFER) and the Office of Gas Supply (OFGAS) will be merged as
part of expected legislation. The UK government has consulted on the need for
greater separation of distribution, supply and metering activities and special
measures to protect disadvantaged customers. Eastern Group expects these
proposals to be part of legislation that will be introduced in 1999. The
implementation of such measures is uncertain, but could result in significant
changes to the existing regulatory regime. Similarly, in October 1998 the UK
government published a white paper proposing controls over the future
development of gas-fired power stations, and the Director General of
Electricity Supply in Great Britain (DGES) is reviewing the operations of the
Pool with a view to promoting alternative trading arrangements. There can be
no assurance regarding the potential impact of regulatory changes, if any, on
Eastern Group.
Unless covered by an exemption, all electricity generators operating a
power station in the UK are required to have generation licenses. The
conditions attached to such a license in the UK require the holder, among
other things, to be a member of the Pool and to submit the output of power
station generating units or turbines for central dispatch. Failure to comply
with any of the generation license conditions may subject the licensee to a
variety of sanctions, including enforcement orders by the DGES and license
revocation if an enforcement order is not complied with.
The Secretary of State has power under the Electricity Act to require
generators that operate power stations with a capacity of at least 50 MW to
maintain stocks of fuel and other materials at power stations. The Secretary
of State completed a review of the level of fuel stocks held by generators in
1997. No increase was required, but Pool rules were changed as of December
1997 to penalize gas power plants reducing output during times of insufficient
plant margins. Eastern Group does not anticipate that these changes will have
a material adverse effect on its results of operations.
In the UK, each PES License limits the amount of the generation capacity
in which each REC may hold an interest without the prior consent of the DGES.
These own-generation limits currently restrict the participation by a REC and
its affiliates in generation to a level of approximately 15% of the
simultaneous maximum electricity demand in that REC's authorized area at the
time of privatization. Eastern Group's limit is 1,000 MW. The DGES stated in
January 1996 that he would be prepared to consider a REC's request to increase
its own-generation capacity on the condition that it accept explicit
restrictions on the contracts it signs with its supply business. At a
minimum, a REC would be prohibited from passing additional own-generation
output into its franchise market. Following public consultation, the DGES set
out the basis on which consents for RECs to acquire new generation capacity
would be allowed. The specific consent of the DGES to the leasing by Eastern
Group of 6,000 MW of generating capacity from National Power and PowerGen was
subsequently confirmed by OFFER. Eastern Group's acquisition of additional
generation capacity at Shotton and Dowlais have also been approved in
principle.
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Electricity Retailing -- Subject to certain exceptions, each retail
supplier of electricity in the franchise market in the UK is required to have
a PES License for its authorized area and is required under the Electricity
Act to provide a supply of electricity upon request to any premises in that
area, except in specified circumstances. Each PES License holder is subject
to various obligations under its PES License. These include prohibitions on
cross-subsidies among its various regulated businesses and on discrimination
in respect of the supply of customers. Each PES License holder is also
required to offer open access to its distribution network on
non-discriminatory terms. This obligation includes a requirement not to
discriminate between its own supply business and other users of its
distribution system. PES License holders are subject to separate controls on
the tariffs to franchise customers and in respect of distribution charges.
OFFER has begun a major review of the distribution and supply price
regulation. It is expected to lead to changes, possibly substantial, in the
year 2000. Eastern Group is not able to predict the outcome of this review or
the impact on its results of operations.
A supplier of electricity to the competitive market in the UK must,
subject to certain exemptions, have a Second Tier Supply License or a PES
License for the service area in which customers are supplied.
Electricity Supply Price Regulation -- Supply charges in the franchise
market are regulated by a maximum price control that applies to each tariff
in the residential and small business customer electricity market and
effectively provides customers with price guarantees. On April 1, 1998,
Eastern Group's tariffs were reduced by 8.9%, before adjustments for
inflation. Eastern Group's tariffs must be reduced by a further 3%, before
adjustments for inflation, beginning in April 1999.
As the franchise market is opened to competition, supply price restraints
are no longer expected to be applicable to current franchise market supply
customers. However, the DGES has indicated in his supply price restraint
proposals published in October 1997, that beginning April 1, 1998, price
regulation would be put in place for supply to all residential and small
business customers whose annual consumption is below 12,000 kWh within Eastern
Group's authorized area, and would remain in place until an adequate level of
competition is established, and, at least, until March 31, 2000.
Electricity Distribution Price Regulation -- A formula determines the
maximum average price per unit of electricity distributed (in pence per
kilowatt hour) that a REC is entitled to charge. The formula permits RECs to
retain part of their additional revenue due to increased distribution of units
and allows for a pound sterling for pound sterling increase in operating
profit for efficient operations and reduction of expenses within a review
period. The next Distribution Price Control Formula review is scheduled to be
implemented in April 2000. The DGES may reduce any such increase in operating
profit to the extent it determines it not to be a function of efficiency
savings and/or, if genuine efficiency savings have been made, it determines
that customers should benefit through lower prices in the future.
Gas -- The natural gas supply activities of Eastern Natural Gas are
principally regulated by the Director General of Gas Supply under the UK Gas
Act 1986, as amended by the UK Gas Act 1995 (Gas Acts) and by the conditions
of Eastern Natural Gas' licenses. Eastern Natural Gas currently holds a
public gas transporter's license, a gas supplier's license and a gas shipper's
license. The natural gas supply business is not subject to price regulation.
Energy Trading -- EPETL is permitted by the Financial Services Authority
under the UK Financial Services Act 1986 to deal in CfDs, including futures
and options. A subsidiary of EPETL is a joint holder of production licenses
relating to its equity interest in four North Sea natural gas fields.
COMPETITION
Generation Business -- Eastern Generation was the fourth largest
generator of electricity in the UK as of December 31, 1998, with a share of
approximately 9.4% of total UK generation capacity registered at that date.
This compares to shares of approximately 22%, 20% and 10% for National Power,
PowerGen and British Energy plc, respectively. Eastern Generation's mix of
generating plants enables it to operate in the mid-merit and base load sectors
of the market and to spread its fuel risk. The generating market will be
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affected by the outcome of the review of energy sources by the UK Government
and the regulatory review of electricity trading arrangements. Eastern
Generation cannot predict the impact of these reviews but believes it is
currently well positioned in the market.
Electricity Retailing -- Until September 1998, residential and small
business customers in all service areas could buy electricity only from the
REC authorized to supply service in the area where the customers were
located. In those areas where competition has been fully introduced, they now
are able to buy electricity from any appropriately licensed supplier, and this
will be the case for all customers once competition has been phased in
throughout the UK. This is expected to be completed by June 1999.
Second-tier suppliers who hold a Second Tier Supply License compete with one
another and with the local REC to supply customers in the competitive market.
Eastern Group competes in the competitive electricity market for
customers with over 100 kW of demand on the basis of the quality of its
customer service and by competitive pricing. In its fiscal year ended March
31, 1998, and at December 31, 1998, Eastern Group had a share of over 13% by
sales volume of this market, making it one of the leading competitive market
suppliers. The largest suppliers in this market over the same period were
PowerGen and National Power.
Eastern Group is currently the largest ex-franchise market supplier in
the UK. Competition for customers in all areas of the UK is being
progressively phased in. This process began in September 1998. The full
consequences of the phase in of competition are unpredictable, including the
extent to which new entrants who are not PES License holders will enter the
supply market, the impact of price competition, if any, and customers'
propensity to change suppliers. Eastern Group intends to continue to compete
nationally for residential and small business customers and, by December 1998,
had contracts with 200,000 of such customers outside its traditional service
area.
There is no assurance whether or not competition among suppliers of
electricity will adversely affect Eastern Group.
Natural Gas Retailing -- The gas supply market is highly competitive,
with Eastern Group's main competitors being Centrica plc and the gas marketing
arms of certain major oil companies. Further competition is provided by a
number of other electricity companies and smaller gas suppliers which are
independent of the major oil companies and which each have a minor presence in
the market.
Eastern Group intends to maintain a significant share of this market
through high-quality customer service and competitive pricing.
Customers --There are no individually significant customers upon which
the segment's business or results of operations are highly dependent.
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AUSTRALIA SEGMENT
GENERAL
Australian operations, primarily through Eastern Energy, are engaged in
the purchase, distribution, marketing and sale of electricity, primarily in
the State of Victoria, Australia. On February 24, 1999, the Company acquired
the gas retail and distribution operations of Kinetik Energy and Westar,
respectively.
<TABLE>
<CAPTION>
Australian Operating Statistics
Years Ended December 31
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
ELECTRIC ENERGY SALES (GWh)
Residential 2,468 2,410 2,386
Commercial 1,346 1,250 1,216
Industrial 1,347 1,468 1,380
Government and municipal 52 62 108
----- ----- -----
Total electric energy sales 5,213 5,190 5,090
===== ===== =====
OPERATING REVENUES (millions of dollars)
Electric
Residential $ 208 $ 223 $ 224
Commercial 88 112 109
Industrial 64 76 91
Government and municipal -- 19 23
Other 79 59 27
----- ----- -----
Total Operating Revenues $ 439 $ 489 $ 474
===== ===== =====
ELECTRIC CUSTOMERS (end of year - in thousands) 500 489 481
</TABLE>
TU Australia, through its principal subsidiary, Eastern Energy,
purchases, distributes and retails electricity to approximately 500,000
customers in a 31,000 square mile network region primarily in the State of
Victoria, Australia. The distribution service area encompasses three of the
four fastest-growing suburban areas in Melbourne's region with almost 60
percent of customers living in suburban Melbourne, Australia's second-largest
city. TU Australia operates a number of other subsidiary companies, which
complement Eastern Energy. Enetech provides infrastructure construction and
maintenance capability, servicing electricity, water, telecommunications and
transport utilities. Global Customer Solutions provides call center, billing
and credit collection services to Eastern Energy and external customers,
including a number of local government districts. TU Australia has also
recently acquired the rights to construct and operate an underground gas
storage facility, Western Underground Storage, which will supply gas into
Melbourne and western Victoria. This will be the first underground gas storage
facility in Australia. The gas facility is expected to commence operations in
mid-1999.
Eastern Energy is the holder of an Electricity Distribution License,
which provides a right to distribute electricity within a defined geographical
area in accordance with a set of conditions that attach to the license.
Eastern Energy also holds a franchise to sell electricity to retail customers
with electricity loads of less than 160 MWh/year. This franchise is in
effect until January 1, 2001, at which time customers will be able to deal
with the retailer of their choice.
Energy demand is relatively stable throughout the year. Demand does
increase during the winter months of June through August, but the increase
averages only 10% above average monthly demand.
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On February 24, 1999, TU Australia acquired from the Government of
Victoria, Australia the gas retail business of Kinetik Energy, which has
approximately 400,000 gas customers, and the gas distribution operations of
Westar, which is of similar size. The purchase price was $1.0 billion which
was been principally financed through banks by the Australian holding company
for the Company's Australian operations. A portion of the financing was
provided by a six-month subordinated credit facility guaranteed by the
Company. Westar/Kinetik Energy revenues for the year ended June 30, 1998 were
$167 million.
Purchased Power -- In the eastern Australia electricity supply industry,
generators are required to offer all of their energy output for sale through
the wholesale market. The two major components of the wholesale market are
(i) the competitive energy market, centered around a trading pool, which
covers the sale of electricity by generators to retailers and large customers,
and (ii) contract trade, involving bilateral financial contracts between
buyers and sellers of electricity outside the Pool. Eastern Energy and other
distribution and retail companies in the State of Victoria, Australia purchase
their electric energy needs from the competitive power pool owned and operated
by the Victorian government. A full national market commenced in 1998 among
the participants in the States of New South Wales, Victoria, Queensland, South
Australia and the Australian Capital Territory, and is operated by a
corporation owned by the governments of those jurisdictions. Because the spot
price of electric energy from the pool can vary substantially from time to
time, 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
Operations and Note 10 to Consolidated Financial Statements included in
Appendix A to this report).
REGULATION AND RATES
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
determine if it will be effective for the period commencing January 1, 2001.
Rates charged to non-franchise customers by Eastern Energy and the other
distribution companies are subject to competitive forces and are not directly
regulated by the ORG, although certain network tariff components of such rates
are subject to regulation.
COMPETITION
Retail Electric Market -- The energy supply franchise portion of Eastern
Energy's business is gradually being exposed to competition through a phase-in
of rules permitting customers to choose their energy supplier. This phase-in
is by customer class and is expected to be completed 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. Eastern Energy similarly can supply electric energy to such
customers in other territories by utilizing the distribution networks of the
distribution companies in those service territories. To date, this phase-in
has resulted in some loss of energy sales an reduced margins. Though Eastern
Energy expects significant competition in the fully contestable energy retail
market, it cannot predict the ultimate outcome of this process.
Eastern Energy is the holder of retail licenses to sell electricity in
Victoria and New South Wales. Under the terms of the licenses, Eastern Energy
is required to comply with a set of Pool Rules in each State established by
the Victorian Power Exchange (VPX)/National Electricity Market Management
Company (NEMMCO) and Transgrid respectively. The Pool Rules require Eastern
Energy to provide bank guarantees for amounts of $25 million and $0.6 million
to protect VPX/NEMMCO and Transgrid, respectively, from financial loss arising
from a default by Eastern Energy.
Customers -- There are no individually significant customers upon which
the segment's business or results of operations are highly dependent.
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OTHER BUSINESSES
GENERAL
Other business operations consist of telecommunications, retail energy
services, international gas operations, power development and other energy
development activities. None of these operations is of significant magnitude
to constitute a segment. The telecommunication business operations are the
most significant business within this group.
REGULATION AND RATES
LCC is not subject to direct rate or service regulation. However, its
affiliates, LCTX and 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 such
services are subject to competition from a large number of interexchange
long-distance service providers.
COMPETITION
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 WorldCom. While monitored by regulatory
authorities, rates for these long-distance services are largely market based
and essentially have been 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 for
handling 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.
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.
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ENVIRONMENTAL MATTERS
The Company and TU Electric
US SEGMENTS
The Company and its US subsidiaries 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 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 built 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 necessary from time to time in order for TU Electric to
maintain compliance with these standards at these units. With these occasional
reduced loads, TU Electric has achieved and continues to achieve material
compliance with the Clean Air Acts' emission 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 requires 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 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, material compliance with the applicable Phase II sulfur dioxide
requirements is not expected to have a significant impact on TU Electric.
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.
TU Electric's generating units meet the nitrogen oxide (NOx) limits
currently required by the Clean Air Act. The TNRCC and the EPA have proposed
rules that will require NOx emission reductions at TU Electric's generating
units in the Dallas-Fort Worth area. 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
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ozone and 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 and TU Electric are unable to predict whether the
Kyoto Protocol will be ratified by the United States Senate and to what
extent, if any, such protocol might impact TU Electric, the Company and its
subsidiaries.
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.
In October 1998, TU Electric committed to voluntary permitting of certain
facilities. It is likely that additional proposed legislation will be
introduced during the 1999 session of the Texas legislature that will more
specifically define elements of a voluntary permitting program for these
facilities. 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 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 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 probably
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. 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. The Company and TU Electric currently
believe, 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 and TU Electric'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 domestic facilities. The
companies' 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 probably satisfy the requirements necessary to obtain
any required permits or renewals.
Other -- Diversion, impoundment and withdrawal of water for cooling and
other purposes are subject to the jurisdiction of the TNRCC. US Electric
segment companies 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
35
<PAGE>
<PAGE>
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 companies'
facilities. The Company and certain subsidiaries have registered solid waste
disposal sites and have 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 begins in 1999.
TU Electric
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 has agreed
to a compact with the States of Maine and Vermont for a disposal facility that
would be located in Texas. That compact was ratified by Congress and signed
by the President in 1998. The State of Texas has proposed to license a
disposal site in Hudspeth County, Texas, but in October 1998 the TNRCC denied
that license application. No appeal was taken from the denial of the license
application, and that denial is now final. The nature and extent of future
efforts by the State of Texas to provide for a disposal site are presently
uncertain. TU Electric will continue to ship low-level waste material
off-site for as long as an alternative disposal site is available. Should
existing off-site disposal become unavailable, the low-level waste material
will be stored on-site. TU Electric's on-site storage capacity is expected to
be adequate until other off-site facilities become available.
The Company
UK/EUROPE
Eastern Group's businesses are subject to numerous regulatory
requirements with respect to the protection of the environment. The
electricity generation industry in the UK is subject to a framework of
national and EU environmental laws which regulate the construction, operation
and decommissioning of power stations. Under these laws, each power station
operated by Eastern Group is required to have an authorization which regulates
its releases into the environment and seeks to minimize pollution of the
environment taken as a whole, having regard to the best available techniques
not entailing excessive cost. The principal laws that have environmental
implications for Eastern Group are the Electricity Act, the UK Environmental
Protection Act of 1990 and the UK Environment Act of 1995. Eastern Group is
in material compliance with such laws.
AUSTRALIA
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.
TU Australia has carried forward provisions totaling $3.9 million in the
1998 financial statements to cover estimated environmental liabilities. These
liabilities were identified during an independent audit. Liabilities include
the management of hazardous materials and waste, noise and visual pollution
and soil contamination present within the distribution network.
36
<PAGE>
<PAGE>
Item 2. PROPERTIES
PROPERTIES
The Company and TU Electric
GENERAL
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 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. The Company does not directly own utility plant
or real property.
US ELECTRIC
At December 31, 1998, TU Electric owned or leased and operated the
following generating units:
<TABLE>
<CAPTION>
Net
Electric Generating
Generating Capability
Units Fuel Source (MW) Percent
----- ---------------------- -------- -------
<S> <C> <C> <C>
54 Natural Gas/Oil (a) 11,980 56.9
9 Lignite/Coal 5,825 27.6
2 Nuclear 2,300 10.9
15 Combustion Turbines (b) 975 4.6
------ -----
Total 21,080 100.0
====== =====
<FN>
(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.
</FN>
</TABLE>
The principal generating facilities of TU Electric and load centers of TU
Electric and SESCO are connected by 3,863 circuit miles of 345kV transmission
lines and 9,327 circuit miles of 138kV and 69kV transmission lines.
TU Electric is connected by six 345kV lines to Houston Lighting & Power
Company; by three 345kV, eight 138kV and nine 69kV lines to West Texas
Utilities Company; by two 345kV and eight 138kV lines to the Lower Colorado
River Authority; by four 345kV and eight 138kV 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 138kV lines,
ten 69kV lines and three lines at distribution voltage. TU Electric and
SESCO are members of ERCOT.
37
<PAGE>
<PAGE>
The Company
US GAS
At December 31, 1998, 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 76,000. 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, 1998, EPI had interests in 15 processing
plants, 10 of which were wholly owned, and operated approximately 1,700 miles
of gathering lines. At December 31, 1998, Lone Star Gas operated over 24,000
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
other affiliates of the Company. In addition, ENSERCH owns a 21-story,
400,000 square-foot building in Houston. This building is leased, primarily to
non-affiliated parties.
UK/EUROPE
Eastern Generation is the fourth largest generator of electricity in the
UK. Its share of total UK generating capacity is approximately 9.4%. It
currently owns, operates or has an interest in eight power stations in the
UK. It also has a controlling interest in Nedalo, the largest supplier of
less than one MW (electrical) CHP plants in the UK, and has recently acquired
two additional CHP plants. It also has a controlling interest in Teplarny
Brno a.s., a heating and generation company in the Czech Republic.
Further information on Eastern Group's interests in power stations in the
UK is set out in the following table and discussed further below:
<TABLE>
<CAPTION>
Net
Electric Generating
Generating Capability
Plants Fuel Source (MW)(a) Percent
------ ---------------------------------- ------- -------
<S> <C> <C> <C>
5 Coal - fired 5,949 87.1
3 Combined cycle gas turbines (CCGT)(b) 835 12.2
2 Combined heat and power plant (CHP) 46 .7
----- -----
Total 6,830 100.0
===== =====
<FN>
(a) In all cases, installed generating capacity is equal to registered
generating capacity except for two units, which have registered generating
capacities of 405 MW and 380 MW, respectively, but installed generating
capacities of 360 MW and 340 MW, respectively..
(b) Includes Eastern Group's approximately 13.5% interest (135 MW)
in a 1,000 MW plant.
</FN>
</TABLE>
Eastern Group's current portfolio of power stations is predominantly a
mix of CCGT and coal-fired stations. It represents both base load plants,
which run throughout most of the year, and mid-merit plants, which run in high
demand periods. Eastern Group's portfolio of power stations provides
flexibility in managing the price and volume risks of its sales portfolios and
has enabled Eastern Group to diversify its fuel supply risk.
As of March 31, 1998 (the latest available date), Eastern Group's
electricity distribution system network, excluding service connections to
consumers, included overhead lines and underground cables at the operating
voltage levels indicated: 132kV - 2,561 kilometers (km); 33kV - 6,320 km, 11kV
- - 35,864 km; and other voltages - 44,558 km.
38
<PAGE>
<PAGE>
AUSTRALIA
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.
OTHER
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. TU Properties entered into a tenant agreement with TU
Services on behalf of the other subsidiary companies that allows them to
occupy certain office space in Energy Plaza at market rates in effect when the
agreements were entered into.
LCC and its affiliates provide a full range of telecommunications
services over a variety of state of the art facilities. As of December 31,
1998, LCC's local exchange affiliate, LCTX, provided service to over 105,000
access lines and almost 91,000 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 three rural service areas.
CAPITAL EXPENDITURES
The capital expenditures of the Company were $1.2 billion in 1998 and are
estimated at $1.3 billion for 1999. Approximately 50% will be spent on US
electric and gas operations, approximately 35% on operations in the UK and
continental Europe, and approximately 15% on operations in Australia,
communications and other activities.
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
- - US Electric Segment-Electricity Peak Load and Generation Capability.)
The Company will pursue 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.
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.
39
<PAGE>
<PAGE>
Item 3. LEGAL PROCEEDINGS
The Company
The Company and its subsidiaries are party to lawsuits arising in the
ordinary course of their 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.
UK -- In February 1997, the official government representative of
pensioners in the UK (Pensions Ombudsman) made final determinations against
National Grid and its group trustees with respect to complaints by two
pensioners in National Grid's section of the Electricity Supply Pension Scheme
(ESPS) relating to the use of the pension fund surplus resulting from the
March 31, 1992 actuarial valuation of the National Grid section to meet
certain costs arising from the payment of pensions on early retirement upon
reorganization or downsizing. These determinations were set aside by the High
Court on June 10, 1997, and the arrangements made by National Grid and its
group trustees in dealing with the surplus were confirmed. The two pensioners
appealed this decision, and judgment has now been received although a final
order is awaited. The appeal endorsed the Pensions Ombudsman's determination
that the corporation was not entitled to unilaterally deal with any surplus.
If a similar action were to be made against Eastern Group in relation to its
use of actuarial surplus in its section of the ESPS, it would vigorously
defend the action, ultimately through the courts. However, if a determination
were finally to be made against it and upheld in the courts, Eastern Group
could have a potential liability to repay to its section of the ESPS an amount
estimated by Eastern Group to be up to $165 million (exclusive of any
applicable interest charges).
On January 25, 1999, the Hindusthan Development Corporation issued
proceedings in the Arbitral Tribunal in Delhi against TEG claiming damages for
breach of contract following the termination of a Joint Development Agreement
dated March 20, 1997 relating to the construction, development and operation
of a lignite based thermal power plant at Barsingsar, Rajasthan. TEG's
successor is vigorously defending this claim.
In November 1998, five suits were filed against subsidiaries of Eastern
Group by five of their former sales agencies. The agencies claim a total
104 million pounds ($172 million) and arise from the summary termination for
the claimed fundamental breach of their respective contracts in April 1998.
The five agencies are claiming damages for failure to give reasonable notice
and for compensation under the UK Commercial Agents Regulations 1994. These
actions are all being defended strenuously, and counterclaims are being
prepared. The Company cannot predict the outcome of these claims and counter
claims.
US -- In August 1998, the Gracy Fund, L.P. (Gracy Fund) filed suit in the
United States District Court for the Northern District of Texas against EEX
Corporation, formerly Enserch Exploration, Inc. (EEX), the Company, David W.
Biegler, Gary J. Junco, Erle Nye, Thomas Hamilton and J. Phillip McCormick.
The Gracy Fund sought to represent a class comprised of all purchasers of the
common stock of ENSERCH or EEX between January 26, 1996 and August 4, 1997,
including former shareholders of ENSERCH who received shares of EEX and the
Company pursuant to the merger agreement between ENSERCH and the Company dated
April 13, 1996, all EEX shareholders solicited pursuant to a proxy
statement/prospectus issued by EEX dated October 2, 1996 and all ENSERCH
shareholders solicited by a joint proxy statement/prospectus issued by ENSERCH
and the Company dated September 23, 1996. The Gracy Fund alleged that the
defendants participated in a fraudulent scheme and course of business by
disseminating materially false and misleading statements regarding EEX's and
ENSERCH's business, which allegedly caused the plaintiffs and other members of
the class to purchase EEX and ENSERCH stock at artificially inflated prices.
In such connection, the plaintiffs alleged that the defendants violated
various provisions of the Securities Act of 1933 (Securities Act) and the
Securities and Exchange Act of 1934 (Exchange Act).
Also in August 1998, Stan C. Thorne (Thorne) filed suit in the United
States District Court for the Southern District of Texas against EEX, ENSERCH,
DeGolyer & MacNaughton, David W. Biegler, Gary J. Junco, Fredrick S. Addy and
B. K. Irani. Thorne sought to represent a class comprised of all purchasers
40
<PAGE>
<PAGE>
of the common stock of EEX during the period of August 3, 1995 through August
5, 1997. Thorne alleged that the defendants engaged in a course of conduct
designed to mislead the plaintiff and investing public in order to maintain
the price of EEX common stock at artificially high levels through false and
misleading representations concerning the gas reserves of EEX in violation of
Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder.
Thorne also alleged that the defendants were negligent in making such
misrepresentations and that they constituted common law fraud against the
defendants.
In December 1998, the United States District Court for the Northern
District of Texas issued an Order in Cause No. 3-98-CV-1808-G consolidating
the Gracy Fund and the Thorne suits (the Consolidated Action). On January 22,
1999, the Gracy Fund, et al filed an amended class action complaint in the
Consolidated Action against EEX, ENSERCH, David W. Biegler, Gary J. Junco,
Thomas Hamilton, J. Philip McCormick, Fredrick S. Addy and B. K. Irani. The
Company and Erle Nye were omitted as defendants pursuant to a tolling
agreement. The individual-named defendants in the amended complaint are
current or former officers and/or directors of EEX, and Mr. Biegler has been
an officer and director of ENSERCH. The amended complaint alleges violations
of provisions of the Securities Act and the Exchange Act. The state law
claims alleged in the Thorne case have been omitted. The class period was
amended to include those persons acquiring stock of ENSERCH and/or EEX between
August 3, 1995 and August 5, 1997, inclusive. No amount of damages has been
specified in the Consolidated Action. The Company is continuing to evaluate
these claims and is unable at this time to predict the outcome of this
proceeding, but it intends to vigorously defend this suit.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company and TU Electric
None.
41
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS OF THE COMPANY
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, 1999) May 14, 1999) (Preceding Five Years)
- --------------- --- ---------------------- --------------------- --------------------------
<S> <C> <C> <C> <C>
Erle Nye 61 Chairman of the Board May 23, 1997 Chairman ofthe Board and
Chief Executive Chief Executive of the
and Director Company, TU Electric and
ENSERCH; prior thereto,
President and Chief Executive
ofthe Company and Chairman
ofthe Board and Chief
Executive of TU Electric.
David W. Biegler 52 President and Chief August 5, 1997 President and Chief Operating
Operating Officer Officer of the Company, TU
Electric and ENSERCH;
prior thereto, Chairman,
President and Chief
Executive Officer of
ENSERCH.
H. Jarrell Gibbs 61 Vice Chairman of August 5, 1997 Vice Chairman of the Board of
the Board Company and ENSERCH; prior
thereto, President of TU Electric,
prior thereto, Vice President and
and Principal Financial Officer
of the Company.
Michael J. McNally 44 Executive Vice President May 23, 1997 Executive Vice President and Chief
and Chief Financial Officer 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.
</TABLE>
There is no family relationship between any of the above-named Executive
Officers.
42
<PAGE>
<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 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
Price Range Dividends Paid
-------------------------------------------- ---------------
Quarter Ended 1998 1997 1998 1997
- ------------- -------------------- -------------------- ------ ------
High Low High Low
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
March 31 $42.6250 $38.8125 $42.0000 $33.7500 $0.55 $0.525
June 30 42.1250 38.3750 37.0000 31.5000 0.55 0.525
September 30 47.1250 38.4375 36.1875 33.5000 0.55 0.525
December 31 48.0625 43.0000 41.8125 34.1875 0.55 0.525
----- ------
$2.20 $2.100
===== ======
</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 1999 meeting, declared a quarterly
dividend of $0.575 a share, payable April 1, 1999 to shareholders of record on
March 5, 1999. For information concerning the Company's dividend policy, see
Management's Discussion and Analysis of Financial Condition and Results of
Operations 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 6 to Consolidated Financial Statements included in Appendix A to this
report regarding limitations upon payment of dividends on common stock of TU
Electric and Eastern Group.
The number of record holders of the common stock of the Company as of
March 19, 1999 was 87,524.
TU Electric
All of TU Electric's common stock is owned by the Company. Reference is
made to Note 6 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.
43
<PAGE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 Operations 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 Operations 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 Comprehensive
Income, Statements of Consolidated Cash Flows, Consolidated Balance Sheets,
Statements of Consolidated Common Stock Equity and Notes to Consolidated
Financial Statements as included for each company 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.
44
<PAGE>
<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 to be filed by the Company with
the Commission on or about April 5, 1999. 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 as Present Principal Occupation or
With TU Electric Director Employment and Principal
(Current Term Expires (Current Term Expires Business (Preceding Five Years),
Name of Director Age in May, 1999) in May, 1999) Other Directorships
- ---------------- ---- ----------------------- --------------------- --------------------------------------
<S> <C> <C> <C> <C>
T. L. Baker 53 President, Electric February 20, 1987 President, Electric Service Division of
Service Division TU Electric, Lone Star Gas and
Southwestern Electric Service Company;
prior thereto,
Executive Vice President of TU
Electric; prior thereto, Senior
Vice President of TU Electric.
David W. Biegler 52 President and Chief August 29, 1997 President and Chief Operating Officer
Operating Officer of the Company, TU Electric
and ENSERCH; prior thereto,
Chairman, President and Chief
Executive Officer of
ENSERCH; other directorships:
ENSERCH, Chase Bank of
Texas N.A. and Trinity
Industries, Inc. (railcars,
construction materials and industrial
equipment)
Barbara B. Curry 44 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 53 President, Transmission May 27, 1997 President, Transmission Division of TU
Division Electric; prior thereto,
Executive Vice President of
Fuel Company and Mining
Company.
</TABLE>
45
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Other Positions and
Offices Presently Held Date First Elected as Present Principal Occupation or
With TU Electric Director Employment and Principal
(Current Term Expires (Current Term Expires Business (Preceding Five Years),
Name of Director Age in May, 1999) in May, 1999) Other Directorships
- ---------------- ---- ----------------------- --------------------- -------------------------------------
<S> <C> <C> <C> <C>
Michael J. McNally 44 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 61 Chairman of the Board September 17, 1982 Chairman of the Board and Chief
and Chief Executive Executive of the 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 56 President, Generation May 20, 1986 President, Generation Division of TU
Division Electric and Executive Vice
President of Mining Company;
prior thereto, Executive Vice
President of TU Electric.
</TABLE>
Directors of TU Electric receive no compensation in their capacity as
Directors of TU Electric.
46
<PAGE>
<PAGE>
Identification of Executive Officers and business experience:
<TABLE>
<CAPTION>
Positions and Offices Date First Elected to
Presently Held Present Office
(Current Term Expires (Current Term Expires Business Experience
Name of Officer Age in May, 1999) in May, 1999) (Preceding Five Years)
- ---------------- ---- ----------------------- --------------------- --------------------------------------
<S> <C> <C> <C> <C>
Erle Nye 61 Chairman of the Board February 20, 1987 Chairman of the Board and Chief
and Chief Executive Executive of the 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 52 President and Chief January 1, 1998 President and Chief Operating Officer
Operating Officer of the Company, TU Electric
and ENSERCH; prior thereto
Chairman, President and Chief
Executive Officer of
ENSERCH.
T. L. Baker 53 President, Electric February 16, 1996 President, Electric Service Division of
Service Division TU Electric, Lone Star Gas and
Southwestern Electric Service
Company; prior thereto,
Executive Vice President of TU
Electric; prior thereto, Senior
Vice President of TU Electric.
M. S. Greene 53 President, Transmission May 27, 1997 President, Transmission Division of TU
Division Electric; prior thereto,
Executive Vice President of
Fuel Company and Mining
Company.
W. M. Taylor 56 President, Generation February 16, 1996 President, Generation Division of TU
Division Electric and Executive Vice
President of Mining Company;
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 of shares of
TU Electric have been timely filed.
47
<PAGE>
<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 to be filed by the
Company with the Commission on or about April 5, 1999.
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
Long-Term Compensation (4)
-----------------------------------
Annual Compensation Awards Payouts
--------------------------------- ------------------------ --------
Other Restricted Securities All Othe
Annual Stock Underlying LTIP Compen-
Name and Salary Bonus Compen- Awards Options/ Payouts sation
Principal Position Year ($) ($) (3) sation ($) ($) SARs (#) ($) ($) (5)
------------------------- ----- -------- -------- ---------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Erle Nye, 1998 818,750 350,000 - 541,250 - 19,674 156,906
Chairman of the Board 1997 760,417 325,000 - 499,375 - 23,928 143,963
and Chief Executive of 1996 723,333 185,000 - 351,500 - 0 117,908
the Company and
TU Electric (1)
David W. Biegler, 1998 617,500 102,500 - 244,250 - 0 174,208
President and Chief 1997 245,833 0 - 0 - 0 0
Operating Officer of 1996 0 0 - 0 - 0 0
the Company and
TU Electric (2)
W. M. Taylor, 1998 360,500 75,000 - 157,800 - 7,733 63,421
President, Generation 1997 339,583 83,000 - 161,750 - 9,343 59,948
Division - TU Electric 1996 312,500 83,500 - 156,625 - 0 49,530
T. L. Baker, 1998 323,083 60,000 - 135,600 - 8,212 62,011
President, Electric 1997 294,583 71,000 - 139,625 - 10,619 56,603
Service Division - 1996 275,833 60,500 - 123,500 - 0 46,319
TU Electric
M. S. Greene, 1998 245,833 50,000 - 106,250 - 5,645 45,875
President, Transmission 1997 233,750 53,000 - 107,000 - 6,609 40,668
Division - TU Electric 1996 220,833 45,000 - 95,625 - 0 34,750
</TABLE>
(1) Amounts reported in the table for Mr. Nye consist entirely of
compensation paid by the Company.
(2) Mr. Biegler was elected to his current position with TU Electric
effective January 1, 1998; compensation amounts represent compensation
paid by the Company.
(3) 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 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
48
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<PAGE>
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 (4).
(4) Amounts reported as Long-Term Compensation in the Summary Compensation
Table 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.
Salary deferred under the DICP is included in amounts reported as salary in
the Summary Compensation Table. 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 value 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, 1998 (each of which is equal to one share of common stock) held
in the DICP accounts for Messrs. Nye, Biegler, Taylor, Baker and Greene were
46,827 ($2,186,236), 5,895 ($275,223), 16,724 ($780,802), 14,357 ($670,292)
and 11,161 ($521,079), 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, 1998 held for Messrs. Nye, Biegler, Taylor, Baker and Greene
were 46,441 ($2,168,214), 7,177 ($335,076), 8,443 ($394,183), 9,529
($444,885), and -0- ($-0-), respectively.
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
1998 and the number of shares awarded under the LTICP:
49
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
Deferred and Incentive
Compensation Plan Long-Term Incentive Compensation Plan
------------------------------ -----------------------------------------------------------
Number of Performance or Performance or
Shares, Other Period Number of Other Period Estimated Future Payouts
Units or Until Shares, Units Until ------------------------
Other Rights Maturation or Other Maturation or Minimum Maximum
Name (#) or Payout Rights (#) Payout (#) (#)
- ------------------ ------------ ------------- ------------- ------------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Erle Nye 3,041 5 Years 22,000 3 Years 0 44,000
David W. Biegler 2,254 5 Years 7,000 3 Years 0 14,000
W. M. Taylor 1,316 5 Years 4,000 3 Years 0 8,000
T. L. Baker 1,202 5 Years 4,000 3 Years 0 8,000
M. S. Greene 894 5 Years 0 - 0 0
</TABLE>
The amounts reported under LTIP Payouts in the Summary Compensation Table
represent payouts maturing during such years of earnings on deferred salary
under the DICP in prior years.
(5) Amounts reported as All Other Compensation in the Summary Compensation
Table 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 of 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 contributions 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 contributions. 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, Biegler, Taylor, Baker and Greene amounted to $5,760, $3,840,
$5,760, $5,760 and $5,760, respectively, during 1998.
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 ($96,370 for the
Program Year beginning April 1, 1998) may elect to defer a percentage of
annual base salary, or any bonus or other special cash compensation for a
period of seven years, for a period ending with the retirement of such
employee, or for a combination thereof. Effective with the Program Year
beginning April 1, 1998, such deferrals may be up to a maximum of 50% of the
employee's annual salary and/or 100% of the employee's bonus or other special
cash compensation. The Company makes a matching award, subject to forfeiture
under certain circumstances, equal to 100% of up to the first 8% of salary
deferred under the Program. Prior to April 1, 1998, deferrals under the
Program were limited to up to 10% of the employee's salary and the Company
made a matching award equal to 100% of the employee's salary deferral. Salary
and bonuses deferred under the Program are included in amounts reported under
Salary and Bonus, respectively, in the Summary Compensation Table. Deferrals
made after April 1, 1998, are credited with earnings or losses based on the
performance of investment alternatives selected by each participant.
Deferrals made prior to April 1, 1998, are, at the end of the applicable
maturity period, credited with the greater of the actual earnings of the
Program assets, or the average yield during the applicable maturity period of
U.S. Treasury Notes having a maturity of ten years. At the end of the
applicable maturity period, the trustee for the Program distributes the
deferrals and the applicable earnings in cash. The distribution is in a lump
sum if the applicable maturity period is seven years. If the retirement
50
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<PAGE>
option is elected, the distribution is made in twenty annual installments.
Individuals who were participating in the Program on March 31, 1998, were
given a one time opportunity to elect (1) to continue to have the provisions
of the Program relating to permitted deferrals, matching awards, investments
and calculation of earnings in effect prior to April 1, 1998, apply to their
future Program participation; or (2) to have the Program provisions relating
to investments and calculation of earnings apply to their entire Program
account, including deferrals and matching contributions which had been made
prior to April 1, 1998. 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
1998, matching awards, which are included under All Other Compensation in the
Summary Compensation Table, were made for Messrs. Nye, Biegler, Taylor, Baker
and Greene in the amounts of $69,375, $37,400, $30,590, $27,372 and $24,583,
respectively.
Under the Company's Split-Dollar Life Insurance Program (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 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 1998, the economic benefit derived by Messrs. Nye,
Biegler, Taylor, 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 $81,771, $7,968, $27,071, $28,879 and $15,532,
respectively.
In connection with the acquisition of ENSERCH, the Company entered into an
employment agreement with Mr. Biegler which provides for a minimum annual
salary of $600,000, minimum annual cash incentive compensation for 1997 of
$330,000 and certain severance benefits. In accordance with the agreement, a
supplemental incentive compensation payment of $125,000 was made to Mr.
Biegler and is included under All Other Compensation in the Summary
Compensation Table. The agreement terminates in August 1999.
As a part of the ENSERCH acquisition, options to purchase the common
stock of ENSERCH which had been granted to various employees of ENSERCH were
converted into options to acquire common shares of the Company. The table
below shows, for each of the named officers, the information specified with
respect to exercised, exercisable and unexercisable options under all existing
stock option plans, converted into shares of the Company's common stock into
which such options became exercisable at the time of the ENSERCH
acquisition.
51
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options at Options at
Acquired on Value December 31, 1998 December 31, 1998
Exercise Realized (#) ($)
--------------------------- ----------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- ---------------- ------------ -------- ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Erle Nye 0 0 0 0 0 0
David W. Biegler 26,555 314,033 129,778 0 2,907,112 0
W. M. Taylor 0 0 0 0 0 0
T. L. Baker 0 0 0 0 0 0
M. S. Greene 0 0 0 0 0 0
</TABLE>
The Company and its subsidiaries maintain retirement plans (TU Retirement
Plan) which are qualified under applicable provisions of the Internal Revenue
Code of 1986, as amended (Code). Annual retirement benefits under the
traditional defined benefit formula of the TU Retirement Plan, which applied
to each of the named officers, are computed as follows: for each year of
accredited service up to a total of 40 years, 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 TU Retirement Plan without regard to any
limitations imposed by the Code. Benefits paid under the TU Retirement Plan
are not subject to any reduction for Social Security payments but are limited
by provisions of the Code. As of February 28, 1999, years of accredited
service under the TU Retirement Plan for Messrs. Nye, Biegler, Taylor, Baker
and Greene were 36, 1, 31, 28 and 28, respectively.
<TABLE>
<CAPTION>
TEXAS UTILITIES PENSION PLAN TABLE
Years of Service
--------------------------------------------------------------------------
Remuneration 20 25 30 35 40
- ------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$ 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
1,800,000 539,688 674,610 809,532 944,454 1,079,376
</TABLE>
Before the ENSERCH acquisition, Mr. Biegler earned retirement benefits
under the Retirement and Death Benefit Program of 1969 of ENSERCH Corporation
and Participating Subsidiary Companies (ENSERCH Retirement Plan) which was
merged into, and became a part of, the TU Retirement Plan effective December
31, 1997. In connection with this plan merger, the TU Retirement Plan was
amended to provide that the retirement benefit of employees who were employed
by ENSERCH Corporation or one of its subsidiaries participating in the ENSERCH
Retirement Plan on August 5, 1997, and as of the last full pay period of 1997,
will equal the sum of (1) their accrued benefit under the ENSERCH Retirement
Plan through the last pay period of 1997 and (2) their accrued benefit under
the TU Retirement Plan beginning with the first pay period of 1998; provided
that the aggregate retirement benefit earned under the traditional defined
benefit plan formula of the plans can be no less than the retirement benefit
52
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<PAGE>
which would have been earned had they remained under the ENSERCH Retirement
Plan for their entire careers. Mr. Biegler, whose employment with the Company
began August 5, 1997, is treated in a similar manner. Amounts reported for
Mr. Biegler under Salary and Bonus in the Summary Compensation Table
approximate earnings as defined by the ENSERCH Retirement Plan without regard
to any limitations imposed by the Code. As of February 28, 1999, Mr. Biegler
had 30 years of accredited service under the ENSERCH Retirement Plan.
<TABLE>
<CAPTION>
ENSERCH PENSION PLAN TABLE
Years of Service
-----------------------------------------------------------------------------------------
Remuneration 20 25 30 35 40 45
- ------------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 $ 12,831 $ 16,039 $ 19,246 $ 22,454 $ 23,704 $ 24,954
100,000 30,331 37,914 45,496 53,079 55,579 58,079
200,000 65,331 81,664 97,996 114,329 119,329 124,329
400,000 135,331 169,164 202,996 236,829 246,829 256,829
800,000 275,331 344,164 412,996 481,829 501,829 521,829
1,000,000 345,331 431,164 517,996 604,329 629,329 654,329
1,400,000 485,331 606,164 727,996 849,329 884,329 919,329
1,800,000 625,331 781,164 937,996 1,094,329 1,139,329 1,184,329
</TABLE>
The Company's supplemental retirement plans (Supplemental Plan) provide
for the payment of retirement benefits which would otherwise be limited by the
Code or the definition of earnings in the TU Retirement Plan or the ENSERCH
Retirement Plan, as applicable. Under the Supplemental Plan, retirement
benefits are calculated in accordance with the same formula used under the
applicable qualified plan, except that, with respect to calculating the
portion of the Supplemental Plan benefit attributable to service under the TU
Retirement Plan, earnings also include AIP awards (50% of the AIP award is
reported under Bonus for the named officers in the Summary Compensation
Table). The tables set forth above illustrate the total annual benefit payable
at retirement under the TU Retirement Plan and the ENSERCH Retirement Plan,
respectively, inclusive of benefits payable under the Supplemental Plan, prior
to any reduction for a contingent beneficiary option which may be selected by
participants.
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 to 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.
53
<PAGE>
<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 3 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 4 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 4 to the Summary Compensation Table), the opportunity to
earn an incentive award under the AIP and, in certain instances, awards of
performance-based restricted shares under the Long-Term Plan. 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, continue to constitute a substantial
percentage of the officers' total compensation.
Certain of the Company's business units have developed separate annual
and long-term incentive compensation plans. Generally those plans focus on
the results achieved by those individual business units and the compensation
opportunities provided by those plans are considered to be competitive in the
markets in which those units compete. Officers may not participate in both
the traditional incentive compensation plans as discussed herein and the
business unit plans. None of the named officers participate in the individual
business unit plans.
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
54
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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.
In establishing levels of executive compensation at its May 1998 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 were
the comparative returns provided by the largest electric and gas utilities as
represented by the returns of the Standard & Poor's Electric Utility Index
which are reflected in the graph herein. In 1997, 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, fifth in total assets,
fourth in net generating capability, sixth in number of customers and ninth 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.
At its meeting in May 1998, the Committee provided awards of
performance-based restricted stock under the Long-Term Plan 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. Awards granted in May 1998 contemplate that
200% of the original award will be provided if the Company's total return is
in the 81st percentile or above of the returns of the companies comprising the
Standard & Poor's Electric Utility Index and that such percentage of the
original award will be reduced as the Company's return compared to the Index
declines so that 0% of the original award will be provided if the Company's
return is in the 40th percentile or below of returns provided by the
companies comprising the Index. 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.
In May 1998 the Committee increased Mr. Nye's base salary as Chief
Executive to an annual rate of $850,000, representing a $75,000 or 9.7%
increase over the amount established for Mr. Nye in May of 1997. 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
$700,000 compared to the prior year's award of $650,000. 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, 1998 through March 31, 2001) 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
55
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<PAGE>
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
Derek C. Bonham (since November 1998) J. E. Oesterreicher
William M. Griffin Charles R. Perry
Kerney Laday Herbert H. Richardson
56
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PERFORMANCE GRAPH
The following graph compares the performance of the Company's common
stock to the S&P 500 Index and S&P Electric Utility Index for the last five
years. The graph assumes the investment of $100 at December 31, 1993 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.
Cumulative Total Returns
for the Five Years Ended 12/31/98
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Texas Utilities 100 81 112 117 126 150
S&P 500 Index 100 101 139 171 228 293
S&P Electric Utility Index 100 86 113 113 143 166
</TABLE>
57
<PAGE>
<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 or about April 5, 1999.
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, 1999:
<TABLE>
<CAPTION>
Amount and Nature
Name and Address of Beneficial
Title of Class of Beneficial Owner Ownership Percent of Class
- ------------------- ----------------------- ------------------- ----------------
<S> <C> <C> <C>
Common stock, Texas Utilities Company 118,714,200 shares 100.0%
without par value, Energy Plaza sole voting and
of TU Electric 1601 Bryan Street investment power
Dallas, Texas 75201
</TABLE>
Security ownership of management at February 28, 1999:
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,
1999. 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
Name Beneficially Owned Deferred Plan(2) Total
- ----------------- ------------------ ---------------- ---------
<S> <C> <C> <C>
T. L. Baker 13,321 20,700 34,021
David W. Biegler 152,867(1) 8,277 161,144
Barbara B. Curry 2,608 6,095 8,703
M. S. Greene 1,332 16,118 17,450
Michael J. McNally 33,138 17,041 50,179
Erle Nye 76,055 63,306 139,361
W. M. Taylor 20,158 23,789 43,947
------- ------- -------
All Directors and Executive
Officers as a group (7) 299,479 155,326 454,805
======= ======= =======
</TABLE>
(1) Total shares include 129,778 shares subject to stock options
exercisable within sixty days of the date of this report.
(2) 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.
58
<PAGE>
<PAGE>
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company
None.
TU Electric
None.
59
<PAGE>
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Page
----
(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 Operations A-6
Statements of Responsibility A-23
Independent Auditors' Reports A-25
The Company:
Statements of Consolidated Income for each of the
three years in the period ended December 31, 1998 A-28
Statements of Consolidated Comprehensive Income for
each of the three years in the period ended
December 31, 1998 A-29
Statements of Consolidated Cash Flows for each of the
three years in the period ended December 31, 1998 A-30
Consolidated Balance Sheets, December 31, 1998 and 1997 A-31
Statements of Consolidated Common Stock Equity for each
of the three years in the period ended
December 31, 1998 A-33
TU Electric:
Statements of Consolidated Income for each of the three
years in the period ended December 31, 1998 A-34
Statements of Consolidated Comprehensive Income for each
of the three years in the period ended December 31, 1998 A-34
Statements of Consolidated Cash Flows for each of the
three years in the period ended December 31, 1998 A-35
Consolidated Balance Sheets, December 31, 1998 and 1997 A-36
Statements of Consolidated Common Stock Equity for each
of the three years in the period ended December 31, 1998 A-38
The Company and TU Electric:
Notes to Consolidated Financial Statements A-39
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.
60
<PAGE>
<PAGE>
(b) Reports on Form 8-K:
Reports on Form 8-K filed since September 30, 1998, are as follows:
The Company
Date of Report Item Reported
----------------- --------------------
December 10, 1998 Item 5. OTHER EVENTS
The following financial information of
The Energy Group was filed: The Audited
Financial Statements as of March 31, 1998
and 1997 and for the year ended March 31,
1998, the six months ended March 31, 1997
and the two years in the period ended
September 30, 1996.
January 19, 1999 Item 5. OTHER EVENTS
TU Electric
Date of Report Item Reported
----------------- --------------------
March 17, 1999 Item 5. OTHER EVENTS
(c) Exhibits:
<TABLE>
<CAPTION>
The Company and TU Electric
Previously Filed*
------------------------
With
File As
Exhibits Number Exhibit
- --------- -------- --------
<S> <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
Form 10-Q TU Electric.
(Quarter ended
June 30, 1997)
3(d) 33-64694 4(c) - Bylaws of TU Electric, as amended.
3(e) 1-12833 1 - Rights Agreement, dated as of February 19, 1999,
Form 8-A between the Company and The Bank of New York,
(filed February which includes as Exhibit A thereto the form of
26, 1999) Statement of Resolution Establishing the
Series A Preference Stock, Exhibit B thereto
the form of a Right Certificate and Exhibit C
thereto the Summary of Rights to
Purchase Series A Preference Stock.
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:
Number Dated
------ -----------
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
</TABLE>
61
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Previously Filed*
-------------------
With
File As
Exhibits Number Exhibit Number Dated
- --------- -------- -------- -------- --------------
<S> <C> <C> <C> <C>
33-9583 4(a)-2 Eighth May 1, 1986
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)
</TABLE>
62
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Previously Filed*
--------------------------
With
File As
Exhibits Number Exhibit Number Dated
- --------- -------- -------- -------- --------------
<S> <C> <C> <C> <C>
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
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
Form 10-K and Chemical Bank,
(1993) dated as of October 14, 1993.
4(e) 0-11442 4(f) - Indenture (For Unsecured Subordinated
Form 10-K Debt Securities relating to Trust
(1995) Securities), dated as of December 1, 1995,
between TU Electric and The Bank of New
York, as Trustee.
4(f) 0-11442 4(g) - Amended and Restated Trust Agreement,
Form 10-K dated as of December 12, 1995 between
(1995) TU Electric, as Depositor, and The
Bank of New 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
Form 10-K TU Electric Capital I, dated as of
(1995) December 12, 1995, between TU Electric,
as Guarantor, and The Bank of New York,
as Trustee.
4(h) 0-11442 4(i) - Agreement as to Expenses and Liabilities,
Form 10-K dated as of December 12, 1995, between
(1995) TU Electric and TU Electric Capital I.
4(i) 0-11442 4(j) - Officer's Certificate, dated as of December 12,
Form 10-K 1995, establishing the terms of the
(1996) Junior Subordinated Debentures issued in
connection with the preferred securities
of TU Electric Capital I.
4(j) 0-11442 4(m) - Amended and Restated Trust Agreement,
Form 10-K dated as of December 13, 1995, between
(1995) TU Electric, as Depositor, and The Bank
of New York, The Bank of New York
(Delaware), and the Administrative
Trustees thereunder, as Trustees for
TU Electric Capital III.
</TABLE>
63
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Previously Filed*
--------------------------
With
File As
Exhibits Number Exhibit
- --------- -------- --------
<S> <C> <C> <C>
4(k) 0-11442 4(n) - Guarantee Agreement with respect to TU
Form 10-K Electric Capital III, dated as of
(1995) as of December 13, 1995, between TU
Electric, as Guarantor, and The Bank of
New York, as Trustee.
4(l) 0-11442 4(o) - Agreement as to Expenses and Liabilities,
Form 10-K dated as of December 13, 1995, between
(1995) TU Electric and TU Electric Capital III.
4(m) 0-11442 4(r) - Officer's Certificate, dated as of
Form 10-K December 13, 1995, establishing the terms
(1996) of the Junior subordinated Debentures
issued in connection with the preferred
securities of TU Electric Capital III.
4(n) 0-11442 4(s) - Amended and Restated Trust Agreement,
Form 10-K dated as of January 30, 1997, between
(1996) TU Electric, as Depositor, and The Bank
of New York (Delaware), and the
Administrative Trustee as thereunder,
as Trustees for TU Electric Capital IV.
4(o) 0-11442 4(t) - Guarantee Agreement with respect to
Form 10-K TU Electric Capital IV, dated as of
(1996) January 30, 1997, between TU Electric,
as Guarantor and The Bank of New York,
as Trustee.
4(p) 0-11442 4(u) - Agreement as to Expenses and Liabilities,
Form 10-K dated as of January 30, 1997, between
(1996) TU Electric and TU Electric Capital IV.
4(q) 0-11442 4(v) - Officer's Certificate, dated as of
Form 10-K January 30, 1997, establishing the terms
(1996) of the Junior Subordinated Debentures
issued in connection with the preferred
securities of TU Electric Capital IV.
4(r) 0-11442 4(w) - Amended and Restated Trust Agreement,
Form 10-K dated as of January 30, 1997, between
(1996) TU Electric, as Depositor, and The Bank of
of New York (Delaware), and the
Administrative Trustee thereunder, as
Trustees for TU Electric Capital V.
4(s) 0-11442 4(x) - Guarantee Agreement with respect to
Form 10-K TU Electric Capital V, dated as of
(1996) January 30, 1997, between TU Electric,
as Guarantor, and the Bank of New York, as Trustee.
4(t) 0-11442 4(y) - Agreement as to Expenses and Liabilities,
Form 10-K dated as of January 30, 1997, between
(1996) TU Electric and TU Electric Capital V.
4(u) 0-11442 4(z) - Officer's Certificate, dated as of
Form 10-K January 30, 1997, establishing the
(1996) terms of the Junior Subordinated Debentures
issued in connection with the preferred
securities of TU Electric Capital V.
4(v) 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(w) 333-45999 4(e) - Officers' Certificate establishing
Series A Notes.
4(x) 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).
4(y) 333-45999 4(f) - Officer's Certificate establishing
Series B Notes.
4(z) 0-12833 4(ff) - Indenture, dated January 1, 1998,
Form 10-K relating to the Company's 6.375% Series
(1997) C Senior Notes and 6.375% Series C
Exchange Notes (together, Series C Notes).
</TABLE>
64
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Previously Filed*
----------------------
With
File As
Exhibits Number Exhibit
- -------- ----- -------
<S> <C> <C>
4(aa) 0-12833 4(hh) - Officers' Certificate establishing
Form 10-K Series C Notes.
(1997)
4(bb) 0-11442 4(a) - Indenture (For Unsecured Debt
Form 10-Q Securities), dated as of August 1, 1997
(Quarter ended between TU Electric and The Bank of
Sept. 30, 1997) New York.
4(cc) 0-11442 4(b) - Officer's Certificate establishing
Form 10-Q the TU Electric 7.17% Debentures
(Quarter ended due August 1, 2007.
Sept. 30, 1997)
4(dd) 0-11422 99(a) - Officer's certificate establishing
Form 10-Q TU Electric's Floating Rate debentures
(Quarter ended due April 24, 2000.
March 31, 1998)
4(ee) 0-12833 4(kk) - Indenture (For Unsecured Debt Securities),
Form 10-K dated as of January 1, 1998,
(1997) between ENSERCH and The Bank of
New York.
4(ff) 0-12833 4(ll) - Officer's Certificate establishing the
Form 10-K ENSERCH 6 1/4 % Series A Notes due
(1997) January 1, 2003.
4(gg) 0-12833 4(mm) - Officer's Certificate establishing the
Form 10-K ENSERCH Remarketed Reset Notes
(1997) due January 1, 2008.
4(hh) 33-45688 4.2 - Indenture, dated February 15, 1992,
between ENSERCH and The First
National Bank of Chicago.
4(ii) 0-12833 4(oo) - ENSERCH 7% Note due 1999,
Form 10-K dated August 18, 1992.
(1997)
4(jj) 0-12833 4(qq) - ENSERCH 6-3/8% Note due 2004,
Form 10-K dated February 1, 1994.
(1997)
4(kk) 0-12833 4(rr) - ENSERCH 7-1/8% Note due 2005,
Form 10-K dated June 6, 1995.
(1997)
4(ll) 1-12833 4(a) - Remarketing Agreement, dated as of
Form 8-K January 30, 1998 and form of
(filed August 28, Remarketing Agreement Supplement with
1998) respect to ENSERCH Remarketed Reset Notes.
4(mm) 1-12833 4(b) - Indenture, (For Unsecured Subordinated
Form 8-K Debt Securities), dated as of June 1,
(filed August 28, 1998, between ENSERCH and The Bank
1998) of New York, as Trustee.
4(nn) 1-12833 4(c) - Officer's Certificate, dated as of July 2,
Form 8-K 1998, establishing the terms of the
(filed August 28, ENSERCH Floating Rate Junior Subordinated
1998) Debentures, issued in connection with the
preferred securities ENSERCH Capital I.
4(oo) 1-12833 4(d) - Amended and Restated Trust Agreement, dated
Form 8-K as of July 2, 1998 between ENSERCH, as
(filed August 28, Depositor, and The Bank of New York, The
1998) Bank of New York (Delaware), and the
Administrative trustees thereunder, as
Trustee.
</TABLE>
65
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Previously Filed*
-----------------------
With
File As
Exhibits Number Exhibit
- -------- ------ -------
<S> <C> <C> <C>
4(pp) 1-12833 4(e) - Guarantee Agreement with respect to
Form 8-K ENSERCH Capital I, dated as of July 2,
(filed August 28, 1998, between ENSERCH, as Guarantor,
1998) and The Bank of New York, as Trustee.
4(qq) 1-12833 4(f) - Agreement as to Expenses and Liabilities,
Form 8-K dated as of July 1, 1998, between ENSERCH
(filed August 28, and ENSERCH Capital I.
1998)
4(rr) 1-12833 4(g) - Indenture (For Unsecured Debt Securities
Form 8-K Series D and Series E), dated as of
(filed August 28, July 1, 1998, between Company and the Bank
1998) New York.
4(ss) 1-12833 4(h) - Officers' Certificate, dated July 22, 1998
Form 8-K establishing the terms of the 6.37% Series
(filed August 28, D Senior Notes and the 6.50% Series E
1998) Senior Notes.
4(tt) 1-12833 4(i) - Purchase Contract Agreement, dated as of
Form 8-K July 1, 1998, between the Company and
(filed August 28, The Bank of New York with respect to the
1998) Company's issuance of Feline PRIDES.
4(uu) 1-12833 4(j) - Pledge Agreement, dated as of July 1,
Form 8-K 1998, among the Company and
(filed August 28, The Chase Manhattan Bank and
1998) The Bank of New York with respect to the
Feline PRIDES.
4(vv) 1-12833 4(a) - Indenture, (For Unsecured Subordinated Debt
Form 8-K Securities), dated as of December 1, 1998,
(filed January 19, between the Company and The Bank of
1999) of New York, as Trustee.
4(ww) 1-12833 4(b) - Officer's Certificate, dated as of
Form 8-K December 30, 1998, establishing the terms
(filed January 19, of the Company's 7-1/4% Junior Subordinated
1999) Debentures, Series A issued in connection
with the preferred securities of TXU
Capital I.
4(xx) 1-12833 4(c) - Amended and Restated Trust Agreement,
Form 8-K dated as of December 30, 1998,
(filed January 19, between the Company, as Depositor, and
1999) The Bank of New York, The Bank of New
York (Delaware), and the Administrative
Trustees thereunder, as Trustees.
</TABLE>
66
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Previously Filed*
----------------------
With
File As
Exhibits Number Exhibit
- -------- ----- -------
<S> <C> <C> <C>
4(yy) 1-12833 4(d) - Guarantee Agreement with respect to TXU
Form 8-K Capital I, dated as of December 30, 1998,
(filed January 19, between the Company, as Guarantor,
1999) and The Bank of New York, as Trustee.
4(zz) 1-12833 4(e) - Agreement as to Expenses and Liabilities,
Form 8-K dated as of December 30, 1998,
(filed January 19, between the Company and TXU Capital I.
1999)
4(aaa) 1-12833 4(a) - Indenture, (For Unsecured Debt Securities
Form 10-Q Series F), dated as October 1, 1998,
(Quarter ended between the Company and The Bank of
September 30, 1998) New York.
4(bbb) 1-12833 4(b) - Officer's Certificate establishing the
Form 10-Q terms of the Company's Mandatory Putable/
(Quarter ended Remarketable Securities (Series F Notes).
September 30, 1998)
4(ccc) 1-12833 4(c) - Remarketing Agreement relating to the
Form 10-Q Series F Notes.
(Quarter ended
September 30, 1998)
4(ddd) 1-12833 4(d) - Indenture (For Unsecured Debt Securities
Form 10-Q Series G), dated as of October 1, 1998,
(Quarter ended between the Company and The Bank of
September 30, 1998) New York.
4(eee) 1-12833 4(e) - Officer's Certificate establishing the
Form 10-Q terms of the Company's Floating Rate
(Quarter ended Senior Notes.
September 30, 1998)
4(fff) 333-8008 and 4.1 - Indenture, dated as of October 16, 1997,
333-8008-1 among Energy Group Overseas B.V. (EGO),
The Energy Group PLC and The Bank of
New York, as Trustee.
4(ggg) 333-8008 and 4.2 - Form of 7.375% Series B Guaranteed note
333-8008-1 of EGO Due 2017.
4(hhh) 333-8008 and 4.3 - Form of 7.500% Series B Guaranteed note
333-8008-1 of EGO Due 2027.
10(a)** 1-3591 10(a) - Deferred and Incentive Compensation Plan
Form 10-Q of the Texas Utilities Company System,
(Quarter ended as amended February 20, 1998.
June 30, 1995)
10(b)** 1-3591 10(f) - Salary Deferral Program of the Texas
Form 10-Q Utilities Company System as amended
(Quarter ended February 20, 1998.
June 30, 1995)
</TABLE>
67
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Previously Filed*
--------------------------
With
File As
Exhibits Number Exhibit
<S> <C> <C> <C>
10(c)** 1-3591 10(c) - Restated Supplemental Retirement Plan
Form 10-Q for Employees of the Texas Utilities
(Quarter ended Company System, as restated effective
June 30, 1995) January 1, 1995.
10(d)** 1-3591 10(b) - Deferred Compensation Plan for Outside
Form 10-Q Directors of the Company, effective
(Quarter ended as of July 1, 1995.
June 30, 1995)
10(e)** 1-3591 10(d) - Long-Term Incentive Plan of the
Form 10-Q Texas Utilities Company System, dated as
(Quarter ended of May 19, 1995.
June 30, 1995)
10(f)** 1-3591 10(e) - Management Transition Agreement, dated
Form 10-Q as of May 19, 1995 between the Company
(Quarter ended and J.S. Farrington.
June 30, 1995)
10(g)** - Description of Compensatory Arrangement
with Derek Bonham.
10(h) - 364 Day Amended and Restated Competitive
Advance and Revolving Credit Facility
Agreement, dated as of May 28, 1998 as
amended and restated as of February 26,
1999, among Texas Utilities Company,
Texas Utilities Electric Company,
ENSERCH Corporation, Chase Bank of Texas,
National Association, as Administrative
Agent and certain banks listed therein
and The Chase Manhattan Bank, as
Competitive Advance Facility Agent
(US Facility A).
10(i) l-2833 (b)(2) - 5-Year Competitive Advance and Revolving
Schedule 14D-1 Credit Facility Agreement dated as of
(filed March 10. March 2, 1998 among Texas Utilities
1998) Company, Texas Utilities Electric Company,
ENSERCH 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
B).
10(j) l-12833 (b)(3) - Amendment No. 1, dated March 3, 1998, to
Schedule 14D-1 US Facility A and US Facility B.
(filed March 10,
1998)
10(k) 1-12833 10(a) - Facilities Agreement for Credit Facilities
Form 10-Q dated March 2, 1998, as amended through
(Quarter ended July 16, 1998, among TU Finance (No. 1)
September 30, Limited, TU Finance (No. 2) Limited,
1998) TU Acquisitions PLC and Chase Manhattan plc,
Lehman Brothers International and Merrill
Lyncy Capital Corporation as Joint Lead
Arrangers, and The Chase Manhattan Bank,
Lehman Commercial Paper Inc. and Merrill
Lynch Capital Corporation as Underwriters.
10(l) 1-12833 10(b) - Guarantee and Debenture, dated May 19,
Form 10-Q 1998, among TU Finance (No. 1) Limited and
(Quarter ended certain of its subsidiaries (as Charging
September 30, Companies) and Chase Manhattan International
1998) Limited (as Security Agent).
</TABLE>
68
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Previously Filed*
---------------------
With
File As
Exhibits Number Exhibit
- -------- ------ -------
<S> <C> <C> <C>
10(m) 1-1283310 10(c) - Share Charge, dated May 19, 1998, between
Form 10-Q TU Finance (No. 2) Holdings, Inc. (as
(Quarter ended Chargor) and Chase Manhattan International
September 30, 1998) Limited (as Security Agent).
12(a) - Computation of Ratio of Earnings to Fixed
Charges and to Fixed Charges and Preferred
Dividends 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) - Consent of Deloitte & Touche, Independent
Auditors' for the Company.
23(d) - Consent of Deloitte & Touche Independent
Auditors' for TU Electric.
23(e) - Consent of PricewaterhouseCoopers,
Independent Auditors for Eastern Group.
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,
Form 10-K between TU Electric and Texas Municipal
(1987) Power Agency.
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,
Form 10-Q Security Agreement and Mortgage, including
(Quarter ended) form of Secured Facility Bond, 1993 Series.
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.
</TABLE>
69
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Previously Filed*
---------------------
With
File As
Exhibits Number Exhibit
- -------- ------- -------
<S> <C> <C>
99(l) 0-11442 99(d) - Lease Agreement Supplement No. 6, dated
Form 10-Q as of July 1, 1993.
(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.
99(r) 0-11442 99(e) - Supplement No. 4 to the Participation
Form 10-Q Agreement, dated as of June 17, 1993.
(Quarter ended
June 30, 1993)
99(s) 0-11442 4(b) - Supplement No. 1, dated October 25, 1995,
Form 10-Q to Trust Indenture, Security Agreement and
(Quarter ended and Mortgage, dated as of December 1, 1989,
March 31, 1996) among the Owner Trustee, TU Electric and
the Indenture Trustee.
99(t) 0-11442 4(c) - Supplement No. 1, dated October 19, 1995,
Form 10-Q to Amended and Restated Participation
(Quarter ended Agreement, dated as of November 28, 1989,
March 31, 1996) among the Owner Trustee, The First National
Bank of Chicago, As Original Indenture
Trustee, the Indenture Trustee, the Owner
Participant, Mesquite Power Corporation and
TU Electric.
99(aa) 1-12833 99(a) - Facility Agreement for pound 250,000,000
Form 10-Q Revolving Credit Facility, dated May 21,
(Quarter ended 1998, among Eastern Electricity plc, and
September 30, 1998) and Chase Manhattan plc, Lehman Brothers
International and Merrill Lynch Capital
Corporation as Joint Lead Arrangers,
and The Chase Manhattan Bank, Lehman
Commercial Paper Inc. and Merrill Lynch
Capital Corporation as Underwriters.
99(bb) - Syndicated Facilities Agreement, dated
February 24, 1999, among TU Australia
Holdings (Partnership) Limited Partnership
(the Partnership), certain of its Australia
affiliates (Borrowers) and The Bank of
America National Trust and Savings
Association, Deutsche Australia Limited,
National Australia Bank Limited, Toronto
Dominion Australia Limited and the other
Banks named therein (Banks).
99(cc) - Security Trust Deed, dated February 24,
1999, among the Partnership, the Borrowers,
the Company and the Banks.
99(dd) 1-14576 3.10 - Deed of Assignment of Rents, dated as of
Form 20-F October 28, 1996,
dated January 27, among Eastern Merchant Properties Limited
1997 (EMPL), Eastern Group Finance Limited,
Barclays Bank PLC (as agent) and the banks
listed therein.
</TABLE>
70
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Previously Filed*
---------------------
With
File As
Exhibits Number Exhibit
- -------- ----- -------
<S> <C> <C> <C>
99(ee) 1-14576 3.11 - Standby Credit Facility Agreement, dated
Form 20-F, as of October 28, 1996, among EMPL and
dated January Eastern Merchant Generation Limited (EMGL)
27, 1997 (as borrowers), Eastern Group plc (Eastern)
and Eastern Generation Limited (EGL)
(as guarantors), Eastern Electricity plc (EE),
The Industrial Bank of Japan, Limited
(as arranger and agent), The Bank of Nova
Scotia, the Dai-ichi Kangyo Bank, Limited,
The Royal Bank of Scotland plc and Societe
Generale (as co-arrangers), and the
financial institutions listed therein.
99(ff) 1-14576 3.12 - Guarantee and Indemnity Deed, dated
Form 20-F, as of October 28, 1996, among Eastern,
dated January 27, EGL, EE, Barclays Bank PLC, Barclays
1997 De Zoete Wedd Limited, and the other
banks listed therein.
99(gg) 1-14576 3.13 - Deferred Premium Settlement Deed, dated
Form 20-F, as of October 28, 1996 among EPML, EMGL,
dated January 27, EE, The Industrial Bank of Japan, Limited
1997 (as arranger and agent) and the banks and
the participants listed therein.
<FN>
- ------------------------
* 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.
</FN>
</TABLE>
71
<PAGE>
<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 22, 1999 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/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/ JERRY W. PINKERTON Principal Accounting Officer
- ---------------------------------
(Jerry W. Pinkerton, Controller)
/s/ D. C. BONHAM Director
- ---------------------------------
(D. C. Bonham)
/s/ J. S. FARRINGTON Director
- ---------------------------------
(J. S. Farrington)
/s/ WILLIAM M. GRIFFIN Director March 22, 1999
- ---------------------------------
(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)
</TABLE>
72
<PAGE>
<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 22, 1999 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ ERLE NYE Principal Executive
- --------------------------------- Officer
(Erle Nye, Chairman of the
Board and Chief Executive)
/s/ KIRK R. OLIVER Principal Financial Officer
- ---------------------------------
(Kirk R. Oliver, Treasurer and
Assisitant Secretary)
/s/ JERRY W. PINKERTON Principal Accounting Officer
- ---------------------------------
(Jerry W. Pinkerton, Controller)
/s/ T. L. BAKER Director
- ---------------------------------
(T. L. Baker)
/s/ DAVID BIEGLER Director
- ---------------------------------
(David Biegler)
/s/ BARBARA B. CURRY Director March 22, 1999
- ---------------------------------
(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)
</TABLE>
73
<PAGE>
<PAGE>
Appendix A
TEXAS UTILITIES COMPANY AND SUBSIDIARIES AND
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
INDEX TO FINANCIAL INFORMATION
December 31, 1998
Page
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 Operations A-6
Statements of Responsibility A-23
Independent Auditors' Reports A-25
Financial Statements:
Texas Utilities Company and Subsidiaries:
Statements of Consolidated Income A-28
Statements of Consolidated Comprehensive Income A-29
Statements of Consolidated Cash Flows A-30
Consolidated Balance Sheets A-31
Statements of Consolidated Common Stock Equity A-33
Texas Utilities Electric Company and Subsidiaries:
Statements of Consolidated Income and Comprehensive Income A-34
Statements of Consolidated Cash Flows A-35
Consolidated Balance Sheets A-36
Statements of Consolidated Common Stock Equity A-38
Notes to Consolidated Financial Statements A-39
A-1
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
CONSOLIDATED FINANCIAL STATISTICS
Year Ended December 31,
---------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Millions of Dollars, except ratios and per share amounts)
<S> <C> <C> <C> <C> <C>
Total assets - end of year. . . . . . . . . . . . . . . . . . . . . . . . $39,514 $24,864 $21,376 $21,536 $20,893
Property, plant & equipment - gross - end of year . . . . . . . . . . . . $31,946 $26,578 $24,931 $24,912 $24,206
Accumulated depreciation and amortization - end of year . . . . . . 8,243 7,171 6,497 5,858 5,228
Reserve for regulatory disallowances - end of year. . . . . . . . . 836 836 836 1,308 1,308
Construction expenditures (including allowance for
funds used during construction). . . . . . . . . . . . . . . . 1,173 586 434 434 444
Capitalization - end of year
Long-term debt, less amounts due currently. . . . . . . . . . . . . $15,133 $8,759 $ 8,668 $ 9,175 $ 7,888
Company or subsidiary obligated, mandatorily redeemable,
preferred securities of Company or subsidiary trusts, each
holding solely junior subordinated debentures of the Company
or related subsidiary (trust securities) . . . . . . . . . . . . 1,193 875 381 381 -
Preferred stock of subsidiaries:
Not subject to mandatory redemption. . . . . . . . . . . . . . . 190 304 465 490 870
Subject to mandatory redemption. . . . . . . . . . . . . . . . . 21 21 238 263 388
Common stock equity . . . . . . . . . . . . . . . . . . . . . . . . 8,246 6,843 6,033 5,732 6,490
------- ------- ------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $24,783 $16,802 $15,785 $16,041 $15,636
======= ======= ======= ======= =======
Capitalization ratios - end of year (a)
Long-term debt, less amounts due currently. . . . . . . . . . . . . 61.1% 52.1% 54.9% 57.2% 50.5%
Trust securities. . . . . . . . . . . . . . . . . . . . . . . . . . 4.8 5.2 2.4 2.4 -
Preferred stock of subsidiaries . . . . . . . . . . . . . . . . . . .8 2.0 4.5 4.7 8.0
Common stock equity . . . . . . . . . . . . . . . . . . . . . . . . 33.3 40.7 38.2 35.7 41.5
------- ------- ------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0% 100.0%
======= ======= ======= ======= =======
Embedded interest cost on long-term debt - end of year. . . . . . . . . . 7.7% 7.9% 8.1% 8.4% 8.7%
Embedded distribution cost on trust securities - end of year. . . . . . . 8.0% 8.3% 8.7% 8.6% -%
Embedded dividend cost on preferred stock of subsidiaries - end
of year (b). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.4% 9.2% 7.5% 7.4% 7.5%
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . $740 $660 $754 $(139) $543
Dividends declared on common stock. . . . . . . . . . . . . . . . . . . . $597 $496 $456 $635 $696
Common stock data
Shares outstanding - average (in millions). . . . . . . . . . . . . 265 231 225 226 226
Shares outstanding - end of year (in millions). . . . . . . . . . . 282 245 225 226 226
Basic earnings (loss) per share . . . . . . . . . . . . . . . . . . $2.79 $2.86 $3.35 $(0.61) $2.40
Diluted earnings (loss) per share . . . . . . . . . . . . . . . . . $2.79 $2.85 $3.35 $(0.61) $2.40
Dividends declared per share. . . . . . . . . . . . . . . . . . . . $2.225 $2.125 $2.025 $2.81 $3.08
Book value per share - end of year. . . . . . . . . . . . . . . . . $29.21 $27.90 $26.86 $25.38 $28.74
Return on average common stock equity . . . . . . . . . . . . . . . 9.8% 10.3% 12.8% (2.3)% 8.3%
Ratio of earnings to fixed charges. . . . . . . . . . . . . . . . . . . . 1.84 2.14 2.18 0.72 1.88
<FN>
(a) Including the effect of restricted cash pledged against future lease
obligations that is included in other investments (See Note 15 to Consolidated
Financial Statements), the capitalization ratio consisted at December 31, 1998
of 59.1% long-term debt, 34.9% common stock equity, 5.1% trust securities and
0.9% preferred stock.
(b) 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 5.9% for 1998, 6.6% for
1997, 6.8% for 1996, and 6.9% for 1995.
</FN>
</TABLE>
Certain financial statistics were affected by the May 1998 acquisition of The
Energy Group (TEG), the August 1997 acquisition of ENSERCH and the November
1997 acquisition of LCC, the December 1995 acquisition of Eastern Energy; and
for the year 1995, were affected by recording of the impairment of certain
assets. Shares outstanding (in millions) assuming dilution for 1998 and 1997
were 266 and 232, respectively. There were no additional diluted shares for
any of the prior periods presented.
A-2
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED OPERATING STATISTICS
Year Ended December 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
SALES VOLUMES
Electric energy sales (gigawatt hours - GWh)
Residential. . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,593 36,377 35,855 31,284 30,460
Commercial and industrial. . . . . . . . . . . . . . . . . . . . . 79,786 61,337 59,863 55,239 53,847
Other electric utilities . . . . . . . . . . . . . . . . . . . . . 4,261 4,499 4,626 3,580 4,319
------- ------- ------- ------ ------
Total electric energy sales . . . . . . . . . . . . . . . . . 131,640 102,213 100,344 90,103 88,626
======= ======= ======= ====== ======
Gas distribution (billion cubic feet - Bcf)
Residential. . . . . . . . . . . . . . . . . . . . . . . . . . . . 98 33 - - -
Commercial and industrial. . . . . . . . . . . . . . . . . . . . . 104 24 - - -
------- ------- ------- ------ ------
Total gas distribution. . . . . . . . . . . . . . . . . . . . 202 57 - - -
------- ------- ------- ------ ------
Pipeline transportation (Bcf) . . . . . . . . . . . . . . . . . . . . 599 255 - - -
Gas liquids (million barrels) . . . . . . . . . . . . . . . . . . . . 6 3 - - -
US energy marketing
Gas (Bcf). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,115 292 - - -
Electric (GWh) . . . . . . . . . . . . . . . . . . . . . . . . . . 16,268 - - - -
UK wholesale energy sales
Gas (Bcf). . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 - - - -
Electric (GWh) . . . . . . . . . . . . . . . . . . . . . . . . . . 51,060 - - - -
OPERATING REVENUES (millions)
Electric
Residential. . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,242 $2,248 $2,252 $1,920 $1,862
Commercial and industrial. . . . . . . . . . . . . . . . . . . . . 3,546 2,357 2,370 2,110 2,063
Other electric utilities . . . . . . . . . . . . . . . . . . . . . 125 139 146 118 156
Fuel revenue (including over/under-recovered). . . . . . . . . . . . . 1,788 1,696 1,671 1,418 1,514
Transmission service revenues. . . . . . . . . . . . . . . . . . . . . 126 114 - - -
Other operating revenues . . . . . . . . . . . . . . . . . . . . . . . 538 108 112 73 69
------- ------- ------- ------ ------
Total electric operating revenues. . . . . . . . . . . . . 9,365 6,662 6,551 5,639 5,664
Gas distribution
Residential . . . . . . . . . . . . . . . . . . . . . . . . . . . 573 206 - - -
Commercial and industrial . . . . . . . . . . . . . . . . . . . . 370 124 - - -
Pipeline transportation. . . . . . . . . . . . . . . . . . . . . . . . 121 57 - - -
Gas liquids. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 37 - - -
US energy marketing. . . . . . . . . . . . . . . . . . . . . . . . . . 3,198 859 - - -
UK wholesale energy sales. . . . . . . . . . . . . . . . . . . . . . . 1,198 - - - -
Telecommunications . . . . . . . . . . . . . . . . . . . . . . . . . . 114 12 - - -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191 44 - - -
Less intercompany revenues . . . . . . . . . . . . . . . . . . . . . . (458) (55) - - -
------- ------- ------- ------ ------
Total operating revenues . . . . . . . . . . . . . . . . . $ 14,736 $ 7,946 6,551 5,639 $ 5,664
======= ======= ======= ====== ======
CUSTOMERS (end of year - in thousands)
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,255 2,972 2,913 2,852 2,330
Gas. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,156 1,355 - - -
</TABLE>
Certain previously reported operating statistics have been reclassified to
conform to current classifications. The operating statistics include the
operations of Eastern Group, ENSERCH and Eastern Energy from their respective
dates of acquisition, May 1998, August 1997 and December 1995.
A-3
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
SELECTED FINANCIAL DATA
CONSOLIDATED FINANCIAL STATISTICS
Year Ended December 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
------- ------ ------ ------ -------
(Millions of Dollars, except ratios)
<S> <C> <C> <C> <C> <C>
Total assets - end of year . . . . . . . . . . . . . . . . . . . . . . $18,405 $18,824 $18,795 $19,003 $19,447
Electric plant - gross - end of year . . . . . . . . . . . . . . . . . $23,583 $23,132 $22,664 $22,748 $23,063
Accumulated depreciation and amortization - end of year. . . . . . 7,338 6,576 5,963 5,371 4,765
Reserve for regulatory disallowances - end of year . . . . . . . . 836 836 836 1,308 1,308
Construction expenditures (including allowance for
funds used during construction). . . . . . . . . . . . . . . . 501 446 377 407 415
Capitalization - end of year
Long-term debt, less amounts due currently . . . . . . . . . . . . $ 5,208 $5,476 $ 6,311 $ 7,212 $ 7,221
TU Electric obligated, mandatorily redeemable, preferred
securities of subsidiary trusts holding solely junior
subordinated debentures of TU Electric (trust securities) . . . 823 875 381 381 -
Preferred stock:
Not subject to mandatory redemption . . . . . . . . . . . . . . 115 129 465 490 870
Subject to mandatory redemption . . . . . . . . . . . . . . . . 21 21 238 263 388
Common stock equity. . . . . . . . . . . . . . . . . . . . . . . . 6,495 6,298 6,106 5,800 6,114
------- ------- ------- ------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $12,662 $12,799 $13,501 $14,146 $14,593
======= ======= ======= ======= =======
Embedded interest cost on long-term debt - end of year . . . . . . . . 8.3% 8.3% 8.3% 8.4% 8.7%
Embedded distribution cost on trust securities - end of year . . . . . 8.4% 8.3% 8.7% 8.6% -%
Embedded dividend cost on preferred stock - end of year* . . . . . . . 13.5% 14.1% 7.5% 7.4% 7.5%
Net income available for common stock. . . . . . . . . . . . . . . . . $785 $745 $809 $368 $556
Dividends declared on common stock . . . . . . . . . . . . . . . . . . - $137 $503 $682 $716
Ratio of earnings to fixed charges . . . . . . . . . . . . . . . . . . 3.2 2.9 3.0 2.0 2.5
Ratio of earnings to combined fixed charges and preferred
dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.1 2.7 2.6 1.7 2.0
Return on average common stock equity. . . . . . . . . . . . . . . . . 12.3% 12.0% 13.6% 6.2% 9.2%
<FN>
* 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 6.7% for 1998, 6.9% for
1997, 6.8% for 1996 and 6.9% for 1995.
</FN>
</TABLE>
A-4
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED OPERATING STATISTICS
Year Ended December 31,
1998 1997 1996 1995 1994
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
ELECTRIC ENERGY GENERATED AND
PURCHASED (GWh)
Generated - net station output. . . . . . . . . . . . . . . 97,574 91,298 88,130 83,876 81,321
Purchased and net interchange . . . . . . . . . . . . . . . 11,271 11,443 12,418 10,684 11,663
------- ------- ------- ------ ------
Total generated and purchased. . . . . . . . . . . . . . . 108,845 102,741 100,548 94,560 92,984
Company use, losses and unaccounted for . . . . . . . . . . . 6,484 6,161 5,805 5,532 5,131
------- ------- ------- ------ ------
Total electric energy sales. . . . . . . . . . . . . . . . 102,361 96,580 94,743 89,028 87,853
======= ======= ======= ====== ======
ELECTRIC ENERGY SALES (GWh)
Residential . . . . . . . . . . . . . . . . . . . . . . . . . 36,830 33,530 33,039 30,716 30,066
Commercial. . . . . . . . . . . . . . . . . . . . . . . . . . 29,332 27,323 26,456 25,553 24,816
Industrial. . . . . . . . . . . . . . . . . . . . . . . . . . 25,125 24,609 24,215 23,302 22,984
Government and municipal. . . . . . . . . . . . . . . . . . . 6,525 6,039 5,929 5,616 5,505
------- ------- ------- ------ ------
Total general business . . . . . . . . . . . . . . . . . . 97,812 91,501 89,639 85,187 83,371
Other electric utilities. . . . . . . . . . . . . . . . . . . 4,549 5,079 5,104 3,841 4,482
------- ------- ------- ------ ------
Total electric energy sales. . . . . . . . . . . . . . . . 102,361 96,580 94,743 89,028 87,853
======= ======= ======= ====== ======
OPERATING REVENUES (millions)
Base rate revenues
Residential. . . . . . . . . . . . . . . . . . . . . . . . $2,157 $1,991 $1,994 $1,875 $1,833
Commercial . . . . . . . . . . . . . . . . . . . . . . . . 1,307 1,235 1,227 1,194 1,165
Industrial . . . . . . . . . . . . . . . . . . . . . . . . 583 582 590 586 586
Government and municipal . . . . . . . . . . . . . . . . . 317 293 291 280 277
------- ------- ------- ------ ------
Total general business. . . . . . . . . . . . . . . . 4,364 4,101 4,102 3,935 3,861
Other electric utilities . . . . . . . . . . . . . . . . . 138 164 166 133 163
------- ------- ------- ------ ------
Total base rate revenues. . . . . . . . . . . . . . . 4,502 4,265 4,268 4,068 4,024
Fuel revenue (including over/under-recovered). . . . . . . . 1,798 1,707 1,679 1,422 1,521
Transmission service revenues. . . . . . . . . . . . . . . . 126 114 - - -
Other operating revenues . . . . . . . . . . . . . . . . . . 62 49 83 70 68
------- ------- ------- ------ ------
Total operating revenues . . . . . . . . . . . . $6,488 $6,135 $6,030 $5,560 $5,613
======= ======= ======= ====== ======
ELECTRIC CUSTOMERS (end of year - in thousands)
Residential. . . . . . . . . . . . . . . . . . . . . . . . . 2,206 2,152 2,110 2,061 2,019
Commercial . . . . . . . . . . . . . . . . . . . . . . . . . 244 237 230 225 220
Industrial . . . . . . . . . . . . . . . . . . . . . . . . . 21 21 21 21 21
Government and municipal . . . . . . . . . . . . . . . . . . 31 31 30 30 29
------- ------- ------- ------ ------
Total electric customers . . . . . . . . . . . . . . . . . 2,502 2,441 2,391 2,337 2,289
======= ======= ======= ====== ======
RESIDENTIAL STATISTICS (excludes master-metered
customers, kilowatt hour ( kWh) sales, and revenues)
Average annual kWh per customer . . . . . . . . . . . . . . . 16,170 15,026 15,100 14,336 14,236
Average revenue per kWh (in cents). . . . . . . . . . . . . . 7.83 7.85 7.91 8.08 8.26
Industrial classification includes service to Alcoa-Sandow:
Electric energy sales (GWh) . . . . . . . . . . . . . . . . . 3,779 3,820 3,842 3,765 3,886
Operating revenues (millions) . . . . . . . . . . . . . . . . $40 $47 $47 $48 $55
<FN>
Certain previously reported operating statistics have been reclassified to
conform to current classifications.
</FN>
</TABLE>
A-5
<PAGE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FORWARD-LOOKING STATEMENTS
This report and other presentations made by Texas Utilities Company and
its subsidiaries (the Company or TUC) 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 believe 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 statements: (i) prevailing governmental
policies and regulatory actions, including those of the Federal Energy
Regulatory Commission (FERC), the Public Utility Commission of Texas (PUC),
the Railroad Commission of Texas (RRC), the Nuclear Regulatory Commission
(NRC), and, in the case of the Company, the Office of the Regulator General of
Victoria, Australia, and the Office of Electricity Regulation covering
England, Wales and Scotland (OFFER) in the United Kingdom (UK) 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 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, (xiii) significant changes in
the Company's and TU Electric's relationship with their employees and the
potential adverse effects if labor disputes or grievances were to occur and
(xiv) unanticipated problems related to the Company's internal Year 2000 (Y2K)
initiative and potential adverse consequences related to Y2K non-compliance of
third parties.
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.
MERGERS AND ACQUISITIONS
Certain comparisons in this report have been affected by the acquisitions
of the Company (accounted for as purchase business combinations) of The Energy
Group PLC (TEG) in May 1998, ENSERCH Corporation (ENSERCH) in August 1997, and
Lufkin-Conroe Communications Co. (LCC) in November 1997. (See Note 17 to
Consolidated Financial Statements for information concerning reportable
segments.)
On February 24, 1999, TU Australia Pty. Ltd. (TU Australia) acquired from
the Government of Victoria, Australia the gas retail business of Kinetik
Energy, which has approximately 400,000 gas customers, and the gas
distribution operations of Westar, which is of similar size. The purchase
price was $1.0 billion which has been principally financed through banks by
the Australian holding company for the Company's Australian operations. A
portion of the financing was provided by a six-month subordinated credit
facility guaranteed by the Company. The Company will pursue potential
investment opportunities from time to time when it concludes that such
A-6
<PAGE>
<PAGE>
investments are consistent with its business strategies and are likely to
enhance the long-term return to its shareholders.
Throughout this document, references to TEG shall mean the consolidated
UK entity acquired in May 1998, and Eastern Group or Eastern Electricity shall
mean the Company's primary continuing operations in the UK and other parts of
Europe subsequent to organizational restructuring of UK/Europe operations.
References to Eastern Energy shall mean the company's primary operations in
Australia.
FINANCIAL CONDITION
Liquidity and Capital Resources
For 1998, the Company generated cash from operations sufficient to meet
operating needs and service debt 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 to fund
its capital requirements from operations include regulation that permits
allowing recovery of capital investment through depreciation, recovery of fuel
and purchased power costs and the competitive rates of return on capital
markets securities.
Cash flows provided from operating activities for the Company before
changes in operating assets and liabilities for the year ended December 31,
1998 were $2.3 billion compared with $1.6 billion and $1.7 billion for the
comparable periods in 1997 and 1996, respectively, ($1.8 billion versus $1.6
billion and $1.7 billion for TU Electric). Increased net income and higher
depreciation and amortization expense (primarily resulting from TU Electric's
earnings in excess of the return cap as discussed below) were contributing
factors. Changes in operating assets and liabilities for the Company for the
year ended December 31, 1998 used $338 million versus $15 million and $43
million provided for the comparable periods in 1997 and 1996. Changes in
operating assets and liabilities for TU Electric for the year 1998 provided $2
million, compared with $74 million and $33 million provided in 1997 and 1996,
respectively.
Cash flows used for investing activities for the Company for the year
ended December 31, 1998 totaled $4.3 billion, including $2.5 billion used for
the acquisition of TEG, compared with $708 million for the same period of 1997
and $576 million for 1996. Construction expenditures were $1.2 billion for
the current period, compared with $586 million and $434 million for the
comparable periods in 1997 and 1996, respectively, primarily resulting from
higher expenditures for TU Electric and the inclusion of expenditures for
Eastern Group, ENSERCH and LCC. Cash flows used for investing activities for
TU Electric for the year 1998 totaled $580 million versus $526 million for the
same period of 1997 and $481 million for 1996. Construction expenditures for
TU Electric were $501 million, $446 million and $377 million for 1998, 1997
and 1996, respectively.
In 1998, the Company acquired TEG for $7.4 billion, including $1.4
billion assigned to common stock issued. In 1997, the Company acquired
ENSERCH for $579 million and LCC for $319 million primarily through the
issuance of common stock.
The capital expenditures of the Company were $1.2 billion in 1998 and are
estimated at $1.3 billion for 1999 ($501 million in 1998 and $508 million
estimated for 1999 for TU Electric). Approximately 50% will be spent on US
electric and gas operations, approximately 35% on operations in the UK and
continental Europe, and approximately 15% on operations in Australia,
communications and other activities.
External funds of a permanent or long-term nature are obtained through
the issuance of common and preferred stock, trust securities and long-term
debt by the Company. The capitalization ratios of the Company at December 31,
1998, consisted of approximately 61% long-term debt (including equity-linked
securities), 5% Company or subsidiary obligated, mandatorily redeemable,
preferred securities of Company or subsidiary trusts, each holding solely
junior subordinated debentures of the Company or related subsidiary (trust
securities), 1% preferred stock and 33% common stock equity. Restricted cash
pledged against lease obligations is included in other investments (See Note
15 to Consolidated Financial Statements). Offsetting the cash pledge against
A-7
<PAGE>
<PAGE>
lease obligations, the capitalization ratios consisted of 59% long-term debt,
5% trust securities, 1% preferred stock and 35% common stock equity.
The capitalization ratios of TU Electric at December 31, 1998 consisted
of approximately 41% long-term debt, 7% TU Electric obligated, mandatorily
redeemable, preferred securities of subsidiary trusts holding solely junior
subordinated debentures of TU Electric, 1% preferred stock and 51% common
stock equity.
During the year ended December 31, 1998, the Company (including TU
Electric) issued, redeemed, reacquired or made scheduled principal payments on
long-term debt, preferred stock and trust securities for cash, as follows:
<TABLE>
<CAPTION>
Issuances Retirements
--------- -----------
<S> <C> <C>
The Company:
TXU Capital I 7.25% Trust Securities. . . . . . . . . . . . $ 230 $ -
Floating rate senior notes. . . . . . . . . . . . . . . . . 125 -
6.375% Senior Notes . . . . . . . . . . . . . . . . . . . . 200 -
Equity-linked securities (6.37% to 6.50%) . . . . . . . . . 700 -
5.94% mandatory putable/remarketable securities . . . . . . 375 -
TU Electric:
$8.20 Series Preferred Stock. . . . . . . . . . . . . . . - 14
Capital II 9.00% Series Trust Securities. . . . . . . . . - 47
Long-term Debt:
Brazos River Authority Pollution Control Bonds . . . . 79 79
First Mortgage Bonds . . . . . . . . . . . . . . . . . - 842
Floating Rate Debentures. . . . . . . . . . . . . . . . . 350 -
Other. . . . . . . . . . . . . . . . . . . . . . . . . . - 3
ENSERCH:
Capital I Trust Securities. . . . . . . . . . . . . . . . 150 -
Series E Preferred Stock. . . . . . . . . . . . . . . . . - 100
6.375% Convertible Debentures * . . . . . . . . . . . . . - 88
8.875% Senior Notes . . . . . . . . . . . . . . . . . . . - 100
6.25% Series A Notes. . . . . . . . . . . . . . . . . . . 125 -
Remarketable Reset Notes. . . . . . . . . . . . . . . . . 125 -
Eastern Group:
Acquisition and Interim Facilities. . . . . . . . . . . . 3,429 2,183
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 113 306
All Other Subsidiaries - Long-term Debt. . . . . . . . . . . 118 86
------- -------
Total. . . . . . . . . . . . . . . . . . . . . . $ 6,119 $ 3,848
======= =======
<FN>
*In March 1998, holders of $3 million principal amount of ENSERCH Convertible
Debentures converted such debentures into shares of TUC common stock, and
the remaining $88 million principal amount was redeemed by ENSERCH at par for
cash.
</FN>
</TABLE>
Early redemptions of preferred stock and long-term debt may occur from
time to time in amounts presently undetermined.
See Notes 5, 9 and 16 to Consolidated Financial Statements for further
details concerning long-term debt, trust securities and preferred stock of
subsidiaries.
The Company, TU Electric, ENSERCH and or other subsidiaries of the
Company may issue additional debt and equity securities as needed, including
the possible future sale: (i) by TU Electric of up to $499 million principal
amount of debt securities, (ii) by TU Electric of up to $25 million of its
Cumulative Preferred Stock, and (iii) by ENSERCH of up to $100 million
aggregate principal amount of securities, all of which are currently
A-8
<PAGE>
<PAGE>
registered with the Securities and Exchange Commission (SEC) for offering
pursuant to Rule 415 under the Securities Act of 1933. In addition, the
Company may issue up to $170 million of debt securities and, together or
separately, up to $170 million of (i) debt securities, (ii) shares of its
common stock, (iii) contracts to purchase shares of common stock and (iv)
units pledged to secure the holder's obligation to purchase common stock under
stock purchase contracts similarly registered with the SEC.
At December 31, 1998, TUC, TU Electric and ENSERCH had $3.5 billion of
joint US dollar-denominated lines of credit under revolving credit facility
agreements (US Credit Agreements) with a group of banking institutions. The
US Credit Agreements have two facilities. Facility A provides for short-term
borrowings aggregating up to $2.1 billion outstanding at any one time at
variable interest rates and terminates February 25, 2000. Of this, $800
million can be used for working capital and other general corporate purposes.
Facility B provides for borrowings aggregating up to $1.4 billion outstanding
at any one time at variable interest rates and terminates March 2, 2003.
Borrowings under this facility can be used for working capital and other
general corporate purposes. The combined borrowings of TUC, TU Electric and
ENSERCH under both facilities, excluding amounts restricted to finance the
acquisition of TEG, are limited to an aggregate of $2.2 billion outstanding at
any one time. TU Electric's and ENSERCH's borrowings under both facilities
are limited to an aggregate of $1.25 billion and $650 million outstanding at
any one time, respectively. The facilities primarily support commercial paper
borrowings.
The Company intends to refinance $874 million of its current short-term
borrowings beyond one-year of December 31, 1998; such amount has been
reclassified as long-term debt.
At December 31, 1998, TXU Eastern Holdings Limited (TXU Eastern),
formerly TU Finance (No. 1) Limited, TU Finance (No. 2) Limited, TU
Acquisitions and Eastern Group, had a joint sterling-denominated line of
credit with a group of banking institutions under a credit facility agreement
(Sterling Credit Agreement). Originally, the Sterling Credit Agreement
provided for borrowings of up to 3.4 billion pounds and was comprised of three
facilities: the Acquisition, Interim, and Revolving Credit facilities. During
1998, the Interim facility was repaid and has been cancelled. The aggregate
borrowing limit of the remaining facilities, which mature March 2, 2003, has
been reduced to 1.3 billion pounds ($2.1 billion) at December 31, 1998. At
December 31, 1998, the Acquisition facility had a balance of 750
million pounds ($1.2 billion) outstanding, and no additional borrowings are
permitted. The Revolving Credit facility had a balance of 51
million pounds ($84 million) outstanding at December 31, 1998. In addition, a
separate Eastern Electricity Revolving Credit Facility provides for short term
borrowings for general corporate purposes of up to 250 million pounds ($414
million) outstanding at any one time and terminates March 2, 2003. Under this
facility, 180 million pounds ($298 million) was outstanding at year-end 1998.
As of December 31, 1998, TXU Eastern had entered into various interest
rate swaps as required by the Sterling Credit Agreements. The aggregate
notional amount of the interest rate swaps entered into was 800 million pounds
($1.3 billion). The swaps have an average maturity of six years and an
average fixed rate of 6.58%.
In addition, certain non-US subsidiaries have revolving credit agreements
(denominated in both foreign currencies and US dollars) aggregating
approximately $106 million, of which $83 million was outstanding at December
31, 1998. These revolving credit agreements expire at various dates through
2001.
Quantitative and Qualitative Disclosure About Market Risk
The Company's and TU Electric's operations involve managing market risks
related to changes in interest rates and, for the Company, foreign exchange
and commodity price exposures. Derivative instruments, including swaps,
options and forward contracts, are used to reduce and manage a portion of
those risks. With the exception of the energy marketing activities of a
subsidiary, Enserch Energy Services, Inc. (EES), the Company's and TU
Electric's participation in derivative transactions are designated for hedging
purposes and are not held or issued for trading purposes.
A-9
<PAGE>
<PAGE>
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 generally does not obtain collateral to
support the agreements but establishes credit limits and monitors the
financial viability of counterparties. In the event a counterparty's credit
rating declines, the Company may apply certain remedies, if considered
necessary. The Company believes the risk of nonperformance by counterparties
is minimal.
ELECTRICITY PRICE RISK
UK -- Almost all electricity generated in England and Wales must be sold
to the electricity trading market in England and Wales (Pool), and electricity
suppliers must likewise generally buy electricity from the Pool for resale to
their customers. In the electricity retail business, Eastern Group contracts
to supply customers at fixed prices and buys output from the electricity Pool
to meet the demand of these customers. Since the price of electricity
purchased from the Pool can be volatile, Eastern Group is exposed to the risk
arising from the differences between the fixed price at which it sells
electricity to customers and the variable prices at which it buys electricity
from the Pool. Eastern Group's generation business provides a physical hedge
to this risk as it is exposed to Pool price fluctuations from selling
electricity into the Pool. Eastern Group's overall exposure to such risks is
managed by its energy trading business, Eastern Power and Energy Trading
Limited (EPETL), which also enters into derivatives to hedge the portfolio and
maintain energy price exposure to within a limit set by Eastern Group's Board
of Directors. The derivatives used are contracts for differences (CFDs) and
electricity forward agreements (EFAs). CFDs are bilaterally negotiated
contracts which fix the price of electricity for an agreed quantity and
duration by reference to an agreed strike price. EFAs are similar in
principle to CFDs but are on standard terms and tend to be for smaller
quantities and shorter durations. The hypothetical loss in fair value of
Eastern Group's CFDs and EFAs in existence at December 31, 1998 arising from a
10% adverse movement in future electricity prices is estimated at $134
million. This loss is calculated by modeling the contracts against an
internal forecast of Pool prices using discounted cash flow techniques.
Australia -- Eastern Energy also maintains a strategy of seeking hedging
contracts with individual generators to cover a portion of forecasted
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. At December 31, 1998, Eastern Energy's contracts related
to its forecasted contestable and franchise load cover a notional volume of
approximately 8.3 million MWh's for the period from January 1999 through
2001. Further hedge contracts may be required in that period to service
forecasted sales. 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.
A-10
<PAGE>
<PAGE>
INTEREST RATE RISK -- The table below provides information concerning the
Company's and TU Electric's financial instruments as of December 31, 1998 that
are sensitive to changes in interest rates, which include debt obligations (by
principal amount) and interest rate swaps. For debt obligations, the table
presents principal cash flows and related weighted average interest rates by
expected maturity dates. The Company and 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 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.
<TABLE>
<CAPTION>
Expected Maturity Date
---------------------------------------------------------------
1998 1997
There- Fair Fair
1999 2000 2001 2002 2003 after Total Value Value
------ ------ ------ ------ ------- ------ -------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
The Company
Long-term Debt
(including current maturities)
Fixed Rate . . . . . . . . . . . . . . . $1,052 $1,353 $ 544 $ 503 $ 922 $6,944 $11,318 $11,912 $7,932
Average interest rate . . . . . . . . 7.86% 6.66% 7.43% 7.73% 6.64% 7.36% 7.29% - -
Variable Rate . . . . . . . . . . . . . $ 121 $ 816 $ 296 $ 40 $1,325 $ 905 $ 3,503 $ 3,503 $2,000
Average interest rate . . . . . . . . 5.16% 5.96% 5.42% 8.59% 6.46% 5.01% 5.86% - -
Interest Rate Swaps
(notional amounts)
Variable to Fixed. . . . . . . . . . . . $ 9 $ 220 $ 86 $ 196 $ 851 $ 912 $ 2,274 $ (132) $ (57)
Average pay rate. . . . . . . . . . . 8.45% 5.75% 6.77% 8.45% 6.60% 6.54% 6.67% - -
Average receive rate . . . . . . . . . 5.20% 5.49% 5.01% 5.20% 5.44% 5.65% 5.49% - -
Fixed to Variable . . . . . . . . . . . - - - - $ 350 $ 165 $ 515 $ 46 $ 6
Average pay rate. . . . . . . . . . . - - - - 5.70% 4.72% 5.39% - -
Average receive rate. . . . . . . . . - - - - 6.89% 8.38% 7.37% - -
TU Electric
Long-term Debt
(including current maturities)
Fixed Rate . . . . . . . . . . . . . . . $ 533 $ 509 $ 226 $ 374 $ 318 $3,032 $ 4,992 $ 5,296 $ 5,563
Average interest rate . . . . . . . . 8.44% 5.83% 7.49% 8.22% 6.91% 7.44% 7.41% - -
Variable Rate. . . . . . . . . . . . . . - - - - - $ 749 $ 749 $ 749 $ 1,010
Average interest rate . . . . . . . . - - - - - 4.88% 4.88% - -
Interest Rate Swaps
(notional amounts)
Variable to Fixed. . . . . . . . . . . . - - - - - $100.0 $ 100.0 $ (4) $ (1)
Average pay rate. . . . . . . . . . . - - - - - 7.18% 7.18% - -
Average receive rate. . . . . . . . . - - - - - 6.19% 6.19% - -
</TABLE>
A-11
<PAGE>
<PAGE>
US ENERGY MARKETING RISK -- In the course of providing comprehensive
energy products and services to its diversified client base, EES engages in
energy price risk management activities. In addition to the purchase and sale
of these physical commodities, EES enters into futures contracts; swap
agreements where settlement is based on the difference between a fixed and
floating (index based) price for the underlying commodity; exchange traded
options; over-the-counter options, which are settled in cash or the physical
delivery of the underlying commodity; exchange-of-futures for physical (EFP)
transactions; energy exchange transactions; storage activities; and other
contractual arrangements. EES may buy and sell certain of these instruments
to manage its exposure to price risk from existing contractual commitments as
well as other energy-related assets and liabilities. It may also enter into
contracts to take advantage of arbitrage opportunities.
These activities involve price commitments into the future and,
therefore, give rise to market risk. EES uses the mark-to-market method of
valuing and accounting for these activities.
In order to manage its exposure to the price risk associated with these
instruments, EES has established trading policies and limits and revalues its
exposures daily against these benchmarks. EES also periodically reviews these
policies to ensure they are responsive to changing market and business
conditions.
EES utilizes various techniques and methodologies that simulate forward
price curves in the energy markets to estimate the size and probability of
changes in market value resulting from price movements. These techniques
include, but are not limited to, sensitivity analyses. The uses of these
methodologies require a number of key assumptions including selection of
confidence levels, the holding period of the positions, and the depth and
applicability to future periods of historical price information.
The exposure for fixed price natural gas and electric power 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. The notional
amounts and terms of the portfolio as of December 31, 1998 included financial
instruments that provide for fixed price receipts of 2,643 trillion British
thermal units equivalent (TBtue) and fixed price payments of 2,799 TBtue, with
a maximum term of eight years. Additionally, sales and purchase commitments
totaling 973 TBtue, with terms extending up to nine years, are included in the
portfolio as of December 31, 1998. 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% (two standard
deviation) change in market factors, which may differ from actual results.
Using a two standard deviation change, the most adverse change in fair value
at December 31, 1998 and 1997, as a result of this analysis was a reduction of
$2.1 million and $1.1 million, respectively.
GAS PRICE RISK -- In the gas retail business, Eastern Group sells fixed
price contracts to customers and supplies the customer through a portfolio of
gas purchase contracts and other wholesale contracts. The overall net
exposure of Eastern Group to the gas spot market is also managed by its
subsidiary, EPETL, within a limit set by the Board of Directors of Eastern
Group, using natural gas futures and swaps, as appropriate, to hedge the
exposures. The hypothetical loss in fair value at December 31, 1998 of
Eastern Group's natural gas commodity futures arising from a 10% adverse
movement in future gas prices is estimated at $3.3 million.
FOREIGN CURRENCY RISK -- The Company has entered into short-term foreign
currency exchange contracts in connection with the acquisition of TEG to hedge
a portion of the Company's exposure to changes in the dollar to pound exchange
rate. The Company has contracted to deliver £675 million and will
receive $1.1 billion. The fair value of this contract was a negative $28
million at December 31, 1998.
Eastern Group has limited exposure to foreign currency movements. The
policy with regard to any such exposures is to match assets owned in foreign
countries with borrowings in that same currency. Where there are known
commitments to purchase goods in foreign currency then forward contracts or
options are used to fix the exchange rate.
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Eastern Energy maintains cross currency swaps for its US dollar
denominated debts. These cross currency swaps mature in December 2006 and
December 2016 for $250 million and $100 million, respectively. The maturity
of these swaps coincides with the maturity of the US dollar denominated debt.
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, 1998, the current market value of the
debt and equity securities was $81 million and $130 million, respectively. A
hypothetical 10% increase in interest rates and 10% decrease in equity prices
would result in a $16 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 US subsidiaries of the
Company are subject to the provisions of Statement of Financial Accounting
Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation". This statement 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 subsidiaries would be
required to assess the recoverability of plant and regulatory assets. (See
Note 2 to Consolidated Financial Statements.)
Although neither the Company nor TU Electric can 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 operations or cash flows. (See Note 14
to Consolidated Financial Statements.)
The Company and TU Electric have several rate requests pending or on
appeal. (See Note 13 to Consolidated Financial Statements for a detailed
discussion of the status of these items.) (See "Docket 18490" in Note 13 to
Consolidated Financial Statements for a discussion of the impact of a rate
settlement.) With regard to Eastern Group, the regulation of distribution and
supply charges is currently subject to review by OFFER, with the outcome due
to impact results from April 1, 2000.
Electricity and gas operations in Australia are subject to the
requirements of the applicable regulatory governments or agencies and are
currently in various stages of implementing deregulation.
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Competition
US -- As legislative, regulatory, economic and technological changes
occur, the US energy and utility industries are faced with increasing pressure
to become more competitive while adhering to regulatory requirements. 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 Texas 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. The 106th Congress
has begun to examine the possibility of mandated "retail competition," 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. Retail competition has not been implemented in
Texas; however, this issue is currently being addressed in the 76th Texas
Legislature.
In Texas, aggressive marketing of competitive prices by rural electric
cooperatives, municipally-owned electric systems, and other energy providers
not subject to the traditional governmental regulation experienced by the
utility industry 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. In order to remain competitive, the US Electric segment 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. In a
competitive retail environment, amounts invested by TU Electric in certain of
its assets could become stranded costs (i.e., investments and commitments that
may not be recoverable from customers as a result of competitive pricing). As
such, the PUC is seeking guidance from the legislature and authority to
address the issue of recovery of stranded costs. 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 $5.8 billion to a
projected excess of market value over net book value of $3.8 billion. To the
extent stranded costs cannot be recovered from customers, it may be necessary
for such costs to be borne by shareholders.
While the Company and the US Electric segment companies anticipate
legislation being enacted during the 1999 session of the Texas legislature to
authorize retail competition, 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 operations or cash flows.
The Company
UK -- Unless covered by an exemption, all electricity generators
operating a power station in the UK are required to be a member of the Pool
and to submit the output of power station generating units or turbines for
central dispatch. Eastern Group's mix of generating plants enables it to
operate in the mid-merit and base load sectors of the market and to spread its
fuel risk. Almost all electricity customers in Eastern Group's authorized
area, whether franchise (i.e. regulated) or competitive, are connected to and
dependent upon Eastern Group's distribution system. Competition for electric
retail customers in all areas of the UK is being progressively phased in,
beginning in September 1998. The domestic franchise market in the UK is
expected to be open to full competition in June 1999. These customers
typically include residential and small commercial customers. Until September
1998, customers in all service areas could buy electricity only from the
regional electricity company (REC) authorized to supply service in the area
where the customers were located. Eastern Group competes on the basis of the
quality of its customer service and by competitive pricing. Eastern Group
intends to continue to compete nationally for residential and small business
customers and, by December 1998, had contracts with 200,000 of such customers
outside its franchise area. There is no assurance whether or not competition
among suppliers of electricity will adversely affect Eastern Group. Because
of UK government action in recent years, the UK natural gas market is open to
competition by competing retailers. The gas market is highly competitive.
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Eastern Group is one of the largest suppliers of natural gas in the UK. As
of December 31, 1998, Eastern Group's market share by volume was estimated
at approximately 12% of gas delivered to the competitive industrial and
commercial market. At December 31, 1998, it was supplying approximately
780,000 customers in the UK, ranging from residential households to large
commercial companies. Eastern Group intends to maintain a significant share
of this market through high quality customer service and competitive pricing.
Australia -- The energy supply franchise portion of Eastern Energy's
business is gradually being exposed to competition through a phase-in of rules
permitting customers 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 retail companies
to those customers having a right to choose their supplier. Eastern Energy
can similarly supply electric energy to such customers in other service
territories by utilizing the distribution networks of the retail companies in
those service territories. While Eastern Energy expects significant
competition in the fully contestable energy retail marketplace, it cannot
predict the ultimate outcome of this process.
RESULTS OF OPERATIONS
TU Electric
Net income of $798 million for 1998 increased approximately 3% from
1997. Results for 1997 were reduced by the recognition of an $81 million Fuel
Disallowance (including interest) and a $10 million charge related to the sale
of sulfur dioxide allowances, which reduced 1997 net income by $55 million.
Excluding the effect of these items, 1998 net income decreased approximately
4% from 1997, and 1997 net income was approximately 4% less than 1996.
Results for 1998 were impacted by the rate reduction settlement approved by
the PUC in April 1998 that became effective January 1, 1998; increased nuclear
depreciation and depreciation expense reclassified from transmission and
distribution to nuclear production assets that reduced 1998 income by $143
million. These effects were partially offset by continued strong sales growth
and the effect of hotter-than-normal summer weather.
Operating revenues increased approximately 6% and 2% for the years ended
December 31, 1998 and 1997, respectively, over the prior-year period. The
1998 increase primarily results from the increase in base rate electricity
revenues due to the exceptionally high summer temperatures and customer
growth, partially offset by the effect of the rate reduction settlement on
base rate revenues. The increase in 1997 operating revenues reflects
transmission service revenues from implementation of the PUC's Open Access
Transmission Rule (OAT Rule) effective January 1, 1997, with revenue increases
due to customer growth essentially offsetting the impact of a rate settlement
refund, the Fuel Disallowance and the charge related to the sulphur dioxide
allowances.
Electric energy sales in gigawatt-hours (GWh) (including unbilled sales)
increased approximately 6% and 2% for 1998 and 1997, respectively. Fuel
revenue increased in 1998 and 1997 primarily due to increases in fuel costs
driven by increased energy sales, with 1997 also affected by increased spot
market gas prices, partially offset by the Fuel Disallowance.
Fuel and purchased power expense increased approximately 2% and 5% for
1998 and 1997, respectively. The increases were primarily due to increased
energy sales in both periods with increased gas usage partially offset by
decreased gas prices in 1998.
Total operating expenses, excluding fuel and purchased power, increased
approximately 12% for 1998 and 5% for 1997. Operation and maintenance expense
increased in 1998 largely as a result of higher marketing incentives,
increased provision for uncollectible accounts and increased reactive
maintenance expenses, partially offset by decreased employee related costs.
The 1997 increase was a result of recording third party transmission expenses
in accordance with the PUC's OAT Rule, partially offset by decreased employee
benefit expenses. TU Electric's rate reduction settlement resulted in
increased depreciation on its Comanche Peak nuclear power plant by $353
million in 1998, bringing total nuclear depreciation for the year to
approximately $640 million. Of the $353 million, $183 million is the result
of the transfer of transmission and distribution depreciation and $170 million
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is the result of TU Electric's earnings in excess of its rate cap. The change
in the effective income tax rate was due to the impact of amortization of
prior period flow-through amounts, which increased due to the accelerated
depreciation on nuclear production assets in conjunction with the rate
reduction agreement. Taxes, other than income taxes, increased in 1998
primarily due to higher state and local gross receipt taxes.
Total interest charges, excluding AFUDC and distributions on trust
securities, decreased approximately 10% in 1998 and 11% in 1997 compared with
the prior-year period. The capital restructuring and debt reduction programs
have favorably affected the year-to-year comparisons. Distributions on trust
securities and preferred stock dividends have decreased from 1997 reflecting
the redemption in January 1998 of trust securities and the repurchases of a
portion of TU Electric's preferred stock in the last two years.
The Company
Net income of $740 million for 1998 increased approximately 12% from
1997, reflecting continued strong US electric sales growth, the effect of
hotter-than-normal summer weather on US electric sales and capital cost
reductions in US electric operations. The results also reflect the addition
of Eastern Group - especially Eastern Group's strong fourth quarter results -
and LCC, significant improvement in the Company's US energy marketing
operations and continued strong results from Australian operations. Partially
offsetting was the impact of the rate reduction settlement at TU Electric;
increased nuclear depreciation and depreciation expense reclassified from
transmission and distribution to nuclear production assets that reduced 1998
income by $143 million. Results from US natural gas operations were
unfavorably impacted by mild winter weather in both the first and fourth
quarters of 1998.
Results for 1998 include a non-recurring gain from Eastern Group's
renegotiations of a long-term gas contract and non-recurring costs associated
with the acquisition of TEG, which offset to add $7 million to net income.
Results for 1997 were reduced by the Fuel Disallowance and the charge related
to the sale of sulfur dioxide allowances, which reduced 1997 net income by $55
million. Excluding these non-recurring items, 1998 net income was $733
million ($2.76 per share), compared with $715 million ($3.10 per share) for
1997 and $754 million ($3.35 per share) for 1996.
UK/Europe operations contributed approximately $140 million to 1998
income, which was partially offset by approximately $82 million of acquisition
costs recorded by the Company, resulting in net income for these operations of
$58 million for the period.
Operating revenues of the Company increased approximately 86% to $14.7
billion for the year ended December 31, 1998 compared with $7.9 billion in
1997 and $6.6 billion in 1996. In 1998, the increase in operating revenues
was due primarily to the inclusion of the Eastern Group revenues for the
period following the acquisition, ENSERCH revenues for the entire period,
increased revenues from the US Electric segment and increased volumes from US
energy marketing. The 1997 increase reflected ENSERCH revenues for the period
following the merger and TU Electric's transmission service revenues from
implementing the PUC's OAT Rule effective January 1, 1997.
Base rate electric revenues for the U S (including unbilled sales)
increased 6% in 1998 primarily as a result of the hotter-than-normal summer
weather and customer sales growth, partially offset by the TU Electric rate
reduction settlement. Base rate revenues for 1997 decreased slightly from 1996
as a result of the rate settlement refund in 1997, while electric energy
sales (including unbilled sales) increased approximately 2%. Fuel revenue
increased in 1998 and 1997 due primarily to increases in fuel costs driven by
increased energy sales, partially offset, in 1998 by lower gas prices and in
1997, by the Fuel Disallowance.
Fuel and purchased power expense increased approximately 72% and 4% for
1998 and 1997, respectively. The 1998 increase is primarily due to the
inclusion of the Eastern Group for the period following acquisition, an
increase in energy sales and gas usage for TU Electric, partially offset by a
reduction in gas spot market prices and a reduction of energy purchase prices
in TU Australia. The increase in 1997 was primarily due to increased energy
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sales and increased spot market gas prices. (See Consolidated Operating
Statistics.) Gas and electricity purchased for resale increased as a result of
the inclusion of ENSERCH for the entire year in 1998, as compared to the
period following acquisition in 1997, along with the addition of the Eastern
Group in 1998.
Total operating expenses, excluding fuel and purchased power and gas and
electricity purchased for resale, increased approximately 58% for 1998 and
15% for 1997, with approximately 55% in 1998 attributable to the acquisition
of the Eastern Group, and 13% in 1998 and 9% in 1997 attributable to ENSERCH
companies since the merger. Other 1998 increases were mostly due to higher
marketing incentives, increased provision for uncollectible accounts and
increased reactive maintenance expenses, more than offset by decreased
employee related and other costs. The 1997 increase was due to recording
third party transmission expenses in accordance with the PUC's OAT Rule,
partially offset by decreased employee benefit expenses. Taxes other than
income increased in 1998 and 1997 due primarily to the effect of ENSERCH
amounts for a full year in 1998 and for the period subsequent to acquisition
in 1997, and an increase in revenue related taxes for 1998.
The increase in other income (deductions) - net in 1998 results
primarily from the non-utility operations of Eastern Group since acquisition
date and gains on the disposition of certain properties, while the 1997
decrease was primarily due to losses from an interest in a telecommunications
partnership. Interest income increased as a result of the inclusion of Eastern
Group since acquisition date.
Interest expense and distributions on trust securities and preferred
stock of subsidiaries totaled approximately $1.4 billion in 1998, $861 million
in 1997 and $884 million in 1996. The Company's capital restructuring and
debt reduction programs have favorably affected the comparisons. Year-to-year
comparisons were also affected by the debt incurred or recorded in connection
with the 1998 acquisition of TEG and the 1997 acquisitions of ENSERCH and
LCC. Interest expense in 1997 also included a charge related to the settlement
of over-recovered fuel revenues.
The increase in the Company's overall effective income tax rate from 1997
to 1998 was due primarily to the effects of Eastern Group since acquisition
along with the impact of TU Electric's amortization of prior period
flow-through amounts, related to additional depreciation on nuclear production
assets in conjunction with the rate reduction agreement. (See Note 12 to
Consolidated Financial Statements for a reconciliation of income taxes
computed at the statutory rate to provision for income taxes.
On a pro forma basis, as if TEG had been acquired at January 1, 1998,
consolidated revenues for the year ended December 31, 1998 would have been $17
billion, consolidated net income would have been $884 million and basic
earnings per share would have been $3.13. A substantial portion of Eastern
Group's earnings occur during the first and fourth quarters of the year which
are the periods of peak electricity usage in the UK.
EUROPEAN MONETARY UNION (EMU)
Most of Eastern Group's income and expenditures are denominated in
pounds sterling or in the currencies of other countries which either are not
eligible or have indicated that they are not intending to join the first stage
of EMU. Eastern Group therefore does not expect the introduction of the Euro,
the new currency of countries participating in EMU, to have a material impact
on those operations for as long as the UK continues to remain outside EMU.
Eastern Group has prepared its accounting systems to be able to deal with the
receipt of payments in Euros effective from January 1, 1999.
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YEAR 2000 ISSUES
The Company and TU Electric
US -- Overview
Many existing computer programs use only the last two digits to identify
a year in the date field. Thus, they would not recognize a year that begins
with 20 instead of 19. If not corrected, many computer applications could
fail or produce erroneous data on or about the year 2000.
The Company began its US efforts to address Year 2000 (Y2K) issues in
1996 by focusing on information technology mainframe-based application systems
(IT Corporate Applications). In early 1997, an infrastructure project to
address the Company's information technology related hardware, operating
systems and desktop software was begun (IT Infrastructure). In late 1997, a
project was begun to address Y2K issues throughout the Company related to
embedded systems, such as process controls for energy production and delivery,
and business unit owned applications (Non-IT Equipment and Applications).
Applications and equipment in each of these three major initiatives have
been inventoried and categorized based on their criticality to the Company's
business operations. Assessments of the potential impact due to Y2K issues
are essentially complete. This process includes the solicitation of vendor
feedback, comparing information with other energy companies, and in many cases
internal verification by testing. The remediation and testing work on IT
Corporate Applications currently stands at approximately sixty percent
complete with the completion of mission critical items scheduled for the end
of the first quarter of 1999. The IT Infrastructure project is currently at
eighty percent completion. Remediation work on embedded systems is scheduled
to be completed by September 1999. A number of tests on production equipment
with embedded systems have been performed. The Company will continue to test
this equipment throughout the first half of 1999.
Readiness
The IT Corporate Applications remediation and testing activities are
approximately sixty percent complete with twenty-five percent of critical
applications tested and determined as Y2K compliant. Completion of critical
applications testing is scheduled for the end of the first quarter 1999 and
remaining applications testing is scheduled for the third quarter.
The IT Infrastructure project involves assessing the compliance of
standard computer hardware, network systems including gateways, hubs and
routers, telecommunications equipment, operating systems and IT standard
software products. Equipment is being individually tested using software
products and applicable test procedures. Network system tests have been
performed. Eighty percent of the IT Infrastructure is Y2K ready with the
remainder scheduled to be ready by the end of the first quarter of 1999.
Certain software vendors will not have Y2K ready versions of their product
available until the first or second quarter of 1999. These software product
upgrades will be tested and implemented during the second quarter of 1999.
Non-IT Equipment and Applications involve the hardware and software
products that reside in individual business units. These items include the
embedded systems that are used in energy production and delivery, and other
processes of the Company. Inventories have been conducted to identify these
embedded systems in individual business units. Assessments are substantially
complete. Twenty-five of fifty-two fossil steam generating units were Y2K
ready at the end of 1998. Validation testing is scheduled throughout the
first half of 1999 on the remaining twenty-seven fossil generating units.
Some remediation needs have been identified in various business units as a
result of Y2K testing. In most cases, these concern software upgrades that are
necessary to ensure that information produced by these systems can be
efficiently used in the Company's business processes. The upgrades are not
required for equipment functionality. These remediation activities are
planned for completion by the end of the second quarter of 1999.
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The Company has implemented a specific Y2K program at its Comanche Peak
nuclear fueled electric generating station. Inventories were completed by mid
1998 and detailed assessments were made by December 1998. Remediation
projects on Units 2 and 1 are scheduled for completion by May 1999 and
September 1999, respectively.
The Company is analyzing the potential impact of Y2K compliance efforts
of third parties. Over 2,000 suppliers and service providers have been
contacted to determine the status of their Y2K efforts. Approximately sixty
percent of these vendors have responded. Their responses are being
prioritized and the programs and status of the most significant among them are
being analyzed in detail. This initial analysis is complete. The more
significant interdependencies relate to telecommunications and gas suppliers.
Costs
The costs associated with the Company's Y2K efforts for its US energy
businesses are currently estimated to be approximately $36 million (primarily
for TU Electric). These costs reflect new, incremental costs and the
reallocation of resources in pre-existing maintenance budgets. The costs
related to the three major initiatives are estimated to be as follows: IT
Corporate Applications - $14 million; IT Infrastructure - $7 million; and Non
IT-Equipment and Applications - $15 million. These costs are being expensed
as incurred over the period 1996 to 2000; and a total of approximately $17
million had been expended through December 31, 1998. There can be no
assurance that these estimated costs will not increase as the Company's Y2K
program continues.
Strategic initiatives were begun in two areas prior to beginning work on
the Y2K issue, and the costs for these initiatives are not included in the
estimate above. The energy management system for the Company's transmission
grid is being replaced. The Company's principal financial and accounting
systems have been replaced. Each of these projects will eliminate potential
Y2K deficiencies; however, that was not a significant consideration at the
time replacement decisions were made.
LCC continues to work on its Y2K project. IT applications affected by
Y2K issues are being replaced by systems with dramatically increased
functionality. The cost of this effort is estimated to be $4 million, which
is being expended through 1999. As of December 31, 1998, estimated costs
expended were approximately $2.2 million.
Risk Issues
With respect to internal risks, the Company's current assessment of the
most reasonably likely worst case scenario is that impacts on either service
or financial performance will not be materially adverse. The Company
believes, based on the results of testing that has already occurred on a large
portion of its production equipment with embedded systems, that if any
disruption to service occurs, it will be isolated and of short-term duration.
The Company continues to collaborate with other major energy suppliers through
the joint Electric Power Research Institute's embedded systems project.
The North American Electric Reliability Council (NERC) is continuing to
evaluate the status of the electric infrastructure throughout North America.
The Company is a participant in this process. The second NERC status report,
issued on January 11, 1999, indicates that the transition through critical Y2K
dates is expected to have minimal impact on electrical systems in North
America and that, with continued work and coordinated contingency planning,
operating risks can be effectively mitigated. Results from the Company's
testing program compare favorably with the results on which the NERC
conclusions have been based. NERC will perform scenario analyses of potential
risks to the electric infrastructure. Joint industry testing between the
electric industry and the telecommunications industry are also being planned.
Until this work is complete, the Company cannot assess a worst case scenario
relating to external interdependencies.
As the Company's Y2K program proceeds, the Company will continue to
assess its internal and external risks, not all of which are within its
control; and it will continue to consider the most reasonably likely worst
case scenario. There can be no assurance that all material Y2K risks within
the Company's control will have been adequately identified and corrected
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before the end of 1999. In addition, the Company can make no assurances
regarding the Y2K readiness of systems and parties outside its control, or the
effect on the Company if those parties are not Y2K compliant.
Contingency Plans
The Company has in place detailed emergency response and disaster
recovery plans designed to ensure high reliability of service to customers.
These plans are utilized routinely for abnormal service conditions. These
plans have been reviewed to identify required actions specific to the Y2K
issue. Draft contingency plans have been developed and were filed with the PUC
on December 31, 1998. These Y2K contingency plans address both Company
activities and actions necessary to mitigate the impact of third party
disruptions. These contingency plans have been coordinated with those of the
Electric Reliability Council of Texas (ERCOT), the regional independent system
operator in Texas, and NERC. Final contingency plans are scheduled to be
completed by June 1999.
The Company
International Operations -- Y2K Programs
UK/EUROPE -- Overview
In the UK, Eastern Group established a program of projects in August
1996 designed to ensure that all its systems are Y2K compliant. Each project
has six phases: inventory, risk assessment, analysis, remediation, testing and
contingency planning.
Readiness
The inventory, risk assessment and analysis of the mainframe systems were
completed in June 1997. All COBOL code was fixed by November 1998. The plan,
which is on schedule, is to complete the mainframe remediation work by April
1999 and testing work by July 1999.
Inventories of all other IT systems and of embedded systems (controls,
monitoring, and protection systems, including electricity meters and customer
premises and systems used in Eastern Group's offices) were completed in
February 1998. Risk assessments were completed in August 1998. Many of the
older IT systems have already been replaced by systems which are Y2K
compliant, and approximately 25% of these were tested for Y2K compliance by
August 1998 as part of the latest phase of electricity deregulation. Since
October 1996, requirements have been included in Eastern Group's standard
purchasing terms and conditions requiring Y2K readiness. Acceptance tests for
any significant new or upgraded system include testing for Y2K readiness.
The IT infrastructure is currently based on a mixture of hardware and
operating systems connected by local and wide area networks (LAN/WAN). The
system will be remediated in March 1999 and tested and verified compliant by
April 1999. Additional upgrade of the LAN/WAN is planned for 1999. The
infrastructure PABX systems are being upgraded to be compliant by the end of
February 1999.
Remediation products for three of the eight power station turbine control
systems were not available from all suppliers in time for the planned summer
shutdowns of 1998. Completion of this work has therefore been delayed until
August 1999. All the electricity distribution systems have been checked, and
testing was completed on all but one of the systems by December 31, 1998.
Testing of the outstanding system for control room operation was completed in
February 1999.
Costs
The costs of addressing the Y2K issue are estimated to be approximately
$33 million. These costs include all Y2K related activities. They do not
include the cost of addressing IT systems installed to achieve the
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liberalization of the domestic electricity market, systems installed to meet
other business needs, or the cost of providing contingency plans for the
trading business. These costs are being expensed as incurred. Amounts
expended through December 1998 totaled $4.6 million. Cost expenditures for
1999 are estimated at $22.4 million and an additional $4 million for 2000.
Risk and Contingency Plans
With respect to internal risks, Eastern Group's current assessment of the
most reasonably likely worst case scenario is that impacts on either service
or financial performance will not be materially adverse. Eastern Group
believes, based on the results of testing that has already occurred on a large
portion of production equipment with embedded systems, that if any disruption
to service occurs, it will be isolated and of short-term duration.
Eastern Group has contingency plans for all business critical operations,
except plans for the trading business which are currently under development.
These plans cover realistic failure scenarios and are regularly tested. The
Y2K Program process includes a review of all the existing contingency plans
and the proposed contingency plans for the trading business to cover all
realistic scenarios involving failures resulting from Y2K issues. The work is
planned for January to June 1999, and will result in revisions to the existing
contingency plans.
Eastern Group is working with its equipment and service suppliers to
ensure their products and services are Y2K compliant. Reviews were completed
by December 1998.
AUSTRALIA -- Overview
TU Australia initiated a Y2K Program in the third quarter of 1997 with
the compilation of a Y2K inventory of supported IT assets and systems. An IT
Project Manager was appointed and a consultant engaged to develop a Y2K
remediation plan for items in the inventory assessed as having Y2K risk. A
consulting firm was engaged in early 1998 to provide a methodology for
addressing the Y2K risks of all other assets and systems. The consulting firm
was subsequently retained to establish a Y2K Program Office and complete a
non-IT inventory. A Y2K structure was also established in 1998 and a full time
Program Director appointed to bring all activities together into a single TU
Australia Y2K Program. The inventory contains over 800 different asset types
divided approximately equally between IT and non-IT items. The program
consists of sixty separate projects with individual project plans and project
managers.
Readiness
Thirty-four of the sixty Y2K projects have been completed. Two projects
track the progress of Y2K preparedness associated with telecommunications and
electricity wholesale trading partners. Some vendor supplied program products
will be available during the first quarter of 1999. The remaining projects are
due for completion by July 1999 and are associated with the implementation of
new applications for customer information and system control and data
acquisition.
Costs
As a result of lower than anticipated requirements, the estimated costs
associated with the Y2K program have been reduced to $2.3 million. Costs are
expensed as incurred. Some additional costs included in capital budgets for
new IT systems are not reflected in these Y2K costs. Approximately 50% of the
Y2K costs were incurred during 1998 with the remainder to be incurred in the
first quarter of 1999. There can be no assurance that these estimates will not
increase as a result of the discovery of unexpected additional remediation
work identified during Y2K testing.
A-21
<PAGE>
<PAGE>
Risk Issues
With respect to internal risks, TU Australia's current assessment of the
most reasonably likely worst case scenario is that impacts on either service
or financial performance will not be materially adverse. TU Australia
believes, based on the results of testing that has already occurred on a large
portion of production equipment with embedded systems, that if any disruption
to service occurs, it will be isolated and of short-term duration.
Contingency Plans
TU Australia's Y2K contingency planning is being developed on three
levels; asset level, project level and program level. In addition, Y2K
contingency planning associated with assets that are assessed as having the
capacity to interrupt electricity supply will be developed jointly with the
rest of the Victorian Electricity Supply Industry. Y2K contingency plans at
the asset level have been completed and several project level plans have also
been prepared. The completion of the remainder of contingency plans represents
the majority of Y2K activities planned in 1999. Y2K contingency plans will be
incorporated into existing disaster plans and business continuity plans where
appropriate.
CHANGES IN ACCOUNTING STANDARDS
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities",
is effective for fiscal years beginning after June 15, 1999. This standard
requires that all derivative financial instruments be recognized as either
assets or liabilities on the balance sheet at their fair values and that
accounting for the changes in their fair values is dependent upon the intended
use of the derivatives and their resulting designations. The new standard
will supersede or amend existing standards that deal with hedge accounting and
derivatives. The Company and TU Electric have not yet determined the effect
adopting this standard will have on their financial statements.
A-22
<PAGE>
<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, 1998, 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/ JERRY W. PINKERTON
----------------------------------
Jerry W. Pinkerton, Controller and
Principal Accounting Officer
A-23
<PAGE>
<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, 1998, 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/ KIRK OLIVER
----------------------------------
Kirk Oliver, Treasurer and Assistant
Secretary and Principal Financial
Officer
/s/ Jerry W. PINKERTON
----------------------------------
Jerry W. Pinkerton, Controller and
Principal Accounting Officer
A-24
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Texas Utilities Company:
We have audited the accompanying consolidated balance sheets of Texas
Utilities Company and subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, comprehensive income, cash flows
and common stock equity for each of the three years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the consolidated
financial statements of TXU Eastern Holdings Limited (a consolidated
subsidiary), which statements reflect total assets constituting 36% of
consolidated total assets at December 31, 1998, and total revenues
constituting 24% of consolidated total revenues for the year ended December
31, 1998. Those statements were audited by other auditors whose report has
been furnished to us, and our opinion, insofar as it relates to the amounts
included for TXU Eastern Holdings Limited, is based solely on the report of
such other auditors.
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 and the report of the
other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, such
consolidated financial statements present fairly, in all material respects,
the financial position of Texas Utilities Company and subsidiaries at December
31, 1998 and 1997, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 5, 1999
A-25
<PAGE>
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholder of TXU Eastern Holdings Limited:
In our opinion, the consolidated balance sheet and the related statements of
consolidated income, comprehensive income, common stock equity and cash flows
present fairly, in all material respects, the financial position of TXU
Eastern Holdings Limited and its subsidiaries at December 31, 1998, and the
results of their operations and their cash flows for the period from formation
(February 5, 1998) to December 31, 1998 in conformity with accounting
principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based
on our audit. We conducted our audit of these statements in accordance with
generally accepted auditing standards in the United Kingdom which do not
differ significantly with those in the United States and which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers
London, England
3 March 1999
A-26
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
Texas Utilities Electric Company:
We have audited the accompanying consolidated balance sheets of Texas
Utilities Electric Company (TU Electric) and subsidiaries as of December 31,
1998 and 1997, and the related consolidated statements of income,
comprehensive income, common stock equity and cash flows for each of the three
years in the period ended December 31, 1998. 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
March 5, 1999
A-27
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Year Ended December 31,
---------------------------------
1998 1997 1996
---- ---- ----
Millions of Dollars, Except per Share Amounts
<S> <C> <C> <C>
OPERATING REVENUES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,736 $7,946 $6,551
------- ------ ------
OPERATING EXPENSES
Fuel and purchased power. . . . . . . . . . . . . . . . . . . . . . . . . . . 3,799 2,213 2,136
Gas and electricity purchased for resale. . . . . . . . . . . . . . . . . . . 4,115 1,063 -
Operation and maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . 2,570 1,539 1,256
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . 1,147 666 621
Taxes other than income . . . . . . . . . . . . . . . . . . . . . . . . . . . 642 559 535
------- ------ ------
Total operating expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 12,273 6,040 4,548
------- ------ ------
OPERATING INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,463 1,906 2,003
OTHER INCOME (DEDUCTIONS) - NET . . . . . . . . . . . . . . . . . . . . . . . . 45 (49) (29)
------- ------ ------
INCOME BEFORE INTEREST, OTHER CHARGES
AND INCOME TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,508 1,857 1,974
------- ------ ------
INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139 32 28
INTEREST EXPENSE AND OTHER CHARGES
Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,300 763 798
Distributions on Company or subsidiary obligated, mandatorily redeemable,
preferred securities of Company or subsidiary trusts, each holding solely
junior subordinated debentures of the Company or related subsidiary . . . . 74 70 33
Preferred stock dividends of subsidiaries . . . . . . . . . . . . . . . . . . 16 28 53
Allowance for borrowed funds used during construction . . . . . . . . . . . . (9) (9) (11)
------- ------ ------
Total interest and other charges . . . . . . . . . . . . . . . . . . . . . 1,381 852 873
------- ------ ------
INCOME BEFORE INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . 1,266 1,037 1,129
INCOME TAX EXPENSE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 526 377 375
------- ------ ------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 740 $ 660 $ 754
======= ====== ======
Average shares of common stock outstanding (millions) . . . . . . . . . . . . . 265 231 225
Per share of common stock:
Basic earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2.79 $2.86 $3.35
Diluted earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2.79 $2.85 $3.35
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2.225 $2.125 $2.025
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
A-28
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
Year Ended December 31,
--------------------------------
1998 1997 1996
---- ---- ----
Millions of Dollars
<C> <C> <C> <C>
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 740 $ 660 $ 754
------ ------ ------
OTHER COMPREHENSIVE INCOME (LOSS) - net change during period:
Foreign currency translation adjustments . . . . . . . . . . . . . . . (39) (127) 43
Unrealized holding losses on investments . . . . . . . . . . . . . . . (13) - -
Minimum pension liability adjustments. . . . . . . . . . . . . . . . . (6) - -
------ ------ ------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (58) (127) 43
------ ------ ------
Deferred income tax effects. . . . . . . . . . . . . . . . . . . . . . (28) 28 -
------ ------ ------
COMPREHENSIVE INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . $ 654 $ 561 $ 797
====== ====== ======
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
A-29
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Year Ended December 31,
---------------------------
1998 1997 1996
---- ---- ----
Millions of Dollars
<S> <C> <C> <C>
CASH FLOWS - OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 740 $ 660 $ 754
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation and amortization (including amounts charged to fuel) . . . . . . . . . . . 1,340 839 774
Deferred income taxes - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288 168 185
Investment tax credits - net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (23) (23) (33)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) (5) (2)
Changes in operating assets and liabilities:
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (167) (442) (3)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (29) (14) 6
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 317 334 33
Interest and taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24) 40 (33)
Other working capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (261) 90 10
Over/(under) - recovered fuel revenue - net of deferred taxes. . . . . . . . . . . . 26 (21) (47)
Energy marketing risk management assets and liabilities. . . . . . . . . . . . . . . (11) (13) -
Other - net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (189) 41 77
------- ------ ------
Cash provided by operating activities. . . . . . . . . . . . . . . . . . . . . . . 2,005 1,654 1,721
------- ------ ------
CASH FLOWS - FINANCING ACTIVITIES
Issuances of securities:
Acquisition and interim debt facilities. . . . . . . . . . . . . . . . . . . . . . . . . 3,429 - -
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,310 823 1,444
Company or subsidiary obligated, mandatorily redeemable, preferred
securities of Company or subsidiary trusts, each holding solely junior
subordinated debentures of the Company or related subsidiary . . . . . . . . . . . . . 380 493 -
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 - -
Retirements of securities:
Acquisition and interim debt facilities. . . . . . . . . . . . . . . . . . . . . . . . . (2,183) - -
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,504) (1,573) (1,831)
Preferred stock of subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . (114) (553) (50)
Company or subsidiary obligated, mandatorily redeemable, preferred
securities of Company or subsidiary trusts, each holding solely junior
subordinated debentures of the Company or related subsidiary. . . . . . . . . . . . . (47) - -
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (25) (149) (52)
Change in notes payable:
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,311 1,102 (32)
Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242 (543) (140)
Common stock dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (573) (479) (451)
Debt premium, discount, financing and reacquisition expenses . . . . . . . . . . . . . . . . (215) (41) (44)
------- ------ ------
Cash provided by (used in) financing activities . . . . . . . . . . . . . . . . . . 3,019 (920) (1,156)
------- ------ ------
CASH FLOWS - INVESTING ACTIVITIES
Acquisition of The Energy Group (net of cash acquired of $3,265) . . . . . . . . . . . . . . (2,534) - -
Construction expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,173) (586) (434)
Nuclear fuel (excluding allowance for equity funds used
during construction) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (51) (74) (59)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (582) (48) (83)
------- ------ ------
Cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . (4,340) (708) (576)
------- ------ ------
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68 2 2
------- ------ ------
NET CHANGE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 752 28 (9)
CASH AND CASH EQUIVALENTS - BEGINNING BALANCE . . . . . . . . . . . . . . . . . . . . . . . . . 44 16 25
------- ------ ------
CASH AND CASH EQUIVALENTS - ENDING BALANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 796 $ 44 $ 16
======= ====== ======
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
A-30
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
-----------------------
1998 1997
---- ----
Millions of Dollars
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
United States (US):
Electric . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $23,130 $22,780
Gas distribution and pipeline. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,212 1,069
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 844 673
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,186 24,522
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,426 6,652
------- -------
Net of accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,760 17,870
Construction work in progress. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 346 308
Nuclear fuel (net of accumulated amortization: 1998 - $549; 1997 - $456) . . . . . . . . . . . . 202 242
Held for future use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 24
Less reserve for regulatory disallowances. . . . . . . . . . . . . . . . . . . . . . . . . . . . 836 836
------- -------
Net US property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,496 17,608
UK/Europe - Electric and Other (net of accumulated depreciation of $147) . . . . . . . . . . . . . 4,428 -
Australia - Electric (net of accumulated depreciation: 1998 - $121; 1997 - $63). . . . . . . . . . 943 963
------- -------
Net property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,867 18,571
------- -------
INVESTMENTS
Goodwill (net of accumulated amortization: 1998 - $154; 1997 - $33). . . . . . . . . . . . . . . . 6,830 1,424
Other investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,482 851
-------- -------
Total investments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,312 2,275
------- -------
CURRENT ASSETS
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 796 44
Accounts receivable (net of allowance for uncollectible accounts: 1998 - $50; 1997 - $11). . . . . 1,887 981
Inventories - at average cost:
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 267 210
Fuel stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 276 81
Gas stored underground . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 157
Energy marketing risk management assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 832 366
Deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 76
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 308 80
------- -------
Total current assets .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,587 1,995
------- -------
DEFERRED DEBITS
Unamortized regulatory assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,805 1,866
Long-term prepayments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 527 -
Other deferred debits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 416 157
------- -------
Total deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,748 2,023
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $39,514 $24,864
======= =======
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
A-31
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
December 31,
------------------
1998 1997
---- -----
Millions of Dollars
<S> <C> <C>
CAPITALIZATION
Common stock without par value - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 6,940 $ 5,587
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,448 1,312
Accumulated other comprehensive income (loss):
Foreign currency translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . (123) (56)
Unrealized holding losses on investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13) -
Minimum pension liability adjustments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (6) -
------- -------
Total common stock equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,246 6,843
Preferred stock of subsidiaries:
Not subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190 304
Subject to mandatory redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 21
Company or subsidiary obligated, mandatorily redeemable, preferred securities of Company or
subsidiary trusts, each holding solely junior subordinated debentures of the Company or
related subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,193 875
Long-term debt, less amounts due currently . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,133 8,759
------- -------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,783 16,802
------- -------
CURRENT LIABILITIES
Notes payable:
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,055 570
Banks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 896 44
Long-term debt due currently . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,071 772
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,747 880
Energy marketing risk management liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 838 357
Dividends declared . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164 140
Taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 490 183
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310 193
Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 705 383
------ -------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,276 3,522
------ -------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,718 2,989
Unamortized investment tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 548 571
Other deferred credits and noncurrent liabilities. . . . . . . . . . . . . . . . . . . . . . . . . 2,189 980
------ -------
Total deferred credits and other noncurrent liabilities. . . . . . . . . . . . . . . . . . . . 6,455 4,540
------ -------
COMMITMENTS AND CONTINGENCIES (Note 14)
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $39,514 $24,864
======= =======
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
A-32
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS UTILITIES COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMMON STOCK EQUITY
Year Ended December 31,
---------------------------
1998 1997 1996
---- ---- ----
Millions of Dollars
<S> <C> <C> <C>
COMMON STOCK without par value- authorized shares - 500,000,000:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,587 $4,787 $4,807
Issued for acquisitions:
The Energy Group (37,316,884 shares). . . . . . . . . . . . . . . . . . . . . . . . 1,449 - -
ENSERCH Corporation (15,861,272 shares) . . . . . . . . . . . . . . . . . . . . . . - 565 -
Lufkin-Conroe Communications Co. (8,727,730 shares) . . . . . . . . . . . . . . . . - 317 -
Direct Stock Purchase and Dividend Reinvestment Plan (198,184 shares) . . . . . . . . 8 - -
Issued for conversion of Convertible Debentures (77,963 shares) . . . . . . . . . . . 3 - -
Issued for Long-Term Incentive Compensation Plan (68,000 shares in
1998 and 61,000 shares in 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . 4 3 -
Common stock repurchased and retired (1998 - 565,771 shares,
1997 - 4,015,000 shares and 1996 - 1,238,480 shares). . . . . . . . . . . . . . . . (14) (91) (28)
Treasury Stock - Long-Term Incentive Plan Trusts . . . . . . . . . . . . . . . . . . (26) - -
Equity-linked securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (76) - -
Special allocation to Thrift Plan by trustee . . . . . . . . . . . . . . . . . . . . 8 8 8
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3) (2) -
------ ------ ------
Balance at end of year (1998 - 282,332,819 shares;
1997 - 245,237,559 shares; and 1996 - 224,602,557 shares). . . . . . . . . . . 6,940 5,587 4,787
------ ------ ------
RETAINED EARNINGS:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,312 1,203 925
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 740 660 754
Dividends declared on common stock . . . . . . . . . . . . . . . . . . . . . . . . . (597) (496) (456)
Common stock repurchased and retired . . . . . . . . . . . . . . . . . . . . . . . . (11) (59) (24)
LESOP dividend deduction tax benefit and other . . . . . . . . . . . . . . . . . . . 4 4 4
------ ------ ------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,448 1,312 1,203
------ ------ ------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (56) 43 -
Change during the year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (86) (99) 43
------ ------ ------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (142) (56) 43
------ ------ ------
COMMON STOCK EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $8,246 $6,843 $6,033
====== ====== ======
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
A-33
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
Year Ended December 31,
----------------------------
1998 1997 1996
---- ---- ----
Millions of Dollars
<S> <C> <C> <C>
OPERATING REVENUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,488 $6,135 $6,030
------ ------ ------
OPERATING EXPENSES
Fuel and purchased power . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,102 2,063 1,966
Operation and maintenance. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,281 1,226 1,112
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . 749 572 562
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 490 420 421
Taxes other than income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533 507 506
------ ------ ------
Total operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 5,155 4,788 4,567
------ ------ ------
OPERATING INCOME.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,333 1,347 1,463
------ ------ ------
OTHER INCOME (DEDUCTIONS)
Allowance for equity funds used during construction . . . . . . . . . . . . . . 6 5 1
Other income (deductions) - net . . . . . . . . . . . . . . . . . . . . . . . . (12) (8) (3)
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 10 15
------ ------ ------
Total other income (deductions) . . . . . . . . . . . . . . . . . . . . . . . (2) 7 13
------ ------ ------
INCOME BEFORE INTEREST AND OTHER CHARGES . . . . . . . . . . . . . . . . . . . . . 1,331 1,354 1,476
------ ------ ------
INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 7 4
INTEREST EXPENSE AND OTHER CHARGES
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 476 527 595
Distributions on TU Electric obligated, mandatorily redeemable,
preferred securities of subsidiary trusts holding solely junior
subordinated debentures of TU Electric. . . . . . . . . . . . . . . . . . . . 68 70 33
Allowance for borrowed funds used during construction . . . . . . . . . . . . . (8) (8) (11)
------ ------ ------
Total interest expense and other charges . . . . . . . . . . . . . . . . . . 536 589 617
------ ------ ------
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 798 772 863
PREFERRED STOCK DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 27 54
------ ------ ------
NET INCOME AVAILABLE FOR
COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 785 $ 745 $ 809
====== ====== ======
</TABLE>
<TABLE>
<CAPTION> STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME
Year Ended December 31,
-----------------------------
1998 1997 1996
---- ---- ----
Millions of Dollars
<S> <C> <C> <C>
NET INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 798 $ 772 $ 863
------ ------ ------
OTHER COMPREHENSIVE INCOME (LOSS) - net change during period in
minimum pension liability adjustment. . . . . . . . . . . . . . . . . . . . . . (1) - -
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) - -
------ ------- ------
COMPREHENSIVE INCOME. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 797 $ 772 $ 863
====== ======= ======
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
A-34
<PAGE>
<TABLE>
<CAPTION>
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
Year Ended December 31,
----------------------------
1998 1997 1996
---- ---- ----
Millions of Dollars
<S> <C> <C> <C>
CASH FLOWS - OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 798 $ 772 $ 863
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization (including amounts charged to fuel) . . . . . . 905 710 685
Deferred income taxes - net . . . . . . . . . . . . . . . . . . . . . . . . . 127 134 150
Investment tax credits - net. . . . . . . . . . . . . . . . . . . . . . . . . (21) (21) (32)
Allowance for equity funds used during construction . . . . . . . . . . . . . (6) (5) (1)
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 153 (124) 9
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) (4) 3
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (169) 44 52
Interest and taxes accrued. . . . . . . . . . . . . . . . . . . . . . . . . (6) 42 (19)
Other working capital . . . . . . . . . . . . . . . . . . . . . . . . . . . (25) 83 (1)
Over/(under) - recovered fuel revenue - net of deferred taxes . . . . . . . 26 (21) (47)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 54 36
------ ------ ------
Cash provided by operating activities. . . . . . . . . . . . . . . . . . 1,805 1,664 1,698
------ ------ ------
CASH FLOWS - FINANCING ACTIVITIES
Issuances of securities:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 429 513 244
TU Electric obligated, mandatorily redeemable, preferred securities
of subsidiary trusts holding solely junior subordinated debentures
of TU Electric. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 493 -
Retirements/repurchases of securities:
Long-term debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (924) (942) (859)
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14) (553) (50)
TU Electric obligated, mandatorily redeemable, preferred securities
of subsidiary trusts holding solely junior subordinated debentures
of TU Electric. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (47) - -
Common stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (578) (280) -
Change in notes receivable/payable:
Parent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20) 219 (33)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (253) (69)
Preferred stock dividends paid. . . . . . . . . . . . . . . . . . . . . . . . . (14) (36) (55)
Common stock dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . - (273) (367)
Debt premium, discount, financing and reacquisition expenses. . . . . . . . . . (64) (27) (38)
------ ------ ------
Cash used in financing activities. . . . . . . . . . . . . . . . . . . . (1,232) (1,139) (1,227)
------ ------ ------
CASH FLOWS - INVESTING ACTIVITIES
Construction expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . (501) (446) (377)
Allowance for equity funds used during construction (excluding
amount for nuclear fuel) . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3 1
Nuclear fuel (excluding allowance for equity funds used
during construction) . . . . . . . . . . . . . . . . . . . . . . . . . . . . (51) (74) (59)
Other investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (33) (9) (46)
------ ------ ------
Cash used in investing activities. . . . . . . . . . . . . . . . . . . . (580) (526) (481)
------ ------ ------
NET CHANGE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . . . . . . (7) (1) (10)
CASH AND CASH EQUIVALENTS - BEGINNING BALANCE . . . . . . . . . . . . . . . . . 12 13 23
------ ------ ------
CASH AND CASH EQUIVALENTS - ENDING BALANCE . . . . . . . . . . . . . . . . . . . $ 5 $ 12 $ 13
====== ====== ======
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
A-35
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
December 31,
---------------------
1998 1997
---- ----
Millions of Dollars
<S> <C> <C>
ELECTRIC PLANT
In service:
Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $15,469 $15,370
Transmission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,621 1,669
Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,046 4,745
General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 447 436
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,583 22,220
Less accumulated depreciation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,789 6,120
------- -------
Electric plant in service, less accumulated depreciation. . . . . . . . . . . . . . . . . . . 15,794 16,100
Construction work in progress. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 226 190
Nuclear fuel (net of accumulated amortization: 1998 - $549, 1997 - $456) . . . . . . . . . . . . 201 242
Held for future use. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 24
------- -------
Electric plant, less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . 16,245 16,556
Less reserve for regulatory disallowances. . . . . . . . . . . . . . . . . . . . . . . . . . . . 836 836
------- -------
Net electric plant. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,409 15,720
------- -------
INVESTMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 588 534
------- -------
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 12
Accounts receivable (net of allowance for uncollectible accounts: 1998 - $7; 1997 - $6) . . . . . 205 358
Inventories - at average cost:
Materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 181 181
Fuel stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 82
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 49
Prepayments and other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 33
------- -------
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 584 715
------- -------
DEFERRED DEBITS
Unamortized regulatory assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,750 1,787
Other deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74 68
------- -------
Total deferred debits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,824 1,855
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,405 $18,824
======= =======
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
A-36
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
CAPITALIZATION AND LIABILITIES
December 31,
-------------------
1998 1997
---- ----
Millions of Dollars
<S> <C> <C>
CAPITALIZATION
Common stock without par value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,729 $ 4,316
Retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,767 1,982
Accumulated other comprehensive income (loss) - minimum pension liability adjustment . . . . . (1) -
------- -------
Total common stock equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,495 6,298
Preferred stock:
Not subject to mandatory redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 129
Subject to mandatory redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 21
TU Electric obligated, mandatorily redeemable, preferred securities of subsidiary trusts
holding solely junior subordinated debentures of TU Electric . . . . . . . . . . . . . . . . 823 875
Long-term debt, less amounts due currently . . . . . . . . . . . . . . . . . . . . . . . . . . 5,208 5,476
------- -------
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,662 12,799
------- -------
CURRENT LIABILITIES
Notes payable - affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163 183
Long-term debt due currently . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 533 753
Accounts payable:
Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 289
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 152
Customers' deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 74
Taxes accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 169 167
Interest accrued . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 133 141
Over-recovered fuel revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 12
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113 137
------- -------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,511 1,908
------- -------
DEFERRED CREDITS AND OTHER NONCURRENT LIABILITIES
Accumulated deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,307 3,217
Unamortized investment tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 536 557
Other deferred credits and noncurrent liabilities. . . . . . . . . . . . . . . . . . . . . . . 389 343
------- -------
Total deferred credits and other noncurrent liabilities. . . . . . . . . . . . . . . . . . 4,232 4,117
------- -------
COMMITMENTS AND CONTINGENCIES (Note 14)
------- -------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,405 $18,824
======= =======
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
A-37
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
TEXAS UTILITIES ELECTRIC COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED COMMON STOCK EQUITY
Year Ended December 31,
----------------------------
1998 1997 1996
---- ---- ----
Millions of Dollars
<S> <C> <C> <C>
COMMON STOCK without par value- authorized shares - 180,000,000:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . $4,316 $4,732 $4,732
Common stock repurchased and retired (1998 - 19,270,300 shares,
1997 - 13,869,000 shares). . . . . . . . . . . . . . . . . . . . . . . . (578) (416) -
Long-term incentive plan trust . . . . . . . . . . . . . . . . . . . . . . (9) - -
------ ------ ------
Balance at end of year (1998 - 123,660,700 shares;
1997 - 142,931,000 shares; and 1996 - 156,800,000 shares) . . . . . . . . 3,729 4,316 4,732
------ ------ ------
RETAINED EARNINGS:
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . 1,982 1,374 1,068
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 798 772 863
Dividends declared on common stock . . . . . . . . . . . . . . . . . . . . - (137) (503)
Dividends declared on preferred stock. . . . . . . . . . . . . . . . . . . (13) (27) (54)
------ ------ ------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,767 1,982 1,374
------ ------ ------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS):
Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . - - -
Change during the year . . . . . . . . . . . . . . . . . . . . . . . . . . (1) - -
------ ------ ------
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . (1) - -
------ ------ ------
COMMON STOCK EQUITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $6,495 $6,298 $6,106
====== ====== ======
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
A-38
<PAGE>
<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), a Texas corporation, is a
holding company whose principal United States (US) operations are conducted
through Texas Utilities Electric Company (TU Electric), ENSERCH Corporation
(ENSERCH), and Texas Energy Industries, Inc. (TEI). Its principal
international operations are conducted through TU International Holdings
Limited (TU International Holdings), whose principal operating subsidiaries
include Eastern Group plc (a subsidiary of TXU Eastern Holdings Limited)
(Eastern Group) in the United Kingdom (UK) and Eastern Energy Limited (Eastern
Energy) in Australia. Through its subsidiaries, the Company engages in the
generation, purchase, transmission, distribution and sale of electricity; the
gathering, processing, transmission and distribution of natural gas; energy
marketing; and telecommunications, retail energy services, international gas
operations, power development and other businesses primarily in the US, UK and
Australia.
In March 1998, the Company made an offer for all the ordinary shares of
The Energy Group PLC (TEG). The Company's offer for TEG was declared
unconditional on May 19, 1998, which was determined to be the date the Company
acquired TEG. By the end of August 1998, the Company had acquired all of
TEG's outstanding shares. The Company recorded its approximate 22% equity
interest in the net income of TEG for the period March 1998 to May 19, 1998
and has accounted for TEG and Eastern Group as consolidated subsidiaries since
May 19, 1998.
Immediately prior to being acquired by the Company, TEG completed the
sale of its US and Australian coal business and US energy marketing operations
(Peabody Sale). The TEG businesses acquired by TUC, which exclude those
representing the Peabody Sale, are referred to as "TEG Businesses Acquired".
The total purchase consideration for the TEG Businesses Acquired was
approximately $7.4 billion, including cash paid of $5.8 billion and non-cash
consideration of $1.6 billion, which consists primarily of the value assigned
to the 37,316,884 shares of TUC common stock issued to those holders of TEG
shares who elected to receive shares of TUC common stock in exchange for their
TEG shares. At the date of the acquisition, TEG had assets of $10.4 billion,
including cash of $3.3 billion, and liabilities of $8.4 billion including a
provision for unfavorable contracts and leases and $5.1 billion in debt. The
process of determining the fair value of assets acquired and liabilities
assumed of TEG has not been completed; however, the excess of the purchase
consideration plus acquisition costs over a preliminary estimate of net fair
value of tangible and identifiable intangible assets acquired and liabilities
assumed resulted in goodwill of $5.4 billion, which is being amortized over
40 years. This amount is subject to revision as additional information about
the fair value of TEG's assets acquired, liabilities assumed and contingencies
existing at the acquisition date becomes known. In particular, there is
uncertainty over the valuation of the electricity distribution system
including metering assets pending finalization of the current distribution
price review and the intention that the metering business market becomes
competitive in 2000. In addition, there is uncertainty over the final
settlement price of the Peabody Sale and the outcome of certain proceedings
concerning the pension scheme.
On August 5, 1997, the merger transactions (Merger) involving the former
Texas Utilities Company, now known as TEI, and ENSERCH were completed. The
value assigned to the TUC shares issued and costs incurred in connection with
the acquisition of ENSERCH aggregated $579 million. On November 21, 1997, the
Company acquired Lufkin-Conroe Communications Co. (LCC). The value assigned
to the TUC shares issued and costs incurred in connection with the acquisition
of LCC aggregated $319 million. The acquisitions of ENSERCH and LCC were
accounted for as purchase business combinations.
A-39
<PAGE>
<PAGE>
The following summary of unaudited pro forma consolidated results of the
Company's operations reflects the operations of the TEG Businesses Acquired,
ENSERCH and LCC as though each acquisition had occurred at the beginning of
each period presented. Expenses of the acquisitions incurred by the Company,
the 22% equity in earnings of TEG and a one-time windfall tax imposed on TEG
have been eliminated. Amounts are in millions of dollars, except per share
amounts.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------
1998 1997
----------------------- ------------------------
As Reported Pro forma As Reported Pro forma
----------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues. . . . . . . . . . . . . . . . . . $14,736 $17,319 $7,946 $14,794
Operating income. . . . . . . . . . . . . . 2,463 2,781 1,906 2,719
Net income. . . . . . . . . . . . . . . . . 740 884 660 842
Average shares outstanding (millions) . . . 265 282 231 286
Earnings per share of common stock
Basic . . . . . . . . . . . . . . . . . $2.79 $3.13 $2.86 $2.95
Diluted . . . . . . . . . . . . . . . . $2.79 $3.13 $2.85 $2.94
</TABLE>
The above pro forma results are based on the most current estimate of the
fair value of assets acquired, liabilities assumed and contingencies existing
as of the acquisition dates of the TEG Businesses Acquired for the 1998 period
and ENSERCH and LCC for the 1997 period. These results are not necessarily
indicative of what the actual results would have been had the acquisitions
occurred at the beginning of these periods. Further, the pro forma results
are not intended to be a projection of the future results of the combined
companies.
On February 24, 1999, TU Australia acquired from the Government of
Victoria, Australia the gas retail business of Kinetik Energy, which has
approximately 400,000 gas customers, and the gas distribution operations of
Westar, which are of similar size. The purchase price was $1.0 billion for
Westar/Kinetik Energy assets.
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. 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.
All dollar amounts in the financial statements and notes to consolidated
financial statements, except per share amounts, are stated in millions of US
dollars unless otherwise indicated.
Use of Estimates -- The preparation of the consolidated financial
statements 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. 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, other than those disclosed
elsewhere herein, were made to previous estimates during the current year.
A-40
<PAGE>
<PAGE>
System of Accounts -- The accounting records of TU Electric 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 Company (Lone Star Gas) and Lone Star Pipeline
Company (Lone Star Pipeline), divisions of ENSERCH, are subject to the
accounting requirements prescribed by the National Association of Regulatory
Utility Commissioners (NARUC). Eastern Group separately prepares regulatory
accounts under accounting requirements specified by the Office of Electricity
Regulation (OFFER).
Property, Plant and Equipment -- US electric and gas utility plant is
stated at original cost less certain regulatory disallowances. The cost of
property additions to US 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, including non-US
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
US utility plant.
TU Electric and other regulated US subsidiaries capitalize AFUDC on
expenditures for ongoing construction work in progress and nuclear fuel in
process not otherwise allowed in rate base by regulatory authorities. For
1998, 1997 and 1996, TU Electric used rates of 8.0%, 7.9% and 7.4%,
respectively.
Depreciation of Property, Plant and Equipment -- Depreciation of the
Company's US 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 decommissioning
costs for TU Electric's nuclear powered electric generating station (Comanche
Peak) which is being accrued over the lives of the units. Depreciation of
all other plant and equipment generally is determined by the straight-line
method over the estimated useful life of the asset. Consolidated depreciation
as a percent of average depreciable property for the Company approximated
3.0% for 1998, 2.6% for 1997 and 2.7% for 1996. The fair value of the
acquired UK power stations under capital lease is amortized to expense ratably
over the remaining estimated economic life of the power stations which extend
to 2018. The UK government is entitled to claim a portion of any gain
realized by Eastern Group on certain subsidiary property disposals made up to
March 31, 2000. Provisions for such claims are made to the extent that such
liabilities are probable, including when an actual or deemed disposal occurs.
The successful efforts method is used to account for UK natural gas fields.
Depletion is charged on a unit-of-production basis.
Amortization of Goodwill -- Goodwill represents the excess of the
purchase price paid over the estimated fair value of the net assets acquired
and liabilities assumed for each company acquired and is being amortized over
40 years. The process of determining the fair value of assets acquired,
liabilities assumed and contingencies existing at the acquisition date of
ENSERCH and LCC was completed in 1998 and resulted in an overall increase in
goodwill of approximately $60 million over the preliminary allocations
primarily due to refinement of estimates of preacquisition contingencies.
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 refueling outage for Comanche Peak.
Foreign Currency Translation -- The assets and liabilities of non-US
operations denominated in local 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
A-41
<PAGE>
<PAGE>
included in other comprehensive income, a separate component of common stock
equity.
Derivative Instruments -- The Company and its subsidiaries do not enter
into or trade derivative financial instruments for speculative purposes, other
than for trading purposes in US energy marketing activities. 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. Swaps, options and forward
contracts are used to hedge foreign currency exposure in the Company's UK and
Australian operations. The Company also enters into derivative contracts or
other contractual agreements in connection with the wholesale purchases of
electric energy by Eastern Group in the UK and Eastern Energy in Australia and
defers the impact of changes in the market value of the derivative
instruments, which serve as hedges, until the related transaction is
completed. (See Note 10.) Eastern Group evaluates its net open energy
trading position, including derivative financial instruments entered into as a
part of energy trading activities, and provides for any anticipated future
losses.
Energy Marketing Activities --The Company, through its energy marketing
subsidiary, Enserch Energy Services, Inc. (EES), enters into a variety of
transactions in the US, including forward contracts involving physical
delivery of natural gas or electrical power commodities, as well as swaps,
futures, options and other derivative contractual arrangements. As part of
these business activities, EES offers price risk management services to the
energy sector. These transactions are primarily conducted with retail end
users, established energy companies and major financial institutions. EES
uses the mark-to-market method of valuing and accounting for these
activities. Under this method, the current market value of EES' energy
portfolio, net of future servicing costs, is reflected within the Company's
consolidated balance sheets as "Energy Marketing Risk Management Assets" or
"Energy Marketing Risk Management Liabilities". Resulting unrealized gains
and losses are reflected in the Company's consolidated statements of income.
The actual timing of cash receipts and payments, however, may vary as
contracts may be settled at intervals other than their scheduled maturities.
(See Note 10.)
Revenues -- Electric and gas sales revenues are recognized when services
are provided to customers on the basis of periodic cycle meter readings and
include an estimated accrual for the value of electricity and gas provided
from the meter reading date to the end of the period. US electric and gas
revenues include billings under approved rates and adjustments under various
mechanisms to recover or refund the cost of fuel and purchased power costs
that are above or below the level included in base rates. (See Note 13 for a
discussion of Regulations and Rates.)
Income Taxes --The Company and its US 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 provided for temporary
differences between the book and tax basis of assets and liabilities. Certain
provisions of Statement of Financial Accounting Standards (SFAS) No. 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.
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.
Earnings Per Share -- Basic earnings per share applicable to common stock
are based on the weighted average number of common shares outstanding during
the year. Diluted earnings per share include the effect of potential common
shares resulting from the assumed conversion of the convertible subordinated
debentures of ENSERCH for the period outstanding and the exercise of all
outstanding stock options. For the year ended December 31, 1998 and for the
period from the date of the Merger to December 31, 1997, 677,269 and 999,492
A-42
<PAGE>
<PAGE>
shares, respectively, were added to the average shares outstanding and $.9
million and $1.5 million, respectively, of after-tax interest expense was
added to earnings applicable to common stock for the purpose of calculating
diluted earnings per share.
Consolidated Cash Flows -- For purposes of reporting cash and cash
equivalents, 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 non-cash investing and financing activities:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1998 1997 1996
------ ------- ------
<S> <C> <C> <C>
The Company
CASH PAYMENTS
Interest (net of amounts capitalized) . . . . . . . . . . $ 1,206 $ 700 $ 790
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 357 175 247
NON-CASH INVESTING AND FINANCING ACTIVITIES
Acquisition of TEG (1998), ENSERCH and LCC (1997):
Fair value of assets acquired. . . . . . . . . . . . $10,414 $ 2,033 $ -
Goodwill . . . . . . . . . . . . . . . . . . . . . . 5,412 1,005 -
Common stock issued, net of capitalized expenses . . (1,449) (892) 10
Loan notes payable . . . . . . . . . . . . . . . . . (141) - -
Liabilities assumed. . . . . . . . . . . . . . . . . (8,437) (2,125) -
------- ------- -------
Cash used . . . . . . . . . . . . . . . . . . . 5,799 21 10
Cash acquired. . . . . . . . . . . . . . . . . . . . (3,265) (26) -
------- ------- -------
Net cash used (provided). . . . . . . . . . . . $ 2,534 $ (5) $ 10
======= ======= =======
TU Electric
CASH PAYMENTS
Interest (net of amounts capitalized) . . . . . . . . . . $ 508 $ 537 $ 591
Income taxes. . . . . . . . . . . . . . . . . . . . . . . 374 232 303
</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. The Company's US regulated subsidiaries 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,
----------------- -----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Securities reacquisition costs . . . . . . . . . . $ 434 $ 398 $ 432 $ 397
Rate case costs. . . . . . . . . . . . . . . . . . 54 57 54 57
Litigation and settlement costs. . . . . . . . . . 73 73 73 73
Voluntary retirement/severance program . . . . . . 105 128 90 108
Recoverable deferred income taxes - net. . . . . . 1,204 1,249 1,209 1,255
Other regulatory assets (liabilities). . . . . . . 8 34 (35) (30)
Reserve for regulatory disallowances . . . . . . . (73) (73) (73) (73)
------ ------ ------ ------
Unamortized regulatory assets . . . . . . . . . 1,805 1,866 1,750 1,787
Unamortized investment tax credits . . . . . . . . (548) (571) (536) (557)
------ ------ ------ ------
Unamortized regulatory assets - net. . . . . . $1,257 $1,295 $1,214 $1,230
====== ====== ====== ======
</TABLE>
TN#34 Future significant changes in regulation or competition could
affect the US regulated subsidiaries' ability to meet the criteria for
continued application of SFAS 71 and may affect their ability to recover these
A-43
<PAGE>
<PAGE>
regulatory assets from, or refund these regulatory liabilities to,
customers. If the affected subsidiaries were to discontinue the application
of SFAS 71, they would be required to assess the recoverability of US plant
and regulatory assets. 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 operations or
cash flows.
TU Electric
Affiliates -- The Company provides common stock capital and a part of
short-term financing requirements to TU Electric and other subsidiaries. The
Company has other subsidiaries which perform specialized services for TU
Electric and other subsidiaries; Texas Utilities Services Inc. (TU Services)
which provides financial, accounting, information technology, environmental,
customer, procurement, personnel, shareholder 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.
TU Electric provides services such as energy sales, wheeling and scheduling to
Southwestern Electric Service Company (SESCO), an electric utility subsidiary
of the Company operating in the eastern and central part of Texas.
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, $325 million at December 31, 1998, 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 6.5% to
7.0%.
The schedule below details TU Electric's significant billings to and from
affiliates for services rendered and interest on short-term financings:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997 1996
------ ----- ----
<S> <C> <C> <C>
Billings from:
TU Services. . . . . . . . . . . . . $ 248 $271 $264
Fuel Company . . . . . . . . . . . . 1,019 996 922
Mining Company . . . . . . . . . . . 360 355 369
Billings to:
SESCO. . . . . . . . . . . . . . . . $ 23 $ 35 $ 29
Fuel Company . . . . . . . . . . . . - 1 2
ENSERCH. . . . . . . . . . . . . . . 107 - -
</TABLE>
3. SHORT-TERM FINANCING
The Company
The Company had outstanding short-term borrowings of $2,951 million
consisting of commercial paper of $2,055 million and bank borrowings of $896
million at December 31, 1998. The weighted average interest rates on such
borrowings was 6.46% at December 31, 1998. During the years 1998, 1997 and
1996, the Company's average amounts outstanding for short-term borrowings,
including amounts classified as long-term, were $3,131 million, $1,222 million
and $594 million, respectively. Weighted average interest rates for
short-term borrowings during such periods were 5.84%, 5.86%, and 5.94%,
respectively.
A-44
<PAGE>
<PAGE>
At December 31, 1998, TUC, TU Electric and ENSERCH had $3,500 million of
joint US dollar-denominated lines of credit under revolving credit facility
agreements (US Credit Agreements) with a group of banking institutions. The
US Credit Agreements have two facilities. Facility A provides for short-term
borrowings aggregating up to $2,100 million outstanding at any one time at
variable interest rates and terminates February 25, 2000. Of this, $800
million can be used for working capital and other general corporate purposes.
Facility B provides for borrowings aggregating up to $1,400 million
outstanding at any one time at variable interest rates and terminates March 2,
2003. Borrowings under this facility can be used for working capital and
other general corporate purposes. The combined borrowings of TUC, TU Electric
and ENSERCH under both facilities, excluding amounts restricted to finance the
acquisition of TEG, are limited to an aggregate of $2,200 million outstanding
at any one time. TU Electric's and ENSERCH's borrowings under both facilities
are limited to an aggregate of $1,250 million and $650 million outstanding at
any one time, respectively. The facilities primarily support commercial paper
borrowings.
In addition, a separate Eastern Electricity Revolving Credit Facility
provides for short term borrowings for general corporate purposes of up to
250 million pounds ($414 million) outstanding at any one time and terminates
March 2, 2003. Under this facility, 180 million pounds ($298 million) was
outstanding at year-end 1998.
The Company intends to refinance $874 million of its current short-term
borrowings beyond one-year of December 31, 1998; such amount has been
reclassified as long-term debt.
In addition, certain non-US subsidiaries have revolving credit agreements
(denominated in both foreign currencies and US dollars) aggregating
approximately $106 million, of which $83 million was outstanding at December
31, 1998. These revolving credit agreements expire at various dates through
2001.
TU Electric
TU Electric had no borrowings from banks in 1998, 1997 or 1996 and no
commercial paper outstanding in 1998. TU Electric's average commercial paper
outstanding was $37 million and $254 million, for 1997 and 1996, respectively.
During such periods, weighted average interest rates to holders of commercial
paper were 5.61% and 5.53%, respectively. Average borrowings outstanding from
other affiliates were $206 million, $158 million and $10 million during 1998,
1997, and 1996, respectively, and the respective weighted average interest
rates for such borrowings were 5.84%, 5.88% and 5.91%.
4. COMMON STOCK
The Company
The Company has a Direct Stock Purchase and Dividend Reinvestment Plan
(DRIP), an Employees' Thrift Plan of the Texas Utilities Company System
(Thrift Plan) and an Employee Stock Purchase and Savings Plan of ENSERCH
(EN$AVE). During the last three years, most of the requirements under the
DRIP, Thrift Plan and EN$AVE plans have been met through open market purchases
of the Company's common stock. In 1998, approximately $8 million in common
stock of the Company was issued to the plans.
At December 31, 1998, the Thrift Plan had an initial obligation of $250
million 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, 1998, the Thrift Plan trustee held 5,141,529 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
Company's obligations under terms of the Thrift Plan. The Thrift Plan uses
dividends on the LESOP Shares held and contributions from the Company, 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
A-45
<PAGE>
<PAGE>
held by the trustee. Allocations to participants' accounts in each of the
years 1998, 1997 and 1996 increased common stock equity by $8 million each
year.
The Long-Term Incentive Compensation 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. The maximum
number of shares of common stock for which Awards may be granted under the
plan is 2,500,000. During 1998 and 1997, the Board of Directors authorized
the award of 68,000 and 61,000 shares, respectively, of restricted common
stock, which were issued subject to performance and vesting requirements over
a three to five year period. No stock options were granted.
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 $3.2 million
was accounted for as a part of the cost of the acquisition. At December 31,
1998, 260,151 of these options remained outstanding and exercisable.
At December 31, 1998, 25,225,357 shares of the authorized but unissued
common stock of the Company were reserved for issuance and sale pursuant to
the above plans, for equity-linked securities and for other purposes.
In November 1997, the Company's Board of Directors increased the common
stock repurchase limit to $350 million of which $227 million had been used as
of December 31, 1998 to purchase and retire a total of 5,819,251 shares of the
Company's issued and outstanding common stock during the three years then
ended. 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 million authorized shares of serial preference stock
having a par value of $25 per share, none of which has been issued.
Shareholders Rights Plan -- On February 19, 1999, the Board of Directors
adopted a shareholder rights plan pursuant to which shareholders were granted
rights to purchase one one-hundreth of a share of Series A Preference Stock
(Rights) for each share of the Company's common stock held.
In the event that any person acquires more than 15% of the Company's
outstanding Common Stock, the Right becomes exercisable, entitling each holder
(other than the acquiring person or group) to purchase that number of shares
of securities or other property of the Company having a market value equal to
two times the exercise price of the Right. If the Company were acquired in a
merger or other business combination, each Right would entitle its holder to
purchase a number of the acquiring company's common shares having a market
value of two times the exercise price of the Right. In either case, the
Company's Board of Directors may choose to redeem the Rights before they
become exercisable.
The Company's Board declared a dividend of one Right for each outstanding
share of Common Stock. Rights were distributed to shareholders of record on
March 1, 1999.
A-46
<PAGE>
<PAGE>
TU Electric
During the years ended December 31, 1998 and 1997, TU Electric purchased
and retired a total of 19,270,300 and 13,869,000 shares of its issued and
outstanding common stock at a total cost of approximately $587 million and
$416 million, respectively. TU Electric had no common stock transactions in
1996. In February 1999, TU Electric purchased 4,946,500 shares of its issued
and outstanding common stock at a total cost of approximately $148 million.
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.
A-47
<PAGE>
<PAGE>
5. LONG-TERM DEBT, less amounts due currently
<TABLE>
<CAPTION>
The Company TU Electric
December 31, December 31,
--------------------- --------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
First mortgage bonds (6 1/4% to 10.44% due 1999 to 2025). . . . . . . . $ 2,276 $ 2,867 $ 2,276 $ 2,867
Pollution control series:
Brazos River Authority:
Fixed rate (4.15% to 8 1/4% due 2019 to 2033) . . . . . . . . . 902 641 902 641
Taxable series (5.27% to 5.28% due 2021 to 2023) (a). . . . . . 116 141 116 141
Variable rate (3.10% to 5.30% due 2022 to 2032) (b)(c). . . . . 400 637 400 637
Sabine River Authority of Texas:
Fixed rate (5.55% to 8 1/4% due 2020 to 2022) . . . . . . . . . 199 199 199 199
Variable rate (4.00% to 5.30% due 2022 to 2030) (c). . . . . . 182 182 182 182
Trinity River Authority of Texas-
Flexible rate (4.10% to 5.38% due 2022 to 2032) (c) . . . . . . 51 51 51 51
Secured medium-term notes . . . . . . . . . . . . . . . . . . . . . 315 345 315 345
Debt assumed for purchase of utility plant (d). . . . . . . . . . . . . 151 154 151 154
TU Electric Floating Rate Debentures due 2000 (e) . . . . . . . . . . . 350 - 350 -
TU Electric 7.17% Senior Debentures due 2007. . . . . . . . . . . . . . 300 300 300 300
Eastern Group:
Bonds (7.375% to 8.75% due 2004 to 2027) (f). . . . . . . . . . . . 1,872 - - -
Rent factoring agreement. . . . . . . . . . . . . . . . . . . . . . 708 - - -
Capital leases (See note 14). . . . . . . . . . . . . . . . . . . . 871 - - -
Other long-term debt. . . . . . . . . . . . . . . . . . . . . . . . 726 - - -
Senior notes:
TUC (5.248% to 6.375% due through 2008) . . . . . . . . . . . . . . 625 300 - -
Various subsidiaries (6.5% to 10.5% due 2003 to 2016) . . . . . . . 1,248 1,436 - -
ENSERCH Remarketed Reset Notes due 2008 (g) . . . . . . . . . . . . . . 125 - - -
6.375% Convertible subordinated debentures due 2002 . . . . . . . . . . - 91 - -
TUC - Equity-linked securities (6.37% to 6.50% due 2003 and 2004) . . . 700 - -
TUC - 5.94% mandatory putable/remarketable securities . . . . . . . . . 375 - - -
Credit facilities:
Eastern Energy (h). . . . . . . . . . . . . . . . . . . . . . . . . 448 427 - -
Eastern Group . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,324 - - -
TUC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 816 990 - -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82 34 - -
Unamortized premium and discount and fair value adjustments . . . . . . (29) (36) (34) (41)
------- ------- ------- -------
Total long-term debt, less amounts due currently. . . . . . $15,133 $ 8,759 $ 5,208 $ 5,476
======= ======= ======= =======
<FN>
(a) Interest rates in effect at December 31, 1998 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, 1998 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, 1998 are presented. These series
are in a daily or multiannual 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) Interest will be set quarterly based on three-month LIBOR plus a margin.
The rate at December 31, 1998 was 5.47%.
(f) Eastern Group has an interest swap that converts 100 million pounds
($165.4 million) of the 8.375% bonds due 2004 to a floating rate, which was
5.42% at December 31, 1998.
(g) In July 1998, the interest rate was reset to a fixed rate of 6.56% payable
until July 1, 2005.
(h) Also includes Eastern Energy's $296 million Multi Option Credit
Facility due 2001 with a floating interest rate of 5.42% on December 31, 1998
and Eastern Energy's $124 million reclassified short-term debt (all of which
is included under interest rate swap agreements with notional principal
amounts of $577 million expiring at various dates through 2006 with fixed
interest rates ranging from 5.765 to 8.45% per annum and forward contracts
with notional principal amounts of $58 million maturing in early 1999 with an
average rate of 4.99%).
</FN>
</TABLE>
A-48
<PAGE>
<PAGE>
The Company
At December 31, 1998, TXU Eastern Holdings Limited (TXU Eastern),
formerly TU Finance (No. 1) Limited, TU Finance (No. 2) Limited, TU
Acquisitions and Eastern Group, had a joint sterling-denominated line of
credit with a group of banking institutions under a credit facility agreement
(Sterling Credit Agreement). Originally, the Sterling Credit Agreement
provided for borrowings of up to 3,375 million pounds and was comprised of
three facilities: the Acquisition, Interim, and Revolving Credit facilities.
During 1998, the Interim facility was repaid and has been cancelled. The
aggregate borrowing limit of the remaining facilities, which mature March 2,
2003, has been reduced to 1,275 million pounds ($2,109 million) at December
31, 1998. At December 31, 1998, the Acquisition facility had a balance of
750 million pounds ($1,241 million) outstanding, and no additional borrowings
are permitted. The Revolving Credit facility had a balance of 51
million pounds ($84 million) outstanding at December 31, 1998.
As of December 31, 1998, TXU Eastern had entered into various interest
rate swaps as required by the Sterling Credit Agreements. The aggregate
notional amount of the interest rate swaps entered into was 800 million pounds
($1,324 million). The swaps have an average maturity of six years and an
average fixed rate of 6.58%.
The Company recorded the liabilities of TEG upon acquisition, including
an agreement with commercial banks whereby future intra-group rental payments
receivable were assigned to the banks in return for a capital sum of
1,097 million pounds. These obligations are disclosed net of deferred finance
charges. A portion of the proceeds have been deposited as collateral for
obligations in respect of the funding of capital leases of certain power
stations. (See Note 14.)
In July and August of 1998, the Company issued a total of 14 million
equity-linked securities consisting of 12,700,000 units of income
equity-linked securities with a stated amount per security of $50 and
1,300,000 units of growth equity-linked securities with a stated amount per
security of $50. The Company also issued $32.5 million aggregate
principal amount of 6.37% Series D Senior Notes due August 16, 2003 (Series D
Notes) and $32.5 million aggregate principal amount of 6.50% Series E Senior
Notes due August 16, 2004 (Series E Notes).
Each income equity-linked security initially consists of a unit comprised
of (i) a purchase contract (Purchase Contract) under which the holder will
purchase from the Company by not later than August 16, 2001 (first settlement
date) for $25 cash a specified number of shares of the Company's common stock
(based on a formula using the market price of the Company's common stock) and
will purchase from the Company by not later than August 16, 2002 (second
settlement date) for $25 cash a specified number of shares of the Company's
common stock (based on a formula using the market price of the Company's
common stock), (ii) until the first settlement date, a Series D Note having a
principal amount of $25, and (iii) until the second settlement date, a Series
E Note having a principal amount of $25. Initially, $317.5 million aggregate
principal amount of Series D Notes and $317.5 million aggregate principal
amount of Series E Notes were issued to be held as a component of the
equity-linked securities. The holder of an income equity-linked security is
entitled to receive from the Company quarterly payments, in arrears, at 9.25%
per annum of the stated amount of such security ($50) prior to the first
settlement date and 9.25% per annum of the remaining stated amount ($25) from
that date to the second settlement date, consisting of contract adjustment
payments of 2.815% per annum of the stated amount and interest on the Series D
Note and the Series E Note through the first settlement date and 2.75% per
annum of the remaining stated amount and interest on the Series E Note through
the second settlement date.
Each growth equity-linked security initially consists of a unit comprised
of (i) a Purchase Contract, (ii) until the first settlement date, beneficial
ownership interest in a 1/40th undivided interest in a 3-year Treasury
security having a principal amount at maturity equal to $1,000, and (iii)
until the second settlement date, a 1/40th undivided interest in a 4-year
Treasury security having a principal amount at maturity equal to $1,000. The
holder of a growth equity-linked security will receive from the Company,
quarterly in arrears, contract adjustment payments of 3.315% per annum of the
A-49
<PAGE>
<PAGE>
stated amount of such security ($50) to the first settlement date and 3.25%
per annum of the remaining stated amount ($25) from the first to the second
settlement date.
Under the terms of the Purchase Contracts, the Company will issue between
7,115,267 and 8,395,802 shares of common stock by the first settlement date
and between 7,115,267 and 8,395,802 additional shares by the second settlement
date.
The Company recorded as a reduction of common stock equity, the present
value of the contract adjustment payments and a portion of the costs in
connection with the issuance of the equity-linked securities aggregating
approximately $76 million. A liability was recorded for the contract
adjustment payments and will be reduced as the contract adjustment payments
are made. The Company has the right to defer the contract adjustment
payments, but any such election will subject the Company to restrictions on
the payment of dividends on and redemption of outstanding shares of its common
stock.
In October 1998, the Company issued $375 million aggregate principal
amount of 5.94% Mandatory Putable/Remarketable Securities. On October 15,
2001, the notes will be subject to mandatory tender to a remarketing dealer,
if the remarketing dealer chooses to remarket the notes. If the remarketing
dealer does not purchase the notes, they must be repurchased by the Company.
If the remarketing dealer chooses to remarket, the Company may elect to have
the notes remarketed on October 15, 2001, for an interim period of up to 26
weeks at an interest rate to be reset weekly. On October 15, 2001 or, if
applicable, at the end of the interim period, the notes will be remarketed at
a reset interest rate to maturity or repurchased by the Company. The notes
are scheduled to mature on October 15, 2011, but that maturity date will be
extended by the length of any interim period.
Also in October 1998, the Company issued $125 million aggregate principal
amount of its Floating Rate Senior Notes due April 20, 2000. Interest on the
notes will be set quarterly based on LIBOR for three month deposits plus a
margin. In October 1998, the interest rate on the Floating Rate Senior Notes
was effectively fixed through an interest rate swap at a rate of 5.248%
through maturity.
Sinking fund and maturity requirements for the years 1999 through 2003
under long-term debt instruments in effect at December 31, 1998, were as
follows:
<TABLE>
<CAPTION>
Year The Company TU Electric
---- ----------- -----------
<S> <C> <C>
1999 . . . . . . . . . . . . . $1,194 $536
2000 . . . . . . . . . . . . . 2,186 159
2001 . . . . . . . . . . . . . 1,519 226
2002 . . . . . . . . . . . . . 562 374
2003 . . . . . . . . . . . . . 2,266 4
</TABLE>
TU Electric's first mortgage bonds are secured by a mortgage and deed of
trust with a major financial institution. Electric plant of TU Electric is
generally subject to the lien of its mortgage.
A-50
<PAGE>
<PAGE>
6. DIVIDEND RESTRICTIONS OF TU ELECTRIC AND OTHER SUBSIDIARIES OF THE
COMPANY
The articles of incorporation and/or the mortgage, as supplemented, and
certain other debt instruments of TU Electric contain provisions which, under
certain conditions, restrict distributions on or acquisitions of common stock.
At December 31, 1998, $13 million of retained earnings of TU Electric, were
thus restricted as a result of such provisions. Certain debt instruments of
Eastern Group contain provisions that, under certain conditions, may restrict
distributions on or acquisitions of common stock. At December 31, 1998, none
of Eastern Group's retained earnings was restricted as a result of such
provisions.
7.CHANGES IN ACCOUNTING STANDARDS
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities",
is effective for fiscal years beginning after June 15, 1999. This standard
requires that all derivative financial instruments be recognized as either
assets or liabilities on the balance sheet at their fair values and that
accounting for the changes in their fair values is dependent upon the intended
use of the derivatives and their resulting designations. The new standard
will supersede or amend existing standards that deal with hedge accounting and
derivatives. The Company and TU Electric have not yet determined the effect
adopting this standard will have on their financial statements.
A-51
<PAGE>
<PAGE>
8. 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, 1998 and
1997, are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
---------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- ------- -------
<S> <C> <C> <C> <C>
The Company
On balance sheet assets (liabilities):
Long-term debt (including current maturities)* . . . . . . . . . . . . $(15,332) $(15,926) $(9,531) $(9,932)
Company or subsidiary obligated, mandatorily redeemable,
preferred securities of Company or subsidiary trusts each
holding solely junior subordinated debentures of the Company
or related subsidiary . . . . . . . . . . . . . . . . . . . . . . . (1,193) (1,236) (875) (913)
Preferred stock of subsidiary subject to mandatory
redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . (21) (21) (21) (22)
Other investments. . . . . . . . . . . . . . . . . . . . . . . . . . . 2,581 2,597 242 249
LESOP note receivable. . . . . . . . . . . . . . . . . . . . . . . . . 250 302 250 281
Off-balance sheet assets (liabilities):
Financial guarantees . . . . . . . . . . . . . . . . . . . . . . . . . - (432) - (149)
Interest rate swaps. . . . . . . . . . . . . . . . . . . . . . . . . . - (86) - (50)
Currency swaps and forwards. . . . . . . . . . . . . . . . . . . . . . - (4) - 76
Gas swaps. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (3) - -
CfDs and EFAs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 101 - -
TU Electric
On balance sheet assets (liabilities):
Long-term debt (including current maturities). . . . . . . . . . . . . $ (5,741) $ (6,045) $(6,229) $(6,574)
TU Electric obligated, mandatorily redeemable, preferred
securities of subsidiary trusts holding solely junior
subordinated debentures of TU Electric. . . . . . . . . . . . . . . (823) (862) (875) (913)
Preferred stock subject to mandatory redemption. . . . . . . . . . . . (21) (21) (21) (22)
Other investments. . . . . . . . . . . . . . . . . . . . . . . . . . . 588 599 205 209
Off balance sheet assets (liabilities):
Financial guarantees . . . . . . . . . . . . . . . . . . . . . . . . - (96) - (103)
Interest rate swap . . . . . . . . . . . . . . . . . . . . . . . . . - (4) - (1)
<FN>
*Excludes capital leases.
</FN>
</TABLE>
A-52
<PAGE>
<PAGE>
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, at the present value of future cash flows discounted
at rates consistent with comparable maturities with similar credit risk. The
fair values of trust securities and preferred stock of subsidiaries are based
on quoted market prices. The carrying amounts 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 and restricted cash held as collateral for
certain leases. The trust fund is 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.
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 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.
9. COMPANY OR SUBSIDIARY OBLIGATED, MANDATORILY REDEEMABLE, PREFERRED
SECURITIES OF COMPANY OR SUBSIDIARY TRUSTS, EACH HOLDING SOLELY JUNIOR
SUBORDINATED DEBENTURES OF THE COMPANY OR RELATED SUBSIDIARY (TRUST
SECURITIES)
Statutory business trusts have been established as wholly-owned financing
subsidiaries (trusts) of the Company, TU Electric and ENSERCH (parent
companies) for the purposes, in each case, of issuing trust securities and
holding Junior Subordinated Debentures issued by the trust's parent company
(Debentures). TXU Capital I and TU Electric Capital I and III trust
securities have a liquidation preference of $25 per unit, and TU Electric
Capital IV and V and ENSERCH Capital I trust securities have a liquidation
preference of $1,000 per unit. The only assets of each trust are Debentures
of its parent company having a principal amount set forth under "Trust Assets"
in the table below. The interest on trust assets matches the distributions on
the trust securities. Each trust will use interest payments received on the
Debentures it holds to make cash distributions on the trust securities it has
issued.
The trust 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 the parent company, at 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 trust securities is being increased
periodically to equal the redemption amounts at the mandatory redemption dates
with a corresponding increase in trust securities distributions.
In December 1998, a statutory business trust, TXU Capital I, was
established as a financing subsidiary for the Company for the purpose of
issuing to investors $230 million of 7.25% Trust Securities.
A-53
<PAGE>
<PAGE>
At December 31, 1998 and 1997, the statutory business trust subsidiaries
of the Company, TU Electric and ENSERCH had trust securities outstanding, as
follows:
<TABLE>
<CAPTION>
Trust Securities Outstanding Trust Assets
------------------------------------- -----------------
Units (000's) Amount Amount Maturity
December 31, December 31, December 31,
-------------- ----------------- ----------------- --------
1998 1997 1998 1997 1998 1997
----- ----- ------- ----- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
The Company
TXU Capital I (7.25% Series). . . . . . . . 9,200 - $ 223 $ - $ 237 $ - 2029
TU Electric
TU Electric Capital I (8.25% Series). . . . 5,871 5,871 141 141 155 155 2030
TU Electric Capital II (9.00% Series) . . . - 1,991 - 47 - 52 -
TU Electric Capital III (8.00% Series). . . 8,000 8,000 194 194 206 206 2035
TU Electric Capital IV (Floating Rate
Trust Securities)(a). . . . . . . . . 100 100 96 98 103 103 2037
TU Electric Capital V (8.175% Trust
Securities). . . . . . . . . . . . . . 400 400 392 395 412 412 2037
------ ------ ------ ----- ----- -----
Total TU Electric. . . . . . . . . 14,371 16,362 823 875 876 928
------ ------ ------ ----- ----- -----
ENSERCH
ENSERCH Capital I (Floating Rate Trust
Securities)(b) . . . . . . . . . . . . 150 - 147 - 155 - 2028
------ ------ ------ ----- ----- -----
Total. . . . . . . . . . . . . . . 23,721 16,362 $1,193 $ 875 $1,268 $ 928
====== ====== ====== ===== ====== =====
<FN>
(a) Floating rate is determined quarterly based on LIBOR. A related interest
rate swap, expiring 2002, effectively fixes the rate on the TU Electric
Capital IV securities at 7.183%.
(b) Interest rate swaps effectively fix the rate on $100 million of the
ENSERCH Floating Rate Trust Securities at 6.629% and at 6.444% on the
remaining $50 million of the Trust Securities to July 1, 2003.
</FN>
</TABLE>
Each parent company owns securities issued by its subsidiary trust
and has effectively issued a full and unconditional guarantee of such trust's
securities.
10. DERIVATIVE INSTRUMENTS
The Company enters into derivative instruments, including options, swaps,
futures and other contractual commitments to manage market risks related to
changes in interest rates, foreign currency exchange rates and commodity price
exposures. The Company's participation in derivative transactions, except
for its energy marketing activities conducted by EES, 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, 1998, TU Electric
had an interest rate swap agreement with respect to trust securities of TU
Electric Capital IV, with a notional principal amount of $100 million that
effectively fixed the rate at 7.183% per annum through 2002. ENSERCH had two
interest rate swap agreements with respect to floating rate trust securities
of ENSERCH Capital I, with notional principal amounts of $100 million and $50
million that effectively fixed the rate at 6.629% and 6.444%, respectively per
annum through 2003. At December 31, 1998, TUC had an interest rate swap
agreement with respect to Floating Rate Senior Notes, with a notional
principal amount of $125 million expiring 2000 that effectively fixed the rate
at 5.248% per annum.
At December 31, 1998, Eastern Energy had interest rate swaps and forward
rate agreements outstanding, denominated in Australian dollars and/or US
dollars, with an aggregate notional amount of $1,218 million. These
agreements establish a mix of fixed and variable interest rates on outstanding
debt and have remaining terms up to 18 years.
A-54
<PAGE>
<PAGE>
At December 31, 1998, TXU Eastern had various interest rate swaps as
required by the Sterling Credit Agreement. The Sterling Credit Agreement
requires that one-half of the borrowings under these facilities be swapped
from a floating to a fixed interest rate with a maturity of at least two years
from July 28, 1998. The aggregate notional amount of the interest rate swaps
entered into is 800 million pounds ($1,323 million) with an average maturity
of six years and an average fixed rate of 6.58%. Eastern Group had interest
rate swaps outstanding with an aggregate notional amount of $165 million that
convert fixed interest rates to floating rates expiring in 2004 and forward
rate agreements totaling $878 million for a maximum duration of one year to
swap floating rate deposits into fixed rates.
At December 31, 1998, there were $86 million of net unrealized deferred
hedging losses on interest rate swaps.
Foreign Currency Risk Management -- The Company has entered into
short-term foreign currency exchange contracts in connection with the
acquisition of TEG to hedge a portion of the Company's exposure to changes in
the US dollar to pound sterling exchange rate. The Company has contracted to
deliver 675 million pounds and will receive $1,093 million. The fair value of
these contracts was a negative $28 million at December 31, 1998.
Eastern Group manages its exposure to foreign currency rates principally
by matching foreign currency denominated assets with borrowings in the same
currency. Currency swaps and options are also used where appropriate to hedge
any residual exposures. In addition, certain imports of capital equipment and
fuel are denominated in foreign currencies, and the pound sterling cost of
these is fixed by means of forward contracts as soon as Eastern Group's
contractual commitment is firm. The principal foreign currency hedges
outstanding at December 31, 1998 were as follows:
US $/Pound sterling options at put rates of $1.57, and call rates of
$1.60, each totaling $10 million and maturing in the year ending December 31,
1999. The fair value of these options is $1.5 million.
US $/Pound sterling swaps in respect of the semi-annual interest payments
on the $500 million bonds to swap from US$ to pound sterling as follows:
<TABLE>
<CAPTION>
Income Statement
Balance Sheet (average for periods
(at December 31,) ended December 31,)
----------------------------------------------------
Period Amount Annual Rate Fair Value
- ------ -------- ----------- ---------
millions millions
<S> <C> <C> <C>
Annually to 2017 $ 14.8 $ 1.61 $ (9.2)
Annually to 2027 $ 22.5 $ 1.62 $ (20.7)
</TABLE>
Eastern Energy maintains cross currency swaps for its US dollar
denominated debts. These cross currency swaps mature in December 2006 and
December 2016 for $250 million and $100 million, respectively. The maturity
of these swaps coincides with the maturity of the US dollar denominated debt.
Energy Price Risk Management -- UK/Europe -- Almost all electricity
generated in England and Wales must be sold to the electricity trading market
in England and Wales (the Pool), and electricity suppliers must likewise
generally buy electricity from the Pool for resale to their customers. The
Pool is operated under a Pooling and Settlement Agreement to which all
licensed generators and suppliers of electricity in the UK are party. These
trading arrangements are currently under review by the UK government. Eastern
Group enters into derivative contracts to assist in the management of its
exposure to fluctuations in electricity pool prices. The contracts bought and
sold are contracts for differences (CfDs) and electricity forward agreements
(EFAs) which fix the price of electricity for an agreed quantity and duration
by reference to an agreed strike price. EFAs are similar in nature to CfDs,
except that they tend to last for shorter time periods and are based on
standard industry terms rather than being individually negotiated. Long-term
CfDs are in place to hedge a portion of the electricity to be purchased by
Eastern Group through 2009. From 1998, such CfDs represent an annual
commitment of approximately five terawatt hours (TWh), declining on a linear
A-55
<PAGE>
<PAGE>
basis to approximately two TWh by 2005 and finally expiring in 2010. There
are no similar long-term commitments under EFAs. The impact of changes in the
market value of these contracts, which serve as hedges, is deferred until the
related transaction is completed. At December 31, 1998, there were net
unrealized deferred hedging gains of $101 million on the CfDs and EFAs.
In its gas retail business, Eastern Group sells fixed price contracts to
customers and supplies the customers through a portfolio of gas purchase
contracts and other wholesale contracts. The overall exposure of Eastern
Group to the gas spot market is also managed by EPETL using gas swaps and
futures. At December 31, 1998, there was one such swap outstanding maturing
March 31, 1999 with a negative fair value of $3.3 million.
Australia -- Eastern Energy and the other distribution companies in the
state of Victoria, Australia 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 most of their
forecasted franchise load through the end of 2000. Eastern Energy also
maintains a strategy of seeking hedging contracts with individual generators
to cover a portion of forecasted 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. At December 31,
1998, Eastern Energy's contracts related to its forecasted contestable and
franchise load cover a notional volume of approximately 8.3 million MWh for
the period from January 1999 through 2001. Further hedge contracts may be
required in that period to service forecasted sales. 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.
US Energy Marketing Activities -- In the course of providing
comprehensive energy products and services to its diversified client base, EES
engages in energy price risk management activities. In addition to the
purchase and sale of these physical commodities, EES enters into futures
contracts; forward commitments; swap agreements where settlement is based on
the difference between a fixed and floating (index-based) price for the
underlying commodity; exchange traded options; over-the-counter options, which
are settled in cash or the physical delivery of the underlying commodity;
exchange-of-futures-for physical transactions; energy exchange transactions;
storage activities; and other contractual arrangements. EES may buy and sell
certain of these instruments to manage its exposure to price and basis risk
from existing contractual commitments as well as other energy-related assets
and liabilities. It may also enter into contracts to take advantage of
arbitrage opportunities.
EES utilizes various techniques and methodologies that simulate forward
price curves in the energy markets to estimate the size and probability of
changes in market value resulting from price movements. These techniques
include, but are not limited to, sensitivity analyses. The uses of these
methodologies require a number of key assumptions including selection of
confidence levels, the holding period of the positions, and the depth and
applicability to future periods of historical price information.
EES has a number of risks and costs associated with the future
contractual commitments included in its energy portfolio, including price
risk, credit risks associated with the financial condition of counterparties,
product location (basis) differentials, market liquidity 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 energy has occurred, counterparties have fulfilled their
financial commitments and related financial instruments mature or are closed
out.
In order to manage its exposure to the price risk associated with these
instruments, EES has established trading policies and limits and revalues its
exposures daily against these benchmarks. These policies are periodically
reviewed to ensure they are responsive to changing market and business
conditions.
A-56
<PAGE>
<PAGE>
EES' energy portfolio is comprised of forward commitments, futures,
swaps, options and other derivative instruments related to natural gas
and electricity marketing activities. The notional amounts and terms of the
portfolio as of December 31, 1998 included financial instruments that provide
for fixed price receipts of 2,643 trillion British thermal units equivalent
(TBtue) and fixed price payments of 2,799 TBtue, with a maximum term of eight
years. Additionally, sales and purchase commitments totaling 973 TBtue, with
terms extending up to nine years, are included in the portfolio as of December
31, 1998.
Notional amounts reflect the volume of transactions but do not represent
the amounts exchanged by the parties to the financial instruments.
Accordingly, the notional amounts represented above do not necessarily measure
EES' exposure to market or credit risks. Additionally, the maximum term in
years are not indicative of likely future cash flows as these positions may be
offset in the markets at any time in response to EES' risk management needs.
The following table displays the mark-to-market values of EES's energy
marketing risk management assets and liabilities at December 31, 1998 and 1997
and the average value for the year ended December 31, 1998 and the period from
August 5, 1997 through December 31, 1997:
<TABLE>
<CAPTION>
1998 1997
---------------------------- ----------------------------
Assets Liabilities Net Assets Liabilities Net
------ ----------- ----- ------ ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Fair Value:
Current . . . . . . . . . . . . $832 $838 $ (6) $366 $357 $ 9
Noncurrent. . . . . . . . . . . 128 93 35 41 31 10
---- ---- ---- ---- ---- ----
Total . . . . . . . . . . $960 $931 29 $407 $388 19
Less reserves . . . . . . . . . ==== ==== 6 ==== ==== 9
---- ----
Net of reserves . . . . . $ 23 $ 10
==== ====
Average Value:
Total . . . . . . . . . . . . . $656 $617 $ 39 $292 $279 $ 13
Less reserves . . . . . . . . . ==== ==== 7 ==== ==== 8
---- ----
Net of reserves . . . . . $ 32 $ 5
==== ====
</TABLE>
EES recorded net trading gains (losses) of $45.6 million and $(0.3)
million from energy marketing activities for the year ended December 31, 1998
and for the period from August 5, 1997 through December 31, 1997,
respectively.
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 generally does not obtain collateral to
support the agreements but establishes credit limits and monitors the
financial viability of counterparties. In the event a counterparty's credit
rating declines, the Company may apply certain remedies, if considered
necessary. The Company believes the risk of nonperformance by counterparties
is minimal.
11. RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFITS
Most US employees 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
pension plans covering most of their employees and providing benefits similar
to those provided to employees of other US subsidiaries.
Eastern Group participates in several defined benefit pension plans in
the UK which cover the majority of its employees. The benefits under these
plans are primarily based on years of credited service and final average
compensation levels as defined under the respective plan provisions. In the
A-57
<PAGE>
<PAGE>
UK, the majority of Eastern Group employees are members of the Electricity
Supply Pension Scheme (ESPS) which provides pensions of a defined benefit
nature for employees throughout the electricity supply industry. The ESPS
operates on the basis that there is no cross-subsidy between employers, and
the financing of Eastern's pension liabilities is, therefore, independent of
the experience of other participating employers. The assets of the ESPS are
held in a separate trustee-administered fund and consists principally of UK
and European equities, UK property holdings and cash. The pension cost
relating to the Eastern Group part of the ESPS is assessed in accordance with
the advice of independent qualified actuaries using the projected unit method.
As a part of the purchase accounting for TEG, the accrued pension
liabilities were adjusted to recognize all previously unrecognized gains or
losses arising from past experience.
Eastern Group and Eastern Energy plans use economic assumptions similar
to the other subsidiaries plans and are included in the tabular information
below. The information in the tables below conforms to the requirements of
SFAS 132, which became effective in 1998.
In 1998, the Company made contributions to the Thrift Plan and EN$AVE
aggregating approximately $15 million.
The projected benefit obligations and fair value of plan assets for the
pension plans with projected benefit obligations in excess of plan assets were
$744 million and $718 million, respectively, as of December 31, 1998 and $705
million and $628 million, respectively, as of December 31, 1997.
<TABLE>
<CAPTION>
The Company TU Electric
------------ ---------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted-average assumptions:
Discount rate . . . . . . . . . . . . . . 7.00% 7.25% 7.00% 7.25%
Expected return on plan assets. . . . . . 9.00% 9.00% 9.00% 9.00%
Rate of compensation increase . . . . . . 4.30% 4.30% 4.30% 4.30%
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
-------------------------- ----------------------
1998 1997 1996 1998 1997 1996
------ ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Components of Net Pension Costs:
Service cost. . . . . . . . . . . . . . . . . . . . $ 53 $ 37 $ 37 $ 22 $ 21 $ 22
Interest cost . . . . . . . . . . . . . . . . . . . 163 94 77 60 61 56
Expected return on assets . . . . . . . . . . . . . (205) (137) (88) (77) (99) (66)
Amortization of unrecognized net transition asset . (1) (1) (1) - - -
Amortization of unrecognized prior service cost . . 4 4 3 4 3 3
Amortization of net (gain) loss . . . . . . . . . . (5) (5) 1 (5) (5) -
Recognized termination benefits loss. . . . . . . . - 34 - - 24 -
------ ------ ---- ----- ----- -----
Net periodic pension cost . . . . . . . . . . . $ 9 $ 26 $ 29 $ 4 $ 5 $ 15
====== ====== ==== ===== ===== =====
</TABLE>
A-58
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
The Company TU Electric
----------------------- -----------------------
Year Ended December 31, Year Ended December 31,
----------------------- -----------------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Change in Pension Obligation:
Pension obligation at beginning of year . . . . . . . $ 1,576 $ 1,082 $ 845 $ 802
Service cost. . . . . . . . . . . . . . . . . . . 53 37 22 21
Interest cost . . . . . . . . . . . . . . . . . . 163 94 60 61
Participant contributions . . . . . . . . . . . . 10 1 - -
Plan amendments . . . . . . . . . . . . . . . . . 12 - - -
Actuarial loss. . . . . . . . . . . . . . . . . . 193 85 45 38
Acquisitions. . . . . . . . . . . . . . . . . . . 1,429 395 - -
Benefits paid . . . . . . . . . . . . . . . . . . (133) (64) (45) (47)
Curtailments. . . . . . . . . . . . . . . . . . . - 1 - 2
Settlements . . . . . . . . . . . . . . . . . . . - (76) - (56)
Special termination benefits . . . . . . . . . . - 33 - 24
Currency exchange rate changes . . . . . . . . . 25 (12) - -
Other . . . . . . . . . . . . . . . . . . . . . . 3 - - -
------- ------- ------ ------
Pension obligation at end of year . . . . . . . . . . $ 3,331 $ 1,576 $ 927 $ 845
======= ======= ====== ======
Change in Plan Assets:
Fair value of assets at beginning of year . . . . . . $ 1,794 $ 1,299 $1,125 $ 994
Actual return on assets. . . . . . . . . . . . . 188 301 146 231
Acquisitions . . . . . . . . . . . . . . . . . . 1,832 316 - -
Employer contributions . . . . . . . . . . . . . 57 22 - -
Participant contributions. . . . . . . . . . . . 10 1 - -
Benefits paid . . . . . . . . . . . . . . . . . . (133) (61) (45) (47)
Settlements . . . . . . . . . . . . . . . . . . . - (72) - (53)
Currency exchange rate changes. . . . . . . . . . 34 (12) - -
------- ------- ------ ------
Fair value of assets at end of year . . . . . . . . . $ 3,782 $ 1,794 $1,226 $1,125
======= ======= ====== ======
Funded Status:
Pension obligation. . . . . . . . . . . . . . . . . . $(3,331) $(1,576) $ (927) $ (845)
Fair value of assets. . . . . . . . . . . . . . . . . 3,782 1,794 1,226 1,125
Unrecognized net transition asset . . . . . . . . . . (4) (5) (2) (2)
Unrecognized prior service cost . . . . . . . . . . . 42 34 33 36
Unrecognized net gain . . . . . . . . . . . . . . . . (199) (417) (417) (397)
------- ------- ------ -----
(Accrued)/prepaid pension cost .. . . . . . . . . . . $ 290 $ (170) $ (87) $ (83)
======= ======= ====== ======
Amounts Recognized in the Statement of
Financial Position Consist of:
Prepaid pension cost. . . . . . . . . . . . . . $ 433 $ 7 $ - $ -
Accrued benefit liability . . . . . . . . . . . (151) (177) (89) (83)
Intangible asset. . . . . . . . . . . . . . . . 2 - 1 -
Accumulated other comprehensive income (loss) . 6 - 1 -
------- ------- ------ -----
Net amount recognized. . . . . . . . . . . $ 290 $ (170) $ (87) $ (83)
======= ======= ====== ======
</TABLE>
A-59
<PAGE>
<PAGE>
In addition to the retirement plans, the US subsidiaries offer certain
health care and life insurance benefits to substantially all of their
employees and their eligible dependents at retirement. Benefits received vary
in level depending on years of service and retirement dates.
<TABLE>
<CAPTION>
The Company TU Electric
------------- ----------------
1998 1997 1998 1997
---- ----- ---- -----
<S> <C> <C> <C> <C>
Weighted-average assumptions:
Discount rate . . . . . . . . . . . . . . . . . 7.00% 7.25% 7.00% 7.25%
Expected return on plan assets. . . . . . . . . 8.13% 7.50% 8.13% 7.50%
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December31,
------------------------ -----------------------
1998 1997 1996 1998 1997 1996
---- ----- ----- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Components of Net Periodic Postretirement
Benefit Costs:
Service cost. . . . . . . . . . . . . . . . . . $ 19 $ 12 $ 14 $ 10 $ 7 $ 8
Interest cost . . . . . . . . . . . . . . . . . 42 43 41 26 31 31
Expected return on assets . . . . . . . . . . . (10) (8) (5) (8) (6) (3)
Amortization of unrecognized net transition
obligation. . . . . . . . . . . . . . . . . 16 17 17 14 14 14
Amortization of unrecognized prior service cost 2 - - - - -
Amortization of net loss. . . . . . . . . . . . 2 2 6 1 1 4
Recognized curtailment loss . . . . . . . . . . - 10 - - 4 -
----- ----- ----- ----- ----- -----
Net postretirement benefit cost . . . . . . $ 71 $ 76 $ 73 $ 43 $ 51 $ 54
===== ===== ===== ===== ===== -----
Change in Postretirement Benefit Obligation:
Benefit obligation at beginning of year . . . . $ 591 $ 531 $ 367 $ 407
Service cost. . . . . . . . . . . . . . . . 19 12 10 7
Interest cost . . . . . . . . . . . . . . . 42 43 26 31
Participant contributions . . . . . . . . . 6 4 5 3
Plan amendments . . . . . . . . . . . . . . - (92) - (30)
Actuarial (gain)/loss . . . . . . . . . . . 83 36 76 (23)
Acquisitions. . . . . . . . . . . . . . . . - 96 - -
Benefits paid . . . . . . . . . . . . . . . (39) (32) (30) (24)
Curtailments. . . . . . . . . . . . . . . . - (7) - (4)
------ ----- ----- -----
Benefit obligation at end of year .. . . . . . $ 702 $ 591 $ 454 $ 367
====== ===== ===== =====
Change in Plan Assets:
Fair value of assets at beginning of year . . . $ 112 $ 82 $ 82 $ 61
Actual return on assets . . . . . . . . . . 18 13 14 10
Employer contributions. . . . . . . . . . . 42 41 31 30
Participant contributions . . . . . . . . . 3 2 2 2
Benefits paid . . . . . . . . . . . . . . . (30) (26) (25) (21)
------ ------ ---- ----
Fair value of assets at end of year . . . . . . $ 145 $ 112 $104 $ 82
====== ====== ==== ====
Funded Status:
Benefit obligation. . . . . . . . . . . . . . . $ (702) $(591) $(454) $(367)
Fair value of assets. . . . . . . . . . . . . . 145 112 104 82
Unrecognized transition obligation. . . . . . . 146 162 128 142
Unrecognized prior service cost . . . . . . . . 17 19 - -
Unrecognized net loss . . . . . . . . . . . . . 139 67 114 45
------- ------ ----- ----
Accrued postretirement benefit cost . . . . . . $ (255) $(231) $(108) $ (98)
======= ====== ===== =====
</TABLE>
A-60
<PAGE>
<PAGE>
The expected increase in costs of future benefits covered by the
postretirement benefit plans is projected using a health care cost trend
rate of 5% in 1999 and thereafter. A one percentage point increase in the
assumed health care cost trend rate in each future year would increase the
accumulated postretirement benefit obligation at December 31, 1998 by
approximately $93 million for the Company and $52 million for TU
Electric, and other postretirement benefits cost for 1998 by
approximately $11 million for the Company and $5.6 million for TU Electric.
12. INCOME TAXES
The components of the Company's and TU Electric's provisions for income
taxes are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1998 1997 1996
---- ----- -----
<S> <C> <C> <C>
The Company
Current:
US Federal. . . . . . . . . . . . . . . . . . . . . $ 174 $ 182 $ 198
State . . . . . . . . . . . . . . . . . . . . . . 29 40 -
Non-US. . . . . . . . . . . . . . . . . . . . . . . 72 - -
----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . 275 222 198
----- ----- -----
Deferred
US Federal. . . . . . . . . . . . . . . . . . . . . 208 175 197
State . . . . . . . . . . . . . . . . . . . . . . . 1 (17) -
Non-US. . . . . . . . . . . . . . . . . . . . . . . 65 20 13
----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . . 274 178 210
----- ----- -----
Investment tax credits. . . . . . . . . . . . . . . . (23) (23) (33)
----- ----- -----
Total . . . . . . . . . . . . . . . . . . $ 526 $ 377 $ 375
===== ===== =====
TU Electric
Charged (credited) to operating expenses:
Current:
US Federal. . . . . . . . . . . . . . . . . $ 404 $ 283 $ 292
State . . . . . . . . . . . . . . . . . . . 29 44 -
----- ----- -----
Total . . . . . . . . . . . . . . . . 433 327 292
----- ----- -----
Deferred:
Depreciation differences and capitalized
construction costs . . . . . . . . . . 109 147 151
Over/under-recovered fuel revenue . . . . . (14) 10 26
Alternative minimum tax . . . . . . . . . . (1) 1 15
Other . . . . . . . . . . . . . . . . . . . (16) (44) (32)
----- ----- -----
Total . . . . . . . . . . . . . . . . 78 114 160
----- ----- -----
Investment tax credits. . . . . . . . . . . . . (21) (21) (31)
----- ----- -----
Total to operating expenses . . . . . 490 420 421
----- ----- -----
Charged (credited) to other income:
Current:
US Federal. . . . . . . . . . . . . . . . . (37) (36) (30)
State . . . . . . . . . . . . . . . . . . . (2) (5) -
----- ----- -----
Total . . . . . . . . . . . . . . . (39) (41) (30)
----- ----- -----
Deferred:
US Federal:
Regulatory disallowance . . . . . . . . . . 32 34 14
Other . . . . . . . . . . . . . . . . . . . 3 14 2
----- ----- -----
Total . . . . . . . . . . . . . . . 35 48 16
----- ----- -----
State . . . . . . . . . . . . . . . . . . . - (17) -
Investment tax credits. . . . . . . . . . . . . - - (1)
----- ----- -----
Total to other income . . . . . . . (4) (10) (15)
----- ----- -----
Total . . . . . . . . . . . . $ 486 $ 410 $ 406
===== ===== =====
</TABLE>
A-61
<PAGE>
<PAGE>
Reconciliation of income taxes computed at the federal statutory
rate to provision for income taxes.
<TABLE>
<CAPTION>
The Company Year Ended December 31,
-----------------------------------
1998 1997 1996
----- ------ ------
<S> <C> <C> <C>
Income before income taxes:
Domestic. . . . . . . . . . . . . . . . . . . . . . $ 951 $1,002 $1,108
Non-US. . . . . . . . . . . . . . . . . . . . . . . 315 35 21
------ ------ ------
Total . . . . . . . . . . . . . . . . . . . . 1,266 1,037 1,129
Preferred stock dividends of subsidiaries. . . . . 16 28 53
------ ------ ------
Income before preferred stock dividends
of subsidiaries. . . . . . . . . . . . . . . . . $1,282 $1,065 $1,182
====== ====== ======
Income taxes at the US federal statutory
rate of 35% . . . . . . . . . . . . . . . . . . . . $ 449 $ 373 $ 414
Allowance for funds used during construction. . . (2) (2) (1)
Depletion allowance . . . . . . . . . . . . . . . (24) (22) (26)
Amortization of investment tax credits. . . . . . (23) (23) (23)
Amortization of tax rate differences. . . . . . . (5) (7) (9)
Amortization of prior flow-through amounts. . . . 66 37 35
State income taxes, net of federal tax benefit. . 19 15 -
Prior year adjustments. . . . . . . . . . . . . . (1) (8) (25)
Amortization of goodwill. . . . . . . . . . . . . 43 7 5
Other . . . . . . . . . . . . . . . . . . . . . . 4 7 5
------ ------ ------
Provision for income taxes. . . . . . . . . . . . . . . $ 526 $ 377 $ 375
====== ====== ======
Effective tax rate (on income before preferred
stock dividends of subsidiaries). . . . . . . . . . 41% 35% 32%
</TABLE>
The Company had net tax benefits from LESOP dividend deductions of $3.7
million, $3.9 million and $4.0 million in 1998, 1997 and 1996, respectively,
which were credited directly to retained earnings.
<TABLE>
<CAPTION>
TU Electric Year Ended December 31,
1998 1997 1996
------ ------ -------
<S> <C> <C> <C>
Income before income taxes . . . . . . . . . . . . . . . . . $1,284 $1,182 $1,269
====== ====== ======
Income taxes at the US federal statutory rate of 35% $ 449 $ 413 $ 444
Allowance for funds used during construction. . . . . . (2) (2) -
Depletion allowance . . . . . . . . . . . . . . . . . . (24) (22) (26)
Amortization of investment tax credits. . . . . . . . . (21) (21) (21)
Amortization of tax rate differences. . . . . . . . . . (4) (6) (9)
Amortization of prior flow-through amounts. . . . . . . 66 36 35
State income taxes, net of federal tax benefit. . . . . 18 14 -
Prior year adjustments. . . . . . . . . . . . . . . . . (1) (7) (22)
Other . . . . . . . . . . . . . . . . . . . . . . . . . 5 5 5
----- ----- ------
Provision for income taxes. . . . . . . . . . . . . . . . . . $ 486 $ 410 $ 406
===== ===== ======
Effective tax rate. . . . . . . . . . . . . . . . . . . . . . 38% 35% 32%
</TABLE>
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<PAGE>
<PAGE>
Deferred income taxes provided by the liability method for significant
temporary differences based on tax laws in effect at the December 31, 1998 and
1997 balance sheet dates are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
The Company 1998 1997
---------------------------------- ------------------------------
Total Current Noncurrent Total Current Noncurrent
------- --------- ----------- ------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Deferred Tax Assets:
Unbilled revenues . . . . . . . . . . . . . . . . $ 30 $ 30 $ - $ 29 $ 29 $ -
Over-recovered fuel revenue . . . . . . . . . . . 18 18 - 5 5 -
Unamortized investment tax credits. . . . . . . . 293 - 293 301 - 301
Impairment of assets. . . . . . . . . . . . . . . 76 - 76 142 - 142
Regulatory disallowance . . . . . . . . . . . . . 152 - 152 184 - 184
Alternative minimum tax . . . . . . . . . . . . . 594 - 594 590 - 590
Tax rate differences. . . . . . . . . . . . . . . 62 - 62 78 - 78
Employee benefits . . . . . . . . . . . . . . . . 158 4 154 166 3 163
Net operating loss carryforwards. . . . . . . . . 147 - 147 156 - 156
Foreign tax loss carryforwards. . . . . . . . . . 83 - 83 61 - 61
Deferred benefits of state income tax . . . . . . 184 11 173 156 5 151
Unrealized currency translation adjustments . . . - - - 28 - 28
Leased assets . . . . . . . . . . . . . . . . . . 584 - 584 - - -
Valuation allowance . . . . . . . . . . . . . . . (238) - (238) - - -
Other . . . . . . . . . . . . . . . . . . . . . . 338 25 313 48 37 11
Deferred state income taxes . . . . . . . . . . . 61 5 56 53 3 50
------- ------ ----- ----- ----- -----
Total deferred tax assets. . . . . . . . . 2,542 93 2,449 1,997 82 1,915
------- ------ ----- ----- ----- -----
Deferred Tax Liabilities:
Depreciation differences and capitalized
construction costs. . . . . . . . . . . . . . 4,818 - 4,818 4,328 - 4,328
Redemption of long-term debt. . . . . . . . . . . 134 - 134 124 - 124
Deferred charges for state income tax . . . . . . 22 - 22 24 - 24
Unbilled income . . . . . . . . . . . . . . . . . 17 17 - 13 13 -
Lease assets. . . . . . . . . . . . . . . . . . . 553 - 553 - - -
Other . . . . . . . . . . . . . . . . . . . . . . 301 - 301 134 1 133
Deferred state income taxes . . . . . . . . . . . 339 - 339 295 - 295
------- ------ ------- ------ ----- ------
Total deferred tax liabilities 6,184 17 6,167 4,918 14 4,904
------- ------ ------- ------ ----- ------
Net deferred tax liability (asset). . . . . $ 3,642 $ (76) $ 3,718 $2,921 $ (68) $2,989
======= ====== ======= ====== ===== ======
</TABLE>
<TABLE>
<CAPTION> December 31,
----------------------------------------------------------------------------
1998 1997
----------------------------------- ---------------------------------
Net Net Net Net Net Net
Current Current Noncurrent Current Current Noncurrent
Asset Liability Liability Asset Liability Liability
-------- --------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Summary of Deferred Income Taxes
US Federal. . . . . . . . . . . . . . . . . . . . $ 83 $ - $2,876 $ 73 $ - $2,734
State . . . . . . . . . . . . . . . . . . . . . . 5 - 283 3 - 245
United Kingdom. . . . . . . . . . . . . . . . . . - - 531 - - -
Australia . . . . . . . . . . . . . . . . . . . . - 12 28 - 8 10
-------- ------- ------ ------- ----- ------
Total . . . . . . . . . . . . . . . . . . . . $ 88 $ 12 $3,718 $ 76 $ 8 $2,989
======== ======= ====== ======= ===== ======
</TABLE>
A-63
<PAGE>
<PAGE>
At December 31, 1998, the Company had approximately $594 million of
alternative minimum tax credit carryforwards available to offset future tax
payments. At December 31, 1998, ENSERCH had $420 million of pre-merger
net operating loss (NOL) carryforwards which begin to expire in 2003.
Such NOL's can be used only to offset future taxable income generated by
ENSERCH and its subsidiaries. A deferred tax asset valuation allowance of
$10 million has been recorded for the ENSERCH NOL's at December 31,
1998. At December 31, 1998, TU Australia had $191 million and Eastern
Group had $50 million of tax loss carryforwards that can be used to offset
future taxable income in the respective jurisdictions. Such tax loss
carryforwards do not have expiration dates. Eastern Group has recorded a
valuation allowance of $228 million against the deferred tax assets related
to leased assets.
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 years 1993 through 1997. 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.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------
TU Electric 1998 1997
--------------------------------- ------------------------------------
Total Current Noncurrent Total Current Noncurrent
----- ------- ---------- ------ ------- ----------
<S> <C> <C> <C>
Deferred Tax Assets:
Unbilled revenues . . . . . . . . . . . . . $ 30 $ 30 $ - $ 28 $ 28 $ -
Over-recovered fuel revenue . . . . . . . . 18 18 - 5 5 -
Unamortized investment tax credits. . . . . 289 - 289 296 - 296
Impairment of assets. . . . . . . . . . . . 72 - 72 71 - 71
Regulatory disallowance . . . . . . . . . . 152 - 152 184 - 184
Alternative minimum tax . . . . . . . . . . 424 - 424 423 - 423
Tax rate differences. . . . . . . . . . . . 59 - 59 77 - 77
Employee benefits . . . . . . . . . . . . . 94 - 94 90 - 90
Deferred benefits of state income tax . . . 178 9 169 152 5 147
Other . . . . . . . . . . . . . . . . . . . 33 11 22 21 8 13
Deferred state income taxes. . . . . . . . 53 5 48 47 3 44
----- ------ ------- ------ ----- -----
Total deferred tax assets. . . . . . . 1,402 73 1,329 1,394 49 1,345
----- ------ ------- ------ ----- -----
Deferred Tax Liabilities:
Depreciation differences and capitalized
construction costs . . . . . . . . . . . 4,042 - 4,042 4,027 - 4,027
Redemption of long-term debt. . . . . . . . 134 - 134 123 - 123
Deferred charges for state income tax . . . 18 - 18 22 - 22
Other . . . . . . . . . . . . . . . . . . . 125 - 125 116 - 116
Deferred state income taxes . . . . . . . . 317 - 317 274 - 274
----- ------ ------- ------ ----- -----
Total deferred tax liability. . . . . . 4,636 - 4,636 4,562 - 4,562
----- ------ ------- ------ ----- -----
Net deferred tax liability (asset). . $ 3,234 $ (73) $ 3,307 $3,168 $ (49) $3,217
======= ====== ======= ====== ===== ======
</TABLE>
A-64
<PAGE>
<PAGE>
13. REGULATION AND RATES
The rates charged by TU Electric for electric sales to consumers are
generally set by the PUC. Rates for the cost of natural gas delivered to US
residential and commercial customers are established by the Railroad
Commission of Texas (RRC). The rates Lone Star Gas charges such customers
are established by the cities and towns served. Rates charged by Eastern
Group for electric sales to consumers are determined by the competitive
market, subject to a tariff revenue cap, which is set by the OFFER in relation
to customers with annual demands below 12,000 KWh. Rates charged for
distribution of electricity are also regulated by OFFER. The rates charged
by Eastern Group for gas sales to customers are determined by the
competitive market.
Docket 9300 -- The PUC's final order (Order) in connection with TU
Electric's January 1990 rate increase request (Docket 9300) was ultimately
reviewed by the Supreme Court of Texas (Supreme Court). As a result, 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 also was 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
connection with the settlement of Docket 18490, proceedings in the remand of
Docket 9300 have been stayed prior to January 1, 2000. The Company and TU
Electric cannot predict the outcome of the reconsideration of the Order on
remand by the PUC.
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. 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 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. The current
maximum impact on TU Electric for 1999 is a $12 million deficit.
Docket 18490 -- The PUC approved the non-unanimous stipulation filed on
December 17, 1997. The stipulation, modified to incorporate changes made by
the PUC, resulted in 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 and additional base rate credits for residential
customers of 1.4% beginning January 1, 1999. Other provisions of the
stipulation (i) impose an annual earnings cap on TU Electric's rate of return
on rate base during 1998 and 1999, based in part on an 11.35% return on
average common equity and a cap on operations and maintenance expense at a
specified level, with any sums earned above the earnings cap being applied as
additional nuclear production depreciation, (ii) allow TU Electric to record
depreciation applicable to transmission and distribution assets in 1998 and
1999 as additional depreciation of nuclear production assets, (iii) establish
an updated cost of service study that includes interruptible customers as
customer classes, (iv) result in the permanent dismissal of pending appeals of
prior PUC orders, if all other parties that have filed appeals of those
dockets also dismiss their appeals, (v) result in the stay of any
proceedings in the remand of Docket 9300 prior to January 1, 2000, and (vi)
flow all gains from off-system sales of electricity in excess of the amount
included in base rates to customers through the fuel factor. Modifications
that were also approved by the PUC include: (i) imputing $16 million of
revenues from discounted rates in the calculation of the return cap, (ii)
limiting the recovery of interest on any new debt issued prior to December 31,
1999 to the interest rate available to TU Electric at its bond rating as of
January 1, 1998 in the calculation of the return cap, (iii) limiting the
amount of annual capital additions to production plant to 1.5% of TU
Electric's net plant in service on December 31, 1996 in the calculation of the
return cap, and (iv) permitting TU Electric, at its discretion, to apply
earnings as additional depreciation of nuclear production assets, after the
determinations have been made under the return cap. Certain parties that did
not sign the stipulation have appealed the PUC's approval by filing suit in
state district court. The Company and TU Electric cannot predict the outcome
of these appeals.
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<PAGE>
<PAGE>
For the year ended December 31, 1998, TU Electric recorded $170 million
as additional depreciation of nuclear production assets, representing 1998
earnings in excess of the stipulated return cap. In addition, for the year
there was $183 million of depreciation expense reclassified from transmission
and distribution to nuclear production assets. Including deferred income tax
effects, the net effect was a $143 million reduction in net income for the
year ended December 31, 1998. TU Electric will file with the PUC its first
report, concerning the earnings cap calculation for 1998, by March 31, 1999.
Interested parties are allowed to challenge the calculation and the
reasonableness of the underlying costs. The Company and TU Electric are
unable to predict whether any such challenge will be filed or the outcome of
any such challenge.
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
cumulative under- or over-recovery of fuel costs. If the cumulative
difference of the under- or over-recovery, plus interest, exceeds 4% of the
annual estimated fuel costs most recently approved by the PUC, it will be
deemed to be material.
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, 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 -- On December 30, 1998, in accordance
with PUC rules, TU Electric filed a petition with the PUC seeking final
reconciliation of all eligible fuel and purchased power expenses incurred
during the reconciliation period of July 1, 1995 through June 30, 1998,
amounting to a total of $5.04 billion. The Company and TU Electric are unable
to predict the outcome of such proceeding.
In addition, and as permitted by the PUC rules, TU Electric is also
seeking an accounting order from the PUC that will allow certain costs
incurred to facilitate the use of coal as a supplemental fuel at its
Monticello plant to be treated as eligible fuel costs and billed pursuant to
TU Electric's fuel cost factor. By incurring these expenses, the Company and
TU Electric believe it has significantly improved the reliability of the
supply of fuel to Monticello and has, at the same time, lowered the fuel
expense that would be incurred in the absence of these investments.
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
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
A-66
<PAGE>
<PAGE>
new businesses and to encourage 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.
TU Electric also offers optional time-of-use rates to residential,
commercial, and industrial customers under rates approved on an interim basis
by the PUC in October 1997, in areas where the PUC retains sole regulatory
jurisdiction. These time-of-use rate options allow participating customers to
plan and manage their electrical energy usage to shift their loads from the TU
Electric on-peak periods to off-peak periods. This reduces TU Electric's
requirements for capacity resources to meet the peak electrical load of all of
its customers. A ruling from the PUC approving these rates is expected by the
second quarter of 1999. On January 15, 1999, the Company applied for approval
of these rates with municipal regulatory authorities in 173 cities, in the
form that it expects the PUC ultimately to approve. The Company and TU
Electric estimate that any decrease in revenue resulting from the
implementation of these rates will be offset by the reduced costs associated
with the peak load reductions achieved.
Open Access Transmission -- In February 1996, 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 that is designed to ensure that all market
participants pay on a comparable basis to use the system.
In February 1999, the PUC approved modifications to its rules addressing
open-access wholesale transmission service to allow utilities to annually
revise their transmission rates to reflect rate base additions and updated
billing units. In addition, the rules now clarify the cost responsibility for
entities connecting new resources to the ERCOT transmission grid. These
revisions to the rules were enacted primarily to enhance wholesale competition
and provide for the timely recovery by utilities of their transmission
investment. It is anticipated that the adoption of these rules will have a
minimal impact on open-access transmission rates.
The Company
Lone Star Gas and Lone Star Pipeline Rates -- In August 1996, the RRC
ordered a general inquiry into the rates and services of Lone Star Gas. The
inquiry docket was separated into different phases, all of which are now
resolved. In the phase dealing with historic gas cost and gas acquisition
practices, the RRC issued a final order on June 2, 1998 approving a
stipulated settlement of the docket. Lone Star Gas agreed to credit
residential and commercial customers $18 million to be spread over the
next two heating seasons (November through March). The earnings of Lone Star
Gas were not affected by the settlement due to previously established
reserves. The final order approving the stipulation found that all gas costs
flowed through Lone Star Gas' monthly gas cost adjustment clause prior to
October 31, 1997 were just, reasonable, and necessary.
UK -- A formula determines the maximum average price per unit of
electricity distributed (in pence per kilowatt hour) which a regional
electrical company (REC) is entitled to charge. The formula permits RECs to
retain part of their additional revenue due to increased distribution of units
and allows for a pound for pound increase in operating profit for efficient
operations and reduction of expenses within a review period. In relation to
the next Distribution Price Control Formula review scheduled to be implemented
in April 2000, the Director General of Electricity Supply in Great Britain
(DGES) may reduce any such increase in operating profit to the extent it
determines it not to be a function of efficiency savings and/or, if genuine
efficiency savings have been made, it determines that customers should benefit
through lower prices in the future.
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<PAGE>
<PAGE>
Australia -- 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 determine if it will be effective for the period commencing January
1, 2001. Rates charged to non-franchise customers by the Company and the
other distribution companies are subject to competitive forces and are not
directly regulated by the ORG, although certain network tariff components of
such rates are subject to regulation.
14. COMMITMENTS AND CONTINGENCIES
Capital Expenditures -- The capital expenditures of the Company were
$1,173 million in 1998 and are estimated at $1,300 million for 1999.
Approximately 50% will be spent on US electric and gas operations,
approximately 35% on operations in the UK and continental Europe, and
approximately 15% on operations in Australia, communications and other
activities.
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. Although TU Electric's
capital requirements have not been significantly affected by the requirements
of the Clean Air Act, any additional capital expenditures, as well as
any increased operating costs, associated with the 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 US electric companies have entered into
purchased power contracts to purchase power from utilities and
non-utilities through the year 2005. These contracts provide for capacity
payments subject to performance standards and energy payments based on the
actual power taken under contract. The payments made under these contracts
are expected to be recovered through a combination of base rates, power cost
and fuel recovery factors applied to customer billings. Capacity payments
under these contracts for the years ended December 31, 1998, 1997 and 1996
were $247 million, $240 million and $233 million, respectively, for the
Company, and $243 million, $237 million and $228 million, respectively, for TU
Electric.
Assuming operating standards are achieved, future capacity payments under
the agreements are estimated as follows:
<TABLE>
<CAPTION>
Year The Company TU Electric
- ---- ----------- -----------
<S> <C> <C>
1999. . . . . . . . . . . . . . . . . . . . . $ 246 $ 238
2000. . . . . . . . . . . . . . . . . . . . . 214 207
2001. . . . . . . . . . . . . . . . . . . . . 217 210
2002. . . . . . . . . . . . . . . . . . . . . 112 105
2003. . . . . . . . . . . . . . . . . . . . . 83 76
Thereafter. . . . . . . . . . . . . . . . . . 91 91
------- -------
Total capacity payments . . . . . . . . . $ 963 $ 927
======= =======
</TABLE>
The Company
Gas Purchase Contracts -- Texas Utilities Fuel Company (Fuel Company) and
Lone Star Gas buy gas under long-term and short-term intrastate contracts in
order to assure reliable supply to their customers. Many of these contracts
require minimum purchases ("take-or-pay") 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
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<PAGE>
<PAGE>
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, 1998.
Eastern Group has various types of contracts for the purchase of gas.
Almost all include take-or-pay obligations. In order to help meet the
expected needs of its wholesale and retail customers, Eastern Group has
entered into a range of gas purchase contracts.
Based on estimated gas demand, which assumes normal weather conditions,
requisite gas purchases of Fuel Company, Lone Star Gas and Eastern Group are
expected to substantially satisfy their purchase obligations for the year 1999
and thereafter.
Leases -- Subsidiaries have entered into operating leases covering
various facilities and properties including generating plants, combustion
turbines, transportation, mining equipment, data processing equipment and
office space. Certain of these leases contain renewal and purchase options
and residual value guarantees. Lease costs charged to operating expense for
the years ended December 31, 1998, 1997 and 1996 were $243 million, $157
million and $145 million, respectively, for the Company, and $68 million, $66
million and $56 million, respectively, for TU Electric.
At December 31, 1998, future minimum lease payments for assets under
capital lease, together with the present value of such minimum lease payments,
and future minimum lease commitments under operating leases that have initial
or remaining noncancellable lease terms in excess of one year as of December
31, 1998, were as follows:
<TABLE>
<CAPTION>
The Company TU Electric
------------------------ ----------
Capital Operating Operating
Year Leases Leases Leases
---- ------- -------- ---------
<S> <C> <C> <C>
1999. . . . . . . . . . . . . . . . . . . . . . . $ 80 $ 190 $ 32
2000. . . . . . . . . . . . . . . . . . . . . . . 82 118 33
2001. . . . . . . . . . . . . . . . . . . . . . . 749 122 44
2002. . . . . . . . . . . . . . . . . . . . . . . 28 103 38
2003. . . . . . . . . . . . . . . . . . . . . . . 27 88 31
Thereafter. . . . . . . . . . . . . . . . . . . . 137 530 434
------- ------ ------
Total future minimum lease payments. . . . . 1,103 $1,151 $ 612
Less amounts representing interest. . . . . . . . (232) ====== ======
-------
Present value of future minimum lease payments. . $ 871
=======
</TABLE>
Financial Guarantees -- TU Electric has entered into contracts with
public agencies to purchase cooling water for use in the generation of
electric energy and has agreed, in effect, to guarantee the principal, $27
million at December 31, 1998, 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, of $4 million annually for the years 1999
through 2003. Annual payments made by TU Electric, net of amounts assumed
by a third party under such contracts, for 1998, 1997 and 1996 were $4
million. 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 $64 million remaining principal amount of bonds at
December 31, 1998, 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. In addition, the
Company and/or its subsidiaries are the guarantor on various commitments and
obligations of others aggregating some $30 million at December 31, 1998.
A-69
<PAGE>
<PAGE>
The Company
The Company has guaranteed up to $110 million of certain liabilities
which may be incurred and payable by the purchasers of its Peabody Coal and
Citizens Power businesses with respect to the various retirement plans of the
sold businesses, subject to certain specified conditions.
Eastern Group is the guarantor or the indemnifying party, as the case may
be, under power purchase agreements and note purchase agreements in connection
with certain former subsidiary's energy restructuring projects as well as
various indemnity agreements in connection with such projects. In connection
with the acquisition, letters of credit were issued under the Sterling Credit
Facility in the amount of approximately £118 million ($195 million) to
support certain debt financing associated with these restructuring projects.
Chaco Coal Properties --In the third quarter of 1998, the Company settled
its advance royalty obligations for Chaco Energy Company coal reserves
with a cash payment of approximately $136 million and a transfer of rights to
the coal reserves and related land, recognizing a pretax gain of $16 million
($11 million after-tax).
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
$9.7 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 company 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 $88 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 $1.1 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 $4.3 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 $1.3 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 $17 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.
A-70
<PAGE>
<PAGE>
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 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 $6 million per year.
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, 1998, such reserve totaled $146 million which includes an
accrual of $18 million for the year ended December 31, 1998. As of December
31, 1998, the market value of deposits in the external trust for
decommissioning of Comanche Peak was $211 million. 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 1997 dollars,
decommissioning costs for Comanche Peak Unit 1 and for Unit 2 and common
facilities were estimated to be $271 million and $404 million, respectively.
Decommissioning activities are projected to begin in 2030 for Comanche
Peak Unit 1 and 2033 for Unit 2 and common facilities. TU Electric is
recovering decommissioning costs based upon a 1992 site-specific study through
rates placed in effect under its January 1993 rate increase request. 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
Legal Proceedings -- In February 1997, the official government
representative of pensioners in the UK (Pensions Ombudsman) made final
determinations against The National Grid Company plc (National Grid) and its
group trustees with respect to complaints by two pensioners in National Grid's
section of the ESPS relating to the use of the pension fund surplus resulting
from the March 31, 1992 actuarial valuation of the National Grid section to
meet certain costs arising from the payment of pensions on early retirement
upon reorganization or downsizing. These determinations were set aside by
the High Court on June 10, 1997, and the arrangements made by National Grid
and its group trustees in dealing with the surplus were confirmed. The two
pensioners have now appealed against this decision, and judgment has now been
received although a final order is awaited. The appeal endorsed the Pension
Ombudsman's determination that the corporation was not entitled to
unilaterally deal with any surplus. If a similar action were to be made
against Eastern Group in relation to its use of actuarial surplus in its
section of the ESPS, it would vigorously defend the action, ultimately through
the courts. However, if a determination were finally to be made against it
A-71
<PAGE>
<PAGE>
and upheld in the courts, Eastern Group could have a potential liability to
repay to its section of the ESPS an amount estimated by the Company to be up
to $165 million (exclusive of any applicable interest charges).
In August 1998, the Gracy Fund, L.P. (Gracy Fund) filed suit in the
United States District Court for the Northern District of Texas against EEX
Corporation, formerly Enserch Exploration, Inc. (EEX), the Company, David W.
Biegler, Gary J. Junco, Erle Nye, Thomas Hamilton and J. Phillip McCormick.
The Gracy Fund sought to represent a class comprised of all purchasers of the
common stock of ENSERCH or EEX between January 26, 1996 and August 4, 1997,
including former shareholders of ENSERCH who received shares of EEX and the
Company pursuant to the merger agreement between ENSERCH and the Company dated
April 13, 1996, all EEX shareholders solicited pursuant to a proxy
statement/prospectus issued by EEX dated October 2, 1996, and all ENSERCH
shareholders solicited by a joint proxy statement/prospectus issued by ENSERCH
and the Company dated September 23, 1996. The Gracy Fund alleged that the
defendants participated in a fraudulent scheme and course of business by
disseminating materially false and misleading statements regarding EEX's and
ENSERCH's business, which allegedly caused the plaintiffs and other members of
the class to purchase EEX and ENSERCH stock at artificially inflated prices.
In such connection, the plaintiffs alleged that the defendants violated
various provisions of the Securities Act of 1933 and the Securities and
Exchange Act of 1934 (Exchange Act).
Also in August 1998, Stan C. Thorne (Thorne) filed suit in the United
States District Court for the Southern District of Texas against EEX, ENSERCH,
DeGolyer & MacNaughton, David W. Biegler, Gary J. Junco, Fredrick S. Addy and
B. K. Irani. Thorne sought to represent a class comprised of all purchasers
of the common stock of EEX during the period of August 3, 1995 through August
5, 1997. Thorne alleged that the defendants engaged in a course of conduct
designed to mislead the plaintiff and investing public in order to maintain
the price of EEX common stock at artificially high levels through false and
misleading representations concerning the gas reserves of EEX in violation of
Sections 10(b) and 20(a) of the Exchange Act and Rule 10b-5 thereunder.
Thorne also alleged that the defendants were negligent in making such
misrepresentations and that they constituted common law fraud against the
defendants.
In December 1998, the United States District Court for the Northern
District of Texas issued an Order in Cause No. 3-98-CV-1808-G consolidating
the Gracy Fund and the Thorne suits (the Consolidated Action). On January 22,
1999, the Gracy Fund, et al filed an amended class action complaint in the
Consolidated Action against EEX, ENSERCH, David W. Biegler, Gary J. Junco,
Thomas Hamilton, J. Philip McCormick, Fredrick S. Addy and B. K. Irani. The
Company and Erle Nye were omitted as defendants pursuant to a tolling
agreement. The individual named defendants in the amended complaint are
current or former officers and/or directors of EEX, and Mr. Biegler has been
an officer and director of ENSERCH. The amended complaint alleges violations
of provisions of the Securities Act of 1933 and the Exchange Act. The state
law claims alleged in the Thorne case have been omitted. The class period
was amended to include those persons acquiring stock of ENSERCH and/or EEX
between August 3, 1995 and August 5, 1997, inclusive. No amount of damages
has been specified in the Consolidated Action. The Company is continuing to
evaluate these claims and is unable at this time to predict the outcome of
this proceeding, but it intends to vigorously defend this suit.
General -- In addition to the above, the Company and other subsidiaries,
including TU Electric, are involved in various other 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-72
<PAGE>
<PAGE>
15. SUPPLEMENTARY FINANCIAL INFORMATION
Sale of Receivables and Other Receivable Financing -- 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 $450 million. ENSERCH has a similar facility for $100
million. Additional receivables are continually sold to replace
those collected. At December 31, 1998 and 1997, accounts receivable of TU
Electric was reduced by $450 million and $300 million, respectively, and
accounts receivable of ENSERCH companies were reduced by $100 million to
reflect the sales of such receivables to financial institutions
under such agreements. Eastern Group has facilities with financial
institutions whereby it may borrow funds using trade accounts receivable as
collateral. At December 31, 1998, Eastern Group had borrowed $496 million
under these facilities.
Restricted Cash -- At December 31, 1998, $675 million of the deposits
classified with investments has been used to cash-collateralize existing
future obligations of Eastern Group to certain banks in respect of the
funding of the leases of three power stations, and $511 million is matched
to lease obligations arising from a leasing arrangement on two other power
stations.
Contracts -- A provision for unfavorable long-term gas and electricity
contracts of Eastern Group was established at acquisition for contracts that
expire in 2009 and 2011 and is reflected in other liabilities.
Quarterly 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
Consolidated Per Share of
Operating Revenues Operating Income Net Income Common Stock*
------------------ ------------------ --------------- ---------------
Quarter Ended 1998 1997 1998 1997 1998 1997 1998 1997
- -------------- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
March 31. . . . . . . . . $ 2,499 $1,494 $ 426 $ 382 $ 127 $ 115 $0.52 $0.51
June 30 . . . . . . . . . 3,236 1,588 474 460 83 161 0.33 0.72
September 30. . . . . . . 4,380 2,265 783 684 294 290 1.04 1.24
December 31 . . . . . . . 4,621 2,599 780 380 236 94 0.89 0.39
------- ------ ------- ------ ----- -----
$14,736 $7,946 $ 2,463 $1,906 $ 740 $ 660
======= ====== ======= ====== ===== =====
<FN>
* The sum of the quarters may not equal annual earnings per share due to
rounding. Diluted earnings per share for the quarter ended March 31,
1998 was $0.51. All other quarters were not different from basic earnings per
share.
</FN>
</TABLE>
TU Electric
<TABLE>
<CAPTION>
Consolidated
Operating Revenues Operating Income Net Income
------------------ ------------------ ---------------
Quarter Ended 1998 1997 1998 1997 1998 1997
- -------------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
March 31. . . . . . . . . $ 1,332 $1,365 $ 270 $ 272 $ 137 $ 143
June 30 . . . . . . . . . 1,666 1,452 344 330 205 183
September 30. . . . . . . 2,123 1,851 498 477 365 322
December 31 . . . . . . . 1,367 1,467 221 268 91 124
------- ------ ------- ------ ----- -----
$ 6,488 $6,135 $ 1,333 $1,347 $ 798 $ 772
======= ====== ======= ====== ===== =====
</TABLE>
A-73
<PAGE>
<PAGE>
16. PREFERRED STOCK OF TU ELECTRIC AND OTHER SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
Redemption Price Per Share
(Before Adding
Shares Outstanding Amount Accumulated Dividends)
Dividend Rate December 31, December 31, December 31, 1998
- -------------- --------------- ---------------- --------------------------
1998 1997 1998 1997
---- ---- ---- ----
Thousands of Shares
<S> <C> <C> <C> <C> <C>
Not Subject to Mandatory Redemption:
TU Electric (cumulative, without par value, entitled upon liquidation to $100 a share; authorized 17,000,000 shares)
$ 4.50 series . . . . . . . . . . . . . . . . . . . 22 22 $ 2 $ 2 $110.00
4.00 series (Dallas Power) . . . . . . . . . . . . 21 21 2 2 103.56
4.56 series (Texas Power). . . . . . . . . . . . . 53 53 5 5 112.00
4.00 series (Texas Electric) . . . . . . . . . . . 69 69 7 7 102.00
4.56 series (Texas Electric) . . . . . . . . . . . 22 22 2 2 112.00
4.24 series . . . . . . . . . . . . . . . . . . . 18 18 2 2 103.50
4.64 series. . . . . . . . . . . . . . . . . . . . 25 25 3 3 103.25
4.84 series. . . . . . . . . . . . . . . . . . . . 16 16 2 2 101.79
4.00 series (Texas Power). . . . . . . . . . . . . 27 27 3 3 102.00
4.76 series. . . . . . . . . . . . . . . . . . . . 23 23 2 2 102.00
5.08 series. . . . . . . . . . . . . . . . . . . . 28 28 3 3 103.60
4.80 series. . . . . . . . . . . . . . . . . . . . 21 21 2 2 102.79
4.44 series. . . . . . . . . . . . . . . . . . . . 34 34 3 3 102.61
8.20 series (a) (c). . . . . . . . . . . . . . . . - 147 - 14 -
7.98 series. . . . . . . . . . . . . . . . . . . . 261 261 26 26 (b)
7.50 series (a). . . . . . . . . . . . . . . . . . 308 308 30 30 (b)
7.22 series (a). . . . . . . . . . . . . . . . . . 221 221 21 21 (b)
----- ----- ----- -----
Total . . . . . . . . . . . . . . . . . . . . 1,169 1,316 115 129
----- ----- ----- -----
ENSERCH (entitled upon liquidation to stated value per share; authorized 2,000,000 shares)
Adjustable Rate Preferred Stock:
Series E (c) (d) . . . . . . . . . . . . . . . . - 100 - 100 -
Series F (d) . . . . . . . . . . . . . . . . . . 75 75 75 75 (b)
----- ----- ----- -----
Total . . . . . . . . . . . . . . . . . . . 75 175 75 175
----- ----- ----- -----
Total. . . . . . . . . . . . . . . . . 1,244 1,491 $ 190 $ 304
===== ===== ===== =====
TU Electric - Subject to Mandatory Redemption (e)
$ 6.98 series. . . . . . . . . . . . . . . . . . 107 107 $ 11 $ 11 (b)
6.375 series . . . . . . . . . . . . . . . . . 100 100 10 10 (b)
----- ----- ----- -----
Total. . . . . . . . . . . . . . . . . 207 207 $ 21 $ 21
===== ===== ===== =====
<FN>
(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, 1998.
(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-fortieth of a share for Series F
($25 per share). Dividend rates are determined quarterly, in advance, based
on certain US Treasury rates. At December 31, 1998, the Series F bears a
dividend rate of 4.5%.
(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
</FN>
</TABLE>
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-74
<PAGE>
<PAGE>
17. SEGMENT INFORMATION
The Company's reportable segments are strategic business units that
offer different products and services or are geographically integrated. They
are managed separately because each business requires different marketing
strategies or is in a different geographic area.
The Company has five reportable operating segments:
(1) US Electric - operations engaged in the generation, purchase,
transmission, distribution and sale of electric energy primarily in the
north central, eastern and western portions of Texas (primarily TU Electric,
Southwestern Electric Service Company, Fuel Company and Mining Company
operations);
(2) US Gas - operations engaged in the gathering, processing,
transmission and distribution of natural gas and selling of natural gas
liquids primarily within Texas (primarily Lone Star Gas, Lone Star Pipeline
and Enserch Processing, Inc.);
(3) US Energy Marketing - operations engaged in purchasing and selling
natural gas and electricity and providing risk management services for the
energy industry throughout the US (EES);
(4) UK/Europe - operations engaged in the generation, purchase,
distribution and sale of electricity and the purchase and sale of natural gas
primarily in the UK, with additional energy interests throughout the rest of
Europe (primarily Eastern Group);
(5) Australia - operations engaged in the purchase, distribution and sale
of electricity and natural gas and the provision of other energy-related
services primarily in the State of Victoria, Australia (primarily Eastern
Energy); and
(6) Other - non-segment operations consist of telecommunications, retail
energy services, international gas operations, power development and other
energy development activities.
The accounting policies of the segments are the same as those described
in the summary of significant accounting policies. The Company evaluates
performance based on net income or loss. The Company accounts for
intersegment sales and transfers as if the sales or transfers were to third
parties, that is, at current market prices.
A-75
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
US
US US Energy UK/ All
Electric Gas Marketing Europe Australia Other Eliminations Consolidated
-------- ------- --------- ------- --------- ----- ------------ ------------
Million of Dollars
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Trade Revenues-
1998. . . . . . . . . $6,541 $822 $3,198 $3,601 $439 $135 $ - $14,736
1997. . . . . . . . . 6,176 409 859 - 489 13 - 7,946
1996. . . . . . . . . 6,077 - - - 474 - - 6,551
Affiliated Revenues-
1998. . . . . . . . . - 42 1 - - 337 (380) -
1997. . . . . . . . . - 19 - - - - (19) -
1996. . . . . . . . . - - - - - - - -
Depreciation and Amortization -
1998 . . . . . . . . 759 75 1 240 43 29 - 1,147
1997 . . . . . . . . 580 29 1 - 48 8 - 666
1996 . . . . . . . . 570 - - - 48 3 - 621
Equity in Earnings of Unconsolidated
Subsidiaries -
1998. . . . . . . . - - - 4 - (23) - (19)
1997. . . . . . . . - - - - - (27) - (27)
1996. . . . . . . . - - - - - (15) - (15)
Interest Income -
1998 . . . . . . . . 3 1 - 106 - 114 (85) 139
1997 . . . . . . . . 6 - - - - 26 - 32
1996 . . . . . . . . 2 - - - - 26 - 28
Interest Expense and Other Charges -
1998 . . . . . . . . 580 78 2 447 59 300 (85) 1,381
1997 . . . . . . . . 648 35 2 - 73 119 (25) 852
1996 . . . . . . . . 705 - - - 87 81 - 873
Income Tax Expense -
1998 . . . . . . . . 486 (6) 3 119 25 (101) - 526
1997 . . . . . . . . 408 5 (6) - 20 (50) - 377
1996 . . . . . . . . 405 - - - 13 (43) - 375
Net Income -
1998. . . . . . . . . 788 (32) 6 140 31 (193) - 740
1997. . . . . . . . . 748 (2) (12) - 17 (91) - 660
1996. . . . . . . . . 812 - - - 8 (66) - 754
Investment in Equity Investees -
1998. . . . . . . . . - - - - - 18 - 18
1997. . . . . . . . . - 6 - - - 145 - 151
1996. . . . . . . . . - - - - - 65 - 65
Total Assets -
1998 . . . . . . . . 19,028 4,133 1,369 14,332 1,432 13,479 (14,259) 39,514
1997 . . . . . . . . 19,544 2,533 577 - 1,436 9,242 (8,468) 24,864
1996 . . . . . . . . 19,534 - - - 1,728 7,263 (7,149) 21,376
Capital Expenditures -
1998. . . . . . . . . 506 185 2 341 63 76 - 1,173
1997. . . . . . . . . 453 56 1 - 49 27 - 586
1996. . . . . . . . . 384 - - - 35 15 - 434
</TABLE>
A-76
Exhibit 4 (b) (1)
March 22, 1999
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Texas Utilities Company
1998 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 1998 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 5 to
Consolidated Financial Statements (included in Appendix A of the Company's
Annual Report on Form 10-K for 1998).
The Company agrees to furnish a copy of the above instruments to the
Securities and Exchange Commission upon request.
Sincerely,
/s/ Jerry W. Pinkerton
---------------------------------
Jerry W. Pinkerton
Controller and Principal Accounting Officer
Exhibit 4 (b) (2)
March 22, 1998
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Texas Utilities Electric Company
1998 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 1998 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 5 to Consolidated Financial Statements (included in Appendix A of the
Company's Annual Report on Form 10-K for 1998).
The Company agrees to furnish a copy of the above instruments to the
Securities and Exchange Commission upon request.
Sincerely,
/s/ Jerry W. Pinkerton
----------------------------------
Jerry W. Pinkerton
Controller and Principal Accounting Officer
Exhibit 10(g)
DESCRIPTION OF COMPENSATORY ARRANGEMENT
WITH
DEREK BONHAM
Mr. Bonham will remain as a non-executive director of The Energy Group
Limited and serve as an advisor to the Texas Utilities Company Board of
Directors for a period from July 31, 1998 to December 31, 1999. Termination
of this appointment is subject to three months' notice which in any event
cannot be given by either party before September 30, 1999, to expire no
earlier than December 31, 1999. This appointment can continue beyond December
31, 1999 and will thereafter be subject to three months' notice to terminate
by either party.
The duties to be undertaken by Mr. Bonham during this appointment will
consist of attending Texas Utilities' board of directors meetings where
possible and in any event providing advisory services for not more than three
days per month over each calendar 12-month period of this appointment and
otherwise as mutually agreed upon.
While Mr. Bonham serves in the foregoing capacities, he will be
compensated at the rate of 100,000 pounds per year and will be provided with
certain incidental benefits including administrative support, transportation
expenses and health insurance.
EXHIBIT 10(h)
CONFORMED COPY
=================================================================
TEXAS UTILITIES COMPANY
TEXAS UTILITIES ELECTRIC COMPANY
ENSERCH CORPORATION
__________________________________________
$2,100,000,000
364-DAY AMENDED AND RESTATED COMPETITIVE ADVANCE
AND REVOLVING CREDIT FACILITY AGREEMENT
"FACILITY A"
Dated as of May 28, 1998,
as amended and restated
as of February 26, 1999
__________________________________________
CHASE BANK OF TEXAS, NATIONAL ASSOCIATION,
AS ADMINISTRATIVE AGENT
AND
THE CHASE MANHATTAN BANK,
AS COMPETITIVE ADVANCE FACILITY AGENT
Lead Arranger and Book Manager
CHASE SECURITIES INC.
=================================================================
<PAGE>
TABLE OF CONTENTS
Section Page
-----
ARTICLE I DEFINITIONS; CONSTRUCTION . . . . . . . . . . . . . . 2
SECTION 1.01. Defined Terms . . . . . . . . . . . . . . . . . 2
SECTION 1.02. Terms Generally . . . . . . . . . . . . . . . 20
ARTICLE II THE CREDITS . . . . . . . . . . . . . . . . . . . 21
SECTION 2.01. Commitments . . . . . . . . . . . . . . . . . 21
SECTION 2.02. Loans . . . . . . . . . . . . . . . . . . . . 21
SECTION 2.03. Competitive Bid Procedure . . . . . . . . . . 23
SECTION 2.04. Standby Borrowing Procedure . . . . . . . . . 25
SECTION 2.05. Fees . . . . . . . . . . . . . . . . . . . . . 26
SECTION 2.06. Repayment of Loans; Evidence of Indebtedness . 27
SECTION 2.07. Interest on Loans . . . . . . . . . . . . . . 27
SECTION 2.08. Default Interest . . . . . . . . . . . . . . . 28
SECTION 2.09. Alternate Rate of Interest . . . . . . . . . . 28
SECTION 2.10. Termination and Reduction of Commitments . . . 28
SECTION 2.11. Prepayment . . . . . . . . . . . . . . . . . . 29
SECTION 2.12. Reserve Requirements; Change in Circumstances 30
SECTION 2.13. Change in Legality . . . . . . . . . . . . . . 32
SECTION 2.14. Pro Rata Treatment . . . . . . . . . . . . . . 33
SECTION 2.15. Sharing of Setoffs . . . . . . . . . . . . . . 33
SECTION 2.16. Payments . . . . . . . . . . . . . . . . . . . 34
SECTION 2.17. Taxes . . . . . . . . . . . . . . . . . . . . 34
SECTION 2.18. Assignment of Commitments Under
Certain Circumstances . . . . . . . . . . . . 37
SECTION 2.19. Term Election . . . . . . . . . . . . . . . . 37
ARTICLE III REPRESENTATIONS AND WARRANTIES . . . . . . . . . 38
SECTION 3.01. Organization; Powers . . . . . . . . . . . . . 38
SECTION 3.02. Authorization . . . . . . . . . . . . . . . . 38
SECTION 3.03. Enforceability . . . . . . . . . . . . . . . . 38
SECTION 3.04. Governmental Approvals . . . . . . . . . . . . 39
SECTION 3.05. Financial Statements . . . . . . . . . . . . . 39
SECTION 3.06. Litigation . . . . . . . . . . . . . . . . . . 40
SECTION 3.07. Federal Reserve Regulations . . . . . . . . . 40
SECTION 3.08. Investment Company Act; Public
Utility Holding Company Act . . . . . . . . . 40
SECTION 3.09. No Material Misstatements . . . . . . . . . . 41
SECTION 3.10. Taxes . . . . . . . . . . . . . . . . . . . . 41
SECTION 3.11. Employee Benefit Plans . . . . . . . . . . . . 41
i
<PAGE>
SECTION 3.12. Significant Subsidiaries . . . . . . . . . . . 41
SECTION 3.13. Environmental Matters . . . . . . . . . . . . 41
SECTION 3.14. Year 2000 Compliance. . . . . . . . . . . . . 42
ARTICLE IV CONDITIONS . . . . . . . . . . . . . . . . . . . . 42
SECTION 4.01. Restatement Date . . . . . . . . . . . . . . . 43
SECTION 4.02. Initial Offer Loans . . . . . . . . . . . . . 44
SECTION 4.03. Conditions For All Offer Loans
During the Certain Funds Period . . . . . . . 45
SECTION 4.04. Initial General Loans . . . . . . . . . . . . 45
SECTION 4.05. Offer Loans After the Certain
Funds Period and All General Loans . . . . . . 45
ARTICLE V COVENANTS . . . . . . . . . . . . . . . . . . . . . 46
SECTION 5.01. Existence . . . . . . . . . . . . . . . . . . 46
SECTION 5.02. Business and Properties . . . . . . . . . . . 46
SECTION 5.03. Financial Statements, Reports, Etc . . . . . . 47
SECTION 5.04. Insurance . . . . . . . . . . . . . . . . . . 49
SECTION 5.05. Taxes, Etc . . . . . . . . . . . . . . . . . . 49
SECTION 5.06. Maintaining Records;
Access to Properties and Inspections . . . . . 49
SECTION 5.07. ERISA . . . . . . . . . . . . . . . . . . . . 49
SECTION 5.08. Use of Proceeds . . . . . . . . . . . . . . . 49
SECTION 5.09. Consolidations, Mergers, Sales and
Acquisitions of Assets and Investments
in Subsidiaries . . . . . . . . . . . . . . . 50
SECTION 5.10. Limitations on Liens . . . . . . . . . . . . . 50
SECTION 5.11. Fixed Charge Coverage . . . . . . . . . . . . 52
SECTION 5.12. Equity Capitalization Ratio . . . . . . . . . 52
SECTION 5.13. Restrictive Agreements . . . . . . . . . . . . 53
SECTION 5.14. The Offer . . . . . . . . . . . . . . . . . . 53
ARTICLE VI EVENTS OF DEFAULT . . . . . . . . . . . . . . . . 55
ARTICLE VII THE AGENTS . . . . . . . . . . . . . . . . . . . 57
ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . 59
SECTION 8.01. Notices . . . . . . . . . . . . . . . . . . . 59
SECTION 8.02. Survival of Agreement . . . . . . . . . . . . 60
SECTION 8.03. Binding Effect . . . . . . . . . . . . . . . . 60
SECTION 8.04. Successors and Assigns . . . . . . . . . . . . 60
SECTION 8.05. Expenses; Indemnity . . . . . . . . . . . . . 63
SECTION 8.06. Right of Setoff . . . . . . . . . . . . . . . 65
SECTION 8.07. Applicable Law . . . . . . . . . . . . . . . . 65
SECTION 8.08. Waivers; Amendment . . . . . . . . . . . . . . 65
SECTION 8.09. ENTIRE AGREEMENT . . . . . . . . . . . . . . . 66
SECTION 8.10. Severability . . . . . . . . . . . . . . . . . 66
ii
<PAGE>
SECTION 8.11. Counterparts . . . . . . . . . . . . . . . . . 66
SECTION 8.12. Headings . . . . . . . . . . . . . . . . . . . 67
SECTION 8.13. Interest Rate Limitation . . . . . . . . . . . 67
SECTION 8.14. Jurisdiction; Venue . . . . . . . . . . . . . 67
SECTION 8.15. Confidentiality . . . . . . . . . . . . . . . 68
EXHIBITS AND SCHEDULES
Exhibit A-1 - Form of Competitive Bid Request
Exhibit A-2 - Form of Notice of Competitive Bid Request
Exhibit A-3 - Form of Competitive Bid
Exhibit A-4 - Form of Competitive Bid Accept/Reject Letter
Exhibit A-5 - Form of Standby Borrowing Request
Exhibit B - Administrative Questionnaire
Exhibit C - Form of Assignment and Acceptance
Exhibit D-1 - Opinion of Thelen Reid & Priest LLP,
special counsel to TUC, TU Electric and
Enserch
Exhibit D-2 - Opinion of Worsham, Forsythe & Wooldridge,
L.L.P., general counsel for TUC, TU Electric
and Enserch
Schedule 2.01 - Commitments
Schedule 3.06 - Litigation
iii
<PAGE>
AMENDED AND RESTATED COMPETITIVE ADVANCE AND
REVOLVING CREDIT FACILITY AGREEMENT (the
"AGREEMENT"), dated as of May 28, 1998, as
amended and restated as of February 26, 1999,
among TEXAS UTILITIES COMPANY, a Texas
corporation ("TUC"); TEXAS UTILITIES ELECTRIC
COMPANY, a Texas corporation and a wholly
owned subsidiary of TUC ("TU ELECTRIC"), and
ENSERCH CORPORATION, a Texas corporation and
a wholly owned subsidiary of TUC ("ENSERCH"
and, together with TUC and TU Electric, the
"Borrowers", and each individually, a
"BORROWER"); the lenders listed in
Schedule 2.01 (together with their successors
and assigns, the "LENDERS"); THE CHASE
MANHATTAN BANK ("CHASE"), as Competitive
Advance Facility Agent (in such capacity, the
"CAF AGENT"); and CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION ("CHASE BANK OF TEXAS"),
as administrative agent for the Lenders (in
such capacity, the "ADMINISTRATIVE AGENT";
and, together with the CAF Agent, the
"AGENTS").
Pursuant to the terms of that certain 364-Day Amended and
Restated Competitive Advance and Revolving Credit Facility
Agreement, dated as of May 28, 1998 (the "ORIGINAL AGREEMENT"),
among the Borrowers, the lenders party thereto (the "ORIGINAL
LENDERS") and the Agents, the Original Lenders agreed to extend
credit in the form of Standby Borrowings (such term and each
other capitalized term used herein having the meaning given it in
Article I) to the Borrowers in an aggregate principal amount at
any time outstanding not in excess of $3,600,000,000. The
Original Lenders also agreed to provide a procedure pursuant to
which the Borrowers may invite the Lenders to bid on an
uncommitted basis on short-term borrowings by the Borrowers.
Subject to the terms and conditions set forth in the Original
Agreement, the proceeds of any such borrowings were to be used
(i) to finance or refinance equity or subordinated loan advances
from TUC to FinCo 1 and FinCo 2 in connection with the
Acquisition and (ii) to refinance the Existing TUC Credit
Agreements and for working capital and other corporate purposes,
including commercial paper back-up. Since the date of the
Original Agreement (i) the Offer Loan Commitments have been
terminated, (ii) the Commitments of various Lenders have been
assigned to other Lenders and certain new Lenders have become
parties hereto and (iii) the parties to the Original Agreement
have determined to extend the availability of the Commitments as
set forth herein. Accordingly, in order to reflect these
changes, the parties hereto now wish to amend and restate the
Original Agreement as herein set forth.
Accordingly, the parties hereto agree as follows:
<PAGE>
2
ARTICLE I
DEFINITIONS; CONSTRUCTION
SECTION 1.01. DEFINED TERMS. As used in this Agreement,
the following terms shall have the meanings specified below:
"ABR BORROWING" shall mean a Borrowing comprised of ABR
Loans.
"ABR" Loan shall mean any Standby Loan bearing interest
at a rate determined by reference to the Alternate Base Rate
in accordance with the provisions of Article II or any
Eurodollar Loan converted (pursuant to Section 2.09 or
2.13(a)(ii)) to a loan bearing interest at a rate determined
by reference to the Alternate Base Rate.
"ACQUISITION" shall mean the acquisition by Bidco of
the Target Shares, whether pursuant to the Offer or pursuant
to the procedures contained in Part XIIIA of the Companies
Act or by way of open market purchases (and includes where
the context permits payments by Bidco to TEG's share option
holders to purchase or cancel the benefit of such options).
"ACQUISITION COMPANY" shall mean each of FinCo 1,
FinCo 2 and Bidco.
"ACQUISITION DATE" shall mean the date as of which a
person or group of related persons first acquires more than
30% of the outstanding Voting Shares of TUC (within the
meaning of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended, and the applicable rules and
regulations thereunder).
"ADMINISTRATIVE FEES" shall have the meaning assigned
to such term in Section 2.05(b).
"ADMINISTRATIVE QUESTIONNAIRE" shall mean an
Administrative Questionnaire in the form of Exhibit B
hereto.
"AFFILIATE" shall mean, when used with respect to a
specified person, another person that directly or indirectly
controls or is controlled by or is under common control with
the person specified.
"ALTERNATE BASE RATE" shall mean, for any day, a rate
per annum (rounded upwards, if necessary, to the next 1/16
of 1%) equal to the greatest of (a) the Federal Funds
Effective Rate in effect on such day plus 1/2 of 1%, (b) the
Base CD Rate in effect on such day plus 1% and (c) the Prime
Rate in effect on such day. For purposes hereof, "PRIME
RATE" shall mean the rate of interest per annum publicly
<PAGE>
3
announced from time to time by Chase as its prime rate in
effect at its principal office in New York City; each change
in the Prime Rate shall be effective on the date such change
is publicly announced as effective; "BASE CD RATE" shall
mean the sum of (d) the product of (i) the Three-Month
Secondary CD Rate and (ii) Statutory Reserves and (iii) the
Assessment Rate; "THREE-MONTH SECONDARY CD RATE" shall
mean, for any day, the secondary market rate for three-month
certificates of deposit reported as being in effect on such
day (or, if such day shall not be a Business Day, the next
preceding Business Day) by the Board through the public
information telephone line of the Federal Reserve Bank of
New York (which rate will, under the current practices of
the Board, be published in Federal Reserve Statistical
Release H.15(519) during the week following such day), or,
if such rate shall not be so reported on such day or such
next preceding Business Day, the average of the secondary
market quotations for three-month certificates of deposit of
major money center banks in New York City received at
approximately 10:00 a.m., New York City time, on such day
(or, if such day shall not be a Business Day, on the next
preceding Business Day) by the CAF Agent from three New York
City negotiable certificate of deposit dealers of recognized
standing selected by it; "ASSESSMENT RATE" shall mean, for
any day, the annual rate (rounded upwards to the next 1/100
of 1%) most recently estimated by Chase as the then current
net annual assessment rate that will be employed in
determining amounts payable by Chase to the Federal Deposit
Insurance Corporation (or any successor) for insurance by
such Corporation (or such successor) of time deposits made
in US dollars at Chase's domestic offices; and "FEDERAL
FUNDS EFFECTIVE RATE" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions
with members of the Federal Reserve System arranged by
Federal funds brokers, as released on the next succeeding
Business Day by the Federal Reserve Bank of New York, or, if
such rate is not so released for any day which is a Business
Day, the arithmetic average (rounded upwards to the next
1/100th of 1%), as determined by Chase, of the quotations
for the day of such transactions received by Chase from
three Federal funds brokers of recognized standing selected
by it. If for any reason Chase shall have determined (which
determination shall be conclusive absent manifest error;
provided that Chase shall, upon request, provide to the
applicable Borrower a certificate setting forth in
reasonable detail the basis for such determination) that it
is unable to ascertain the Federal Funds Effective Rate for
any reason, including the inability of Chase to obtain
sufficient quotations in accordance with the terms thereof,
the Alternate Base Rate shall be determined without regard
to clause (a) of the first sentence of this definition until
the circumstances giving rise to such inability no longer
exist. Any change in the Alternate Base Rate due to a
change in the Prime Rate or the Federal Funds Effective Rate
shall be effective on the effective date of such change in
the Prime Rate or the Federal Funds Effective Rate,
respectively.
"APPLICABLE MARGIN" shall mean, (i) on any date from
May 28, 1998, to and including September 2, 1998, 0.0% for
ABR Loans made to any Borrower, 1.05% per annum for
Eurodollar Loans made to TUC, .85% per annum for Eurodollar
Loans made to TU Electric and .85% per annum for Eurodollar
Loans made to Enserch and (ii) on any date following
September 2, 1998 with respect to any Borrower, the
percentage per annum set forth in the column identified as
Level 1, Level 2, Level 3 or Level 4 below, based upon the
Level corresponding to the lower Debt Rating of such
Borrower at the time of determination, provided, that the
<PAGE>
4
Applicable Margins set forth below with respect to each
Level shall be increased by .50% with respect to Eurodollar
Loans outstanding at any time following the Revolving
Period, provided, further, that the Applicable Margin with
respect to ABR Loans outstanding at any time following the
Revolving Period shall be equal to, for each Level, the
then-effective Applicable Margin for Eurodollar Loans less
1.00% (but not negative). Any change in the Applicable
Margin shall be effective on the date on which the
applicable rating agency announces any change in the Debt
Rating.
==============================================================
Level 1 Level 2 Level 3 Level 4
------- ------- ------- -------
S&P BBB+or better BBB BBB- BB+ or below*
Moody's Baa1 or better Baa2 Baa3 Ba1 or below*
-------------- ----- ---- -------------
---------------------------------------------------------------
Percentage Per Annum
---------------------------------------------------------------
Eurodollar .625% .85% 1.05% 1.25%
Margin
---------------------------------------------------------------
ABR 0 0 .05% .25%
Margin
===============================================================
* or unrated
"ASSIGNMENT AND ACCEPTANCE" shall mean an assignment
and acceptance entered into by a Lender and an assignee in
the form of Exhibit C.
"AUCTION FEES" shall mean the competitive advance
auction fees provided for in the Letter Agreement, payable
to the CAF Agent by the applicable Borrower at the time of
each competitive advance auction request made by such
Borrower pursuant to Section 2.03.
"BIDCO" shall mean TU Acquisition plc, a direct wholly
owned subsidiary of FinCo 2.
"BOARD" shall mean the Board of Governors of the
Federal Reserve System of the United States.
"BOARD OF DIRECTORS" shall mean the Board of Directors
of a Borrower or any duly authorized committee thereof.
"BORROWER" shall have the meaning given such term in
the preamble hereto.
"BORROWING" shall mean a group of Loans of a single
Type made by the Lenders (or, in the case of a Competitive
Borrowing, by the Lender or Lenders whose Competitive Bids
have been accepted pursuant to Section 2.03) on a single
date and as to which a single Interest Period is in effect.
<PAGE>
5
"BUSINESS DAY" shall mean any day (other than a day
which is a Saturday, Sunday or legal holiday in the State of
New York or the State of Texas) on which banks are open for
business in New York City and Houston; provided, however,
that, when used in connection with a Eurodollar Loan, the
term "BUSINESS DAY" shall also exclude any day on which
banks are not open for dealings in dollar deposits in the
London interbank market.
"CERTAIN FUNDS PERIOD" shall mean the period beginning
on March 2, 1998 and ending on February 25, 1999.
"A CHANGE IN CONTROL" shall be deemed to have occurred
if (a) any person or group of related persons (other than
TUC, any Subsidiary of TUC, or any pension, savings or other
employee benefit plan for the benefit of employees of TUC
and/or any Subsidiary of TUC) shall have acquired beneficial
ownership of more than 30% of the outstanding Voting Shares
of TUC (within the meaning of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended, and the
applicable rules and regulations thereunder); provided that
a Change in Control shall not be deemed to have occurred if
such acquisition has been approved, prior to the Acquisition
Date and the date on which any tender offer for Voting
Shares of TUC was commenced, by a majority of the
Disinterested Directors of TUC, or (b) during any period of
12 consecutive months, commencing before or after the date
of this Agreement, individuals who on the first day of such
period were directors of TUC (together with any replacement
or additional directors who were nominated or elected by a
majority of directors then in office) cease to constitute a
majority of the Board of Directors of TUC.
"CITY CODE" shall mean the City Code on Takeovers and
Mergers (UK).
"CODE" shall mean the Internal Revenue Code of 1986, as
the same may be amended from time to time.
"COMMISSION" shall mean the Public Utility Commission
of the State of Texas.
"COMMITMENT" shall mean, with respect to each Lender,
the sum of such Lender's General Loan Commitment and Offer
Loan Commitment.
"COMPANIES ACT" shall mean the Companies Act 1985 (UK).
"COMPETITIVE BID" shall mean an offer by a Lender to
make a Competitive Loan pursuant to Section 2.03.
"COMPETITIVE BID ACCEPT/REJECT LETTER" shall mean a
notification made by a Borrower pursuant to Section 2.03(d)
in the form of Exhibit A-4.
<PAGE>
6
"COMPETITIVE BID MARGIN" shall mean, as to any
Eurodollar Competitive Loan, the margin (expressed as a
percentage rate per annum in the form of a decimal to no
more than four decimal places) to be added to or subtracted
from the LIBO Rate in order to determine the interest rate
applicable to such Loan, as specified in the Competitive Bid
relating to such Loan.
"COMPETITIVE BID RATE" shall mean, as to any
Competitive Bid, (i) in the case of a Eurodollar Loan, the
LIBO Rate for the Interest Period requested in such
Competitive Bid plus the Competitive Bid Margin, and (i) in
the case of a Fixed Rate Loan, the fixed rate of interest
offered by the Lender making such Competitive Bid.
"COMPETITIVE BID REQUEST" shall mean a request made
pursuant to Section 2.03 in the form of Exhibit A-1.
"COMPETITIVE BORROWING" shall mean a Borrowing
consisting of a Competitive Loan or concurrent Competitive
Loans from the Lender or Lenders whose Competitive Bids for
such Borrowing have been accepted under the bidding
procedure described in Section 2.03.
"COMPETITIVE LOAN" shall mean a Loan made pursuant to
the bidding procedure described in Section 2.03. Each
Competitive Loan shall be a Eurodollar Competitive Loan or a
Fixed Rate Loan.
"CONSOLIDATED EARNINGS AVAILABLE FOR FIXED CHARGES" for
any twelve-month period shall mean (i) consolidated net
income, calculated after deducting preferred stock dividends
and preferred securities distributions of Subsidiaries, but
before any extraordinary items and before the effect in such
twelve-month period of any change in accounting principles
promulgated by the Financial Accounting Standards Board
becoming effective after December 31, 1997, less
(ii) allowances for equity funds used during construction to
the extent that such allowances, taken as a whole, increased
such consolidated net income, plus (iii) provisions for
Federal income taxes, to the extent that such provisions,
taken as a whole, decreased such consolidated net income,
plus (iv) Consolidated Fixed Charges, all determined for
such twelve-month period with respect to TUC and its
Consolidated Subsidiaries on a consolidated basis; provided,
however, that in computing Consolidated Earnings Available
for Fixed Charges for any twelve-month period the following
amounts shall be excluded: (A) the effect of any regulatory
disallowances resolving fuel or other issues in any
proceeding before the Commission or the Railroad Commission
of Texas in an aggregate amount not to exceed $100,000,000,
(B) any non-cash book losses relating to the sale or write-
down of assets and (C) one-time costs incurred in connection
with the Mergers (as defined in the Joint Proxy
Statement/Prospectus dated September 23, 1996 for Texas
Utilities Company (as predecessor to Texas Energy
Industries, Inc.) and Enserch) in an aggregate amount not to
exceed $100,000,000.
<PAGE>
7
"CONSOLIDATED FIXED CHARGES" for any twelve-month
period shall mean the sum of (i) interest on mortgage bonds,
(ii) interest on other long-term debt, (iii) other interest
expense, including interest on short-term debt and the
current portion of long-term debt, and (iv) preferred stock
dividends and preferred securities distributions of
Subsidiaries, all determined for such twelve-month period
with respect to TUC and its Consolidated Subsidiaries on a
consolidated basis.
"CONSOLIDATED SHAREHOLDERS' EQUITY" shall mean the sum
of (i) total common stock equity plus (ii) preferred stock
not subject to mandatory redemption, both determined with
respect to TUC and its Consolidated Subsidiaries on a
consolidated basis.
"CONSOLIDATED SUBSIDIARY" shall mean at any date any
Subsidiary or other entity the accounts of which would be
consolidated with those of TUC, TU Electric or Enserch, as
the case may be, in its consolidated financial statements as
of such date.
"CONSOLIDATED TOTAL CAPITALIZATION" shall mean the sum
of (i) total common stock equity, (ii) preferred stock and
preferred securities, (iii) long-term debt (less amounts due
currently) and (iv) the sum of the outstanding aggregate
principal amount of Offer Loans plus the outstanding
aggregate principal amount of General Loans used for the
purposes described in Sections 5.08(ii)(A), (C) and (E), all
determined with respect to TUC and its Consolidated
Subsidiaries on a consolidated basis.
"CONTROLLED GROUP" shall mean all members of a
controlled group of corporations and all trades or
businesses (whether or not incorporated) under common
control which, together with TUC, are treated as a single
employer under Section 414(b) or 414(c) of the Code.
"DEBT RATING" shall mean, with respect to any Borrower,
the ratings (whether explicit or implied) assigned by S&P
and Moody's to such Borrower's senior unsecured non-credit
enhanced long term debt.
"DEFAULT" shall mean any event or condition which upon
notice, lapse of time or both would constitute an Event of
Default.
"DISINTERESTED DIRECTOR" shall mean any member of the
Board of Directors of TUC who is not affiliated, directly or
indirectly, with, or appointed by, a person or group of
related persons (other than TUC, any Subsidiary of TUC, or
any pension, savings or other employee benefit plan for the
benefit of employees of TUC and/or any Subsidiary of TUC)
acquiring the beneficial ownership of more than 30% of the
outstanding Voting Shares of TUC (within the meaning of
Section 13(d) or 14(d) of the Securities Exchange Act of
1934, as amended, and the applicable rules and regulations
thereunder) and who either was a member of the Board of
Directors of TUC prior to the Acquisition Date or was
<PAGE>
8
recommended for election by a majority of the Disinterested
Directors in office prior to the Acquisition Date.
"DOLLARS" or "$" shall mean lawful money of the
United States of America.
"EFFECTIVE DATE" shall mean May 28, 1998.
"ELECTRICITY ACT" shall mean the Electricity Act 1989
(UK).
"EQUITY EVENT" shall mean the date on which the
aggregate amount of the Offer Loan Commitments as of the
date hereof shall be permanently reduced by $1.505 billion.
"ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as the same may be amended from time
to time.
"ERISA AFFILIATE" shall mean any trade or business
(whether or not incorporated) that is a member of a group of
(i) organizations described in Section 414(b) or (c) of the
Code and (ii) solely for purposes of the Lien created under
Section 412(n) of the Code, organizations described in
Section 414(m) or (o) of the Code of which the relevant
Borrower is a member.
"ERISA EVENT" shall mean (i) any "Reportable Event";
(ii) the adoption of any amendment to a Plan that would
require the provision of security pursuant to Section
401(a)(29) of the Code or Section 307 of ERISA; (iii) the
incurrence of any liability under Title IV of ERISA with
respect to the termination of any Plan or the withdrawal or
partial withdrawal of any Borrower or any of its ERISA
Affiliates from any Plan or Multiemployer Plan; (iv) the
receipt by any Borrower or any ERISA Affiliate from the PBGC
of any notice relating to the intention to terminate any
Plan or Plans or to appoint a trustee to administer any
Plan; (v) the receipt by any Borrower or any ERISA Affiliate
of any notice concerning the imposition of Withdrawal
Liability or a determination that a Multiemployer Plan is,
or is expected to be, insolvent or in reorganization, within
the meaning of Title IV of ERISA; (vi) the occurrence of a
"prohibited transaction" with respect to which any Borrower
or any of its subsidiaries is liable; and (vii) any other
similar event or condition with respect to a Plan or
Multiemployer Plan that could result in liability of any
Borrower other than a liability to pay premiums or benefits
when due.
"EURODOLLAR BORROWING" shall mean a Borrowing comprised
of Eurodollar Loans.
"EURODOLLAR COMPETITIVE LOAN" shall mean any
Competitive Loan bearing interest at a rate determined by
reference to the LIBO Rate in accordance with the provisions
of Article II.
<PAGE>
9
"EURODOLLAR LOAN" shall mean any Eurodollar Competitive
Loan or Eurodollar Standby Loan.
"EURODOLLAR STANDBY LOAN" shall mean any Standby Loan
bearing interest at a rate determined by reference to the
LIBO Rate in accordance with the provisions of Article II.
"EVENT OF DEFAULT" shall have the meaning assigned to
such term in Article VI.
"EXCHANGE ACT" shall mean the Securities Exchange Act
of 1934, as amended.
"EXISTING TU CREDIT AGREEMENTS" shall mean the Amended
and Restated Competitive Advance and Revolving Credit
Facility Agreements for Facility A and Facility B, each
dated as of April 24, 1997, as amended as of November 10,
1997 and April 15, 1998, among TUC Holding Company
(predecessor to TUC), Texas Utilities Company (predecessor
to Texas Energy Industries, Inc.), TU Electric, Enserch, the
lenders parties thereto from time to time, Texas Commerce
Bank National Association (predecessor to Chase Bank of
Texas), as Administrative Agent, and Chase, as Competitive
Advance Facility Agent.
"FACILITY B CREDIT AGREEMENT" shall mean the
$1,400,000,000 Amended and Restated Competitive Advance and
Revolving Credit Facility Agreement, dated as of May 28,
1998, among the Borrowers and certain other parties named
therein, as amended, modified or supplemented from time to
time.
"FACILITY FEE" shall have the meaning assigned to such
term in Section 2.05(a).
"FACILITY FEE PERCENTAGE" shall mean (i) from May 28,
1998, to and including September 2, 1998, .20% per annum and
(ii) thereafter, the percentage per annum set forth in the
column identified as Level 1, Level 2, Level 3 or Level 4
below, based upon the Level corresponding to the lower Debt
Rating of TUC at the time of determination. Any change in
the Facility Fee Percentage shall be effective on the date
on which the applicable rating agency announces any change
in the applicable Debt Rating.
==============================================================
Level 1 Level 2 Level 3 Level 4
------- ------- ------- -------
S&P BBB+ or better BBB BBB- BB+ or below*
Moody's Baa1 or better Baa2 Baa3 Ba1 or below*
-------------- ---- ---- -------------
--------------------------------------------------------------
Percentage Per Annum
--------------------------------------------------------------
Facility Fee 0.125% 0.150% 0.20% 0.25%
==============================================================
* or unrated
"FEES" shall mean the Facility Fee, the Auction Fees,
the Administrative Fees and any other fees provided for in
the Letter Agreement, together with any fees payable on or
<PAGE>
10
prior to the Restatement Date in connection with the
amendment and restatement of this agreement as of
February 26, 1999.
"FINANCIAL OFFICER" of any corporation shall mean the
chief financial officer, principal accounting officer,
treasurer, associate or assistant treasurer, or any
responsible officer designated by one of the foregoing
persons, of such corporation.
"FINCO 1" shall mean TU Finance (No. 1) Limited, a
company registered in England and Wales, now known as TXU
Eastern Holdings Limited, 100% of the share capital of which
is owned directly or indirectly by TUC.
"FINCO 2" shall mean TU Finance (No. 2) Limited, a
company registered in England and Wales, 90% of the share
capital of which is owned directly by FinCo 1 and 10% of the
share capital of which is owned directly or indirectly by
TUC.
"FIRST MORTGAGE" shall mean (i) the TU Electric
Mortgage and (ii) any Mortgage and Deed of Trust of TU
Electric issued to refund, to replace or in substitution for
the TU Electric Mortgage.
"FIXED RATE BORROWING" shall mean a Borrowing comprised
of Fixed Rate Loans.
"FIXED RATE LOAN" shall mean any Competitive Loan
bearing interest at a fixed percentage rate per annum (the
"FIXED RATE") (expressed in the form of a decimal to no more
than four decimal places) specified by the Lender making
such Loan in its Competitive Bid.
"FUEL COMPANY" shall mean Texas Utilities Fuel Company,
a Texas corporation, and its successors.
"GAAP" shall mean generally accepted accounting
principles, applied on a consistent basis.
"GENERAL LOAN" shall mean a Loan the proceeds of which
are used solely for the purposes permitted under Sections
5.08(i) and 5.08(ii)(A), (C) and (E).
"GENERAL LOAN COMMITMENT" shall mean, with respect to
each Lender, the commitment of such Lender set forth in
Schedule 2.01 hereto to make General Loans, as such General
Loan Commitment may be permanently terminated or reduced
from time to time pursuant to Section 2.10 or modified from
time to time pursuant to Section 8.04. The General Loan
Commitment of each Lender shall automatically and
permanently terminate on the Maturity Date if not terminated
earlier pursuant to the terms hereof.
<PAGE>
11
"GOVERNMENTAL AUTHORITY" shall mean any Federal, state,
local or foreign court or governmental agency, authority,
instrumentality or regulatory body.
"INDEBTEDNESS" of any person shall mean all
indebtedness representing money borrowed which is created,
assumed, incurred or guaranteed in any manner by such person
or for which such person is responsible or liable (whether
by agreement to purchase indebtedness of, or to supply funds
to or invest in, others or otherwise).
"INITIAL UNDERWRITERS" shall mean each of Chase, Lehman
Commercial Paper Inc. and Merrill Lynch Capital Corporation,
each in its capacity as an initial underwriter of the credit
facilities evidenced by this Agreement and the Facility B
Credit Agreement.
"INTEREST PAYMENT DATE" shall mean, with respect to any
Loan, the last day of the Interest Period applicable thereto
and, in the case of a Eurodollar Loan with an Interest
Period of more than three months' duration or a Fixed Rate
Loan with an Interest Period of more than 90 days' duration,
each day that would have been an Interest Payment Date for
such Loan had successive Interest Periods of three months'
duration or 90 days' duration, as the case may be, been
applicable to such Loan and, in addition, the date of any
prepayment of each Loan or conversion of such Loan to a Loan
of a different Type.
"INTEREST PERIOD" shall mean (a) as to any Eurodollar
Borrowing, the period commencing on the date of such
Borrowing and ending on the numerically corresponding day
(or, if there is no numerically corresponding day, on the
last day) in the calendar month that is 1, 2, 3 or 6 months
thereafter; provided that in the case of any Eurodollar
Borrowing made during the period commencing on the Effective
Date and ending on the date on which syndication of the
Total Commitment has been fully completed (as determined by
the Joint Lead Arrangers and notified by them to the
Borrowers and the Administrative Agent), such period shall
be one month or such other periods as the Joint Lead
Arrangers and TUC agree as being necessary to effect the
assignment of Commitments in connection with syndication
and, in addition, in the case of any Eurodollar Borrowing
made during the 30-day period ending on the Maturity Date,
the period commencing on the date of such Borrowing and
ending on the seventh or fourteenth day thereafter, as the
Borrower may elect, (b) as to any ABR Borrowing, the period
commencing on the date of such Borrowing and ending on the
earliest of (i) the next succeeding March 31, June 30,
September 30 or December 31, (ii) the Maturity Date, and
(iii) the date such Borrowing is repaid or prepaid in
accordance with Section 2.06 or Section 2.11 and (b) as to
any Fixed Rate Borrowing, the period commencing on the date
of such Borrowing and ending on the date specified in the
Competitive Bids in which the offers to make the Fixed Rate
Loans comprising such Borrowing were extended, which shall
not be earlier than seven days after the date of such
Borrowing or later than 360 days after the date of such
Borrowing; provided, however, that if any Interest Period
would end on a day other than a Business Day, such Interest
Period shall be extended to the next succeeding Business Day
unless, in the case of Eurodollar Loans only, such next
<PAGE>
12
succeeding Business Day would fall in the next calendar
month, in which case such Interest Period shall end on the
next preceding Business Day. Interest shall accrue from and
including the first day of an Interest Period to but
excluding the last day of such Interest Period.
"JOINT LEAD ARRANGER" shall mean each of Chase
Securities Inc., Lehman Brothers Inc. and Merrill Lynch &
Co., each in its capacity as a joint lead arranger of the
credit facilities evidenced by this Agreement and the
Facility B Credit Agreement.
"LETTER AGREEMENT" shall mean, collectively, (i) the
Syndication Letter, dated March 2, 1998, among TUC, the
Joint Lead Arrangers and the Initial Underwriters, (ii) the
Underwriting Fee Letter, dated March 2, 1998, among TUC and
the Initial Underwriters, and (iii) the Agent Fee Letter,
dated March 2, 1998, among the Administrative Agent, the CAF
Agent and the Borrowers, each as amended, modified or
supplemented from time to time.
"LIBO RATE" shall mean, with respect to any Eurodollar
Borrowing for any Interest Period, the rate appearing on
Page 3750 of the Telerate Service (or on any successor or
substitute page of such service, or any successor to or
substitute for such service, providing rate quotations
comparable to those currently provided on such page of such
service, as determined by the Administrative Agent from time
to time for purposes of providing quotations of interest
rates applicable to dollar deposits in the London interbank
market) at approximately 11:00 a.m., London time, two
Business Days prior to the commencement of such Interest
Period as the rate for dollar deposits with a maturity
comparable to such Interest Period. In the event that such
rate is not available at such time for any reason, then the
"LIBO RATE" with respect to such Eurodollar Borrowing for
such Interest Period shall be the rate at which dollar
deposits of $5,000,000 and for a maturity comparable to such
Interest Period are offered by the principal London office
of Chase in immediately available funds in the London
interbank market at approximately 11:00 a.m. London time,
two Business Days prior to the commencement of such Interest
Period.
"LICENSES" shall mean those licenses granted under
Section 6 of the Electricity Act authorizing one or more
members of the TEG Group to carry on the business of
electricity generation, supply and distribution and any
activities ancillary thereto, as amended and extended from
time to time.
"LIEN" shall mean, with respect to any asset, any
mortgage, lien, pledge, charge, security interest or
encumbrance of any kind in respect of such asset. For the
purposes of this Agreement, any person shall be deemed to
own subject to a Lien any asset which it has acquired or
holds subject to the interest of a vendor or lessor under
any conditional sale agreement, capital lease or other title
retention agreement relating to such asset.
<PAGE>
13
"LOAN" shall mean a Competitive Loan or a Standby Loan,
whether made as a Eurodollar Loan, an ABR Loan or a Fixed
Rate Loan, as permitted hereby.
"MAJOR DEFAULT" shall mean the occurrence of any of the
following events:
(i) any Event of Default described in paragraph
(h) or (i) of Article VI;
(ii) any Target Insolvency Event;
(iii) default shall be made by TUC in the due
observance or performance of any covenant, condition or
agreement contained in Section 5.14(iii), (iv), (v),
(vi) or (vii);
(iv) on the date of any Offer Loan, any
representation and warranty set forth in Section 3.01,
3.02 or 3.03 shall be false or misleading in any
material respect; or
(v) any other Default that is within the power of
a Borrower to remedy within 7 days of receiving notice
of such Default, but that such Borrower chooses not to
remedy within 7 days following written notice to the
Borrowers by the Administrative Agent requesting the
Borrowers to remedy such Default.
"MARGIN REGULATIONS" shall mean Regulations G, T, U
and X of the Board as from time to time in effect, and all
official rulings and interpretations thereunder or thereof.
"MARGIN STOCK" shall have the meaning given such term
under Regulation U of the Board.
"MATERIAL ADVERSE CHANGE" shall mean a materially
adverse change in the business, assets, operations or
financial condition of TUC and its Subsidiaries taken as a
whole which makes any Borrower unable to perform any of its
obligations under this Agreement or the Facility B Credit
Agreement or which impairs the rights of, or benefits
available to, the Lenders under this Agreement or the
Facility B Credit Agreement; provided that it is agreed and
understood that the Acquisition, as contemplated by the
Offer Documents and the Offer Press Release, shall not be
deemed to be a Material Adverse Change.
"MATURITY DATE" shall mean the earlier to occur of
(i) the last day of the Revolving Period, or, if the
Borrowers shall have made the Term Election, the date 364
days following the last day of the Revolving Period and
(ii) the date of termination or reduction in whole of the
Commitments pursuant to Section 2.10 or Article VI.
<PAGE>
14
"MINING COMPANY" shall mean Texas Utilities Mining
Company, a Texas corporation, and its successors.
"MOODY'S" shall mean Moody's Investors Service, Inc.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan as
defined in Section 4001(a)(3) of ERISA to which any Borrower
or any ERISA Affiliate is making, or accruing an obligation
to make, contributions, or has within any of the preceding
five plan years made, or accrued an obligation to make,
contributions.
"NOTICE OF COMPETITIVE BID REQUEST" shall mean a
notification made pursuant to Section 2.03 in the form of
Exhibit A-2.
"OFFER" shall mean the offer made by and on behalf of
Bidco, on the terms and conditions set forth in the Offer
Press Release, to acquire the whole of the ordinary share
capital (whether in issue or failing to be allotted) of TEG
not already owned by Bidco, as such offer may from time to
time be amended, revised, renewed or waived in accordance
with Section 5.14 of this Agreement.
"OFFER DOCUMENTS" shall mean each of the documents
issued or to be issued by Bidco to the shareholders of TEG
in respect of the Offer (including the forms of acceptance).
"OFFER LOAN" shall mean a Loan the proceeds of which
are used solely for the purposes permitted under
Section 5.08(ii).
"OFFER LOAN COMMITMENT" shall mean, with respect to
each Lender, the commitment of such Lender set forth in
Schedule 2.01 hereto to make Offer Loans, as such Offer Loan
Commitment may be permanently terminated or reduced from
time to time pursuant to Section 2.10, or modified from time
to time pursuant to Section 8.04. The Offer Loan Commitment
of each Lender shall automatically and permanently terminate
on the Maturity Date if not terminated earlier pursuant to
the terms hereof.
"OFFER PRESS RELEASE" shall mean the press announcement
in form and substance acceptable to the Joint Lead
Arrangers, delivered pursuant to Section 4.02(a) and
proposed to be released in connection with the Offer.
"OPERATING AGREEMENTS" shall mean the (i) Operating
Agreement, dated April 28, 1978, between Mining Company and
Dallas Power & Light Company, Texas Electric Service Company
and Texas Power & Light Company, as amended by the
Modification of Operating Agreement, dated April 20, 1979,
between the same parties and (ii) the Operating Agreement,
dated December 15, 1976, between Fuel Company and Dallas
Power & Light Company, Texas Electric Service Company and
<PAGE>
15
Texas Power & Light Company, as the same may be amended from
time to time, provided that any resulting amended agreement
shall not increase the scope of Liens permitted under
Section 5.10(i).
"PBGC" shall mean the Pension Benefit Guaranty
Corporation or any entity succeeding to any or all of its
functions under ERISA.
"PERMITTED ENCUMBRANCES" shall mean, as to any person
at any date, any of the following:
(a) (i) Liens for taxes, assessments or governmental
charges not then delinquent and Liens for workers'
compensation awards and similar obligations not then
delinquent and undetermined Liens or charges incidental to
construction, Liens for taxes, assessments or governmental
charges then delinquent but the validity of which is being
contested at the time by such person in good faith against
which an adequate reserve has been established, with respect
to which levy and execution thereon have been stayed and
continue to be stayed and which do not impair the use of the
property or the operation of such person's business, (ii)
Liens incurred or created in connection with or to secure
the performance of bids, tenders, contracts (other than for
the payment of money), leases, statutory obligations, surety
bonds or appeal bonds, and mechanics' or materialmen's
Liens, assessments or similar encumbrances, the existence of
which does not impair the use of the property subject
thereto for the purposes for which it was acquired, and
other Liens of like nature incurred or created in the
ordinary course of business;
(b) Liens securing indebtedness, neither assumed nor
guaranteed by such person nor on which it customarily pays
interest, existing upon real estate or rights in or relating
to real estate acquired by such person for any substation,
transmission line, transportation line, distribution line,
right of way or similar purpose;
(c) rights reserved to or vested in any municipality
or public authority by the terms of any right, power,
franchise, grant, license or permit, or by any provision of
law, to terminate such right, power, franchise, grant,
license or permit or to purchase or recapture or to
designate a purchaser of any of the property of such person;
(d) rights reserved to or vested in others to take or
receive any part of the power, gas, oil, coal, lignite or
other minerals or timber generated, developed, manufactured
or produced by, or grown on, or acquired with, any property
of such person and Liens upon the production from property
of power, gas, oil, coal, lignite or other minerals or
timber, and the by-products and proceeds thereof, to secure
the obligations to pay all or a part of the expenses of
exploration, drilling, mining or development of such
property only out of such production or proceeds;
(e) easements, restrictions, exceptions or
reservations in any property and/or rights of way of such
person for the purpose of roads, pipe lines, substations,
<PAGE>
16
transmission lines, transportation lines, distribution
lines, removal of oil, gas, lignite, coal or other minerals
or timber, and other like purposes, or for the joint or
common use of real property, rights of way, facilities
and/or equipment, and defects, irregularities and
deficiencies in titles of any property and/or rights of way,
which do not materially impair the use of such property
and/or rights of way for the purposes for which such
property and/or rights of way are held by such person;
(f) rights reserved to or vested in any municipality
or public authority to use, control or regulate any property
of such person;
(g) any obligations or duties, affecting the property
of such person, to any municipality or public authority with
respect to any franchise, grant, license or permit;
(h) as of any particular time any controls, Liens,
restrictions, regulations, easements, exceptions or
reservations of any municipality or public authority
applying particularly to space satellites or nuclear fuel;
(i) any judgment Lien against such person securing a
judgment for an amount not exceeding 25% of Consolidated
Shareholders' Equity, so long as the finality of such
judgment is being contested by appropriate proceedings
conducted in good faith and execution thereon is stayed;
(j) any Lien arising by reason of deposits with or
giving of any form of security to any federal, state,
municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or
foreign, for any purpose at any time as required by law or
governmental regulation as a condition to the transaction of
any business or the exercise of any privilege or license, or
to enable such person to maintain self-insurance or to
participate in any fund for liability on any insurance risks
or in connection with workers' compensation, unemployment
insurance, old age pensions or other social security or to
share in the privileges or benefits required for companies
participating in such arrangements; or
(k) any landlords' Lien on fixtures or movable
property located on premises leased by such person in the
ordinary course of business so long as the rent secured
thereby is not in default.
"PERSON" shall mean any natural person, corporation,
business trust, joint venture, association, company, limited
liability company, partnership or government, or any agency
or political subdivision thereof.
"PLAN" shall mean any employee pension benefit plan
described under Section 3(2) of ERISA (other than a
Multiemployer Plan) subject to the provisions of Title IV of
ERISA that is maintained by any Borrower or any ERISA
Affiliate.
<PAGE>
17
"POOLING AND SETTLEMENT AGREEMENT" shall mean the
pooling and settlement agreement, dated March 30, 1990,
between REC and the National Grid Company plc and others.
"REC" shall mean Eastern Electricity plc (company no.
2366906).
"REGISTER" shall have the meaning given such term in
Section 8.04(d).
"REPORTABLE EVENT" shall mean any reportable event as
defined in Sections 4043(c)(1)-(8) of ERISA or the
regulations issued thereunder (other than a reportable event
for which the 30 day notice requirement has been waived)
with respect to a Plan (other than a Plan maintained by an
ERISA Affiliate that is considered an ERISA Affiliate only
pursuant to subsection (m) or (o) of Code Section 414).
"REQUIRED LENDERS" shall mean, at any time, Lenders
having Commitments representing in excess of 50% of the
Total Commitment or, (i) for purposes of acceleration
pursuant to clause (ii) of Article VI, or (ii) if the Total
Commitment has been terminated, Lenders holding Loans
representing in excess of 50% of the aggregate principal
amount of the Loans outstanding.
"RESPONSIBLE OFFICER" of any corporation shall mean any
executive officer or Financial Officer of such corporation
and any other officer or similar official thereof
responsible for the administration of the obligations of
such corporation in respect of this Agreement.
"RESTATEMENT DATE" shall have the meaning assigned to
such term in Section 4.01.
"REVOLVING PERIOD" shall mean the period beginning on
March 2, 1998 and ending on February 25, 2000.
"S&P" shall mean Standard & Poor's Ratings Services (a
division of The McGraw-Hill Companies, Inc.).
"SEC" shall mean the Securities and Exchange
Commission.
"SIGNIFICANT SUBSIDIARY" shall mean at any time a
Subsidiary of TUC that as of such time satisfies the
definition of a "significant subsidiary" contained as of May
28, 1998, in Regulation S-X of the SEC; provided, that each
of TU Electric, Enserch and any other Borrower hereunder
shall at all times be considered a Significant Subsidiary of
TUC.
"STANDBY BORROWING" shall mean a Borrowing consisting
of simultaneous Standby Loans from each of the Lenders.
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18
"STANDBY BORROWING REQUEST" shall mean a request made
pursuant to Section 2.04 in the form of Exhibit A-5.
"STANDBY LOANS" shall mean the revolving loans made
pursuant to Section 2.04. Each Standby Loan shall be a
Eurodollar Standby Loan or an ABR Loan.
"STATUTORY RESERVES" shall mean a fraction (expressed
as a decimal), the numerator of which is the number one and
the denominator of which is the number one minus the
aggregate (without duplication) of the maximum reserve
percentages (including any marginal, special, emergency or
supplemental reserves) expressed as a decimal established by
the Board and any other banking authority to which the
Administrative Agent is subject for new negotiable
nonpersonal time deposits in dollars of over $100,000 with
maturities approximately equal to three months. Statutory
Reserves shall be adjusted automatically on and as of the
effective date of any change in any reserve percentage.
"SUBSIDIARY" shall mean, with respect to any person
(the "PARENT"), any corporation or other entity of which
securities or other ownership interests having ordinary
voting power to elect a majority of the board of directors
or other persons performing similar functions are at the
time directly or indirectly owned by such parent.
"SUBSTANTIAL" shall mean an amount in excess of 10% of
the consolidated assets of TUC and its Consolidated
Subsidiaries taken as a whole.
"TAKEOVER PANEL" shall mean the Panel on Takeovers and
Mergers of the U.K.
"TARGET INSOLVENCY EVENT" shall mean any one or more of
the following events:
(i) any Acquisition Company is deemed pursuant to
applicable law unable to pay its debts as they fall due
or commences negotiations with its creditors with a
view to a general re-scheduling of indebtedness;
(ii) any administrative or other receiver or
manager is appointed over any Acquisition Company or
any material part of the assets, business or
undertaking of such Acquisition Company;
(iii) a winding-up order or an administration
order is made in relation to any Acquisition Company;
(iv) any Acquisition Company threatens to pass or
passes a resolution for (or petitions for) its winding
up or administration; or
(v) with respect to any Loan made for the purpose
described in Section 5.08(ii)(D), the occurrence of any
event described in paragraphs (i) through (iv) above
<PAGE>
19
with respect to TEG, any Significant Subsidiary of TEG
or any holder of a License.
"TARGET SHARES" means the issued and to be issued
shares in the capital of TEG (including TEG's American
Depositary Shares) that are the subject of the Offer.
"TEG" shall mean The Energy Group PLC.
"TEG GROUP" shall mean TEG and its Subsidiaries.
"TERM ELECTION" shall have the meaning assigned to that
term in Section 2.19.
"TOTAL COMMITMENT" shall mean, at any time, the
aggregate amount of Commitments of all the Lenders, as in
effect at such time.
"TRANSACTIONS" shall have the meaning assigned to such
term in Section 3.02.
"TU ELECTRIC APPROVAL DATE" shall mean the first date
on which the following shall have occurred: TU Electric
shall have delivered to the Administrative Agent (in
sufficient copies for each of the Lenders) (i) a certificate
of the Secretary or an Assistant Secretary of TU Electric
certifying that (A) attached thereto are true and correct
copies of all corporate resolutions and all orders, consents
and approvals required by any Governmental Authority in
order to permit or authorize TU Electric to borrow and to
repay Loans hereunder and "Loans" under and as defined in
the Facility B Credit Agreement in an aggregate principal
amount at least equal to the sum of the General Loan
Commitments hereunder and the "Commitments" under and as
defined in the Facility B Credit Agreement and (B) that all
such resolutions, orders, consents and approvals are in full
force and effect, sufficient for their purpose and, in the
case of such orders, consents and approvals, not subject to
any pending or, to the knowledge of such Secretary or
Assistant Secretary (as the case may be), threatened appeal
or other proceeding seeking reconsideration or review
thereof and (ii) an opinion of counsel to TU Electric, in
form and substance satisfactory to the Administrative Agent,
as to such orders, consents and approvals and as to the
enforceability of the obligations of TU Electric hereunder
on and after such date.
"TU ELECTRIC MORTGAGE" shall mean the Mortgage and Deed
of Trust, dated as of December 1, 1983, from TU Electric to
Irving Trust Company (now The Bank of New York), Trustee, as
amended or supplemented from time to time.
"TYPE", when used in respect of any Loan or Borrowing,
shall refer to the Rate by reference to which interest on
such Loan or on the Loans comprising such Borrowing is
determined. For purposes hereof, "RATE" shall include the
LIBO Rate, the Alternate Base Rate and the Fixed Rate.
<PAGE>
20
"U.K. FACILITY AGREEMENT" shall mean the Pound British
3.515 Billion Facilities Agreement, dated March 2, 1998, as
amended March 3, 1998, April 21, 1998 and May 28, 1998,
among FinCo 1, FinCo 2, Bidco, the lenders parties thereto
and certain other parties named therein, as amended,
modified or supplemented from time to time.
"UNCONDITIONAL DATE" shall mean May 19, 1998.
"VOTING SHARES" shall mean, as to shares of a
particular corporation, outstanding shares of stock of any
class of such corporation entitled to vote in the election
of directors, excluding shares entitled so to vote only upon
the happening of some contingency.
"WHOLLY OWNED SUBSIDIARY" shall mean any Consolidated
Subsidiary all the shares of common stock and other voting
capital stock or other voting ownership interests having
ordinary voting power to vote in the election of the board
of directors or other governing body performing similar
functions (except directors' qualifying shares) of which are
at the time directly or indirectly owned by TUC.
"WITHDRAWAL LIABILITY" shall mean liability of a
Borrower established under Section 4201 of ERISA as a result
of a complete or partial withdrawal from a Multiemployer
Plan, as such terms are defined in Part I of Subtitle E of
Title IV of ERISA.
SECTION 1.02. TERMS GENERALLY. The definitions in Section
1.01 shall apply equally to both the singular and plural forms of
the terms defined. Whenever the context may require, any pronoun
shall include the corresponding masculine, feminine and neuter
forms. The words "include," "includes" and "including" shall be
deemed to be followed by the phrase "without limitation." All
references herein to Articles, Sections, Exhibits and Schedules
shall be deemed references to Articles and Sections of, and
Exhibits and Schedules to, this Agreement unless the context
shall otherwise require. Except as otherwise expressly provided
herein, all terms of an accounting or financial nature shall be
construed in accordance with GAAP, as in effect from time to
time; provided, however, that for purposes of determining
compliance with any covenant set forth in Article V, such terms
shall be construed in accordance with GAAP as in effect on the
date hereof applied on a basis consistent with the application
used in preparing the Borrowers' audited financial statements
referred to in Section 3.05.
ARTICLE II
THE CREDITS
SECTION 2.01. COMMITMENTS. Subject to the terms and
conditions and relying upon the representations and warranties
herein set forth, each Lender agrees, severally and not jointly,
to make Standby Loans, at any time and from time to time until
the earlier of the Maturity Date and the termination of the
Commitment of such Lender, to each Borrower in an aggregate
principal amount at any time outstanding not to exceed such
Lender's Commitment minus the amount by which the Competitive
<PAGE>
21
Loans made to any Borrower and outstanding at such time shall be
deemed to have used such Commitment pursuant to Section 2.14,
subject, however, to the conditions that (i) at no time shall the
sum of (x) the outstanding aggregate principal amount of all
Standby Loans plus (y) the outstanding aggregate principal amount
of all Competitive Loans exceed the Total Commitment, (ii) Offer
Loans shall be made solely to TUC and in no more than ten
Borrowings that would, after giving effect to any such Borrowing,
increase the principal amount of Loans outstanding, (iii) at no
time shall the sum of (x) the outstanding aggregate principal
amount of Offer Loans plus (y) the outstanding aggregate
principal amount of General Loans used for purposes described in
Sections 5.08(ii)(A), (C) and (E) and Loans under and as defined
in the Facility B Credit Agreement used for purposes described in
Section 5.08(ii) exceed $2,930,000,000, (iv) at no time shall the
sum of (x) the outstanding aggregate principal amount of all
Loans made to Enserch plus (y) the outstanding aggregate
principal amount of all Loans under and as defined in the
Facility B Credit Agreement made to Enserch exceed $650,000,000,
(v) unless and until the TU Electric Approval Date shall have
occurred, at no time shall the sum of (x) the outstanding
aggregate principal amount of all Loans made to TU Electric plus
(y) the outstanding aggregate principal amount of all Loans under
and as defined in the Facility B Credit Agreement made to TU
Electric exceed $1,250,000,000, (vi) at no time shall the
outstanding aggregate principal amount of all Standby Loans made
by any Lender exceed the amount of such Lender's Commitment and
(vii) at all times, the outstanding aggregate principal amount of
all Standby Loans made by each Lender to each Borrower shall
equal the product of (A) the percentage which such Lender's
Commitment represents of the Total Commitment times (B) the
outstanding aggregate principal amount of all Standby Loans made
to such Borrower.
Within the foregoing limits, the Borrowers may borrow, pay
or prepay and, subject to the limitations set forth in Section
2.11(a), reborrow Standby Loans hereunder, on and after the
Effective Date and prior to the Maturity Date, subject to the
terms, conditions and limitations set forth herein.
SECTION 2.02 LOANS. (a) Each Standby Loan shall be made
as part of a Borrowing consisting of Loans made by the Lenders
ratably in accordance with their respective Commitments;
provided, however, that the failure of any Lender to make any
Standby Loan shall not in itself relieve any other Lender of its
obligation to lend hereunder (it being understood, however, that
no Lender shall be responsible for the failure of any other
Lender to make any Loan required to be made by such other
Lender). Each Competitive Loan shall be made in accordance with
the procedures set forth in Section 2.03. The Standby Loans or
Competitive Loans comprising any Borrowing shall be (i) in the
case of Competitive Loans, in an aggregate principal amount which
is an integral multiple of $1,000,000 and not less than
$5,000,000 and (ii) in the case of Standby Loans, in an aggregate
principal amount which is an integral multiple of $5,000,000 and
not less than $25,000,000 (or an aggregate principal amount equal
to the remaining balance of the available Commitments).
(b) Each Competitive Borrowing shall be comprised entirely
of Eurodollar Competitive Loans or Fixed Rate Loans, and each
Standby Borrowing shall be comprised entirely of Eurodollar
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22
Standby Loans or ABR Loans, as the Borrower may request pursuant
to Section 2.03 or 2.04, as applicable. Each Lender may at its
option make any Eurodollar Loan by causing any domestic or
foreign branch or Affiliate of such Lender to make such Loan;
provided that any exercise of such option shall not affect the
obligation of the Borrower to repay such Loan in accordance with
the terms of this Agreement. Borrowings of more than one Type
may be outstanding at the same time.
(c) Subject to paragraph (d) below, each Lender shall make
each Loan to be made by it hereunder on the proposed date thereof
by wire transfer of immediately available funds to the
Administrative Agent in Houston, Texas, not later than noon,
Houston time, and the Administrative Agent shall by 2:00 p.m.,
Houston time, credit the amounts so received to the account or
accounts specified from time to time in one or more notices
delivered by the applicable Borrower to the Administrative Agent
or, if a Borrowing shall not occur on such date because any
condition precedent herein specified shall not have been met,
return the amounts so received to the respective Lenders.
Competitive Loans shall be made by the Lender or Lenders whose
Competitive Bids therefor are accepted pursuant to Section 2.03
in the amounts so accepted. Standby Loans shall be made by the
Lenders pro rata in accordance with Section 2.14. Unless the
Administrative Agent shall have received notice from a Lender
prior to the date of any Borrowing that such Lender will not make
available to the Administrative Agent such Lender's portion of
such Borrowing, the Administrative Agent may assume that such
Lender has made such portion available to the Administrative
Agent on the date of such Borrowing in accordance with this
paragraph (c) and the Administrative Agent may, in reliance upon
such assumption, make available to the Borrower on such date a
corresponding amount. If and to the extent that such Lender
shall not have made such portion available to the Administrative
Agent, such Lender and such Borrower (without waiving any claim
against such Lender for such Lender's failure to make such
portion available) severally agree to repay to the Administrative
Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date such amount is made
available to the Borrower until the date such amount is repaid to
the Administrative Agent at (i) in the case of the Borrower, the
interest rate applicable at the time to the Loans comprising such
Borrowing and (ii) in the case of such Lender, the Federal Funds
Effective Rate. If such Lender shall repay to the Administrative
Agent such corresponding amount, such amount shall constitute
such Lender's Loan as part of such Borrowing for purposes of this
Agreement.
(d) A Borrower may refinance all or any part of any Standby
Borrowing with a Standby Borrowing of the same or a different
Type, subject to the conditions and limitations set forth in this
Agreement. Any Standby Borrowing or part thereof so refinanced
shall be deemed to be repaid or prepaid in accordance with
Section 2.06 or 2.11, as applicable, with the proceeds of a new
Standby Borrowing, and the proceeds of the new Standby Borrowing,
to the extent they do not exceed the principal amount of the
Standby Borrowing being refinanced, shall not be paid by the
Lenders to the Administrative Agent or by the Administrative
Agent to such Borrower pursuant to paragraph (c) above.
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23
SECTION 2.03. COMPETITIVE BID PROCEDURE. (a) In order to
request Competitive Bids, a Borrower shall hand deliver or
telecopy to the CAF Agent a duly completed Competitive Bid
Request in the form of Exhibit A-1 hereto, to be received by the
CAF Agent (i) in the case of a Eurodollar Competitive Borrowing,
not later than 11:00 a.m., New York City time, four Business Days
before a proposed Competitive Borrowing and (ii) in the case of a
Fixed Rate Borrowing, not later than 11:00 a.m., New York City
time, one Business Day before a proposed Competitive Borrowing.
No ABR Loan shall be requested in, or made pursuant to, a
Competitive Bid Request. A Competitive Bid Request that does not
conform substantially to the format of Exhibit A-1 may be
rejected in the CAF Agent's sole discretion, and the CAF Agent
shall promptly notify the Borrower of such rejection by telecopy.
Each Competitive Bid Request shall refer to this Agreement and
specify (w) whether the Borrowing then being requested is to be a
Eurodollar Borrowing or a Fixed Rate Borrowing, (x) the date of
such Borrowing (which shall be a Business Day) and the aggregate
principal amount thereof which shall be in a minimum principal
amount of $5,000,000 and in an integral multiple of $1,000,000,
and (y) the Interest Period with respect thereto (which may not
end after the earlier to occur of the last day of the Revolving
Period and the Maturity Date). Promptly after its receipt of a
Competitive Bid Request that is not rejected as aforesaid, the
CAF Agent shall telecopy to each Lender a Notice of Competitive
Bid Request in the form of Exhibit A-2 inviting the Lenders to
bid, on the terms and conditions of this Agreement, to make
Competitive Loans.
(b) Each Lender invited to bid may, in its sole discretion,
make one or more Competitive Bids to the Borrower responsive to
such Borrower's Competitive Bid Request. Each Competitive Bid by
a Lender must be received by the CAF Agent by telecopy, in the
form of Exhibit A-3 hereto, (i) in the case of a Eurodollar
Competitive Borrowing, not later than 9:30 a.m., New York City
time, three Business Days before a proposed Competitive Borrowing
and (ii) in the case of a Fixed Rate Borrowing, not later than
9:30 a.m., New York City time, on the day of a proposed
Competitive Borrowing. Multiple bids will be accepted by the CAF
Agent. Competitive Bids that do not conform substantially to the
format of Exhibit A-3 may be rejected by the CAF Agent, and the
CAF Agent shall notify the Lender making such nonconforming bid
of such rejection as soon as practicable. Each Competitive Bid
shall refer to this Agreement and specify (x) the principal
amount (which shall be in a minimum principal amount of
$5,000,000 and in an integral multiple of $1,000,000 and which
may equal the entire principal amount of the Competitive
Borrowing requested by the applicable Borrower) of the
Competitive Loan or Loans that the Lender is willing to make to
such Borrower, (y) the Competitive Bid Rate or Rates at which the
Lender is prepared to make the Competitive Loan or Loans and (z)
the Interest Period and the last day thereof. If any Lender
invited to bid shall elect not to make a Competitive Bid, such
Lender shall so notify the CAF Agent by telecopy (I) in the case
of Eurodollar Competitive Loans, not later than 9:30 a.m., New
York City time, three Business Days before a proposed Competitive
Borrowing, and (II) in the case of Fixed Rate Loans, not later
than 9:30 a.m., New York City time, on the day of a proposed
Competitive Borrowing; provided, however, that failure by any
Lender to give such notice shall not cause such Lender to be
obligated to make any Competitive Loan as part of such
Competitive Borrowing. A Competitive Bid submitted by a Lender
pursuant to this paragraph (b) shall be irrevocable.
<PAGE>
23
(c) The CAF Agent shall notify the Borrower by telecopy, of
all the Competitive Bids made, the Competitive Bid Rate and the
principal amount of each Competitive Loan in respect of which
such Competitive Bid was made and the identity of the Lender that
made each such bid by (i)in the case of a Eurodollar Competitive
Borrowing, not later than 10:00 a.m., New York City time, three
Business Days before a proposed Competitive Borrowing and (ii) in
the case of a Fixed Rate Borrowing, not later than 10:00 a.m.,
New York City time, on the day of a proposed Competitive
Borrowing. The CAF Agent shall send a copy of all Competitive
Bids to the Borrower for its records as soon as practicable after
the completion of the bidding process set forth in this Section
2.03.
(d) A Borrower may in its sole and absolute discretion,
subject only to the provisions of this paragraph (d), accept or
reject any or all Competitive Bids referred to in paragraph (c)
above. Such Borrower shall notify the CAF Agent by telephone,
confirmed by telecopy in the form of a Competitive Bid
Accept/Reject Letter, whether and to what extent it has decided
to accept or reject any of or all the bids referred to in
paragraph (c) above by (i) in the case of a Eurodollar
Competitive Borrowing, not later than 10:30 a.m., New York City
time, three Business Days before a proposed Competitive Borrowing
and (ii) in the case of a Fixed Rate Borrowing, not later than
10:30 a.m., New York City time, on the day of a proposed
Competitive Borrowing; provided, however, that (i) the failure by
such Borrower to give such notice shall be deemed to be a
rejection of all the bids referred to in paragraph (c) above,
(ii) such Borrower shall not accept a bid made at a particular
Competitive Bid Rate if it has decided to reject a bid made at a
lower Competitive Bid Rate, (iii) the aggregate amount of the
Competitive Bids accepted by such Borrower shall not exceed the
principal amount specified in the Competitive Bid Request, (iv)
if such Borrower shall accept a bid or bids made at a particular
Competitive Bid Rate but the amount of such bid or bids shall
cause the total amount of bids to be accepted by such Borrower to
exceed the amount specified in the Competitive Bid Request, then
such Borrower shall accept a portion of such bid or bids in an
amount equal to the amount specified in the Competitive Bid
Request less the amount of all other Competitive Bids accepted
with respect to such Competitive Bid Request, which acceptance,
in the case of multiple bids at such Competitive Bid Rate, shall
be made pro rata in accordance with the amount of each such bid
at such Competitive Bid Rate, and (v) except pursuant to
clause (iv) above, no bid shall be accepted for a Competitive
Loan unless such Competitive Loan is in a minimum principal
amount of $5,000,000 and an integral multiple of $1,000,000;
provided further, however, that if a Competitive Loan must be in
an amount less than $5,000,000 because of the provisions of
clause (iv) above, such Competitive Loan may be for a minimum of
$1,000,000 or any integral multiple thereof, and in calculating
the pro rata allocation of acceptances of portions of multiple
bids at a particular Competitive Bid Rate pursuant to clause (iv)
the amounts shall be rounded to integral multiples of $1,000,000
in a manner which shall be in the discretion of the applicable
Borrower. A notice given by a Borrower pursuant to this
paragraph (d) shall be irrevocable.
(e) The CAF Agent shall promptly notify each bidding Lender
(and the Administrative Agent), by telecopy, whether or not its
Competitive Bid has been accepted (and if so, in what amount and
at what Competitive Bid Rate) and each successful bidder will
<PAGE>
25
thereupon become bound, subject to the other applicable
conditions hereof, to make the Competitive Loan in respect of
which its bid has been accepted.
(f) No Competitive Borrowing shall be requested or made
hereunder if after giving effect thereto any of the conditions
set forth in clauses (i) through (iv) of Section 2.01 would not
be met.
(g) If either the Administrative Agent or CAF Agent shall
elect to submit a Competitive Bid in its capacity as a Lender,
such party shall submit such bid directly to the Borrower one
quarter of an hour earlier than the latest time at which the
other Lenders are required to submit their bids to the CAF Agent
pursuant to paragraph (b) above.
(h) Each of the Borrowers and the CAF Agent shall deliver
to the Administrative Agent by telecopy copies of all notices
delivered by it pursuant to this Section 2.03 at the same times
such notices are delivered hereunder. All notices required by
this Section 2.03 shall be given in accordance with Section 8.01.
(i) A Competitive Bid Request shall not be made within five
Business Days after the date of any previous Competitive Bid
which was accepted by a Borrower pursuant to paragraph (d) above.
(j) Notwithstanding any provision in this Agreement to the
contrary, no Competitive Borrowing shall be made or requested
after the last day of the Revolving Period.
SECTION 2.04. STANDBY BORROWING PROCEDURE. In order to
request a Standby Borrowing, a Borrower shall hand deliver or
telecopy to the Administrative Agent a duly completed Standby
Borrowing Request in the form of Exhibit A-5 (a) in the case of a
Eurodollar Standby Borrowing, not later than 10:00 a.m., Houston
time, three Business Days before such Borrowing, and (b) in the
case of an ABR Borrowing, not later than 10:00 a.m., Houston
time, one Business Day before such Borrowing. No Fixed Rate Loan
shall be requested or made pursuant to a Standby Borrowing
Request. Such notice shall be irrevocable and shall in each case
specify (i) whether the Borrowing then being requested is to be a
Eurodollar Standby Borrowing or an ABR Borrowing; (ii) the date
of such Standby Borrowing (which shall be a Business Day) and the
amount thereof; and (iii) if such Borrowing is to be a Eurodollar
Standby Borrowing, the Interest Period with respect thereto,
which shall not end after the Maturity Date. If no election as
to the Type of Standby Borrowing is specified in any such notice,
then the requested Standby Borrowing shall be an ABR Borrowing.
If no Interest Period with respect to any Eurodollar Standby
Borrowing is specified in any such notice, then the Borrower
shall be deemed to have selected an Interest Period of one
month's duration (subject to the limitations set forth in the
definition of "Interest Period"). If a Borrower shall not have
given notice in accordance with this Section 2.04 of its election
to refinance a Standby Borrowing prior to the end of the Interest
Period in effect for such Borrowing, then such Borrower shall
(unless such Borrowing is repaid at the end of such Interest
Period) be deemed to have given notice of an election to
<PAGE>
26
refinance such Borrowing with an ABR Borrowing. Notwithstanding
any other provision of this Agreement to the contrary, no Standby
Borrowing shall be requested if the Interest Period with respect
thereto would end after the Maturity Date. The Administrative
Agent shall promptly advise the Lenders of any notice given
pursuant to this Section 2.04 and of each Lender's portion of the
requested Borrowing.
SECTION 2.05 FEES. (a) The Borrowers agree jointly and
severally to pay to each Lender, through the Administrative
Agent, on each March 31, June 30, September 30 and December 31
(with the first payment being due on June 30, 1998) and on each
date on which the Commitment of such Lender shall be terminated
as provided herein, a facility fee (a "FACILITY FEE"), at a rate
per annum equal to the Facility Fee Percentage from time to time
in effect on the amount of the sum of the unused Commitment of
such Lender plus the principal amount of Loans outstanding made
by such Lender (without regard, in either case, to any
Competitive Loans made by any Lender), during the preceding
quarter (or other period commencing on the earlier of the
Effective Date and June 30, 1998 or ending with the Maturity Date
or any date on which the Commitment of such Lender shall be
terminated). All Facility Fees shall be computed on the basis of
the actual number of days elapsed in a year of 365 or 366 days,
as the case may be. The Facility Fee due to each Lender shall
commence to accrue on the earlier of the Effective Date and June
30, 1998, and shall cease to accrue on the earlier of the
Maturity Date and the termination of the Commitment of such
Lender as provided herein.
(b) Each Borrower agrees jointly and severally to pay the
Administrative Agent, for its own account, the administrative
fees provided for in the Agent Fee Letter referred to in the
Letter Agreement (the "ADMINISTRATIVE FEES").
(c) Each Borrower agrees to pay the CAF Agent, for its own
account, the Auction Fees applicable to such Borrower.
(d) All Fees shall be paid on the dates due, in immediately
available funds, to the Administrative Agent for distribution, if
and as appropriate, among the Lenders, the Initial Underwriters
or the Joint Lead Arrangers or to the CAF Agent. Once paid, none
of the Fees shall be refundable under any circumstances.
SECTION 2.06. REPAYMENT OF LOANS; EVIDENCE OF INDEBTEDNESS.
(a) The outstanding principal balance of each Loan shall be due
and payable on the last day of the Interest Period applicable
thereto and on the Maturity Date.
(b) Each Lender shall maintain in accordance with its usual
practice an account or accounts evidencing the indebtedness to
such Lender resulting from each Loan made by such Lender from
time to time, including the amounts of principal and interest
payable and paid to such Lender from time to time under this
Agreement.
(c) The Administrative Agent shall maintain accounts in
which it will record (i) the amount of each Loan made hereunder,
the Type of each Loan made and the Interest Period applicable
<PAGE>
27
thereto, (ii) the amount of any principal or interest due and
payable or to become due and payable from each Borrower to each
Lender hereunder and (iii) the amount of any sum received by the
Administrative Agent hereunder from each Borrower and each
Lender's share thereof.
(d) The entries made in the accounts maintained pursuant to
paragraphs (b) and (c) of this Section 2.06 shall, to the extent
permitted by applicable law, be prima facie evidence of the
existence and amounts of the obligations therein recorded;
provided, however, that the failure of any Lender or the
Administrative Agent to maintain such accounts or any error
therein shall not in any manner affect the obligations of the
Borrowers to repay the Loans in accordance with their terms.
SECTION 2.07. INTEREST ON LOANS. (a) Subject to the
provisions of Section 2.08, the Loans comprising each Eurodollar
Borrowing shall bear interest (computed on the basis of the
actual number of days elapsed over a year of 360 days) at a rate
per annum equal to the LIBO Rate for the Interest Period in
effect for such Borrowing plus the Applicable Margin from time to
time in effect and in the case of each Eurodollar Competitive
Loan, the LIBO Rate for the Interest Period in effect for such
Borrowing plus the Competitive Bid Margin offered by the Lender
making such Loan and accepted by the applicable Borrower pursuant
to Section 2.03.
(b) Subject to the provisions of Section 2.08, the Loans
comprising each ABR Borrowing shall bear interest (computed on
the basis of the actual number of days elapsed over a year of 365
or 366 days, as the case may be, for periods during which the
Alternate Base Rate is determined by reference to the Prime Rate
and 360 days for other periods) at a rate per annum equal to the
Alternate Base Rate plus the Applicable Margin from time to time
in effect.
(c) Subject to the provisions of Section 2.08, each Fixed
Rate Loan shall bear interest at a rate per annum (computed on
the basis of the actual number of days elapsed over a year of 360
days) equal to the fixed rate of interest offered by the Lender
making such Loan and accepted by the Borrower pursuant to Section
2.03.
(d) Interest on each Loan shall be payable on each Interest
Payment Date applicable to such Loan except as otherwise provided
in this Agreement. The applicable LIBO Rate or Alternate Base
Rate for each Interest Period or day within an Interest Period,
as the case may be, shall be determined by Chase, and such
determination shall be conclusive absent manifest error; provided
that Chase shall, upon request, provide to the applicable
Borrower a certificate setting forth in reasonable detail the
basis for such determination.
SECTION 2.08. DEFAULT INTEREST. If a Borrower shall
default in the payment of the principal of or interest on any
Loan or any other amount becoming due hereunder, whether by
scheduled maturity, notice of prepayment, acceleration or
otherwise, such Borrower shall on demand from time to time from
the Administrative Agents pay interest, to the extent permitted
by law, on such defaulted amount up to (but not including) the
date of actual payment (after as well as before judgment) at a
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28
rate per annum (computed as provided in Section 2.07(b)) equal to
the Alternate Base Rate plus the Applicable Margin for ABR Loans
plus 1%.
SECTION 2.09. ALTERNATE RATE OF INTEREST. In the event,
and on each occasion, that on the day two Business Days prior to
the commencement of any Interest Period for a Eurodollar
Borrowing the Administrative Agent shall have determined (i) that
dollar deposits in the principal amounts of the Eurodollar Loans
comprising such Borrowing are not generally available in the
London interbank market or (ii) that reasonable means do not
exist for ascertaining the LIBO Rate, the Administrative Agent
shall, as soon as practicable thereafter, give telecopy notice of
such determination to the Borrowers and the Lenders. In the
event of any such determination under clauses (i) or (ii) above,
until the Administrative Agent shall have advised the Borrowers
and the Lenders that the circumstances giving rise to such notice
no longer exist, (x) any request by a Borrower for a Eurodollar
Competitive Borrowing pursuant to Section 2.03 shall be of no
force and effect and shall be denied by the Administrative Agent
and (y) any request by a Borrower for a Eurodollar Standby
Borrowing pursuant to Section 2.04 shall be deemed to be a
request for an ABR Borrowing. In the event the Required Lenders
notify the Administrative Agent that the rates at which dollar
deposits are being offered will not adequately and fairly reflect
the cost to such Lenders of making or maintaining Eurodollar
Loans during such Interest Period, the Administrative Agent shall
notify the applicable Borrower of such notice and until the
Required Lenders shall have advised the Administrative Agent that
the circumstances giving rise to such notice no longer exist, any
request by such Borrower for a Eurodollar Standby Borrowing shall
be deemed a request for an ABR Borrowing. Each determination by
the Administrative Agent hereunder shall be made in good faith
and shall be conclusive absent manifest error; provided that the
Administrative Agent, shall, upon request, provide to the
applicable Borrower a certificate setting forth in reasonable
detail the basis for such determination.
SECTION 2.10. TERMINATION AND REDUCTION OF COMMITMENTS.
1. The Commitments shall be automatically terminated on the
Maturity Date. In addition, until such time as the Equity Event
shall have occurred, the Offer Loan Commitments shall be
automatically reduced by an amount equal to the net proceeds of
any issuance or disposition or any payment to TUC, in each case
described in Section 2.11(d), with such reduction to be effective
on the later to occur of the date of such issuance, sale or
payment, as the case may be, and the date specified under Section
2.11(d) for any related prepayment or repayment of the Offer
Loans.
(b) Upon (i) the date of the withdrawal or lapse of the
Offer and (ii) 28 days after the Effective Date if the Offer has
not yet been posted, the unused Offer Loan Commitments shall be
automatically terminated.
(c) Upon at least two Business Days' prior irrevocable
written notice to the Administrative Agent, the Borrowers, acting
jointly, may at any time in whole permanently terminate, or from
time to time in part permanently reduce, the Offer Loan
Commitments or the General Loan Commitments; provided, however,
that (i) each partial reduction of the Commitments shall be in an
integral multiple of $10,000,000 and in a minimum principal
<PAGE>
29
amount of $10,000,000 and (ii) no such termination or reduction
shall be made that would reduce the Total Commitment to an amount
(1) less than the aggregate outstanding principal amount of all
Competitive Loans or (2) less than $50,000,000, unless the result
of such termination or reduction referred to in this clause (2)
is to reduce the Total Commitment to $0. The Administrative
Agent shall advise the Lenders of any notice given pursuant to
this Section 2.10(c) and of each Lender's portion of any such
termination or reduction of the Total Commitment.
(d) If the Borrowers shall make the Term Election, then on
the last day of the Revolving Period the Total Commitment shall
be permanently reduced to an amount equal to the aggregate
principal amount of Loans then outstanding. In addition, if on
any date following the last day of the Revolving Period the
aggregate principal amount of Loans then outstanding shall be
less than the Total Commitment, then on such date the Total
Commitment shall be permanently reduced to an amount equal to the
aggregate principal amount of Loans then outstanding.
(e) Each reduction in the Total Commitment hereunder shall
be made ratably among the Lenders in accordance with their
respective Commitments. The Borrowers shall pay to the
Administrative Agent for the account of the Lenders, on the date
of each termination or reduction of the Total Commitment, the
Facility Fees on the amount of the Commitments so terminated or
reduced accrued through the date of such termination or
reduction.
SECTION 2.11. PREPAYMENT. (a) Each Borrower shall have
the right at any time and from time to time to prepay any Standby
Borrowing, in whole or in part, upon giving telecopy notice (or
telephone notice promptly confirmed by telecopy) to the
Administrative Agent: (i) before 10:00 a.m., Houston time, three
Business Days prior to prepayment, in the case of Eurodollar
Loans, and (ii) before 10:00 a.m., Houston time, one Business Day
prior to prepayment, in the case of ABR Loans; provided, however,
that each partial prepayment shall be in an amount which is an
integral multiple of $10,000,000 and not less than $10,000,000.
No prepayment may be made in respect of any Competitive
Borrowing. Any (i) principal amount of any Offer Loan repaid or
prepaid at any time and not refinanced on the date of such
repayment or prepayment (as the case may be) with the proceeds of
another Offer Loan and (ii) any principal amount of any Loan
repaid or prepaid on or after the last day of the Revolving
Period and not refinanced with the proceeds of another Loan on
the date of such repayment or prepayment may not be reborrowed.
(b) On the date of any termination or reduction of the
Commitments pursuant to Section 2.10, the Borrowers shall pay or
prepay so much of the Standby Borrowings as shall be necessary in
order that the aggregate principal amount of the Competitive
Loans and Standby Loans outstanding will not exceed the Total
Commitment, after giving effect to such termination or reduction.
(c) Each notice of prepayment shall specify the prepayment
date and the principal amount of each Borrowing (or portion
thereof) to be prepaid, shall be irrevocable and shall commit the
Borrower to prepay such Borrowing (or portion thereof) by the
<PAGE>
30
amount stated therein on the date stated therein. All
prepayments under this Section 2.11 shall be subject to Section
8.05 but otherwise without premium or penalty. All prepayments
under this Section 2.11 shall be accompanied by accrued interest
on the principal amount being prepaid to the date of payment.
(d) Until such time as the Equity Event shall have
occurred, upon (i) the issuance by TUC (or any special purpose
financing Subsidiary of TUC, other than FinCo 1, FinCo 2 or any
Subsidiary of FinCo 1 or of FinCo 2) of any debt, equity or other
capital market instruments or other securities (other than stock
of TUC issued in connection with employee stock option and other
stock purchase and incentive plans in effect on May 28, 1998),
(ii) the disposition by TUC (other than to a direct or indirect
wholly owned Subsidiary of TUC) of any of the capital shares of
FinCo 1, FinCo 2 or Enserch, or (iii) the payment by any
Acquisition Company to TUC of any amount in respect of shares of
TUC exchanged for Target Shares, TUC shall prepay the principal
amount of Offer Loans hereunder in an amount equal to the net
proceeds of such issuance or disposition or such payment, as the
case may be, with such prepayment to be accompanied by payment of
accrued interest on such Offer Loans being prepaid to the date of
payment and any amounts payable pursuant to Section 8.05. Any
amounts required to be applied to the prepayment of Offer Loans
shall be applied as follows: first, to the immediate prepayment
of ABR Loans outstanding, second, to the prepayment of Eurodollar
Loans (not constituting Competitive Loans) outstanding on the
last day of the respective Interest Periods for such Eurodollar
Loans in the order that they occur, and third, to the repayment
of Competitive Loans, on the last day of the respective Interest
Periods for such Competitive Loans in the order that they occur.
SECTION 2.12. RESERVE REQUIREMENTS; CHANGE IN
CIRCUMSTANCES. (a) Notwithstanding any other provision herein,
if after the date of this Agreement any change in applicable law
or regulation or in the interpretation or administration thereof
by any Governmental Authority charged with the interpretation or
administration thereof (whether or not having the force of law)
shall change the basis of taxation of payments to any Lender
hereunder (except for changes in respect of taxes on the overall
net income of such Lender or its lending office imposed by the
jurisdiction in which such Lender's principal executive office or
lending office is located), or shall result in the imposition,
modification or applicability of any reserve, special deposit or
similar requirement against assets of, deposits with or for the
account of or credit extended by any Lender, or shall result in
the imposition on any Lender or the London interbank market of
any other condition affecting this Agreement, such Lender's
Commitment or any Eurodollar Loan or Fixed Rate Loan made by such
Lender, and the result of any of the foregoing shall be to
increase the cost to such Lender of making or maintaining any
Eurodollar Loan or Fixed Rate Loan or to reduce the amount of any
sum received or receivable by such Lender hereunder (whether of
principal, interest or otherwise) by an amount deemed by such
Lender to be material, then the applicable Borrower or, if the
foregoing circumstances do not relate to a particular Borrowing,
the Borrowers shall, upon receipt of the notice and certificate
provided for in Section 2.12(c), promptly pay to such Lender such
additional amount or amounts as will compensate such Lender for
such additional costs incurred or reduction suffered.
Notwithstanding the foregoing, no Lender shall be entitled to
request compensation under this paragraph with respect to any
<PAGE>
31
Competitive Loan if the change giving rise to such request was
applicable to such Lender at the time of submission of the
Competitive Bid pursuant to which such Competitive Loan was made.
(b) If any Lender shall have determined that the adoption
of any law, rule, regulation or guideline arising out of the July
1988 report of the Basle Committee on Banking Regulations and
Supervisory Practices entitled "International Convergence of
Capital Measurement and Capital Standards," or the adoption after
the date hereof of any other law, rule, regulation or guideline
regarding capital adequacy, or any change in any of the foregoing
or in the interpretation or administration of any of the
foregoing by any Governmental Authority, central bank or
comparable agency charged with the interpretation or
administration thereof, or compliance by any Lender (or any
lending office of such Lender) or any Lender's holding company
with any request or directive regarding capital adequacy (whether
or not having the force of law) of any such authority, central
bank or comparable agency, has or would have the effect of
reducing the rate of return on such Lender's capital or on the
capital of such Lender's holding company, if any, as a
consequence of this Agreement, such Lender's Commitment or the
Loans made by such Lender pursuant hereto to a level below that
which such Lender or such Lender's holding company could have
achieved but for such adoption, change or compliance (taking into
consideration such Lender's policies and the policies of such
Lender's holding company with respect to capital adequacy) by an
amount deemed by such Lender to be material, then from time to
time such additional amount or amounts as will compensate such
Lender for any such reduction suffered will be paid by the
Borrowers to such Lender. It is acknowledged that this Agreement
is being entered into by the Lenders on the understanding that
the Lenders will not be required to maintain capital against
their Commitments under currently applicable laws, regulations
and regulatory guidelines. In the event the Lenders shall
otherwise determine that such understanding is incorrect, it is
agreed that the Lenders will be entitled to make claims under
this paragraph (b) based upon market requirements prevailing on
the date hereof for commitments under comparable credit
facilities against which capital is required to be maintained.
(c) A certificate of each Lender setting forth such amount
or amounts as shall be necessary to compensate such Lender or its
holding company as specified in paragraph (a) or (b) above, as
the case may be, and containing an explanation in reasonable
detail of the manner in which such amount or amounts shall have
been determined, shall be delivered to the applicable Borrower or
the Borrowers, as the case may be, and shall be conclusive absent
manifest error. The Borrowers shall pay each Lender the amount
shown as due on any such certificate delivered by it within 10
days after its receipt of the same. Each Lender shall give
prompt notice to the applicable Borrower of any event of which it
has knowledge, occurring after the date hereof, that it has
determined will require compensation by such Borrower pursuant to
this Section; provided, however, that failure by such Lender to
give such notice shall not constitute a waiver of such Lender's
right to demand compensation hereunder.
(d) Failure on the part of any Lender to demand
compensation for any increased costs or reduction in amounts
received or receivable or reduction in return on capital with
respect to any period shall not constitute a waiver of such
Lender's right to demand compensation with respect to such period
<PAGE>
32
or any other period; provided, however, that no Lender shall be
entitled to compensation under this Section 2.12 for any costs
incurred or reductions suffered with respect to any date unless
it shall have notified the applicable Borrower that it will
demand compensation for such costs or reductions under paragraph
(c) above not more than 90 days after the later of (i) such date
and (ii) the date on which it shall have become aware of such
costs or reductions. The protection of this Section shall be
available to each Lender regardless of any possible contention of
the invalidity or inapplicability of the law, rule, regulation,
guideline or other change or condition which shall have occurred
or been imposed.
(e) Each Lender agrees that it will designate a different
lending office if such designation will avoid the need for, or
reduce the amount of, such compensation and will not, in the
reasonable judgment of such Lender, be disadvantageous to such
Lender.
SECTION 2.13. CHANGE IN LEGALITY. (a) Notwithstanding any
other provision herein, if any change in any law or regulation or
in the interpretation thereof by any Governmental Authority
charged with the administration or interpretation thereof shall
make it unlawful for any Lender to make or maintain any
Eurodollar Loan or to give effect to its obligations as
contemplated hereby with respect to any Eurodollar Loan, then, by
written notice to the Borrowers and to the Agents, such Lender
may:
(i) declare that Eurodollar Loans will not thereafter
be made by such Lender hereunder, whereupon such Lender
shall not submit a Competitive Bid in response to a request
for Eurodollar Competitive Loans and any request for a
Eurodollar Standby Borrowing shall, as to such Lender only,
be deemed a request for an ABR Loan unless such declaration
shall be subsequently withdrawn (any Lender delivering such
a declaration hereby agreeing to withdraw such declaration
promptly upon determining that such event of illegality no
longer exists); and
(ii) require that all outstanding Eurodollar Loans made
by it be converted to ABR Loans, in which event all such
Eurodollar Loans shall be automatically converted to ABR
Loans as of the effective date of such notice as provided in
paragraph (b) below.
In the event any Lender shall exercise its rights under (i) or
(ii) above, all payments and prepayments of principal which would
otherwise have been applied to repay the Eurodollar Loans that
would have been made by such Lender or the converted Eurodollar
Loans of such Lender shall instead be applied to repay the ABR
Loans made by such Lender in lieu of, or resulting from the
conversion of, such Eurodollar Loans.
(b) For purposes of this Section 2.13, a notice by any
Lender shall be effective as to each Eurodollar Loan, if lawful,
on the last day of the Interest Period currently applicable to
such Eurodollar Loan; in all other cases such notice shall be
effective on the date of receipt.
<PAGE>
33
SECTION 2.14. PRO RATA TREATMENT. Except as provided below
in this Section 2.14 with respect to Competitive Borrowings and
as required under Sections 2.13 and 2.18, each Standby Borrowing,
each payment or prepayment of principal of any Standby Borrowing,
each payment of interest on the Standby Loans, each payment of
the Facility Fees, each reduction of the Commitments and each
refinancing or conversion of any Borrowing with a Standby
Borrowing of any Type, shall be allocated pro rata among the
Lenders in accordance with their respective Commitments (or, if
such Commitments shall have expired or been terminated, in
accordance with the respective principal amounts of their
outstanding Standby Loans). Each payment of principal of any
Competitive Borrowing shall be allocated pro rata among the
Lenders participating in such Borrowing in accordance with the
respective principal amounts of their outstanding Competitive
Loans comprising such Borrowing. Each payment of interest on any
Competitive Borrowing shall be allocated pro rata among the
Lenders participating in such Borrowing in accordance with the
respective amounts of accrued and unpaid interest on their
outstanding Competitive Loans comprising such Borrowing. For
purposes of determining the available Commitments of the Lenders
at any time, each outstanding Competitive Borrowing shall be
deemed to have utilized the Commitments of the Lenders (including
those Lenders which shall not have made Loans as part of such
Competitive Borrowing) pro rata in accordance with such
respective Commitments. Each Lender agrees that in computing
such Lender's portion of any Borrowing to be made hereunder, the
Administrative Agent may, in its discretion, round each Lender's
percentage of such Borrowing to the next higher or lower whole
dollar amount.
SECTION 2.15. SHARING OF SETOFFS. Each Lender agrees that
if it shall, through the exercise of a right of banker's lien,
setoff or counterclaim, or pursuant to a secured claim under
Section 506 of Title 11 of the United States Bankruptcy Code or
other security or interest arising from, or in lieu of, such
secured claim, received by such Lender under any applicable
bankruptcy, insolvency or other similar law or otherwise, or by
any other means, obtain payment (voluntary or involuntary) in
respect of any Standby Loan or Loans as a result of which the
unpaid principal portion of its Standby Loans shall be
proportionately less than the unpaid principal portion of the
Standby Loans of any other Lender, it shall be deemed
simultaneously to have purchased from such other Lender at face
value, and shall promptly pay to such other Lender the purchase
price for, a participation in the Standby Loans of such other
Lender, so that the aggregate unpaid principal amount of the
Standby Loans and participations in the Standby Loans held by
each Lender shall be in the same proportion to the aggregate
unpaid principal amount of all Standby Loans then outstanding as
the principal amount of its Standby Loans prior to such exercise
of banker's lien, setoff or counterclaim or other event was to
the principal amount of all Standby Loans outstanding prior to
such exercise of banker's lien, setoff or counterclaim or other
event; provided, however, that, if any such purchase or purchases
or adjustments shall be made pursuant to this Section 2.15 and
the payment giving rise thereto shall thereafter be recovered,
such purchase or purchases or adjustments shall be rescinded to
the extent of such recovery and the purchase price or prices or
adjustment restored without interest. Each Borrower expressly
consents to the foregoing arrangements and agrees that any Lender
holding a participation in a Standby Loan deemed to have been so
purchased may exercise any and all rights of banker's lien,
setoff or counterclaim with respect to any and all moneys owing
by such Borrower to such Lender by reason thereof as fully as if
<PAGE>
34
such Lender had made a Standby Loan in the amount of such
participation.
SECTION 2.16. PAYMENTS. (a) Each Borrower shall make each
payment (including principal of or interest on any Borrowing or
any Fees or other amounts) hereunder from an account in the
United States not later than 10:00 a.m., Houston time, on the
date when due in dollars to the Administrative Agent at its
offices at 707 Travis Street, 8-CBBN- N 96, Houston, Texas 77002,
in immediately available funds.
(b) Whenever any payment (including principal of or
interest on any Borrowing or any Fees or other amounts) hereunder
shall become due, or otherwise would occur, on a day that is not
a Business Day, such payment may be made on the next succeeding
Business Day, and such extension of time shall in such case be
included in the computation of interest or Fees, if applicable.
SECTION 2.17. TAXES. (a) Any and all payments of
principal and interest on any Borrowings, or of any Fees or
indemnity or expense reimbursements by a Borrower hereunder
("BORROWER PAYMENTS") shall be made, in accordance with Section
2.16, free and clear of and without deduction for any and all
current or future United States Federal, state and local taxes,
levies, imposts, deductions, charges or withholdings, and all
liabilities with respect to such Borrower Payments, but only to
the extent reasonably attributable to such Borrower Payments,
excluding (i) income taxes imposed on the net income of the
Administrative Agent, the CAF Agent or any Lender (or any
transferee or assignee thereof, including a participation holder
(any such entity a "TRANSFEREE")) and (ii) franchise taxes
imposed on the net income of the Administrative Agent, the CAF
Agent or any Lender (or Transferee), in each case by the
jurisdiction under the laws of which the Administrative Agent,
the CAF Agent or such Lender (or Transferee) is organized or
doing business through offices or branches located therein, or
any political subdivision thereof (all such nonexcluded taxes,
levies, imposts, deductions, charges, withholdings and
liabilities, collectively or individually, "TAXES"). If any
Borrower shall be required to deduct any Taxes from or in respect
of any sum payable hereunder to any Lender (or any Transferee) or
the Agents, (i) the sum payable shall be increased by the amount
(an "ADDITIONAL AMOUNT") necessary so that after making all
required deductions (including deductions applicable to
additional sums payable under this Section 2.17) such Lender (or
Transferee) or Agent (as the case may be) shall receive an amount
equal to the sum it would have received had no such deductions
been made, (ii) such Borrower shall make such deductions and
(iii) such Borrower shall pay the full amount deducted to the
relevant Governmental Authority in accordance with applicable
law.
(b) In addition, each Borrower shall pay to the relevant
United States Governmental Authority in accordance with
applicable law any current or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies
that arise from any payment made hereunder or from the execution,
delivery or registration of, or otherwise with respect to, this
Agreement or the Letter Agreement ("OTHER TAXES").
<PAGE>
35
(c) Each Borrower shall indemnify each Lender (or
Transferee thereof) and each Agent for the full amount of Taxes
and Other Taxes with respect to Borrower Payments paid by such
Lender (or Transferee) or such Agent, as the case may be, and any
liability (including penalties, interest and expenses (including
reasonable attorney's fees and expenses)) arising therefrom or
with respect thereto, whether or not such Taxes or Other Taxes
were correctly or legally asserted by the relevant United States
Governmental Authority. A certificate setting forth and
containing an explanation in reasonable detail of the manner in
which such amount shall have been determined and the amount of
such payment or liability prepared by a Lender, the CAF Agent, or
the Administrative Agent on their behalf, absent manifest error,
shall be final, conclusive and binding for all purposes. Such
indemnification shall be made within 30 days after the date the
Lender (or Transferee) or any Agent, as the case may be, makes
written demand therefor.
(d) If a Lender (or Transferee) or any Agent shall become
aware that it is entitled to claim a refund from a United States
Governmental Authority in respect of Taxes or Other Taxes as to
which it has been indemnified by a Borrower, or with respect to
which a Borrower has paid additional amounts, pursuant to this
Section 2.17, it shall promptly notify such Borrower of the
availability of such refund claim and shall, within 30 days after
receipt of a request by such Borrower, make a claim to such
United States Governmental Authority for such refund at such
Borrower's expense. If a Lender (or Transferee) or any Agent
receives a refund (including pursuant to a claim for refund made
pursuant to the preceding sentence) in respect of any Taxes or
Other Taxes as to which it has been indemnified by a Borrower or
with respect to which a Borrower had paid additional amounts
pursuant to this Section 2.17, it shall within 30 days from the
date of such receipt pay over such refund to such Borrower (but
only to the extent of indemnity payments made, or additional
amounts paid, by such Borrower under this Section 2.17 with
respect to the Taxes or Other Taxes giving rise to such refund),
net of all out-of-pocket expenses of such Lender (or Transferee)
or such Agent and without interest (other than interest paid by
the relevant United States Governmental Authority with respect to
such refund); provided, however, that such Borrower, upon the
request of such Lender (or Transferee) or such Agent, agrees to
repay the amount paid over to such Borrower (plus penalties,
interest or other charges) to such Lender (or Transferee) or such
Agent in the event such Lender (or Transferee) or such Agent is
required to repay such refund to such United States Governmental
Authority.
(e) As soon as practicable, but in any event within 30
days, after the date of any payment of Taxes or Other Taxes by a
Borrower to the relevant United States Governmental Authority,
such Borrower will deliver to the Administrative Agent, at its
address referred to in Section 8.01, the original or a certified
copy of a receipt issued by such United States Governmental
Authority evidencing payment thereof.
(f) Without prejudice to the survival of any other
agreement contained herein, the agreements and obligations
contained in this Section 2.17 shall survive the payment in full
of the principal of and interest on all Loans made hereunder.
<PAGE>
36
(g) Each Lender or Agent (or Transferee) that is organized
under the laws of a jurisdiction other than the United States,
any State thereof or the District of Columbia (a "NON-U.S.
LENDER" or "NON U.S. AGENT", as applicable) shall deliver to the
Borrowers and the Administrative Agent two copies of either
United States Internal Revenue Service Form 1001 or Form 4224,
properly completed and duly executed by such Non-U.S. Lender
claiming complete exemption from, or reduced rate of, United
States Federal withholding tax on payments by any Borrower under
this Agreement. Such forms shall be delivered by each Non-U.S.
Lender on or before the date it becomes a party to this Agreement
(or, in the case of a Transferee that is a participation holder,
on or before the date such participation holder becomes a
Transferee hereunder) and on or before the date, if any, such
Non-U.S. Lender changes its applicable lending office by
designating a different lending office (a "NEW LENDING OFFICE").
In addition, each Non-U.S. Lender shall deliver such forms
promptly upon the obsolescence or invalidity of any form
previously delivered by such Non-U.S. Lender. Notwithstanding
any other provision of this Section 2.17(g), a Non-U.S. Lender
shall not be required to deliver any form pursuant to this
Section 2.17(g) that such Non-U.S. Lender is not legally able to
deliver.
(h) A Borrower shall not be required to indemnify any Non-
U.S. Lender or Non-U.S. Agent (including any Transferee), or to
pay any additional amounts to any Non-U.S. Lender or Non-U.S.
Agent (including any Transferee), in respect of United States
Federal, state or local withholding tax pursuant to paragraph (a)
or (c) above to the extent that (i) the obligation to withhold
amounts with respect to United States Federal, state or local
withholding tax existed on the date such Non-U.S. Lender became a
party to this Agreement (or, in the case of a Transferee that is
a participation holder, on the date such participation holder
became a Transferee hereunder) or, with respect to payments to a
New Lending Office, the date such Non-U.S. Lender designated such
New Lending Office with respect to a Loan; provided, however,
that this clause (i) shall not apply to any Transferee or New
Lending Office that becomes a Transferee or New Lending Office as
a result of an assignment, participation, transfer or designation
made at the request of such Borrower; and provided further,
however, that this clause (i) shall not apply to the extent the
indemnity payment or additional amounts any Transferee, or Lender
(or Transferee) through a New Lending Office, would be entitled
to receive (without regard to this clause (i)) do not exceed the
indemnity payment or additional amounts that the person making
the assignment, participation or transfer to such Transferee, or
Lender (or Transferee) making the designation of such New Lending
Office, would have been entitled to receive in the absence of
such assignment, participation, transfer or designation or (ii)
the obligation to pay such additional amounts or such indemnity
payments would not have arisen but for a failure by such Non-U.S.
Lender (including any Transferee) to comply with the provisions
of paragraph (g) above and (i) below.
(i) Any Lender (or Transferee) claiming any indemnity
payment or additional amounts payable pursuant to this Section
2.17 shall use reasonable efforts (consistent with legal and
regulatory restrictions) to file any certificate or document
reasonably requested in writing by a Borrower or to change the
jurisdiction of its applicable lending office if the making of
such a filing or change would avoid the need for or reduce the
amount of any such indemnity payment or additional amounts that
<PAGE>
37
may thereafter accrue and would not, in the good faith
determination of such Lender (or Transferee), be otherwise
disadvantageous to such Lender (or Transferee).
(j) Nothing contained in this Section 2.17 shall require
any Lender (or Transferee) or any Agent to make available to such
Borrower any of its tax returns (or any other information) that
it deems to be confidential or proprietary.
(k) Notwithstanding anything herein to the contrary, the
indemnification obligations under this Section shall, to the
extent practicable, be allocated between the Borrowers based upon
their relative liability for the interest, fee or other payments
in respect of which such indemnification obligations arise.
SECTION 2.18. ASSIGNMENT OF COMMITMENTS UNDER CERTAIN
CIRCUMSTANCES. In the event that any Lender shall have delivered
a notice or certificate pursuant to Section 2.12 or 2.13, or any
Borrower shall be required to make additional payments to any
Lender under Section 2.17, the Borrowers shall have the right, at
their own expense, upon notice to such Lender and the Agents, to
require such Lender to transfer and assign without recourse (in
accordance with and subject to the restrictions contained in
Section 8.04) all such Lender's interests, rights and obligations
contained hereunder to another financial institution approved by
the Agents and the Borrowers (which approval shall not be
unreasonably withheld) which shall assume such obligations;
provided that (i) no such assignment shall conflict with any law,
rule or regulation or order of any Governmental Authority and
(ii) the assignee shall pay to the affected Lender in immediately
available funds on the date of such assignment the principal of
and interest accrued to the date of payment on the Loans made by
it hereunder and all other amounts accrued for its account or
owed to it hereunder and the Borrowers shall pay the processing
and recordation fee due pursuant to Section 8.04.
SECTION 2.19. TERM ELECTION. At least 20 but not more than
40 days prior to the end of the Revolving Period, the Borrowers
may, by delivering a written notice to the Administrative Agent
(with such notice being irrevocable), and subject to the
condition set forth below, elect that the Maturity Date be
extended for a period of 364 days, commencing on the last day of
the Revolving Period (any such election to so extend the Maturity
Date being the "TERM ELECTION"). Upon receipt of any such notice
the Administrative Agent shall promptly communicate such notice
to the Lenders. The Term Election shall be effective on the last
day of the Revolving Period, if and only if on such date, no
Default or Event of Default shall have occurred and be
continuing.
<PAGE>
38
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants to each of the Lenders
as follows (except in the case of the representations contained
(i) in Section 3.05(a), which are made by TUC only, (ii) in
Section 3.05(b), which are made by TU Electric only, and (iii) in
Section 3.05(c), which are made by Enserch only; and provided,
that each representation or warranty made by any Borrower in
respect of TEG or any member of the TEG Group on any date up to
(but not including) the 120th day following the Unconditional
Date shall be subject to the qualification that such
representation or warranty is true and accurate insofar as such
Borrower was aware as of the date of this Agreement:
SECTION 3.01. ORGANIZATION; POWERS. Such Borrower (a) is a
corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its organization, (b) has
all requisite power and authority to own its property and assets
and to carry on its business as now conducted and as proposed to
be conducted, (c) is qualified to do business in every
jurisdiction where such qualification is required, except where
the failure so to qualify would not result in a Material Adverse
Change, and (d) has the corporate power and authority to execute,
deliver and perform its obligations under this Agreement and to
borrow hereunder.
SECTION 3.02. AUTHORIZATION. The execution, delivery and
performance by such Borrower of this Agreement, the Borrowings
hereunder and the Acquisition (collectively, the "TRANSACTIONS")
(a) have been duly authorized by all requisite corporate action
and (b) will not (i) violate (A) any provision of any law,
statute, rule or regulation (including, without limitation, the
Margin Regulations) or of the certificate of incorporation or
other constitutive documents or by-laws of such Borrower or any
of its Subsidiaries to which such Borrower is subject, (B) any
order of any Governmental Authority or (C) any provision of any
indenture, agreement or other instrument to which such Borrower
or any of its Subsidiaries is a party or by which it or any of
its property is or may be bound, (i) be in conflict with, result
in a breach of or constitute (alone or with notice or lapse of
time or both) a default under any such indenture, agreement or
other instrument or (ii) result in the creation or imposition of
any Lien upon any property or assets of such Borrower.
SECTION 3.03. ENFORCEABILITY. This Agreement constitutes a
legal, valid and binding obligation of such Borrower enforceable
in accordance with its terms except to the extent that
enforcement may be limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally.
SECTION 3.04. GOVERNMENTAL APPROVALS. No action, consent
or approval of, registration or filing with or other action by
any Governmental Authority is or will be required in connection
with the Transactions, to the extent they relate to such
Borrower, except those as have been duly obtained and as are (i)
in full force and effect, (ii) sufficient for their purpose and
<PAGE>
39
(iii) not subject to any pending or, to the knowledge of such
Borrower, threatened appeal or other proceeding seeking
reconsideration or review thereof.
SECTION 3.05. FINANCIAL STATEMENTS. (a) The consolidated
balance sheet of TUC and its Consolidated Subsidiaries as of
December 31, 1997 and the related consolidated statements of
income, retained earnings and cash flows for the fiscal year then
ended, reported on by Deloitte & Touche LLP and set forth in
TUC's 1997 Annual Report on Form 10-K, copies of which have been
delivered to each of the Lenders, fairly present, in conformity
with GAAP, the consolidated financial position of TUC and its
Consolidated Subsidiaries as of such date and their consolidated
results of operations and cash flows for such period ending on
such date. The unaudited consolidated balance sheets of TUC and
its Consolidated Subsidiaries as of March 31, 1998, June 30, 1998
and September 30, 1998 and the related consolidated statements of
income and cash flows for each of the three-month periods ending
on such dates, certified by a Responsible Officer of TUC, copies
of which have been delivered to each of the Lenders, fairly
present (subject to year-end adjustments), in conformity with
GAAP, the consolidated financial position of TUC and its
Consolidated Subsidiaries as of such dates and their consolidated
results of operations and cash flows for the periods ending on
such dates.
(b) The consolidated balance sheet of TU Electric and its
Consolidated Subsidiaries as of December 31, 1997 and the related
consolidated statements of income, retained earnings and cash
flows for the fiscal year then ended, reported on by Deloitte &
Touche LLP and set forth in TU Electric's 1997 Annual Report on
Form 10-K, copies of which have been delivered to each of the
Lenders, fairly present, in conformity with GAAP, the
consolidated financial position of TU Electric and its
Consolidated Subsidiaries as of such dates and their consolidated
results of operations and cash flows for the period ending on
such date. The unaudited consolidated balance sheets of TU
Electric and its Consolidated Subsidiaries as of March 31, 1998,
June 30, 1998 and September 30, 1998 and the related consolidated
statements of income and cash flows for each of the three-month
periods ending on such dates, certified by a Responsible Officer
of TU Electric, copies of which have been delivered to each of
the Lenders, fairly present (subject to year-end adjustments), in
conformity with GAAP, the consolidated financial position of TU
Electric and its Consolidated Subsidiaries as of such dates and
their consolidated results of operations and cash flows for the
periods ending on such dates.
(c) The consolidated balance sheet of Enserch and its
Consolidated Subsidiaries as of December 31, 1997 and the related
consolidated statements of income, retained earnings and cash
flows for the fiscal year then ended, reported on by Deloitte &
Touche LLP and set forth in Enserch's 1997 Annual Report on Form
10-K, copies of which have been delivered to each of the Lenders,
fairly present, in conformity with GAAP, the consolidated
financial position of Enserch and its Consolidated Subsidiaries
as of such dates and their consolidated results of operations and
cash flows for the period ending on such date. The unaudited
consolidated balance sheets of Enserch and its Consolidated
Subsidiaries as of March 31, 1998, June 30, 1998 and September
30, 1998 and the related consolidated statements of income and
cash flows for the three-month periods ending on such dates,
certified by a Responsible Officer of Enserch, copies of which
<PAGE>
40
have been delivered to each of the Lenders, fairly present
(subject to year-end adjustments), in conformity with GAAP, the
consolidated financial position of Enserch and its Consolidated
Subsidiaries as of such dates and their consolidated results of
operations and cash flows for the periods ending on such dates.
(d) Since December 31, 1997, there has been no Material
Adverse Change with respect to such Borrower, other than as a
result of the matters excluded from the computation of
Consolidated Earnings Available for Fixed Charges as set forth in
the definition thereof.
SECTION 3.06. LITIGATION. Except as set forth in the
financial statements or other reports of the type referred to in
Section 5.03 hereof and which have been delivered to the Lenders
on or prior to the date hereof or as set forth on Schedule 3.06,
there is no action, suit or proceeding pending against, or to the
knowledge of such Borrower threatened against or affecting, TUC
or any of its Subsidiaries before any court or arbitrator or any
governmental body, agency or official in which there is a
reasonable possibility of an adverse decision which could
materially adversely affect the ability of such Borrower to pay
its obligations hereunder or which in any manner draws into
question the validity of this Agreement.
SECTION 3.07. FEDERAL RESERVE REGULATIONS. (a) Neither
such Borrower nor any of its Subsidiaries is engaged principally,
or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying Margin
Stock.
(b) No part of the proceeds of any Loan will be used by
such Borrower, whether directly or indirectly, and whether
immediately, incidentally or ultimately, to purchase or carry
Margin Stock (other than the American Depositary Shares of TEG to
be acquired in connection with the Acquisition) or to refund
indebtedness originally incurred for such purpose, or for any
other purpose which entails a violation of, or which is
inconsistent with, the provisions of the Margin Regulations.
(c) Not more than 25% of the value of the assets of any
Borrower subject to the restrictions of Sections 5.09 and 5.10
are represented by Margin Stock.
SECTION 3.08. INVESTMENT COMPANY ACT; PUBLIC UTILITY
HOLDING COMPANY ACT. (a) Neither such Borrower nor any of its
Subsidiaries is an "investment company" as defined in, or subject
to regulation under, the Investment Company Act of 1940.
(b) Such Borrower and each of its Subsidiaries is exempt
from all provisions of the Public Utility Holding Company Act of
1935 and rules and regulations thereunder, except for Sections
9(a)(2) and 33 of such Act and the rules and regulations
thereunder, and the execution, delivery and performance by the
Borrowers of this Agreement and their respective obligations
hereunder do not violate any provision of such Act or any rule or
regulation thereunder.
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41
SECTION 3.09. NO MATERIAL MISSTATEMENTS. No report,
financial statement or other written information furnished by or
on behalf of such Borrower to the Agents or any Lender pursuant
to or in connection with this Agreement contains or will contain
any material misstatement of fact or omits or will omit to state
any material fact necessary to make the statements therein, in
the light of the circumstances under which they were or will be
made, not misleading.
SECTION 3.10. TAXES. Such Borrower and its Subsidiaries
have filed or caused to be filed within 3 days of the date on
which due, all Federal and material state and local tax returns
which to their knowledge are required to be filed by them, and
have paid or caused to be paid all material taxes shown to be due
and payable on such returns or on any assessments received by
them, other than any taxes or assessments the validity of which
is being contested in good faith by appropriate proceedings and
with respect to which appropriate accounting reserves have to the
extent required by GAAP been set aside.
SECTION 3.11. EMPLOYEE BENEFIT PLANS. With respect to each
Plan such Borrower and its ERISA Affiliates are in compliance in
all material respects with the applicable provisions of ERISA and
the Code and the final regulations and published interpretations
thereunder. No ERISA Event has occurred that alone or together
with any other ERISA Event has resulted or could reasonably be
expected to result in a Material Adverse Change. Neither such
Borrower nor any ERISA Affiliate has incurred any Withdrawal
Liability that could result in a Material Adverse Change.
Neither such Borrower nor any ERISA Affiliate has received any
notification that any Multiemployer Plan is in reorganization or
has been terminated within the meaning of Title IV of ERISA,
which such reorganization or termination could result in a
Material Adverse Change, and no Multiemployer Plan is reasonably
expected to be in reorganization or to be terminated where such
reorganization or termination has resulted or can reasonably be
expected to result, through an increase in the contributions
required to be made to such Plan or otherwise, in a Material
Adverse Change.
SECTION 3.12. SIGNIFICANT SUBSIDIARIES. Each of TUC's
corporate Significant Subsidiaries is a corporation duly
incorporated, validly existing and in good standing under the
laws of its jurisdiction of incorporation and has all corporate
powers necessary to carry on its business substantially as now
conducted. TUC's corporate Significant Subsidiaries have all
material governmental licenses, authorizations, consents and
approvals required to carry on the business of the corporate
Significant Subsidiaries substantially as now conducted.
SECTION 3.13. ENVIRONMENTAL MATTERS. Except as set forth
in or contemplated by the financial statements or other reports
of the type referred to in Section 5.03 hereof and which have
been delivered to the Lenders on or prior to the date hereof,
such Borrower and each of its Subsidiaries has complied in all
material respects with all Federal, state, local and other
statutes, ordinances, orders, judgments, rulings and regulations
relating to environmental pollution or to environmental or
nuclear regulation or control, except to the extent that failure
to so comply could not reasonably be expected to result in a
Material Adverse Change. Except as set forth in or contemplated
<PAGE>
42
by such financial statements or other reports, neither such
Borrower nor any of its Subsidiaries has received notice of any
material failure so to comply, except where such failure could
not reasonably be expected to result in a Material Adverse
Change. Except as set forth in or contemplated by such financial
statements or other reports, the facilities of such Borrower or
any of its Subsidiaries, as the case may be, are not used to
manage any hazardous wastes, hazardous substances, hazardous
materials, toxic substances, toxic pollutants or substances
similarly denominated, as those terms or similar terms are used
in the Resource Conservation and Recovery Act, the Comprehensive
Environmental Response Compensation and Liability Act, the
Hazardous Materials Transportation Act, the Toxic Substance
Control Act, the Clean Air Act, the Clean Water Act or any other
applicable law relating to environmental pollution, or any
nuclear fuel or other radioactive materials, in violation in any
material respect of any law or any regulations promulgated
pursuant thereto, except to the extent that such violations could
not reasonably be expected to result in a Material Adverse
Change. Except as set forth in or contemplated by such financial
statements or other reports, such Borrower is aware of no events,
conditions or circumstances involving environmental pollution or
contamination that could reasonably be expected to result in a
Material Adverse Change.
SECTION 3.14. YEAR 2000 COMPLIANCE. All material
computer-based systems and software of such Borrower and its
Subsidiaries will record, store, process and present calendar
dates falling on or after January 1, 2000, in the same manner,
and with the same functionality, as such computer-based systems
and software record, store, process and present calendar dates
falling on or before December 31, 1999. In all other respects,
such computer-based systems and software will not in any way lose
functionality or degrade in performance as a consequence of such
computer-based system and software operating at a date later than
December 31, 1999. At the request of the Administrative Agent,
each Borrower shall provide the Administrative Agent and the
Lenders assurances in form and substance satisfactory to the
Administrative Agent and the Lenders as to the proper
functioning, prior to and following January 1, 2000, of the
computer-based systems and software of such Borrower and its
Subsidiaries.
ARTICLE IV
CONDITIONS
The obligations of the Lenders to make Loans hereunder, and
the effectiveness of this amendment and restatement, are subject
to the satisfaction of the following conditions:
SECTION 4.01. RESTATEMENT DATE. The Commitment of each
Lender to make any Loan on or after February 26, 1999 and the
effectiveness of this amendment and restatement are subject to
the conditions (the first date such conditions are satisfied
being hereinafter referred to as the "RESTATEMENT DATE") that on
the Restatement Date:
(a) The representations and warranties set forth in
Article III hereof shall be true and correct in all material
respects on and as of such date with the same effect as
<PAGE>
43
though made on and as of such date, except to the extent
such representations and warranties expressly relate to an
earlier date.
(b) No Event of Default or Default shall have occurred
and be continuing on such date.
(c) The Agents shall have received favorable written
opinions of (i) Thelen Reid & Priest LLP
and Worsham,Forsythe & Wooldridge, L.L.P. each dated the
Restatement Date and addressed to the Lenders and
satisfactory to King & Spalding, counsel for the Agents, to
the effect set forth in Exhibits D-1 and D-2 hereto and
(ii) King & Spalding, dated the Restatement Date, addressed
to the Lenders and in form satisfactory to the Agents.
(d) The Agents shall have received (i) a copy of the
certificate of incorporation, including all amendments
thereto, of each Borrower, certified as of a recent date by
the Secretary of State of its state of incorporation, and a
certificate as to the good standing of each Borrower as of a
recent date from such Secretary of State; (ii) a certificate
of the Secretary or an Assistant Secretary of each Borrower
dated the Restatement Date and certifying (A) that attached
thereto is a true and complete copy of the by-laws of such
Borrower as in effect on the Restatement Date and at all
times since a date prior to the date of the resolutions
described in clause (B) below, (B) that attached thereto is
a true and complete copy of resolutions duly adopted by the
Board of Directors of such Borrower authorizing the
execution, delivery and performance of this Agreement and
the Borrowings hereunder, and that such resolutions have not
been modified, rescinded or amended and are in full force
and effect, (C) that the certificate of incorporation
referred to in clause (i) above has not been amended since
the date of the last amendment thereto shown on the
certificate of good standing furnished pursuant to such
clause (i) and (D) as to the incumbency and specimen
signature of each officer executing this Agreement or any
other document delivered in connection herewith on behalf of
such Borrower; (iii) a certificate of another officer of
such Borrower as to the incumbency and specimen signature of
the Secretary or Assistant Secretary executing the
certificate pursuant to (ii) above; (iv) evidence
satisfactory to the Agents that the requisite approvals
referred to in Section 3.04 hereof have been obtained, are
in full force and effect (other than approvals the failure
to obtain which could not reasonably be expected to have a
Material Adverse Effect); and (v) such other documents as
the Lenders or King & Spalding, counsel for the Agents,
shall reasonably request.
(e) The Agents shall have received a certificate,
dated the Restatement Date and signed by a Financial Officer
of each Borrower, confirming compliance with the conditions
precedent set forth in paragraphs (a) and (b) of Section
4.01.
(f) The Agents shall have received all Fees and
amounts due and payable by the Borrowers on or prior to the
Restatement Date.
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44
(g) The Agents shall have received an executed
counterpart to this Agreement of each Agent, each Lender and
each Borrower.
(h) Each Lender under (and as defined in) the Original
Credit Agreement immediately prior to the Restatement Date
that does not desire to remain a Lender after the
Restatement Date shall have executed and delivered to the
Administrative Agent an Assignment and Acceptance with
respect to such Lender's Commitment in form and substance
satisfactory to the Administrative Agent.
(i) The Agents shall have received such other
approvals, opinions and documents as the Agents may
reasonably request as to the legality, validity, binding
effect or enforceability of this Agreement or the financial
condition, properties, operations or prospects of any
Borrower.
SECTION 4.02. INITIAL OFFER LOANS. The Commitment of each
Lender to make its initial Offer Loan shall be subject to the
satisfaction of the following conditions precedent on or after
the Effective Date:
(a) The terms of the Offer as set forth in the Offer
Press Release shall have been found to be acceptable by the
Joint Lead Arrangers prior to the public announcement
thereof by or on behalf of Bidco. The Joint Lead Arrangers
shall have received copies of the Offer Documents and the
Offer Press Release and of all other documents and materials
filed or released publicly by TUC, Bidco or any of TUC's
other affiliates in connection with the Offer, certified as
true and correct copies thereof as of the date thereof by a
responsible officer of TUC, and the conditions set forth in
such documents shall conform to the conditions set forth in
the Offer Press Release as approved by the Joint Lead
Arrangers prior to the release thereof.
(b) All conditions precedent to borrowings under the
U.K. Facility Agreement for the purpose of consummating the
Acquisition shall have been satisfied (other than any such
condition relating to, or that would be satisfied upon, the
making of Offer Loans).
(c) The Unconditional Date shall have occurred.
(d) The Agents shall have received evidence
satisfactory to them that all amounts outstanding under the
Existing TU Credit Agreements have been repaid (or will be
repaid on such date with the proceeds of the Loans hereunder
and the Loans under and as defined in the Facility B Credit
Agreement) and that the "Commitments" thereunder have been
terminated.
SECTION 4.03. CONDITIONS FOR ALL OFFER LOANS DURING THE
CERTAIN FUNDS PERIOD. To ensure that TUC has resources available
to advance to Bidco funds to enable Bidco to fulfill its
obligations in respect of the Offer, the Lenders agree that the
Commitment of each Lender to make each Offer Loan to be made by
<PAGE>
45
it (including the initial Offer Loan to be made by it) during the
Certain Funds Period shall be subject to the satisfaction of the
conditions precedent set forth in Section 4.02 on or prior to the
date of such Offer Loan, and the only further conditions
precedent to the Commitment of each Lender to make each Offer
Loan to be made by it during the Certain Funds Period shall be
that on the date of such Offer Loan:
(a) The Agents shall have received a notice of such
Borrowing as required by Section 2.03 or Section 2.04, as
applicable.
(b) No Major Default shall have occurred and be
continuing or would result from the making of such Offer
Loan.
(c) The Agents shall have received a certificate of a
Responsible Officer of TUC certifying that the matter set
forth in the foregoing paragraph (b) is true and correct on
the date of the making of such Offer Loan.
Each such Offer Loan shall be deemed to constitute a
representation and warranty by TUC on the date of such Loan as to
the matters specified in subsection (b) of this Section 4.03.
SECTION 4.04. INITIAL GENERAL LOANS. The Commitment of
each Lender to make its initial General Loan shall be subject to
the satisfaction of the following conditions precedent on the
date of such Borrowing:
(a) The Effective Date shall have occurred.
(b) The Agents shall have received evidence
satisfactory to them that all amounts outstanding under the
Existing TU Credit Agreements have been repaid (or will be
repaid on such date with the proceeds of the Loans hereunder
and the Loans under and as defined in the Facility B Credit
Agreement) and that the "Commitments" thereunder have been
terminated.
SECTION 4.05. OFFER LOANS AFTER THE CERTAIN FUNDS PERIOD
AND ALL GENERAL LOANS. The Commitment of each Lender to make
each General Loan to be made by it (including the initial General
Loan to be made by it), and each Offer Loan to be made by it at
any time on or after the last day of the Certain Funds Period,
shall be subject to the satisfaction of the following conditions
precedent on the date of such Borrowing:
(a) The Agents shall have received a notice of such
Borrowing as required by Section 2.03 or Section 2.04, as
applicable.
(b) The representations and warranties set forth in
Article III hereof (except, in the case of a refinancing of
a Standby Borrowing (whether for Offer Loans or General
Loans) with a new Standby Borrowing that does not increase
the aggregate principal amount of the Loans of any Lender
<PAGE>
46
outstanding, the representations set forth in Sections
3.05(e), 3.06, 3.11 and 3.13) shall be true and correct in
all material respects on and as of the date of such
Borrowing with the same effect as though made on and as of
such date, except to the extent such representations and
warranties expressly relate to an earlier date.
(c) At the time of and immediately after such
Borrowing no Event of Default or Default shall have occurred
and be continuing.
(d) The Agents shall have received a certificate of a
Responsible Officer of the applicable Borrower certifying
that the matters set forth in paragraphs (b) and (c) of this
Section 4.05 are true and correct as of such date.
Each such Loan shall be deemed to constitute a representation and
warranty by each Borrower on the date of such Borrowing as to the
matters specified in subsections (b) and (c) of this Section
4.05.
ARTICLE V
COVENANTS
TUC (and each of TU Electric and Enserch, to the extent such
covenants apply to it) agrees that, so long as any Lender has any
Commitment hereunder or any amount payable hereunder remains
unpaid (provided, that such covenants shall not apply to TEG or
any member of the TEG Group until the 120th day following the
Unconditional Date, but TUC shall use all reasonable efforts to
cause TEG and all members of the TEG Group to comply with such
covenants at all times on and after the Unconditional Date):
SECTION 5.01. EXISTENCE. It will, and will cause each of
its Significant Subsidiaries to, do or cause to be done all
things necessary to preserve and keep in full force and effect
its corporate existence and all rights, licenses, permits,
franchises and authorizations necessary or desirable in the
normal conduct of its business except as otherwise permitted
pursuant to Section 5.09.
SECTION 5.02. BUSINESS AND PROPERTIES. It will, and will
cause each of its Subsidiaries to, comply with all applicable
material laws, rules, regulations and orders of any Governmental
Authority, whether now in effect or hereafter enacted, except
where the validity or applicability of such laws, rules,
regulations or orders is being contested by appropriate
proceedings in good faith; and at all times maintain and preserve
all property material to the conduct of its business and keep
such property in good repair, working order and condition and
from time to time make, or cause to be made, all needful and
proper repairs, renewals, additions, improvements and
replacements thereto necessary in order that the business carried
on in connection therewith may be properly conducted at all
times.
<PAGE>
47
SECTION 5.03. FINANCIAL STATEMENTS, REPORTS, ETC. TUC (and
TU Electric and Enserch, to the extent such information relates
to TU Electric or Enserch, as applicable, only) will furnish to
the Agents and each Lender:
(a) as soon as available and in any event within
120 days after the end of each fiscal year of TUC, a
consolidated balance sheet of TUC and its Consolidated
Subsidiaries as of the end of such fiscal year and the
related consolidated statements of income, retained earnings
and cash flows for such fiscal year, setting forth in each
case in comparative form the figures for the previous fiscal
year, all reported on in a manner reasonably acceptable to
the Securities and Exchange Commission by Deloitte &
Touche LLP or other independent public accountants of
nationally recognized standing;
(b) as soon as available and in any event within
60 days after the end of each of the first three quarters of
each fiscal year of TUC a consolidated balance sheet of TUC
and its Consolidated Subsidiaries as of the end of such
quarter and the related consolidated statements of income
for such quarter, for the portion of TUC's fiscal year ended
at the end of such quarter, and for the twelve months ended
at the end of such quarter, and the related consolidated
statement of cash flows for the portion of TUC's fiscal year
ended at the end of such quarter, setting forth comparative
figures for previous dates and periods to the extent
required in Form 10-Q, all certified (subject to normal
year-end adjustments) as to fairness of presentation, GAAP
and consistency by a Financial Officer of TUC;
(c) simultaneously with any delivery of each set of
financial statements referred to in paragraphs (a) and (b)
above, (i) an unconsolidated balance sheet of TUC and the
related unconsolidated statements of income, retained
earnings and cash flows as of the same date and for the same
periods applicable to the statements delivered pursuant to
paragraph (a) or (b) above, as applicable, all certified
(subject to normal year-end adjustments in the case of
quarterly statements) as to fairness of presentation, GAAP
and consistency by a Financial Officer or TUC and (ii) a
certificate of a Financial Officer of TUC (A) setting forth
in reasonable detail the calculations required to establish
whether TUC was in compliance with the requirements of
Sections 5.11 and 5.12 on the date of such financial
statements, and (B) stating whether any Default exists on
the date of such certificate and, if any Default then
exists, setting forth the details thereof and the action
which TUC is taking or proposes to take with respect
thereto;
(d) simultaneously with the delivery of each set of
financial statements referred to in paragraph (a) above, a
statement of the firm of independent public accountants
which reported on such statements (i) stating whether
anything has come to their attention to cause them to
believe that any Default existed on the date of such
statements and (ii) confirming the calculations set forth in
the Financial Officer's certificate delivered simultaneously
therewith pursuant to paragraph (c) above;
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48
(e) forthwith upon becoming aware of the occurrence of
any Default, a certificate of a Financial Officer of TUC
setting forth the details thereof and the action which TUC
is taking or proposes to take with respect thereto;
(f) promptly upon the mailing thereof to the
shareholders of TUC generally, copies of all financial
statements, reports and proxy statements so mailed;
(g) promptly upon the filing thereof, copies of each
final prospectus (other than a prospectus included in any
registration statement on Form S-8 or its equivalent or with
respect to a dividend reinvestment plan) and all reports on
Forms 10-K, 10-Q and 8-K and similar reports which TUC, TU
Electric or Enserch shall have filed with the SEC, or any
Governmental Authority succeeding to any of or all the
functions of the SEC;
(h) if and when any member of the Controlled Group (i)
gives or is required to give notice to the PBGC of any
Reportable Event with respect to any Plan which might
constitute grounds for a termination of such Plan under
Title IV of ERISA, or knows that the plan administrator of
any Plan has given or is required to give notice of any such
Reportable Event, a copy of the notice of such Reportable
Event given or required to be given to the PBGC; (i)
receives notice from a proper representative of a
Multiemployer Plan of complete or partial Withdrawal
Liability being imposed upon such member of the Controlled
Group under Title IV of ERISA, a copy of such notice; or
(ii) receives notice from the PBGC under Title IV of ERISA
of an intent to terminate, or appoint a trustee to
administer, any Plan, a copy of such notice; and
(i) promptly, from time to time, such additional
information regarding the financial position or business of
TUC and its Subsidiaries as the Agents, at the request of
any Lender, may reasonably request.
As promptly as practicable after delivering each set of financial
statements as required in paragraph (a) of this Section, TUC
shall make available a copy of the consolidating workpapers used
by TUC in preparing such consolidated statements to each Lender
that shall have requested such consolidating workpapers. Each
Lender that receives such consolidating workpapers shall hold
them in confidence as required by Section 8.15; provided that no
Lender may disclose such consolidating workpapers to any other
person pursuant to clause (iv) of Section 8.15.
SECTION 5.04. INSURANCE. It will, and will cause each of
its Subsidiaries to, maintain such insurance or self insurance,
to such extent and against such risks, including fire and other
risks insured against by extended coverage, as is customary with
companies similarly situated and in the same or similar
businesses.
SECTION 5.05. TAXES, ETC. It will, and will cause each of
its Subsidiaries to, pay and discharge promptly when due all
material taxes, assessments and governmental charges imposed upon
it or upon its income or profits or in respect of its property,
<PAGE>
49
as well as all other material liabilities, in each case before
the same shall become delinquent or in default and before
penalties accrue thereon, unless and to the extent that the same
are being contested in good faith by appropriate proceedings and
adequate reserves with respect thereto shall, to the extent
required by GAAP, have been set aside.
SECTION 5.06. MAINTAINING RECORDS; ACCESS TO PROPERTIES AND
INSPECTIONS. It will, and will cause each of its Subsidiaries
to, maintain financial records in accordance with GAAP and, upon
reasonable notice and at reasonable times, permit authorized
representatives designated by any Lender to visit and inspect its
properties and to discuss its affairs, finances and condition
with its officers.
SECTION 5.07. ERISA. It will, and will cause each of its
Subsidiaries that are members of the Controlled Group to, comply
in all material respects with the applicable provisions of ERISA
and the Code except where any noncompliance, individually or in
the aggregate, would not result in a Material Adverse Change.
SECTION 5.08. USE OF PROCEEDS. It will not, and will not
cause or permit any of its Subsidiaries to, use the proceeds of
the Loans for purposes other than as set forth below:
(i) up to $800 million of the proceeds of the Loans to
refinance the Existing TU Credit Agreements and for working
capital and other general corporate purposes, including
commercial paper back-up (and excluding the purposes
described in clauses (ii)(B) and (D) below); and
(ii) up to $2.8 billion of the proceeds of the Loans
solely to finance or refinance (directly or indirectly,
including as a commercial paper back-up) equity or
subordinated loan advances from TUC to FinCo 1 and FinCo 2
to finance:
(A) consideration payable by Bidco to TEG
shareholders in respect of open market
purchases;
(B) the acquisition of the Target Shares by Bidco
pursuant to the Offer;
(C) fees and expenses of TUC in relation to the
Acquisition and the negotiation, execution
and delivery of this Agreement and the
Facility B Credit Agreement;
(D) the consideration payable pursuant to the
operation by Bidco of the procedures
contained in Sections 428-430 of the
Companies Act; and
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50
(E) consideration payable to TEG share options
holders pursuant to any relevant offer to
them by Bidco to purchase or cancel such
share options.
SECTION 5.09. CONSOLIDATIONS, MERGERS, SALES AND
ACQUISITIONS OF ASSETS AND INVESTMENTS IN SUBSIDIARIES. TUC will
not (a) consolidate or merge with or into any person unless (i)
the surviving corporation is incorporated under the laws of a
State of the United States of America and assumes or is
responsible by operation of law for all the obligations of TUC
hereunder and (ii) no Default or Event of Default shall have
occurred or be continuing at the time of or after giving effect
to such consolidation or merger or (b) sell, lease or otherwise
transfer, in a single transaction or in a series of transactions,
all or any Substantial part of its assets to any person or
persons other than a Wholly Owned Subsidiary. TUC will not
permit any Significant Subsidiary to consolidate or merge with or
into, or sell, lease or otherwise transfer all or any Substantial
part of its assets to, any person other than TUC or a Wholly
Owned Subsidiary (or a person which as a result of such
transaction becomes a Wholly Owned Subsidiary), provided that in
the case of any merger or consolidation involving TU Electric or
Enserch, such person must assume or be responsible by operation
of law for all the obligations of TU Electric or Enserch, as
applicable, hereunder, and TUC will not in any event permit any
such consolidation, merger, sale, lease or transfer if any
Default or Event of Default shall have occurred and be continuing
at the time of or after giving effect to any such transaction.
Notwithstanding the foregoing, (a) neither TUC nor any of its
Subsidiaries will engage to a Substantial extent in businesses
other than those currently conducted by them, or in the case of
Enserch, by Enserch and other businesses reasonably related
thereto, (b) neither TUC nor any of its Subsidiaries will
acquire any Subsidiary or make any investment in any Subsidiary
if, upon giving effect to such acquisition or investment, as the
case may be, TUC would not be in compliance with the covenants
set forth in Sections 5.11 and 5.12 and (c) nothing in this
Section shall prohibit any sales of assets permitted by Section
5.10(d).
SECTION 5.10. LIMITATIONS ON LIENS. Neither TUC nor any
Significant Subsidiary will create or assume or permit to exist
any Lien in respect of any property or assets of any kind (real
or personal, tangible or intangible) of TUC or any Significant
Subsidiary, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to
repurchase such property or assets, or sell, or permit any
Significant Subsidiary to sell, any accounts receivable; provided
that the provisions of this Section shall not prevent or restrict
the creation, assumption or existence of:
(a) any Lien in respect of any such property or assets
of any Significant Subsidiary to secure indebtedness owing
by it to TUC or any Wholly Owned Subsidiary of TUC; or
(b) purchase money Liens (including capital leases) in
respect of property acquired by TUC or any Significant
Subsidiary, to secure the purchase price of such property
(or to secure indebtedness incurred prior to, at the time
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51
of, or within 90 days after the acquisition solely for the
purpose of financing the acquisition of such property), or
Liens existing on any such property at the time of
acquisition of such property by TUC or such Significant
Subsidiary, whether or not assumed, or any Lien in respect
of property of a corporation existing at the time such
corporation becomes a Subsidiary of TUC; or agreements to
acquire any property or assets under conditional sale
agreements or other title retention agreements, or capital
leases in respect of any other property; provided that
(1) the aggregate principal amount of
Indebtedness secured by all Liens in respect of any
such property shall not exceed the cost (as determined
by the board of directors of TUC or such Significant
Subsidiary, as the case may be) of such property at the
time of acquisition thereof (or (x) in the case of
property covered by a capital lease, the fair market
value, as so determined, of such property at the time
of such transaction, or (y) in the case of a Lien in
respect of property existing at the time such
corporation becomes a Subsidiary of TUC the fair market
value, as so determined of such property at such time),
and
(2) at the time of the acquisition of the
property by TUC or such Subsidiary, or at the time such
corporation becomes a Subsidiary of TUC, as the case
may be, every such Lien shall apply and attach only to
the property originally subject thereto and fixed
improvements constructed thereon; or
(c) refundings or extensions of any Lien permitted in
the foregoing paragraph (b) for amounts not exceeding the
principal amount of the Indebtedness so refunded or extended
or the fair market value (as determined by the board of
directors of TUC or such Significant Subsidiary, as the case
may be) of the property theretofore subject to such Lien,
whichever shall be lower, in each case at the time of such
refunding or extension; provided that such Lien shall apply
only to the same property theretofore subject to the same
and fixed improvements constructed thereon; or
(d) sales subject to understandings or agreements to
repurchase; provided that the aggregate sales price for all
such sales (other than sales to any governmental
instrumentality in connection with such instrumentality's
issuance of indebtedness, including without limitation
industrial development bonds and pollution control bonds, on
behalf of TUC or any Significant Subsidiary) made in any one
calendar year shall not exceed $50,000,000; or
(e) any production payment or similar interest which
is dischargeable solely out of natural gas, coal, lignite,
oil or other mineral to be produced from the property
subject thereto and to be sold or delivered by TUC or any
Significant Subsidiary; or
(f) any Lien including in connection with sale-
leaseback transactions created or assumed by any Significant
Subsidiary on natural gas, coal, lignite, oil or other
mineral properties or nuclear fuel owned or leased by such
Subsidiary, to secure loans to such Subsidiary in an
<PAGE>
52
aggregate amount not to exceed $400,000,000; provided that
neither TUC nor any Subsidiary of TUC shall assume or
guarantee such financings; or
(g) leases (other than capital leases) now or
hereafter existing and any renewals and extensions thereof
under which TUC or any Significant Subsidiary may acquire or
dispose of any of its property, subject, however, to the
terms of Section 5.09; or
(h) any Lien created or to be created by the First
Mortgage of TU Electric; or
(i) any Lien on the rights of the Mining Company or
Fuel Company existing under their respective Operating
Agreements; or
(j) Liens securing the obligations of the Borrowers
(as defined in the U.K. Facility Agreement) under the U.K.
Facility Agreement; or
(k) pledges or sales by TU Electric, Enserch or
Eastern Electric plc of its accounts receivable including
customers' installment paper; or
(l) the pledge of current assets, in the ordinary
course of business, to secure current liabilities; or
(m) Permitted Encumbrances; or
(n) Permitted Security Interests (as such term is
defined in the U.K. Facility Agreement) created by any
Significant Subsidiary subject to the U.K. Facility
Agreement.
SECTION 5.11. FIXED CHARGE COVERAGE. TUC will not, as of
the end of each quarter of each fiscal year of TUC, permit
Consolidated Earnings Available for Fixed Charges for the twelve
months then ended to be less than or equal to 150% of
Consolidated Fixed Charges for the twelve months then ended.
SECTION 5.12. EQUITY CAPITALIZATION RATIO. TUC will not at
any time during any period specified below permit Consolidated
Shareholders' Equity to be less than the percentage of
Consolidated Total Capitalization set forth below next to such
period:
=======================================
Period Percentage
------ ----------
---------------------------------------
Until but excluding
6-30-99 26%
---------------------------------------
6-30-99 to but excluding
6-30-00 30%
---------------------------------------
6-30-00 and thereafter 35%
=======================================
<PAGE>
53
SECTION 5.13. RESTRICTIVE AGREEMENTS. TUC will not, and
will not permit TU Electric, Enserch or any other Subsidiary of
TUC with respect to which TU Electric or Enserch is also a
Subsidiary to, enter into any agreement restricting the ability
of such Subsidiary to make payments, directly or indirectly, to
its shareholders by way of dividends, advances, repayments of
loans or advances, reimbursements of management and other
intercompany charges, expenses and accruals or other returns on
investments or any other agreement or arrangement that restricts
the ability of such Subsidiary to make any payment, directly or
indirectly, to its shareholders if the effect of such agreement
it to subject such Subsidiary to restrictions on such payments
greater than those to which such Subsidiary is subject on the
date of this Agreement.
SECTION 5.14. THE OFFER. At all times prior to the end of
the Certain Funds Period, TUC shall:
(i) cause Bidco, until the earlier of the date the
Offer lapses or is finally closed, to comply in all material
respects with the City Code, the Financial Services Act
1986 (UK) and the Companies Act and all other applicable
laws and regulations relevant in the context of the Offer;
(ii) cause Bidco to provide the Administrative Agent
with such information regarding the progress of the Offer as
it may reasonably request and, provided no breach of the
City Code would result, all material written advice given to
it in respect of the Offer;
(iii) not cause or permit Bidco to declare the
Offer unconditional at a level of acceptances below that
required by Rule 10 of the City Code;
(iv) cause Bidco to ensure that at no time shall
circumstances arise whereby a mandatory offer is required to
be made by the terms of Rule 9 of the City Code in respect
of the Target Shares;
(v) not cause or permit Bidco, without the prior
consent of the Administrative Agent (acting on the
instructions of the Required Lenders), to waive, amend or
agree or decide not to enforce, in whole or in part, the
conditions of the Offer set out in paragraph (c) (Referral)
of Appendix 1 to the Offer Press Release;
(vi) not cause or permit Bidco, without the prior
consent of the Administrative Agent (acting on the
instructions of the Required Lenders), such consent not to
be unreasonably withheld or delayed, to waive, amend (but
not including extending the Offer period, which shall be at
Bidco's discretion provided that the Offer is closed within
the period required by paragraph (ix) below of this Section
5.14) or agree or decide not to invoke, in whole or in part,
in any material respect, any of the other material
conditions of the Offer (and the Borrowers acknowledge that
the total indebtedness of the TEG Group requiring to be
refinanced, and the amount of any contingent liabilities of
<PAGE>
54
the TEG Group which would or might crystallize upon the
Offer becoming unconditional, are material), provided that
TUC shall not be in breach of this paragraph (vi) if it
fails to cause Bidco to invoke a condition of the Offer
because the Takeover Panel has directed that Bidco may not
do so;
(vii) cause Bidco to keep the Joint Lead Arrangers
informed and consult with them as to:
(A) the terms of any undertaking or assurance
proposed to be given by it, any of its Affiliates or
any member of the TEG Group to the Director General of
Electricity Supply, the Director General of Gas Supply
or the Secretary of State for Trade and Industry in
connection with the Offer;
(B) the terms of any modification to any of the
Licenses proposed in connection with the Offer; and
(C) any terms proposed in connection with any
authorization or determination necessary or appropriate
in connection with the Offer;
(viii) within 15 days of the date on which
acceptances of the Offer are received from holders of not
less than 90% of the Target Shares, procure that a director
of Bidco issues a statutory declaration pursuant to section
429(4) of the Companies Act, gives notice to all remaining
holders of Target Shares that it intends to acquire their
Target Shares pursuant to section 429 of the Companies Act
and cause Bidco subsequently to purchase all such Target
Shares; and
(ix) in any event give notice to close the Offer no
less than 120 days after the Effective Date, unless the
Required Lenders agree in their discretion to extend such
period.
ARTICLE VI
EVENTS OF DEFAULT
In case of the happening of any of the following events
(each an "EVENT OF DEFAULT") (provided that subsection (g) below
shall not apply to any member of the TEG Group at any time prior
to the 120th day following the Unconditional Date):
(a) any representation or warranty made or deemed made
by any Borrower in or in connection with the execution and
delivery of this Agreement or the Borrowings hereunder shall
prove to have been false or misleading in any material
respect when so made, deemed made or furnished;
<PAGE>
55
(b) default shall be made by any Borrower in the
payment of any principal of any Loan when and as the same
shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or by
acceleration thereof or otherwise;
(c) default shall be made by any Borrower in the
payment of any interest on any Loan or any Fee or any other
amount (other than an amount referred to in paragraph (b)
above) due hereunder, when and as the same shall become due
and payable, and such default shall continue unremedied for
a period of five days;
(d) default shall be made by any Borrower in the due
observance or performance of any covenant, condition or
agreement contained in Section 5.01, 5.11 or 5.12;
(e) default shall be made by any Borrower in the due
observance or performance of any covenant, condition or
agreement contained in Section 5.09 and such default shall
continue unremedied for a period of 5 days or default shall
be made by any Borrower in the due observance or performance
of any covenant, condition or agreement contained herein
(other than those specified in (b), (c) or (d) above) or in
the Letter Agreement and such default shall continue
unremedied for a period of 30 days after notice thereof from
the Administrative Agent at the request of any Lender to
such Borrower;
(f) TUC shall no longer own, directly or indirectly,
all the outstanding common stock of TU Electric (or any
successor) and at least 51% of the outstanding common stock
of Enserch (or any successor);
(g) any Borrower or any Subsidiary shall (i) fail to
pay any principal or interest, regardless of amount, due in
respect of any Indebtedness in a principal amount in excess
of $40,000,000, when and as the same shall become due and
payable, subject to any applicable grace periods, or (ii)
fail to observe or perform any other term, covenant,
condition or agreement contained in any agreement or
instrument evidencing or governing any such Indebtedness if
the effect of any failure referred to in this clause (ii) is
to cause, or to permit the holder or holders of such
Indebtedness or a trustee on its or their behalf to cause,
such Indebtedness to become due prior to its stated
maturity;
(h) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of TUC or any
Significant Subsidiary, or of a substantial part of the
property or assets of TUC or any Significant Subsidiary,
under Title 11 of the United States Bankruptcy Code, as now
constituted or hereafter amended, or any other Federal or
state bankruptcy, insolvency, receivership or similar law,
(i) the appointment of a receiver, trustee, custodian,
sequestrator, conservator or similar official for TUC or any
Significant Subsidiary or for a substantial part of the
property or assets of TUC or any Significant Subsidiary or
(ii) the winding up or liquidation of TUC or any Significant
Subsidiary; and such proceeding or petition shall continue
<PAGE>
56
undismissed for 60 days or an order or decree approving or
ordering any of the foregoing shall be entered;
(i) TUC or any Significant Subsidiary shall (i)
voluntarily commence any proceeding or file any petition
seeking relief under Title 11 of the United States
Bankruptcy Code, as now constituted or hereafter amended, or
any other Federal or state bankruptcy, insolvency,
receivership or similar law, (ii) consent to the institution
of, or fail to contest in a timely and appropriate manner,
any proceeding or the filing of any petition described in
(h) above, (iii) apply for or consent to the appointment of
a receiver, trustee, custodian, sequestrator, conservator or
similar official for TUC or any Significant Subsidiary or
for a substantial part of the property or assets of it or
such Significant Subsidiary, (iv) file an answer admitting
the material allegations of a petition filed against it in
any such proceeding, (v) make a general assignment for the
benefit of creditors, (vi) become unable, admit in writing
its inability or fail generally to pay its debts as they
become due or (vii) take any action for the purpose of
effecting any of the foregoing;
(j) A Change in Control shall occur;
(k) one or more judgments or orders for the payment of
money in an aggregate amount in excess of $50,000,000 shall
be rendered against TUC or any Subsidiary thereof or any
combination thereof and such judgment or order shall remain
undischarged or unstayed for a period of 30 days, or any
action shall be legally taken by a judgment creditor to levy
upon assets or properties of TUC or any Subsidiary to
enforce any such judgment or order;
(l) an ERISA Event or ERISA Events shall have occurred
that reasonably could be expected to result in a Material
Adverse Change;
then, and in every such event, and at any time thereafter during
the continuance of such event, the Administrative Agent, at the
request of the Required Lenders, shall, by notice to the
Borrowers, take either or both of the following actions, at the
same or different times: (i) terminate forthwith the right of
any or all of the Borrowers to borrow pursuant to the Commitments
and (ii) declare the Loans of any or all of the Borrowers then
outstanding to be forthwith due and payable in whole or in part,
whereupon the principal of the Loans so declared to be due and
payable, together with accrued interest thereon and any unpaid
accrued Fees and all other liabilities of such Borrower accrued
hereunder, shall become forthwith due and payable, without
presentment, demand, protest or any other notice of any kind, all
<PAGE>
57
of which are hereby expressly waived, anything contained herein
to the contrary notwithstanding; provided that in the case of any
event described in paragraph (h) or (i) above with respect to any
Borrower, the Commitments of the Lenders with respect to such
Borrower shall automatically terminate and the principal of the
Loans then outstanding of the Borrower with respect to which such
event has occurred, together with accrued interest thereon and
any unpaid accrued Fees and all other liabilities of such
Borrower accrued hereunder shall automatically become due and
payable, without presentment, demand, protest or any other notice
of any kind, all of which are hereby expressly waived by such
Borrower, anything contained herein to the contrary
notwithstanding; and provided further, that the remedies
described in clauses (i) and (ii) above may be exercised with
respect to the Offer Loans and the Offer Loan Commitments during
the Certain Funds Period only if an Event of Default that is also
a Major Default shall have occurred and be continuing.
ARTICLE VII
THE AGENTS
In order to expedite the transactions contemplated by this
Agreement, Chase Bank of Texas, National Association is hereby
appointed to act as Administrative Agent and Chase is hereby
appointed to act as CAF Agent, on behalf of the Lenders. Each of
the Lenders hereby irrevocably authorizes the Agents to take such
actions on behalf of such Lender or holder and to exercise such
powers as are specifically delegated to the Agents by the terms
and provisions hereof, together with such actions and powers as
are reasonably incidental thereto. The Administrative Agent is
hereby expressly authorized by the Lenders and the CAF Agent,
without hereby limiting any implied authority, (a) to receive on
behalf of the Lenders and the CAF Agent all payments of principal
of and interest on the Loans and all other amounts due to the
Lenders and the CAF Agent hereunder, and promptly to distribute
to each Lender and the CAF Agent its proper share of each payment
so received; (b) to give notice on behalf of each of the Lenders
to the Borrowers of any Event of Default of which the
Administrative Agent has actual knowledge acquired in connection
with its agency hereunder; and (c) to distribute to each Lender
copies of all notices, financial statements and other materials
delivered by the Borrowers pursuant to this Agreement as received
by the Administrative Agent.
No Agent or any of its directors, officers, employees or
agents shall be liable as such for any action taken or omitted by
any of them except for its or his or her own gross negligence or
willful misconduct, or be responsible for any statement, warranty
or representation herein or the contents of any document
delivered in connection herewith, or be required to ascertain or
to make any inquiry concerning the performance or observance by
the Borrowers of any of the terms, conditions, covenants or
agreements contained in this Agreement. The Agents shall not be
responsible to the Lenders for the due execution, genuineness,
validity, enforceability or effectiveness of this Agreement or
other instruments or agreements. The Agents may deem and treat
the Lender which makes any Loan as the holder of the indebtedness
resulting therefrom for all purposes hereof until it shall have
received notice from such Lender, given as provided herein, of
the transfer thereof. The Agents shall in all cases be fully
protected in acting, or refraining from acting, in accordance
with written instructions signed by the Required Lenders and,
except as otherwise specifically provided herein, such
instructions and any action or inaction pursuant thereto shall be
binding on all the Lenders. Each of the Agents shall, in the
absence of knowledge to the contrary, be entitled to rely on any
instrument or document believed by it in good faith to be genuine
and correct and to have been signed or sent by the proper person
or persons. No Agent or any of its directors, officers,
employees or agents shall have any responsibility to the
<PAGE>
58
Borrowers on account of the failure of or delay in performance or
breach by the other Agent or any Lender of any of its obligations
hereunder or to the other Agent or any Lender on account of the
failure of or delay in performance or breach by any other Lender,
the other Agent or any Borrower of any of their respective
obligations hereunder or in connection herewith. Each of the
Agents may execute any and all duties hereunder by or through
agents or employees and shall be entitled to rely upon the advice
of legal counsel selected by it with respect to all matters
arising hereunder and shall not be liable for any action taken or
suffered in good faith by it in accordance with the advice of
such counsel.
The Lenders hereby acknowledge that the Agents shall be
under no duty to take any discretionary action permitted to be
taken by it pursuant to the provisions of this Agreement unless
it shall be requested in writing to do so by the Required
Lenders.
Subject to the appointment and acceptance of a successor
Agent as provided below, either Agent may resign at any time by
notifying the Lenders and the Borrowers. Upon any such
resignation, the Required Lenders shall have the right to appoint
a successor Agent acceptable to the Borrowers. If no successor
shall have been so appointed by the Required Lenders and shall
have accepted such appointment within 30 days after the retiring
Agent gives notice of its resignation, then the retiring Agent
may, on behalf of the Lenders, appoint a successor Agent, having
a combined capital and surplus of at least $500,000,000 or an
Affiliate of any such bank. Upon the acceptance of any
appointment as Agent hereunder by a successor bank, such
successor shall succeed to and become vested with all the rights,
powers, privileges and duties of the retiring Agent and the
retiring Agent shall be discharged from its duties and
obligations hereunder. After any Agent's resignation hereunder,
the provisions of this Article and Section 8.05 shall continue in
effect for its benefit in respect of any actions taken or omitted
to be taken by it while it was acting as Agent.
With respect to the Loans made by it hereunder, each of the
Agents, in its individual capacity and not as an Agent shall have
the same rights and powers as any other Lender and may exercise
the same as though it were not an Agent, and each of the Agents
and their Affiliates may accept deposits from, lend money to and
generally engage in any kind of business with the Borrowers or
any Subsidiary or other Affiliate thereof as if it were not an
Agent.
Each Lender agrees (i) to reimburse the Agents, on demand,
in the amount of its pro rata share (based on its Commitment
hereunder or, if the Commitments shall have been terminated, the
amount of its outstanding Loans) of any expenses incurred for the
benefit of the Lenders in its role as Agent, including counsel
fees and compensation of agents and employees paid for services
rendered on behalf of the Lenders, which shall not have been
reimbursed by the Borrowers and (ii) to indemnify and hold
harmless each of the Agents and any of its directors, officers,
employees or agents, on demand, in the amount of such pro rata
share, from and against any and all liabilities, taxes,
obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted
against it in any way relating to or arising out of this
Agreement or any action taken or omitted by it under this
<PAGE>
59
Agreement to the extent the same shall not have been reimbursed
by the Borrowers; provided that no Lender shall be liable to any
Agent for any portion of such liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the gross negligence or willful
misconduct of such Agent or any of its directors, officers,
employees or agents. Each Lender agrees that any allocation made
in good faith by the Agents of expenses or other amounts referred
to in this paragraph between this Agreement and the Facility B
Credit Agreement shall be conclusive and binding for all
purposes.
Each Lender acknowledges that it has, independently and
without reliance upon the Agents or any other Lender and based on
such documents and information as it has deemed appropriate, made
its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will,
independently and without reliance upon the Agents or any other
Lender and based on such documents and information as it shall
from time to time deem appropriate, continue to make its own
decisions in taking or not taking action under or based upon this
Agreement or any related agreement or any document furnished
hereunder or thereunder.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. NOTICES. Notices and other communications
provided for herein shall be in writing and shall be delivered by
hand or overnight courier service, mailed or sent by telecopy, as
follows:
(a) if to any Borrower, to Texas Utilities Company,
Energy Plaza, 1601 Bryan Street, 33rd Floor, Dallas, TX
75201, Attention of Laura Anderson, Manager of Corporate
Finance and Compliance (Telecopy No. 214-812-2488);
(b) if to the CAF Agent, to The Chase Manhattan Bank,
Loan and Agency Services Group, One Chase Manhattan Plaza,
8th Floor, New York, New York 10081, Attention of Chris
Consomer (Telecopy No. 212-552-5627, with a copy to The
Chase Manhattan Bank at 270 Park Avenue, New York, New York
10017, Attention of Jaimin Patel (Telecopy No. 212-270-
1354);
(c) if to the Administrative Agent, to Chase Bank of
Texas, National Association, 2200 Ross Avenue 3rd Floor,
Dallas TX 75201, Attention of Allen King (Telecopy No. 214-
965-2990); and
(d) if to a Lender, to it at its address (or telecopy
number) set forth in the Administrative Questionnaire
delivered to the Administrative Agent by such Lender in
connection with the execution of this Agreement or
previously or in the Assignment and Acceptance pursuant to
which such Lender became a party hereto.
<PAGE>
60
All notices and other communications given to any party hereto in
accordance with the provisions of this Agreement shall be deemed
to have been given on the date of receipt if delivered by hand or
overnight courier service or sent by telecopy to such party as
provided in this Section or in accordance with the latest
unrevoked direction from such party given in accordance with this
Section.
SECTION 8.02. SURVIVAL OF AGREEMENT. All covenants,
agreements, representations and warranties made by the Borrowers
herein and in the certificates or other instruments prepared or
delivered in connection with or pursuant to this Agreement shall
be considered to have been relied upon by the Lenders and shall
survive the making by the Lenders of the Loans regardless of any
investigation made by the Lenders or on their behalf, and shall
continue in full force and effect as long as the principal of or
any accrued interest on any Loan or any Fee or any other amount
payable under this Agreement is outstanding and unpaid or the
Commitments have not been terminated.
SECTION 8.03. BINDING EFFECT. This Agreement shall become
effective when it shall have been executed by the Borrowers and
each Agent and when the Administrative Agent shall have received
copies hereof (telecopied or otherwise) which, when taken
together, bear the signature of each Lender, and thereafter shall
be binding upon and inure to the benefit of the parties hereto
and their respective successors and assigns, except that the
Borrowers shall not have the right to assign any rights hereunder
or any interest herein without the prior consent of all the
Lenders.
SECTION 8.04. SUCCESSORS AND ASSIGNS. (a) Whenever in
this Agreement any of the parties hereto is referred to, such
reference shall be deemed to include the successors and assigns
of such party; and all covenants, promises and agreements by or
on behalf of any party that are contained in this Agreement shall
bind and inure to the benefit of its successors and assigns.
(b) Each Lender may assign to one or more assignees all or
a portion of its interests, rights and obligations under this
Agreement (including all or a portion of its Commitment and the
Loans at the time owing to it); provided, however, that
(i) except in the case of an assignment to a Lender or an
Affiliate of such Lender, an assignment to a Federal Reserve Bank
or an assignment made at any time an Event of Default shall have
occurred and be continuing, the Borrowers and the Agents must
give their prior written consent to such assignment (which
consent shall not be unreasonably withheld), (ii) the amount of
the Commitment of the assigning Lender subject to each such
assignment (determined as of the date the Assignment and
Acceptance with respect to such assignment is delivered to the
Administrative Agent) shall not be less than $15,000,000 or, if
the amount of the Commitment of the assigning Lender is less than
$15,000,000, the aggregate amount of such Lender's Commitment,
(iii) each such assignment shall be of a constant, and not a
varying, percentage of all the assigning Lender's rights and
obligations under this Agreement, (iv) the parties to each such
assignment shall execute and deliver to the Administrative Agent
an Assignment and Acceptance, and a processing and recordation
fee of $3,000 (provided that, in the case of simultaneous
assignment of interests under one or more of this Agreement and
<PAGE>
61
the Facility B Credit Agreement, the aggregate fee shall be
$3,000), and (v) the assignee, if it shall not be a Lender, shall
deliver to the Administrative Agent an Administrative
Questionnaire. Upon acceptance and recording pursuant to Section
8.04(e), from and after the effective date specified in each
Assignment and Acceptance, which effective date shall be at least
five Business Days after the execution thereof unless otherwise
agreed by the Administrative Agent (the Borrowers to be given
reasonable notice of any shorter period), (A) the assignee
thereunder shall be a party hereto and, to the extent of the
interest assigned by such Assignment and Acceptance, have the
rights and obligations of a Lender under this Agreement and (B)
the assigning Lender thereunder shall, to the extent of the
interest assigned by such Assignment and Acceptance, be released
from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion
of an assigning Lender's rights and obligations under this
Agreement, such Lender shall cease to be a party hereto (but
shall continue to be entitled to the benefits of Sections 2.12,
2.17 and 8.05 afforded to such Lender prior to its assignment as
well as to any Fees accrued for its account hereunder and not yet
paid)). Notwithstanding the foregoing, any Lender assigning its
rights and obligations under this Agreement may retain any
Competitive Loans made by it outstanding at such time, and in
such case shall retain its rights hereunder in respect of any
Loans so retained until such Loans have been repaid in full in
accordance with this Agreement.
(c) By executing and delivering an Assignment and
Acceptance, the assigning Lender thereunder and the assignee
thereunder shall be deemed to confirm to and agree with each
other and the other parties hereto as follows: (i) such
assigning Lender warrants that it is the legal and beneficial
owner of the interest being assigned thereby free and clear of
any adverse claim, (ii) except as set forth in (i) above, such
assigning Lender makes no representation or warranty and assumes
no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement, or
the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement or any other instrument or
document furnished pursuant hereto or the financial condition of
the Borrowers or the performance or observance by the Borrowers
of any obligations under this Agreement or any other instrument
or document furnished pursuant hereto; (iii) such assignor and
such assignee represents and warrants that it is legally
authorized to enter into such Assignment and Acceptance; (iv)
such assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial
statements delivered pursuant to Section 5.03 and such other
documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into such
Assignment and Acceptance; (v) such assignee will independently
and without reliance upon the Agents, such assigning Lender or
any other Lender and based on such documents and information as
it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this
Agreement; (vi) such assignee appoints and authorizes each Agent
to take such action as agent on its behalf and to exercise such
powers under this Agreement as are delegated to such Agent by the
terms hereof, together with such powers as are reasonably
incidental thereto; and (vii) such assignee agrees that it will
perform in accordance with their terms all the obligations which
by the terms of this Agreement are required to be performed by it
as a Lender.
<PAGE>
62
(d) The Administrative Agent shall maintain at one of its
offices in the City of Houston a copy of each Assignment and
Acceptance delivered to it and a register for the recordation of
the names and addresses of the Lenders, and the Commitment of,
and the principal amount of the Loans owing to, each Lender
pursuant to the terms hereof from time to time (the "REGISTER").
The entries in the Register shall be conclusive in the absence of
manifest error and the Borrowers, the Agents and the Lenders may
treat each person whose name is recorded in the Register pursuant
to the terms hereof as a Lender hereunder for all purposes of
this Agreement. The Register shall be available for inspection
by each party hereto, at any reasonable time and from time to
time upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and
Acceptance executed by an assigning Lender and an assignee
together with an Administrative Questionnaire completed in
respect of the assignee (unless the assignee shall already be a
Lender hereunder), the processing and recordation fee referred to
in paragraph (b) above and, if required, the written consent of
the Borrowers and the Agents to such assignment, the
Administrative Agent shall (i) accept such Assignment and
Acceptance and (ii) record the information contained therein in
the Register.
(f) Each Lender may without the consent of the Borrowers or
the Agents sell participations to one or more banks or other
entities in all or a portion of its rights and obligations under
this Agreement (including all or a portion of its Commitment and
the Loans owing to it); provided, however, that (i) such Lender's
obligations under this Agreement shall remain unchanged, (ii)
such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) each
participating bank or other entity shall be entitled to the
benefit of the cost protection provisions contained in Sections
2.12, 2.17 and 8.05 to the same extent as if it were the selling
Lender (and limited to the amount that could have been claimed by
the selling Lender had it continued to hold the interest of such
participating bank or other entity), except that all claims made
pursuant to such Sections shall be made through such selling
Lender, and (iv) the Borrowers, the Agents and the other Lenders
shall continue to deal solely and directly with such selling
Lender in connection with such Lender's rights and obligations
under this Agreement, and such Lender shall retain the sole right
to enforce the obligations of the Borrowers under this Agreement
and to approve any amendment, modification or waiver of any
provision of this Agreement (other than amendments, modifications
or waivers (x) decreasing any fees payable hereunder or the
amount of principal of, or the rate at which interest is payable
on, the Loans, (y) extending any scheduled principal payment date
or date fixed for the payment of interest on the Loans or (z)
extending the Commitments).
(g) Any Lender or participant may, in connection with any
assignment or participation or proposed assignment or
participation pursuant to this Section, disclose to the assignee
or participant or proposed assignee or participant any
information relating to the Borrowers furnished to such Lender by
or on behalf of the Borrowers; provided that, prior to any such
disclosure, each such assignee or participant or proposed
assignee or participant shall execute an agreement whereby such
assignee or participant shall agree (subject to customary
exceptions) to preserve the confidentiality of any such
information.
<PAGE>
63
(h) The Borrowers shall not assign or delegate any rights
and duties hereunder without the prior written consent of all
Lenders, and any attempted assignment or delegation (except as a
consequence of a transaction expressly permitted under Section
5.09) by a Borrower without such consent shall be void.
(i) Any Lender may at any time pledge all or any portion of
its rights under this Agreement to a Federal Reserve Bank;
provided that no such pledge shall release any Lender from its
obligations hereunder or substitute any such Bank for such Lender
as a party hereto. In order to facilitate such an assignment to
a Federal Reserve Bank, each Borrower shall, at the request of
the assigning Lender, duly execute and deliver to the assigning
Lender a promissory note or notes evidencing the Loans made to
such Borrower by the assigning Lender hereunder.
SECTION 8.05. EXPENSES; INDEMNITY. (a) The Borrowers
agree to pay all reasonable out-of-pocket expenses incurred by
the Agents in connection with entering into this Agreement or in
connection with any amendments, modifications or waivers of the
provisions hereof (but only if such amendments, modifications or
waivers are requested by a Borrower) (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 Agreement or in connection
with the Loans made hereunder, including the reasonable fees and
disbursements of counsel for the Agents or, in the case of
enforcement following an Event of Default, the Lenders.
(b) The Borrowers agree to indemnify each Lender against
any loss, calculated in accordance with the next sentence, or
reasonable expense which such Lender may sustain or incur as a
consequence of (a) any failure by such Borrower to borrow or to
refinance, convert or continue any Loan hereunder (including as a
result of such Borrower's failure to fulfill any of the
applicable conditions set forth in Article IV) after irrevocable
notice of such borrowing, refinancing, conversion or continuation
has been given pursuant to Section 2.03 or 2.04, (b) any payment,
prepayment or conversion, or assignment of a Eurodollar Loan or
Fixed Rate Loan of such Borrower required by any other provision
of this Agreement or otherwise made or deemed made on a date
other than the last day of the Interest Period, if any,
applicable thereto, (c) any default in payment or prepayment of
the principal amount of any Loan or any part thereof or interest
accrued thereon, as and when due and payable (at the due date
thereof, whether by scheduled maturity, acceleration, irrevocable
notice of prepayment or otherwise) or (d) the occurrence of any
Event of Default, including, in each such case, any loss or
reasonable expense sustained or incurred or to be sustained or
incurred by such Lender in liquidating or employing deposits from
third parties, or with respect to commitments made or obligations
undertaken with third parties, to effect or maintain any Loan
hereunder or any part thereof as a Eurodollar Loan or a Fixed
Rate Loan. Such loss shall include an amount equal to the
excess, if any, as reasonably determined by such Lender, of (i)
its cost of obtaining the funds for the Loan being paid, prepaid,
refinanced, converted or not borrowed (assumed to be the LIBO
Rate or, in the case of a Fixed Rate Loan, the fixed rate of
interest applicable thereto) for the period from the date of such
payment, prepayment, refinancing or failure to borrow or
refinance to the last day of the Interest Period for such Loan
(or, in the case of a failure to borrow or refinance the Interest
<PAGE>
64
Period for such Loan which would have commenced on the date of
such failure) over (ii) the amount of interest (as reasonably
determined by such Lender) that would be realized by such Lender
in reemploying the funds so paid, prepaid or not borrowed or
refinanced for such period or Interest Period, as the case may
be.
(c) THE BORROWERS AGREE TO INDEMNIFY THE AGENTS, EACH
LENDER, EACH OF THEIR AFFILIATES AND THE DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS OF THE FOREGOING (EACH SUCH PERSON BEING
CALLED AN "INDEMNITEE") AGAINST, AND TO HOLD EACH INDEMNITEE
HARMLESS FROM, ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES
AND RELATED EXPENSES, INCLUDING REASONABLE COUNSEL FEES AND
EXPENSES, INCURRED BY OR ASSERTED AGAINST ANY INDEMNITEE ARISING
OUT OF (I) THE CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED BY
THIS AGREEMENT, INCLUDING THE ACQUISITION, (I) THE USE OF THE
PROCEEDS OF THE LOANS OR (II) ANY CLAIM, LITIGATION,
INVESTIGATION OR PROCEEDING RELATING TO ANY OF THE FOREGOING,
WHETHER OR NOT ANY INDEMNITEE IS A PARTY THERETO, INCLUDING ANY
OF THE FOREGOING ARISING FROM THE NEGLIGENCE, WHETHER SOLE OR
CONCURRENT, ON THE PART OF ANY INDEMNITEE; PROVIDED THAT SUCH
INDEMNITY SHALL NOT, AS TO ANY INDEMNITEE, BE AVAILABLE TO THE
EXTENT THAT SUCH LOSSES, CLAIMS, DAMAGES, LIABILITIES OR RELATED
EXPENSES (I) ARE DETERMINED BY A FINAL JUDGMENT OF A COURT OF
COMPETENT JURISDICTION TO HAVE RESULTED FROM THE GROSS NEGLIGENCE
OR WILLFUL MISCONDUCT OF SUCH INDEMNITEE OR (II) RESULT FROM ANY
LITIGATION BROUGHT BY SUCH INDEMNITEE AGAINST THE BORROWERS OR BY
ANY BORROWER AGAINST SUCH INDEMNITEE, IN WHICH A FINAL,
NONAPPEALABLE JUDGMENT HAS BEEN RENDERED AGAINST SUCH INDEMNITEE;
PROVIDED, FURTHER, THAT EACH BORROWER AGREES THAT IT WILL NOT,
NOR WILL IT PERMIT ANY SUBSIDIARY TO, WITHOUT THE PRIOR WRITTEN
CONSENT OF EACH INDEMNITEE, SETTLE, COMPROMISE OR CONSENT TO THE
ENTRY OF ANY JUDGMENT IN ANY PENDING OR THREATENED CLAIM, ACTION,
SUIT OR PROCEEDING IN RESPECT OF WHICH INDEMNIFICATION COULD BE
SOUGHT UNDER THE INDEMNIFICATION PROVISIONS OF THIS SECTION
8.05(C) (WHETHER OR NOT ANY INDEMNITEE IS AN ACTUAL OR POTENTIAL
PARTY TO SUCH CLAIM, ACTION, SUIT OR PROCEEDING), UNLESS SUCH
SETTLEMENT, COMPROMISE OR CONSENT DOES NOT INCLUDE ANY STATEMENT
AS TO AN ADMISSION OF FAULT, CULPABILITY OR FAILURE TO ACT BY OR
ON BEHALF OF ANY INDEMNITEE AND DOES NOT INVOLVE ANY PAYMENT OF
MONEY OR OTHER VALUE BY ANY INDEMNITEE OR ANY INJUNCTIVE RELIEF
OR FACTUAL FINDINGS OR STIPULATIONS BINDING ON ANY INDEMNITEE.
(d) The provisions of this Section shall remain operative
and in full force and effect regardless of the expiration of the
term of this Agreement, the consummation of the transactions
contemplated hereby, the repayment of any of the Loans, the
invalidity or unenforceability of any term or provision of this
Agreement or any investigation made by or on behalf of any Agent
or any Lender. All amounts due under this Section shall be
payable on written demand therefor.
(e) A certificate of any Lender or Agent setting forth any
amount or amounts which such Lender or Agent is entitled to
receive pursuant to paragraph (b) of this Section and containing
an explanation in reasonable detail of the manner in which such
amount or amounts shall have been determined shall be delivered
to the appropriate Borrower and shall be conclusive absent
manifest error.
<PAGE>
65
SECTION 8.06. RIGHT OF SETOFF. If an Event of Default
shall have occurred and be continuing, each Lender is hereby
authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all
deposits (general or special, time or demand, provisional or
final) at any time held and other indebtedness at any time owing
by such Lender to or for the credit or the account of the
relevant Borrower against any of and all the obligations of such
Borrower now or hereafter existing under this Agreement held by
such Lender, irrespective of whether or not such Lender shall
have made any demand under this Agreement and although such
obligations may be unmatured. The rights of each Lender under
this Section are in addition to other rights and remedies
(including other rights of setoff) which such Lender may have.
SECTION 8.07. APPLICABLE LAW. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF NEW YORK.
SECTION 8.08. WAIVERS; AMENDMENT. (a) No failure or delay
of either Agent or any Lender in exercising any power or right
hereunder shall operate as a waiver thereof, nor shall any single
or partial exercise of any such right or power, or any
abandonment or discontinuance of steps to enforce such a right or
power, preclude any other or further exercise thereof or the
exercise of any other right or power. The rights and remedies of
the Agents and the Lenders hereunder are cumulative and are not
exclusive of any rights or remedies which they would otherwise
have. No waiver of any provision of this Agreement or consent to
any departure therefrom shall in any event be effective unless
the same shall be permitted by paragraph (b) below, and then such
waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice or
demand on any Borrower or any Subsidiary in any case shall
entitle such party to any other or further notice or demand in
similar or other circumstances.
(b) Neither this Agreement nor any provision hereof may be
waived, amended or modified except pursuant to an agreement or
agreements in writing entered into by the Borrowers and the
Required Lenders; provided, however, that no such agreement shall
(i) decrease the principal amount of, or extend the maturity of
or any scheduled principal payment date or date for the payment
of any interest on any Loan, or waive or excuse any such payment
or any part thereof, or decrease the rate of interest on any
Loan, without the prior written consent of each Lender affected
thereby, (ii) increase any Commitment or decrease the Facility
Fee of any Lender without the prior written consent of such
Lender, or (iii) amend or modify the provisions of Section 2.14
or Section 8.04(h), the provisions of this Section or the
definition of the "Required Lenders", without the prior written
consent of each Lender; provided further, however, that no such
agreement shall amend, modify or otherwise affect the rights or
duties of the Administrative Agent or the CAF Agent hereunder
without the prior written consent of the Administrative Agent or
the CAF Agent, as the case may be. Each Lender shall be bound by
any waiver, amendment or modification authorized by this Section
and any consent by any Lender pursuant to this Section shall bind
any assignee of its rights and interests hereunder.
<PAGE>
66
SECTION 8.09. ENTIRE AGREEMENT. THIS AGREEMENT (INCLUDING
THE SCHEDULES AND EXHIBITS HERETO) AND THE LETTER AGREEMENT
CONSTITUTE A "LOAN AGREEMENT" AS DEFINED IN SECTION 26.02(A) OF
THE TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENT THE ENTIRE
CONTRACT AMONG THE PARTIES RELATIVE TO THE SUBJECT MATTER HEREOF
AND THEREOF. ANY PREVIOUS AGREEMENT, WHETHER WRITTEN OR ORAL,
AMONG THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF,
INCLUDING, WITHOUT LIMITATION, THE ORIGINAL AGREEMENT, IS
SUPERSEDED BY THIS AGREEMENT AND THE LETTER AGREEMENT. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NOTHING IN
THIS AGREEMENT, EXPRESSED OR IMPLIED, IS INTENDED TO CONFER UPON
ANY PARTY OTHER THAN THE PARTIES HERETO ANY RIGHTS, REMEDIES,
OBLIGATIONS OR LIABILITIES UNDER OR BY REASON OF THIS AGREEMENT.
SECTION 8.10. SEVERABILITY. In the event any one or more
of the provisions contained in this Agreement should be held
invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. The
parties shall endeavor in good-faith negotiations to replace the
invalid, illegal or unenforceable provisions with valid
provisions the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable
provisions.
SECTION 8.11. COUNTERPARTS. This Agreement may be executed
in two or more counterparts, each of which shall constitute an
original but all of which when taken together shall constitute
but one contract, and shall become effective as provided in
Section 8.03.
SECTION 8.12. HEADINGS. Article and Section headings and
the Table of Contents used herein are for convenience of
reference only, are not part of this Agreement and are not to
affect the construction of, or to be taken into consideration in
interpreting, this Agreement.
SECTION 8.13. INTEREST RATE LIMITATION. (a)
Notwithstanding anything herein to the contrary, if at any time
the applicable interest rate, together with all fees and charges
which are treated as interest under applicable law (collectively
the "CHARGES"), as provided for herein or in any other document
executed in connection herewith, or otherwise contracted for,
charged, received, taken or reserved by any Lender, shall exceed
the maximum lawful rate (the "MAXIMUM RATE") which may be
contracted for, charged, taken, received or reserved by such
Lender in accordance with applicable law, the rate of interest
payable on the Loans of such Lender, together with all Charges
payable to such Lender, shall be limited to the Maximum Rate.
(b) If the amount of interest, together with all Charges,
payable for the account of any Lender in respect of any interest
computation period is reduced pursuant to paragraph (a) of this
Section and the amount of interest, together with all Charges,
payable for such Lender's account in respect of any subsequent
interest computation period, computed pursuant to Section 2.07,
would be less than the Maximum Rate, then the amount of interest,
<PAGE>
67
together with all Charges, payable for such Lender's account in
respect of such subsequent interest computation period shall, to
the extent permitted by applicable law, be automatically
increased to such Maximum Rate; provided that at no time shall
the aggregate amount by which interest paid for the account of
any Lender has been increased pursuant to this paragraph (b)
exceed the aggregate amount by which interest, together with all
Charges, paid for its account has theretofore been reduced
pursuant to paragraph (a) of this Section.
SECTION 8.14. JURISDICTION; VENUE. (a) Each Borrower
hereby irrevocably and unconditionally submits, for itself and
its property, to the nonexclusive jurisdiction of any New York
State court or Federal court of the United States of America
sitting in New York City, and any appellate court from any
thereof, in any action or proceeding arising out of or relating
to this Agreement, or for recognition or enforcement of any
judgment, and each of the parties hereto hereby irrevocably and
unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York
State or, to the extent permitted by law, in such Federal court.
Each of the parties hereto agrees that a final judgment in any
such action or proceeding shall be conclusive and may be enforced
in other jurisdictions by suit on the judgment or in any other
manner provided by law. Subject to the foregoing and to
paragraph (b) below, nothing in this Agreement shall affect any
right that any party hereto may otherwise have to bring any
action or proceeding relating to this Agreement against any other
party hereto in the courts of any jurisdiction.
(b) Each Borrower hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or thereafter have to the
laying of venue of any suit, action or proceeding arising out of
or relating to this Agreement in any New York State or Federal
court. Each of the parties hereto hereby irrevocably waives, to
the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or
proceeding in any such court.
SECTION 8.15. CONFIDENTIALITY. Each Lender shall use its
best efforts to hold in confidence all information, memoranda, or
extracts furnished to such Lender (directly or through the
Agents) by the Borrowers hereunder or in connection with the
negotiation hereof; provided that such Lender may disclose any
such information, memoranda or extracts (i) to its Affiliates,
accountants or counsel, (ii) to any regulatory agency having
authority to examine such Lender, (iii) as required by any legal
or governmental process or otherwise by law, (iv) except as
provided in the last sentence of Section5.03, to any person to
which such Lender sells or proposes to sell an assignment or a
participation in its Loans hereunder, if such other person agrees
for the benefit of the Borrowers to comply with the provisions of
this Section and (v) to the extent that such information,
memoranda or extracts shall be publicly available or shall have
become known to such Lender independently of any disclosure by
any Borrower hereunder or in connection with the negotiation
hereof. Notwithstanding the foregoing, any Lender may disclose
the provisions of this Agreement and the amounts, maturities and
interest rates of its Loans to any purchaser or potential
purchaser of such Lender's interest in any Loan.
<PAGE>
68
[Signature pages follow]
<PAGE>
S-1
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
TEXAS UTILITIES COMPANY
By /s/ Kirk R. Oliver
--------------------------------
Name: Kirk R. Oliver
Title: Treasurer
TEXAS UTILITIES ELECTRIC COMPANY
By /s/ Kirk R. Oliver
--------------------------------
Name: Kirk R. Oliver
Title: Treasurer
ENSERCH CORPORATION
By /s/ Kirk R. Oliver
--------------------------------
Name: Kirk R. Oliver
Title: Treasurer
<PAGE>
S-2
CHASE BANK OF TEXAS, NATIONAL
ASSOCIATION,
as Administrative Agent
By /s/ Allen K. King
---------------------------------
Name: Allen K. King
Title: Vice President
<PAGE>
S-3
THE CHASE MANHATTAN BANK,
individually and as Competitive
Advance Facility Agent
By /s/ Thomas H. Kozlark
--------------------------------------
Name: Thomas H. Kozlark
Title: Vice President
<PAGE>
S-4
Lenders
-------
ABN AMRO BANK N.V.
By /s/ Kevin S. McFadden
----------------------------
Name: Kevin S. McFadden
Title: Vice President
By /s/ Mark R. Lasek
------------------------------
Name: Mark R. Lasek
Title: Group Vice President
<PAGE>
S-5
ARAB BANKING CORPORATION (B.S.C.)
By /s/ Stephen A. Plauche'
-----------------------------
Name: Stephen A. Plauche'
Title: Vice President
<PAGE>
S-6
[INTENTIONALLY OMITTED]
<PAGE>
S-7
THE BANK OF NOVA SCOTIA
By /s/ F.C.H. Ashby
------------------------------
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
<PAGE>
S-8
THE BANK OF TOKYO-MITSUBISHI, LTD.
By /s/ John M. Mearns
-----------------------------
Name: J. Mearns
Title: VP & Manager
<PAGE>
S-9
[INTENTIONALLY OMITTED]
<PAGE>
S-10
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION
By /s/ Curtis L. Anderson
-----------------------------
Name: Curtis L. Anderson
Title: Senior Vice President
<PAGE>
S-11
BANQUE NATIONALE DE PARIS
By /s/ David C. Schad
------------------------------
Name: David C. Schad
Title: Executive Vice President
<PAGE>
S-12
BARCLAYS BANK PLC
By /s/ Sydney O. Dennis
-----------------------------
Name: Sydney O. Dennis
Title: Director
<PAGE>
S-13
BAYERISCHE LANDESBANK GIROZENTRALE
(CAYMAN ISLANDS BRANCH)
By /s/ Peter Obermann
------------------------------
Name: Peter Obermann
Title: Senior Vice President
By /s/ James H. Boyle
-------------------------------
Name: James H. Boyle
Title: Second Vice President
<PAGE>
S-14
CHANG HWA COMMERCIAL BANK, LTD., NEW YORK BRANCH
By /s/ Wan-Tu Yeh
--------------
Name: Wan-Tu Yeh
Title: VP & General Manager
<PAGE>
S-15
CANADIAN IMPERIAL BANK OF COMMERCE
By /s/ Denis O'Meara
------------------------------
Name: Denis O'Meara
Title: Executive Director
CIBC Oppenheimer Corp., AS AGENT
<PAGE>
S-16
CITIBANK, N.A.
By /s/ Robert J. Harrity, Jr.
-------------------------------
Name: Robert J. Harrity, Jr.
Title: Managing Director
<PAGE>
S-17
COMMERZBANK AG, ATLANTA AGENCY
By /s/ Harry P. Yergey
------------------------------
Name: Harry P. Yergey
Title: SVP & Manager
By /s/ Subash R. Viswanathan
-------------------------
Name: Subash R. Viswanathan
Title: Vice President
<PAGE>
S-18
CREDIT AGRICOLE INDOSUEZ
By /s/ Rene LeBlanc
-------------------------------
Name: Rene LeBlanc
Title: Vice President
By /s/ Sarah McClintock
-----------------------------
Name: Sarah McClintock
Title: Vice President
<PAGE>
S-19
CREDIT LYONNAIS NEW YORK BRANCH
By /s/ Robert Ivosevich
-------------------------------
Name: Robert Ivosevich
Title: Senior Vice President
<PAGE>
S-20
CREDIT SUISSE FIRST BOSTON
By /s/ Robert N. Finney
------------------------------
Name: Robert N. Finney
Title: Managing Director
By /s/ Andrea E. Shkane
-----------------------------
Name: Andrea E. Shkane
Title: Vice President
<PAGE>
S-21
DAI ICHI KANGYO BANK LTD.
By /s/ Azlan S. Ahmad
-----------------------------
Name: Azlan S. Ahmad
Title: Account Officer
<PAGE>
S-22
DEN DANSKE BANK AKTIESELSKAB
By /s/ John A. O'Neill
-------------------------------
Name: John A. O'Neill
Title: Vice President
By /s/ Peter L. Hargraves
------------------------------
Name: Peter L. Hargraves
Title: Vice President
<PAGE>
S-23
DEUTSCHE BANK AG, NEW YORK AND/OR CAYMAN ISLANDS BRANCH
By /s/ Lydia Zaininger
-------------------------------
Name: Lydia Zaininger
Title: Vice President
By /s/ Christopher S. Lane
------------------------------
Name: Christopher S. Lane
Title: Associate
<PAGE>
S-24
DG BANK
DEUTSCHE GENOSSENSCHAFTSBANK AG
By /s/ Norah McCann
-----------------------------
Name: Norah McCann
Title: SVP
By /s/ Karen A. Brinkman
----------------------------
Name: Karen A. Brinkman
Title: VP
<PAGE>
S-25
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Madeleine N. Pember
---------------------------
Name: Madeleine N. Pember
Title: Assistant Vice President
<PAGE>
S-26
FIRST UNION NATIONAL BANK (CHARLOTTE)
By /s/ Joe K. Dancy
-------------------------------
Name: Joe K. Dancy
Title: Vice President
<PAGE>
S-27
GUARANTY FEDERAL BANK, FSB
By /s/ Jim R. Hamilton
------------------------------
Name: Jim R. Hamilton
Title: Vice President
<PAGE>
S-28
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By /s/ Takuya Honjo
------------------------------
Name: Takuya Honjo
Title: Senior Vice President
<PAGE>
S-29
KBC BANK N.V.
By /s/ Katherine S. McCarthy
----------------------------
Name: Katherine S. McCarthy
Title: Vice President
By /s/ Robert Snauffer
--------------------------------
Name: Robert Snauffer
Title: First Vice President
<PAGE>
S-30
LEHMAN COMMERCIAL PAPER INC.
By /s/ Michele Swanson
-----------------------------
Name: Michele Swanson
Title: Authorized Signatory
<PAGE>
S-31
LLOYDS BANK PLC
By /s/ Windsor R. Davies
----------------------------
Name: Windsor R. Davies
Title: Director, Corporate Banking, USA
By /s/ David C. Rodway
----------------------------
Name: David C. Rodway
Title: Assistant Vice President
<PAGE>
S-32
MELLON BANK
By /s/ Roger E. Howard
-----------------------------
Name: Roger E. Howard
Title: Vice President
<PAGE>
S-33
MERRILL LYNCH CAPITAL CORPORATION
By /s/ Stephen B. Paras
-------------------------------
Name: Stephen B. Paras
Title: Director Global Loan Syndications
<PAGE>
S-34
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By /s/ Yasushi Satomi
-------------------------------
Name: Yasushi Satomi
Title: Senior Vice President
<PAGE>
S-35
NATIONAL AUSTRALIA BANK LIMITED
A.C.N. 004044937
By /s/ Scott Tuhy
---------------------------------
Name: Scott Tuhy
Title: Vice President
<PAGE>
S-36
NATIONAL WESTMINISTER BANK PLC
By /s/ Jonathan J. Whiticar
------------------------------
Name: Johathan J. Whiticar
Title: Director, MCG
<PAGE>
S-37
THE ROYAL BANK OF SCOTLAND PLC
By /s/ Lee Morse
--------------------------------
Name: Lee Morse
Title: Relationship Manager
<PAGE>
S-38
THE SANWA BANK, LIMITED
NEW YORK BRANCH
By /s/ John T. Feeney
-------------------------------
Name: John T. Feeney
Title: Vice President
<PAGE>
S-39
SOCIETE GENERALE
By /s/ Alan Jaffe
----------------------------------
Name: Alan Jaffe
Title: Director
<PAGE>
S-40
SGZ BANK
By /s/ John Dexheimer
------------------------------
Name: John Dexheimer
Title: SVP
By /s/ Jim Deitmer
--------------------------------
Name: Jim Deitmer
Title: VP
<PAGE>
S-41
THE SUMITOMO BANK LIMITED
By /s/ William R. McKown, III
-------------------------------
Name: William R. McKown, III
Title: Vice President & Manager
<PAGE>
S-42
THE TOKAI BANK LIMITED
By /s/ Shinichi Nakatani
-------------------------------
Name: Shinichi Nakatani
Title: Assistant General Manager
<PAGE>
S-43
TORONTO DOMINION (TEXAS), INC.
By /s/ Anne C. Favoriti
-------------------------------
Name: Anne C. Favoriti
Title: Vice President
<PAGE>
S-44
WESTDEUSTCHE LANDESBANK GIROZENTRALE
By /s/ Cynthia M. Niesen
-----------------------------
Name: Cynthia M. Niesen
Title: Managing Director
By /s/ Walter T. Duffy III
------------------------------
Name: Walter T. Duffy III
Title: Associate
<PAGE>
S-45
THE BANK OF NEW YORK
By /s/ Nathan S. Howard
----------------------------
Name: Nathan S. Howard
Title: Vice President
<PAGE>
S-46
FLEET NATIONAL BANK
By /s/ Stephen J. Hoffman
-----------------------------
Name: Stephen J. Hoffman
Title: Assistant Vice President
<PAGE>
S-47
BANCA NAZIONALE DEL LAVORO
By /s/ Roberto Mancone
-----------------------------
Name: Roberto Mancone
Title: Senior Loan Officer
By /s/ Leonardo Valentini
------------------------------
Name: Leonardo Valentini
Title: First Vice President
<PAGE>
S-48
<PAGE>
S-49
EXHIBIT A-1
FORM OF COMPETITIVE BID REQUEST
The Chase Manhattan Bank,
as Competitive Advance Facility Agent
for the Lenders referred to below,
c/o The Chase Manhattan Bank
Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Chris Consomer
Telecopy: 212-552-5627
Dear Ladies and Gentlemen:
The undersigned, [Texas Utilities Company][Texas Utilities
Electric Company], [Enserch Corporation] (the "BORROWER"), refers
to the 364-Day Amended and Restated Competitive Advance and
Revolving Credit Facility Agreement, dated as of May 28, 1998, as
amended and restated as of February 26, 1999 (as it may hereafter
be amended, modified, extended or restated from time to time, the
"AGREEMENT"), among the Borrower, [Texas Utilities Company]
[Texas Utilities Electric Company], [Enserch Corporation], the
Lenders named therein, Chase Bank of Texas, National Association,
as Administrative Agent, and The Chase Manhattan Bank, as
Competitive Advance Facility Agent. Capitalized terms used
herein and not otherwise defined herein shall have the meanings
assigned to such terms in the Agreement. The Borrower hereby
gives you notice pursuant to Section 2.03(a) of the Agreement
that it requests a Competitive Borrowing under the Agreement, and
in that connection sets forth below the terms on which such
Competitive Borrowing is requested to be made:
(A) Date of Competitive Borrowing
(which is a Business Day) ------------
(B) Principal amount of aggregate Competitive
Borrowing(ft1) ------------
1. Principal amount of Competitive
Borrowing comprising Offer Loans ------------
2. Principal amount of Competitive
Borrowing comprising General Loans ------------
(C) Interest rate basis(ft2) ------------
- -------------------------------
1. Not less than $5,000,000 (and in integral multiples of
$1,000,000) or greater than the Total Commitment then
available.
2. Eurodollar Loan or Fixed Rate Loan.
<PAGE>
(D) Interest Period and the last day
thereof(ft3) ------------
Upon acceptance of any or all of the Loans offered by the
Lenders in response to this request, the Borrower shall be deemed
to have represented and warranted that the applicable conditions
to lending specified in Article IV of the Agreement have been
satisfied.
Very truly yours,
[TEXAS UTILITIES COMPANY,]
[TEXAS UTILITIES ELECTRIC COMPANY,]
[ENSERCH CORPORATION,]
By
----------------------------
Name:
Title: [Financial Officer]
___________________
3. Which shall be subject to the definition of "INTEREST PERIOD"
and end not later than the earlier of the last day of the
Revolving Period and the Maturity Date.
<PAGE>
EXHIBIT A-2
FORM OF NOTICE OF COMPETITIVE BID REQUEST
[Name of Lender]
[Address]
New York, New York
[Date]
Attention: [ ]
Dear Ladies and Gentlemen:
Reference is made to the 364-Day Amended and Restated
Competitive Advance and Revolving Credit Facility Agreement,
dated as of May 28, 1998, as amended and restated as of February
26, 1999 (as it may hereafter be amended, modified, extended or
restated from time to time, the "AGREEMENT"), among [Texas
Utilities Company][Texas Utilities Electric Company], [Enserch
Corporation] (the "BORROWER"), [Texas Utilities Company][Texas
Utilities Electric Company], [Enserch Corporation], the Lenders
named therein, Chase Bank of Texas, National Association, as
Administrative Agent and the Chase Manhattan Bank, as Competitive
Advance Facility Agent. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to such
terms in the Agreement. The Borrower made a Competitive Bid
Request on , [___], pursuant to Section 2.03(a) of the
----------
Agreement, and in that connection you are invited to submit a
Competitive Bid by [Date]/[Time].(ft1) Your Competitive Bid must
comply with Section 2.03(b) of the Agreement and the terms set
forth below on which the Competitive Bid Request was made:
(A) Date of Competitive Borrowing ----------------
(B) Principal amount of Competitive Borrowing ----------------
1. Principal amount of Competitive
Borrowing comprising Offer Loans ----------------
2. Principal amount of Competitive
Borrowing comprising General Loans ----------------
(C) Interest rate basis ----------------
- ----------------------------
1. The Competitive Bid must be received by the CAF Agent (i) in
the case of Eurodollar Loans, not later than 9:30 a.m., New
York City time, three Business Days before a proposed
Competitive Borrowing, and (ii) in the case of Fixed Rate
Loans, not later than 9:30 a.m., New York City time, on the
Business Day of a proposed Competitive Borrowing.
<PAGE>
A-2-2
(D) Interest Period and the last day
thereof ----------------
Very truly yours,
The Chase Manhattan Bank,
as Competitive Advance
Facility Agent,
By
-----------------------
Name:
Title:
<PAGE>
EXHIBIT A-3
FORM OF COMPETITIVE BID
The Chase Manhattan Bank,
as Competitive Advance Facility Agent
for the Lenders referred to below,
c/o The Chase Manhattan Bank
Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Chris Consomer
Telecopy: 212-552-5627
[Date]
Attention: [ ]
Dear Ladies and Gentlemen:
The undersigned, [Name of Lender], refers to the 364-Day
Amended and Restated Competitive Advance and Revolving Credit
Facility Agreement, dated as of May 28, 1998, as amended and
restated as of February 26, 1999 (as it may hereafter be amended,
modified, extended or restated from time to time, the
"AGREEMENT"), among [Texas Utilities Company][Texas Utilities
Electric Company], [Enserch Corporation] (the "BORROWER"), [Texas
Utilities Company][Texas Utilities Electric Company], [Enserch
Corporation], the Lenders named therein, Chase Bank of Texas,
National Association, as Administrative Agent and The Chase
Manhattan Bank, as Competitive Advance Facility Agent.
Capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to such terms in the Agreement.
The undersigned hereby makes a Competitive Bid pursuant to
Section 2.03(b) of the Agreement, in response to the Competitive
Bid Request made by the Borrower on , [____], and in
-----------
that connection sets forth below the terms on which such
Competitive Bid is made:
(A) Principal Amount(ft1) -----------------
(B) Competitive Bid Rate(ft2) -----------------
(C) Interest Period and last day thereof -----------------
- ----------------------------
(1) Not less than $5,000,00 or greater than the requested
Competitive Borrowing and in integral multiples of
$1,000,000. Multiple bids will be accepted by the CAF
Agent.
(2) i.e, LIBO Rate + or - ____ %, in the case of Eurodollar
____ Loans or ____ %, in the case of Fixed Rate Loans.
<PAGE>
A-3-2
The undersigned hereby confirms that it is prepared, subject
to the conditions set forth in the Agreement, to extend credit to
the Borrower upon acceptance by the Borrower of this bid in
accordance with Section 2.03(d) of the Agreement.
Very truly yours,
[NAME OF LENDER],
By
----------------------
Name:
Title:
<PAGE>
EXHIBIT A-4
FORM OF COMPETITIVE BID ACCEPT/REJECT LETTER
[Date]
The Chase Manhattan Bank,
as Competitive Advance Facility Agent
for the Lenders referred to below,
c/o The Chase Manhattan Bank
Loan and Agency Services Group
One Chase Manhattan Plaza, 8th Floor
New York, New York 10081
Attention: Chris Consomer
Telecopy: 212-552-5627
Dear Ladies and Gentlemen:
The undersigned, [Texas Utilities Company][Texas Utilities
Electric Company], [Enserch Corporation], (the "BORROWER"),
refers to the 364-Day Amended and Restated Competitive Advance
and Revolving Credit Facility Agreement, dated as of May 28,
1998, as amended and restated as of February 26, 1999 (as it may
hereafter be amended, modified, extended or restated from time to
time, the "AGREEMENT"), among the Borrower, [Texas Utilities
Company] [Texas Utilities Electric Company], [Enserch
Corporation], the Lenders named therein, Chase Bank of Texas, as
Administrative Agent and The Chase Manhattan Bank, as Competitive
Advance Facility Agent for the Lenders.
In accordance with Section 2.03(c) of the Agreement, we have
received a summary of bids in connection with our Competitive Bid
Request dated , , and in accordance with
------------- -----
Section 2.03(d) of the Agreement, we hereby accept the following
bids for maturity on [date]:
Principal Amount Fixed Rate/Margin Lender
---------------- ----------------- ------
$ [%]/[+/-. %] [Offer] [General]
Loan(ft1)
$ [Offer] [General]
Loan(ft1)
________________
1. Select one.
<PAGE>
A-4-2
We hereby reject the following bids:
Principal Amount Fixed Rate/Margin Lender
---------------- -----------------
$ [%]/[+/-. %]
$
The $ should be deposited in The Chase Manhattan
----------
Bank account number [ ] on [date].
Very truly yours,
[TEXAS UTILITIES COMPANY,]
[TEXAS UTILITIES ELECTRIC
COMPANY,]
[ENSERCH CORPORATION,]
By
------------------------
Name:
Title:
<PAGE>
EXHIBIT A-5
FORM OF STANDBY BORROWING REQUEST
Chase Bank of Texas, National Association,
as Administrative Agent for the Lenders referred to below,
2200 Ross Avenue, 3rd floor
Dallas, TX 77002
Attention: Allen King
Telecopy: (214) 965-2990
[Date]
Dear Ladies and Gentlemen:
The undersigned, [Texas Utilities Company][Texas Utilities
Electric Company], [Enserch Corporation] (the "BORROWER"), refers
to the 364-Day Amended and Restated Competitive Advance and
Revolving Credit Facility Agreement dated as of May 28, 1998, as
amended and restated as of February 26, 1999 (as it may hereafter
be amended, modified, extended or restated from time to time, the
"AGREEMENT"), among the Borrower, [Texas Utilities Company][Texas
Utilities Electric Company], [Enserch Corporation], the Lenders
named therein, Chase Bank of Texas, National Association, as
Administrative Agent and The Chase Manhattan Bank, as Competitive
Advance Facility Agent. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned to such
terms in the Agreement. The Borrower hereby gives you notice
pursuant to Section 2.04 of the Agreement that it requests a
Standby Borrowing under the Agreement, and in that connection
sets forth below the terms on which such Standby Borrowing is
requested to be made:
(A) Date of Standby Borrowing
(which is a Business Day) ---------------
(B) Principal amount of Standby
Borrowing(ft1) ---------------
1. Principal amount of Standby
Borrowing comprising Offer
Loans ---------------
2. Principal amount of Standby
Borrowing comprising General
Loans ---------------
(C) Interest rate basis(ft2) ---------------
(D) Interest Period and the last
day thereof(ft3) ---------------
_______________________
1. Not less than $25,000,000 (and in integral multiples of
$5,000,000) or greater than the Total Commitment then
available.
2. Eurodollar Loan or ABR Loan.
3. Which shall be subject to the definition of "INTEREST
PERIOD" and end not later than the Maturity Date.
<PAGE>
A-5-2
Upon acceptance of any or all of the Loans made by the
Lenders in response to this request, the Borrower shall be deemed
to have represented and warranted that the applicable conditions
to lending specified in Article IV of the Agreement have been
satisfied.
Very truly yours,
[TEXAS UTILITIES COMPANY,]
[TEXAS UTILITIES ELECTRIC
COMPANY,]
[ENSERCH CORPORATION,]
By
-----------------------
Name:
Title:
<PAGE>
EXHIBIT B
ADMINISTRATIVE QUESTIONNAIRE
TEXAS UTILITIES COMPANY
TEXAS UTILITIES ELECTRIC COMPANY
ENSERCH CORPORATION
PLEASE FORWARD THIS COMPLETED
FORM AS SOON AS POSSIBLE TO:
-------------------
Donna McGroarty: Fax (713) 216-2291
PLEASE TYPE ALL INFORMATION.
Agent: Chase Bank of Texas, National Association
707 Travis Street, 8-CBB-N 96
Houston, Texas 77002
Telex:
Chase Securities Inc.
Syndications
Telecopier: (713) 216-2291/Alt. Fax (713) 216-2339
Chase Securities Inc.
Syndications
Contacts: Preston Moore Phone: (713) 216-1010
Ann K. Baumgartner Phone: (713) 216-7582
Donna McGroarty Phone: (713) 216-3617
Operations: Gale Manning Phone: (713) 750-2784
Letters of Credit: Gale Manning Phone: (713) 750-2784
Competitive Auction
Contact: The Chase Manhattan Bank
Chris Consomer Phone: (212) 552-7259
Fax: (212) 552-5627
<PAGE>
B-2
Full Legal Name of your Institution:
Hard-copy documents, notices and periodic financial statements of
the Borrower should be sent to the following account officer
designated by your bank:
Officer's Name:
Title:
Street Address (No P.O. Boxes please):
City, State, Zip:
Phone #:
Telefax #:
<PAGE>
B-3
PRIMARY CONTACT INFORMATION
We will send all telecopies regarding time-critical information
(drawdowns, option changes, payments, etc.) to the Primary or
Alternate Contact at the banking location you designate.
1. Your bank's primary contact for telefaxes concerning
borrowings, options on interest rates, etc.:
Primary Telephone Telefax
Name Number Number
------- --------- -------
Alternate Name/ Telephone Telefax
Phone No. Number Number
--------------- --------- -------
If at any time any of the above information changes, please
advise.
Publicity: Under what name would you prefer your institution
to appear in any future advertisements?
<PAGE>
B-4
Movement of Funds: TO US: Wire Fed Funds to:
Chase Bank of Texas, National
Association ABA # 113000609
for account number # 0010-092-4118
Attention: Gale Manning/Loan Syndication
Services
Reference: TEXAS UTILITIES COMPANY
TEXAS UTILITIES ELECTRIC
COMPANY
ENSERCH CORPORATION
TO YOU: Wire Fed Funds to:
NAME:
ABA #
For Credit To:
Attention:
Reference:
Other:
If buyer is purchasing Letter of Credit facility as part of this
participation/syndication, please provide the information below:
L/C contact name:
Street Address:
City, State, Zip:
Phone #:
Telefax #:
Wire Fed Funds to:
NAME:
ABA #
For Credit To:
Attention:
Reference:
<PAGE>
B-5
PLEASE COMPLETE THE FOLLOWING INFORMATION
FOR COMPETITIVE AUCTIONS ONLY
PRIMARY CONTACT
COMPETITIVE AUCTIONS
Bank Name:
Address:
Primary Contact:
Department:
Telephone Number:
Telefax Number:
ALTERNATE CONTACT
COMPETITIVE AUCTIONS
Alternate Contact:
Department:
Telephone Number:
Telefax Number:
<PAGE>
B-6
PLEASE COMPLETE THE FOLLOWING INFORMATION
FOR COMPETITIVE AUCTIONS ONLY
PRIMARY CONTACT
COMPETITIVE AUCTIONS
Bank Name:
Address:
Primary Contact:
Department:
Telephone Number:
Telefax Number:
ALTERNATE CONTACT
COMPETITIVE AUCTIONS
Alternate Contact:
Department:
Telephone Number:
Telefax Number:
<PAGE>
EXHIBIT C
[FORM OF]
ASSIGNMENT AND ACCEPTANCE
Dated: __________, ___
Reference is made to the 364-Day Amended and Restated
Competitive Advance and Revolving Credit Facility Agreement,
dated as of May 28, 1998, as amended and restated as of February
26, 1999 (as amended, modified, extended or restated from time to
time, the "AGREEMENT"), among Texas Utilities Company, Texas
Utilities Electric Company, Enserch Corporation (collectively,
the "BORROWERS"), the lenders listed in Schedule 2.01 thereto
(the "LENDERS"), Chase Bank of Texas, National Association, as
Administrative Agent and The Chase Manhattan Bank, as Competitive
Advance Facility Agent for the Lenders. Terms defined in the
Agreement are used herein with the same meanings.
1. The Assignor hereby sells and assigns, without recourse,
to the Assignee, and the Assignee hereby purchases and assumes,
without recourse, from the Assignor, effective as of the
[Effective Date of Assignment set forth below], the interests set
forth on the reverse hereof (the "ASSIGNED INTEREST") in the
Assignor's rights and obligations under the Agreement, including,
without limitation, the interests set forth on the reverse hereof
in the Commitment of the Assignor on the [Effective Date of
Assignment] and the Competitive Loans and Standby Loans owing to
the Assignor which are outstanding on the [Effective Date of
Assignment], together with unpaid interest accrued on the
assigned Loans to the [Effective Date of Assignment] and the
amount, if any, set forth on the reverse hereof of the Fees
accrued to the [Effective Date of Assignment] for the account of
the Assignor. Each of the Assignor and the Assignee hereby makes
and agrees to be bound by all the representations, warranties and
agreements set forth in Section 8.04 of the Agreement, a copy of
which has been received by each such party. From and after the
[Effective Date of Assignment], (i) the Assignee shall be a party
to and be bound by the provisions of the Agreement and, to the
extent of the interests assigned by this Assignment and
Acceptance, have the rights and obligations of a Lender
thereunder and (ii) the Assignor shall, to the extent of the
interests assigned by this Assignment and Acceptance, relinquish
its rights and be released from its obligations under the
Agreement.
2. This Assignment and Acceptance is being delivered to the
Administrative Agent together with (i) if the Assignee is
organized under the laws of a jurisdiction outside the United
States, the forms specified in Section 2.17(g) of the Agreement,
duly completed and executed by such Assignee, (ii) if the
Assignee is not already a Lender under the Agreement, an
Administrative Questionnaire in the form of Exhibit B to the
Agreement and (iii) a processing and recordation fee of $3,000.
<PAGE>
C-2
3. This Assignment and Acceptance shall be governed by and
construed in accordance with the laws of the State of New York.
Date of Assignment:
Legal Name of Assignor:
Legal Name of Assignee:
Assignee's Address for Notices:
Effective Date of Assignment
(may not be fewer than 5 Business
Days after the Date of Assignment
unless otherwise agreed by the
Administrative Agent):
<PAGE>
C-3
Percentage Assigned of
Facility/Commitment
(set forth, to at least
Principal Amount 8 decimals, as a
Assigned percentage of the
(and identifying Facility and the
information aggregate Commitments
as to individual of all Lenders
Facility Competitive Loans) thereunder
------------ ------------------- --------------------
Commitment $____________ __________%
Standby Loans: $____________ __________%
Competitive Loans: $____________ __________%
Fees Assigned (if any) $____________ __________%
<PAGE>
C-4
The terms set forth and on the Accepted:
reverse side hereof are hereby TEXAS UTILITIES COMPANY
agreed to:
as By:
--------------------------, ----------------------
Assignor Name:
Title:
By: as
-----------------------,
Name: TEXAS UTILITIES ELECTRIC
Title: COMPANY
as
--------------------------,
Assignee By:
----------------------
Name:
By: as Title:
-----------------------,
Name:
Title: ENSERCH CORPORATION
By:
---------------------
Name:
Title:
CHASE BANK OF TEXAS,
NATIONAL ASSOCIATION,
as Administrative Agent
By:
---------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
as CAF Agent
By:
---------------------
Name:
Title:
<PAGE>
EXHIBIT D-1
[LETTERHEAD OF]
THELEN REID & PRIEST LLP
[RESTATEMENT DATE]
To the Lenders on
Schedule 2.01 of the
Credit Agreement referred to below
and from time to time party to such Credit Agreement
Ladies and Gentlemen:
We advise you that we have acted as counsel to
Texas Utilities Company, a Texas Corporation ("TUC"),
Texas Utilities Electric Company, a Texas corporation
("TU ELECTRIC"), and ENSERCH Corporation, a Texas corporation
("ENSERCH"), in connection with the 364-Day Competitive Advance
and Revolving Credit Facility Agreement, dated as of May 28,
1998, as amended and restated as of February 26, 1999 (as so
amended and restated, the "CREDIT AGREEMENT"), among TUC,
TU Electric, ENSERCH, Chase Bank of Texas, National Association,
as Administrative Agent, The Chase Manhattan Bank, as Competitive
Advance Facility Agent, and the banks listed on Schedule 2.01
thereof and their successors and assigns (the "LENDERS"), and
have participated in the preparation of or have examined and are
familiar with (a) the current financial statements and reports
filed by TUC, TU Electric and ENSERCH with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended, (b) the Credit Agreement, (c) the articles of
incorporation and by-laws of TUC, TU Electric and ENSERCH and
(d) such other records and documents as we have deemed necessary
for the purposes of this opinion.
As to those matters stated herein to be "to our knowledge"
or "known to us", such examination has been limited to
discussions with and certificates from officers of TUC,
TU Electric and ENSERCH and we have not conducted any independent
investigation or verification or taken any action beyond such
discussions and certificates, nor made any search of the records
of any Governmental Authority with respect to such matters.
Capitalized terms used in this opinion and not defined
herein shall have the respective meanings assigned thereto in the
Credit Agreement. This opinion is delivered to you pursuant to
Section 4.01(c) of the Credit Agreement.
We are members of the New York Bar and do not hold ourselves
out as experts on the laws of any jurisdiction other than the
State of New York and the federal laws of the United States. As
to all matters of Texas law (including incorporation of TUC,
<PAGE>
D-1-2
TU Electric and ENSERCH, titles to properties, franchises,
licenses and permits) we have, with your consent, relied upon an
opinion of even date herewith delivered to you by Worsham,
Forsythe & Wooldridge, L.L.P., general counsel for TUC,
TU Electric and ENSERCH. While we represent TUC, TU Electric and
ENSERCH on a regular basis, our engagement has been limited to
specific matters as to which we were consulted. We have no
direct knowledge of the day-to-day affairs of TUC, TU Electric or
ENSERCH and have not reviewed generally their business affairs.
Accordingly, we are relying upon representations of TUC,
TU Electric and ENSERCH contained in the Credit Agreement, in
certificates furnished pursuant thereto, and in certificates
furnished to us by officers of TUC, TU Electric and ENSERCH.
For purposes of the opinions expressed below, we have
assumed (i) the authenticity of all documents submitted to us as
originals, (ii) the conformity to the originals of all documents
submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies, (iii) the
genuineness of all signatures other than on behalf of TUC,
TU Electric and ENSERCH, (iv) the legal capacity of natural
persons, (v) the power, corporate or otherwise, of all parties
other than TUC, TU Electric and ENSERCH to enter into and to
perform all of their obligations under such documents, and (vi)
the due authorization, execution and delivery of all documents by
all parties other than TUC, TU Electric and ENSERCH.
Based on the foregoing, we are of the opinion that:
1. Each of TUC, TU Electric and ENSERCH (i) is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Texas, (ii) has all requisite
power and authority to own its property and assets and to carry
on its business as now conducted, (iii) is qualified to do
business in every jurisdiction within the United States where
such qualification is required, except where the failure so to
qualify would not result in a Material Adverse Change, and (iv)
has all requisite corporate power and authority to execute,
deliver and perform its obligations under the Credit Agreement
and to borrow funds thereunder.
2. The execution, delivery and performance by each of TUC,
TU Electric and ENSERCH of the Credit Agreement and the
Borrowings by each of them thereunder (collectively, the
"TRANSACTIONS") (i) have been duly authorized by all requisite
corporate action and (ii) will not (a) violate (1) any law,
statute, rule or regulation presently binding on or applicable to
TUC, TU Electric or ENSERCH, or the articles of incorporation, as
amended, or by-laws of TUC, TU Electric or ENSERCH, (2) to our
knowledge, any order of any Governmental Authority presently
applicable to TUC, TU Electric or ENSERCH or (3) any provision of
any indenture, agreement or other instrument known to us to which
TUC, TU Electric or ENSERCH or their respective property is
bound, (b) be in conflict with, result in a breach of or
constitute (alone or with notice or lapse of time or both) a
default under any such indenture, agreement or other instrument
or (c) except as contemplated by the UK Facility Agreement,
result in the creation or imposition of any lien upon or with
respect to any property or assets of TUC, TU Electric or ENSERCH.
<PAGE>
D-1-3
3. The Credit Agreement has been duly executed and
delivered by TUC, TU Electric and ENSERCH and constitutes the
legal, valid and binding obligation of TUC, TU Electric and
ENSERCH enforceable against each of them in accordance with its
terms except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by
general equitable principles (regardless of whether such
enforceability is considered in a proceeding in equity or at
law).
4. No action, consent or approval of, registration or
filing with, or any other action by, any Governmental Authority
(including pursuant to the Public Utility Holding Company Act
of 1935, as amended) is required on the part of TUC, TU Electric
or ENSERCH in connection with the Transactions, except such as
have been made or obtained and are in full force and effect.
5. (a) None of TUC, TU Electric nor ENSERCH is an
"investment company" as defined in, or subject to regulation
under, the Investment Company Act of 1940, as amended, and (b)
TUC, TU Electric and ENSERCH and each of their respective
Subsidiaries are exempt from all provisions of the Public Utility
Holding Company Act of 1935, as amended, and the rules and
regulations thereunder, except for Sections 9(a)(2) and 33 of
such Act and the rules and regulations thereunder, and the
execution, delivery and performance by each of TUC, TU Electric
and ENSERCH of the Credit Agreement do not violate any provisions
of such Act or any rule or regulation thereunder.
6. Except as described in the Annual Reports on Form 10-K
for the year ended December 31, 1997 and the Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1998, June 30, 1998
and September 30, 1998, filed by TUC, TU Electric and ENSERCH
with the Securities and Exchange Commission and as set forth in
Schedule 3.06 to the Credit Agreements, to our knowledge there is
no action, suit, or proceeding at law or in equity or by or
before any Governmental Authority now pending or threatened
against or affecting TUC, TU Electric or ENSERCH (i) which
involves the Transactions or (ii) as to which there is a
reasonable possibility of an adverse determination and which, if
adversely determined, would, individually or in the aggregate,
result in a Material Adverse Change.
7. To our knowledge, after due inquiry, the proposed use of
the proceeds of the Loans is in accordance with the Credit
Agreements and, if so used, will not violate the Margin
Regulations.
8. We believe that a New York court would give effect to
the provisions of the Credit Agreement that state that they are
to be construed in accordance with New York law.
The foregoing opinions are limited to existing laws and we
undertake no obligation or responsiblity to update or supplement
this letter in response to subsequent changes in the law or
future events or circumstances affecting the Transactions. This
letter is solely for the benefit of the named addressees and
<PAGE>
D-1-4
their successors and assigns and may not be quoted in whole or in
part or otherwise referred to in any document or report and may
not be furnished to any person without our prior written consent,
except that Worsham, Forsythe & Wooldridge, L.L.P. may rely
hereon in connection with their opinion being rendered pursuant
to Section 4.01(c) of the Credit Agreement.
Very truly yours,
Reid & Priest LLP
<PAGE>
EXHIBIT D-2
[LETTERHEAD OF]
WORSHAM, FORSYTHE & WOOLDRIDGE, L.L.P.
[RESTATEMENT DATE]
To the Lenders listed on
Schedule 2.01 of each of the
Credit Agreements referred to below
Ladies and Gentlemen:
We have acted as general counsel for Texas Utilities
Company, a Texas corporation ("TUC"), Texas Utilities Electric
Company, a Texas corporation ("TU ELECTRIC") and ENSERCH
Corporation, a Texas corporation ("ENSERCH"), in connection with
the execution and delivery of the 364-Day Amended and Restated
Competitive Advance and Revolving Credit Facility Agreement,
dated as of May 28, 1998, as amended and restated as of February
26, 1999 (as so amended and restated, the "CREDIT AGREEMENT"),
among TUC, TU Electric, ENSERCH, the banks listed on
Schedule 2.01 thereof (the "LENDERS"), Chase Bank of Texas,
National Association, as Administrative Agent and The Chase
Manhattan Bank, as Competitive Advance Facility Agent.
Capitalized terms used in this opinion and not defined
herein shall have the respective meanings assigned thereto in the
Credit Agreement. This opinion is delivered to you pursuant to
Section 4.01(c) of the Credit Agreement.
In connection with this opinion we have examined a
counterpart of the Credit Agreement executed by TUC, TU Electric
and ENSERCH and have also made such examination of other
documents and of certificates of public officials and corporate
officers of TUC, TU Electric and ENSERCH, and have made such
other legal and factual examinations and inquiries as we have
deemed necessary or advisable for the purpose of rendering this
opinion; but as to those matters stated herein to be "to our
knowledge" or "known to us" such examination has been limited to
discussions with and certificates from officers of TUC, TU
Electric and ENSERCH and we have not conducted any independent
investigation or verification or taken any action beyond such
discussions and certificates, nor made any search of the records
of any Governmental Authority with respect to such matters.
For purposes of the opinions expressed below, we have
assumed (i) the authenticity of all documents submitted to us as
originals, (ii) the conformity to the originals of all documents
submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies, (iii) the
genuineness of all signatures other than on behalf of TUC, TU
Electric and ENSERCH, (iv) the legal capacity of natural persons,
(v) the power, corporate or otherwise, of all parties other than
<PAGE>
D-2-2
TUC, TU Electric and ENSERCH to enter into and to perform all of
their obligations under such documents, and (vi) the due
authorization, execution and delivery of all documents by all
parties other than TUC, TU Electric and ENSERCH.
Based upon, and subject to, the foregoing and to such
further limitations and qualifications stated below, we are of
the opinion that:
1. Each of TUC, TU Electric and ENSERCH (i) is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Texas, (ii) has all requisite
power and authority to own its property and assets and to carry
on its business as now conducted, (iii) is qualified to do
business in every jurisdiction within the United States where
such qualification is required, except where the failure so to
qualify would not result in a Material Adverse Change, and
(iv) has all requisite corporate power and authority to execute,
deliver and perform its obligations under the Credit Agreement
and to borrow funds thereunder.
2. The execution, delivery and performance by each of TUC,
TU Electric and ENSERCH of the Credit Agreement and the
Borrowings by each of them (collectively, the "TRANSACTIONS")
(i) have been duly authorized by all requisite corporate action
and (ii) will not (a) violate (1) any law, statute, rule or
regulation presently binding on or applicable to TUC, TU Electric
or ENSERCH, or the respective articles of incorporation, as
amended, or bylaws of TUC, TU Electric or ENSERCH, (2) to our
knowledge, any order of any Governmental Authority presently
applicable to TUC, TU Electric or ENSERCH or (3) any provision of
any indenture, agreement or other instrument known to us to which
TUC, TU Electric or ENSERCH is a party or by which TUC, TU
Electric or ENSERCH or their respective property is bound, (b) be
in conflict with, result in a breach of or constitute (alone or
with notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or (c) result in the
creation or imposition of any lien upon or with respect to any
property or assets now owned or hereafter acquired by TUC, TU
Electric or ENSERCH.
3. The Credit Agreement has been duly executed and
delivered by TUC, TU Electric and ENSERCH and constitutes the
legal, valid and binding obligation of TUC, TU Electric and
ENSERCH enforceable against each of them in accordance with its
terms except as enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other laws affecting
the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether such enforceability
is considered in a proceeding in equity or at law).
4. No action, consent or approval of, registration or
filing with, or any other action by, any Government Authority
(including pursuant to the Public Utility Holding Company Act of
1935, as amended) is required on the part of TUC, TU Electric or
ENSERCH in connection with the Transactions, except as such as
have been made or obtained and are in full force and effect.
<PAGE>
D-2-3
5. None of TUC, TU Electric nor ENSERCH is an "investment
company" as defined in, or subject to regulation under, the
Investment Company Act of 1940, as amended. TUC, TU Electric and
ENSERCH and each of their respective Subsidiaries are exempt from
all provisions of the Public Utility Holding Company Act of 1935,
as amended, and rules and regulations thereunder, except for
Sections 9(a)(2) and 33 of such Act and rules and regulations
thereunder, and the execution, delivery and performance by TUC,
TU Electric and ENSERCH of the Credit Agreement do not violate
any provision of such Act or any rule or regulation thereunder.
6. Except as described in the Annual Reports on Form 10-K
for the year ended December 31, 1997 and the Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1998, June 30, 1998
and September 30, 1998, filed by TUC, TU Electric and ENSERCH
with the Securities and Exchange Commission and as set forth in
Schedule 3.06 to the Credit Agreement, to our knowledge there is
no action, suit or proceeding at law or in equity or by or before
any Governmental Authority now pending or threatened against or
affecting TUC, TU Electric or ENSERCH (i) which involves the
Transactions or (ii) as to which there is a reasonable
possibility of an adverse determination and which, if adversely
determined, would, individually or in the aggregate, result in a
Material Adverse change.
7. To our knowledge, TUC, TU Electric and ENSERCH are not
in violation of any law, rule or regulation, or in default with
respect to any judgment, writ, injunction or decree of any
Governmental Authority, where such violation or default would
result in a Material Adverse Change.
8. To our knowledge, after due inquiry, the proposed use of
the proceeds of the Loans is in accordance with the Credit
Agreement, and, if so used, will not violate the Margin
Regulations.
9. A Texas court would give effect to the provisions of the
Credit Agreement that state that it is to be construed in
accordance with New York law; provided, however, that we render
no opinion as to the application of New York law that is contrary
to a fundamental or public policy of the State of Texas.
We are members of the State Bar of Texas and do not purport
to be experts on, nor do we opine as to, the laws of any
jurisdiction other than the State of Texas and the federal laws
of the United States. To the extent that the opinions
hereinabove set forth involve the laws of the State of New York,
we have relied upon the opinion of even date herewith delivered
by you by Thelen Reid & Priest LLP, special counsel to TUC, TU
Electric and ENSERCH.
The foregoing opinions are limited to existing laws and we
undertake no obligation or responsibility to update or supplement
this letter in response to subsequent changes in the law or
future events or circumstances affecting the Transactions. This
letter is solely for the benefit of the named addressees and may
not be quoted in whole or in part or otherwise referred to in any
<PAGE>
D-2-4
document or report and may not be furnished to any person without
our prior written consent, except that Thelen Reid & Priest LLP
may rely hereon in connection with their opinion being rendered
pursuant to Section 4.01(c) of the Credit Agreement.
Very truly yours,
WORSHAM, FORSYTHE &
WOOLDRIDGE, L.L.P.
By: ___________________
A Partner
<PAGE>
SCHEDULE 2.01
Offer Loan General Loan
Name Commitment Commitment
------ ---------- -----------
The Chase Manhattan Bank 0 38,348,488.02
Chase Bank of Texas 0 38,348,488.02
Lehman Commercial Paper, 0 74,443,646.74
Inc.
The Bank of New York 0 70,000,000.00
Barclays Bank Plc 0 70,000,000.00
Bayerische Landesbank 0 70,000,000.00
Girozentrale (Caymen
Islands Branch)
Canadian Imperial Bank of 0 70,000,000.00
Commerce
Commerzbank AG, Atlanta 0 70,000,000.00
Agency
Credit Lyonnais (New York 0 70,000,000.00
Branch)
Credit Suisse First Boston 0 70,000,000.00
Den Danske Bank 0 70,000,000.00
Aktieselskab
Deutsche Bank AG, New York 0 70,000,000.00
Branch and/or Cayman
Islands Branch
First Union National Bank 0 70,000,000.00
(Charlotte)
The Royal Bank of Scotland 0 70,000,000.00
plc
The Toronto Dominion Bank 0 70,000,000.00
Westdeutsche Landesbank 0 70,000,000.00
Girozentrale
Merrill Lynch Capital 0 67,153,667.57
Corporation
First Chicago NBD 0 52,500,000.00
Corporation
Societe Generale 0 58,023,609.41
ABN-Amro Bank N.V. 0 49,335,191.90
Bank of America National 0 49,335,191.90
Trust and
Savings Association
The Bank of Nova Scotia 0 49,335,191.90
Banque Nationale De Paris 0 49,335,191.90
Citibank, N.A. 0 49,335,191.90
Industrial Bank of Japan, 0 49,335,191.90
Limited
KBC Bank N.V. 0 49,335,191.90
Lloyds Bank, plc 0 49,335,191.90
Mellon Bank, N.A. 0 49,335,191.90
National Australia Bank 0 49,335,191.90
Limited, A.C.N.
004044937
The Sanwa Bank, Limited, 0 49,335,191.90
New York Branch
Fleet National Bank 0 37,718,605.17
The Sumitomo Bank, Limited 0 37,718,605.17
DG Bank, Deutsche 0 28,683,900.00
Genossenschaftsbank
National Westminster Plc 0 28,683,900.00
Arab Banking Corporation 0 25,000,000.00
(B.S.C.)
The Bank of Tokyo- 0 25,000,000.00
Mitsubishi,Ltd.
Credit Agricole Indosuez 0 25,000,000.00
The Dai-Ichi Kangyo Bank, 0 25,000,000.00
Ltd.
Guaranty Federal Bank, 0 25,000,000.00
F.S.B.
<PAGE>
Offer Loan General Loan
Name Commitment Commitment
------ ---------- -----------
Banca Nazionale del Lavoro 0 15,000,000.00
The Mitsubishi Trust and 0 15,000,000.00
Banking Corporation
The Tokai Bank Limited 0 15,000,000.00
SGZ Bank 0 8,400,000.00
Chang Hwa Commerical Bank, 0 7,289,979.00
Ltd., New York Branch
----- ==================
TOTAL $0.00 $2,100,000,000.00
<PAGE>
Aggregate
Name Commitment
------ ----------
The Chase Manhattan Bank 38,348,488.02
Chase Bank of Texas 38,348,488.02
Lehman Commercial Paper, 74,443,646.74
Inc.
The Bank of New York 70,000,000.00
Barclays Bank Plc 70,000,000.00
Bayerische Landesbank 70,000,000.00
Girozentrale (Caymen
Islands Branch)
Canadian Imperial Bank of 70,000,000.00
Commerce
Commerzbank AG, Atlanta 70,000,000.00
Agency
Credit Lyonnais (New York 70,000,000.00
Branch)
Credit Suisse First Boston 70,000,000.00
Den Danske Bank 70,000,000.00
Aktieselskab
Deutsche Bank AG, New York 70,000,000.00
Branch and/or Cayman
Islands Branch
First Union National Bank 70,000,000.00
(Charlotte)
The Royal Bank of Scotland 70,000,000.00
plc
The Toronto Dominion Bank 70,000,000.00
Westdeutsche Landesbank 70,000,000.00
Girozentrale
Merrill Lynch Capital 67,153,667.57
Corporation
First Chicago NBD 52,500,000.00
Corporation
Societe Generale 58,023,609.41
ABN-Amro Bank N.V. 49,335,191.90
Bank of America National 49,335,191.90
Trust and
Savings Association
The Bank of Nova Scotia 49,335,191.90
Banque Nationale De Paris 49,335,191.90
Citibank, N.A. 49,335,191.90
Industrial Bank of Japan, 49,335,191.90
Limited
KBC Bank N.V. 49,335,191.90
Lloyds Bank, plc 49,335,191.90
Mellon Bank, N.A. 49,335,191.90
National Australia Bank 49,335,191.90
Limited, A.C.N.
004044937
The Sanwa Bank, Limited, 49,335,191.90
New York Branch
Fleet National Bank 37,718,605.17
The Sumitomo Bank, Limited 37,718,605.17
DG Bank, Deutsche 28,683,900.00
Genossenschaftsbank
National Westminster Plc 28,683,900.00
Arab Banking Corporation 25,000,000.00
(B.S.C.)
The Bank of Tokyo- 25,000,000.00
Mitsubishi,Ltd.
Credit Agricole Indosuez 25,000,000.00
The Dai-Ichi Kangyo Bank, 25,000,000.00
Ltd.
Guaranty Federal Bank, 25,000,000.00
F.S.B.
<PAGE>
Aggregate
Name Commitment
------ ----------
Banca Nazionale del Lavoro 15,000,000.00
The Mitsubishi Trust and 15,000,000.00
Banking Corporation
The Tokai Bank Limited 15,000,000.00
SGZ Bank 8,400,000.00
Chang Hwa Commerical Bank, 7,289,979.00
Ltd., New York Branch ==================
TOTAL $2,100,000,000.00
<PAGE>
SCHEDULE 3.06
TO THE CREDIT AGREEMENT
Litigation
None
<TABLE>
<CAPTION>
Exhibit 12(a)
TEXAS UTILITIES COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES,
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
Year Ended December 31,
1998 1997 1996 1995 1994
----- ---- ----- ----- ----
Thousand of Dollars, Except Ratios
<S> <C> <C> <C> <C> <C>
EARNINGS:
Net income (loss) $ 739,959 $ 660,454 $ 753,606 $(138,645) $ 542,799
Add: Total federal income taxes (benefit) 526,832 376,898 375,232 (60,035) 326,638
Fixed charges (see detail below) 1,473,403 854,822 851,482 732,313 752,892
Preferred dividends of subsidiaries 16,514 27,983 53,358 84,914 101,883
---------- ---------- ---------- --------- ----------
Total earnings $2,756,708 $1,920,157 $2,033,678 $ 618,547 $1,724,212
========== ========== ========== ========= ==========
FIXED CHARGES:
Interest expense $1,299,315 $ 762,937 $ 797,893 $ 706,183 $ 726,875
Rentals representative of the interest factor 100,087 22,184 20,588 24,329 26,017
Distributions on preferred trust securities
of subsidiaries * 74,001 69,701 33,001 1,801 -
---------- ---------- ---------- --------- ----------
Fixed charges deducted from earnings 1,473,403 854,822 851,482 732,313 752,892
Preferred dividends of subsidiaries (pretax)** 28,271 43,952 79,926 121,683 163,193
---------- ---------- ---------- --------- ----------
Total fixed charges 1,501,674 898,774 931,408 853,996 916,085
---------- ---------- ---------- --------- ----------
Preferred dividends of registrant 0 0 0 0 0
---------- ---------- ---------- --------- ----------
Fixed charges and preferred dividends $1,501,674 $ 898,774 $ 931,408 $ 853,996 $ 916,085
========== ========== ========== ========= ==========
RATIO OF EARNINGS TO FIXED CHARGES (a) 1.84 2.14 2.18 0.72 1.88
==== ==== ==== ==== ====
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED DIVIDENDS (a) 1.84 2.14 2.18 0.72 1.88
==== ==== ==== ==== ====
<FN>
* Distributions on preferred trust securities are deductible for tax purposes.
** Preferred dividends of subsidiaries multiplied by the ratio of pre-tax income to net income.
(a) For the year ended December 31, 1995, fixed charges and combined fixed charges and preferred dividends
exceeded earnings by $235 million.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Exhibit 12(b)
TEXAS UTILITIES ELECTRIC COMPANY
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES,
AND RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS
Year Ended December 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
Thousands of Dollars, Except Ratios
<S> <C> <C> <C> <C> <C>
EARNINGS:
Net income $ 785,179 $ 771,874 $ 862,695 $ 452,631 $ 658,192
Add: Total federal income taxes (benefit) 485,670 409,546 405,499 212,953 342,687
Fixed charges (see detail below) 568,902 618,773 649,295 655,678 688,194
---------- ---------- ---------- ---------- ----------
Total earnings $1,839,751 $1,800,193 $1,917,489 $1,321,262 $1,689,073
========== ========== ========== ========== ==========
FIXED CHARGES:
Interest expense $ 476,219 $ 527,266 $ 595,706 $ 629,548 $ 662,177
Rentals representative of the interest factor 24,068 69,701 33,001 1,801 -
Distributions on preferred trust securities
of subsidiaries* 68,615 21,806 20,588 24,329 26,017
---------- ---------- ---------- ---------- ----------
Fixed charges deducted from
earnings 568,902 618,773 649,295 655,678 688,194
---------- ---------- ---------- ---------- ----------
Preferred dividends (pretax)** 20,190 41,096 78,438 124,864 154,928
---------- ---------- ---------- ---------- ----------
Fixed charges and preferred
dividends $ 589,092 $ 659,869 $ 727,733 $ 780,542 $ 843,122
========== ========== ========== ========== ==========
RATIO OF EARNINGS TO FIXED CHARGES 3.23 2.91 2.95 2.02 2.45
==== ==== ==== ==== ====
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED DIVIDENDS 3.12 2.73 2.63 1.69 2.00
==== ==== ==== ==== ====
<FN>
* Distributions on preferred trust securities are deductible for tax purposes.
** Preferred dividends multiplied by the ratio of pre-tax income to net income.
</FN>
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT 21
TEXAS UTILITIES COMPANY
(as of March 15, 1999)
<S> <C>
State or Country
of Incorporation
TEXAS UTILITIES COMPANY Texas
TXU Capital I Delaware
Texas Utilities Electric Company Texas
TU Electric Capital I Delaware
TU Electric Capital II Delaware
TU Electric Capital III Delaware
TU Electric Capital IV Delaware
TU Electric Capital V Delaware
Texas Energy Industries, Inc. Texas
Southwestern Electric Service Company Texas
Texas Utilities Fuel Company Texas
Texas Utilities Mining Company Texas
Lufkin-Conroe Communications Co. Texas
Lufkin-Conroe Communications Services Co. Texas
LCT Long Distance, Inc. Texas
Lufkin-Conroe Telephone Exchange, Inc. Texas
Lufkin-Conroe Telecommunications Corp. Texas
East Texas Fiber Line Incorporated (1) Texas
Texas Utilities Integrated Solutions Inc. Texas
Texas Utilities Chilled Water Solutions Inc. Texas
Texas Utilities SEM, Inc.(2) 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
Enserch Power One Private Limited (4) Mauritius
Enserch Power Two Private Limited (4) Mauritius
EDC Power Marketing, Inc. Texas
EDC Shaoxing Power Ltd. Cayman Islands
Zhejiang Yong-Ke Thermal Power Corporation, Ltd. (5) China
EIL India, L.L.C. (6) Texas
Ensat Cogeneration Company Texas
Ensat Northwest Cogeneration Company (7) Texas
Electron Fees, Inc. Texas
Enserch Development Corporation Hamakua, Inc. Texas
Enserch Development Corporation Hawaii, Inc. Texas
Enserch International Ltd. Cayman Islands
National Pipeline Company Texas
1
<PAGE>
<PAGE>
Enserch de Mexico S.A. de C.V. (8) Mexico
Enserch de Monterrey S. A. de C. V. (9) Mexico
Enserch International Services, Inc. Texas
2
<PAGE>
<PAGE>
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
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 (10) United Kingdom
ENS Limited (10) United Kingdom
Process Engineering International Ltd. (10) 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
Engineering International Liquidating Company, Inc. California
Ensat Pipeline Company Texas
ENSERCH Capital I Delaware
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 Receivables, Inc. Delaware
Enserch Shirley, Inc. Delaware
Fleet Star of Texas, L.C. (11) 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
3
<PAGE>
<PAGE>
TU United Kingdom Holdings, Inc. Delaware
Lone Star Gas International, Inc. Texas
Lone Star Gas Chile S.A. de C.V. Republic of Chile
Servicio de Energia de Mexico, S.A. de C.V. (12) Mexico
Comercializadora Metrogas, S.A. de C.V. (13) Mexico
Administradora de Servicios de Energia de Mexico, S.A. de C.V. Mexico
TU International Holdings Ltd. (14) United Kingdom
TXU Eastern Holdings Limited United Kingdom
TU Finance (No. 2) Limited (15) United Kingdom
TU Acquisitions Limited United Kingdom
The Energy Group Limited United Kingdom
Eastern Group plc United Kingdom
Aspclear Limited United Kingdom
British Power International (Mexico) SA de CV Mexico
British Power International Limited United Kingdom
Capital Electricity Limited United Kingdom
Capital Power Limited United Kingdom
Compass Energy BV (16) The Netherlands
Dowlais Power Limited United Kingdom
Eastern (Kobbelv) Limited United Kingdom
Eastern (Svartisen) Limited United Kingdom
Eastern Corporate Insurance Limited Isle of Man
Eastern Data Collection Services Limited United Kingdom
Eastern Distribution Services Limited United Kingdom
Eastern Electrical Contracting Limited United Kingdom
Eastern Electricity Contracting Limited United Kingdom
Eastern Electricity Energy Traders Limited United Kingdom
Eastern Electricity Retail Limited United Kingdom
Eastern Electricity plc United Kingdom
Eastern Energy Brokers Limited United Kingdom
Eastern Energy Limited United Kingdom
Eastern Energy Management Limited United Kingdom
Eastern Energy Services Limited United Kingdom
Eastern Energy Sp. z o.o. Poland
Eastern Energy Trading Limited United Kingdom
Eastern Generation Limited United Kingdom
Anglian Power Generators Limited United Kingdom
BG Cogen Limited United Kingdom
Citigen (London) Limited United Kingdom
Drakmarn Staff Limited United Kingdom
Eastern Gas Generation Maintenance Limited United Kingdom
Eastern Generation Research Limited United Kingdom
Eastern Generation Services Limited United Kingdom
Eastern Merchant Generation Limited United Kingdom
Eastern Merchant Properties Limited United Kingdom
Eastern Renewable Generation Limited United Kingdom
Nedalo (UK) Limited (17) United Kingdom
Peterborough Power Limited United Kingdom
4
<PAGE>
<PAGE>
Shotton Combined Heat and Power Limited United Kingdom
Eastern Generation Poland Sp. z o.o. Poland
Eastern Group Finance Limited United Kingdom
Eastern Group Insurance Services Limited Isle of Man
Eastern Group Property Limited United Kingdom
Eastern Group Property Management Limited United Kingdom
Eastern Group Share Scheme Trustees Limited United Kingdom
Eastern IT Services Limited United Kingdom
Eastern Leasing (1) Limited United Kingdom
Eastern Leasing (2) Limited United Kingdom
Eastern Leasing (3) Limited United Kingdom
Eastern Leasing (4) Limited United Kingdom
Eastern Leasing (5) Limited United Kingdom
Eastern Limited United Kingdom
Eastern Marketing Company Limited United Kingdom
Eastern Metering Services Limited United Kingdom
Eastern Metering and Data Collection Limited United Kingdom
Eastern Natural Gas Limited United Kingdom
E Gas Limited United Kingdom
Eastern Gas Company Limited United Kingdom
Eastern Natural Gas (Retail) Limited United Kingdom
Eastern Pipelines Limited United Kingdom
Eastern Network Management Limited United Kingdom
Eastern Norge Kobbelv A.S. Norway
Eastern Norge Svartisen A.S. Norway
Eastern Overseas Finance Limited United Kingdom
Eastern Group European Investments Limited United Kingdom
Teplarny Brno A.S. (18) Czech Republic
Eastern PFS 1 Limited United Kingdom
Eastern PFS 2 Limited United Kingdom
Eastern PFS 3 Limited United Kingdom
Eastern PFS 4 Limited United Kingdom
Eastern PFS 5 Limited United Kingdom
Eastern PFS 6 Limited United Kingdom
Eastern PFS 7 Limited United Kingdom
Eastern PFS 8 Limited United Kingdom
Eastern Power Sp. z o.o Poland
Eastern Power and Energy Trading Limited United Kingdom
Eastern Natural Gas (Offshore) Limited United Kingdom
Eastern Natural Gas (Trading) Limited United Kingdom
Eastern Power and Energy Trading Poland Sp. zoo. Poland
Eastern Ten Limited United Kingdom
Eastern Private Network Management Limited United Kingdom
Eastern Systems and Services Limited United Kingdom
Eastern Thirty Limited United Kingdom
Eastern Twenty Eight Limited United Kingdom
Eastern Twenty Five Limited United Kingdom
Eastern Twenty Four Limited United Kingdom
5
<PAGE>
<PAGE>
Eastern Twenty Nine Limited United Kingdom
Eastern Twenty Seven Limited United Kingdom
Eastern Twenty Six Limited United Kingdom
Energy Optimisation Limited United Kingdom
F.W. Cook (Mechanical Services) Limited United Kingdom
Gwynedd Power Limited United Kingdom
Logicalform Limited United Kingdom
Lund Eastern Energi A.B. (19) Sweden
Offshore Oil and Gas Development Company Limited United Kingdom
Optima Gas Limited United Kingdom
Optima Power Limited United Kingdom
Shield Collection and Recovery Services Limited United Kingdom
Simple Heat Limited United Kingdom
Star Security (U.K.) Limited United Kingdom
Synergia Trading S.A. (20) Spain
The Energy Merchant Limited United Kingdom
Utility Contracting Services Limited United Kingdom
Utility Electrical Contracting Services Limited United Kingdom
Web Energy Limited Mauritius
Web Power Limited Mauritius
Zamosc Energy Company Sp. z o.o. (21) Poland
Energy Holdings (No. 2) Limited United Kingdom
Anglo-French Exploration Company Limited United Kingdom
CGF Investments Limited United Kingdom
Consolidated Gold Fields Limited United Kingdom
Energy Group International Limited (The) United Kingdom
Exploration Ventures Limited United Kingdom
Exven Limited (22) United Kingdom
Global Energy Finance LLC Delaware
Gold Fields Industrial Holdings Limited United Kingdom
Gold Fields Mining & Industrial Limited United Kingdom
Angbur Investment Trust Limited United Kingdom
Rose, Lloyd & Co. Limited (23) United Kingdom
Mining & Industrial Holdings Limited United Kingdom
Gold Fields Resources Limited (24) United Kingdom
Gold Fields Rhodesian Development Company Limited United Kingdom
Minven Minerals Limited (25) United Kingdom
New Consolidated Gold Fields Limited United Kingdom
Peabody Resources (UK) Limited United Kingdom
Gold Fields Industrial Limited United Kingdom
C. Tennant Leasing Limited United Kingdom
C. Tennant, Sons & Company Limited United Kingdom
Tennant Trading Limited United Kingdom
Tennant Security Limited United Kingdom
Gold Fields Mahd Adh Dhahab Limited United Kingdom
Interbronze Limited United Kingdom
Whitby Potash Limited United Kingdom
Energy Group Holdings B.V. Netherlands
6
<PAGE>
<PAGE>
Energy Group Overseas B.V. Netherlands
Energy Holdings (No. 3) Limited United Kingdom
Energy Holdings (No. 4) Limited United Kingdom
Energy Group Finance plc United Kingdom
Energy Nominees Limited United Kingdom
Rollalong (Overseas) Limited United Kindgom
Energy Resources Limited United Kingdom
Energy Holdings (No. 5) Limited United Kingdom
Energy Group (Far East) Limited (The) United Kingdom
Energy Group (North America) Limited (The) United Kingdom
Energy Group Finance Plc United Kingdom
Energy Holdings (No. 1) Limited United Kingdom
Major Insurance Company Limited Bermuda
Fonetake Limited United Kingdom
Hiketrial Limited United Kingdom
TEG (Head Office) Limited United Kingdom
Alliedhike Limited United Kingdom
Weber Futair (Development) Limited United Kingdom
Energy Trustees Limited United Kingdom
TXU Eastern Finance (A) Limited United Kingdom
TXU Eastern Funding Company (26) United Kingdom
TXU Eastern Finance (B) Limited United Kingdom
TU Australia Holdings No. 1 Limited United Kingdom
TU Australia Holdings No. 2 Limited United Kingdom
TU Australia Holdings (AGP) Pty Ltd Australia
TU Australia Holdings Limited Partnership Australia
TU Australia Holdings Pty Ltd Australia
Texas Utilities Australia Pty. Ltd. Australia
Eastern Energy Limited Australia
Australian Tree Management Pty. Ltd. Australia
Eastcoast Gas Pty. Ltd. (27) Australia
Eastcoast Power Pty. Ltd. 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 (Queensland) Pty. Ltd. Australia
TUA (No. 7) Pty. Ltd. Australia
Western Underground Gas Storage Pty Ltd Australia
TUA (No. 8) Pty Ltd Australia
TUA (No. 9) Pty Ltd Australia
Kinetik Energy Pty Ltd Australia
Westar Pty Ltd Australia
7
<PAGE>
<PAGE>
TU Finance (No. 1) Holdings, Inc. Delaware
TU Finance (No. 2) Holdings, Inc. Delaware
<FN>
___________________________
(1) 67% owned by Lufkin-Conroe Telecommunications Corp.
(2) 85% owned by Texas Utilities Integrated Solutions Inc.
(3) 50% owned by Enserch Development Corporation.
(4) 99% owned by EDC Palakkad Power Ltd. and 1% owned by Enserch International Ltd.
(5) 70% owned by EDC Shaoxing Power Ltd.
(6) 40% owned by Enserch Development Corporation.
(7) 51% owned by Electron 4/NW, Inc. and 49% owned by Enserch Development Corporation.
(8) 99% owned by National Pipeline Company and 1% owned by Enserch Development
Corporation.
(9) 99.99% owned by Enserch de Mexico S.A. de C.V. and .01% owned by Enserch Development
Corporation.
(10) 99% owned by parent corporation.
(11) 50% owned by ENSERCH Corporation.
(12) 70% owned by Lone Star Gas International, Inc.
(13) 99.99% owned by Servicio de Energia de Mexico, S.A. de C.V. and 0.01% owned by Lone
Star Gas International, Inc.
(14) 85% owned by TU United Kingdom Holdings, Inc. and 15% owned by TU Finance (No. 1)
Holdings, Inc.
(15) 90% owned by TXU Eastern Holdings Limited and 10% owned by TU Finance (No. 2)
Holdings, Inc.
(16) 50% owned by Eastern Group plc.
(17) 75% owned by Eastern Generation Limited.
(18) 83.7% owned by Eastern Group European Investments Limited.
(19) 50% owned by Eastern Group plc.
(20) 50% owned by Eastern Group plc and 50% owned by Hidroelectrica del Cantabrico, S.A.
(21) 50% owned by Eastern Group plc.
(22) 70% owned by Energy Holdings (No. 2) Limited.
(23) 50% owned by Angbur Investment Trust Limited and 50% owned by Gold Fields Mining &
Industrial Limited.
(24) 80% owned by Energy Holdings (No. 2) Limited and 20% owned by Peabody Resources (UK)
Limited.
(25) 70% owned by Energy Holdings (No. 2) Limited.
(26) 50% owned by TXU Eastern Finance (A) Limited and 50% owned by TXU Eastern Finance
(B) Limited.
(27) 50% owned by Eastern Energy Limited.
</FN>
</TABLE>
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.
9
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Affiliates
<S> <C>
State or County
of Incorporation
or Organization
American Gas Finance Company, L.L.C. (1) Texas
Enserch SACROC Inc. (2) Texas
ENS Holdings Limited Partnership (3 ) Texas
FinaStar Partnership (4) Texas
Lavair Cogeneration Limited Partnership (5) Delaware
Gulf Coast Natural Gas Company (6) Texas
Encogen Hawaii, L.P. (7) Hawaii
Encogen Northwest L.P. (8) Delaware
Encogen Four Partners L.P. (9) Delaware
GTE Mobilnet of South Texas, L.P. (10) Texas
GTE Mobilnet of Texas RSA #11, L.P. (11) Texas
GTE Mobilnet of Texas RSA #17, L.P. (12) Texas
Texas RSA #11B Limited Partnership (13) Texas
Compania Mexicana de Gas S.A. de C.V. (14) Mexico
Gas Automotores, S.A. de C.V. (15) Mexico
Gas Natural de Apodaca, S.A. de C.V. (15) Mexico
Gas Natural de Santa Cantarina, S.A. de C.V. (15) Mexico
Metrogas S.A. (16) Republic of Chile
ICMC Power Consortium, Inc. (17) New York
ESN Holdings Limited (18) United Kingdom
Electralink Limited (19) United Kingdom
Non-Fossil Purchasing Agency Limited (20) United Kingdom
Electricity Association Limited (21) United Kingdom
Electricity Pension Trustees Limited (22) United Kingdom
UK Data Collection Services Limited (23) United Kingdom
Barking Power Limited (24) United Kingdom
Severomoravska Energetika (25) Czech Republic
Hidroelectrica del Cantabrico, S.A. (26) Spain
Gasmart (27) Australia
<FN>
________________________
(1) 5.27% owned by Lone Star Energy Services, Inc.
(2) 99.65% owned by Enserch Finance II, Inc. and 0.35% owned by ENS Holdings Limited
Partnership.
(3) Limited Partnership: ENS Holdings II, Inc. (99%) and ENS Holdings I, Inc. (1%).
(4) General Partnership: ENSERCH Corporation (50%).
(5) Limited Partnership EDC Catskill Cogeneration, Inc. (56.67%) and ENSERCH Corporation
(43.33%).
(6) General partnership: General Partner, Enserch Gas Transmission Company (50%).
(7) Limited Partnership: Enserch Development Corporation (50%).
(8) Limited Partnership: Ensat Northwest Cogeneration Company (99%) and EDC Northwest
Cogeneration, Inc. (1%).
(9) Limited Partnership: EDC Four, Inc. (1%).
(10) Limited Partnership: Lufkin-Conroe Telecommunications Corp. (2.34%).
(11) Limited Partnership: Lufkin-Conroe Telecommunications Corp. (18%).
(12) Limited Partnership: Lufkin-Conroe Telecommunications Corp. (17%).
(13) Limited Partnership: Lufkin-Conroe Telecommunications Corp. (18%).
(14) 49% owned by Enserch de Monterrey S.A. de C.V.
(15) 99% owned by Compania Mexicana de Gas S.A. de C.V.
(16) 10% owned by Lone Star Gas Chile S.A. de C.V.
(17) 12.93% owned by Enserch Development Corporation.
(18) 6.97% owned by Eastern Electricity plc.
(19) 9.77% owned by Eastern Electricity plc.
(20) 8.3% owned by Eastern Electricity plc.
(21) 3.88% owned by Eastern Electricity plc.
(22) 5.99% owned by Eastern Electricity plc.
(23) 7.8% owned by Eastern Electricity plc.
(24) 13.5% owned by Eastern Generation Limited.
(25) 16.3% owned by Eastern Group European Investments Limited.
(26) 5% owned by Eastern Group plc.
(27) 33% owned by Westar Pty Ltd.
</FN>
</TABLE>
10
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, 1998, under Part I, Item
1--Business--US Electric Segment--Regulation and Rates and --US Gas
Segment--Regulation and Rates and Environmental Matters--US Segments, in
Texas Utilities Company's Registration Statement on Form S-3 (Nos. 333-27989
and 333-68663).
WORSHAM, FORSYTHE
& WOOLDRIDGE, L.L.P.
By: \s\ Timothy A. Mack
A Partner
March 22, 1999
Dallas, Texas
Exhibit 23(b)
CONSENT OF COUNSEL TO TU ELECTRIC
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, 1998, under Part I, Item
1--Business--US Electric Segment--Regulation and Rates and --US Gas
Segment--Regulation and Rates and Environmental Matters--US Segments, in
Texas Utilities Electric Company's Registration Statements on Form S-3
(Nos. 333-42985 and 33-69554).
WORSHAM, FORSYTHE
& WOOLDRIDGE, L.L.P.
By: \s\ Timothy A. Mack
A Partner
March 22, 1999
Dallas, Texas
Exhibit 23(c)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration
Statements No. 33-55931, 333-27989, 333-32831, 333-56055, 333-68663 and
333-68663-01 on Form S-3, and Registration Statements No. 333-32833,
333-32835, 333-32837, 333-32839, 333-32841, 333-32843, 333-45657 and 333-46671
on Form S-8 of Texas Utilities Company of our report dated March 5, 1999,
appearing in this Annual Report on Form 10-K of Texas Utilities Company for
the year ended December 31, 1998.
Dallas, Texas
March 22, 1999
Exhibit 23(d)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-69554 and 333-42985 on Form S-3, and Registration Statement No. 33-83976
on Form S-3, as amended by Post Effective Amendment No. 1 to Form S-3, of
Texas Utilities Electric Company of our report dated March 5, 1999,
appearing in this Annual Report on Form 10-K of Texas Utilities Electric
Company for the year ended December 31, 1998.
Dallas, Texas
March 22, 1999
<PAGE>
Exhibit 23(e)
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in Texas Utilities
Company's Registration Statements Nos. 33-55931, 333-27989, 333-56055,
333-68663, 333-68663-01 and 333-32831 on Form S-3, and Texas Utilities
Company's Registration Statements Nos. 333-32833, 333-32835, 333-32837,
333-32839, 333-32841, 333-32843, 333-45657 and 333-46671 on Form S-8 of our
report dated 3 March 1999 on the financial statements of TXU Eastern Holdings
Limited, a wholly owned subsidiary of Texas Utilities Company, appearing in
the Annual Report on Form 10-K of Texas Utilities Company for the year ended
December 31, 1998.
PricewaterhouseCoopers
London, England
19 March 1999
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0001023291
<NAME> TEXAS UTILITIES COMPANY
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 22,867
<OTHER-PROPERTY-AND-INVEST> 9,312
<TOTAL-CURRENT-ASSETS> 4,587
<TOTAL-DEFERRED-CHARGES> 2,748
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 39,514
<COMMON> 6,940
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 1,448
<TOTAL-COMMON-STOCKHOLDERS-EQ> 8,246
1,214
190
<LONG-TERM-DEBT-NET> 15,133
<SHORT-TERM-NOTES> 896
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 2,055
<LONG-TERM-DEBT-CURRENT-PORT> 1,071
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 10,709
<TOT-CAPITALIZATION-AND-LIAB> 39,514
<GROSS-OPERATING-REVENUE> 14,736
<INCOME-TAX-EXPENSE> 526
<OTHER-OPERATING-EXPENSES> 12,273
<TOTAL-OPERATING-EXPENSES> 12,273
<OPERATING-INCOME-LOSS> 2,463
<OTHER-INCOME-NET> 45
<INCOME-BEFORE-INTEREST-EXPEN> 2,508
<TOTAL-INTEREST-EXPENSE> 1,381
<NET-INCOME> 740
0
<EARNINGS-AVAILABLE-FOR-COMM> 740
<COMMON-STOCK-DIVIDENDS> 573
<TOTAL-INTEREST-ON-BONDS> 476
<CASH-FLOW-OPERATIONS> 2,005
<EPS-PRIMARY> 2.79
<EPS-DILUTED> 2.79
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000710182
<NAME> TEXAS UTILITIES ELECTRIC COMPANY
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 15,409
<OTHER-PROPERTY-AND-INVEST> 588
<TOTAL-CURRENT-ASSETS> 584
<TOTAL-DEFERRED-CHARGES> 1,824
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 18,405
<COMMON> 3,729
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 2,767
<TOTAL-COMMON-STOCKHOLDERS-EQ> 6,495
844
115
<LONG-TERM-DEBT-NET> 5,208
<SHORT-TERM-NOTES> 163
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 533
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 5,047
<TOT-CAPITALIZATION-AND-LIAB> 18,405
<GROSS-OPERATING-REVENUE> 6,488
<INCOME-TAX-EXPENSE> 490
<OTHER-OPERATING-EXPENSES> 4,665
<TOTAL-OPERATING-EXPENSES> 5,155
<OPERATING-INCOME-LOSS> 1,333
<OTHER-INCOME-NET> (2)
<INCOME-BEFORE-INTEREST-EXPEN> 1,331
<TOTAL-INTEREST-EXPENSE> 536
<NET-INCOME> 798
13
<EARNINGS-AVAILABLE-FOR-COMM> 785
<COMMON-STOCK-DIVIDENDS> 0
<TOTAL-INTEREST-ON-BONDS> 476
<CASH-FLOW-OPERATIONS> 1,805
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 99(bb)
---------------------------------------
DATED 24 FEBRUARY 1999
SYNDICATED FACILITIES AGREEMENT
TU Australia Holdings (AGP) Pty Ltd
TU Australia Holdings No. 1 Limited
TU Australia Holdings No. 2 Limited
("CORE BORROWERS")
TUA (No. 10) Pty Ltd
TUA (No. 11) Pty Ltd
("WCF BORROWERS")
Bank of America National Trust and
Savings Association
Deutsche Bank AG
National Australia Bank Limited
Toronto Dominion Australia Limited
("JOINT LEAD BANKS")
National Australia Bank Limited
("WORKING CAPITAL BANK")
The financial institutions specified
in the Details as Hedge Counterparties
("HEDGE COUNTERPARTIES")
National Australia Bank Limited
("FACILITY AGENT")
National Australia Bank Limited,
Singapore Branch
("OFFSHORE PAYING AGENT")
The financiers specified in the
Details as Financiers
("FINANCIERS")
MALLESONS STEPHEN JAQUES
Solicitors
Rialto
525 Collins Street
Melbourne Vic 3000
Telephone (61 3) 9643 4000
Fax (61 3) 9643 5999
DX 101 Melbourne
Ref: JLC
MELBOURNE/29@V01!.DOC
<PAGE>
CONTENTS SYNDICATED FACILITIES AGREEMENT
1 THE FACILITIES AND FACILITY LIMITS 11
Facilities 11
Financiers to fund by Loan Notes 11
Maximum accommodation 11
Several Obligations 11
Several Interests 12
Application of Proceeds 12
Limitation on Use 12
Termination 12
Reduction in Total Facility Limit 13
Performance of Deed Poll 13
2 USING THE FACILITIES 13
Drawings 13
Requesting a drawing 14
Effect of a Drawdown Notice 14
Conditions to first drawing 14
Conditions to all drawings 14
Benefit of conditions 14
Issue of Loan Notes 14
Relationship between Loans under the different
Deeds Poll 15
Location of Deeds Poll 16
First drawing 16
3 INTEREST 16
Notification of Interest Period 16
When Interest Periods begin and end 16
Notice of Interest Rate 16
4 WORKING CAPITAL FACILITY 16
5 CANCELLATION 17
6 FEES 17
Commitment fee 17
Cancellation and the commitment fee 17
Agent fees 17
Underwriting Fee 18
7 HEDGE COUNTERPARTIES 18
Accession of Hedge Counterparties 18
Undertaking of Hedge Counterparties 18
Execution of Hedge Counterparty Accession Agreement 19
Notification of Hedge Exposures 19
Consent 19
8 REPRESENTATIONS AND WARRANTIES 19
Representations and Warranties 19
<PAGE>
Repetition 19
9 UNDERTAKINGS 20
10 EVENTS OF DEFAULT 20
Events of Default 20
11 COSTS AND INDEMNITIES 20
What the Borrower agrees to pay 20
Indemnity 21
Items included in loss, liability and Costs 21
Payment of employees'losses 22
Currency conversion on judgment debt 22
12 REGISTRATION 22
Registered form 22
Issue of Loan Notes by inscription in Register 22
Effect of inscription 22
Appointment of Registrar 23
Register 23
Entries in, and rectification of, Register 24
Certified extracts from Register available 24
13 OBLIGATIONS AND RESTRICTIONS 24
No prospectus 24
Financiers to observe laws 25
Restrictions on offer and sales of Loan Notes 25
14 SCOPE OF AGENCY 25
Appointment 25
Extent of authority and obligations 25
Acceptance by Facility Agent 25
Binding nature of agency 25
Excluded roles and duties 26
15 HOW AND WHEN THE FACILITY AGENT ACTS 26
After consultation and instructions 26
Matters requiring instructions from all Financiers 26
Matters requiring instruction from a Majority of
Financiers 27
Overriding instructions 27
Without consultation or instructions 28
Facility Agent's actions 28
Financier's instructions 28
16 FACILITY AGENT'S OBLIGATIONS TO GIVE NOTICES AND COPIES 28
Facility Agent's obligations 28
Facility Agent's awareness of certain events 29
Facility Agent may assume compliance 29
Confidentiality 29
Limit on obligations 29
17 AGENT'S RELATIONSHIP WITH FINANCE PARTIES 30
<PAGE>
Individual responsibility of Finance Parties 30
Exoneration of Agent 30
Agent in capacity of a Financier 31
Agent dealing in different capacities 31
Facility Agent to act on Financier's request 31
Restriction on Finance Parties exercising rights 31
Notice of transfer 32
Financier to pay over amounts received directly 32
Pro-rata refunds 32
Proceeds of litigation 32
18 FUNDING OF FACILITY AGENT 33
Financiers to indemnify against non-payment 33
The Borrower's back-to-back indemnity 33
Funds before acting 33
If a Financier does not fund 33
Borrower's costs obligation not affected 34
19 FACILITY AGENT'S RELATIONSHIP WITH THE BORROWER 34
Compliance may be assumed 34
Facility Agent is not responsible for Finance Party's
breach 34
20 CHANGE OF AGENTS 34
Retirement 34
Removal 34
When retirement or removal takes effect 34
Permitted successor Agents 35
Obligations of retiring and successor Agents 35
Manner of appointment 35
21 MISCELLANEOUS PROVISIONS RELATING TO AGENCY 35
Security trust deed 35
Delegation by Agent 35
Duties when delegating 35
Responsibility for delegates 36
Facility Agent may rely on communications and opinions36
Force majeure 36
No responsibility for force majeure 36
22 ENTITLEMENTS TO PAYMENTS 36
Entitlement to payments 36
Direction to pay 37
23 DISTRIBUTION OF PAYMENTS 37
How Agent is to distribute 37
Excess distributions - contingencies 37
Postponement of non-funding Finance Parties 38
Manner of distribution 38
Distributions made in error 38
Application of payments 38
24 ASSIGNMENTS AND SUBSTITUTIONS BY FINANCIERS 38
<PAGE>
Assignment by Financier 38
Syndication - Offshore Deed Poll 39
Assignment by Financiers 40
Substitution certificates 41
Methods of substitution by Domestic Financiers or
Offshore Financiers 42
25 DEALING WITH INTERESTS 46
No dealing by Borrower 46
Dealings by Financier 46
Dealings by Facility Agent 46
26 NOTICES 46
Form 46
Waiver of notice period 47
27 GENERAL 47
Set-off 47
Certificates 47
Prompt performance 47
Discretion in exercising rights 47
Consents 48
Partial exercising of rights 48
No liability for loss 48
Conflict of interest 48
Remedies cumulative 48
Rights and obligations are unaffected 48
Indemnities 48
Variation and waiver 48
Confidentiality 48
Further steps 49
Inconsistent law 49
Supervening legislation 49
Time of the essence 49
Counterparts 49
Applicable law 49
Serving documents 50
28 INTERPRETATION 50
Definitions 50
References to certain general terms 57
Number 58
Headings 58
Deutsche 59
SCHEDULE 1 - CONDITIONS PRECEDENT (CLAUSE 2.4) 60
SCHEDULE 2 - DRAWDOWN NOTICE (CLAUSE 2) 64
SCHEDULE 3 - FORM OF SUBSTITUTION CERTIFICATE 65
1 DEFINITIONS 65
<PAGE>
2 TRANSFER AND SUBSTITUTION 65
Transfer 65
Substitution 66
3 INDEPENDENT ASSESSMENT BY SUBSTITUTE FINANCIER 66
4 PAYMENTS 66
5 WARRANTY 66
6 NOTICES 67
7 LAW 67
SCHEDULE 4 - HEDGE COUNTERPARTY ACCESSION AGREEMENT 68
SCHEDULE 5- OBLIGOR STRUCTURE CHART 70
SCHEDULE 6 - [DOMESTIC DEED POLL/OFFSHORE DEED POLL] 71
1 THE LOAN NOTES 72
Creation of Loan Notes 72
Core Borrowers'undertaking to pay 72
2 RIGHTS AND OBLIGATIONS OF FINANCIERS 72
Benefit and entitlement 72
Rights independent 72
Facility Agent and Financiers bound 72
Directions to hold Deed Poll 72
3 FORM, TITLE AND STATUS 72
Constitution under Loan Note Deed Poll 72
Independent obligations 73
Register conclusive 73
Holder absolutely entitled 73
Status of Loan Notes 73
4 TRANSFERS 73
Limit on transfer 73
Registration of transfer 73
5 INTEREST 73
Interest charges 73
Calculation of interest 73
6 REPAYING AND PREPAYING 74
Repayment 74
Voluntary prepayment 74
Apportionment 74
Prepayment and the Facility Limit 74
7 RELIQUIFYING BILLS 74
<PAGE>
Obligation to draw Bills 74
Financier as attorney 75
Termination 75
Indemnity by Financier 75
Deemed application 75
8 EVENT OF DEFAULT 75
9 PAYMENT 76
Manner of payment 76
Currency of payment 76
10 TAX 77
Payments to Agents or Financiers 77
Tax credit 77
11 INCREASED COSTS 77
Compensation payable by Core Borrowers 77
Negotiations 78
Prepayment 78
Effect of notice 79
No compensation 79
Retrospective costs 79
Change of lending office 79
12 ILLEGALITY OR IMPOSSIBILITY 80
Financier's right to suspend or cancel 80
Extent and duration 80
Notice requiring prepayment under Facility 80
Financier to seek alternative funding method 80
13 INTEREST ON OVERDUE AMOUNTS 81
Obligation to pay 81
Compounding 81
Interest following judgment 81
14 GENERAL 81
15 DEFINITIONS 81
Incorporation of definitions 81
New definitions 81
EXECUTION PAGES 83
<PAGE>
SYNDICATED FACILITIES AGREEMENT
DETAILS
INTERPRETATION
Definitions are at the end of the General Terms before the schedules.
-----------------------------------------------------
CORE BORROWERS, WCF BORROWERS, JOINT LEAD BANKS,
PARTIES WORKING CAPITAL BANK, HEDGE COUNTERPARTIES, FACILITY
AGENT, OFFSHORE PAYING AGENT and FINANCIERS, each as
described below.
-----------------------------------------------------
-----------------------------------------------------
CORE BORROWERS
TU Australia Holdings (Partnership) Limited
Partnership a limited partnership formed and
registered under the Partnership Act 1958 of Victoria,
the general partner of which is:
Name: TU Australia Holdings (AGP) Pty
Ltd
ACN: 086 014 931
Incorporated in: Victoria
and the limited partners of which are:
Name: TU Australia Holdings No. 1
Limited
ARBN:
Incorporated in: England and Wales
and:
Name: TU Australia Holdings No. 2
Limited
ARBN:
Incorporated in: England and Wales
Address: Level 49
525 Collins Street
Melbourne, Victoria
Fax: 9629 8292
Attention: Bob Shapard
-----------------------------------------------------
-----------------------------------------------------
WCF BORROWERS Name: TUA (No. 10) Pty Ltd
ACN: 086 015 036
Address: Level 49
525 Collins Street
Melbourne, Victoria
Fax: 9629 8292
Attention: Bob Shapard
Name: TUA (No. 11) Pty Ltd
ACN: 086 014 968
Address: Level 49
525 Collins Street
Melbourne, Victoria
Fax: 9629 8292
Attention: Bob Shapard
-----------------------------------------------------
<PAGE>
-----------------------------------------------------
JOINT LEAD BANKS Name: Bank of America National Trust and Savings
Association
ARBN: 064 874 531
Address: Level 37, Rialto South Tower,
525 Collins Street,
Melbourne, Victoria, 3000
Fax: (613) 9269 1534
Telephone: (613) 9623 6400
Attention: Vice President
Name: Deutsche Bank AG
ARBN: 064 164 162
and
Name: Deutsche Australia Limited
ACN: 006 385 593
Address: Level 23, 333 Collins Street
Melbourne , Victoria
Fax: (613) 9270 4451
Telephone: (613) 9270 4478
Attention: Manager, Loans Administration
Name: National Australia Bank Limited
ACN: 004 044 937
Address: Level 2
271 Collins Street
Melbourne Vic 3000
Fax: (613) 9659 6927
Telephone: (613) 9659 9159
Attention: Ms Chris Kunaratnam
Name: Toronto Dominion Australia Limited
ACN: 004 858 020
Address: Level 36
385 Bourke Street
Melbourne Vic 3000
Fax: (613) 9670 3779
Telephone: (613) 9602 1344
Attention: Manager, Credit Administration
-----------------------------------------------------
<PAGE>
-----------------------------------------------------
WORKING CAPITAL BANK Name: National Australia Bank Limited
ACN: 004 044 937
Address: Level 2
271 Collins Street
Melbourne Vic 3000
Fax: (613) 9659 6927
Telephone: (613) 9659 9159
Attention: Ms Chris Kunaratnam
-----------------------------------------------------
-----------------------------------------------------
HEDGE COUNTERPARTIES Name: Bank of America National Trust and Savings
Association
ARBN: 064 874 531
Address: Level 37, Rialto South Tower,
525 Collins Street,
Melbourne, Victoria, 3000
Fax: (613) 9269 1534
Telephone: (613) 9623 6400
Attention: Vice President
Name: Deutsche Bank AG
ARBN: 064 164 162
Address: Level 23
333 Collins Street
Melbourne, Victoria
Fax: (613) 9270 4452
Telephone: (613) 9270 4431
Attention: Global Markets, Settlements
Name: National Australia Bank Limited
ACN: 004 044 937
Address: Level 2
271 Collins Street
Melbourne Vic 3000
Fax: (613) 9659 6927
Telephone: (613) 9659 9159
Attention: Ms Chris Kunaratnam
<PAGE>
Name: The Toronto -Dominion Bank
ARBN: 082 818 175
Address: Level 36
385 Bourke Street
Melbourne Vic 3000
Fax: (613) 9670 3779
Telephone: (613) 9602 1344
Attention: Manager, Credit Administration
-----------------------------------------------------
-----------------------------------------------------
FACILITY AGENT Name: National Australia Bank Limited
ACN: 004 044 937
Address: Level 2
271 Collins Street
Melbourne Vic 3000
Fax: (613) 9659 6927
Telephone: (613) 9659 6755
Attention: Head of Agency
-----------------------------------------------------
-----------------------------------------------------
OFFSHORE PAYING AGENT Name: National Australia Bank Limited,
Singapore Branch
ACN: 004 044 937
Address: 5 Temasek Boulevard,
#15-01, Suntec City Tower,
Singapore
Fax: (65) 338 3028
Telephone:
Attention: Corporate Banking
-----------------------------------------------------
-----------------------------------------------------
FINANCIERS See last page of these Details
-----------------------------------------------------
-----------------------------------------------------
TOTAL FACILITY LIMIT A$1,100,000,000, as reduced by any reductions in the
Facility Limits
-----------------------------------------------------
<PAGE>
-----------------------------------------------------
TRANCHE A FACILITY DESCRIPTION: 1 year non-revolving cash advance
facility.
FACILITY LIMIT: A$275,000,000, reduced by the total
of all cancellations, prepayments
and repayments under this agreement
including under clauses 1.13
(Reduction in Total Facility Limit)
and 1.14 (Reduction in Total
Facility Limit).
AVAILABILITY The period from the date of this
PERIOD: agreement to the earlier of the
close of business on Financial Close
and 15 March 1999.
MATURITY DATE: The anniversary of the date of
Financial Close.
INTEREST RATE: Bank Bill Rate plus the Margin.
INTEREST Not less than 30 and not more than
PERIODS: 180 days exceptin the initial 6
months from Financial Close, in
which case, 30 days.
PURPOSE: To fund the subscription by the Core
Borrowers of shares in Holdco.
DRAWINGS: Minimum A$10,000,000 and a whole
multiple of A$1,000,000.
PREPAYMENT: Prepayments of at least A$10,000,000
or a whole multiple of A$5,000,000
are permitted on 5 Business Days'
notice expiring on the last day of
the Interest Period of the relevant
Loan.
-----------------------------------------------------
-----------------------------------------------------
TRANCHE B FACILITY DESCRIPTION: 3 year revolving cash advance
facility.
FACILITY LIMIT: A$220,000,000, reduced by the total
of all cancellations and repayments
under this agreement including under
clauses 1.13 (Reduction in Total
Facility Limit) and 1.14 (Reduction
in Total Facility Limit).
AVAILABILITY The period from the date of this
PERIOD: agreement to the close of business
on the Maturity Date.
MATURITY DATE: The third anniversary of the date of
Financial Close.
INTEREST RATE: Bank Bill Rate plus the Margin.
INTEREST Not less than 30 and not more than
PERIODS: 180 days except in the initial 6
months from Financial Close, in
which case, 30 days.
PURPOSE: To fund the subscription by the Core
Borrowers of shares in Holdco.
DRAWINGS: Minimum A$10,000,000 and a whole
multiple of A$1,000,000.
PREPAYMENT: Prepayments of at least
A$10,000,000 or a whole multiple of
A$5,000,000 are permitted on 5
Business Days' notice expiring on
the last day of the Interest Period
of the relevant Loan.
-----------------------------------------------------
<PAGE>
-----------------------------------------------------
TRANCHE C FACILITY DESCRIPTION: 3 year non-revolving cash advance
facility.
FACILITY LIMIT: A$605,000,000, reduced by the total
of all cancellations, prepayments and
repayments under this agreement
including under clauses 1.13
(Reduction in Total Facility Limit)
and 1.14 (Reduction in Total Facility
Limit).
AVAILABILITY The period from the date of this
PERIOD: agreement to the earlier of the
close of business on Financial Close
and 15 March 1999.
MATURITY DATE: The third anniversary of the date of
Financial Close.
INTEREST RATE: Bank Bill Rate plus the Margin.
INTEREST Not less than 30 and not more than
PERIODS: 180 days except in the initial 6
months from Financial Close, in
which case, 30 days.
PURPOSE: To fund the subscription by the Core
Borrowers of shares in Holdco.
DRAWINGS: Minimum A$10,000,000 and a whole
multiple of A$1,000,000.
PREPAYMENT: Prepayments of at least A$10,000,000
or a whole multiple of A$5,000,000
are permitted on 5 Business Days'
notice expiring on the last day of
the Interest Period of the relevant
Loan.
-----------------------------------------------------
-----------------------------------------------------
WORKING CAPITAL FACILITY FACILITY LIMIT: A$5,000,000, as reduced by the total
of all cancellations.
MATURITY DATE: The second anniversary of the date of
Financial Close. See Working Capital
Terms and Conditions for further
details.
-----------------------------------------------------
-----------------------------------------------------
FEES (also see clause 6) UNDERWRITING As separately agreed in writing
FEE: between the Core Borrowers and the
Joint Lead Banks.
COMMITMENT FEE: 40% of the applicable Margin,
calculated on the daily balance of
the Undrawn Facility Limit using a
365 day year from the earlier of the
date of Financial Close and 24
February 1999.
AGENCY FEE: As separately agreed in writing
between the Facility Agent and the
Core Borrowers.
----------------------------------------------------
<PAGE>
-----------------------------------------------------
SECURITY includes:
o the Guarantee
o the Partnership Mortgage
o the Holdco Mortgage
o the BS1 Mortgage, Share Mortgage and Charge
-----------------------------------------------------
-----------------------------------------------------
TRANSACTION include:
DOCUMENTS
o this agreement
o any Drawdown Notice
o any Substitution Certificate
o the Security
o the Security Trust Deed
o the Fee Letters
o the Working Capital Terms and Conditions
o each Hedge Agreement
o each Material Contract
o the Domestic Deed Poll
o the Offshore Deed Poll
o each Loan Note
-----------------------------------------------------
-----------------------------------------------------
BUSINESS DAY PLACE
Melbourne and Sydney
-----------------------------------------------------
-----------------------------------------------------
GOVERNING LAW
Victoria
-----------------------------------------------------
-----------------------------------------------------
DATE OF AGREEMENT
See front page
-----------------------------------------------------
<PAGE>
FINANCIERS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
NAME AND DETAILS TRANCHE A TRANCHE B TRANCHE C WORKING TOTAL
COMMITMENT COMMITMENT COMMITMENT CAPITAL COMMITMENT
A$ A$ A$ COMMITMENT A$
$A
- ------------------------------------------------------------------------------------------------
NAME:
BA Australia Limited
60,937,500 48,750,000 134,062,500 243,750,000
ACN: 004 417 341
ADDRESS AND LENDING OFFICE:
Level 37, Rialto South Tower,
525 Collins Street
Melbourne Vic 3000
FAX: (613) 9269 1534
TELEPHONE: (613) 9623 6400
ATTENTION: Vice President
- ------------------------------------------------------------------------------------------------
NAME:
Deutsche Bank AG
60,937,500 48,750,000 134,062,500 243,750,000
ARBN: 064 164 162
and:
NAME:
Deutsche Australia Limited
ACN: 006 385 593
ADDRESS AND LENDING OFFICE:
Level 23
333 Collins Street
Melbourne Vic 3000
FAX: (613) 9270 4451
TELEPHONE: (613) 9270 4472
ATTENTION: Manager, Loans
Administration
- ------------------------------------------------------------------------------------------------
<PAGE>
- ------------------------------------------------------------------------------------------------
NAME AND DETAILS TRANCHE A TRANCHE B TRANCHE C WORKING TOTAL
COMMITMENT COMMITMENT COMMITMENT CAPITAL COMMITMENT
A$ A$ A$ COMMITMENT A$
$A
- ------------------------------------------------------------------------------------------------
NAME:
National Australia Bank
Limited
60,937,500 48,750,000 134,062,500 5,000,000 248,750,000
ACN: 004 044 937
ADDRESS AND LENDING OFFICE:
Level 2
271 Collins Street
Melbourne Vic 3000
FAX: (613) 9659 6927
TELEPHONE: (613) 9659 9159
ATTENTION: Ms Chris
Kunaratnam
- ------------------------------------------------------------------------------------------------
NAME:
Toronto Dominion Australia
Limited
60,937,500 48,750,000 134,062,500 243,750,000
ACN: 004 858 020
ADDRESS AND LENDING OFFICE:
Level 36
385 Bourke Street
Melbourne Vic 3000
FAX: (613) 9670 3779
TELEPHONE: (613) 9602 1344
ATTENTION:
Manager, Credit Administration
- ------------------------------------------------------------------------------------------------
NAME:
Paribas Group Australia
Limited
31,250,000 25,000,000 68,750,000 125,000,000
ACN: 002 174 843
ADDRESS AND LENDING OFFICE:
Level 11
3 Spring Street
Sydney NSW 2000
FAX:(02) 9241 5363
TELEPHONE: (02) 9251 7766
ATTENTION:
Relationship Manager
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
GENERAL TERMS
1 THE FACILITIES AND FACILITY LIMITS
FACILITIES
1.1 The Financiers grant to the Core Borrowers:
(a) a non-revolving cash advance facility under the Tranche
A Facility during the Availability Period in an
aggregate amount not exceeding the Facility Limit;
(b) a revolving cash advance facility under the Tranche B
Facility during the Availability Period in an aggregate
amount not exceeding the Facility Limit; and
(c) a non-revolving cash advance facility under the Tranche
C Facility during the Availability Period in an
aggregate amount not exceeding the Facility Limit.
1.2 The Working Capital Bank grants to the WCF Borrowers the Working
Capital Facility on the terms of this agreement and the Working
Capital Terms and Conditions until the Maturity Date in an
aggregate amount not exceeding the Facility Limit.
FINANCIERS TO FUND BY LOAN NOTES
1.3 Each Financier agrees to provide its Proportion of Loans under a
Facility requested by a Core Borrower under this agreement:
(a) as a subscription for a Loan Note registered under a
Deed Poll;
(b) through its Lending Office; and
(c) up to an amount not exceeding its Commitment for the
relevant Facility.
MAXIMUM ACCOMMODATION
1.4 The maximum total amount of financial accommodation available to
the Borrowers under this agreement is the aggregate of the Total
Facility Limit and the Facility Limit for the Working Capital
Facility. That maximum applies to the Borrowers as a whole and
is not a limit applying to each Borrower individually.
1.5 Despite anything in this agreement, a Financier need not provide
financial accommodation under this agreement to the extent by
which its Drawn Commitment for a Facility after providing that
financial accommodation would exceed its Commitment for that
Facility.
SEVERAL OBLIGATIONS
1.6 The obligations of each Financier under this agreement and each
Bank Finance Document are several. The failure of a Financier to
perform its obligations under a Bank Finance Document will not
relieve any other Financier, an Agent or a Borrower of any of
their respective obligations under a Bank Finance Document. An
Agent will not be responsible for the obligations of any
Financier (except for its own obligations, if any, as a
<PAGE>
Financier) nor will any Financier be responsible for the
obligations of any other Financier.
SEVERAL INTERESTS
1.7 The interests of each Agent and each Financier under this
agreement and each Bank Finance Document are several. Subject to
the provisions of the Bank Finance Documents, each Financier may
separately enforce its rights under any Bank Finance Document.
APPLICATION OF PROCEEDS
1.8 The Core Borrowers must apply the proceeds obtained from a
drawing under a Facility only for the purpose of financing the
subscription of shares in Holdco provided that the proceeds are
ultimately applied:
(a) in the case of the proceeds from the Tranche A Facility
and the Tranche C Facility, to pay the Total Purchase
Price and Acquisition Costs; and
(b) in the case of the proceeds from the Tranche B Facility,
to pay the Total Purchase Price and Acquisition Costs
and the working capital, Capital Expenditure and general
corporate requirements of the WCF Borrowers,
and the WCF Borrowers must apply the proceeds from the Working Capital
Facility, to fund the working capital requirements of the WCF
Borrowers.
LIMITATION ON USE
1.9 If the Core Borrowers wish to use a Facility they must do so
together and not individually. Subject to clause 11.5 of the
Security Trust Deed, each Core Borrower is jointly and severally
liable for all financial accommodation provided under this
agreement.
1.10 Subject to the terms of this agreement and unless otherwise
agreed by the Financiers, the first drawing under the Facilities
must be made on Financial Close.
TERMINATION
1.11 If:
(a) the Treasurer of the State of Victoria, Westar, Westar
Assets or Kinetik enters into an agreement with a person
other than the Purchasers for the purpose of the
disposal of all or any of the shares in or the assets of
Gascor, Westar, Westar Assets or Kinetik; or
(b) Financial Close has not occurred on or before 15 March
1999 (or such later date as all of the Financiers may
agree in writing),
then the Availability Period will automatically expire and all of the
Commitments will automatically be reduced to nil and the Facilities will
terminate.
1.12 Except as provided in clause 1.11 (Termination), a Facility
terminates on the Maturity Date for that Facility.
<PAGE>
REDUCTION IN TOTAL FACILITY LIMIT
1.13
(a) On or before the date of Financial Close and after the
entry by the Core Borrowers into Hedge Agreements with
each Hedge Counterparty in compliance with the Security
Trust Deed, the Facility Agent must immediately update
the Original Base Case Model to reflect the actual
interest rates applying (or to apply) as from the date
of Financial Close under the Hedge Agreements. The
Facility Agent will agree with the Core Borrowers the
new assumptions with regard to interest rates and adjust
the Original Base Case Model to reflect the new
assumptions regarding interest rates.
(b) If, on the basis solely of that updated Base Case Model,
the projected Consolidated Interest Cover Ratio on any
Calculation Date prior to the tenth anniversary of
Financial Close is less than the projected ratio in the
Original Base Case Model on each relevant Calculation
Date then the Facility Limits for the Tranche A
Facility, Tranche B Facility and Tranche C Facility (and
the Commitments of each Financier on a pro rata basis)
may be reduced and cancelled at the sole discretion of
the Joint Lead Banks by such an amount as is required so
that the projected Consolidated Interest Cover Ratio
under the updated Base Case Model on each Calculation
Date prior to the tenth anniversary of Financial Close
is not less than the projected ratio in the Original
Base Case Model.
1.14 Prior to Financial Close, the Borrower must notify the Facility
Agent of the Total Purchase Price and Acquisition Costs. If the
Total Facility Limit on Financial Close is greater than 70% of
the aggregate of the Total Purchase Price and the Acquisition
Costs, then the Facility Limits for the Tranche A Facility,
Tranche B Facility and Tranche C Facility (and the Commitments
of each Financier on a pro rata basis) will be proportionally
reduced and cancelled by such amount as is required so that the
Total Facility Limit equals 70% of the aggregate of the Total
Purchase Price and the Acquisition Costs.
PERFORMANCE OF DEED POLL
1.15 Each Financier, the Facility Agent and the Offshore Paying Agent
undertakes to do everything a Deed Poll provides that it is to
do and agrees to be bound by the Deed Polls.
2 USING THE FACILITIES
DRAWINGS
2.1 If a Borrower wants to use:
(a) the Tranche A Facility or the Tranche C Facility, it may
only do so by a single drawing of a Loan under each
Facility on Financial Close;
(b) the Tranche B Facility, it may do so by no more than six
drawings of Loans; and
<PAGE>
(c) the Working Capital Facility, it may do so in accordance
with the Working Capital Terms and Conditions. Clauses
2.2, 2.3, 2.5 and 3 do not apply to the Working Capital
Facility.
REQUESTING A DRAWING
2.2 If the Core Borrowers want a drawing, they agree to give a
Drawdown Notice to the Facility Agent by 11am on the third
Business Day before the day it wants the drawing. The Agent must
promptly inform the Financiers of the receipt of a Drawdown
Notice.
EFFECT OF A DRAWDOWN NOTICE
2.3 A Drawdown Notice is effective when the Facility Agent actually
receives it in legible form. An effective Drawdown Notice is
irrevocable.
CONDITIONS TO FIRST DRAWING
2.4 Before a Borrower requests the first drawing or requests
financial accommodation under the Working Capital Facility, it
agrees to ensure that the Facility Agent receives every item
listed in schedule 1 (Conditions Precedent) in form and
substance satisfactory to the Facility Agent. Any item required
to be certified must be certified by a director of the relevant
Obligor as being true and complete as at a date no earlier than
7 days prior to the date of this agreement.
CONDITIONS TO ALL DRAWINGS
2.5 A Financier need not provide any financial accommodation unless:
(a) it is to be provided during the Availability Period set
out in the Details for the relevant Facility; and
(b) the Financier's Drawn Commitment for a Facility after
providing the accommodation would not be greater than
its Commitment for the Facility; and
(c) the Facility Agent has received a Drawdown Notice in
respect of it; and
(d) the representations and warranties in clause 5 of the
Security Trust Deed and in the Drawdown Notice and the
statements in the Drawdown Notice are correct and not
misleading at the date of the Drawdown Notice and at the
date the accommodation is provided; and
(e) no Event of Default or Potential Event of Default
subsists or would result from the accommodation being
provided.
BENEFIT OF CONDITIONS
2.6 Each condition to drawing is for the sole benefit of the
Financiers and may be waived by the Facility Agent.
ISSUE OF LOAN NOTES
2.7 On the Drawdown Date for a drawing of a Loan under a Facility:
<PAGE>
(a) each Financier agrees to provide its Proportion of the
Loan requested (which shall constitute a subscription
for a Loan Note without any further action on the part
of the Financier) to the Facility Agent; and
(b) the Core Borrowers shall:
(i) in the case of the first Drawdown Date, deliver
to the Facility Agent (by release from escrow)
the Offshore Deed Poll outside Australia and the
Domestic Deed Poll in Victoria; and
(ii) issue (by inscription in the Register) either a
Domestic Loan Note or an Offshore Loan Note to
each Financier with:
(A) a maximum principal amount which may be
outstanding from time to time under it
equal to the Financier's Commitment for
the relevant Facility; and
(B) a principal amount outstanding equal to
the Financier's Proportion of the Loans
under that Facility from time to time
outstanding.
The Core Borrowers will before the first Drawdown Date
sign and seal each Deed Poll in the jurisdiction in
which it is to be delivered and provide them to the
Facility Agent in escrow, for release on receipt of the
money referred to in this clause to be delivered and
dated by the Facility Agent on the date of that receipt.
2.8 On receipt of the amount referred to in clause 2.7, the Facility
Agent shall:
(a) pay that amount in the manner specified in the Drawdown
Notice;
(b) in the case of the first Drawdown Date, deliver and date
the Deeds Poll; and
(c) enter the Loan Notes to be issued under clause 2.7 in
the relevant Register. That entry will constitute the
issue of the Loan Notes.
2.9 In the case of amounts received under or in relation to the
Offshore Deed Poll or Offshore Loan Notes, payments and accounts
under this agreement must be outside Australia unless the IWT
Amending Legislation has become law.
RELATIONSHIP BETWEEN LOANS UNDER THE DIFFERENT DEEDS POLL
2.10 The Core Borrowers shall drawdown and repay or prepay amounts
between the Loan Notes rateably according to the participation
in the Principal Outstanding of the Financiers who hold them,
<PAGE>
except where the Core Borrowers are expressly permitted to repay
or prepay a Loan or an individual Financier under the Bank
Finance Documents.
LOCATION OF DEEDS POLL
2.11 The Facility Agent shall at all times:
(a) retain the Domestic Deed Poll in Victoria; and
(b) until the IWT Amending Legislation has become law,
retain the Offshore Deed Poll outside Australia and,
afterwards, outside Australia or in Victoria.
FIRST DRAWING
2.12 The Core Borrowers must ensure that the total principal amount
drawn on the first Drawdown Date is an amount that will ensure
that each Domestic Loan Note has an outstanding principal amount
of at least A$500,000 or the Domestic Loan Notes issued on the
first Drawdown Date are issued in a manner which otherwise
constitutes an "excluded issue" within the meaning of the
Corporations Law.
3 INTEREST
- --------------------------------------------------------------------------------
NOTIFICATION OF INTEREST PERIOD
3.1 The first Interest Period for a Loan is the period specified in
the Drawdown Notice. Each subsequent Interest Period is a period
notified by the Core Borrowers to the Facility Agent by 11am on
the second Business Day before the last day of the current
Interest Period. However, in each case, the specified period
must be one that is set out in the Details. If the Core
Borrowers do not give notice or correct notice, the subsequent
Interest Period is the same length as the Interest Period which
immediately precedes it (or it is the period until the Maturity
Date, if that is shorter than the preceding Interest Period).
WHEN INTEREST PERIODS BEGIN AND END
3.2 The first Interest Period for a Loan begins on its Drawdown
Date. Each subsequent Interest Period begins on the day when the
preceding Interest Period for the Loan ends. An Interest Period
which would otherwise end on a day which is not a Business Day
ends on the next Business Day unless that next Business Day
would fall in a new calendar month in which case the Interest
Period ends on the immediately preceding Business Day and an
Interest Period which would otherwise end after a Maturity Date
for a Facility ends on the Maturity Date for that Facility.
NOTICE OF INTEREST RATE
3.3 The Facility Agent shall notify the Core Borrowers of the
Interest Rate applicable to an Interest Period in respect of a
Loan promptly following a request in writing from the Core
Borrowers.
4 WORKING CAPITAL FACILITY
- --------------------------------------------------------------------------------
4.1 The Working Capital Bank will, save as provided for in this
clause, provide the Working Capital Facility on the terms and
conditions of the Working Capital Terms and Conditions.
<PAGE>
4.2 A copy of the Working Capital Terms and Conditions must, on
request by the Agent, be provided by the Working Capital Bank to
the Facility Agent and the WCF Borrowers consent to the same.
4.3 The WCF Borrowers and the Working Capital Bank agree with and
for the benefit of each other Financier that the principal
amount outstanding under the Working Capital Facility provided
by the Working Capital Bank will not exceed the Facility Limit
for the Working Capital Facility.
4.4 The Working Capital Bank may not, until a notice has been served
by the Security Trustee under and in accordance with clause 8.2
of the Security Trust Deed, demand repayment of any moneys owing
to it in respect of the Working Capital Facility.
4.5 Except as provided in clause 4.4, to the extent of any
inconsistency between the provisions of the Working Capital
Terms and Conditions and the provisions of this agreement (other
than in respect of drawdown mechanics, pricing, fees,
availability and required payments), the provisions of this
agreement will prevail.
4.6 On request from the Facility Agent, the Working Capital Bank
will provide to the Facility Agent details of all moneys owing
under the Working Capital Facility and the WCF Borrowers consent
to such information being so provided.
5 CANCELLATION
- --------------------------------------------------------------------------------
The Borrowers may cancel the Undrawn Facility Limit of a Facility in
whole or in part by giving the Agent at least five Business Days'
notice. A partial cancellation must be at least A$5,000,000 and a whole
multiple of A$5,000,000. Once given, the notice is irrevocable. The
Facility Limit for the Facility reduces by the amount of any
cancellation. Each Financier's Commitment for the Facility also reduces
by its Proportion of the cancelled amount.
6 FEES
- --------------------------------------------------------------------------------
COMMITMENT FEE
6.1 The Borrowers agree to pay to the Facility Agent quarterly in
arrears (the first quarter ending three months after the earlier
of the date of Financial Close and 24 February 1999) and on the
Maturity Date for the Tranche B Facility, a commitment fee in
respect of each Facility as set out in the Details.
CANCELLATION AND THE COMMITMENT FEE
6.2 If a Borrower cancels any of the Undrawn Facility Limits, it
agrees to pay the commitment fee in respect of the cancelled
amount up to and including the cancellation date.
AGENT FEES
6.3 The Core Borrowers agree to pay the Facility Agent for itself an
agency fee in accordance with the terms separately agreed in an
agency fee letter between the Core Borrowers and the Facility
Agent.
<PAGE>
UNDERWRITING FEE
6.4 The Core Borrowers agree to pay to the Joint Lead Banks an
underwriting fee in accordance with the terms separately agreed
in an underwriting fee letter between the Core Borrowers and the
Joint Lead Banks.
7 HEDGE COUNTERPARTIES
- --------------------------------------------------------------------------------
ACCESSION OF HEDGE COUNTERPARTIES
7.1 No Financier providing hedging facilities but not party to this
agreement as a Hedge Counterparty will be entitled to share in
any of the security constituted by the Security in respect of
the Hedge Liabilities unless and until it has executed a Hedge
Counterparty Accession Agreement.
UNDERTAKING OF HEDGE COUNTERPARTIES
7.2 Except as the Majority of Financiers have previously consented
to in writing, no Hedge Counterparty will:
(a) demand (other than as may be necessary in order to
exercise a right to terminate or close out any hedging
transaction as provided in and permitted under clause
7.2(b)) or receive payment, prepayment or repayment of,
or any distribution in respect of, or on account of, any
Hedge Liabilities in cash or in kind, or apply any money
or property in or towards the discharge of any Hedge
Liabilities except:
(i) for scheduled payments arising under the
original terms of the Hedge Agreements (without
regard to any amendments made after the date of
those Hedge Agreements other than those
permitted by the Majority of Financiers); and/or
(ii) for the proceeds of enforcement of the Security
received and applied in accordance with the
terms of this agreement or any other Bank
Finance Document;
(b) exercise any right to terminate or close out any hedging
transaction under the Hedge Agreements prior to its
stated maturity unless:
(i) the Core Borrower has failed to make any payment
due under the Hedge Agreement after any grace
periods applicable thereto and such default is
not cured within 5 Business Days of notice of
such default being given to the Agent; or
(ii) the Security Trustee has made a declaration
under clause 8.2 of the Security Trust Deed; or
(iii) the Hedge Counterparty is entitled to exercise
such a right under section 5(b)(i) (Illegality)
of the Hedge Agreement; or
<PAGE>
(iv) the Core Borrowers have fully paid all Amounts
Owing to the Financiers under this agreement or
the Facilities have been terminated or
cancelled; or
(c) discharge all or any part of the Hedge Liabilities by
set-off, any right of combination of accounts or
otherwise except if and to the extent that those Hedge
Liabilities are permitted to be paid under paragraph (a)
above; or
(d) permit to subsist or receive after the date of Financial
Close any Security Interest or any financial support
(including without limitation the taking of any
participation, the giving of any guarantee, indemnity or
other assurance against loss, or the making of any
deposit or payment) for, or in respect of, any of the
Hedge Liabilities other than under the Security or any
other Security Interest or support granted for the full
benefit (save to the extent otherwise required so as to
comply with applicable law) of the Finance Parties.
EXECUTION OF HEDGE COUNTERPARTY ACCESSION AGREEMENT
7.3 Each party to this agreement irrevocably authorises the Facility
Agent to sign each Hedge Counterparty Accession Agreement on its
behalf and acknowledges that upon the same being signed, it
shall have consented to such Hedge Counterparty becoming party
to this agreement.
NOTIFICATION OF HEDGE EXPOSURES
7.4 Each Hedge Counterparty must, on request by the Facility Agent,
give written notice to the Agent certifying its Hedge Exposure
as at the date of the notice.
CONSENT
7.5 To the extent that the terms of any Hedge Agreement prohibit the
Core Borrowers transferring any interest or obligation under a
Hedge Agreement to the Security Trustee without the consent of
the Hedge Counterparty, the Hedge Counterparty gives that
consent in relation to the Partnership Mortgage.
8 REPRESENTATIONS AND WARRANTIES
- --------------------------------------------------------------------------------
REPRESENTATIONS AND WARRANTIES
8.1 Each Borrower makes the representations and warranties made by
it in clause 5 of the Security Trust Deed.
REPETITION
8.2 The representations and warranties made pursuant to clause 8.1
are taken also to be made on each Drawdown Date and on the date
of delivery of a compliance certificate in accordance with
clause 6.1(l) of the Security Trust Deed by reference to the
then current circumstances. Each Borrower agrees to notify the
Facility Agent of anything that happens that would mean it could
not truthfully repeat all of its representations and warranties
on each Drawdown Date and on the date of delivery of a
compliance certificate in accordance with clause 6.1(l) of the
<PAGE>
Security Trust Deed by reference to the then current
circumstances.
9 UNDERTAKINGS
- --------------------------------------------------------------------------------
9.1 Each Borrower makes the undertakings given by it in clause 6 of
the Security Trust Deed.
10 EVENTS OF DEFAULT
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EVENTS OF DEFAULT
10.1 Each of the events specified in clause 8.1 of the Security Trust
Deed will be an Event of Default under this agreement (whether
or not it is within the Borrowers' power to prevent it).
11 COSTS AND INDEMNITIES
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WHAT THE BORROWER AGREES TO PAY
11.1 The Borrowers agree to pay or reimburse the Facility Agent on
demand for:
(a) the reasonable Costs of the Facility Agent and each
Finance Party in connection with:
(i) the negotiation, preparation, execution and
registration of and payment of Taxes on any Bank
Finance Document (other than a Substitution
Certificate executed after the primary
syndication of the Facilities); and
(ii) their being satisfied that conditions to drawing
have been met; and
(iii) giving and considering consents, approvals,
agreements, waivers, discharges and releases and
any variation or amendment of, under, to or
otherwise in connection with a Bank Finance
Document; and
(b) the reasonable Costs of the Joint Lead Banks in
connection with the syndication of the Facilities for a
period of not more than six months from Financial Close;
and
(c) the Costs of the Agents and each Finance Party in
connection with the enforcing or preserving rights (or
considering, enforcing or preserving them) under any
Bank Finance Document, or doing anything in connection
with any enquiry by an authority involving the Obligor
or any of its Related Entities; and
(d) Taxes and fees (including registration fees) and fines
and penalties in respect of fees paid, or that the
Facility Agent reasonably believes are payable, in
connection with any Bank Finance Document or a payment
<PAGE>
or receipt or any other transaction contemplated by any
Bank Finance Document. However, the Borrower need not
pay a fine or penalty in connection with Taxes or fees
to the extent that it has placed the Facility Agent in
sufficient cleared funds for the Facility Agent to be
able to pay the Taxes or fees by the due date.
The Facility Agent may debit any of these amounts to a
Borrower's account after asking the Borrower to pay and the
Borrower has failed to pay the amount requested.
INDEMNITY
11.2 The Borrowers indemnify each Agent and each Finance Party
against any liability or loss arising from, and any Costs
incurred in connection with:
(a) financial accommodation requested under a Bank Finance
Document not being provided in accordance with the
request for any reason except default of the Agent or
the Financier; or
(b) financial accommodation under a Bank Finance Document
being repaid, discharged or made payable other than at
its maturity or on an Interest Payment Date relevant to
that accommodation; or
(c) an Agent or the Finance Party acting in connection with
a Bank Finance Document in good faith on fax or
telephone instructions purporting to originate from the
offices of an Obligor or to be given by an Authorised
Officer of an Obligor and which it believes to be
genuine and correct; or
(d) an Event of Default; or
(e) an Agent or the Finance Party exercising or attempting
to exercise a right or remedy in connection with a Bank
Finance Document after an Event of Default and for so
long as it subsists; or
(f) any indemnity an Agent or the Finance Party properly
gives a Controller or an administrator of an Obligor or
to the Security Trustee in respect of an indemnity
properly given by the Security Trustee to such
Controller or administrator.
ITEMS INCLUDED IN LOSS, LIABILITY AND COSTS 11.3 The Borrowers agree that:
(a) the Costs referred to in clause 11.1 (What the Borrower
agrees to pay) and the liability, loss or Costs referred
to in clause 11.2 (Indemnity) include in relation to
clause 11.1(a) and (b), reasonable legal Costs and in
relation to clause 11.1(c) and 11.2, legal Costs in
accordance with any written agreement as to legal costs
or, if no agreement, on whichever is the higher of a
full indemnity basis or solicitor and own client basis;
and
(b) the Costs referred to in clause 11.1((a)) and (c) (What
the Borrower agrees to pay) include those paid, or that
<PAGE>
the Agent or relevant Finance Party reasonably believes
are payable, to persons engaged by the Agent or a
Finance Party in connection with the Bank Finance
Documents (such as consultants); and
(c) loss or liability and any Costs in any indemnity under
the Bank Finance Documents may include "break costs".
These may be calculated by any method the Finance Party
reasonably chooses including by reference to any loss it
incurs because the Finance Party terminates arrangements
it has made with others to fund (or to maintain its
funding of) financial accommodation under the Bank
Finance Documents.
PAYMENT OF EMPLOYEES' LOSSES
11.4 The Borrowers agree to pay the Facility Agent an amount equal to
any liability or loss and any Costs of the kind referred to in
clause 11.2 (Indemnity) suffered or incurred by any employee,
officer, agent or contractor of an Agent or the Finance Party
unless caused by that person's gross negligence.
CURRENCY CONVERSION ON JUDGMENT DEBT
11.5 If a judgment, order or proof of debt for an amount in
connection with a Bank Finance Document is expressed in a
currency other than that in which the amount is due under the
Bank Finance Document, then the Borrowers indemnify each Agent
and each Finance Party against:
(a) any difference arising from converting the other
currency if the rate of exchange used by the Agent or
the Finance Party under clause 9.2 of the Deed Poll
(Currency of payment) for converting currency when it
receives a payment in the other currency is less
favourable to the Agent or the Finance Party than the
rate of exchange used for the purpose of the judgment,
order or acceptance of proof of debt; and
(b) the Costs of conversion.
12 REGISTRATION
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REGISTERED FORM
12.1 Each Loan Note is in registered form. No global or definitive
certificate will be issued in respect of it, unless required by
law.
ISSUE OF LOAN NOTES BY INSCRIPTION IN REGISTER
12.2 The issue of each Loan Note is effected by inscription of the
details of the Loan Notes in the Register.
EFFECT OF INSCRIPTION
12.3 Each inscription in the Register in respect of a Loan Note
constitutes:
(a) an acknowledgment to the relevant Financier by the Core
Borrowers of the indebtedness of the Core Borrowers to
that Financier under the relevant Deed Poll; and
(b) an undertaking by the Core Borrowers to the relevant
Financier to make all payments of principal and interest
<PAGE>
in respect of the Loan Note in accordance with the terms
of the Loan Note and the relevant Deed Poll; and
(c) an entitlement to the other benefits given to Financiers
and the Agent under the relevant Deed Poll.
APPOINTMENT OF REGISTRAR
12.4 The Facility Agent (in respect of the Domestic Loan Notes) and
the Offshore Paying Agent (in respect of the Offshore Loan
Notes) are appointed by the Core Borrowers the registrars of the
Loan Notes on the terms and conditions of this agreement and the
relevant Deed Poll and the Facility Agent and Offshore Paying
Agent accept that appointment.
REGISTER
12.5 The Registrar agrees to do the following things:
(a) (in the case of the Facility Agent) establish and
maintain the Domestic Register in Victoria as agent of
the Core Borrowers;
(b) (in the case of the Offshore Paying Agent) establish and
maintain the Offshore Register in Singapore (or such
other place outside Australia as the Core Borrowers, the
Registrar and the Facility Agent may agree) as agent of
the Core Borrowers unless the IWT Amending Legislation
becomes law in which case the Core Borrowers, the
Facility Agent and each Registrar may agree alternate
arrangements for the location of the Offshore Register
which could, without limitation, involve merging it into
the Domestic Register;
(c) enter or cause to be entered in the relevant Register in
respect of each Loan Note under a Facility:
(i) the Facility in respect of which the Loan Note
is issued;
(ii) the issue date (being the day on which the Loan
Note is issued by inscription in the Register);
(iii) the name and address of each Financier who is an
initial holder of a Loan Note and each Financier
to whom the Loan Note is subsequently
transferred (which names and addresses must be
the same name and address specified for that
Financier in this agreement or a Substitution
Certificate);
(iv) the Lending Office of each Financier (for the
purpose of identifying the Financier as a
Domestic Financier or an Offshore Financier);
(v) the maximum principal amount (which must be an
amount equal to the Financier's Commitment for
the relevant Facility);
<PAGE>
(vi) the principal amount outstanding from time to
time (which must be the same as the Principal
Outstanding owing to the relevant Financier
under the relevant Loan Notes);
(vii) the redemption date (which must be the Maturity
Date for the relevant Facility);
(viii) the date of all transfers;
(ix) the account of the Financier to which payments
are to be paid or the address to which those
payments are to be posted (which in the case of
an Offshore Financier must be an account or
address outside Australia, unless the IWT
Amending Legislation becomes law, in which case
the Core Borrowers, the Facility Agent and the
Registrar may agree that this account or address
could be located in Australia);
(x) (in the case of the Domestic Register), the
Financier's tax file number or exemption details
(if provided);
(xi) a record of each payment made;
(xii) each Interest Payment Date; and
(xiii) such other information that the Core Borrowers
and the Registrar consider necessary or
desirable.
ENTRIES IN, AND RECTIFICATION OF, REGISTER
12.6 If:
(a) there is any error, omission, defect or misdescription
in the Register; or
(b) the Facility Agent gives notice to the Registrar of any
change in any of the details recorded in respect of the
Financier pursuant to clause 12.5,
the Registrar must rectify the Register promptly on becoming aware of it
or following notification of it.
CERTIFIED EXTRACTS FROM REGISTER AVAILABLE
12.7 The Core Borrowers agree to procure that the Registrar provides
(and the Registrar agrees so to provide) to each Financier a
certified extract of the particulars as required by clause
12.5(c) entered in the Register in relation to that Financier
and the Loan Notes held by it upon the issue of a Loan Note to
that Financier.
13 OBLIGATIONS AND RESTRICTIONS
- --------------------------------------------------------------------------------
NO PROSPECTUS
13.1 Each Financier acknowledges that no prospectus in relation to
the Loan Notes has been lodged with or registered by the
Australian Securities and Investments Commission.
<PAGE>
FINANCIERS TO OBSERVE LAWS
13.2 Each Financier agrees to observe laws and regulations in any
jurisdiction in which it may offer, sell or deliver Loan Notes.
RESTRICTIONS ON OFFER AND SALES OF LOAN NOTES
13.3 Each Financier agrees that it will not:
(a) directly or indirectly offer, sell or deliver Loan Notes
or distribute any prospectus, circular, advertisement or
other offering material relating to the Loan Notes in
any jurisdiction except under circumstances that will
result in compliance with the laws and regulations of
that jurisdiction; or
(b) make any offer or invitation in relation to the Loan
Notes in Australia unless it is an excluded offer or
excluded invitation as those terms are defined in the
Corporations Law; or
(c) circulate or issue a prospectus or other offering
material relating to the Loan Notes in Australia which
requires lodging or registration under Division 2 of
part 7.12 of the Corporations Law.
14 SCOPE OF AGENCY
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APPOINTMENT
14.1 Each Finance Party (other than the Facility Agent) appoints the
Facility Agent to act as its agent in connection with the
Transaction Documents.
EXTENT OF AUTHORITY AND OBLIGATIONS
14.2 Each Finance Party irrevocably authorises the Facility Agent to:
(a) enter into the Bank Finance Documents (other than this
agreement); and
(b) take action on the Finance Party's behalf in accordance
with this agreement and the other Bank Finance
Documents; and
(c) exercise the rights and carry out the obligations of the
Facility Agent expressly set out in the Bank Finance
Documents and rights, powers and discretions reasonably
incidental to them.
The Finance Parties acknowledge that the Facility Agent has no
obligations except those expressly set out in the Bank Finance
Documents.
ACCEPTANCE BY FACILITY AGENT
14.3 The Facility Agent agrees to act as the agent of the Finance
Parties in connection with the Transaction Documents in
accordance with this agreement.
BINDING NATURE OF AGENCY 14.4 Each Finance Party agrees:
(a) to be bound by anything properly done or properly not
done by the Facility Agent in accordance with this
<PAGE>
agreement, whether or not on instructions, and whether
or not the Finance Party gave an instruction or approved
of the thing done or not done; and
(b) at a Borrower's request, to ratify anything properly
done or properly not done by the Facility Agent in
accordance with this agreement.
EXCLUDED ROLES AND DUTIES
14.5 The appointment as agent does not mean that the Facility Agent:
(a) is a trustee for the benefit of; or
(b) is a partner of; or
(c) has a fiduciary duty to, or other fiduciary relationship
with,
any Finance Party, an Obligor or any other person, except as expressly
set out in any Bank Finance Document.
FINANCE PARTIES INTEREST IN SECURITIES
14.6 Each Finance Party accepts that it acquires an interest in any
Security taken by the Facility Agent or the Security Trustee and
agrees to be bound by the Security Trust Deed.
15 HOW AND WHEN THE FACILITY AGENT ACTS
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AFTER CONSULTATION AND INSTRUCTIONS
15.1 If the Facility Agent proposes to act on any of the following
matters, it agrees to:
(a) consult the Finance Parties on the proposal; and
(b) take Enforcement Action if, and only if, it receives
instructions to do so from:
(i) all the Financiers - on matters listed in clause
15.2 (Matters requiring instructions from all
Financiers); or
(ii) a Majority of Financiers - on matters listed in
clause 15.3 (Matters requiring instructions from
a Majority of Financiers).
MATTERS REQUIRING INSTRUCTIONS FROM ALL FINANCIERS
15.2 The following matters require instructions from all Financiers:
(a) a waiver under clause 2.6 (Benefit of conditions);
(b) a change to a Facility Limit or a Commitment;
(c) a change to an availability period set out in the
Details;
(d) a waiver of a default under clause 8.1(a) of the
Security Trust Deed (payment Transaction Document);
<PAGE>
(e) a change to the due currency of any payment under a Bank
Finance Document;
(f) a change to a Maturity Date or the extension of a
previously determined payment date;
(g) a change to the amount or timing of any fee or other
amount payable to the Financiers;
(h) a change to the Margin or the method of calculating the
Interest Rate;
(i) a change to the definition of Majority of Financiers;
(j) any decision that would alter the entitlements in clause
22 (Entitlement to payments) from the entitlements set
out in the Security Trust Deed;
(k) a change to clauses 15.1 to 15.4 (How and when the
Facility Agent acts);
(l) a change to clauses 4, 6.3(a), 6.3(b), 6.3(c), 6.4 and
6.5 of the Security Trust Deed and the meaning of any
defined terms used in those clauses; and
(m) a consent under clause 25.1 (No dealing by Obligor).
MATTERS REQUIRING INSTRUCTION FROM A MAJORITY OF FINANCIERS
15.3 The following matters require instructions from a Majority of
Financiers:
(a) the exercise of the Facility Agent's rights in its
capacity as agent for the Finance Parties in connection
with clause 8.1 of the Security Trust Deed (Default)
(except clause 8.1(a) (payment Transaction Document) or
clause 25.1 (No dealing by Borrower);
(b) the exercise of the Facility Agent's rights in its
capacity as agent for the Finance Parties in connection
with any Security;
(c) the waiver of any breach or other non-performance of
obligations by the Obligor in connection with any Bank
Finance Document; and
(d) a variation of a Bank Finance Document other than a
variation listed in clause 15.2 (Matters requiring
instructions from all Financiers).
OVERRIDING INSTRUCTIONS
15.4 In relation to all matters other than those under clause 15.2
(Matters requiring instructions from all Financiers) and clause
17.5 (Facility Agent to act on Financier's request), a Majority
of Financiers may instruct the Facility Agent and, if they do,
the Agent agrees to act in accordance with the instructions.
<PAGE>
WITHOUT CONSULTATION OR INSTRUCTIONS
15.5 Subject to clause 15.6 (Facility Agent's actions), in any case
where the Facility Agent does not require instructions under
clause 15.1 (After consultation and instructions) or does not
receive instructions or requests under clause 15.4 (Overriding
instructions) or clause 17.5 (Facility Agent to act on
Financier's request), the Facility Agent may exercise its rights
in its capacity as agent for the Finance Parties and observe its
obligations in that capacity as it sees fit. It need not consult
any Finance Parties before doing so.
FACILITY AGENT'S ACTIONS 15.6 Whenever the Facility Agent:
(a) consults Finance Parties to seek instructions, it agrees
to specify a reasonable period within which those
instructions are to be given; and
(b) receives instructions from a Majority of Financiers or
all of them, it agrees to follow them but only in so far
as they are in accordance with this agreement; and
(c) exercises its rights in its capacity as agent of the
Finance Parties or takes any other action, it agrees to
take into account the interests of the Finance Parties.
FINANCIER'S INSTRUCTIONS
15.7 Whenever a Finance Party gives instructions:
(a) it must do so in accordance with this agreement and
within any time period specified by the Facility Agent
for giving instructions; and
(b) it authorises the Facility Agent to give any consent or
do any other thing appropriate to carry out the
instructions.
If a Finance Party does not give instructions in relation to Action
proposed or recommended by the Facility Agent within any time period
specified by the Facility Agent, it is taken to have instructed the
Facility Agent to take the proposed or recommended Action.
16 FACILITY AGENT'S OBLIGATIONS TO GIVE NOTICES AND COPIES
- --------------------------------------------------------------------------------
FACILITY AGENT'S OBLIGATIONS
16.1 The Facility Agent agrees:
(a) (CONDITIONS SATISFIED) to notify each Finance Party as
soon as practicable after it has received the last of
the items in schedule 1 (Conditions Precedent) in form
and substance satisfactory to it; and
(b) (DRAWDOWN REQUIREMENTS) to notify each Financier of the
contents of a Drawdown Notice and the Financier's
Proportion of the requested drawing as soon as
practicable after it receives the Drawdown Notice; and
<PAGE>
(c) (DEFAULT AND REVIEW) to notify each Finance Party of an
Event of Default or Potential Event of Default promptly
after the Agent becomes aware of it; and
(d) (MATERIAL NOTICES RECEIVED) to give each Financier
promptly after receiving it a copy of each notice or
other communication or document which is received from
an Obligor in connection with the Bank Finance Documents
and which the Facility Agent considers material; and
(e) (MATERIAL NOTICES GIVEN) to give each Financier promptly
a copy of any notice or other communication or document
which the Agent gives the Borrowers in connection with
the Bank Finance Documents and which the Facility Agent
considers material; and
(f) (ACTION TAKEN) to give each Finance Party promptly a
report on anything done after instructions from the
Finance Parties under clause 15 (How and when the
Facility Agent acts).
FACILITY AGENT'S AWARENESS OF CERTAIN EVENTS
16.2 The Facility Agent is taken not to be aware of an Event of
Default or Potential Event of Default until either:
(a) an Authorised Officer of the Facility Agent who is
responsible for the administration of the transactions
contemplated by the Bank Finance Documents has actual
knowledge of sufficient facts to ascertain that an Event
of Default or Potential Event of Default has occurred;
or
(b) the Facility Agent receives a notice regarding an Event
of Default or Potential Event of Default under clause
6.1(p) of the Security Trust Deed (General
undertakings).
FACILITY AGENT MAY ASSUME COMPLIANCE
16.3 Until it becomes aware in accordance with clause 16.2 (Facility
Agent's awareness of certain events), the Facility Agent may
assume that no Event of Default or Potential Event of Default
has occurred and that an Obligor is observing all its
obligations in connection with the Bank Finance Documents and
need not inquire whether that is, in fact, the case.
CONFIDENTIALITY
16.4 Despite anything else in this agreement, this agreement does not
oblige the Facility Agent to disclose information or provide
documents relating to an Obligor or any other person if the
Facility Agent reasonably believes that to do so would
constitute a breach of law or duty of confidentiality.
LIMIT ON OBLIGATIONS
16.5 The Finance Parties agree that each Agent has no obligations,
other than those in clause 16.1 (Facility Agent's obligations),
either initially or on a continuing basis:
<PAGE>
(a) to keep itself informed, or to inform a Finance Party,
about the performance by an Obligor of its obligations
under the Bank Finance Documents; or
(b) to provide a Finance Party with any information or
documents with respect to an Obligor (whether coming
into its possession before or after accommodation is
provided under the Bank Finance Documents).
17 AGENT'S RELATIONSHIP WITH FINANCE PARTIES
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INDIVIDUAL RESPONSIBILITY OF FINANCE PARTIES
17.1 Each Finance Party acknowledges for the benefit of each Agent
and each Joint Lead Bank and each of their respective Related
Entities that the Finance Party has:
(a) entered into the Bank Finance Documents; and
(b) made and will continue to make its own independent
investigation of the financial condition and affairs of
each Obligor based on documents and information which it
considers appropriate; and
(c) made and will continue to make its own appraisal of the
creditworthiness of each Obligor; and
(d) made its own assessment and approval of the margin, fees
and other return to be obtained under the Bank Finance
Documents,
without relying on the Agent (in whatever capacity) or Joint Lead Bank
or any Related Entity of the Agent or Joint Lead Bank or on any
representation made by any of them.
EXONERATION OF AGENT
17.2 Neither an Agent nor any Joint Lead Bank nor any of the
respective directors, officers, employees, agents, attorneys or
Related Entities is responsible or liable to any Finance Party:
(a) because an Obligor fails to perform its obligations
under the Bank Finance Documents; or
(b) for the financial condition of an Obligor; or
(c) because any statement, representation or warranty in a
Bank Finance Document or Information Memorandum is
incorrect or misleading; or
(d) for the effectiveness, genuineness, validity,
enforceability, admissibility in evidence or sufficiency
of the Bank Finance Documents or any document signed or
delivered in connection with the Bank Finance Documents;
or
(e) for acting or not acting in accordance with the
instructions of a Majority of Financiers or all the
Financiers.
<PAGE>
Without limiting this clause 17.2, neither the Agent nor any Joint Lead
Bank is responsible or liable to any Finance Party for anything done or
not done in connection with the Bank Finance Documents by the Agent or a
Joint Lead Bank or their respective directors, officers, employees,
agents, attorneys or Related Entities except to the extent that the act
or omission amounts to fraud, gross negligence or wilful misconduct by
the Agent or its delegates or gross or wilful breach by it or its
delegates of its or their obligations in its capacity as agent of the
Financiers.
AGENT IN CAPACITY OF A FINANCIER
17.3 If an Agent is also a Financier or Hedge Counterparty, then in
its capacity as a Finance Party it:
(a) has the same rights and obligations under the Bank
Finance Documents as the other Finance Parties; and
(b) may exercise those rights and agrees to observe those
obligations independently from its role as Agent as if
it were not the Agent.
AGENT DEALING IN DIFFERENT CAPACITIES
17.4 An Agent may:
(a) engage in any kind of banking, trust or other business
with an Obligor or the Finance Parties or any of their
Related Entities; and
(b) accept fees and other consideration from an Obligor or
any of the Obligor's Related Entities for services in
connection with the Bank Finance Documents or any other
arrangement,
as if it were not an Agent and without having to account to the Finance
Parties for any income it derives in doing so.
The Financiers release each Agent from any obligation it might otherwise
have to them in relation to these matters.
FACILITY AGENT TO ACT ON FINANCIER'S REQUEST
17.5 The Facility Agent agrees to:
(a) make a demand under clause 11 of the Deed Polls
(Increased Costs); or
(b) give notices under clause 12 of the Deed Polls
(Illegality or impossibility); or
(c) make a demand under clause 13 of the Deed Polls
(Interest on Overdue Amounts),
promptly on request from a Financier. The other Financiers may not
countermand such a request.
RESTRICTION ON FINANCE PARTIES EXERCISING RIGHTS
17.6 A Finance Party may exercise a right against an Obligor under
any Bank Finance Document independently of the Facility Agent
only if:
<PAGE>
(a) the Facility Agent has been instructed in accordance
with clause 15 (How and when the Facility Agent acts) to
exercise the right; and
(b) the Facility Agent has not done so within a reasonable
time (and then only if any request by the Facility Agent
under clause 18.3 (Funds before acting) for funds in
connection with the exercise has been complied with).
NOTICE OF TRANSFER
17.7 Each Agent may treat each Finance Party as the holder or obligor
of the rights and obligations of that Finance Party for all
purposes under the Bank Finance Documents until a Substitution
Certificate (or other notice of the assignment or transfer
satisfactory to the Facility Agent) signed by the substitute,
assignee or transferee is given to the Facility Agent.
FINANCIER TO PAY OVER AMOUNTS RECEIVED DIRECTLY
17.8 If a Financier receives or recovers an amount due to it under a
Bank Finance Document other than through distribution by the
Facility Agent under this agreement, then it agrees to:
(a) notify the Facility Agent promptly; and
(b) pay an amount equal to that amount to the Facility Agent
within two Business Days after receiving it.
If the Financier receives the amount by applying a set-off, the set-off
occurs when the Financier records the set-off in its books of account.
PRO-RATA REFUNDS
17.9 If a Financier who receives an amount referred to in clause 17.8
(Financier to pay over amounts received directly) is obliged to
refund any part of it under laws relating to Insolvency Events,
then each Financier to which that amount was distributed under
clause 23 (Distribution of payments) agrees to pay to the
Facility Agent (for payment to the Financier who has to make the
refund) its pro rata share of the amount required to be
refunded.
PROCEEDS OF LITIGATION
17.10 Despite clause 17.8 (Financier to pay over amounts received
directly), where a Finance Party recovers an amount in legal
proceedings it has brought as permitted by clause 17.6
(Restriction on Finance Parties exercising rights), the Finance
Parties may retain the recovered amount and need not pay the
recovered amount to the Facility Agent or share it with any
other party who could have joined in the proceedings (or could
have taken separate proceedings) but did not.
If more than one Finance Party takes proceedings, the recovered amount
is to be shared by each of those Finance Parties in the proportion that
the amount due for payment to it at that time bears to the total of the
amounts at that time due for payment to all the Finance Parties who take
proceedings.
In each case, any surplus is to be paid to the Facility Agent.
<PAGE>
18 FUNDING OF FACILITY AGENT
- --------------------------------------------------------------------------------
FINANCIERS TO INDEMNIFY AGAINST NON-PAYMENT
18.1 Each Financier individually, in accordance with its Proportion,
indemnifies the Facility Agent against the non-receipt of a
payment from a Borrower and the Costs incurred by the Facility
Agent in funding the amount not paid, if the Facility Agent:
(a) reasonably claims a payment from a Borrower under clause
8 (Costs and indemnities) or from any other Obligor
under a corresponding provision of any other Bank
Finance Document; and
(b) does not receive it within seven days after the claim is
made.
THE BORROWER'S BACK-TO-BACK INDEMNITY
18.2 The Borrowers indemnify each Financier against any liability or
loss arising from, and any Costs incurred in connection with,
the Financier making a payment under clause 18.1 (Financiers to
indemnify against non-payment) or clause 18.3 (Funds before
acting).
FUNDS BEFORE ACTING
18.3 If the Facility Agent proposes to exercise a right arising in
its capacity as Facility Agent of the Finance Parties or take
any Action (whether or not at the instruction of a Majority of
Financiers or all Financiers) and the Facility Agent reasonably
considers this could result in a Borrower or any other Obligor
becoming obliged to pay to the Facility Agent an amount under
clause 11 (Costs and indemnities) or under a corresponding
provision of any other Bank Finance Document, as the case may
be, the Facility Agent:
(a) may request the Financiers to place it in funds at least
equal to the amount the Facility Agent reasonably
determines would be the Borrower's liability; and
(b) need not act until the Financiers do so.
Each Financier agrees to fund the Facility Agent rateably in accordance
with its Proportion.
IF A FINANCIER DOES NOT FUND
18.4 If a Financier does not fund the Facility Agent under clause
18.3 (Funds before acting) within a period determined by the
Facility Agent to be reasonable, then the Facility Agent agrees
to promptly request each other Financier to fund the defaulting
Financier's share. If one or more other Financiers agree to fund
the defaulting Financier's share, then the obligations of the
Financiers under clause 18.3 (Funds before acting) are taken to
be satisfied. Each Financier agrees that:
(a) a payment by a Financier to the Facility Agent under
this clause 18.4 constitutes a loan by the Financier to
the defaulting Financier; and
(b) the loan accrues interest at the rate and in the manner
notified by the paying Financier to the defaulting
Financier and the Facility Agent.
<PAGE>
The defaulting Financier agrees to pay to the Facility Agent (for the
account of each funding Financier) on demand from the Facility Agent the
loan principal and interest on each loan.
BORROWER'S COSTS OBLIGATION NOT AFFECTED
18.5 A payment by a Financier under this clause 18 does not relieve a
Borrower of its obligations under clause 11 (Costs and
indemnities) or clause 13 of the Deed Polls (Interest on overdue
amounts) or any other Obligor of its obligations under any
corresponding provisions of any other Bank Finance Document.
19 FACILITY AGENT'S RELATIONSHIP WITH THE BORROWER
- --------------------------------------------------------------------------------
COMPLIANCE MAY BE ASSUMED
19.1 In relation to any act of the Facility Agent, the Borrowers need
not enquire:
(a) whether the Facility Agent needed to consult or has
consulted the Financiers; or
(b) whether instructions have been given to the Facility
Agent by a Majority of Financiers or all Financiers; or
(c) about the terms of any instructions.
As between the Facility Agent and the Borrowers, all action taken by the
Facility Agent under the Bank Finance Documents is taken to be
authorised under this agreement unless the Borrowers have actual notice
to the contrary.
FACILITY AGENT IS NOT RESPONSIBLE FOR FINANCE PARTY'S BREACH
19.2 The Facility Agent is not responsible to the Borrowers if a
Finance Party does not observe its obligations under the Bank
Finance Documents.
20 CHANGE OF AGENTS
- --------------------------------------------------------------------------------
RETIREMENT
20.1 An Agent may retire by giving the Borrowers and each Finance
Party notice of its intention to do so, specifying the date it
proposes the retirement to take effect.
REMOVAL
20.2 A Majority of Financiers may end the appointment of the Facility
Agent as Facility Agent of each Finance Party or the Offshore
Paying Agent as paying agent under this agreement by giving the
relevant Agent at least 30 days' written notice (or such lesser
period as the Majority of Financiers may determine if the
relevant Agent is in default of its obligations under the Bank
Finance Documents).
WHEN RETIREMENT OR REMOVAL TAKES EFFECT
20.3 The retirement or removal takes effect only when:
(a) a successor Agent approved by the Borrowers (which
approval may not be delayed or withheld unreasonably)
has been appointed; and
<PAGE>
(b) the successor Agent has obtained title to or obtained
the benefit of the Securities held by it in its capacity
as agent in a manner approved by all the Financiers.
PERMITTED SUCCESSOR AGENTS 20.4 The successor Agent may be:
(a) a Financier nominated by a Majority of Financiers; or
(b) in the absence of such a nomination, a reputable and
experienced bank or financial institution (or a Related
Entity of either of them) nominated (in the case of
retirement) by the retiring Agent or (in the case of
removal) by a Majority of Financiers.
OBLIGATIONS OF RETIRING AND SUCCESSOR AGENTS
20.5 When a successor Agent is appointed, the retiring Agent is
discharged from any further obligation under the Bank Finance
Documents. (This discharge does not prejudice any accrued right
or obligation.) The new Agent and each other party to the Bank
Finance Documents have the same rights and obligations among
themselves as they would have had if the new Agent had been a
party to the Bank Finance Documents at the date of this
agreement.
MANNER OF APPOINTMENT
20.6 The appointment of a successor Agent will be effected by its
execution of a deed poll. The retiring Agent is authorised to
sign that deed poll on behalf of the other parties. On
countersignature of that deed poll by the retiring Agent, the
successor Agent will have all the rights, powers and obligations
of the retiring Agent. The retiring Agent will be discharged
from its rights, powers and obligations (other than liabilities
under this clause 20.6).
After any retiring Agent's resignation or removal, this clause will
continue in effect in respect of anything done or omitted to be done by
it while it was acting as Agent.
21 MISCELLANEOUS PROVISIONS RELATING TO AGENCY
- --------------------------------------------------------------------------------
SECURITY TRUST DEED
21.1 The Facility Agent must act in relation to the Security Trust
Deed in accordance with this agreement.
DELEGATION BY AGENT
21.2 The Facility Agent may employ agents and attorneys and may
delegate any of its rights or obligations in its capacity as
Facility Agent of the Finance Parties without notifying the
Finance Parties of the delegation.
DUTIES WHEN DELEGATING
21.3 The Facility Agent agrees to exercise reasonable care in
selecting delegates and to supervise their actions.
<PAGE>
RESPONSIBILITY FOR DELEGATES
21.4 The Facility Agent is responsible for any loss arising due to
the fraud, gross negligence or wilful misconduct of a delegate
or gross or wilful breach by the delegate of their obligations.
FACILITY AGENT MAY RELY ON COMMUNICATIONS AND OPINIONS
21.5 In relation to the Facilities and any Bank Finance Document, the
Facility Agent may rely:
(a) on any communication or document it believes to be
genuine and correct and to have been signed or sent by
the appropriate person; and
(b) as to legal, accounting, taxation or other professional
matters, on opinions and statements of any legal,
accounting, taxation or professional advisers used by
it.
FORCE MAJEURE
21.6 Despite any other provision of this agreement, the Facility
Agent need not act (whether or not on instructions from one or
more of the Financiers) if it is impossible to act due to any
cause beyond its control (including war, riot, natural disaster,
labour dispute, or law taking effect after the date of this
agreement). The Facility Agent agrees to notify each Finance
Party promptly after it determines that it is unable to act.
NO RESPONSIBILITY FOR FORCE MAJEURE
21.7 The Facility Agent has no responsibility or liability for any
loss or expense suffered or incurred by any party as a result of
its not acting for so long as the impossibility under clause
21.6 (Force majeure) continues. However, the Facility Agent
agrees to make reasonable efforts to avoid or remove the causes
of non-performance and agrees to continue performance under this
agreement promptly when the causes are removed.
22 ENTITLEMENTS TO PAYMENTS
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ENTITLEMENT TO PAYMENTS
22.1 Unless expressly stated otherwise, the Borrowers agree to pay
all amounts due under the Bank Finance Documents (other than the
Hedge Agreements) to the Facility Agent for the account of each
Finance Party except that an amount paid in connection with:
(a) clause 4 (Working Capital Facility) is to be paid to the
Working Capital Bank; and
(b) clause 6.3 (Agent fees) is to be paid to the Facility
Agent for its own account; and
(c) clause 11 of the Deed Polls (Increased Costs) or clause
12 of the Deed Polls (Illegality or impossibility) is to
be paid to the Facility Agent for the account of the
affected Financier; and
<PAGE>
(d) clause 13 of the Deed Polls (Interest on overdue
amounts) is to be paid to the Facility Agent for the
account of the party entitled to the overdue amount; and
(e) clause 11.1 (Costs and indemnities - what the Borrower
agrees to pay) is to be paid to the Facility Agent for
the account of the party that incurs the Costs, or pays
the Taxes or fees; and
(f) clause 11.4(Payment of employees' losses) is to be paid
to the Facility Agent for the account of the party whose
employee, officer, agent or contractor suffers the
liability, loss or Costs; and
(g) an indemnity is to be paid to the Facility Agent for the
account of the party entitled under the indemnity.
If a Borrower is to pay an amount to an Agent for the account of a
particular party, the Borrower is taken to have satisfied its obligation
to that party by paying the Agent.
DIRECTION TO PAY
22.2 If:
(a) a Borrower is to pay an amount to the Agent for the
account of a Financier; and
(b) both the Borrower and the Financier request the Agent to
do so,
the Agent may direct the Borrower to pay the amount to the Financier.
23 DISTRIBUTION OF PAYMENTS
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HOW AGENT IS TO DISTRIBUTE
23.1 Each Agent agrees to distribute amounts paid to it or recovered
by it under the Bank Finance Documents as follows: (a) first, to
the Agent itself for all amounts due to it in its capacity as
Agent under any Bank Finance Document; and
(b) secondly, to each Finance Party in the proportion that
the amount due for payment to it at that time bears to
the total of the amounts due for payment to all Finance
Parties at that time.
These proportions are to be expressed as percentages and rounded to the
nearest four decimal places. An Agent may exercise discretion in
rounding up or down resultant amounts to ensure that over time, all
Finance Parties are treated fairly.
EXCESS DISTRIBUTIONS - CONTINGENCIES
23.2 If a Finance Party receives a distribution under clause 23.1
(How Agent is to distribute) on account of an amount which may
become due for payment by the Finance Party to a third party and
the right of the third party to claim on the Finance Party ends
without a claim for the full distributed amount having been
<PAGE>
made, then the Finance Party agrees to promptly pay the Facility
Agent an amount equal to the unclaimed portion of the
distributed amount.
POSTPONEMENT OF NON-FUNDING FINANCE PARTIES
23.3 Despite anything in clause 23.1 (How Agent is to distribute), if
an Agent recovers an amount through exercising the Agent's
rights in its capacity as Agent of the Finance Parties as a
result of being placed in funds under clause 18.3 (Funds before
acting), then any Finance Party who did not fund the Agent is
not entitled to receive any part of the amount until each
Finance Party who funded the Agent receives an amount equal to
the total of:
(a) the Amount Owing for that funding Finance Party; and
(b) the amount of any loan principal and interest due to
that funding Finance Party under clause 18.4 (If a
Finance Party does not fund).
MANNER OF DISTRIBUTION
23.4 Each Agent agrees to distribute amounts to each Finance Party
promptly after receipt in immediately available funds to that
Finance Party's office identified in the Details or another
office notified to the Agent by the Finance Party.
DISTRIBUTIONS MADE IN ERROR
23.5 If an Agent is required to make a corresponding payment to
another party when it has received an amount under a Bank
Finance Document, the Agent agrees to do so as soon as it
establishes that it has actually received the amount.
If the Agent makes the corresponding payment and subsequently discovers
that it has not actually received the amount due to be paid to it, then:
(a) the party who received the payment agrees to refund it
to the Agent on demand; and
(b) the party who should have paid the amount to the Agent
agrees to pay the Facility Agent on demand the amount
and the Agent's costs in funding the corresponding
payment from the date when it was made until the date
the Agent receives the refund.
APPLICATION OF PAYMENTS
23.6 The Facility Agent and each Finance Party may apply amounts
distributed to them towards satisfying obligations under the
Bank Finance Documents in the manner they see fit, unless the
Bank Finance Documents expressly provide otherwise.
24 ASSIGNMENTS AND SUBSTITUTIONS BY FINANCIERS
- --------------------------------------------------------------------------------
ASSIGNMENT BY FINANCIER
24.1 No Financier may deal with its rights or obligations under this
agreement without dealing with its rights under the relevant
Deed Poll and Loan Note to an equivalent extent.
<PAGE>
SYNDICATION - OFFSHORE DEED POLL
24.2
(a) Each Financier who is a Joint Lead Bank undertakes that:
(i) the Joint Lead Banks who are making offers of
participation in Loans to be drawn using the
Facilities and Offshore Loan Notes will together
make such offers:
(A) to at least ten persons whom they
reasonably believe will satisfy the
requirements in section 128F(3)(a)(i) of
the Tax Act so as to be a public offer
within the meaning of section 128F of
the Tax Act; or otherwise
(B) they will offer the Offshore Loan Notes
for sale in conjunction with each other
Joint Lead Bank offering Offshore Loan
Notes for sale in a way which they
reasonably believe satisfies one of the
public offer tests in section
128F(3)(b), (c) or (d) of the Tax Act;
(ii) it will not include in the ten persons to whom
the Joint Lead Banks are making an offer
pursuant to section 128F(3)(a)(i) of the Tax Act
any person who it has actual knowledge is an
Associate of any of the other persons covered by
section 128F(3)(a) of the Tax Act nor will it
make offers to persons who it has actual notice
are Associates of the Core Borrowers; and
(iii) it will provide any information relating to the
issue and sale of Offshore Loan Notes as may
reasonably be requested by the Core Borrowers in
order to assist the Core Borrowers in
demonstrating that the issue of any Offshore
Loan Note complies with the provisions of
section 128F of the Tax Act.
(b) The Core Borrowers must immediately advise the Joint
Lead Banks if the persons disclosed to them by a Joint
Lead Bank are known or suspected by them to be an
Associate of any other person to whom an offer is made
pursuant to section 128F(3)(a)(i) of the Tax Act or of
the Core Borrowers.
(c) Unless the IWT Amending Legislation has become law each
Financier who has an Offshore Loan Note warrants that it
is not a resident of Australia within the meaning of the
Tax Act and is not providing its participation in Loans
through a permanent establishment in Australia.
(d) Each Financier who is not a Joint Lead Bank warrants
that:
(i) it is and, at the time it acquired a Loan Note,
will be acting in the course of carrying on a
business of providing finance, or investing or
dealing in securities in the course of operating
in financial markets which are (in the case of
<PAGE>
a Domestic Financier) in Australia and (in the
case of an Offshore Financier) outside
Australia;
(ii) except as disclosed to the Core Borrowers, it is
not and at the time it acquired a Loan Note, so
far as it has actual knowledge, an Associate of
any other Financier;
(iii) it:
(A) has not (directly or indirectly) offered
for subscription or purchase or issued
invitations to subscribe for or buy nor
has it sold Loan Notes;
(B) will not (directly or indirectly) offer
for subscription or purchase or issue
invitations to subscribe for or buy nor
will it sell the Loan Notes,
to anyone in respect of whom it has actual
notice is an Associate of the Core Borrowers.
(e) Neither the Borrowers, the Joint Lead Banks nor the
Agents have any responsibility for, and each Financier
must obtain, all authorisations required by it for the
subscription, offer, sale or delivery by it of Loan
Notes under applicable laws and regulations in any
jurisdiction to which the Financier is subject or in
which it makes any offer, sale or delivery of Loan
Notes.
(f) At the cost of the Core Borrowers, each Financier who is
a Joint Lead Bank will, so far as it is reasonably able
to do so, do or provide the other things the Core
Borrowers asks it to in connection with offers of
participation in Loans and Offshore Loan Notes, if the
Core Borrowers consider them practicable and necessary
to ensure the requirements of section 128F of the Tax
Act are satisfied.
ASSIGNMENT BY FINANCIERS
24.3 A Financier may substitute its participation or assign or
transfer all or any of its rights or obligations under the Bank
Finance Documents at any time if:
(a) any necessary prior Authorisation, consent or approval
is obtained;
(b) it complies with all laws (including securities laws)
and it does not require lodgement or registration of a
prospectus or any similar document;
(c) unless the substitution, assignment or transfer will not
result in Offshore Loan Notes being on issue with an
aggregate maximum principal amount of greater than
A$400,000,000, the Core Borrowers have given their prior
written consent which consent:
<PAGE>
(i) shall not be unreasonably withheld unless the
Core Borrowers (acting reasonably) consider that
as a result of the substitution, assignment or
transfer they are reasonably likely to become
obliged to deduct an amount in respect of
interest withholding tax from payments of
interest under Loan Notes having an aggregate
maximum principal amount of greater than
A$400,000,000; and
(ii) will be taken to have been given if no response
is received within 15 days of the written
request for consent having been received by the
Core Borrowers;
(d) the substitute, transferee or assignee will be acting in
the course of carrying on a business of providing
finance, or investing or dealing in securities, in the
course of operating in financial markets either (in
respect of any proposed substitute, transferee, assignee
or novatee who will have the benefit of the Domestic
Deed Poll) within Australia or (otherwise) outside
Australia;
(e) the assignment, transfer or substitution is effected by
an assignment, transfer or substitution in accordance
with clause 24.4 or clause 24.5; (f) the substitute,
transferee or assignee will, after completion of all
substitutions, transfers or assignments to be effected
at the same time, have a minimum total Commitment of
A$10,000,000 unless otherwise agreed by the Core
Borrowers and the Facility Agent; and
(g) following any substitution, transfer or assignment in
part by any Financier, that Financier will, unless
otherwise agreed by the Core Borrowers and the Facility
Agent, continue to have a minimum total Commitment of
A$10,000,000.
SUBSTITUTION CERTIFICATES
24.4 Subject to clause 24.2 and clause 24.3:
(a) if a Retiring Financier wishes to substitute a new bank
or financial institution for all or part of its
participation under this agreement or transfer a Loan
Note, the Retiring Financier and the Substitute
Financier shall in Victoria or outside Australia execute
and deliver to the Facility Agent four counterparts of a
certificate substantially in the form of schedule 3 as
specified in clause 24.5;
(b) on receipt of the certificate, if the Facility Agent is
satisfied that the substitution, transfer or assignment
complies with clause 24.3 and clause 24.5, it shall
promptly:
(i) notify the Borrowers;
(ii) countersign the counterparts on behalf of all
other parties to this agreement;
<PAGE>
(iii) update the relevant Register accordingly (which
will be conclusive); and
(iv) retain one counterpart and deliver the others to
the Retiring Financier, the Substitute Financier
and the Core Borrowers;
(c) when the certificate is countersigned by the Facility
Agent, the Retiring Financier will be relieved of its
obligations to the extent specified in the certificate
and the Substitute Financier will be bound by the Bank
Finance Documents as stated in the certificate;
(d) each other party to this agreement irrevocably
authorises the Facility Agent to sign each certificate
on its behalf; and
(e) unless the Facility Agent otherwise agrees, no
substitution transfer or assignment may be made while
any Drawdown Notice is current.
METHODS OF SUBSTITUTION BY DOMESTIC FINANCIERS OR OFFSHORE FINANCIERS
24.5 This clause is subject to clause 24.3.
(a) (OFFSHORE FINANCIERS) If a Financier which has an
Offshore Loan Note wishes to substitute, transfer or
assign all or part of its participation with a new bank
or financial institution:
(i) which is not a resident of Australia within the
meaning of the Tax Act, it may substitute,
assign or transfer all or part of its
participation and transfer or assign its
Offshore Loan Note to the Substitute Financier,
by completing a certificate substantially in the
form of schedule 3 with the Substitute Financier
in accordance with clause 24.4;
(ii) which is a resident of Australia within the
meaning of the Tax Act and which will not be
holding its proposed participation through a
permanent establishment outside of Australia:
(A) if the IWT Amending Legislation has
become law, then it may substitute,
assign or transfer all or part of its
participation and transfer or assign its
Offshore Loan Note to the Substitute
Financier by completing a certificate
substantially in the form of schedule 3
with the Substitute Financier in
accordance with clause 24.4; or
(B) if the IWT Amending Legislation has not
become law, then instead of substituting
the participation and transferring or
assigning the Offshore Loan Notes:
<PAGE>
(1) the Retiring Financier will
complete with the Substitute
Financier a certificate
substantially in the form of
schedule 3 as provided in clause
24.4, but with clause 2.1 of
schedule 3 deleted; and
(2) that Substitute Financier will
subscribe for a Domestic Loan Note
and make a payment by way of Loan
to the Core Borrowers of an amount
equal to the principal amount of
the participation of the Retiring
Financier.
The Substitute Financier will make that payment
for the account of the Retiring Financier to be
applied in repayment of the principal amount of
the substituted participation against issue to
the Substitute Financier of a Domestic Loan
Note. The Core Borrowers shall issue a Domestic
Loan Note with a principal amount equal to the
substituted participation, against subscription
and payment by the Substitute Financier in the
manner described in the previous sentence.
(b) (DOMESTIC FINANCIERS) If a Financier which has a
Domestic Loan Note wishes to substitute, transfer or
assign all or part of its participation with a new bank
or financial institution:
(i) which is a resident of Australia within the
meaning of the Tax Act and which will not be
holding its proposed participation through a
permanent establishment outside of Australia, it
may substitute, assign or transfer all or part
of its participation and transfer or assign its
Domestic Loan Note to the Substitute Financier,
by completing a certificate substantially in the
form of schedule 3 with the Substitute Financier
in accordance with clause 24.4;
(ii) which is not a resident of Australia and has a
Lending Office outside of Australia, then:
(A) if the IWT Amending Legislation has
become law, then:
(1) it will notify the Core
Borrowers of its proposal and
provide any information
reasonably requested by the
Core Borrowers to assist in
determining whether the public
offer test in section 128F(3)
of the Tax Act has been
satisfied;
<PAGE>
(2) the Core Borrowers (acting
reasonably) must notify it as
to whether it is satisfied
that the public offer test in
section 128F(3) of the Tax Act
has been satisfied in relation
to the Domestic Loan Note; and
(3) if the Core Borrowers are so
satisfied, the Retiring
Financier may substitute,
assign or transfer all or part
of its participation and
transfer or assign its
Domestic Loan Note to the
Substitute Financier, by
completing a certificate
substantially in the form of
schedule 3 with the Substitute
Financier in accordance with
clause 24.4; or
(B) if:
(1) the IWT Amending Legislation
has not become law; or
(2) the Core Borrowers (acting
reasonably) have notified the
Financier that it is not
satisfied that the Domestic
Loan Note was issued in
satisfaction of the public
offer test in section 128F(3)
of the Tax Act,
the following will apply:
(3) the Financier undertakes it
will make offers of
participation in Loans under
the Facilities and Offshore
Loan Notes:
(a) to at least ten persons
who it reasonably
believes will satisfy the
requirements in section
128F(3)(a)(i) of the Tax
Act so as to be a public
offer within the meaning
of section 128F of the
Tax Act; or otherwise
(b) it will offer the
Offshore Loan Notes for
sale in a way which it
reasonably believes
satisfies one of the
public offer tests in
section 128F(3)(b),
(c) or (d) of the Tax
Act.
(4) The Retiring Financier
undertakes that it will not
include in the ten persons to
who it is making an offer any
person who it has actual
knowledge is an Associate of
any of the other persons
<PAGE>
covered by section 128F(3)(a)
of the Tax Act nor will it
make offers of participation
to persons who it has actual
notice are Associates of the
Core Borrowers.
(5) The Retiring Financier
undertakes it will provide any
information relating to the
issue and sale of Offshore
Loan Notes as may reasonably
be requested by the Core
Borrowers in order to assist
the Core Borrowers in
demonstrating that the issue
of any Offshore Loan Note
complies with the provisions
of section 128F of the Tax
Act.
(6) The Core Borrowers must
immediately advise the
Retiring Financier if the
persons disclosed to it by the
Retiring Financier are known
or suspected by it to be an
Associate of any other person
to whom the Retiring Financier
has made an offer pursuant to
section 128F(3)(a)(i) of the
Tax Act or the Core Borrowers.
(7) Unless the IWT Amending
Legislation has become law
each Substitute Financier who
has an Offshore Loan Note
warrants that it is not a
resident of Australia within
the meaning of the Tax Act and
is not providing its
participation in Loans through
a permanent establishment in
Australia.
(8) Each Substitute Financier
warrants that an offer was
made to it by the Retiring
Financier and that it is
carrying on a business of
providing finance or investing
or dealing in securities in
the course of operating in
financial markets.
(9) At the cost of the Core
Borrowers, each Financier
will, so far as it is
reasonably able to do so, do
or provide the other things
the Core Borrowers asks it to
in connection with offers of
participation and Offshore
Loan Notes, if the Core
Borrowers consider them
practicable and necessary to
ensure the requirements of
section 128F of the Tax Act
are satisfied.
<PAGE>
(10) The Retiring Financier will
execute with each Substitute
Financier a certificate
substantially in the form of
schedule 3 as provided in
clause 24.4, but with clause
2.1 of schedule 3 deleted.
(11) That Substitute Financier will
subscribe for an Offshore Loan
Note and make a payment by way
of Loan to the Core Borrowers
for an amount equal to the
principal amount of the
participation of the Retiring
Financier which is being
substituted.
The Substitute Financier will make that
payment for the account of the Retiring
Financier outside of Australia, to be
applied in repayment of the principal
amount of the substituted participation
against issue to the Substitute
Financier of an Offshore Loan Note. The
Core Borrowers shall issue an Offshore
Loan Note outside Australia with a
principal amount equal to the
substituted participation, against
subscription and payment by the
Substitute Financier in the manner
described in the previous sentence.
25 DEALING WITH INTERESTS
- --------------------------------------------------------------------------------
NO DEALING BY BORROWER
25.1 A Borrower may not assign or otherwise deal with its rights
under any Bank Finance Document or allow any interest in them to
arise or be varied, in each case, without the Facility Agent's
consent.
DEALINGS BY FINANCIER
25.2 Subject to clause 24 (Assignments and Substitutions by
Financiers), a Financier may deal with its rights under the Bank
Finance Documents (including by assignment or participation) at
any time. The consent of any other person, including the
Borrowers, is not required.
DEALINGS BY FACILITY AGENT
25.3 The Facility Agent may assign or otherwise deal with its rights
under the Bank Finance Documents to receive payments for its own
account, without the consent of any person. But it may not
otherwise deal with its rights except in accordance with this
agreement.
26 NOTICES
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FORM
26.1 Unless expressly stated otherwise in the Bank Finance Document,
all notices, certificates, consents, approvals, waivers and
other communications in connection with a Bank Finance Document:
<PAGE>
(a) must be in writing, signed by an Authorised Officer of
the sender and marked for attention as set out in the
Details or, if the recipient has notified otherwise,
then marked for attention in the way last notified; and
(b) must be:
(i) left at the address set out in the Details; or
(ii) sent by prepaid post (airmail, if appropriate)
to the address set out in the Details; or
(iii) sent by fax to the fax number set out in the
Details,
but if the intended recipient has notified a changed
postal address or fax number, then the communication
must be to that address or number; and
(c) take effect from the time they are received unless a
later time is specified in them; and
(d) if sent by post, are taken to be received three days
after posting (or seven days after posting if sent to or
from a place outside Australia); and
(e) if sent by fax, are taken to be received at the time
shown in the transmission report as the time that the
whole fax was sent.
WAIVER OF NOTICE PERIOD
26.2 The Facility Agent may waive a period of notice required to be
given by a Borrower under this agreement.
27 GENERAL
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SET-OFF
27.1 At any time after an Event of Default and for so long as it
subsists, an Agent or a Financier may set off any amount due for
payment by the Agent or the Financier, respectively, to a
Borrower against any amount due for payment by that Borrower to
the Agent or the Financier, respectively, under the Bank Finance
Documents.
CERTIFICATES
27.2 An Agent or a Financier may give a Borrower a certificate about
an amount payable or other matter in connection with a Bank
Finance Document. The certificate is sufficient evidence of the
amount or other matter, unless it is proved to be incorrect.
PROMPT PERFORMANCE
27.3 If this agreement specifies when a Borrower agrees to perform an
obligation, the Borrower agrees to perform it by the time
specified. The Borrower agrees to perform all other obligations
promptly.
DISCRETION IN EXERCISING RIGHTS
27.4 An Agent or a Financier may exercise a right or remedy or give
or refuse its consent in any way it considers appropriate
<PAGE>
(including by imposing conditions), unless a Bank Finance
Document expressly states otherwise.
CONSENTS
27.5 Each Borrower agrees to comply with all conditions in any
consent an Agent or a Financier gives in connection with a Bank
Finance Document.
PARTIAL EXERCISING OF RIGHTS
27.6 If an Agent or a Financier does not exercise a right or remedy
fully or at a given time, the Agent or the Financier can still
exercise it later.
NO LIABILITY FOR LOSS
27.7 Neither an Agent nor a Financier is liable for loss caused by
the exercise or attempted exercise of, failure to exercise, or
delay in exercising, a right or remedy.
CONFLICT OF INTEREST
27.8 An Agent's or a Financier's rights and remedies under this
agreement may be exercised even if this involves a conflict of
duty or the Agent or the Financier has a personal interest in
their exercise.
REMEDIES CUMULATIVE
27.9 The rights and remedies of an Agent or a Financier under this
agreement are in addition to other rights and remedies given by
law independently of this agreement.
RIGHTS AND OBLIGATIONS ARE UNAFFECTED
27.10 Rights given to an Agent and the Financier under this agreement
and the Borrower's liabilities under it are not affected by any
law that might otherwise affect them.
INDEMNITIES
27.11 The indemnities in this agreement are continuing obligations,
independent of the Borrower's other obligations under this
agreement and continue after this agreement ends. It is not
necessary for an Agent or a Financier to incur expense or make
payment before enforcing a right of indemnity under this
agreement.
VARIATION AND WAIVER
27.12 Unless this agreement expressly states otherwise, a provision of
this agreement, or right created under it, may not be waived or
varied except in writing signed by the party or parties to be
bound.
CONFIDENTIALITY
27.13 Each Agent and each Financier agree not to disclose information
provided by the Borrowers that is not publicly available except:
(a) in connection with any person exercising rights or
dealing with rights or obligations under a Bank Finance
Document (including when consulting other Financiers
after a Potential Event of Default or an Event of
Default or in connection with preparatory steps such as
negotiating with any potential assignee or potential
participant of the Financier's rights or other person
<PAGE>
who is considering contracting with the Financier in
connection with a Bank Finance Document); or
(b) to a person considering entering into (or who enters
into) a credit swap with the Agent or a Financier
involving credit events relating to the Borrowers or any
of their Related Entities; or
(c) to officers, employees, legal and other advisers and
auditors of the Agent or the Financier; or
(d) to any party to this agreement or any Related Entity of
the Agent or a Financier, provided the recipient agrees
to act consistently with this clause 27.13; or
(e) with the Borrowers' consent (not to be unreasonably
withheld); or
(f) as allowed, requested or required by any law, stock
exchange or regulatory authority.
The Borrowers consent to disclosures made in accordance with this clause
27.13.
FURTHER STEPS
27.14 The Borrowers agree to do anything the Facility Agent asks (such
as obtaining consents, signing and producing documents and
getting documents completed and signed) to bind the Borrowers
and any other person intended to be bound under the Bank Finance
Documents.
INCONSISTENT LAW
27.15 To the extent permitted by law, this agreement prevails to the
extent it is inconsistent with any law.
SUPERVENING LEGISLATION
27.16 Any present or future legislation which operates to vary the
obligations of the Borrowers in connection with a Bank Finance
Document with the result that an Agent's or a Financier's
rights, powers or remedies are adversely affected (including by
way of delay or postponement) is excluded except to the extent
that its exclusion is prohibited or rendered ineffective by law.
TIME OF THE ESSENCE
27.17 Time is of the essence in any Bank Finance Document in respect
of an obligation of a Borrower to pay money.
COUNTERPARTS
27.18 This agreement may consist of a number of copies of this
agreement each signed by one or more parties to the agreement.
When taken together, the signed copies are treated as making up
the one document.
APPLICABLE LAW
27.19 This agreement is governed by the law in force in the place
specified in the Details. Each Agent, the Borrowers and each
Financier submit to the non-exclusive jurisdiction of the courts
of that place. Each Offshore Financier irrevocably appoints the
Facility Agent as its agent for service of process in Australia
<PAGE>
and the Facility Agent accepts that appointment.
SERVING DOCUMENTS
27.20 Without preventing any other method of service, any document in
a court action may be served on a party by being delivered to or
left at that party's address for service of notices under clause
26 (Notices). TU Australia Holdings No. 1 Limited and TU
Australia Holdings No. 2 Limited irrevocably appoint TU
Australia Holdings (AGP) Pty Ltd to receive any document
referred to in this clause. If, for any reason, TU Australia
Holdings (AGP) Pty Ltd ceases to be able to act as agent, TU
Australia Holdings No. 1 Limited and TU Australia Holdings No. 2
Limited must immediately appoint another person within Victoria
to receive any such document and notify the Facility Agent.
28 INTERPRETATION
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DEFINITIONS
28.1 Terms defined in the Security Trust Deed have the same meaning
when used in this agreement and these meanings apply unless the
contrary intention appears:
ACQUISITION COSTS means all costs, fees and expenses incurred by the
Obligors in connection with the negotiation, preparation and execution of
the Bank Finance Documents and Sale Agreement and the transactions
contemplated by the Sale Agreement as agreed in the Base Case Model or as
otherwise agreed between the Core Borrowers and the Facility Agent.
AGENT means the Facility Agent or the Offshore Paying Agent or both of
them, as the case may require.
AMOUNT OWING means, at any time for or in respect of a Finance Party, the
total of all amounts which are then due for payment, or which will or may
become due for payment in connection with any Bank Finance Document
(including transactions in connection with them) to that Finance Party or
to an Agent for the account of that Finance Party.
ASSETS means all of the assets acquired by the Purchasers in accordance
with, or contemplated by, the Sale Agreement.
ASSOCIATE has meaning given in section 128F(9) of the Tax Act.
AUSTRALIAN ACCOUNTING STANDARDS means the accounting standards within the
meaning of the Corporations Law and, where not inconsistent with those
accounting standards and the Corporations Law, generally accepted
accounting principles and practices in Australia consistently applied by a
body corporate or as between bodies corporate.
AVAILABILITY PERIOD for a Facility means the period so described in the
Details for that Facility.
BANK BILL RATE means, for an Interest Period, the average bid rate for
Bills having a tenor closest to the Interest Period as displayed on the
"BBSY" page of the Reuters Monitor System on the first day of that Interest
Period. However, if the average bid rate is not displayed by 10:30am on the
first day of the Interest Period or if it is displayed but there is an
obvious error in that rate, BANK BILL RATE means:
<PAGE>
(a) the rate the Facility Agent calculates as the average of
the bid rates quoted to the Facility Agent at
approximately 10:30am on that date by each of five or
more institutions chosen by the Facility Agent which
provide rates for display on the "BBSW" page of the
Reuters Monitor System for Bills of that tenor which are
accepted by that institution (after excluding the
highest and the lowest, or in the case of equality, one
of the highest and one of the lowest bid rates); or
(b) where the Facility Agent is unable to calculate a rate
under paragraph (a) because it is unable to obtain the
necessary number of quotes, the rate set by the Facility
Agent in good faith at approximately 10:30am on that
date, having regard, to the extent possible, to the
rates otherwise bid for Bills of that tenor at or around
that time.
The rate calculated or set by the Facility Agent must be expressed as a
percentage rate per annum and be rounded up to the nearest third decimal
place.
BANK FINANCE DOCUMENTS means this agreement, the Domestic Deed Poll, the
Offshore Deed Poll, each Loan Note, each Security, the Security Trust Deed,
the Working Capital Terms and Conditions, each Hedge Agreement and any
other document which a Borrower and the Agent agree is to be a Bank Finance
Document and any other instrument connected with any of them.
BASE CASE MODEL means the Original Base Case Model as updated by the
Facility Agent and the Borrowers on or before Financial Close.
BILL has the meaning it has in the Bills of Exchange Act 1909 (Cwlth) and a
reference to the drawing, acceptance or endorsement of, or other dealing
with, a Bill is to be interpreted in accordance with that Act.
BORROWER means:
(a) in the case of the Tranche A Facility, the Tranche B
Facility and the Tranche C Facility, the Core Borrowers;
and
(b) in the case of the Working Capital Facility, the WCF
Borrowers.
BS1 means TUA (No. 8) Pty Ltd (ACN 085 235 776).
BS1 MORTGAGE AND CHARGE means the mortgage made or to be made between BS1
and the Security Trustee over the interest's of BS1 in the loan agreements
between BS1 and BS2 the shares held by BS1 in BS2 and the charge over all
the assets and undertaking of BS1.
BS2 means TUA (No. 9) Pty Ltd (ACN 085 235 801).
BUSINESS DAY means a day on which banks are open for general banking
business in the place or places set out in the Details under "Business day
place" (not being a Saturday, Sunday or public holiday in those places).
COMMITMENT means, for a Financier and a Facility, the amount set out as
such for that Financier in the Details as varied pursuant to clauses 1.13
(Reduction in Total Facility Limit) and 1.14 (Reduction in Total Facility
<PAGE>
Limit) and as reduced by the total of all cancellations in respect of that
Financier and that Facility.
CORE BORROWERS means the persons so described in the Details and CORE
BORROWER means each of them separately.
COSTS includes costs, charges and expenses, including those incurred in
connection with advisers.
DEED POLL means the Domestic Deed Poll or the Offshore Deed Poll, as the
case may require.
DEFAULT RATE means the applicable Interest Rate plus 2% per annum. For the
purpose of this definition, the Interest Rate is calculated as if the
overdue amount is a Loan with Interest Periods of 90 days (or another
length chosen from time to time by the Facility Agent) with the first
Interest Period starting on and including the due date.
DETAILS means the details which are set out at the beginning of this
agreement.
DIRECTIVE means a treaty, a law, an official directive or request having
the force of law, and an official directive, request, guideline or policy
not having the force of law but with which a prudent financier in the
relevant jurisdiction would comply.
DOMESTIC DEED POLL means a deed poll executed by the Core Borrowers in or
substantially in the form of schedule 6.
DOMESTIC FINANCIER means a Financier that funds its participation in the
Facilities through a Lending Office in Australia.
DOMESTIC LOAN NOTE means a debt obligation of the Core Borrowers owing
under the Domestic Deed Poll in respect of a Facility to a Domestic
Financier.
DOMESTIC REGISTER means the register of holders of Domestic Loan Notes
established under clause 12 (Registration).
DRAWDOWN DATE means the date on which a drawing is or is to be made.
DRAWDOWN NOTICE means a completed notice containing the information and
representations and warranties set out in schedule 2.
DRAWN COMMITMENT means, for a Financier and a Facility, the principal
amount actually made available by that Financier to the Core Borrowers
under that Facility.
FACILITY means each or all of the Tranche A Facility, Tranche B Facility,
Tranche C Facility and Working Capital Facility, as the context requires.
FACILITY LIMIT means, for a Facility, the amount set out as such for that
Facility in the Details.
FEE LETTERS means each of the underwriting fee letter and the agency fee
letter referred to in clause 6 (Fees).
FINANCE PARTY means each Financier, each Agent and each Hedge Counterparty.
FINANCIAL CLOSE means the date on which the last condition precedent in
schedule 1 (Conditions precedent) is satisfied (or waived by the
Financiers).
<PAGE>
FINANCIER means each person so described in the Details (including, the
Working Capital Bank and if applicable, the Facility Agent in its role as a
Financier) and any person who is named as a "Substitute Financier" under a
Substitution Certificate.
GASCOR means Gascor Holdings No. 2 Pty Ltd.
GUARANTEE means the guarantee and indemnity made or to be made between the
Core Borrowers, Holdco, BS1 and BS2 in favour of the Security Trustee.
HEDGE AGREEMENT means each interest rate hedging document (including any
restatement of any earlier document) entered into between the Core
Borrowers and any Hedge Counterparty on or before the date of Financial
Close .
HEDGE COUNTERPARTY means each person so described in the Details and any
person who becomes a Hedge Counterparty pursuant to a Hedge Counterparty
Accession Agreement.
HEDGE COUNTERPARTY ACCESSION AGREEMENT means an agreement substantially in
the form of schedule 4.
HEDGE EXPOSURE means in respect of a Hedge Counterparty at the applicable
date the amount which is H in the following formula:
H = M to M + Unpaid Amounts
where:
M TO M is the result of the mark to market calculation of the
obligations under the Hedge Agreements provided that M to M will
be a positive number if it represents a liability of the Core
Borrowers to the Hedge Counterparty and a negative number if it
represents a liability of the Hedge Counterparty to the Core
Borrowers.
UNPAID AMOUNTS is any amount owing under the Hedge Agreements
provided that Unpaid Amounts will be a positive number if it
represents amounts owing by the Core Borrowers to the Hedge
Counterparty and a negative number if it represents amounts
owing by the Hedge Counterparty to the Core Borrowers,
provided that if H is a negative number it shall be deemed to be equal to
zero.
HEDGE LIABILITIES means all present and future liabilities (actual or
contingent) payable or owing by the Core Borrowers to a Hedge Counterparty
or any of them under or in connection with the Hedge Agreements, whether or
not matured and whether or not liquidated, together in each case with:
(a) any novation, deferral or extension of any of those
liabilities permitted by the terms of this agreement;
(b) any claim for damages or restitution arising out of, by
reference to or in connection with any of the Hedge
Agreements;
(c) any claim flowing from any recovery by the Core
Borrowers or a receiver or liquidator thereof or any
<PAGE>
other person of a payment or discharge in respect of any
of those liabilities on grounds of any insolvency
provision or otherwise; and
(d) any amounts (such as post-insolvency interest) which
would be included in any of the above but for any
discharge, non-provability, unenforceability or
non-allowability of the same as a result of any
insolvency provisions.
HOLDCO means TU Australia Holdings Pty Ltd (ACN 086 006 859).
HOLDCO MORTGAGE means the mortgage made or to be made between Holdco and
the Security Trustee over Holdco's interests in the loan agreements between
TUA and Holdco and the loan agreements between Holdco and the Core
Borrowers.
INFORMATION MEMORANDUM means any information memorandum issued in relation
to the Facilities.
INTEREST PAYMENT DATE means the last day of an Interest Period.
INTEREST PERIOD means each period selected in accordance with clause 3.1
(Notification of Interest Period).
INTEREST RATE means, in respect of a Facility, the interest rate for that
Facility set out in the Details.
IWT AMENDING LEGISLATION means legislation in or substantially in the form
of the Taxation Amendment Bill (No. 4) of 1998 which was introduced into
Federal Parliament in December 1998 for the purpose of amending, amongst
other things, the interest withholding tax exemption available under
section 128F of the Tax Act.
JOINT LEAD BANKS means each person so described in the Details.
LENDING OFFICE means in the case of the initial Financiers, the address
shown in the Details as the lending office of each initial Financier and,
in the case of Financiers acquiring an interest under clause 24 (Assignment
and Substitution of Financiers), the address shown in the relevant
Substitution Certificate as the Lending Office of that Financier.
LOAN means the outstanding principal amount of a drawing made available
under the Tranche A Facility, the Tranche B Facility or the Tranche C
Facility which:
(a) has the same Interest Period; and
(b) ends on the same Interest Payment Date.
LOAN NOTE means a Domestic Loan Note or an Offshore Loan Note.
MAJORITY OF FINANCIERS means at any time:
(a) if no Event of Default subsists, Financiers the total of
whose Commitments exceeds 66% of the total of all
Financiers' Commitments; and
(b) if an Event of Default subsists, Financiers and Hedge
Counterparties:
(i) the total of whose Commitments; and
<PAGE>
(ii) the total of whose Hedge Exposures at such time,
as determined by such Hedge Counterparties,
exceeds 66% of the total:
(iii) of all Financiers Commitments; and
(iv) Hedge Exposure of all Hedge counterparties at
such time.
MARGIN means:
(a) in respect of the Tranche A Facility, 0.90% per annum;
(b) in respect of the Tranche B Facility and the Tranche C
Facility, 1.10% per annum but subject to reduction in
respect of any Interest Period commencing after the
anniversary of Financial Close if the Most Recent
Facility Rating on the first day of that Interest Period
is "BBB" or higher, in which case the Margin for such
Interest Period shall be reduced to the amount indicated
in the table below:
--------------------------- -------------------------
MOST RECENT FACILITY MARGIN
RATING
--------------------------- -------------------------
BBB 0.90% pa
--------------------------- -------------------------
BBB + or higher 0.80% pa
--------------------------- -------------------------
MATURITY DATE means, for a Facility, the maturity date set out in the
Details for that Facility, but if that is not a Business Day, then the
preceding Business Day.
MOST RECENT FACILITY RATING means, at any time, the then most recent rating
issued by Standard & Poor's (Australia) Pty Ltd for the Facilities.
OBLIGOR means each Borrower, Guarantor, TUA and Purchaser.
OFFSHORE DEED POLL means a deed poll executed by the Core Borrowers in or
substantially in the form of schedule 6.
OFFSHORE FINANCIER means a Financier that funds its participation in the
Facilities through a Lending Office outside Australia.
OFFSHORE LOAN NOTE means a debt obligation of the Core Borrowers owing
under the Offshore Deed Poll in respect of a Facility to an Offshore
Financier.
OFFSHORE PAYING AGENT means the person so described in the Details.
OFFSHORE REGISTER means the register of holders of Offshore Loan Notes
established under clause 12 (Registration).
ORIGINAL BASE CASE MODEL means the computer model agreed on or prior to the
date of this agreement between the Core Borrowers and the Facility Agent
to, among other things, enable calculations of the financial undertakings
in clause 6.4 of the Security Trust Deed (Financing Undertakings), as
initialled by the Agent.
<PAGE>
PARTNERSHIP means the TU Australia Holdings (Partnership) Limited
Partnership being a limited partnership formed and registered under the
Partnership Act 1958 of Victoria.
PARTNERSHIP DEED means the deed dated 27 January 1999 establishing the
Partnership as amended by a deed dated on or about the date of this
agreement.
PARTNERSHIP MORTGAGE means the mortgage made or to be made between the Core
Borrowers and the Security Trustee over the Core Borrowers' interests in
the loan agreements between the Core Borrowers (as borrowers) and Holdco
(as lender) and the Hedge Agreements.
PROPORTION means, for a Financier:
(a) in respect of a Facility or a Loan under a
Facility, the proportion which its Commitment
bears to the Facility Limit for that Facility;
and
(b) in respect of the Facilities generally, the
proportion which the total of its Commitments
bears to the aggregate of the Total Facility
Limit and the Facility Limit for the Working
Capital Facility.
PRINCIPAL OUTSTANDING means at any time the total principal amount of all
outstanding Loans.
REGISTER means the Domestic Register or the Offshore Register.
REGISTRAR means the person appointed from time to time under clause 12.4
(Appointment of Registrar) as the Registrar.
RETIRING FINANCIER means a Financier which proposes to have some or all of
its obligations and rights under the Bank Finance Documents assumed by and
assigned to another person .
SECURITY means each security described as such in the Details and any other
document or Security Interest collateral to any of them.
SECURITY TRUST DEED means the security trust deed executed by, the Security
Trustee, the Agent, the Obligors, Eastern Energy Limited, Texas and the
Junior Financier (as defined in that deed).
SECURITY TRUSTEE means, as at the date of this agreement, National
Australia Bank Limited and any successor appointed under the Security Trust
Deed.
SUBSTITUTE FINANCIER means a person who is to assume some or all of the
obligations and become entitled to some or all of the rights of a Retiring
Financier under the Bank Finance Documents.
SUBSTITUTION CERTIFICATE means a certificate substantially in the form of
schedule 3, completed as stated in that schedule, or another document
approved by the Facility Agent for the purpose of clause 24 (Substitution
of Financiers).
TAX ACT means the Income Tax Assessment Act 1936 of Australia.
TAXES means taxes, levies, imposts, charges and duties imposed by any
authority (including stamp and transaction duties) together with any
related interest, penalties, fines and expenses in connection with them,
<PAGE>
except if imposed on the overall net income of a Financier.
TEXAS means Texas Utilities Company, a corporation incorporated under the
laws of the State of Texas, United States of America.
TOTAL FACILITY LIMIT means the aggregate Facility Limit for each of the
Tranche A Facility, the Tranche B Facility and the Tranche C Facility.
TOTAL PURCHASE PRICE means the total purchase price payable by the
Purchasers for the Assets under the terms of the Sale Agreement.
TRANCHE A FACILITY means the facility described as such in the Details.
TRANCHE B FACILITY means the facility described as such in the Details.
TRANCHE C FACILITY means the facility described as such in the Details.
TRANSACTION DOCUMENTS means the documents described as such in the Details,
any document which an Obligor acknowledges in writing to be a Transaction
Document, and any other document connected with any of them.
TUA MORTGAGE means the mortgage made or to be made between Holdco and TUA
over TUA's interests in the loan agreements between TUA and BS1.
UNDRAWN FACILITY LIMIT means, for the Tranche A Facility, the Tranche B
Facility or the Tranche C Facility, the Facility Limit less the total
Principal Outstanding for that Facility.
WCF BORROWER means the person so described in the Details and WCF BORROWER
means each of them separately and both of them jointly.
WESTAR means Westar Pty Ltd (ACN 079 089 008).
WESTAR ASSETS means Westar (Assets) Pty Ltd (ACN 079 089 062).
WORKING CAPITAL BANK means:
(a) at the date of this agreement, National
Australia Bank Limited; and
(b) thereafter, a Financier to which the obligations
to provide the Working Capital Facility are
transferred or which assumes the rights and/or
obligations of the Working Capital Bank pursuant
to a Substitution Certificate.
WORKING CAPITAL FACILITY means the facility described as such in the
Details.
WORKING CAPITAL TERMS AND CONDITIONS means any agreement in force between
the WCF Borrowers and the Working Capital Bank setting out the terms and
conditions applicable to the Working Capital Facility.
REFERENCES TO CERTAIN GENERAL TERMS
28.2 Unless the contrary intention appears, a reference in a
Transaction Document to:
<PAGE>
(a) a group of persons is a reference to any two or more of
them collectively and to each of them individually;
(b) an agreement, representation or warranty in favour of
two or more persons is for the benefit of them jointly
and each of them severally;
(c) an agreement, representation or warranty by two or more
persons binds them jointly and each of them severally
but an agreement, representation or warranty by a
Financier binds the Financier severally only;
(d) anything (including an amount) is a reference to the
whole and each part of it;
(e) a document (including this agreement) includes any
variation or replacement of it;
(f) law means common law, principles of equity, and laws
made by parliament (and laws made by parliament include
regulations and other instruments under them, and
consolidations, amendments, re-enactments or
replacements of any of them);
(g) an accounting term is a reference to that term as it is
used in Australian Accounting Standards;
(h) Australian dollars, dollars, $ or A$ is a reference to
the lawful currency of Australia;
(i) a time of day is a reference to Melbourne time;
(j) the word "person" includes an individual, a firm, a body
corporate, an unincorporated association and an
authority;
(k) a particular person includes a reference to the person's
executors, administrators, successors, substitutes
(including persons taking by novation) and assigns and
includes a new partner in the Partnership;
(l) the word "payable" in relation to an amount, means an
amount which is currently payable or will or may be
payable in the future; and
(m) the words "including", "for example" or "such as" when
introducing an example, do not limit the meaning of the
words to which the example relates to that example or
examples of a similar kind.
NUMBER
28.3 The singular includes the plural and vice versa.
HEADINGS
28.4 Headings are for convenience only and do not affect the
interpretation of this agreement.
<PAGE>
DEUTSCHE
28.5 The parties acknowledge and agree that despite clause 1.6:
(a) this agreement is entered into by Deutsche Bank AG and
Deutsche Australia Limited in their capacities as
Financiers jointly and severally;
(b) where Deutsche Bank AG and Deutsche Australia Limited
are obliged to do anything under this agreement as a
Financier which of them actually does it will be
determined by Deutsche Bank AG in its absolute
discretion;
(c) a payment to Deutsche Bank AG in respect of an
obligation to pay Deutsche Australia Limited as a
Financier shall satisfy, to the extent of that payment,
the obligation to pay Deutsche Australia Limited;
(d) a payment to Deutsche Australia Limited in respect of an
obligation to pay Deutsche Bank AG as a Financier shall
satisfy, to the extent of that payment, the obligation
to pay Deutsche Bank AG;
(e) a consent from, communication to or by, or the exercise
of a discretion by, one of Deutsche Bank AG or Deutsche
Australia Limited in its capacity as a Financier, shall
bind the other of them as a Financier;
(f) a reference to "Financier" is a reference to either or
both of Deutsche Bank AG or Deutsche Australia Limited
as the case requires; and
(g) the Borrower is not required to pay Deutsche Bank AG or
Deutsche Australia Limited or both any amount otherwise
payable under this agreement or under any Bank Finance
Document to which Deutsche Bank AG and Deutsche
Australia Limited are both a party (whether for Costs,
indemnities or otherwise) which is in total greater than
the amount the Borrower would have been required to pay
Deutsche Bank AG if Deutsche Bank AG had itself
satisfied its obligations and performed its rights under
this agreement or such other Bank Finance Document to
which Deutsche Bank AG and Deutsche Australia Limited
are both a party and Deutsche Australia Limited had not
entered this agreement or such other Bank Finance
Document.
EXECUTED as an agreement.
<PAGE>
SCHEDULE 1 - CONDITIONS PRECEDENT (CLAUSE 2.4)
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CONDITIONS TO FIRST DRAWING
EACH ITEM MUST BE IN FORM AND SUBSTANCE SATISFACTORY TO THE FACILITY AGENT.
CERTIFICATION IS TO BE BY A DIRECTOR OR SECRETARY OF THE RELEVANT OBLIGOR THAT
THE ITEM IS TRUE AND COMPLETE AS AT A DATE NO EARLIER THAN 7 DAYS PRIOR TO THE
DATE OF THIS AGREEMENT.
<TABLE>
<CAPTION>
<S> <C> <C>
- ----------------------------------------------------- ------------------ -----------------
ITEM FORM REQUIRED FOR
- ----------------------------------------------------- ------------------ -----------------
1 Constitution or a certificate confirming that Certified copy Borrower
there is no constitution
---------------
Guarantor
---------------
---------------
TUA
---------------
Purchaser
- ------------------------------------------------------- ------------------ ---------------
2 Certificate of registration Certified copy Borrower
---------------
Guarantor
---------------
TUA
---------------
Purchaser
- ------------------------------------------------------- ------------------ ---------------
3 Extract of minutes of a meeting of the entity's Certified copy Borrower
board of directors which evidences the resolutions:
---------------
(a) authorising the signing and delivery of the Guarantor
Transaction Documents to which the entity is
a
---------------
party and the observance of obligations
under those documents; and TUA
---------------
(b) appointing Authorised Officers of the Purchaser
entity; and
(c) which acknowledge that the Transaction Documents
(to which the entity is a party) will benefit
that entity and which set out the reasoning
behind that conclusion.
- ------------------------------------------------------- ------------------ ---------------
4 Each Authorisation under section 260A of the Certified copy Borrower
Corporations Law necessary for each Obligor to
enter into the Transaction Documents to which
it is a party and to observe obligations under
those documents and enforce those documents.
---------------
Guarantor
---------------
TUA
---------------
Purchaser
- ------------------------------------------------------- ------------------ ---------------
<PAGE>
- ----------------------------------------------------- ------------------ -----------------
ITEM FORM REQUIRED FOR
- ----------------------------------------------------- ------------------ -----------------
5 Each power of attorney under which a person signs Original Borrower
a Transaction Document for the entity showing
evidence of stamping and registration if
applicable.
---------------
Guarantor
---------------
TUA
---------------
Purchaser
- ------------------------------------------------------- ------------------ ---------------
6 Specimen signature of: Original Borrower
(a) each Authorised Officer of the entity; and
---------------
Guarantor
---------------
(b) each other person who is authorised to sign a
TUA
---------------
Transaction Document for the entity.
Purchaser
- ------------------------------------------------------- ------------------ ---------------
7 Each of the Fee Letters, the Deed Polls, the Original Not applicable
Security and the Security Trust Deed:
(a) fully signed; and
(b) the Facility Agent has received funds to
pay the estimated stamp duty and any
documents required by the Facility Agent
to stamp and register those documents.
- ------------------------------------------------------- ------------------ ---------------
8 Certified copies of each of the following Certified copy Not Applicable
documents:
(a) the Sale Agreement;
(b) the Equity Subscription Agreement;
(c) the Intercompany Loan Agreements;
(d) the Eastern Loan Agreement;
(e) the Subordinated Facility Agreement; and
(f) the Partnership Deed.
.
- ------------------------------------------------------- ------------------ ---------------
<PAGE>
- ------------------------------------------------------- ------------------ ---------------
9 Extract of minutes of an extraordinary general
meeting of the shareholders of each Guarantor Certified copy Each Guarantor
which evidences the unanimous resolutions of those
shareholders authorising:
(a) the signing and delivery of the Transaction
Documents to which that Guarantor is a
party; and
(b) the observance of obligations under those documents.
- ------------------------------------------------------- ------------------ ---------------
10 Evidence of the payment of all Qualifying Certified copy Not applicable.
Subordinated Debt and any equity subscriptions to enable the acquisition
of the Assets by the Purchasers for the Total Purchase Price.
- ------------------------------------------------------- ------------------ ---------------
11 Evidence that all of the conditions precedent set Certificate from Not applicable
out in the Sale Agreement have been or will on the Purchasers
Financial Close be satisfied in accordance with
their terms and that completion of the acquisition
of the Assets will occur on that date.
- ------------------------------------------------------- ------------------ ---------------
12 Legal opinions from Baker & McKenzie and Norton Original Not applicable
Rose dealing with the validity and enforceability
of the Bank Finance Documents and the Material
Contracts and from Baker & McKenzie dealing with
the entry into and observance of obligations under
the Sale Agreement by the State of Victoria.
- ------------------------------------------------------- ------------------ ---------------
13 A legal opinion from Mallesons Stephen Jaques Original Not applicable
dealing with the enforceability of the Bank
Finance Documents.
- ------------------------------------------------------- ------------------ ---------------
15 Certified copy Each Purchaser
(a) A certificate from the Borrowers' insurance
brokers confirming the currency of the
insurance policies required to be maintained
by the Purchasers under the Bank Finance
Documents.
(b) A certificate from the Financiers' insurance
consultant confirming that the insurance
policies have been placed in accordance with
the consultant's report on insurances and the
wording of the relevant policies is effective
to implement the programme.
- ------------------------------------------------------- ------------------ ---------------
16 Evidence that the Core Borrowers have complied Certified copy Borrower
with their obligations under the Security Trust
Deed in relation to hedging.
- ------------------------------------------------------- ------------------ ---------------
<PAGE>
- ------------------------------------------------------- ------------------ ---------------
17 All fees and expenses payable by the Borrowers on Borrower or before the
first Drawdown Date have been paid.
- ------------------------------------------------------- ------------------ ---------------
18 Evidence that all rights and assets of Westar, Certificate Purchasers
Westar Assets and Kinetik will on Financial Close
be transferred and assigned to the Purchasers
including, without limitation, the Licences and
all Authorisations.
- ------------------------------------------------------- ------------------ ---------------
19 The ownership and funding and security structure Borrower
of the Core Borrowers and their Subsidiaries is as
set out in the diagram in schedule 5.
- ------------------------------------------------------- ------------------ ---------------
20 The syndicated facilities agreement dated 29 Borrowers
January 1999 has been cancelled upon terms satisfactory to the Financiers.
- ------------------------------------------------------- ------------------ ---------------
</TABLE>
<PAGE>
SCHEDULE 2 - DRAWDOWN NOTICE (CLAUSE 2)
- --------------------------------------------------------------------------------
To: [NAME AND ADDRESS OF FACILITY AGENT]
Attention: [INSERT]
[DATE]
DRAWDOWN NOTICE - SYNDICATED FACILITIES AGREEMENT BETWEEN [NAME OF BORROWER],
[NAME OF AGENT] AND OTHERS DATED [INSERT] ("SYNDICATED FACILITIES AGREEMENT")
Under clause 2.2 (Requesting a drawing) of the Syndicated Facilities Agreement,
the Core Borrowers give notice as follows.1
DRAWING UNDER THE TRANCHE [ ] FACILITY2
The Core Borrowers want to borrow under the Tranche [ ] Facility2.
() The requested Drawdown Date is [ ]3.
() The amount of the proposed drawing is A$[ ] 4.
() The requested first Interest Period is [ ]5.
() The proposed drawing is to be paid to:[ ]
The Core Borrowers represent and warrant that the representations and warranties
in the Security Trust Deed are correct and not misleading on the date of this
notice and that each will be correct and not misleading on the Drawdown Date .
[The Core Borrowers request the Facility Agent to notify it of the applicable
Interest Rate promptly following the Drawdown Date.]
The "Interpretation" clause of the Syndicated Facilities Agreement applies to
this notice as if it was fully set out in this notice.
........................................
[NAME OF PERSON] being
an Authorised Officer of
[NAME OF CORE BORROWER]
INSTRUCTIONS FOR COMPLETION
1 All items must be completed for the relevant Facility. Delete sections
relating to any inapplicable Facility.
2 Here clearly identitfy the relevant Facility.
3 Must be a Business Day within the Availability Period.
4 Must be $10,000,000 or a whole multiple of A$1,000,000.
5 Must be an Interest Period set out in the Details.
<PAGE>
SCHEDULE 3 - FORM OF SUBSTITUTION CERTIFICATE
- --------------------------------------------------------------------------------
for a Participation of [*]$[*]
relating to the Syndicated Facilities Agreement ("FACILITY AGREEMENT") dated [*]
1999 between [ ] and National Australia Bank Limited as
Facility Agent and the Financiers named in that agreement between:
1 [NAME] ("SUBSTITUTE FINANCIER");
2 [NAME] ("RETIRING FINANCIER); and
3 NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937)) ("FACILITY AGENT")
for itself and on behalf of the other parties to the Facility Agreement,
and the Domestic*/Offshore* Deed Poll dated [*] by the Core Borrowers
("DEED POLL").
OPERATIVE PROVISIONS:
1 DEFINITIONS
- --------------------------------------------------------------------------------
1.1 In this Certificate definitions in the Deed Poll and the
following definitions apply.
SUBSTITUTED PARTICIPATION means [*of] the Retiring Financier's Commitment
[and the participation in the Principal Outstanding under [those/that]
Commitment[s]] [in respect of the following Loans:]
LOAN NOTE FACILITY INTEREST LAST AMOUNT OF LOAN
[Domestic/ PERIOD DRAWDOWN NOTE
Offshore] DATE OR
INTEREST
PAYMENT
DATE
amounting to a principal amount of A$[*].
SUBSTITUTION DATE means the date of countersignature of this Certificate by
the Facility Agent [or [*] whichever is the later]. [NOTE: Insert any other
date or dates as appropriate.]
1.2 The "General" and the "Interpretation" clauses of the Facility
Agreement apply to this Certificate as if they were fully set
out in this Certificate.
2 TRANSFER AND SUBSTITUTION
- --------------------------------------------------------------------------------
TRANSFER
2.1 The Retiring Financier transfers [Domestic/Offshore] Loan Notes
with a maximum face amount and a principal outstanding
representing the Substituted Participation with effect from and
including the Substitution Date.] [Delete if clause
<PAGE>
24.5(a)(ii)(B) (Restriction of substitution by Offshore
Financiers) or clause 24.5(b)(ii)(B) applies]
SUBSTITUTION
2.2 The Retiring Financier will cease to be entitled to and bound by
its [other] [delete if 2.1 deleted] rights and obligations as a
Financier under the Transaction Documents [relating to the
Substituted Participation] [NOTE: Insert if only part of
commitment assumed.] with effect from and including the
Substitution Date. It will remain entitled to and bound by
rights and obligations which accrue up to the Substitution Date.
2.3 With effect from and including the Substitution Date:
(a) the Substitute Financier and each of the parties to the
Facility Agreement will assume obligations towards each
other and acquire rights against each other which are
identical to the rights and obligations which cease
under clause [2.2.], except to the extent the
obligations so assumed and rights so acquired relate to
the identity of or location of the Substitute Financier
and not to the identity of or location of the Retiring
Financier; and
(b) the Substitute Financier will be taken to be a party to
the Facility Agreement as a Financier with a Commitment
and participation in the Principal Outstanding equal to
the Substituted Participation.
3 INDEPENDENT ASSESSMENT BY SUBSTITUTE FINANCIER
- --------------------------------------------------------------------------------
Without limiting the generality of clause 2 the Substitute Financier
agrees as specified in clause 17.1 (Individual responsibility of
Financiers) and clause 17.2 (Exoneration of Agent) of the Facility
Agreement. Those clauses apply (subject to any agreement to the
contrary) as if references to the Facility Agent included the Retiring
Financier. This Certificate is a Bank Finance Document and Transaction
Document for the purposes of the Facility Agreement.
4 PAYMENTS
- --------------------------------------------------------------------------------
From and including the Substitution Date the Facility Agent shall make
all payments due under the Bank Finance Documents in relation to the
Substituted Participation to the Substitute Financier. The Retiring
Financier and the Substitute Financier will make directly between
themselves those payments and adjustments which they agree with respect
to accrued interest, fees, costs and other amounts attributable to the
Substituted Participation before the Substitution Date.
5 WARRANTY
- --------------------------------------------------------------------------------
The Retiring Financier and the Substitute Financier jointly and
severally represent and warrant to the other parties (including, without
limitation, to the Core Borrowers) that clause 24 (Assignments and
substitutions by Financiers) of the Facility Agreement has been complied
with in relation to the Substitute Financier.
<PAGE>
6 NOTICES
- --------------------------------------------------------------------------------
For the purpose of the Facility Agreement, the address for
correspondence of the Substitute Financier is the address set out below.
7 LAW
- --------------------------------------------------------------------------------
This Certificate is governed by the laws of Victoria.
Signed by the authorised representatives of the parties [in Victoria or
outside of Australia].
THE RETIRING FINANCIER
[NAME]
by:
------------------------------------------------------------
THE SUBSTITUTE FINANCIER
[NAME]
by:
------------------------------------------------------------
[Fax No.]
[Address for correspondence:]
Countersigned by an authorised representative of the Facility Agent for itself
and for the other parties to the Facility Agreement.
THE FACILITY AGENT
NATIONAL AUSTRALIA BANK LIMITED
by:
--------------------------------------------------------------
date:
------------------------------------------------------------
<PAGE>
SCHEDULE 4 - HEDGE COUNTERPARTY ACCESSION AGREEMENT
- --------------------------------------------------------------------------------
THIS ACCESSION AGREEMENT is made the day of by [ ] (the
"Hedge Counterparty") and [ ] for itself and as agent for each party under
the Facility Agreement ("AGENT").
RECITALS
A. Pursuant to an agreement entitled Syndicated Facilities Agreement dated
[ ] 1999 between [ ] (the "Facility Agreement"), the
Financiers agreed to make certain facilities available to the Core
Borrowers.
B. The Hedge Counterparty has obtained the consent of the Facility Agent
and the Finance Parties to becoming a Hedge Counterparty.
THE PARTIES AGREE:
1 INTERPRETATION
Terms defined or given a meaning in the Facility Agreement have the same
meaning in this agreement.
2 BANK FINANCE DOCUMENT
This agreement is a Bank Finance Document.
3 ACCESSION
(a) The Hedge Counterparty hereby agrees with each other party or
person who is to become party to the Facility Agreement that with
effect on and from the date of this agreement, it will be bound
by the Facility Agreement as a Hedge Counterparty as if it had
been party originally to the Facility Agreement in that capacity.
(b) Each party agrees with the Hedge Counterparty that with effect
from the cate of this agreement, the Hedge Counterparty will have
the benefit of the Facility Agreement as if it were a party
originally to the Facility Agreement.
4 HEDGING AGREEMENTS
The following are the Hedge Agreements to which the Hedge Counterparty
is a party with the Core Borrowers.
[DESCRIBE HEDGING FACILITIES AND IDENTIFY HEDGING DOCUMENTS]
5 NOTICE
The address for notice of the Hedge Counterparty for the purposes of the
Facility Agreement is:
[ ]
<PAGE>
6. GOVERNING LAW
This agreement is governed by the laws of Victoria.
[To be signed by Hedge Counterparty and Agent].
<PAGE>
SCHEDULE 5- OBLIGOR STRUCTURE CHART
- --------------------------------------------------------------------------------
<PAGE>
SCHEDULE 6 - [DOMESTIC DEED POLL/OFFSHORE DEED POLL]
- --------------------------------------------------------------------------------
DETAILS
INTERPRETATION
Definitions are at the end of the General Terms.
------------------------------------------------------
PARTIES CORE BORROWERS, as described below.
------------------------------------------------------
------------------------------------------------------
BENEFICIARIES Each person who is from time to time a Financier.
---------------- -------------------------------------
---------------- -------------------------------------
CORE BORROWERS TU AUSTRALIA HOLDINGS (PARTNERSHIP) LIMITED
PARTNERSHIP a limited partnership formed and
registered under the Partnership Act 1958 of Victoria,
the general partner of which is TU Australia Holdings
(AGP) Pty Ltd (ACN 086 014 931) and the limited
partners of which are TU Australia Holdings No. 1
Limited (ARBN )and TU Australia Holdings No. 2 Limited
(ARBN ).
------------------------------------------------------
------------------------------------------------------
AGENT [THE FACILITY AGENT/THE OFFSHORE PAYING AGENT]
[delete as appropriate]
------------------------------------------------------
------------------------------------------------------
FACILITY AGREEMENT The syndicated facilities agreement between the Core
Borrowers, the WCF Borrowers, the Joint Lead Banks,
the Working Capital Bank, the Hedge Counterparties,
the Facility Agent, the Offshore Paying Agent and the
Financiers dated [ ] 1999
------------------------------------------------------
------------------------------------------------------
GOVERNING LAW Victoria
------------------------------------------------------
------------------------------------------------------
DATE OF DEED 1999
------------------------------------------------------
NOTE:
This form of Deed Poll needs to be adapted for use as the Offshore Deed Poll or
the Domestic Deed Poll. Amend as marked.
<PAGE>
GENERAL TERMS
1 THE LOAN NOTES
- --------------------------------------------------------------------------------
CREATION OF LOAN NOTES
1.1 The obligations of the Core Borrowers under the Loan Notes are
constituted by, and specified in, this deed.
CORE BORROWERS' UNDERTAKING TO PAY
1.2 The Core Borrowers undertake with each Financier to pay, in
respect of each Loan Note held by the Financier, the Amount
Owing in respect of each Loan, in accordance with the provisions
of this deed.
2 RIGHTS AND OBLIGATIONS OF FINANCIERS
- --------------------------------------------------------------------------------
BENEFIT AND ENTITLEMENT
2.1 This deed is executed as a deed poll. Accordingly, the Facility
Agent [, the Offshore Paying Agent] [delete in Domestic Deed
Poll] and each Financier has the benefit of, and is entitled to
enforce, this deed even though it is not a party to, or is not
in existence at the time of execution and delivery of, this deed
subject to the Bank Finance Documents.
RIGHTS INDEPENDENT
2.2 The Facility Agent [, the Offshore Paying Agent] [delete in
Domestic Deed Poll] and each Financier may enforce its rights
under this deed independently from the Registrar and each other
Financier, subject to the Bank Finance Documents.
FACILITY AGENT AND FINANCIERS BOUND
2.3 The Facility Agent [, the Offshore Paying Agent] [delete in
Domestic Deed Poll] and each Financier (and any person claiming
through or under a Financier) is bound by this deed. The Loan
Notes will be issued subject to and on the basis that the
Facility Agent [, the Offshore Paying Agent] [delete in Domestic
Deed Poll] and each Financier is deemed to have notice of, and
be bound by, all the provisions of this deed and the Facility
Agreement.
DIRECTIONS TO HOLD DEED POLL
2.4 The Facility Agent [, the Offshore Paying Agent] [delete in
Domestic Deed Poll] and each Financier is taken to have
irrevocably instructed the Core Borrowers that this deed is to
be delivered to and held by the Registrar and appointed and
authorised the Registrar to hold this deed on its behalf.
3 FORM, TITLE AND STATUS
- --------------------------------------------------------------------------------
CONSTITUTION UNDER LOAN NOTE DEED POLL
3.1 The Loan Notes are debt obligations of the Core Borrowers owing
under this deed poll and take the form of entries in the
Register. Each entry in the Register constitutes a separate and
<PAGE>
individual acknowledgment to the relevant Financier of the
indebtedness of the Core Borrowers to the relevant Financier
under this deed.
INDEPENDENT OBLIGATIONS
3.2 Subject to the terms of the Facility Agreement and the other
Bank Finance Documents, the obligations of the Core Borrowers in
respect of each Loan Note constitute separate and independent
obligations which the Financier to whom those obligations are
owed is entitled to enforce without having to join any other
Financier or any predecessor in title of a Financier.
REGISTER CONCLUSIVE
3.3 Entries in the Register in relation to a Loan Note constitute
conclusive evidence that the person so entered is the registered
owner of the Loan Note subject to rectification for fraud or
error.
HOLDER ABSOLUTELY ENTITLED
3.4 Upon a person acquiring title to any Loan Note by virtue of
becoming registered as the owner of that Loan Note, all rights
and entitlements arising by virtue of this deed in respect of
that Loan Note vest absolutely in the registered owner of the
Loan Note. Any person who has previously been registered as the
owner of the Loan Note does not have, and is not entitled to
assert against the Core Borrowers or the Registrar or the
registered owner of the Loan Note for the time being and from
time to time, any rights, benefits or entitlements in respect of
the Loan Note.
STATUS OF LOAN NOTES
3.5 The Loan Notes are direct, unsubordinated and secured
obligations of the Core Borrowers and rank at least equally with
all other unsecured and unsubordinated obligations of the Core
Borrowers except liabilities mandatorily preferred by law.
4 TRANSFERS
- --------------------------------------------------------------------------------
LIMIT ON TRANSFER
4.1 Loan Notes may only be transferred in accordance with the
Facility Agreement.
REGISTRATION OF TRANSFER
4.2 The transferor of a Loan Note is deemed to remain the holder of
that Loan Note until the name of the transferee is entered in
the Register in respect of that Loan Note.
5 INTEREST
- --------------------------------------------------------------------------------
INTEREST CHARGES
5.1 The Core Borrowers agree to pay interest on each Loan for each
of its Interest Periods at the applicable Interest Rate.
CALCULATION OF INTEREST
5.2 Interest:
<PAGE>
(a) accrues daily from and including the first day of an
Interest Period to but excluding the last day of an
Interest Period; and
(b) is payable on each Interest Payment Date; and
(c) is calculated on actual days elapsed and a year of 365
days.
6 REPAYING AND PREPAYING
- --------------------------------------------------------------------------------
REPAYMENT
6.1 The Core Borrowers agree to repay the Principal Outstanding for
a Facility on the Maturity Date for that Facility.
VOLUNTARY PREPAYMENT
6.2 The Core Borrowers may prepay a Loan, as follows:
(a) unless the Facility Agent otherwise agrees, prepayment
of part only of the Principal Outstanding may only be
made if the total Principal Outstanding in respect of
Loans prepaid on that day is at least $10,000,000 and a
whole multiple of $5,000,000 or the balance of the
Principal Outstanding;
(b) the Core Borrowers must notify the proposed prepayment
to the Facility Agent by 11am on the fifth Business Day
before the prepayment (once given, a notice of
prepayment is irrevocable and the Core Borrowers are
obliged to prepay to the Facility Agent in accordance
with the notice.); and
(c) the prepayment must be made on the last day of the
Interest Period for the Loan.
If the Core Borrowers prepay they may be liable for break costs under a
Hedge Agreement and if they prepay other than as set out in this clause
6.2, they may be liable for break costs - see clause 11.2 (Indemnity) of
the Facility Agreement.
APPORTIONMENT
6.3 Prepayments under clause 6.2 (Voluntary prepayment) will be
applied rateably in reduction of the respective participation of
all the Financiers according to their respective Commitments.
PREPAYMENT AND THE FACILITY LIMIT
6.4 The Facility Limit for the Tranche A Facility and the Tranche C
Facility is reduced by amounts prepaid. The Facility Limit for
the Tranche B Facility is not reduced by amounts prepaid.
7 RELIQUIFYING BILLS
- --------------------------------------------------------------------------------
OBLIGATION TO DRAW BILLS
7.1 A Financier may, on behalf of the Core Borrowers draw Bills on
itself. However:
(a) the face value of those Bills, when added to the total
of the face value of all other Bills drawn by the
Financier under this clause 7 and which are outstanding,
may not exceed the Financier's proportion of the Loan to
<PAGE>
which the Bills relate plus interest to the end of the
then current Interest Period; and
(b) no Bill is to be drawn which would mature after the next
Interest Payment Date for the Loan in respect of which
the Bill is to be drawn.
In addition, the total face value of Bills which a Substitute Financier is
entitled to have drawn with recourse to the Core Borrowers is reduced by
the total discounted value of outstanding Bills drawn in respect of the
relevant Retiring Financier which relate to the obligations assumed by the
Substituted Financier and which are drawn with recourse to the Core
Borrowers. Any other Bill drawn in respect of the Substitute Financier must
expressly state that it is drawn without recourse to the Core Borrowers.
FINANCIER AS ATTORNEY
7.2 The Core Borrowers irrevocably appoint each Financier and each
Authorised Officer of each Financier individually as its
attorney to draw, accept or endorse the Bills and agrees to
ratify all action taken by an attorney under this clause 7.2.
TERMINATION
7.3 A Financier's ability to draw Bills on behalf of the Core
Borrowers ceases, and the appointment of a Financier and its
Authorised Officers as attorney for this purpose is revoked, on
payment by the Core Borrowers to the Facility Agent of all
amounts owing to that Financier under this deed.
INDEMNITY BY FINANCIER
7.4 Each Financier indemnifies the Core Borrowers against liability
or loss arising from, and any Costs (including duty) incurred in
connection with, any holder in due course of a Bill having
recourse to the Core Borrowers in respect of a Bill drawn by the
Financier under this clause 7.
DEEMED APPLICATION
7.5 If a reliquefication Bill is presented to the Core Borrowers and
the Core Borrowers discharges it by payment, the amount of that
payment will be deemed to have been applied against the moneys
outstanding under this deed to that Financier.
8 EVENT OF DEFAULT
- --------------------------------------------------------------------------------
In addition to any other rights provided by law or any Bank Finance
Document if an Event of Default occurs, then the Facility Agent may
declare at any time by notice to the Core Borrowers that:
(a) an amount equal to the total of the Amount Owing for all
Financiers is either:
(i) payable to the Facility Agent for the account of
the Financiers on demand; or
(ii) immediately due for payment to the Facility
Agent for the account of the Financiers;
<PAGE>
(b) the Financiers' obligations specified in the notice are
terminated.
The Facility Agent may make either or both of these declarations. The
making of either of them gives immediate effect to its provisions. The Core
Borrowers must pay the Amount Owing as demanded by the Facility Agent in
accordance with the demand.
9 PAYMENT
- --------------------------------------------------------------------------------
MANNER OF PAYMENT
9.1 Unless a provision of a Bank Finance Document expressly states
otherwise, the Core Borrowers agree to make payments under each
Bank Finance Document (other than a Hedge Agreement):
(a) on the due date (or, if that is not a Business Day, on
the next Business Day in the same calendar month or, if
none, the preceding Business Day); and
(b) not later than 12.00 noon in the place for payment; and
(c) in immediately available funds; and
(d) in Australian Dollars; and
(e) in full without set-off or counterclaim and without any
deduction in respect of Taxes unless prohibited by law;
and
(f) [to the Agent at the account in Australia nominated by
the Agent/to the Agent at the account outside Australia
nominated by the Agent. This account may be in Australia
if the IWT Amending Legislation becomes law]. [delete as
appropriate]
Subject to clause 7.5 of this deed, the Core Borrowers satisfy a payment
obligation only when the Agent receives the amount (even if the Core
Borrowers pay the amount directly to a Financier or a Financier receives
the amount by way of set-off).
CURRENCY OF PAYMENT
9.2 The Core Borrowers waive any right they have in any jurisdiction
to pay an amount other than in the currency in which it is due.
However, if the Agent or a Financier receives an amount in a
currency other than that in which it is due:
(a) it may convert the amount received into the due currency
(even though it may be necessary to convert through a
third currency to do so) on the day and at such rates
(including spot rate, same day value rate or value
tomorrow rate) as it reasonably considers appropriate.
It may deduct its usual Costs in connection with the
conversion; and
(b) the Core Borrowers satisfy their obligation to pay in
the due currency only to the extent of the amount of the
due currency obtained from the conversion after
deducting the Costs of the conversion.
<PAGE>
10 TAX
- --------------------------------------------------------------------------------
PAYMENTS TO AGENTS OR FINANCIERS
10.1 If a law requires a Core Borrower or the Agent to deduct an
amount in respect of Taxes from a payment under any Bank Finance
Document such that the Agent or a Financier would not actually
receive on the due date the full amount provided for under the
Bank Finance Document; then:
(a) the amount payable by the Core Borrower is increased so
that, after making the deduction and further deductions
applicable to additional amounts payable under this
clause 10.1 including any Tax on the additional amount,
the Agent or the Financier receives (at the time the
payment is due) the amount it would have received if no
deductions had been required; and
(b) the Core Borrower (or the Agent as the case may be)
agrees to make the deductions; and
(c) the Core Borrower (or the Agent as the case may be)
agrees to pay the amounts deducted to the relevant
authority in accordance with applicable law and give the
original receipts to the relevant Financier (through the
Agent).
10.2 Notwithstanding clause 10.1, a Core Borrower shall have no
obligations under clause 10.1 to a Financier if that Financier
is in breach of a warranty under clause 24.2 of the Facility
Agreement.
TAX CREDIT
10.3 If a Core Borrower or an Agent complies with clause 10.1
(Payments to Agents or Financiers) and, as a result, the Agent
or a Financier receives a tax credit, tax rebate or similar tax
benefit that in the Agent's or Financier's sole opinion (without
requiring it or its professional advisers to expend a material
amount of time or incur a material cost in forming that opinion)
is referable to the amount deducted and paid to the relevant
authority, the Agent or the Financier, as applicable, agrees to
notify the Core Borrower and pay the Core Borrower an amount
which the Agent or Financier, as applicable, determines in its
sole opinion but in good faith to be equal to the benefit.
However, the Agent or Financier need pay only to the extent that
the payment leaves the Agent or Financier in no worse position
than it would have been had there been no requirement for the
Core Borrower or the Agent to deduct amounts under clause 10.1
(Payments to Agent or Financiers). Neither the Agent nor any
Financier need disclose to the Core Borrowers information about
their tax affairs or order them in a particular way.
11 INCREASED COSTS
- --------------------------------------------------------------------------------
COMPENSATION PAYABLE BY CORE BORROWERS
11.1 The Core Borrowers agree to compensate a Financier on demand if
a Financier determines that:
<PAGE>
(a) any new Directive or change in Directive taking effect
after the date of this deed; or
(b) a change in any Directive's interpretation or
administration by an authority after the date of this
deed; or
(c) compliance by the Financier or any Holding Company (as
defined in the Corporations Law) with any such
Directive, changed Directive or changed interpretation
or application,
directly or indirectly:
(i) increases the cost of a Facility to the
Financier or a Holding Company of the Financier;
or
(ii) reduces any amount received or receivable by the
Financier or a Holding Company of the Financier,
or its effective return, in connection with a
Loan Note; or
(iii) reduces the Financier's return or its Holding
Company's return on capital allocated to a Loan
Note, or its overall return on capital.
Compensation need not be demanded in the form of a lump sum and may be
demanded as a series of payments.
Any demand under this clause 11.1 is to be made by the Facility Agent and
must contain reasonable details of the basis of computation of the amount
demanded (but need not disclose information about the Financier's or any
Related Entity's tax affairs). The Core Borrowers agree to pay amounts due
under this clause 11.1 to the Facility Agent.
NEGOTIATIONS
11.2 Without prejudice to clause 11.3 (Prepayment), a Financier
affected by a circumstance specified in clause
11.1(Compensation) must, at the request of the Core Borrowers
made to the Facility Agent, negotiate in good faith with the
Core Borrowers with a view to finding a means of avoiding the
effect of the relevant circumstance, including by changing its
lending office or transferring its rights and obligations to
another financial institution acceptable to the Core Borrowers
provided such means of avoiding the effect of the relevant
circumstance can be achieved free of cost to the Financier and
nothing in this clause obliges a Financier to take any action or
refrain from taking any action apart from negotiating in good
faith with the Core Borrowers.
PREPAYMENT
11.3 If a Core Borrower has received a demand from the Facility Agent
under clause 11.1 (Compensation payable by Core Borrowers) and
that notice has not been withdrawn by the Facility Agent (acting
on the direction of the relevant Financier) and provided that
the Core Borrower has not given the Facility Agent a Drawdown
Notice which has not been funded by the Financiers, the Core
Borrower, by notice given to the Facility Agent, may:
<PAGE>
(a) terminate the Financier's obligation to make its
Commitment under the affected Facility available; and
(b) elect to prepay the Financier's participation in the
Loan under the affected Facility together with all
accrued interest and any other amounts (including,
without limitation, any break costs) payable by the Core
Borrower to the Facility Agent on behalf of the
Financier in connection with the affected Facility,
within 10 Business Days of receipt of the demand from
the Facility Agent.
EFFECT OF NOTICE
11.4 Any notice given by a Core Borrower under clause 11.3
(Prepayment):
(a) takes effect when given to the Facility Agent;
(b) is irrevocable; and
(c) binds the Core Borrower to act in accordance with any
election made in that notice.
NO COMPENSATION
11.5 A Financier may not require the Core Borrowers to make a payment
under clause 11.1 (Compensation payable by Core Borrowers) if,
at the time the Financier became a party to this deed:
(a) the Directive was known to the Financier; and
(b) it was both reasonably certain that the Directive would
become law or take effect and unreasonable for that
Financier not to take that change into account in
determining its likely overall return under this deed.
The parties acknowledge that this clause 11.5 does not apply to the
introduction of a tax on goods or services in Australia after the date of
this deed.
RETROSPECTIVE COSTS
11.6 A Financier may only require a Core Borrower to make a payment
under clause 11.1(Compensation payable by Core Borrowers) in
respect of increased costs incurred by it up to an Interest
Period or 90 days, whichever is the greater, prior to the date
on which the Financier became aware of the circumstance giving
rise to the increased costs unless the increased cost is payable
or incurred by the Financier retrospectively, in which case the
full amount of the increased cost is payable by the Core
Borrower to the Financier.
CHANGE OF LENDING OFFICE
11.7 A Financier may not require a Core Borrower to make a payment
under clause 11.1 (Compensation payable by Core Borrowers) if
the increased cost arises directly and only as a result of and
immediately following the change of the lending office of the
Financier unless that change was the result of negotiations
under clause 12.2 (Negotiations) or clause 12.4 (Financier to
seek alternative funding method).
<PAGE>
12 ILLEGALITY OR IMPOSSIBILITY
- --------------------------------------------------------------------------------
FINANCIER'S RIGHT TO SUSPEND OR CANCEL
12.1 This clause 12 applies if a Financier determines that:
(a) a change in a Directive; or
(b) a change in the interpretation or administration of a
Directive by an authority; or
(c) a new Directive,
in each case taking effect after the date of this deed, makes it (or will
make it) illegal or impossible for the Financier to fund, provide, or
continue to fund or provide, financial accommodation under this deed. In
these circumstances, the Financier must notify the Facility Agent promptly
after becoming aware of such circumstances and, in turn, the Facility
Agent, by promptly giving a notice to the Core Borrowers, may suspend or
cancel some or all of the Financier's obligations under this deed as
indicated in the notice.
EXTENT AND DURATION 12.2 The suspension or cancellation:
(a) must apply only to the extent necessary to avoid the
illegality or impossibility; and
(b) in the case of suspension, may continue only for so long
as the illegality or impossibility continues.
NOTICE REQUIRING PREPAYMENT UNDER FACILITY
12.3 If the illegality or impossibility relates to a Loan, the
Financier, through the Facility Agent, by giving a notice to the
Core Borrowers, may require prepayment of all or part of the
affected Financier's Amount Owing. The Core Borrowers agree to
prepay to the Facility Agent the amount specified on the earlier
of the last day before the illegality or impossibility arises or
the Business Day following 30 days after the delivery of the
notice.
FINANCIER TO SEEK ALTERNATIVE FUNDING METHOD
12.4 If a notice is given under clause 12.1 (Financier's right to
suspend or cancel), then:
(a) the relevant Financier agrees to use reasonable
endeavours for a period of 30 days (or, if earlier, the
date of cancellation of the relevant financial
accommodation) to make the relevant financial
accommodation available by some alternative means
(including changing its lending office to another then
existing lending office or making the financial
accommodation available through a Related Entity of the
Financier) provided this can be achieved free of cost to
the Financier and nothing in this clause obliges a
Financier to take any action or refrain from taking any
action; and
(b) if the Financier advises the Facility Agent that no
alternative means are available, the Facility Agent must
use reasonable endeavours to arrange a transfer of the
<PAGE>
relevant Financier's rights and obligations (either to
another Financier or another transferee).
13 INTEREST ON OVERDUE AMOUNTS
- --------------------------------------------------------------------------------
OBLIGATION TO PAY
13.1 If a Core Borrower does not pay any amount under this deed or a
Loan Note on the due date for payment, the Core Borrower agrees
to pay to the Facility Agent on demand interest on that amount
at the Default Rate. The interest accrues daily from and
including the due date up to but excluding the date of actual
payment and is calculated on actual days elapsed and a year of
365 days.
COMPOUNDING
13.2 Interest payable under clause 13.1 (Obligation to pay) which is
not paid when due for payment may be added to the overdue amount
by the Facility Agent at intervals which the Facility Agent
determines from time to time or, if no determination is made,
every 30 days. Interest is payable on the increased overdue
amount at the Default Rate in the manner set out in clause 13.1
(Obligation to pay).
INTEREST FOLLOWING JUDGMENT
13.3 If a liability to a party becomes merged in a judgment, the Core
Borrower agrees to pay the Facility Agent on demand interest on
the amount of that liability as an independent obligation. This
interest:
(a) accrues daily from (and including) the date the
liability becomes due for payment both before and after
the judgment up to (but excluding) the date the
liability is paid; and
(b) is calculated at the judgment rate or the Default Rate
(whichever is higher).
14 GENERAL
- --------------------------------------------------------------------------------
The "General" and "Interpretation" clauses of the Facility
Agreement apply to this deed poll as if they were fully set
out in this deed poll.
15 DEFINITIONS
- --------------------------------------------------------------------------------
INCORPORATION OF DEFINITIONS
15.1 Words and expressions which have a defined meaning in the
Facility Agreement have the same meaning when used in this deed
poll, unless expressly specified to the contrary.
NEW DEFINITIONS
15.2 In addition:
FACILITY AGREEMENT means the agreement so described in the Details.
EXECUTED as a deed [in Victoria] [specify location outside Australia]
[delete as appropriate]
<PAGE>
EXECUTION PAGES
- --------------------------------------------------------------------------------
CORE BORROWERS
SIGNED by R.S. Shapard )
for TU AUSTRALIA HOLDINGS (PARTNERSHIP) )
LIMITED PARTNERSHIP by being SIGNED by an )
attorney for TU AUSTRALIA HOLDINGS (AGP) )
PTY LTD, the general partner of the TU )
Australia Holdings (Partnership) Limited )
Partnership under power of attorney dated )
23/2/99 )
in the presence of: )
)
Steven J Pascoe (signed) )
- ---------------------------------- )
Signature of witness )
) R.S. Shapard (signed)
Steven J Pascoe ) ------------------------
- ---------------------------------- ) By executing this agreement the
Name of witness (block letters) ) attorney states that the attorney
has received no notice of
49/525 Collins Street, Melbourne ) revocation of the power of
Address of witness ) attorney
)
)
Business Manager )
- ---------------------------------- )
Occupation of witness )
WCF BORROWERS
SIGNED by R.S. Shapard )
as attorney for TUA (NO. 10) PTY LTD )
under power of attorney dated 23/2/99 )
in the presence of: )
)
Steven J Pascoe (signed) )
- ----------------------------------. )
Signature of witness )
)
Steven J Pascoe )
- ----------------------------------. )
Name of witness (block letters) ) R.S. Shapard (signed)
) --------------------------------.
) By executing this agreement the
49/525 Collins Street, ) attorney states that the attorney
Melbourne ) has received no notice of
Address of witness ) revocation of the power of
) attorney
Business Manager )
- ---------------------------------. )
Occupation of witness )
<PAGE>
SIGNED by R.S. Shapard )
as attorney for TUA (NO. 11) PTY LTD )
under power of attorney dated 23/2/99 )
in the presence of: )
)
Steven J Pascoe (signed) )
- ----------------------------------. )
Signature of witness )
)
Steven J Pascoe )
- ---------------------------------. )
Name of witness (block letters) ) R.S. Shapard (signed)
) ---------------------------------
) By executing this agreement the
49/525 Collins Street, Melbourne ) attorney states that the attorney
- ---------------------------------. ) has received no notice of
Address of witness ) revocation ofthe power of attorney
)
Business Manager )
- ---------------------------------. )
Occupation of witness )
JOINT LEAD BANKS AND FINANCIERS
SIGNED by Peter Manis )
as attorney for BANK OF AMERICA NATIONAL )
TRUST AND SAVINGS ASSOCIATION under power )
of attorney dated 22/2/99 )
in the presence of: )
)
Melanie Butcher )
(signed) . )
Signature of witness )
)
Melanie L Butcher )
- --------------------------------------. )
Name of witness (block letters) )
) Peter Manis (signed)
) --------------------------------
Level 28, 525 Collins Street, Melbourne )
- ----------------------------------------. )
Address of witness ) By executing this agreement the
attorney states that the attorney
Solicitor has received no notice of
- ----------------------------------------. revocation of the power of
Occupation of witness attorney
<PAGE>
SIGNED by Peter Manis )
as attorney for BA AUSTRALIA LIMITED )
under power of attorney dated )
22/2/99 )
in the presence of: )
)
Melanie Butcher (signed) )
- ---------------------------------. )
Signature of witness )
)
Melanie L Butcher )
- ---------------------------------. )
Name of Witness (block letters) )
) Peter Manis
) (signed)
Level 28, 525 Collins Street, Melbourne )
- ----------------------------------------. )
Address of witness ) By executing this agreement the
) attorney states that the attorney
Solicitor ) has received no notice of
- ---------------------------------------. ) revocation of the power of
Occupation of witness ) attorney
SIGNED by P Saunders and )
A Masciantonio )
as attorney for DEUTSCHE BANK AG under )
power of attorney dated 20/11/98 )
in the presence of: )
)
David Byrne (signed) )
- -------------------------------------. )
Signature of witness ) P Saunders (signed)
) -------------------------------.
David Byrne )
- -------------------------------------. )
Name of witness (block letters) )
) A Masciantonio (signed)
23/333 Collins Street, Melbourne ) -------------------------------.
- -------------------------------------. ) By executing this agreement the
Address of witness ) attorney states that the attorney
) has received no notice of
Banker ) revocation of the power of
- -------------------------------------. ) attorney
Occupation of witness )
<PAGE>
SIGNED by P Saunders and )
A Masciantonio )
as attorney for DEUTSCHE AUSTRALIA )
LIMITED under power of attorney dated )
20/9/89 )
in the presence of: )
)
David Byrne (signed) )
- -------------------------------------. )
Signature of witness ) P Saunders (signed)
) --------------------------------.
David Byrne )
- -------------------------------------. )
Name of witness (block letters) )
) A Masciantonio (signed)
23/333 Collins Street, Melbourne ) --------------------------------.
- -------------------------------------. ) By executing this agreement the
Address of witness ) attorney states that the attorney
) has received no notice of
Banker ) revocation of the power of
- -------------------------------------. ) attorney
Occupation of witness
SIGNED by Peter Robinson )
as attorney for NATIONAL AUSTRALIA BANK )
LIMITED under power of attorney dated 28 )
February 1991 in the presence of: )
)
Melanie Butcher )
- ---------------------------------. )
Signature of witness )
)
Melanie L Butcher )
- ---------------------------------. )
Name of witness (block letters) )
) Peter Robinson
Level 28, 525 Collins Street, Melbourne ) (signed) .
- ----------------------------------------. )
Address of witness ) By executing this agreement the
) attorney states that the attorney
Solicitor ) has received no notice of
- ----------------------------------------. ) revocation of the power of
Occupation of witness ) attorney
<PAGE>
SIGNED by Jeffrey Clark )
as attorney for PARIBAS GROUP AUSTRALIA )
LIMITED under power of attorney dated )
22/2/99 )
in the presence of: )
)
Melanie Butcher )
- ---------------------------------. )
Signature of witness )
)
Melanie L )
- ---------------------------------. )
Name of witness (block letters) ) Jeffrey Clark (signed)
) ------------------------------.
Level 28, 525 Collins Street, Melbourne ) By executing this agreement the
- ----------------------------------. ) attorney states that the attorney
Address of witness ) has received no notice of
) revocation of the power of
Solicitor ) attorney
- -----------------------------------. )
Occupation of witness )
SIGNED by )
Paul Francis Mulderry )
as attorney for TORONTO DOMINION )
AUSTRALIA LIMITED under power of attorney )
dated 17 July 1987 )
in the presence of: )
)
Melanie Butcher (signed) )
- ----------------------------------------. )
Signature of witness )
)
Melanie L Butcher )
- ----------------------------------------. )
Name of witness (block letters) ) Paul Mulderry (signed)
) --------------------------------.
Level 28, 525 Collins Street, Melbourne ) By executing this agreement the
- ----------------------------------------. ) attorney states that the attorney
Address of witness ) has received no notice of
) revocation of the power of
Solicitor ) attorney
- ----------------------------------------. )
Occupation of witness )
<PAGE>
WORKING CAPITAL BANK
SIGNED by Peter Robinson )
as attorney for NATIONAL AUSTRALIA BANK )
LIMITED under power of attorney dated 28 )
February 1991 in the presence of: )
)
Melanie Butcher (signed) )
- ----------------------------------------. )
Signature of witness )
)
Melanie L Butcher )
- ----------------------------------------. )
Name of witness (block letters) )
) Peter Robinson (signed)
Level 28, 525 Collins Street, Melbourne ) --------------------------------.
- ----------------------------------------. ) By executing this agreement the
Address of witness ) attorney states that the attorney
has received no notice of
Solicitor revocation of the power of
- ----------------------------------------. attorney
Occupation of witness
HEDGE COUNTERPARTIES
SIGNED by Peter Manis )
as attorney for BANK OF AMERICA NATIONAL )
TRUST AND SAVINGS ASSOCIATION under power )
of attorney dated 22/2/99 )
in the presence of: )
)
Melanie Butcher (signed) )
- ---------------------------------------. )
Signature of witness )
)
Melanie L Butcher )
- ---------------------------------------. )
Name of witness (block letters) ) Peter Manis (signed)
) --------------------------------.
Level 28, 525 Collins Street, Melbourne ) By executing this agreement the
- ----------------------------------------. ) attorney states that the attorney
Address of witness has received no notice of
revocation of the power of
Solicitor attorney
- ----------------------------------------.
Occupation of witness
<PAGE>
SIGNED by P Saunders and )
A Masciantonio )
as attorney for DEUTSCHE BANK AG under )
power of attorney dated 20/11/98 )
in the presence of: )
)
David Byrne (signed) )
- ----------------------------------------. )
Signature of witness )
) P Saunders (signed)
David Byrne ) --------------------------------.
- ----------------------------------------. )
Name of witness (block letters) )
) A Masciantonio (signed)
23/333 Collins Street, Melbourne ) --------------------------------.
- ----------------------------------------. ) By executing this agreement the
Address of witness attorney states that the attorney
has received no notice of
Banker revocation of the power of
- ----------------------------------------. attorney
Occupation of witness
SIGNED by Peter Robinson )
as attorney for NATIONAL AUSTRALIA BANK )
LIMITED under power of attorney dated 28 )
February 1991 in the presence of: )
)
Melanie Butcher (signed) )
- --------------------------------------. )
Signature of witness )
)
Melanie L Butcher )
- --------------------------------------. )
Name of witness (block letters) )
) Peter Robinson (signed)
Level 28, 525 Collins Street, Melbourne ) --------------------------------.
- ---------------------------------------. ) By executing this agreement the
Address of witness ) attorney states that the attorney
has received no notice of
Solicitor revocation of the power of
- ---------------------------------------. attorney
Occupation of witness
<PAGE>
SIGNED by )
Paul Francis Mulderry )
as attorney for THE TORONTO- DOMINION )
BANK under power of attorney dated 22 )
February 1999 )
in the presence of: )
)
Melanie Butcher (signed) )
- ---------------------------------------. )
Signature of witness )
)
Melanie L Butcher )
- ---------------------------------------. )
Name of witness (block letters) ) Paul Mulderry (signed)
) --------------------------------.
Level 28, 525 Collins Street, Melbourne ) By executing this agreement the
- --------------------------------------- . ) attorney states that the attorney
Address of witness ) has received no notice of
) revocation of the power of
Solicitor ) attorney
- --------------------------------------- .
Occupation of witness
FACILITY AGENT
SIGNED by Peter Robinson )
as attorney for NATIONAL AUSTRALIA BANK )
LIMITED under power of attorney dated 28 )
February 1991 in the presence of: )
)
Melanie Butcher (signed) )
- ---------------------------------------. )
Signature of witness )
)
Melanie L Butcher )
- ---------------------------------------. )
Name of witness (block letters) )
) Peter Robinson (signed)
Level 28, 525 Collins Street, Melbourne ) --------------------------------.
- ----------------------------------------. ) By executing this agreement the
Address of witness ) attorney states that the attorney
) has received no notice of
Solicitor ) revocation of the power of
- --------------------------------------- . ) attorney
Occupation of witness )
<PAGE>
OFFSHORE PAYING AGENT
SIGNED by Peter Robinson )
as attorney for NATIONAL AUSTRALIA BANK )
LIMITED, SINGAPORE BRANCH under power of )
attorney dated 28 February 1991 in the )
presence of: )
)
Melanie Butcher (signed) )
- ----------------------------------------. )
Signature of witness )
)
Melanie L Butcher )
- ----------------------------------------. )
Name of witness (block letters) ) Peter Robinson (signed)
) --------------------------------.
Level 28, 525 Collins Street, Melbourne ) By executing this agreement the
- ----------------------------------------. ) attorney states that the attorney
Address of witness ) has received no notice of
) revocation of the power of
Solicitor ) attorney
- ----------------------------------------. )
Occupation of witness )
EXHIBIT 99(cc)
------------------------------------------
DATED 24 FEBRUARY 1999
SECURITY TRUST DEED
TU Australia Holdings (AGP) Pty Ltd
TU Australia Holdings No. 1 Limited
TU Australia Holdings No. 2 Limited
("CORE BORROWER")
TU Australia Holdings Pty Ltd
TUA (No. 8) Pty Ltd
TUA (No. 9) Pty Ltd
("GUARANTOR")
Texas Utilities Australia Pty Ltd
("TUA")
TUA (No. 10) Pty Ltd
TUA (No. 11) Pty Ltd
("PURCHASER")
Eastern Energy Limited
("EASTERN")
Texas Utilities Company
("TEXAS")
Citibank, N.A.
("JUNIOR FINANCIER")
National Australia Bank Limited
("AGENT")
National Australia Bank Limited
("SECURITY TRUSTEE")
MALLESONS STEPHEN JAQUES
Solicitors
Rialto
525 Collins Street
Melbourne Vic 3000
Telephone (61 3) 9643 4000
Fax (61 3) 9643 5999
DX 101 Melbourne
Ref: JLC
MELBOURNE/29B101!.DOC
<PAGE>
CONTENTS SECURITY TRUST DEED
- -------------------------------------------------------------------------------
1 INTERPRETATION 1
Incorporation 24
Agent 24
2 DECLARATION OF TRUST 24
3 DUTIES, POWERS AND RIGHTS OF SECURITY TRUSTEE 25
Authority of Security Trustee 25
Authority of Security Trustee to execute
Finance Documents 25
Power of the Security Trustee 25
Seeking instructions; consultation 25
Action in the absence of instructions 25
Obligors not to investigate authority 25
Amendments, waivers, releases and enforcement 26
Limits on duties of Security Trustee 26
Security Trustee's duty is only to Senior Creditors 26
Duty of Security Trustee to act honestly 26
Notice of Event of Default 26
Indemnity to Security Trustee 26
Security Trustee may also be a Creditor 27
No representation by Security Trustee 27
No individual enforcement by Creditors 27
Reliance on documents and experts 28
Notice of transfer 28
Distribution of information to Agent and Note Agent 28
4 SUBORDINATION 28
Subordination 28
Rights and obligations following an Event 28
Junior Creditor Undertakings 29
Permitted Junior Financier Payments 29
Obligors 30
Revocation of Approvals 31
Preservation of Senior Creditor's Rights 31
Power of Attorney 33
Application as between Junior Finance Debt and Eastern
Debt and Texas Indemnity 33
Texas Guarantee 34
Corporations Law 34
Obligors 34
Texas 34
5 REPRESENTATIONS AND WARRANTIES 34
Representations and warranties 34
Continuation of representations and warranties 40
6 UNDERTAKINGS 40
General undertakings 40
Borrower's Undertakings - Hedge 50
Negative Undertakings 51
Financial Undertakings 54
Distributions 54
7 SECURITY ACCOUNT 55
Establishment 55
Directions 55
Acknowledgment of satisfaction of obligations 55
8 DEFAULT 57
Events of default 57
Consequences of default 62
9 DISTRIBUTION OF RECOVERED MONEY 63
10 REPLACEMENT OF SECURITY TRUSTEE 64
Removal of Security Trustee 64
Retirement 64
11 LIMITED RECOURSE 65
Limited Recourse 65
Calculation of Guaranteed Money 66
Limitation on liability 66
12 COSTS, CHARGES, EXPENSES AND INDEMNITIES 66
What the Borrowers agree to pay 66
Indemnity 67
Items included in loss, liability and Costs 68
Payment of employees'losses 68
Currency conversion on judgment debt 68
13 NOTICES 69
Form 69
Waiver of notice period 69
14 CHANGE IN CREDITORS 69
Change in Creditors 69
Effect of accession 70
Notice of Change 70
15 GENERAL 70
Set-off 70
Certificates 70
Prompt performance 71
Discretion in exercising rights 71
Consents 71
Partial exercising of rights 71
No liability for loss 71
Conflict of interest 71
Remedies cumulative 71
Rights and obligations are unaffected 71
Indemnities 71
Variation and waiver 72
Confidentiality 72
Further steps 72
Inconsistent law 72
Supervening legislation 72
Time of the essence 73
Counterparts 73
Serving documents 73
16 GOVERNING LAW, JURISDICTION AND SERVICE OF PROCESS 73
<PAGE>
SECURITY TRUST DEED
DATE: 24 February 1999
PARTIES: TU AUSTRALIA HOLDINGS (PARTNERSHIP) LIMITED
PARTNERSHIP a limited partnership formed and
registered under the Partnership Act 1958 of
Victoria, the general partner of which is:
TU AUSTRALIA HOLDINGS (AGP) PTY LTD (ACN 086 014
931) having an office at Level 17, 452 Flinders
Street, Melbourne, Victoria; and the limited
partners of which are:
TU AUSTRALIA HOLDINGS NO. 1 LIMITED (ARBN 086 406
733), a company incorporated under the laws of
England and Wales and having its registered
office at Kempson House, Camomile Street, London
EC3A 7AN; and
TU AUSTRALIA HOLDINGS NO. 2 LIMITED (ARBN 086 406
724), a company incorporated under the laws of
England and Wales and having its registered office
at Kempson House, Camomile Street, London EC3A 7AN
("CORE Borrowers")
TU AUSTRALIA HOLDINGS PTY LTD (ACN 086 006 859);
TUA (NO. 8) PTY LTD (ACN 085 235 776); and
TUA (NO. 9) PTY LTD (ACN 085 235 801) each having an
office at Level 17, 452 Flinders Street, Melbourne,
Victoria (each a "GUARANTOR")
TEXAS UTILITIES AUSTRALIA PTY LTD (ACN 071 611 017)
having an office at Level 17, 452 Flinders Street,
Melbourne, Victoria ("TUA")
TUA (NO. 10) PTY LTD (ACN 086 015 036); and
TUA (NO. 11) PTY LTD (ACN 086 014 968) each having
an office at Level 17, 452 Flinders Street,
Melbourne, Victoria (each a "PURCHASER")
EASTERN ENERGY LIMITED (ACN 064 651 118) having its
registered office at Level 17, 452 Flinders Street,
Melbourne, Victoria ("EASTERN")
TEXAS UTILITIES COMPANY having an office at Energy
Plaza, 1601 Byran Street, Dallas, Texas 75201,
United States of America ("TEXAS")
CITIBANK, N.A. (ARBN 072 814 058) having an office
at Level 26, 101 Collins Street, Melbourne, Victoria
("JUNIOR FINANCIER")
NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937)
having an office at Level 2, 271 Collins Street,
Melbourne, Victoria (in its capacity as "Agent")
NATIONAL AUSTRALIA BANK LIMITED (ACN 004 044 937)
having an office at Level 2, 271 Collins Street,
Melbourne, Victoria (in its capacity as "SECURITY
TRUSTEE")
1 INTERPRETATION
- ----------------------------------------------------------------------
1.1 The following words have these meanings in this deed unless
the contrary intention appears.
ACTION means action which may result in an amendment, waiver,
determination, consent, approval, release or discharge.
<PAGE>
ALP LOAN AGREEMENT means each loan agreement between Holdco
(as lender) and the Core Borrowers (as borrowers) dated on or about the
date of this deed.
ALP LOAN DEBT means any amount actually or contingently
owing by the Core Borrowers to Holdco under or in connection with an ALP
Loan Agreement.
AMOUNT OWING means, at any time for or in respect of a
Senior Creditor, the total of all amounts which are then due for
payment, or which will or may become due for payment in connection with
any Bank Finance Document (including transactions in connection with
them) to that Senior Creditor or to the Security Trustee for the account
of that Senior Creditor and includes, in respect of a Hedge
Counterparty, the Hedge Exposure of that Hedge Counterparty.
ASSETS means all of the assets acquired by the Purchasers in
accordance with, or contemplated by, the Sale Agreement.
AUSTRALIAN ACCOUNTING STANDARDS means the accounting
standards within the meaning of the Corporations Law and, where not
inconsistent with those accounting standards and the Corporations Law,
generally accepted accounting principles and practices in Australia
consistently applied by a body corporate or as between bodies corporate.
AUTHORISATION includes:
(a) any consent, authorisation, registration,
filing, agreement, notarisation, certificate,
permission, licence, approval, authority,
arrangement, exemption or similar instrument
(whether from, by or with a Governmental
Agency or any other person); or
(b) in relation to anything which will be
prohibited or restricted in whole or in part
by law if a Governmental Agency intervenes or
acts in any way within a specified period
after application, lodgement, filing,
registration or notification, the expiry of
that period without the intervention or
action.
AUTHORISED OFFICER means:
(a) in the case of a Senior Creditor or the
Junior Financier, a director, secretary or an
officer whose title contains the word
"manager", "director", "lawyer", "counsel" or
a person performing the functions of any of
them; and
(b) in the case of an Obligor, Eastern or Texas,
a person appointed and notified to the
Security Trustee to act as an Authorised
Officer under the Transaction Documents to
which it is a party and whose specimen
signature has been given to the Security
Trustee.
BANK FINANCE DOCUMENT means each of this deed, the
Syndicated Facilities Agreement, the Deed Polls, the Loan
Notes, each Security, the Working Capital Terms and
Conditions, each Hedge Agreement and any other document
which an Obligor and the Agent agree in writing is to be a
Bank Finance Document and any other instrument connected
with any of them.
<PAGE>
BASE CASE MODEL has the meaning given to that term in the
Syndicated Facilities Agreement.
BILL has the meaning it has in the Bills of Exchange Act
1909 (Cwlth) and a reference to the drawing, acceptance or
endorsement of, or other dealing with, a Bill is to be
interpreted in accordance with that Act.
BORROWER means each Core Borrower and WCF Borrower.
BS1 means TUA (No. 8) Pty Ltd (ACN 085 235 776).
BS1-BS2 LOAN AGREEMENT means each loan agreement dated on or
about the date of this deed between BS1 (as lender) and BS2
as borrower).
BS1 MORTGAGE, SHARE MORTGAGE AND CHARGE means the mortgage,
share mortgage and charge made or to be made between BS1
and the Security Trustee over the interests of BS1 in the
BS1-BS2 Loan Agreement, the shares held by BS1 in BS2 and
over all the other assets and undertaking of BS1.
BS2 means TUA (No. 9) Pty Ltd (ACN 085 235 801).
BS2 - WESTAR/KINETIK LOAN AGREEMENT means each loan
agreement dated on or about the date of this deed under
which a loan is to be made between BS2 (as lender) and TUA
(No. 10) Pty Limited and TUA (No. 11) Pty Ltd (as
borrowers).
BUSINESS DAY means a day (not being a Saturday, Sunday or
public holiday) on which banks are open for general banking
business in Melbourne and Sydney.
CALCULATION DATE means 31 March, 30 June, 30 September and
31 December in each year commencing on 30 September 1999.
CALCULATION PERIOD means, in relation to any Calculation
Date, the 12 month period ending on that Calculation Date
except in the case of the those Calculation Periods ending
within twelve months of Financial Close which will commence
on Financial Close and end on the relevant Calculation Date.
CAPEX RESERVE means a reserve set aside by the Purchasers
and which has not been directly or indirectly funded by
Senior Debt (except to the extent that it constitutes a
drawing on a revolving facility after the date of Financial
Close) and which may only be used:
(a) to fund Capital Expenditure in excess of the
Capital Expenditure projected to be paid in
accordance with the Base Case Model, as that
projected Capital Expenditure may be adjusted
having regard to the capital expenditure
review plan agreed in accordance with clause
6.1(pp); or
(b) to pay a Distribution permitted to be paid
under clause 6.5.
CAPITAL EXPENDITURE means, in relation to a Purchaser, any
expenditure which would be treated as capital expenditure
in the Financial Statements of the Purchaser in accordance
with Australian Accounting Standards, and for the avoidance
of doubt, includes maintenance expenditure and expenditure
to establish, acquire, expand or develop assets relating to
the Core Assets and Core Business but does not include
expenditure funded from capital works payments by customers
of the Purchaser.
<PAGE>
CONSOLIDATED INTEREST COVER RATIO means, on any Calculation
Date in respect of any Calculation Period, the ratio of:
(a) EBITDA less:
(i) Capital Expenditure except to the
extent that any Capital Expenditure in
excess of the amount projected to be
paid in that Calculation Period in the
Base Case Model is paid from a
withdrawal from the Capex Reserve;
(ii) income tax; and
(iii) abnormal and extraordinary items
paid for in cash including land
remediation costs (except to
the extent that any land remediation
costs in excess of the amount
projected to be paid in that
Calculation Period in the Base Case
Model are paid from a withdrawal from
the Remediation Reserve) and the net
losses resulting directly
from the supply of gas to all
customers in the Wimmera towns of
Ararat, Stawell and Horsham but
excluding any Restructuring Costs to
the extent that those Restructuring
Costs are paid from a withdrawal from
the Reserve Account,
paid or incurred in that Calculation Period,
to:
(b) Debt Service,
for that Calculation Period.
CONSOLIDATED NET WORTH means the aggregate, on a consolidated basis, of
the paid up capital, retained profits and reserves (excluding the amount
of all asset revaluation reserves after Financial Close) of the
Operating Group:
(a) less:
(i) all minority interests;
(ii) any paid up capital or share premium
in respect of shares or stock capable
of being redeemed before the Maturity
Date for the Tranche B Facility and
the Tranche C Facility (as those terms
are defined in the Syndicated
Facilities Agreement);
(b) plus Total Subordinated Debt.
CONSOLIDATED SENIOR DEBT means at any time the sum of:
(a) the total Amount Owing to the Senior
Creditors; and
(b) the aggregate outstanding principal amount
of all other Permitted Indebtedness of the
Operating Group on a consolidated basis
<PAGE>
which is not subordinated to the interests
of the Senior Creditors.
CONTESTED TAXES means a Tax payable by an Obligor:
(a) that is being diligently contested by it in
good faith and in accordance with proper
procedures;
(b) that is not required by applicable law to be
paid before the liability is contested; and
(c) in respect of which it has set aside
sufficient reserves of liquid assets to pay
the Tax and any fine, penalty or interest
payable if the contest is unsuccessful.
CONTROLLER has the meaning it has in the Corporations Law.
CORE ASSETS means the Gas Infrastructure and the Licences.
CORE BUSINESS means the supply, transmission, distribution and sale of
energy products and any ancillary activities (so long as these
ancillary activities do not represent a material diversification of
the business or a material diversion of financial resources of the
Purchasers from the Core Business of the supply, transmission,
distribution and sale of gas).
COSTS includes costs, charges and expenses, including those
incurred in connection with advisers.
CREDITOR means each Senior Creditor and each Junior Creditor. Where the
term is used in relation to the obligations of any one of those persons
"to the Creditors" it is a reference to the obligations of that person
to each other person which is a Creditor.
DEBT SERVICE means, in respect of any Calculation Period and on a
consolidated basis, all Interest (including, but not limited to:
(a) any discount on any Bill, debenture, bond,
note or other security;
(b) any discount in respect of any receipts or
receivables which have been sold by the
Borrowers to any person (including, without
limitation, under any securitisation program
or facility);
(c) any line, facility, commitment, acceptance,
usage, discount, guarantee or other fees and
amounts incurred on a regular or recurring
basis which are payable in relation to
Indebtedness (which, for the avoidance of
doubt, excludes any establishment,
underwriting or other upfront fees);
(d) any dividend payable on redeemable preference
shares or on any other share or stock the
obligations in respect of which constitute
Indebtedness;
(e) capitalised interest;
<PAGE>
(f) the portion of rental or hire payments in the
nature of interest under any finance lease,
sale and leaseback or hire purchase agreement
to which a Borrower is a party;
(g) Interest, premiums, fees, break costs and any
other amounts paid, payable or incurred by a
Borrower under any Derivative Transaction
less Interest, premiums, fees and any other
amounts paid, payable or incurred to a
Borrower by the counterparty to the
Derivative Transaction),
which, in accordance with Australian Accounting
Standards, is or would be regarded as paid,
payable or incurred by the Borrowers in respect of
or in connection with Consolidated Senior Debt in
that Calculation Period.
DEED POLL has the meaning given to that term in the Syndicated
Facilities Agreement.
DERIVATIVE TRANSACTION means a contract, agreement or arrangement
(other than in respect of the price of electricity or gas) which is:
(a) a futures contract (as defined in the
Corporations Law); or
(b) an interest rate or currency hedge, swap,
option, a swaption, a forward rate agreement
or any other contract, agreement or
arrangement similar to or having in respect
of its subject matter a similar effect to any
of the above.
DISTRIBUTION means:
(a) any dividend, charge, interest, fee, payment
or other distribution (whether in cash or in
kind) or redemption, repurchase, defeasance,
retirement or repayment on or in respect of
any share capital of an Obligor; or
(b) any Interest, any repayment or prepayment of
any amount of principal or any other payment
in respect of any Subordinated Indebtedness;
or
(c) any loan by an Obligor.
DISTRIBUTION AREA means the area in Victoria in which TUA (No. 10) Pty
Ltd will on and from Financial Close be authorised to distribute and
supply gas, being that area defined as the `Distribution Area' and
described in Schedule 2 to the Distribution Licence.
DISTRIBUTION LICENCE means the distribution licence issued to Westar by
ORG pursuant to the Gas Industry Act 1994 with effect from 11 December
1997, as amended and transferred to TUA (No. 10) Pty Ltd on or before
the date of Financial Close.
DRAWDOWN DATE has the meaning given to that term in the Syndicated
Facilities Agreement.
EASEMENTS means all easements, rights or privileges held by or vested in
or deemed to be held by or vested in a Purchaser (whether under Part 5
of the Gas Industry Act 1994 or otherwise) in, over, appurtenant to or
affecting any real property.
<PAGE>
EASTERN DEBT means any amount actually or contingently owing under or
in connection with the Eastern Loan Agreement.
EASTERN LOAN AGREEMENT means the loan agreement made or to be made
between Eastern (as lender) and BS1 (as borrower).
EBITDA means, in respect of any Calculation Period, the
earnings of the Operating Group (including the proceeds of any claim
under a business interruption insurance policy by a Purchaser and any
interest earnings) on a consolidated basis and before:
(a) abnormal items (which includes the sale
proceeds from the disposal of assets and
Restructuring Costs);
(b) extraordinary items including, without
limitation, costs arising on the termination
of any Derivative Transaction;
(c) Debt Service;
(d) income tax; and
(e) depreciation and amortisation.
ENFORCEMENT ACTION means, in relation to an Obligor:
(a) a right arising from a default by an Obligor
is exercised or enforced against the Obligor;
(b) an application is made for, or a notice is
given or other step is taken with a view to:
(i) insolvency, liquidation,
administration, dissolution or
similar proceedings with respect to
the Obligor;
(ii) an administration, arrangement,
composition or assignment for the
benefit of creditors, or any class of
creditors, of the Obligor; or
(iii) the appointment of any person as a
Controller in relation to property of
an Obligor,
whether by petition, application, convening of a meeting, voting in
favour of a resolution or otherwise.
ENVIRONMENT means all aspects of the surroundings of human beings,
including:
(a) the physical characteristics of those
surroundings such as the land, the waters and
the atmosphere; and
(b) the biological characteristics of those
surroundings such as animal, plants and other
forms of life; and
(c) the aesthetic characteristics of those
surroundings such as their appearance,
sounds, smells, tastes and textures.
ENVIRONMENTAL LAW means a law regulating or otherwise relating to
the Environment including, but not limited to, any law relating to land
<PAGE>
use, planning, water catchments, pollution of air or water, noise,
smell, contamination, chemicals, waste, pesticides, use of dangerous
goods or hazardous substances, noxious trades or any other aspect of
protection of the Environment.
EQUITY SUBSCRIPTION AGREEMENT means the agreement to be made on or
before the date of Financial Close between the Core Borrowers and
Holdco in relation to the subscription of shares in Holdco by the Core
Borrowers.
EVENT means the happening of any of these events:
(a) an order is made that an Obligor be wound up;
or
(b) a liquidator is appointed in respect of an
Obligor; or
(c) a provisional liquidator is appointed in
respect of an Obligor and the provisional
liquidator is ordered or required to admit
all debts to proof or pay all debts capable
of being admitted to proof proportionately;
or
(d) an Obligor enters into, or resolves to enter
into, a scheme of arrangement, deed of
company arrangement or composition with, or
assignment for the benefit of, all or any
class of its creditors; or
(e) an Obligor resolves to wind itself up or
otherwise dissolve itself.
EVENT OF DEFAULT means an event specified in clause 8.
FINANCE DOCUMENT means any Bank Finance Document, any Junior
Finance Document, any other document which the Core Borrowers and the
Security Trustee agree in writing is to be a Finance Document and any
other instrument connected with any of them.
FINANCIAL CLOSE means the date on which the last condition
precedent in schedule 1 to the Syndicated Facilities Agreement is
satisfied (or waived by the Financiers).
FINANCIAL YEAR means each 12 month period ending on 31 December in each
year.
FINANCIER has the meaning given in the Syndicated Facilities Agreement.
FINANCIAL STATEMENTS means:
(a) a profit and loss statement; and
(b) a balance sheet; and
(c) a statement of cash flows,
together with any notes to those documents and a directors' declaration
as required under the Corporations Law (in the case of a body corporate
incorporated in Australia) and any other information necessary to give a
true and fair view.
FIXED DATE means the day by which the Security Trustee determines that
a Majority of Senior Creditors have instructed the Security Trustee to
give a notice under clause 8.2.
<PAGE>
FRANCHISE AREA means the area in Victoria in which TUA (No. 11) Pty Ltd
will on and from Financial Close be authorised to sell gas, being that
area defined as the `Franchise Area' and described in schedule 2 to the
gas Retail Licence.
GASCOR PUT OPTION AGREEMENT means the agreement entered into or to be
entered into between TUA (No. 11) Pty Ltd and the State of Victoria
under which the State of Victoria may, at its option, transfer to TUA
(No. 11) Pty Ltd a portion of the State's shares in the State owned
company into which GASCOR will be converted.
GAS INFRASTRUCTURE means:
(a) all gas transmission and distribution pipes,
and all other plant and equipment used in the
reticulation, transmission or metering of gas
which, in its ordinary use, is located in a
fixed position wherever located, but excludes
motor vehicles and mobile plant owned or
leased by the Purchasers; and
(b) Easements.
GAS INFRASTRUCTURE ASSETS means any asset which forms part of the Gas
Infrastructure.
GOOD GAS INDUSTRY PRACTICE means the standard of operating and
engineering practice that would reasonably be expected from a
significant proportion of the world's best operators of facilities (not
being owned and operated by Governmental Agencies) for the supply,
transmission, distribution and sale of gas, operation of pipelines and
reticulation networks with the asset conditions being consistent with
the Core Assets and consistent with applicable laws, regulations, codes
(including, without limitation, AG 600 Gas Distribution Code) and the
Licences and on the basis that the determination of conditions
consistent with the Core Assets takes into account:
(a) the design and specifications, relative size,
age, distribution and technology utilised in
the network; and
(b) operating and engineering practice in
connection with such facilities including,
without limitation, the day to day operation
of such facilities as well as maintenance,
repair, modification, performance improvement
and the exercise of skill, diligence,
prudence and foresight in connection with
such activities.
GOVERNMENTAL AGENCY means any government, any minister of a government
or any governmental or semi-governmental entity, agency or authority
(including, without limitation, the Australian Competition and Consumer
Commission and the ORG).
GUARANTEE means the guarantee and indemnity made or to be made between
the Core Borrowers, Holdco, BS1 and BS2 in favour of the Security
Trustee.
GUARANTEED MONEY has the meaning given to that term in the Guarantee.
HALF YEAR mens each period of six months ending on 30 June and 31
December in each year.
HEDGE AGREEMENT means each interest rate hedging document (including any
restatement of any earlier document) entered into between the Core
Borrowers and any Hedge Counterparty on or before the date of the
Financial Close.
<PAGE>
HEDGE COUNTERPARTY has the meaning given to that term in the Syndicated
Facilities Agreement.
HEDGE EXPOSURE means in respect of a Hedge Counterparty at the
applicable date the amount which is H in the following formula:
H = M to M + Unpaid Amounts
where:
M TO M is the result of the mark to
market calculation of the obligations under
the Hedge Agreements provided that M to M
will be a positive number if it represents a
liability of the Core Borrowers to the Hedge
Counterparty and a negative number if it
represents a liability of the Hedge
Counterparty to the Core Borrowers.
UNPAID AMOUNTS is any amount owing
under the Hedge Agreements provided that
Unpaid Amounts will be a positive number if
it represents amounts owing by the Core
Borrowers to the Hedge Counterparty and a
negative number if it represents amounts
owing by the Hedge Counterparty to the Core
Borrowers,
provided that if H is a negative number it shall be deemed to be equal
to zero.
HOLDCO means TU Australia Holdings Pty Ltd (ACN 086 006 859).
HOLDCO MORTGAGE means the mortgage made or to be made
between Holdco and the Security Trustee over Holdco's interests in the
Holdco-TUA Loan Agreements, the ALP Loan Agreements and the TUA
Mortgage.
HOLDCO - TUA LOAN AGREEMENT means each loan agreement dated
on or about the date of this deed between Holdco (as lender) and TUA (as
borrower).
INDEBTEDNESS means any debt or other monetary liability
(whether actual or contingent) in respect of moneys borrowed or raised
or any financial accommodation (including in respect of any moneys
raised from the sale or securitisation of any receipts or receivables)
whatever, or in the case of paragraph (h) below, a Derivative
Transaction, including a debt or liability under or in respect of any:
(a) Bill, bond, debenture, note or similar
instrument;
(b) acceptance, endorsement or discounting
arrangement;
(c) guarantee granted by a financial institution
guaranteeing the payment of a debt (the
"guaranteed debt"), in which case the
guaranteed debt will not be included;
(d) finance lease or sale and leaseback;
(e) deferred purchase price (for more than 180
days) of any asset or service;
<PAGE>
(f) obligation to deliver goods or provide
services paid for in advance by any financier
or in relation to any other financing
transaction;
(g) amount of capital and premium payable or in
connection with the reduction of any
preference shares or any amount of purchase
price payable for or in connection with the
acquisition of redeemable preference shares;
(h) Derivative Transaction; or
(i) guarantee, indemnity or guarantee and
indemnity,
and irrespective of whether the debt or liability is owed or incurred
alone or severally or jointly or both with any other person. For the
purpose of calculating the principal amount of any Indebtedness under:
(j) any securitisation of receipts or
receivables, the principal amount shall be
taken to be the discounted amount of proceeds
paid in exchange for the receipts or
receivables; and
(k) any finance lease or sale and leaseback, the
aggregate portion of all rental in the nature
of principal.
INSOLVENCY EVENT means the happening of any of these events:
(a) an order is made that an entity be wound up;
or
(b) an application is made to a court that an
entity be wound up or for an order appointing
a liquidator or provisional liquidator in
respect of an entity (and is not stayed or
dismissed within 14 days) unless the entity
satisfies the Security Trustee (acting on the
instructions of the Majority of Senior
Creditors) within 14 days of it being made
that the application is frivolous or
vexatious; or
(c) a liquidator or provisional liquidator is
appointed in respect of an entity, whether or
not under a court order;
(d) except to reconstruct or amalgamate while
solvent on terms approved by the Security
Trustee (acting on the instructions of the
Majority of Senior Creditors), an entity
enters into, or resolves to enter into, a
scheme of arrangement, deed of company
arrangement or composition with, or
assignment for the benefit of, all or any
class of its creditors, or it proposes a
reorganisation, moratorium or other
administration involving any class of its
creditors; or
(e) an entity resolves to wind itself up, or
otherwise dissolve itself, or gives notice
of intention to do so, except to reconstruct
or amalgamate while solvent on terms approved
by the Security Trustee (acting upon the
instructions of the Majority of Senior
Creditors) or is otherwise wound up or
dissolved; or
<PAGE>
(f) a Controller is appointed to or over all or
any part of the assets or undertaking of the
entity or the holder of any Security Interest
takes possession of any asset of the entity;
or
(g) an entity is or is deemed by law or a court
to be insolvent; or
(h) an entity takes any steps to obtain
protection or is granted protection from its
creditors, under any applicable legislation
or an administrator is appointed to an
entity; or
(i) anything analogous or having a substantially
similar effect to any of the events specified
above happens under the law of any applicable
jurisdiction.
INTERCOMPANY LOAN AGREEMENTS means:
(a) the ALP Loan Agreements;
(b) the Holdco - TUA Loan Agreements;
(c) the TUA - BS1 Loan Agreements;
(d) the BS1 - BS2 Loan Agreements;
(e) the BS2 - Westar/Kinetik Loan Agreements;
and any Security Interest (including, without limitation, the TUA
Mortgage) given in connection with any of them.
INTERCOMPANY LOAN DEBT means any amount actually or contingently owing
under or in connection with an Intercompany Loan Agreement.
INTEREST includes, in relation to any principal or other amount of
Indebtedness, interest, fees, commissions and charges and any other
amounts in the nature of interest or the payment of which has a
similar effect or purpose to the payment of interest.
INTEREST PAYMENT DATE has the meaning given to that term in
the Syndicated Facilities Agreement.
JUNIOR CREDITOR means the Junior Financier, Eastern, each
Obligor owed money in respect of an Intercompany Loan Agreement and
Texas.
JUNIOR DEBT means each of:
(a) the Junior Finance Debt;
(b) the Eastern Debt;
(c) the Texas Indemnity; and
(d) the Intercompany Loan Debt.
JUNIOR FINANCE DEBT means any amount actually or contingently
owing under or in connection with the Junior Finance Documents (other
than an amount owing by Texas under the Texas Guarantee).
<PAGE>
JUNIOR FINANCE DOCUMENT means the Subordinated Facility Agreement, the
Texas Guarantee, this deed and any other document which the Core
Borrowers and the Junior Financier agree is to be a Junior Finance
Document and any other instrument connected with any of them.
JUNIOR FINANCIER means Citibank, N.A. in its capacity as financier under
the Subordinated Facility Agreement.
KINETIK means Kinetik Energy Pty Ltd (ACN 079 089 188).
LICENCE means the Distribution Licence, a Retail Licence and
any other Authorisation granted to a Purchaser to distribute or sell
energy products.
LIMITED RECOURSE GUARANTOR means the Core Borrowers and Holdco.
LIMITED RECOURSE OBLIGOR means the Core Borrowers, TUA and the Limited
Recourse Guarantors.
LIMITED RECOURSE OBLIGATIONS means the obligation of the Core Borrowers,
TUA or Holdco to pay money under the Transaction Documents (other than
the obligation to pay money under clause 4.5 and the obligations of the
Core Borrowers under the Subordinated Facility Agreement) except if
arising in the circumstances contemplated by clause 11.3(b).
LOAN NOTE has the meaning given to that term in the Syndicated
Facilities Agreement.
LOSS includes any consequential loss, and any costs, liability, claim,
suit, proceeding, cause of action, demand or action.
MAJORITY OF SENIOR CREDITORS means at any time:
(a) if no Event of Default subsists, Senior
Creditors (other than Hedge Counterparties),
the Amount Owing to whom exceeds 66% of the
total Amount Owing to all such Senior
Creditors; and
(b) if an Event of Default subsists, Senior
Creditors the Amount Owing to whom exceeds
66% of the total Amount Owing to all Senior
Creditors.
MATERIAL ADVERSE EFFECT means something which materially adversely
affects:
(a) the legality, validity or enforceability of a
Finance Document; or
(b) the Obligor's ability to observe its
obligations under any Finance Document; or
(c) the ability of a Purchaser to carry on its
business as it is being conducted at the time
preceding the event; or
(d) the rights of a Senior Creditor under a Bank
Finance Document.
MATERIAL CONTRACT means:
(a) the Sale Agreement;
<PAGE>
(b) the Outsourcing Agreements;
(c) the Sales Contracts;
(d) the GASCOR Put Option Agreement;
(e) the Shareholder Deed;
(f) the Equity Subscription Agreement;
(g) the Intercompany Loan Agreements;
(h) the Eastern Loan Agreement;
(i) the Subordinated Facility Agreement;
(j) the Partnership Deed;
(k) Underground Gas Storage Services Agreement
entered into or to be entered into between
Kinetik Energy Pty Ltd and Western
Underground Gas Storage Pty Ltd and Texas
Utilities Australia Pty Ltd;
(l) Guarantee between Westar Pty Ltd, Westar
Assets Pty Ltd and GASCOR;
(m) Gas Supply Agreement (Cooper Basin) entered
into or to be entered into between Kinetik
Energy Pty Ltd and GASCOR;
(n) Gas Supply Agreement (Port Campbell Fields)
entered into or to be entered into between
Kinetik Energy Pty Ltd and GASCOR;
(o) Gas Sales Agreement entered into or to be
entered into between Western Underground Gas
Storage Pty Ltd, Texas Utilities Australia
Pty Ltd and GASCOR;
(p) Put Option Deed dated 15 December 1998
between Kinetik Energy Pty Ltd, Esso
Australia Resources Ltd and BHP Petroleum
(Bass Strait) Pty Ltd and any Transportation
Agreement to be entered into as a result of
the exercise of the option;
(q) Port Campbell Gas Sale Agreement dated 4
February 1994;
(r) Service Envelope Agreement entered into or to
be entered into between VENCorp and
Transmission Pipelines Australia Pty Ltd;
(s) Gas Transportation Deed entered into or to be
entered into between VENCorp and Kinetik
Energy Pty Ltd;
(t) Western Transmission System Agreement dated 9
August 1998 between Transmission Pipelines
Australia Pty Ltd, Transmission Pipelines
Australia (Assets) Pty Ltd and Kinetik Energy
Pty Ltd;
<PAGE>
(u) Transportation Services Agreement dated 16
September 1997 between Coastal Gas Pipelines
Victoria Pty Ltd and Kinetik Energy Pty Ltd;
(v) Transmission Entitlement Deed entered into or
to be entered into between Kinetik Energy Pty
Ltd and Transmission Pipelines Australia Pty
Ltd;
(w) Distribution Tariff Agreement dated 3 August
1998 between Westar Pty Ltd and Kinetik
Energy Pty Ltd;
(x) Distribution Tariff Agreement dated 3 August
1998 between Stratus Networks and Kinetik
Energy Pty Ltd;
(y) Interim SOU Transportation Agreement entered
into or to be entered into between GASCOR and
Kinetik Energy Pty Ltd;
(z) Distribution Tariff Agreement between Westar
Pty Ltd and Ikon Energy;
(aa) Connection Agreement dated 4 September 1998
between Transmission Pipelines Australia Pty
Ltd, Transmission Pipelines Australia
(Assets) Pty Ltd, Westar Assets Pty Ltd and
Westar Pty Ltd;
(bb) Connection Agreement between VENCorp and
Westar Pty Ltd;
(cc) LNG and Metering Services Agreement dated 8
September 1998 between Transmission Pipelines
Australia Pty Ltd and Kinetik Energy Pty Ltd;
(dd) Longford No Sue Deed; and
(ee) any other document which an Obligor and the
Security Trustee agree in writing will be a
Material Contract for the purposes of this
deed.
MATERIAL REGULATORY INSTRUMENT means:
(a) the MSO Rules;
(b) the Victorian Gas Industry Tariff Order;
(c) the Wimmera and Colac Tariff Order;
(d) the National Third Party Access Code for
Natural Gas Pipeline Systems and the
Victorian Third Party Access Code for Natural
Gas Pipeline Systems;
(e) the Access Arrangements for the distribution
system; and
(f) the National Electricity Code.
MSO RULES has the meaning given in the Gas Industry Act 1994.
<PAGE>
NATIONAL ELECTRICITY CODE has the meaning given to the word "Code" in
the National Electricity Law.
NET CASH FLOW means, in respect of the Operating Group on a consolidated
basis for any Half Year, the operating profit (which, for the avoidance
of doubt, is before depreciation and amortisation and includes interest
income and the net proceeds from the sale of property, plant and
equipment) for that Half Year after:
(a) deducting income tax paid or payable in that
period;
(b) changes in working capital and movements in
provisions for employee entitlements and the
net losses resulting directly from the supply
of gas to all customers in the Wimmera towns
of Ararat, Stawell and Horsham; and
(c) Capital Expenditure and any amounts credited
to the Capex Reserve or the Remediation
Reserve,
and less Debt Service amounts or principal repayments or prepayments
paid or accrued during that Half Year.
NON-RECOURSE INDEBTEDNESS means any Indebtedness incurred by the Core
Borrowers, Holdco or TUA on terms that:
(a) the person ("RELEVANT PERSON") in whose
favour that Indebtedness is incurred does not
have any right to enforce its rights or
remedies (including for any breach of any
representation or warranty or obligation)
against the Core Borrowers, Holdco or TUA or
against any of their assets except for the
purpose of enforcing any Security Interest
(which does not extend to any assets which
are the subject of a Security) granted in
favour of the Relevant Person and only to the
extent of the lesser of the value of the
assets encumbered by that Security Interest
and the amount secured by that Security
Interest; and
(b) the Relevant Person is not permitted or
entitled:
(i) except as and to the extent permitted
in paragraph (a) above, to enforce any
right or remedy against, or demand
payment or repayment of any amount
from, the Core Borrowers, Holdco or
TUA;
(ii) except and to the extent permitted in
paragraph (a) above, to take any
proceedings against the Core
Borrowers, Holdco or TUA;
(iii) to apply to wind up or prove in the
winding up of the Core Borrowers,
Holdco or TUA; or
(iv) to appoint an administrator in respect
of the Core Borrowers, Holdco or TUA,
<PAGE>
so that the Relevant Person's only right of recourse in respect of that
Indebtedness or any Security Interest securing that Indebtedness is to
the assets encumbered by that Security Interest (which assets must not
include any assets the subject of a Security).
OBLIGOR means each Core Borrower, the Guarantor, TUA and the Purchasers.
OFFSHORE PAYING AGENT means National Australia Bank Limited, Singapore
Branch.
OPERATING GROUP means each of BS1, BS2, each Purchaser and any
Subsidiary of BS1.
ORG means the Office of the Regulator-General established under the
Office of the Regulator-General Act 1994.
ORIGINAL BASE CASE MODEL means the computer model agreed on or prior to
the date of this deed between the Core Borrowers and the Agent to, among
other things, enable calculations of the financial undertakings in
clause 6.4 (Financing Undertakings), as initialled by the Core Borrowers
and the Agent.
OUTSOURCING AGREEMENT means:
(a) the agreements to be entered into between the
Purchasers or any other member of the
Operating Group and any Related Entity
relating to the provision of services in form
reasonably satisfactory to the Security
Trustee (provided that the Security Trustee
agrees that it will not object to any terms
required to be included in the agreements by
ORG) in relation to:
(i) the operation of the Core Business of
TUA (No. 10) Pty Ltd, comprising
network operations, network design and
engineering, network records, work
management (including management of
sub-contracts), property management,
contract procurement; or
(ii) the provision of customer contact
services, comprising meter reading,
invoicing and customer support in
relation to the Core Business of TUA
(No. 11) Pty Ltd and TUA (No. 10) Pty
Ltd;
(iii) corporate, secretarial, accounting,
administrative services, human
resources, public relations and
information systems for TUA (No.10)
Pty Ltd and TUA (No. 11) Pty Ltd; and
(b) the maintenance agreement between Westar and
Serco Gas Services (Vic) Pty Ltd and Serco
Australia Pty Ltd.
PARTNERSHIP means the TU Australia Holdings (Partnership) Limited
Partnership being a limited partnership formed and registered under the
Partnership Act 1958 of Victoria.
PARTNERSHIP DEED means the deed dated 27 January 1999 between each Core
Borrower establishing the Partnership, as amended by a deed dated on or
before the date of this deed.
PARTNERSHIP MORTGAGE means the mortgage made or to be made between the
Core Borrowers and the Security Trustee over the Core Borrowers'
interests in the ALP Loan Agreements and the Hedge Agreements.
<PAGE>
PERMITTED DISPOSAL means:
(a) any disposal by a Purchaser for fair value of
obsolete assets which are no longer required
for the operation of the Core Business and
any disposal by a Purchaser of assets in
exchange for other assets of comparable value
and utility; or
(b) any disposal by a Purchaser of any other
assets provided that the aggregate value of
such disposals in any Financial Year does not
exceed $10,000,000.
PERMITTED DISTRIBUTION means any payment made by an Obligor under
any Intercompany Loan Agreement for the sole purpose of paying an amount
due and payable to the Senior Creditors provided such payment is paid to
a Senior Creditor in accordance with the Bank Finance Documents.
PERMITTED INDEBTEDNESS means:
(a) any Indebtedness incurred under the Bank
Finance Documents, the Junior Finance
Documents or the Eastern Loan Agreement; or
(b) any Indebtedness under the Intercompany Loan
Agreements; or
(c) any Qualifying Subordinated Debt; or
(d) Indebtedness raised by the Core Borrowers to
repay all of the Senior Debt or the Tranche A
Facility (as defined in the Syndicated
Facilities Agreement); or
(e) any guarantee issued by a Purchaser in
relation to the obligations of another
Purchaser provided those obligations are or
have been incurred in the ordinary course of
the Core Business; or
(f) in respect of TUA:
(i) any Indebtedness incurred by TUA on
an unsecured basis in existence as
at the date of this deed; or
(ii) any Non-Recourse Indebtedness;
(iii) any performance guarantees issued by
TUA, not being guarantees of
Indebtedness; or
(g) any other Indebtedness approved in writing by
the Security Trustee (acting upon the
instructions of the Majority of Senior
Creditors) provided that such approval will
not be withheld if:
(i) the Indebtedness is Non-Recourse
Indebtedness; and
(ii) the Security Trustee receives a
satisfactory legal opinion from the
Core Borrowers' legal counsel that
the exercise of any rights by the
lender of that Non-Recourse
Indebtedness including, without
<PAGE>
limitation, by exercising any rights
under a Security Interest will not
give rise to a right to a party
(other than a Senior Creditor) to
terminate any Material Contract or
otherwise jeopardise the assets and
business of the Purchasers; and
(iii) the amount of the Non-Recourse
Indebtedness will not exceed 70% of
the value of the assets against
which the relevant lender may have
recourse for the repayment of the
Non-Recourse Indebtedness; and
(iv) the Indebtedness will not adversely
affect the ability of the Core
Borrowers to obtain an investment
grade credit rating in respect of a
facility, or if such an investment
grade credit rating has been
obtained, it will not lead to a
downgrade of that rating below BBB;
or
(h) the following Indebtedness incurred by the
Purchasers for a period not exceeding 60 days
from Financial Close:
(i) certain payroll, cheque cashing, corporate
credit card, merchant arrangements, tape
negotiation advice and related same day
transaction facilities to be provided by
Westpac Banking Corporation; and
(ii) indemnity obligations in respect of
two bank guarantees (each having a
face value of $1,000,000) issued by
Westpac Banking Corporation.
PERMITTED SECURITY INTEREST means:
(a) any Security Interest arising by operation of
law in the ordinary course of business
securing Taxes which are not yet in arrears
and can subsequently be paid without penalty
or which are Contested Taxes;
(b) any mechanic's, workmen's or any like lien or
right of set-off arising in the ordinary
course of business, securing or otherwise
relating to Indebtedness which is not yet
overdue or which has been contested or
litigated in good faith, where the aggregate
amount of the Indebtedness in respect of all
such liens and rights of set-off does not at
any time exceed $500,000;
(c) any Security Interest in respect of deposits
of money or property in an amount, or of a
value, not exceeding $1,000,000 in aggregate,
by way of security for the performance of any
statutory obligations arising in the ordinary
course of business;
(d) the Security;
(e) any Security Interest granted by a Core
Borrower, Holdco or TUA provided it only
secures Non-Recourse Indebtedness permitted
to be incurred under this deed;
<PAGE>
(f) any right of set off arising under a Material
Contract;
(g) the TUA Mortgage; and
(h) any other Security Interest approved in
writing by the Security Trustee.
POTENTIAL EVENT OF DEFAULT means an event which, with the giving of
notice or lapse of time, would become an Event of Default.
PROPERTIES means all properties or premises leased, occupied or used or
owned by an Obligor at any time.
QUALIFYING SUBORDINATED DEBT means the principal amount (excluding
capitalised interest) of any Indebtedness of an Obligor:
(a) which is not repayable (in whole or in part)
by an Obligor before payment in full of the
Senior Debt;
(b) the interest rate or effective interest rate
applicable to which is:
(i) where the proposed lender is a Related
Entity of an Obligor then, except in
relation to the Intercompany Loan
Agreements, no more than 3% per annum
above the interest rate applicable
from time to time to drawings under
the Syndicated Facilities Agreement;
and
(ii) in all other circumstances, an
interest rate or effective interest
rate determined on normal arm's length
commercial terms; and
(c) which is subordinated on substantially the
same terms as the Junior Debt is subordinated
under this deed.
QUARTER means each period of three months ending on 31 March, 30 June,
30 September and 31 December in each year.
RECOVERED MONEY means the aggregate amount received in accordance with
clause 9 which has not been distributed under this deed.
RECOVERED MONEY DISTRIBUTION DATE means a day on which Recovered Money
is available for distribution in accordance with clause 9.
RELATED ENTITY has the meaning it has in the Corporations Law.
RELEVANT JUNIOR DEBT means, in respect of a Junior Creditor, the Junior
Debt in respect of that Junior Creditor.
RELEVANT SENIOR DEBT means, in respect of a Senior Creditor, the Senior
Debt in respect of that Senior Creditor.
REMEDIATION RESERVE means a reserve set aside by the Purchasers and
which has not been directly or indirectly funded by Senior Debt (except
to the extent that it constitutes a drawing on a revolving facility
after the date of Financial Close) and which may only be used:
<PAGE>
(a) to fund land remediation costs in excess of
the land remediation costs projected to be
paid in accordance with the Base Case Model;
or
(b) to pay a Distribution permitted to be paid
under clause 6.5.
RESERVE ACCOUNT means an account held in the name of the Purchasers for
the purposes of Restructuring Costs.
RESTRUCTURING COSTS means any integration expenses, redundancy and
termination costs or payments to, or in respect of, employees of the
Purchasers and as otherwise contemplated in the Base Case Model and
included in the business plan and industrial relations strategy prepared
by the Purchasers prior to Financial Close.
REPRESENTATIVE of a person means any director, officer, delegate or
agent of that person.
RETAIL LICENCE means:
(a) the gas retail licence issued to Kinetik by
ORG pursuant to the Gas Industry Act 1994
with effect from 11 December 1997, as amended
and transferred to TUA (No. 11) Pty Ltd on or
before the date of Financial Close; and
(b) the electricity retail licence issued to
Kinetik by ORG pursuant to the Electricity
Industry Act 1993 with effect from 5 November
1997, as amended and transferred to TUA (No.
11) Pty Ltd on or before the date of
Financial Close.
SALE AGREEMENT means the agreement entitled "Gas Distributor and
Retailer Asset Sale Agreement" dated 30 January 1999 made between the
Treasurer of the State of Victoria, Westar Assets, Westar, Kinetik and
the Purchasers.
SALES CONTRACTS means:
(a) Gas Sales Agreement dated 20 November 1996
between Esso Australia Resources Ltd, BHP
Petroleum (Bass Strait) Pty Ltd and GASCOR;
(b) Master Agreement dated 23 December 1998
between GASCOR, Energy 21 Pty Ltd, Ikon
Energy Pty Ltd, Kinetik Energy Pty Ltd and
Gas Release Co Pty Ltd;
(c) Agency Agreement dated 14 August 1998 between
GASCOR and Kinetik Energy Pty Ltd; and
(d) Sub-Sales Agreement dated 14 August 1998
between GASCOR and Kinetik Energy Pty Ltd.
SECURED MONEY has the meaning given to that term in a Security or the
TUA Mortgage, as the case may be.
SECURITY means this deed and:
(a) the Guarantee;
(b) the Partnership Mortgage;
<PAGE>
(c) the Holdco Mortgage;
(d) the BS1 Mortgage, Share Mortgage and Charge;
and
(e) any other document or Security Interest
collateral to any of them.
SECURITY ACCOUNT means the account maintained by the Security Trustee
in accordance with clause 7.
SECURITY INTEREST means any security for the payment of money or
performance of obligations including a mortgage, charge, lien, pledge,
trust or power.
SENIOR CREDITORS means the Security Trustee, the Agent, the Offshore
Paying Agent, each Financier, each Hedge Counterparty and any person who
has provided Indebtedness to the Core Borrowers in accordance with
paragraph (d) of the definition of "Permitted Indebtedness".
SENIOR DEBT means any amount actually or contingently owing under or in
connection with the Bank Finance Documents or any agreement pursuant to
which a Senior Creditor has provided Indebtedness to the Core Borrowers
in accordance with paragraph (d) of the definition of "Permitted
Indebtedness", whether or not then due and payable.
SHARE means, in respect of a Senior Creditor and a day, the same
proportion (expressed as a percentage (rounded (if necessary) to the
nearest two decimal places)) as the proportion which the Amount Owing of
that Senior Creditor on that day bears to the aggregate Amount Owing on
that day to all the Senior Creditors.
SHAREHOLDER DEED means the deed dated on or about the date of this deed
between GASCOR, TUA (No. 11) Pty Ltd and BS2 in relation to the removal
of directors of TUA (No. 11) Pty Ltd.
SUBORDINATED FACILITY AGREEMENT means the agreement dated on or about
the date of this deed between the Core Borrowers, Eastern and the Junior
Financier.
SUBORDINATED INDEBTEDNESS means all liabilities of an Obligor in
connection with any Indebtedness which is fully subordinated to the
interests of the Senior Creditors.
SUBSIDIARY of an entity means another entity which is a subsidiary of
the first within the meaning of part 1.2 division 6 of the Corporations
Law or is a subsidiary of or otherwise controlled by the first within
the meaning of any approved accounting standard.
SURETY means a person (other than the Obligor) which at any time is
liable by guarantee or otherwise alone or jointly, or jointly and
severally, to pay or indemnify against non-payment of the Senior Debt or
Junior Debt.
SYNDICATED FACILITIES AGREEMENT means the agreement dated on or about
the date of this deed between the Core Borrowers, the WCF Borrowers, the
Joint Lead Banks (as defined in that agreement), the Working Capital
Bank (defined in that agreement), the Hedge Counterparties, the Agent,
the Offshore Paying Agent and the Financiers.
SYSTEMS means for an entity, centralised and decentralised hardware,
software and networks (including interfaces, data storage and equipment
with embedded computer chips or logic) used by an entity.
TAXES means taxes, levies, imposts, charges and duties imposed by any
authority (including stamp and transaction duties) together with any
related interest, penalties, fines and expenses in connection with them,
<PAGE>
except if imposed on the overall net income of a Creditor.
TEXAS GUARANTEE means the instrument entitled "Guaranty" to be dated on
or before Financial Close given by Texas in favour of the Junior
Financier.
TEXAS INDEMNITY means any right (whether arising by indemnity,
contribution, subrogation or otherwise) against a Core
Borrower arising in connection with the Texas Guarantee.
TOTAL FACILITY LIMIT has the meaning given to that term in
the Syndicated Facilities Agreement.
TOTAL SUBORDINATED DEBT means at any time the aggregate
consolidated principal amount of Qualifying Subordinated Debt (other
than capitalised interest).
TRANSACTION DOCUMENTS means each Finance Document, Licence,
Material Contract, any document which an Obligor acknowledges in writing
to be a Transaction Document, and any other document connected with any
of them.
TRUST FUND means the amount held by the Security Trustee
under clause 2.1 together with any other property which the Security
Trustee acquires to hold on the trusts of this deed including, without
limitation, any Security Interest which it executes after the date of
this deed in its capacity as trustee of the trust established under this
deed and any property which represents the proceeds of sale of any such
property or proceeds of enforcement of any Security Interest.
TUA-BS1 LOAN AGREEMENT means each loan agreement dated on or
about the date of this deed between TUA (as lender) and BS1 (as
borrower).
TUA MORTGAGE means the mortgage made or to be made between
Holdco and TUA over TUA's interests in the TUA-BS1 Loan Agreement.
WCF BORROWER means each Purchaser.
WESTAR means Westar Pty Ltd (ACN 079 089 008).
WESTAR ASSETS means Westar (Assets) Pty Ltd (ACN 079 089
062).
WORKING CAPITAL TERMS AND CONDITIONS has the meaning given
to that term in the Syndicated Facilities Agreement.
YEAR 2000 COMPLIANT means in respect of all Systems that
neither its performance nor functionality is affected by dates prior to,
during or after the year 2000 and that, in particular:
(a) no value for current date causes or is likely
to cause any interruption in operation of the
Systems;
(b) date-based functionality of the Systems
behaves consistently for dates prior to,
during and after year 2000;
(c) in all data storage, the century in any date
must be specified either explicitly or by
unambiguous algorithms or inferencing rules;
(d) the year 2000 must be recognised as a leap
year.
<PAGE>
1.2 In this deed, unless the contrary intention appears:
(a) a reference to this deed or another
instrument includes any variation or
replacement of any of them;
(b) a reference to a statute, ordinance, code or
other law includes regulations and other
instruments under it and consolidations,
amendments, re-enactments or replacements of
any of them;
(c) the singular includes the plural and vice
versa;
(d) the word "person" includes a firm, an entity,
an unincorporated association or an
authority;
(e) a reference to a person includes a reference
to the person's executors, administrators,
successors, substitutes (including, without
limitation, persons taking by novation) and
assigns;
(f) an agreement, representation or warranty on
the part of or in favour of two or more
persons binds or is for the benefit of them
jointly and severally but an agreement or
warranty of a Creditor or the Creditors binds
that Creditor or Creditors severally only;
(g) a reference to any thing (including without
limitation, any amount) is a reference to the
whole and each part of it and a reference to
a group of persons is a reference to all of
them collectively, to any two or more of them
collectively and to each of them
individually.
1.3 Headings are inserted for convenience and do not
affect the interpretation of this deed.
INCORPORATION
1.4 Unless the context otherwise requires, a capitalised
term used in this deed and not defined in it will
have the meaning given in the Bank Finance Document
which defines it.
AGENT
1.5 The Agent enters into this deed in its capacity as
Agent for and on behalf of the Financiers and Hedge
Counterparties so as to bind itself and the
Financiers and Hedge Counterparties.
2 DECLARATION OF TRUST
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2.1 The Security Trustee declares that it holds the sum
of A$10 and will hold the Trust Fund on trust at any
time for itself and the persons who are Senior
Creditors at that time.
2.2 The trust established under this deed commences on
the date of this deed and unless determined earlier
is to end on the day prior to the eightieth
anniversary of the date of this deed.
2.3 The perpetuity period applicable to the trust
established under this deed is the period of 80
years commencing on the date of this deed.
<PAGE>
2.4 The trust established under this deed is to be known
as the TU Australia Holdings Trust.
3 DUTIES, POWERS AND RIGHTS OF SECURITY TRUSTEE
- -----------------------------------------------------------------------------
AUTHORITY OF SECURITY TRUSTEE
3.1 The Security Trustee is appointed to enter into and
act as trustee for the Senior Creditors under the
Bank Finance Documents.
AUTHORITY OF SECURITY TRUSTEE TO EXECUTE FINANCE DOCUMENTS
3.2 Each Senior Creditor authorises the Security Trustee
to execute and deliver those of the Bank Finance
Documents to which it is intended to be a party.
POWER OF THE SECURITY TRUSTEE
3.3 The Security Trustee shall have the rights,
discretions and powers delegated to it under this
deed, and all other powers reasonably incidental to
them. However, the Security Trustee does not have
any fiduciary or other duties or responsibilities to
any party, except as expressly set out in the Bank
Finance Documents.
SEEKING INSTRUCTIONS; CONSULTATION
3.4 The Security Trustee is not obliged to consult with
or seek instructions from the Creditors before giving
any consent, approval or agreement or exercising any
right, power or discretion under a Bank Finance
Document, except where that Bank Finance Document
expressly provides otherwise. In that event, the
Security Trustee may seek instructions from those
Senior Creditors who are entitled at that time to
vote on any such instruction, and may specify a
period of not less than 5 Business Days within which
instructions are to be provided. That period may be
shortened with the consent of the Senior Creditors.
If a Senior Creditor does not provide instructions in writing within
the period specified, it shall be deemed (only for the purpose of
determining whether instructions have been given by the Majority of
Senior Creditors) to have an Amount Owing of zero.
ACTION IN THE ABSENCE OF INSTRUCTIONS
3.5 In the absence of instructions, the Security Trustee
need not act, but the Security Trustee may act, as it
considers to be in the interests of the Senior
Creditors. If the Security Trustee considers it is in
the best interest of the Senior Creditors to
exercise, or not to exercise, a right, power or
discretion before it is able to obtain instructions
from the Senior Creditors it may (but is not obliged
to) do so. This includes the exercise of a right,
power or discretion to appoint a Receiver pending
obtaining instructions.
OBLIGORS NOT TO INVESTIGATE AUTHORITY
3.6 No Obligor need inquire whether any instructions
have been given to the Security Trustee by the
Majority of Senior Creditors or as to the terms of
those instructions. As between any Obligor and the
Creditors, all action taken by the Security Trustee
under a Bank Finance Document will be taken to be
authorised.
<PAGE>
AMENDMENTS, WAIVERS, RELEASES AND ENFORCEMENT
3.7 The Security Trustee shall act on the instructions
of the Senior Creditors in accordance with clause 19
of the Syndicated Facilities Agreement (subject to
any necessary changes, including where the Security
Trustee is a person other than the Agent).
LIMITS ON DUTIES OF SECURITY TRUSTEE
3.8 The Security Trustee has no duty to:
(a) (NO OBLIGATION TO ACT UNLESS INDEMNIFIED)
exercise any right it may have as a result of
an Event of Default, unless it is indemnified
to its reasonable satisfaction;
(b) (NO OBLIGATION TO PROVIDE INFORMATION)
provide any Creditor (or any other person)
with any credit or other information
concerning the affairs, financial condition
or business of any Obligor which may come
into its possession as Security Trustee,
except as stated in clause 3.11;
(c) (NO ACTION PENDING DIRECTION) exercise any
right, if it has sought instructions under
clause 3.4 as to whether it should exercise,
or as to the manner of exercise, of the
right, pending its receipt of those
instructions (notwithstanding any other
provision of a Bank Finance Document which
imposes a duty on it to do so); or
(d) (DEFECTS IN TITLE) enquire whether there is,
or seek perfection of, a defect in title of
either an Obligor to any Secured Property or
of the Security Trustee in relation to its
interest in the Secured Property unless (in
the context of any particular defect) it is
directed to do so by a Majority of Senior
Creditors.
SECURITY TRUSTEE'S DUTY IS ONLY TO SENIOR CREDITORS
3.9 The Security Trustee owes its duties under the Bank
Finance Documents to the Senior Creditors only and
not to any Junior Creditor or Obligor.
DUTY OF SECURITY TRUSTEE TO ACT HONESTLY
3.10 In exercising its rights and performing its duties
under the Bank Finance Documents, the Security
Trustee must act honestly and in what it considers
to be the interests of the Senior Creditors.
NOTICE OF EVENT OF DEFAULT
3.11 The Security Trustee is not to be regarded as having
knowledge of the occurrence of an Event of Default
unless it receives notice from another Senior
Creditor or an Obligor stating that an Event of
Default has occurred and giving reasonable
particulars.
INDEMNITY TO SECURITY TRUSTEE
3.12 If the Security Trustee is a person other than the
Agent, the Agent (on behalf of the Senior Creditors,
rateably in accordance with their respective Amounts
Owing) shall indemnify the Security Trustee, on
demand, against any Loss suffered or incurred by the
Security Trustee as a result of, in connection with
or in contemplation of:
<PAGE>
(a) the stamping and registration of the Bank
Finance Documents;
(b) the exercise, enforcement or preservation, or
attempted exercise, enforcement or
preservation, of any of its rights as
Security Trustee;
(c) the performance or purported performance of
its duties under the Bank Finance Documents;
(d) any action or omission by the Security
Trustee under (or purportedly under) any Bank
Finance Document; or
(e) anything done or not done by the Security
Trustee pursuant to any direction or
authorisation of a Majority of Senior
Creditors.
This includes, in each case, the fees and expenses on a full indemnity
basis of legal and other professional advisors.
This clause does not apply to the extent that:
(f) the Security Trustee is reimbursed on demand
by an Obligor for any cost or expense
incurred or payable by the Security Trustee;
or
(g) the relevant Loss was suffered or incurred as
a direct result of the Security Trustee's
fraud, negligence or wilful misconduct.
Each Representative of the Security Trustee shall be entitled to the
benefit of this clause 3.12. The Security Trustee holds that benefit on
their behalf.
SECURITY TRUSTEE MAY ALSO BE A CREDITOR
3.13 The parties acknowledge and agree that the Security
Trustee may be a Junior Creditor. If the Security
Trustee is or becomes a Creditor in another
capacity, its obligations and rights in that
capacity are or will be the same as those it would
have had if it was not the Security Trustee.
NO REPRESENTATION BY SECURITY TRUSTEE
3.14 The Agent and each other Creditor acknowledge that
the Security Trustee has made no representation or
given any warranty upon which it has relied, except
to the extent expressly set out in this deed.
NO INDIVIDUAL ENFORCEMENT BY CREDITORS
3.15 In relation to the rights which the Security Trustee
holds under the Bank Finance Documents on behalf of
the Senior Creditors, each Senior Creditor
acknowledges that:
(a) the right is only exercisable by the Security
Trustee; and
(b) the Senior Creditor is not empowered to waive
or vary the right.
<PAGE>
RELIANCE ON DOCUMENTS AND EXPERTS
3.16 The Security Trustee may rely on:
(a) any document (including any facsimile
transmission, telegram or telex) believed by
it to be genuine and correct; and
(b) advice and statements of lawyers, independent
accounts and other experts selected by the
Security Trustee.
NOTICE OF TRANSFER
3.17 The Security Trustee may treat each Creditor as the
holder of the Creditor's respective rights under the
Finance Documents, Eastern Loan Agreement and
Intercompany Loan Agreements:
(a) until it has received a notice of assignment
satisfactory to it; and
(b) even if it has received a notice of
assignment, unless and until the assignee is
or has become a Creditor.
DISTRIBUTION OF INFORMATION TO AGENT AND NOTE AGENT
3.18 The Security Trustee shall provide a copy of each
notice, report and other document given to it under
the Bank Finance Documents to the Senior Creditors.
4 SUBORDINATION
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SUBORDINATION
4.1 Despite any other agreement between a Junior
Creditor and an Obligor but except as permitted by
clauses 4.6 and 4.7, each party agrees with each
other party that no part of the Junior Debt is due
for payment or capable of being declared due for
payment unless:
(a) the Senior Debt is satisfied or repaid in
full; or
(b) an Event occurs; or
(c) that Junior Debt is refinanced by Qualifying
Subordinated Debt and the refinancing party
has agreed to be bound under this deed as a
Junior Creditor.
RIGHTS AND OBLIGATIONS FOLLOWING AN EVENT
4.2 If an Event occurs, then the Junior Debt is payable
immediately.
4.3 If an Event occurs, then each Junior Creditor agrees,
on request from the Security Trustee, to:
(a) prove for the whole of its Relevant Junior
Debt; and
(b) immediately send to the Security Trustee a
copy of its notice of proof.
4.4 A Junior Creditor may not prove for its Relevant
Junior Debt except following a request from the
Security Trustee under clause 4.3.
<PAGE>
4.5 If a Junior Creditor receives or recovers any money
on account of that Junior Creditor's Relevant Junior
Debt or any amount is paid to any person in
connection with that Junior Creditor's Relevant
Junior Debt (including, without limitation, to an
assignee of that Junior Creditor's Relevant Junior
Debt), whether by way of repayment, satisfaction or
otherwise and whether from an Obligor or from any
other person, including, without limitation, a
liquidator, provisional liquidator or administrator
of an Obligor, then that Junior Creditor agrees
forthwith to pay to the Security Trustee for the
account of the Senior Creditors, without the need for
any demand, an amount equal to the lesser of the full
amount so received, recovered or paid and the full
amount of the Senior Debt at that time.
JUNIOR CREDITOR UNDERTAKINGS
4.6 A Junior Creditor may not, without the consent of
the Security Trustee or, following the occurrence of
an Event of Default, except as directed by the
Security Trustee:
(a) directly or indirectly demand payment of, sue
for, accept payment or repayment of (except
payments or repayments which constitute
Permitted Distributions or are permitted
under clause 6.5) or in any way allow by
reduction of an Obligor's assets or
otherwise, the discharge, satisfaction or
extinguishment of its Relevant Junior Debt;
or
(b) novate, vary, replace or rescind or waive any
of its rights under any agreement or document
under which an Obligor's obligations in
respect of its Relevant Junior Debt arise
(other than any extension to the term of the
Junior Finance Debt); or
(c) set off its Relevant Junior Debt against any
Indebtedness of the Junior Creditor to the
Obligor; or
(d) assign, charge or otherwise deal with its
Relevant Junior Debt except in the case of
the TUA Mortgage; or
(e) accept the benefit of any guarantee in
respect of its Relevant Junior Debt other
than, in the case of the Junior Financier,
the Texas Guarantee; or
(f) suffer to exist or take a Security Interest
to secure payment of its Relevant Junior Debt
except in the case of the TUA Mortgage; or
(g) borrow or raise money from or otherwise
become indebted to an Obligor except in
accordance with the Intercompany Loan
Agreements; or
(h) convert any Junior Debt into shares in an
Obligor.
PERMITTED JUNIOR FINANCIER PAYMENTS
4.7 So long as:
(a) no Senior Debt is due and payable but unpaid;
and
<PAGE>
(b) no Event of Default or Potential Event of
Default has occurred and is subsisting under
any document relating to any Senior Debt,
and subject to the payment being permitted under clause 6.5, an Obligor
may pay, satisfy or discharge, and the Junior Financier and Eastern may
receive and retain, payment of scheduled payments of interest and
principal on the Junior Finance Debt and the Eastern Debt not earlier
than the date the same are scheduled to be due in accordance with, and
in the amounts contemplated by, the terms of the Junior Finance
Documents and the Eastern Loan Agreement and the Junior Financier and
Eastern, (as the case may be) may make demands in respect of, or so as
to establish a liability to pay, any amount so permitted to be paid.
4.8 Except with the prior written consent of the
Security Trustee or, following the occurrence of an
Event of Default, as directed by the Security
Trustee, a Junior Creditor may not take any action
to recover the Relevant Junior Debt including,
without limitation, by:
(a) voting for the winding up of an Obligor; or
(b) requisitioning a meeting to consider:
(i) a resolution for the winding up of an
Obligor; or
(ii) a scheme of arrangement for an
Obligor; or
(iii) a resolution for the appointment of
an administrator to an Obligor; or
(c) applying to the court to wind up an Obligor.
4.9 If a liquidator, provisional liquidator or
administrator of an Obligor sets off against the
Relevant Junior Debt any amounts in respect of which
a Junior Creditor is indebted to the Obligor, then
the Junior Creditor indemnifies the Senior Creditors
against loss they suffer because the amount set off
is not part of its Relevant Junior Debt.
OBLIGORS
4.10 Each Obligor may not, without the consent of the
Senior Creditors:
(a) permit or suffer any guarantee to be given in
respect of the Junior Debt other than, in the
case of the Junior Finance Debt, the Texas
Guarantee; or
(b) suffer to exist or grant a Security Interest
to secure payment of the Junior Debt except
the TUA Mortgage; or
(c) directly pay (except for payments which
constitute Permitted Distributions or are
permitted under clause 6.5) or in any way
reduce the Obligor's assets to discharge the
Junior Debt; or
(d) novate, vary, replace or rescind any
agreement or instrument under which the
Obligor's obligations in respect of the
Junior Debt arise (other than any extension
to the term of the Junior Finance Debt); or
<PAGE>
(e) set off the Junior Debt against any
Indebtedness of the Junior Creditor to the
Obligor; or
(f) enter into any arrangement which results in
the Junior Debt not being subordinated to the
Senior Debt; or
(g) create, grant, extend or permit to subsist or
be imposed any Security Interest ranking in
priority to, equally with or subsequent to
the Senior Debt or any Security Interest for
the Senior Debt; or
(h) take any action to recover any amount owing
under or any amount it is entitled to receive
under an Intercompany Loan Agreement
including, without limitation, by doing any
of the things specified in clause 4.8.
4.11 Each Obligor agrees to notify the Senior Creditor
immediately if it receives a demand whether direct
or indirect for payment of the Junior Debt.
REVOCATION OF APPROVALS
4.12 Any approval given by the Security Trustee in
connection with this deed immediately terminates if:
(a) a Junior Creditor or an Obligor defaults
under this deed; or
(b) the Obligor is unable to pay its debts as
they fall due; or
(c) an Event occurs; or
(d) the Security Trustee demands payment of the
Senior Debt from an Obligor in accordance
with the Bank Finance Documents.
PRESERVATION OF SENIOR CREDITOR'S RIGHTS
4.13 No obligation of a Junior Creditor arising under
this deed is released or abrogated, prejudiced or
affected by any act matter or thing that a Senior
Creditor may do or omit to do which but for this
provision would or might release abrogate prejudice
or affect the obligations of the Junior Creditor
including, without limitation:
(a) the granting of time, credit or any
indulgence or concession to an Obligor or any
Surety by a Security Trustee or a Senior
Creditor or by any compounding or compromise
release abandonment waiver variation
relinquishment renewal or transfer of any
securities, documents of title, assets or any
rights of a Senior Creditor against an
Obligor or any Surety of any other person or
by neglect or omission to enforce any such
rights;
(b) the liquidation, receivership or official
management of an Obligor, any Junior Creditor
or any Surety which is an entity or the
bankruptcy or death of any Surety who is a
natural person, or any Junior Creditor or an
Obligor or any Surety entering into any
compromise or assignment of property or
<PAGE>
scheme of arrangement or composition of debts
or scheme of reconstruction;
(c) any person giving a guarantee or other
Security Interest in respect of all or any of
the Senior Debt;
(d) failure by an Obligor or any Surety or any
other person to provide any Security Interest
which ought to be provided or to have been
provided under any agreement in respect of
all or any part of the Senior Debt;
(e) any alteration, addition or variation to any
agreement in respect of all or any part of
the Senior Debt;
(f) any Security Interest held or taken at any
time by a Senior Creditor for all or any part
of the Senior Debt being void, defective or
informal;
(g) an Obligor or any Surety being discharged
from its obligation to pay all or any of the
Senior Debt otherwise than by payment or
satisfaction of those moneys to a Senior
Creditor; or
(h) a Junior Creditor being discharged from its
obligations to a Senior Creditor under this
deed.
4.14 If a Senior Creditor holds any other Security
Interest for or right in respect of all or any of the
Senior Debt, then:
(a) the Senior Creditor need not resort to that
other Security Interest or right before
enforcing its rights under this deed; and
(b) the liability of each Junior Creditor under
this deed is not affected by reason that the
other Security Interest or right is or may be
wholly or partly void or unenforceable.
4.15 This deed does not prejudicially affect and is not
prejudicially affected by any Security Interest or
guarantee held by a Senior Creditor either at the
date of this deed or at any subsequent time.
4.16 Nothing contained in this deed, merges, discharges,
extinguishes, postpones, lessens or prejudices any
Security Interest now held or which may subsequently
be held or taken by a Senior Creditor for payment of
any of the Senior Debt. Nor does this deed or any
Security Interest:
(a) affect:
(i) any right or remedy which the Senior
Creditor now has or subsequently may
have or be entitled to by law, equity
or statute against any other person as
surety or on any bill of exchange,
promissory note, letter of credit or
other negotiable instrument; or
(ii) security to the Senior Creditor for
all or part of the Senior Debt; or
<PAGE>
(b) operate as a payment of the Senior Debt until
the same has been actually paid in cash.
Nothing in any Security Interest and no other right or remedy which a
Senior Creditor has or subsequently may have apart from this agreement
discharges, extinguishes, postpones, lessens or otherwise prejudices
this agreement. A Senior Creditor is not under any obligation to resort
to any Security Interest in priority to this deed.
4.17 The subordination under this deed is a continuing
subordination and remains in full force until
payment in full of the Senior Debt.
POWER OF ATTORNEY
4.18 Each Junior Creditor irrevocably appoints the
Security Trustee and each Authorised Officer of the
Security Trustee severally its attorney.
4.19 Each attorney may:
(a) in the name of the Junior Creditor or the
attorney do anything which the Junior
Creditor may lawfully do to exercise a right
of proof of the Junior Creditor following an
Event occurring (including, without
limitation, executing drawdown notices,
repayment notices or any notice in relation
to amounts payable under Intercompany Loan
Agreements, executing deeds and instituting,
conducting and defending legal proceedings
and receiving any dividend arising out of
that right); and
(b) delegate its powers (including, without
limitation, this power of delegation) to any
person for any period and may revoke a
delegation; and
(c) exercise or concur in exercising its powers
even if the attorney has a conflict of duty
in exercising its powers or has a direct or
personal interest in the means or result of
that exercise of powers.
4.20 The Junior Creditor agrees to ratify anything done
by an attorney or its delegate in accordance with
clause 4.19.
4.21 The Junior Creditor may not exercise the right of
proof referred to in clause 4.19 independently of the
attorney.
APPLICATION AS BETWEEN JUNIOR FINANCE DEBT AND EASTERN DEBT AND TEXAS INDEMNITY
4.22 If the Senior Debt has been paid in full, the
provisions of clause 4 apply (whether or not an
Event has occurred) as between the Junior Financier,
Holdco, Texas and Eastern and the other Obligors as
if:
(a) a reference to the Senior Creditors were a
reference to the Junior Financier;
(b) a reference to the Senior Debt were a
reference to the Junior Finance Debt;
(c) a reference to the Junior Debt were a
reference to the Texas Indemnity and the
Eastern Debt and the Intercompany Loan Debt;
<PAGE>
(d) a reference to the Security Trustee were a
reference to the Junior Financier; and
(e) a reference to the Junior Creditors were a
reference to Texas and Eastern and Holdco and
the other Obligors.
TEXAS GUARANTEE
4.23 Nothing in this clause 4 shall restrict the rights
of the Junior Financier under the Texas Guarantee in
respect of any amount which is scheduled to be due
in accordance with the Junior Finance Documents and,
but for this clause 4, would be due and payable to
the Junior Financier.
CORPORATIONS LAW
4.24 This clause 4 is intended to operate as a "debt
subordination" (as defined in section 563C(2) of the
Corporations Law) by each Junior Creditor.
OBLIGORS
4.25 Each Obligor acknowledges and agrees that any
amendment or variation to any Bank Finance Document
does not affect, prejudice or relieve any of the
Obligors of their respective obligations under the
Intercompany Loan Agreements.
TEXAS
4.26 The parties acknowledge that the only obligations
incurred by Texas in entering into this deed are as
a Junior Creditor and that those obligations only
arise to the extent to which Texas has any right
(whether arising by indemnity, contribution,
subrogation or otherwise) against a Core Borrower in
connection with any payment by Texas under the Texas
Guarantee.
5 REPRESENTATIONS AND WARRANTIES
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REPRESENTATIONS AND WARRANTIES
5.1 Each Obligor represents and warrants (except in
relation to matters disclosed to the Security
Trustee by the Obligor and accepted by the Security
Trustee in writing) that:
(a) (INCORPORATION AND EXISTENCE) it has been
incorporated as a company limited by shares
in accordance with the laws of its place of
incorporation set out in the Details, is
validly existing under those laws and has
power and authority to carry on its business
as it is now being conducted; and
(b) (POWER) it has power (including, without
limitation, power under the Partnership Deed,
in the case of each Core Borrower) to enter
into the Transaction Documents to which it is
a party and observe its obligations under
them; and
(c) (AUTHORISATIONS) it has in full force and
effect the Authorisations necessary for it to
enter into the Transaction Documents to which
it is a party, to observe its obligations and
<PAGE>
exercise its rights under them and to allow
them to be enforced; and
(d) (VALIDITY OF OBLIGATIONS) its obligations
under the Transaction Documents to which it
is a party are valid and binding and are
enforceable against it in accordance with
their terms except to the extent limited by
equitable principles and laws affecting
creditors' rights generally; and
(e) (NO CONTRAVENTION OR EXCEEDING POWER) the
Transaction Documents to which it is a party
and the transactions under them which involve
it do not contravene its:
(i) constituent documents (if any); or
(ii) any law or obligation by which it is
bound or to which any of its assets
are subject or cause a limitation on
its powers or the powers of its
directors to be exceeded which, in the
case of the Licences or the Material
Contracts to which it is a party, is
or is likely to be a Material Adverse
Effect; and
(f) (ACCOUNTS) its most recent audited Financial
Statements last given to the Security Trustee
are a true and fair statement of its
financial position as at the date to which
they are prepared and disclose or reflect all
its actual and contingent liabilities as at
that date; and
(g) (CONSOLIDATED ACCOUNTS) if it is required to
prepare consolidated Financial Statements
under the Corporations Law, the most recent
audited consolidated Financial Statements of
the economic entity constituted by it and
the entities which it controls last given to
the Security Trustee are a true and fair
statement of the economic entity's financial
position as at the date to which they are
prepared and disclose or reflect all the
economic entity's actual and contingent
liabilities as at that date; and
(h) (NO MATERIAL CHANGE) there has been no change
in its financial position since the date to
which its Financial Statements last given to
the Security Trustee were prepared which is
likely to be a Material Adverse Effect; and
(i) (NO MATERIAL CHANGE TO ECONOMIC ENTITY) if it
is required to prepare consolidated Financial
Statements under the Corporations Law, there
has been no change in the consolidated
financial position of the economic entity
constituted by it and the entities which it
controls since the date to which the
consolidated Financial Statements of the
economic entity last given to the Security
Trustee were prepared which is likely to be a
Material Adverse Effect; and
(j) (EVENT OF DEFAULT) no Event of Default which
has not been waived or (to the best of its
knowledge, information and belief having made
due enquiry) Potential Event of Default
<PAGE>
(except if notice of that Potential Event of
Default has been given to the Security
Trustee) continues unremedied; and
(k) (DEFAULT UNDER LAW - MATERIAL ADVERSE EFFECT)
it is not in breach of a law or obligation
affecting it or its assets in a way which is
or is likely to be a Material Adverse Effect;
and
(l) (LITIGATION) there is no proceeding or any
pending or (to the best of its knowledge,
information and belief having made due
enquiry) threatened proceeding affecting it
or any of its assets before a court,
Governmental Agency, commission or arbitrator
which could reasonably be expected to result
in a Material Adverse Effect; and
(m) (NOT A TRUSTEE) it does not enter into any
Transaction Document as trustee; and
(n) (OWNERSHIP OF PROPERTY) it is the beneficial
owner of and has good title to all property
held by it or on its behalf and all
undertakings carried on by it free from
Security Interests other than Permitted
Security Interests; and
(o) (BENEFIT) it benefits by entering into the
Transaction Documents to which it is a party;
and
(p) (SOLVENCY) no Insolvency Event has occurred
and is continuing in respect of it; and
(q) (NO BENEFIT TO RELATED PARTY) it has not
contravened and will not contravene section
243H or section 243ZE of the Corporations Law
by entering into any Transaction Document or
participating in any transaction in
connection with a Transaction Document; and
(r) (NO IMMUNITY) it has no immunity from the
jurisdiction of a court or from legal
process; and
(s) (YEAR 2000) in the case of each member of the
Operating Group, it will be Year 2000
Compliant by 30 September 1999; and
(t) (INFORMATION) to the best of its knowledge
and belief, having made due enquiry, all
historical information (including, without
limitation, the Base Case Model but excluding
any information provided by the Victorian
Government, Westar or Kinetik) provided to
each Creditor or a Related Entity of any of
them, by or on behalf of:
(i) an Obligor or Texas during the period
up to and including the date of this
deed; and
(ii) an Obligor in respect of the period
after the date of this deed,
<PAGE>
in connection with the Transaction Documents is true and accurate in all
material respects as at the date when such information was provided and
to the best of its knowledge (after due enquiry of Texas, in respect of
information provided during the period up to and including the date of
this deed and after due enquiry of any other person providing
information to the Creditor or a Related Entity of any of them on behalf
of an Obligor or, during the applicable periods, of Texas) there are no
material facts or circumstances which have not been disclosed to the
Security Trustee and which, if disclosed, might reasonably be expected
to significantly adversely affect the decision of a person considering
whether to provide financial accommodation to a Borrower and all
forecasts and projections have been made in good faith and in the case
of information provided by the Victorian Government, Westar and Kinetik,
to the best of its knowledge and belief, such information is true and
accurate in all material respects; and
(u) (SHAREHOLDINGS) as at the date of this deed:
(i) Texas is the ultimate holding company
of TUA; and
(ii) TUA legally and beneficially holds
all of the issued shares in BS1; and
(iii) BS1 legally and beneficially holds
all of the issued shares in BS2; and
(iv) BS2 legally and beneficially holds
all of the shares in TUA (No. 10) Pty
Ltd and TUA (No. 11) Pty Ltd; and
(v) Texas, directly or indirectly through
one or more interposed companies,
holds all of the issued shares in the
companies comprising the Core
Borrowers; and
(vi) the Core Borrowers legally and
beneficially hold all of the issued
shares in Holdco,
and in respect of each day from and including the date of Financial
Close:
(vii) Texas indirectly through one or more
interposed companies, holds all of
the issued shares in TUA; and
(viii) Texas, directly or indirectly through
one or more interposed companies,
holds all of the issued shares in the
Core Borrowers; and
(ix) the Core Borrowers legally and
beneficially hold all of the issued
shares in Holdco; and
(x) Holdco legally and beneficially holds
all of the issued shares in TUA; and
(xi) TUA legally and beneficially holds
all of the issued shares in BS1; and
(xii) BS1 legally and beneficially holds
all of the issued shares in BS2; and
<PAGE>
(xiii) BS2 legally and beneficially holds
all of the issued shares in TUA (No.
10) Pty Ltd and TUA (No. 11) Pty Ltd;
and
(xiv) TUA legally and beneficially owns all
of the issued shares in any Related
Entity which has or will enter into
an Outsourcing Agreement with a
Purchaser; and
(v) (CONTROL) Texas ultimately controls the
composition of the board of directors of each
Obligor and no person other than Texas and
the board of directors of the relevant
Obligor has management and operational
control of an Obligor; and
(w) (SUBSIDIARIES) the Operating Group does not
have any Subsidiaries, other than those
notified by it to the Security Trustee; and
(x) (RANKING) its obligations under the Bank
Finance Documents to which it is a party rank
in all respects:
(i) at least equally with all its other
unsecured and unsubordinated
indebtedness (actual or contingent and
whether present or future), except
liabilities mandatorily preferred by
law or as otherwise provided in the
Bank Finance Documents; and
(ii) in terms of repayment or payment in
winding up, in priority to the
Qualifying Subordinated Debt; and
(y) (TAXATION) to the best of its knowledge,
information and belief having made due
enquiry, it has complied with all material
taxation laws in all jurisdictions in which
it is subject to Taxes, it has paid all
material Taxes due and payable by it, other
than Contested Taxes; and
(z) (INSURANCE) in the case of the Purchasers,
all insurances considered appropriate by the
Purchasers and Security Trustee and which are
available on reasonable and commercial terms
to its:
(i) business, assets and operations,
including loss of revenue arising from
loss or damage to its own assets or
the assets of all suppliers or
customers; and
(ii) public liability in regard to all
operations in respect of general and
products liability, including the
failure of gas supply liability,
bushfire liability; and
(iii) professional indemnity liability; and
(iv) directors and officers liability,
have been effected and are in full force and effect, it has not made any
material misstatement or misrepresentations or omitted to disclose any
material facts to the insurers or their agents in relation thereto and
it is not aware of any reason giving rise to any right or likelihood
<PAGE>
that any such policies may be terminated or that any insurers thereunder
will refuse to pay any claim when made; and
(aa) (INTELLECTUAL PROPERTY) in the case of the
Purchasers, it owns, or has the right and
licence to use, all trade secrets,
confidential information, know-how, patents,
trade marks, designs (whether registered or
unregistered), copyright, and computer
programs necessary for the conduct of the
Core Business; and
(bb) (ENVIRONMENTAL LAWS) in the case of the
Purchasers, the occupation, use and
development of each of its Properties
complies with all Environmental Laws and all
Authorisations required under any
Environmental Law relating to those
Properties are in full force and effect other
than non-compliances which are neither likely
to have a Material Adverse Effect nor likely
to create any potential liability for the
Senior Creditors; and
(CC) (LICENCES) the Licences are validly issued
under the Gas Industry Act 1994 and the
Electricity Industry Act 1993, as the case
may be, and are in full force and effect and,
to the best of its knowledge, no event or
circumstance has arisen or is likely to arise
which may give rise to any right to revoke,
rescind, terminate or suspend any Licence
other than an event or circumstance in
respect of which:
(i) the ORG has issued a `no action'
letter, which is still in effect to a
Purchaser indicating that the ORG will
not be taking any action; or
(ii) there has been insufficient time to
obtain a `no action' letter from the
ORG and in respect of which the
Purchaser has demonstrated to the
Agent that it has been diligently
pursuing the issue by the ORG of a
`no action' letter and the remedy of
any actual or potential contravention
of a Licence condition arising from
the event or circumstance and that a
`no action' letter is likely to be
issued by the ORG; or
(iii) the event or circumstance could not
reasonably be expected to cause the
ORG to exercise any right to revoke,
rescind, terminate or suspend any
Licence; and
(dd) (OTHER MATERIAL AUTHORISATIONS) in the case
of the Purchasers, no other material
Authorisations are required which have not
been or cannot now be obtained by it to
enable it to conduct its business; and
(ee) (SINGLE PURPOSE COMPANIES) in the case of:
(i) each Borrower and Holdco it does not
carry on any business other than as
contemplated by its entry into and
observance of obligations under the
<PAGE>
Transaction Documents to which it is a
party and the transactions permitted
under this deed;
(ii) BS1 and BS2, it does not carry on any
business other than as contemplated by
its entry into and observance of
obligations under the Transaction
Documents to which it is a party;
(iii) each Purchaser, it does not carry on
any business other than the Core
Business; and
(ff) (FIRB) all necessary approvals and
authorisations required under the Foreign
Acquisitions and Takeovers Act 1975 (Cth)
necessary for the Purchasers to acquire and
own the Assets and carry on the business
contemplated by the Transaction Documents to
which it is a party have been obtained and
are in full force and effect; and
(gg) (MATERIAL REGULATORY INSTRUMENTS AND
CONTRACTS) in the case of each Purchaser, it
is not:
(i) without affecting clause 5.1(cc), in
breach of any Material Regulatory
Instrument which is or is likely to be
a Material Adverse Effect; and
(ii) in default under any Material Contract
to which it is a party where such
default is or is likely to be a
Material Adverse Effect; and
(hh) (PARTNERSHIP) the Partnership is a limited
partnership established pursuant to the
Partnership Deed and within the meaning of
and validly constituted and existing and
registered under Part 3 of the Partnership
Act 1958 of Victoria.
CONTINUATION OF REPRESENTATIONS AND WARRANTIES
5.2 The representations and warranties in clause 5.1 are
taken also to be made on each Drawdown Date and on
the date of delivery of a compliance certificate in
accordance with clause 6.1(l) of this deed by
reference to the then current circumstances. Each
Obligor agrees to notify the Agent of anything that
happens that would mean it could not truthfully
repeat all its representations and warranties in
this clause 5 on each Drawdown Date and on the date
of delivery of a compliance certificate in
accordance with clause 6.1(l) of this deed by
reference to the then current circumstances. A
notification under this clause 5.2 does not limit
the Security Trustee's rights under clause 8.
6 UNDERTAKINGS
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GENERAL UNDERTAKINGS
6.1 Each Obligor undertakes to:
(a) (ACCOUNTING RECORDS) keep proper accounting
records and ensure that each of its
Subsidiaries does the same; and
<PAGE>
(b) (INFORMATION) in the case of the Core
Borrowers, give the Security Trustee any
document or other information that the
Security Trustee reasonably requests from
time to time; and
(c) (COPIES) in the case of the Core Borrowers,
give the Security Trustee sufficient copies
of any communication or document it is
required to give the Security Trustee so as
to enable the Security Trustee to give one
copy to each Senior Creditor; and
(d) (STATUS CERTIFICATES) in the case of the Core
Borrowers, on reasonable request from the
Security Trustee if the Security Trustee
considers in good faith that an Event of
Default or Potential Event of Default may
have occurred, give the Security Trustee a
certificate signed by two of its directors
which states whether an Event of Default or
Potential Event of Default continues
unremedied; and
(e) (MAINTAIN AUTHORISATIONS) obtain, renew on
time and comply with the terms of, each
Authorisation necessary for it to enter into
the Transaction Documents to which it is a
party, to observe its obligations and
exercise its rights under them and to allow
them to be enforced; and
(f) (ANNUAL ACCOUNTS) give its and the
Partnership's audited Financial Statements
for each Financial Year to the Security
Trustee within 90 days after the end of that
year; and
(g) (ANNUAL CONSOLIDATED ACCOUNTS) give the
audited consolidated Financial Statements of
the economic entity constituted by it and the
entities which it controls (including the
Partnership) for each Financial Year to the
Security Trustee within 90 days after the end
of that year; and
(h) (HALF YEARLY ACCOUNTS) in the case of BS1 and
its Subsidiaries, give its Financial
Statements (audited if required under the
Corporations Law) for the first half of each
Financial Year to the Security Trustee within
60 days after the end of that half year; and
(i) (HALF YEARLY CONSOLIDATED ACCOUNTS) in the
case of BS1 and its Subsidiaries, give the
consolidated Financial Statements (audited if
required under the Corporations Law) of the
economic entity constituted by it and the
entities which it controls for the first half
of each Financial Year to the Security
Trustee within 60 days after the end of that
half year; and
(j) (QUARTERLY ACCOUNTS) in the case of BS1 and
its Subsidiaries, give unaudited quarterly
consolidated management accounts (in a form
approved by the Security Trustee) certified
by two directors for the Quarters ending 31
March and 30 September in each year to the
Security Trustee within 60 days after the end
of that Quarter; and
(k) (ANNUAL BUSINESS PLAN) in the case of the
Purchasers, give the annual business plan for
the Purchasers to the Security Trustee as
<PAGE>
soon as practicable, but in any event by no
later than the commencement of each Financial
Year; and
(l) (COMPLIANCE CERTIFICATE) in the case of the
Core Borrowers, give to the Security Trustee
promptly after the release of the management
accounts for each Quarter, a certificate
which certificate must:
(i) be signed by an Authorised Officer of
the Core Borrower; and
(ii) set out in reasonable detail the
computations and financial and other
information necessary to establish
compliance by the Core Borrowers with
the financial undertakings in clause
6.4 (Financial Undertakings); and
(iii) state whether any Event of Default or
(to the best of its knowledge,
information and belief having made due
enquiry) Potential Event of Default
has occurred and is subsisting; and
(iv) in the case of the certificate
delivered in connection with the
management accounts for the end of a
Financial Year, be subsequently
confirmed in writing by its auditors
at the time of delivery of the annual
Financial Statements as being correct
so far as it relates to compliance by
the Core Borrowers with the financial
undertakings in clause 6.4 (Financial
Undertakings); and
(v) state the amount standing to the
credit of the Capex Reserve, the
Remediation Reserve and the Reserve
Account; and
(vi) state the amount and term of the Hedge
Agreements entered into by the Core
Borrowers and that the Core Borrowers
are in compliance with their
obligations under clause 6.2(a); and
(m) (FINANCIAL STATEMENTS) ensure that the
Financial Statements referred to above:
(i) are prepared in accordance with
Australian Accounting Standards; and
(ii) at the time of delivery, give a true
and fair view of the state of affairs
of the Obligor or the Obligor and its
Subsidiaries, as the case may be, as
at the date on which, and for the
period in respect of which, they are
prepared or an explanation of any
divergence between the Financial
Statements as presented and such a
true and fair view; and
<PAGE>
(n) (INCORRECT REPRESENTATION OR WARRANTY)
immediately upon becoming aware notify the
Security Trustee if any representation or
warranty made by it or on its behalf in
connection with a Bank Finance Document is
found to be materially incorrect or
misleading; and
(o) (ENSURE NO EVENT OF DEFAULT) do everything
within its powers necessary to ensure that no
Event of Default occurs; and
(p) (NOTIFY DETAILS OF EVENT OF DEFAULT OR
POTENTIAL EVENT OF DEFAULT) if an Event of
Default or Potential Event of Default occurs,
upon becoming aware, notify the Security
Trustee giving full details of the event and
any step taken or proposed to remedy it; and
(q) (LITIGATION) promptly notify the Security
Trustee in writing and in reasonable detail,
and keep the Security Trustee informed, of
any litigation or administrative or
arbitration or other proceedings before or of
any Governmental Agency, court, commission or
arbitrator taking place, commenced, pending
or, to the best of its knowledge, threatened
against it or any of its assets:
(i) in the case of the Purchasers, under
section 36 of the Office of the
Regulator-General Act 1994; or
(ii) in the case of the Purchasers, under
the Gas Industry Act 1994 or the Gas
Pipelines Access Law in relation to a
"civil penalty provision", "conduct
provision" or "regulatory provision"
(as defined in that Act or Law); or
(iii) which, could reasonably be expected to
result in it incurring a liability in
excess of $10,000,000 or which is or
is likely to be a Material Adverse
Effect; and
(r) (CONSTITUTION) promptly notify the Security
Trustee of any proposal to change to its
constitution; and
(s) (ENVIRONMENTAL MATTERS) in the case of the
Purchasers, promptly notify the Security
Trustee of any breach or potential breach of
any Environmental Law or of any complaint or
the issuing of any proceedings or notice or
requirements against or upon it in respect
of, or which is or is likely to result in,
any potential environmental liability or
contravention of any Environmental Law which
is a Material Adverse Effect; and
(t) (REGULATORY) in the case of the Purchasers,
provide notice to the Security Trustee as
soon as it becomes aware of any of the
following:
(i) any material breach of the Gas
Industry Act 1994, the Electricity
Industry Act 1993, the Gas Pipelines
Access Law, the Pipelines Act 1967 or
the Gas Safety Act 1997;
<PAGE>
(ii) any breach of a material term of any
Licence;
(iii) any actual or proposed amendment,
variation or cancellation of any of
the Licences;
(iv) any material breach of a Material
Regulatory Instrument or a Material
Contract;
(v) any actual or proposed material
amendment or variation of any of the
Material Regulatory Instruments or any
Material Contract;
(vi) any actual or proposed issue to a
third party of a distribution licence
in respect of the Distribution Area;
(vii) in relation to a class of customers,
any actual or proposed issue to a
third party of a retail licence in
respect of a class of customers in the
Franchise Area prior to those
customers being considered
contestable;
(viii) any order or provisional order under
section 35 of the Office of
Regulator-General Act 1994 made,
served or threatened to be made or
served on a Purchaser or its business
by the ORG;
(ix) any actual or proposed inquiry under
Part 4 of the Office of the
Regulator-General Act 1994 concerning
a Purchaser which is likely to be a
Material Adverse Effect;
(x) any actual or proposed price
determination under Part 3 of the
Office of the Regulator-General Act
1994 concerning the Purchaser's prices
or charges for distribution services,
retail services or other services and
cost pass throughs which determination
(if made) is likely to be a Material
Adverse Effect;
(xi) the ORG is considering or threatening
to appoint an administrator to all or
any part of the business of a
Purchaser under the Gas Industry Act
1994 or the Electricity Industry Act
1993;
(xii) the possible or threatened suspension
of a Purchaser under the MSO Rules or
the National Electricity Code; and
(u) (NOTICES) in the case of the Purchasers,
promptly provide to the Security Trustee a
copy of any notice given to it under
clause 3.4 of a Licence; and
(v) (PERMITTED DISPOSALS) in the case of the
Purchasers, promptly notify the Security
Trustee of any Permitted Disposals (excluding
any Permitted Distributions) of any single
asset having a value which exceeds $1,000,000
or assets in any Financial Year having an
aggregate value which exceeds $5,000,000 and
<PAGE>
provide the Security Trustee with such
information about such Permitted Disposals as
the Security Trustee reasonably requests; and
(w) (CORE BUSINESS) in the case of the
Purchasers, engage only in, and continue to
engage only in, the Core Business; and
(x) (LICENCES) in the case of the Purchasers,
they will:
(i) comply in all material respects with
the legislation referred to in clause
6.1(t)(i) and the Material Regulatory
Instruments where failure to comply is
or is likely to be a Material Adverse
Effect;
(ii) comply with the terms and conditions
of the Licences except in respect of
an event or circumstance in respect of
which:
(A) the ORG has issued a "no
action" letter, which is still
in effect, to a Purchaser
indicating that the ORG will
not be taking any action in
respect of that event or
circumstance; or
(B) there has been insufficient
time to obtain a "no action"
letter from the ORG and the
Purchaser has demonstrated
to the Security Trustee that
it has been diligently
pursuing the issue by the ORG
of a "no action" letter and
the remedy of any actual or
potential contravention of a
Licence condition arising from
the event or circumstance and
that a "no action" letter is
likely to be issued by the
ORG; and
(iii) take all necessary steps to remedy any
breach of any Material Regulatory
Instrument, Material Contract or
Licence to which it is a party or any
breach of the legislation referred to
in clause 6.1(t)(i) without delay; and
(y) (GAS INFRASTRUCTURE) in the case of TUA
(No. 10) Pty Ltd, protect, keep, maintain and
preserve the Gas Infrastructure in good
working order and condition and renew or
replace when worn out, obsolete or destroyed
all present or future components of the Gas
Infrastructure which are necessary for the
conduct of the Core Business; and
(z) (GOOD STANDING) maintain its good standing,
ensure that it remains entitled to carry on
business and own property in each
jurisdiction in which such entitlement is
necessary; and
(aa) (LAWS) comply at all times with the
requirements of all applicable laws and the
lawful orders or decrees of any Governmental
Agency where failure to comply is likely to
be a Material Adverse Effect; and
<PAGE>
(bb) (AUTHORISATIONS) in the case of the
Purchasers, promptly obtain, maintain and
renew on time each Authorisation to be
obtained by it which is necessary for
carrying on its Core Business; and
(cc) (TAXES) pay when due all Taxes payable by
it, other than Contested Taxes; and
(dd) (BUSINESS) in the case of the Purchasers,
ensure that its business is conducted in a
proper and efficient manner in accordance
with prudent business practices and in
accordance with legislation referred to in
clause 6.1(t)(i), the Licences, the Material
Regulatory Instruments, the Material
Contracts and Good Gas Industry Practice; and
(ee) (COPIES) in the case of the Purchasers,
promptly deliver to the Security Trustee a
copy of each report, statement or notice
given to its shareholders in their capacity
as such where such report, statement or
notice is required by law or regulation to be
given to such shareholders; and
(ff) (INTELLECTUAL PROPERTY) in the case of the
Purchasers, maintain, preserve and protect
all copyrights, patents, trade marks (whether
registered or common law marks), trade names,
trade secrets, confidential information,
know-how and other intellectual property
material to its business in accordance with
prudent business so that the business carried
on in connection with them may be properly
and advantageously conducted at all times;
and
(gg) (INSURANCE) in the case of the Purchasers:
(i) keep all of its property and assets
insured to the extent it is insurable
on reasonable and commercial terms
with insurers and on terms approved by
the Security Trustee (which approval
may not be unreasonably withheld) in
respect of:
(A) its property and assets to the
extent of its full insurable
value on a replacement and
reinstatement basis and
revenue in respect of revenue
less variable expenses;
(B) such insurance to be against
fire, explosion and other
risks which are usual to a
prudent owner of property of a
similar type to that being
insured would insure and any
other risks reasonably
specified by the Security
Trustee with a policy sum
insured not less than equal to
the aggregate of the value of
assets and insurable revenue;
and
(ii) general and products liability
including failure to supply and in a
form usual to the risks insured by a
prudent operator and in a manner
reasonably specified by the Security
<PAGE>
Trustee for an indemnity limit of not
less than A$500,000,000 for any one
occurrence; and
(iii) professional indemnity in the form
usual to the risks insured by prudent
operators and in a manner reasonably
specified by the Security Trustee for
an indemnity limit of not less than
A$50,000,000; and
(iv) directors and officers liability in
the form usual to the risks insured by
prudent operators in a manner
reasonably specified by the Security
Trustee for an indemnity limit of not
less than A$100,000,000; and
(v) the insurance policies can be arranged
in such a way to incorporate
reasonable deductibles or self
insurance retentions and as may be
agreed between the Purchasers and the
Security Trustee certain assets such
as pipelines may be self insured for
material damage but not for business
interruption; and
(vi) maintain with insurers approved by the
Security Trustee (which approval may
not be unreasonably withheld), workers
compensation, public liability and
other insurances which a prudent
person engaged in a similar business
or undertaking to that of the Obligor
would effect or which are reasonably
specified by the Agent; and
(vii) the insurances referred to in
paragraphs (A) and (B) above are to be
arranged to include the interests of
the Security Trustee and have
specified the terms of claims
management and payment procedures
agreed by the Security Trustee with
the Purchasers; and
(viii) if requested by the Security Trustee,
deposit with the Security Trustee all
insurance policies and certificates of
insurance in connection with or
comprising any of the properties or
assets or liabilities of the
Purchasers; and
(ix) pay each insurance premium in a manner
prescribed by the insurers to ensure
the continuity of cover and, on
request from the Security Trustee,
produce receipts for the payment; and
(x) not do or permit anything to be done
or fail to do anything which
prejudices any insurance; and
(xi) immediately rectify anything which
might prejudice any insurance and
immediately reinstate the insurance if
it lapses; and
(xii) not, without the consent of the
Security Trustee, materially vary,
cancel or allow to lapse insurance in
<PAGE>
connection with any of its property,
assets and liability; and
(xiii) notify the Security Trustee
immediately when an event occurs which
gives rise or might give rise to a
claim exceeding $5,000,000 under or
which could materially prejudice a
policy of insurance required by this
clause or if any policy of insurance
required by this clause is cancelled;
and
(xiv) the Purchasers undertake to take
whatever steps are reasonably
permissible to ensure that all
insurances maintained by Westar,
Westar Assets and Kinetik are managed
promptly from the date of execution
of the Sale Agreement so that any
such insurances still required by the
Purchasers are maintained in force and
amended suitably and as required by
the provisions of this deed and to
ensure that losses and claims which
may be recoverable under the
relevant insurance policies are not
prejudiced; and
(hh) (CREDIT RATING) in the case of the Core
Borrowers, seek to obtain a credit rating in
relation to the Senior Debt from either
Standard & Poor's (Australia) Pty Ltd or
Moody's Investor Services, Inc within one
year from the date of Financial Close and
advise the Security Trustee regularly on the
rating process and upon receipt of such
rating; and
(ii) (YEAR 2000) in the case of the Purchasers,
provide to the Security Trustee by no later
than 31 March 1999:
(i) responses to year 2000 worksheets or
questionnaires relating to the
Purchasers and the Core Assets
provided those worksheets and
questionnaires are submitted to the
Purchasers by no later than 1 March
1999; and
(ii) a compliance program that is designed
to identify and assess relevant Core
Assets (including any electronic
equipment, computer hardware,
applications, software or embedded
systems) for actual or potential
exposure to date issues at century
changeover and including the leap year
in 2000. The program shall include
procedures to:
(A) develop strategies to address
year 2000 issues and to
mitigate risks;
(B) develop a comprehensive year
2000 methodology;
(C) develop a year 2000 test
strategy within the overall
methodology to include testing
of key dates and date ranges,
<PAGE>
and the Purchasers shall ensure that the compliance program is fully
implemented and completed so that they will be Year 2000 Compliant by no
later than 30 September 1999; and
(jj) (SYNDICATION) each Obligor must:
(i) instruct its management, employees
and advisers:
(A) to comply with all reasonable
requests for information from
potential syndicate members;
(B) to provide all reasonable
assistance to the Financiers
in connection with
syndication; and
(ii) cooperate with the consultants
appointed by the Agent to update any
reports provided prior to the date of
this deed and otherwise assist in the
preparation of information to be used
in the syndication of the Syndicated
Facilities Agreement.
(iii) use its best endeavours to procure the
agreement of the State of Victoria to
the release of information contained
in information memoranda prepared by
it to potential Financiers (subject to
such potential Financiers entering
into the necessary confidentiality
undertaking); and
(kk) (GROUP RELATIONS) except as permitted under
clause 4, in relation to any Indebtedness
from one Obligor to another Obligor, no
Obligor will take any action, make any demand
for payment or bring any proceedings in
respect of any money owing or due for payment
in relation thereto or any failure to comply
with any obligations thereunder without the
prior written consent of the Security
Trustee; and
(ll) (MATERIAL CONTRACTS) ensure that each
Material Contract to which it is a party
remains in full force and effect and use
reasonable endeavours so that any Outsourcing
Agreement which expires is renewed or
replaced upon terms which are equivalent or
better to the Purchasers' interests; and
(mm) (OUTSOURCING AGREEMENTS) ensure that the
Outsourcing Agreements are entered into by
the Purchasers by no later than three months
after Financial Close (or, if the Purchasers
demonstrate to the reasonable satisfaction
of the Security Trustee at the end of that
three month period that they are using their
best endeavours to agree and execute the
Outsourcing Agreements, by no later than six
months after Financial Close) and that the
Outsourcing Agreements cannot be terminated,
revoked, cancelled or suspended by any party
to the Outsourcing Agreement unless:
(i) the prior written consent of the
Security Trustee (which consent shall
not be unreasonably withheld) is
first obtained; or
<PAGE>
(ii) that Outsourcing Agreement is to be
immediately replaced with an agreement
(whether or not with a Related
Entity), the terms of which are not
substantially or materially more
adverse to the Purchasers; and
(nn) (QUALITY SYSTEM): in the case of each
Purchaser, use reasonable endeavours to
obtain accreditation under
AS/NZ-ISO-9002-1994 for its quality systems
within one year of the date of Financial
Close; and
(oo) (RESERVE ACCOUNT): in the case of the
Purchasers, on or before the date of
Financial Close establish the Reserve Account
and ensure that the amount standing to the
credit of the Reserve Account as from the
date of Financial Close is not less than the
amount set out in the Base Case Model (unless
replaced by an unconditional and irrevocable
standby letter of credit satisfactory to the
Security Trustee) and that such amount is not
funded by Senior Debt; and
(pp) (CAPITAL EXPENDITURE): in the case of the
Purchasers:
(i) deliver to the Security Trustee within
six months of Financial Close a
detailed plan reviewing the projected
Capital Expenditure requirements of
the Purchasers for the following five
years (the "PLAN"), which Plan must be
agreed with the Security Trustee after
consideration by an independent
consultant appointed by the Security
Trustee; and
(ii) undertake a capital expenditure
programme in accordance with the Plan.
BORROWER'S UNDERTAKINGS - HEDGE
6.2 The Core Borrowers undertake as follows:
(a) (PERFORM HEDGES): it will perform and
observe all of the obligations on its part
contained in the Hedge Agreements with the
Hedge Counterparties to ensure that:
(i) 80% of the Total Facility Limit as at
the date of Financial Close is hedged
for the period from Financial Close
for a period of 3 years;
(ii) 50% of the Total Facility Limit as at
the date of Financial Close is hedged
for the period from 3 years after
Financial Close for a period of 4
years; and,
(b) (MAXIMUM HEDGING): the Core Borrowers may
enter into hedging arrangements with the
Hedge Counterparties to hedge any part of
the Total Facility Limit not otherwise
hedged in accordance with this clause 6.2
but must not, at any time prior to the
Maturity Date for the Tranche B Facility
and Tranche C Facility (as those terms are
defined in the Syndicated Facilities
<PAGE>
Agreement), enter into interest rate hedging
arrangements to hedge in excess of 100% of
the Total Facility Limit; and
(c) (INFORMATION TO AGENT): immediately on
entering a Hedge Agreement and at such other
times as the Agent may reasonably request,
deliver to the Agent such information as it
may reasonably request to demonstrate
compliance with this clause 6.2.
NEGATIVE UNDERTAKINGS
6.3 Each Obligor undertakes that it will not:
(a) (ENCUMBRANCES): create or allow to exist or
subsist any Security Interest on the whole or
any part of its present or future property,
except for Permitted Security Interests; and
(b) (DEBT RESTRICTION): without the prior written
consent of the Security Trustee (acting on
the instructions of the Majority of Senior
Creditors):
(i) incur any Indebtedness other than
Permitted Indebtedness; or
(ii) amend or consent to any amendment to
the terms of any Qualifying
Subordinated Debt; or
(iii) incur any Subordinated Indebtedness
other than Qualifying Subordinated
Debt; and
(c) (DISPOSALS OF ASSETS): sell, transfer, lease
or otherwise dispose of any asset (whether in
a single transaction or in a series of
transactions and whether voluntarily or
involuntarily or whether by disposal of an
asset which is subsequently leased-back):
(i) which is an interest in a Licence,
Material Regulatory Instrument or
Material Contract to which it is a
party or any shares in any other
Obligor; or
(ii) except in the case of TUA, any other
asset unless it is a Permitted
Disposal or Permitted Distribution,
provided that the Senior Creditors shall reasonably consider (but
without any obligation to approve) any leasing proposal if the Security
Trustee has received:
(iii) a copy of the documents relevant to
the transaction;
(iv) a satisfactory opinion from an
Australian law firm or accounting firm
as to the tax implications of the
transaction;
(v) in circumstances where the Security
Trustee's legal counsel are of the
view that there are Australian
taxation issues and recommended that a
ruling be obtained from the Australian
<PAGE>
Taxation Office, a favourable ruling
from the Australian Taxation Office;
and
(vi) evidence that there will be no adverse
impact on the cashflow of the Obligors
or the rights of the Senior Creditors
under the Transaction Documents; and
(d) (SECURITISATION): assign, sub-participate an
interest in, otherwise dispose of, or create
or allow to exist any Security Interest over,
receivables arising from network charges, or
any other receivables or other monetary
assets other than under a Permitted Disposal
and a Permitted Security Interest; and
(e) (ENVIRONMENTAL LAW): in the case of
Purchasers, by any act or omission or series
of acts or omissions breach any Environmental
Law if the breach has or is likely to be a
Material Adverse Effect; and
(f) (SPECULATIVE TRANSACTIONS): engage in or
enter into any Derivative Transaction or any
similar transaction, including in respect of
energy trading, other than under the Hedge
Agreements or an interest rate swap agreement
relating to Permitted Indebtedness incurred
by the Core Borrowers, Holdco or TUA, unless
that transaction would be a transaction
which would ordinarily be carried out by a
prudent, responsible company carrying on a
major utilities business and be in
accordance with Good Gas Industry Practice;
and
(g) (LICENCES): in the case of the Purchasers,
vary or allow to be varied a Licence without
the prior written consent of the Security
Trustee; and
(h) (VARIATION OF AGREEMENTS): without the prior
written consent of the Security Trustee
(acting on the instructions of the Majority
of Senior Creditors):
(i) vary or allow to be varied in any
material respect any Material Contract
to which it is party; or
(ii) cancel, revoke, surrender or repudiate
any Material Contract to which it is a
party (other than any Outsourcing
Agreement); or
(iii) terminate, permit the termination of
or do anything or refrain from doing
anything which would entitle any other
person to terminate any Material
Contract to which it is a party (other
than any Outsourcing Agreement) unless
it is replaced immediately in
substantially the same terms; and
(i) (PARTNERSHIPS AND JOINT VENTURES): except in
the case of TUA, enter into any partnerships
or joint venture agreements or agreements of
similar effect without the prior written
consent of the Security Trustee unless, in
the case of a Purchaser, entered into in the
<PAGE>
ordinary course of the Core Business; and
(j) (SUBSIDIARIES): except in relation to any
Subsidiary of TUA, create or acquire any
Subsidiary without the prior written consent
of the Security Trustee, which consent will
not be withheld if:
(i) in the case of a Subsidiary of BS1,
the Subsidiary executes and delivers
an accession deed agreeing to be bound
as an Obligor under this deed; and
(ii) the Security Trustee is provided with
any other documents, instruments and
assurances as the Security Trustee
reasonably requires in order to ensure
that the Subsidiary is bound as an
Obligor under this deed and that
accession deed is enforceable against
that Subsidiary; and
(iii) the Subsidiary carries on the Core
Business; and
(k) (LOANS) except in the case of TUA, be the
creditor in respect of any Indebtedness
except for:
(i) deposits made with a Financier in the
ordinary course of business;
(ii) in the case of a Purchaser,
Indebtedness extended to customers on
arm's-length terms in the ordinary
course of business;
(iii) loans which are permitted to be made
in accordance with clause 6.5;
(iv) Permitted Indebtedness or as
contemplated under any of the
Transaction Documents; or
(v) as approved in writing by the
Security Trustee; and
(l) (ARM'S-LENGTH TERMS): enter into any
transaction with any person otherwise than on
arm's-length terms and for full market value;
and
(m) (CLEAR MARKET): without limiting
clause 6.3(b) (Debt restriction), raise and
procure that its Related Entities do not
raise any Indebtedness (other than Permitted
Indebtedness) during the period of six months
from Financial Close or if earlier upon
completion of primary syndication of the
Facilities, in the bank syndication market in
Australia, New Zealand, Singapore and Hong
Kong; and
(n) (PARTNERSHIP): in the case of each Core
Borrower, resign from, terminate or dissolve
the Partnership or attempt to do so without
the prior written consent of the Security
Trustee; and
<PAGE>
(o) (RESERVE ACCOUNT): unless it can be
demonstrated to the reasonable satisfaction
of the Security Trustee that the full amount
standing in the Reserve Account is not needed
for Restructuring Costs (in which case any
excess may be withdrawn by the Purchaser for
any purpose it considers appropriate), pay or
apply any amount in the Reserve Account
except upon Restructuring Costs; and
(p) (BENEFIT OF TAX LOSSES): permit the taxation
benefit of any operating losses incurred in,
or carried forward by, BS1 or any of its
Subsidiaries to be used by any other Obligor,
Related Entity or any other person.
FINANCIAL UNDERTAKINGS
6.4 Each Core Borrower undertakes to ensure that:
(a) the ratio of Consolidated Senior Debt (but
excluding the Hedge Exposures of the Hedge
Counterparties) to Consolidated Net Worth is
no greater than 70:30 at all times; and
(b) the Consolidated Interest Cover Ratio as at
each Calculation Date:
(i) will be not less than 1.10:1 during
the period from Financial Close to and
including 31 December 1999;
(ii) will be not less than 1.20:1 from
1 January 2000.
DISTRIBUTIONS
6.5 Each member of the Operating Group undertakes not to
declare, pay, make or distribute any Distribution
(other than a Permitted Distribution) unless each of
the following conditions has been satisfied:
(a) no Event of Default or Potential Event of
Default subsists; and
(b) for the period from Financial Close to and
including 31 December 1999, the Consolidated
Interest Cover Ratio as at 31 December 1999
is 1.30:1 or higher; and
(c) for the period from 1 January 2000 to and
including 31 December 2000, the Consolidated
Interest Cover Ratio as at 30 June 2000 and
at 31 December 2000 is 1.40:1 or higher; and
(d) for the period from 1 January 2001, the
Consolidated Interest Cover Ratio as at the
most recent Calculation Date occurring on 30
June or 31 December in each year is 1.50:1 or
higher; and
(e) the Distribution is only made from:
(i) the Net Cash Flow for the Half Year
ending on, or immediately prior to,
the date on which the Obligor proposes
<PAGE>
to declare, pay, make or distribute
the Distribution; or
(ii) the Net Cash Flow for any previous
Half Year which was not previously
paid as a Distribution; and
(f) subject to paragraph (e), the Distribution in
respect of a Half Year takes place prior to
the end of the subsequent Half Year; and
(g) the balance of the Reserve Account is not
less than the amount projected in the
Purchaser's annual business plan to be
applied in Restructuring Costs and which has
not been so applied; and
(h) the first Distribution cannot take place
until the ratio in paragraph (b) is satisfied
as at 31 December 1999.
7 SECURITY ACCOUNT
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ESTABLISHMENT
7.1 Prior to Financial Close, the Security Trustee shall
open a Security Account in the name of and for the
benefit of the Senior Creditors in accordance with
this deed.
7.2 The Security Trustee shall hold moneys received to
the credit of the Security Account on the terms of
this deed and shall disburse such moneys to the
Senior Creditors in accordance with the Syndicated
Facilities Agreement and this deed.
DIRECTIONS
7.3 BS2 irrevocably, absolutely and unconditionally
directs TUA (No. 11) Pty Ltd and TUA (No. 10) Pty
Ltd to pay all moneys payable under each BS2 -
Westar/Kinetik Loan Agreement to or as directed by
BS1 in this deed.
7.4 BS1 irrevocably, absolutely and unconditionally
directs:
(a) BS2 to pay all moneys payable on any date
under each BS1-BS2 Loan Agreement; and
(b) TUA (No. 11) Pty Ltd and TUA (No. 10) Pty Ltd
to pay all moneys payable on any date under
each BS2 - Westar/Kinetik Loan Agreement,
(each being a "PAYMENT DATE") to the extent of moneys due for payment on
the Payment Date to the Senior Creditors under or in connection with the
Bank Finance Documents, to the Security Trustee for the credit of the
Security Account. For the purposes of ascertaining such amount clause 11
as it applies to the obligations of the Core Borrowers under the Bank
Finance Documents does not apply.
ACKNOWLEDGMENT OF SATISFACTION OF OBLIGATIONS
7.5 Each Obligor, Junior Creditor and Senior Creditor
acknowledges and agrees that payment by BS1, BS2 or
a Purchaser to the Security Trustee for the credit
of the Security Account in accordance with the
<PAGE>
directions in clauses 7.3 and 7.4 (and distribution
of the moneys credited to that account in accordance
with this deed) satisfies (to the extent that such
moneys are actually received by the Security Trustee
and the Senior Creditors, free from claims of third
parties in relation thereto at a time when the person
paying the amount is not insolvent (as defined in
section 95A of the Corporations Law or other
applicable law)) in the following order:
(a) the obligations of TUA (No. 10) Pty Ltd and
TUA (No. 11) Pty Ltd to pay BS2 the
corresponding amount under the BS2 -
Westar/Kinetik Loan Agreement;
(b) the obligations of BS2 to pay BS1 the
corresponding amount under the BS1-BS2
Loan Agreement;
(c) the obligations of BS1 to pay TUA the
corresponding amount under the TUA-BS1
Loan Agreement;
(d) the obligations or rights of TUA to pay
Holdco the corresponding amount under the
Holdco - TUA Loan Agreement;
(e) the obligations of Holdco to provide
financial accommodation of the corresponding
amount to the Core Borrowers under the ALP
Loan Agreement;
(f) the obligations of the Core Borrowers to pay
the Senior Creditors the corresponding amount
under or in connection with the Syndicated
Facilities Agreement; and
(g) the obligations of each Guarantor to pay the
Security Trustee the corresponding amount
under or in connection with the Guarantee.
7.6 The parties acknowledge and agree that the
directions in clauses 7.3 and 7.4 take effect, and
the obligations described in clause 7.5 are
satisfied notwithstanding:
(a) any limitation on the liability of any
Obligor in connection with any of the
Intercompany Loan Agreements or Finance
Documents including, without limitation,
under clause 11 of this deed;
(b) the inability of any Obligor to borrow under,
or require or demand a payment or repayment
under, any Intercompany Loan Agreement;
(c) the invalidity, discharge or unenforceability
of any of the Intercompany Loan Agreements;
(d) any Insolvency Event affecting any Obligor
or any other person; or
<PAGE>
(e) to the maximum extent permitted by applicable
law, any other matter which, at law, in
equity or otherwise might otherwise affect
the validity or enforceability of the
directions.
7.7 The parties further acknowledge and agree that if,
notwithstanding clause 7.6, any matter referred to
therein would affect the validity or enforceability
of the directions in this clause 7, then each
Guarantor shall be taken, without the need for any
further act on its part to have elected to make a
payment under its Guarantee in respect of the moneys
due for payment on that date under or in connection
with the Bank Finance Documents(disregarding the
application of clause 11 to the obligations of the
Core Borrowers under the Bank Finance Documents) and
to have given irrevocable, absolute and
unconditional directions to TUA, BS2 and the
Purchasers to make payment to the Security Trustee
on such account.
7.8 Nothing in this clause 7 constitutes a Security
Interest.
7.9 Nothing in this clause 7 or the inability of any
Obligor to borrow under, or require or demand a
payment or repayment under, any Intercompany Loan
Agreement affects the liabilities of the Guarantors
or the rights of the Security Trustee and the Senior
Creditors under the Guarantee and the other Bank
Finance Documents to which a Guarantor is a party.
8 DEFAULT
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EVENTS OF DEFAULT
8.1 Each of the following is an Event of Default
whether or not it is within the Obligor's power to
prevent it):
(a) (PAYMENT): an Obligor does not pay, in the
manner provided in a Bank Finance Document,
any money payable (excluding Interest) when
due or, in the case of Interest, any Interest
due under a Bank Finance Document within
two Business Days of notice of the
non-payment being given by the Security
Trustee to the Obligor (or, where non-payment
on its due date has arisen solely by reason
of a technical, computer or similar error
outside the control of the Obligor, within
two Business Days of notice of such
non-payment being given by the Security
Trustee to the Obligor); or
(b) (BREACH OF FINANCIAL UNDERTAKINGS): a Core
Borrower fails at any time to comply with an
undertaking in clause 6.4(a) (Financial
undertakings) or, in respect of the
undertaking in clause 6.4(b) (Financial
undertakings) :
(i) the Core Borrowers fail to deliver to
the Security Trustee a certificate of
compliance on the due date as required
by clause 6.1(l) (Compliance
certificate); or
(ii) it is apparent from a certificate of
compliance or from the Financial
Statements delivered to the Security
Trustee in accordance with clause 6.1
<PAGE>
(General undertakings) that the Core
Borrowers are in breach of the
undertaking in clause 6.4(b)
(Financial undertakings); or
(iii) a Core Borrower gives notice to the
Security Trustee of a breach of its
undertaking in clause 6.4(b)
(Financial undertakings); or
(iv) the Security Trustee gives notice in
writing to the Core Borrowers that
they are in breach of the undertaking
in clause 6.4(b) (Financial
undertakings) and the Core Borrowers
are in fact in breach of that
undertaking; or
(c) (REGULATORY EVENTS): a Purchaser fails to
comply with its undertakings in clause 6.1(x)
(Licences) or 6.3(h) (Variation of
Agreements) or fails to give notice in
accordance with clause 6.1(t) (Regulatory) in
respect of a matter referred to in clause
6.1(t) which matter is likely to lead to or
be a Material Adverse Effect or is likely to
lead to the revocation or cancellation of a
Licence or the termination of a Material
Contract to which it is a party; or
(d) (OTHER DEFAULTS): an Obligor commits any
breach of, or defaults in the due performance
or observance of, any of its obligations or
undertakings under the Bank Finance Documents
(other than a breach or default described
in paragraph (a), (b) or (c) above) and the
breach or default, if capable of remedy,
continues unremedied for 30 days after the
Obligor receives a notice from the Security
Trustee of the breach or default or, where a
specific period of grace is allowed in the
Bank Finance Documents for that breach or
default, the breach or default remains
unremedied at the end of that grace period;
or
(e) (CROSS DEFAULT): any Indebtedness of an
Obligor (other than the Junior Finance Debt
or Eastern Debt) exceeding in aggregate
$10,000,000 (or its equivalent in another
currency):
(i) is not satisfied on time or at the
end of any applicable period of
grace; or
(ii) becomes prematurely payable and is
not discharged when due; or
(iii) is not discharged at maturity or when
duly called; or
(f) (EXECUTION AGAINST PROPERTY): execution of a
court order or other legal right is levied
and not stayed, withdrawn or satisfied within
10 Business Days of being made or a judgment
is enforced or an order or Security Interest
is enforced, or becomes enforceable, against
any property of an Obligor for an amount
exceeding $5,000,000; or
(g) (MISREPRESENTATION): any representation,
warranty or statement made or deemed to be
made in a Bank Finance Document or otherwise
<PAGE>
made or deemed to be made by or on behalf of
an Obligor in favour of a Senior Creditor,
proves to have been or is found to have been
untrue, incorrect or misleading in any
material respect when made or deemed made; or
(h) (INSOLVENCY EVENT): an Insolvency Event
occurs in respect of an Obligor; or
(i) (CESSATION OF BUSINESS): an Obligor stops
payment generally, ceases to carry on its
business or a material part of it, or
threatens to do either of those things,
except to reconstruct or amalgamate while
solvent on terms approved by the Security
Trustee; or
(j) (REDUCTION OF CAPITAL): an Obligor takes
action to reduce its capital or passes a
resolution referred to in section 254N of the
Corporations Law, in either case without the
prior written consent of the Security
Trustee; or
(k) (SHARE BUY-BACK): an Obligor without the
prior written consent of the Security
Trustee:
(i) effects, or enters or attempts to
enter into an agreement to effect, a
buy-back of any of its shares other
than an employee share scheme buy-back
or an odd lot buy-back;
(ii) passes a resolution under section 257C
or section 257D of the Corporations
Law, other than a resolution pursuant
to an employee share scheme buy-back,
or convenes a meeting to consider such
a resolution; or
(iii) applies to a court to convene any
such meeting or to approve any such
resolution or buy-back,
and for the purposes of this paragraph words and expressions which are
used in this paragraph and which are defined in the Corporations Law
have the meanings given to them in the Corporations Law; or
(l) (INVALIDITY):
(i) any party to a Finance Document (other
than a Senior Creditor) or a person on
that party's behalf claims that a
Finance Document or a material clause
in a Finance Document is wholly or
partly void, voidable or
unenforceable; or
(ii) a Finance Document or a material
clause in a Finance Document is or
becomes wholly or partly void,
voidable or unenforceable, and, if
that state of affairs is remediable,
and the Obligor and each other party
(other than the Security Trustee) to
that Finance Document fails promptly
to take all steps reasonably requested
by the Security Trustee to remedy, in
<PAGE>
co-operation with the Security
Trustee and the other Creditors, the
relevant defect; or
(m) (CHANGE IN CIRCUMSTANCES): a change occurs
in a circumstance which is warranted under a
Bank Finance Document to exist or in the
business, assets or financial condition of
an Obligor or any other event or series of
events, whether related nor not, occurs
which is, or is likely to be, a Material
Adverse Effect and, if capable of remedy, is
not remedied within 30 days after the
earlier of the Obligor becoming aware of
such event and that it is a Potential Event
of Default or the Obligor receiving a notice
of such event from the Security Trustee; or
(n) (CHANGE OF SHAREHOLDING): if at any time
the representation and warranty in
clause 5.1(u) is untrue, incorrect or
misleading; or
(o) (CHANGE OF CONTROL): Texas ceases for any
reason to ultimately control the composition
of the board of directors and to have
management and operational control of each
Obligor; or
(p) (CHANGE OF CONSTITUTION): without the prior
written consent of the Security Trustee, an
Obligor materially changes, or passes a
resolution to materially change, its
constitution; or
(q) (INVESTIGATION): a person is appointed under
the Corporations Law or other companies and
securities legislation to investigate any
part of the affairs of an Obligor unless the
Obligor has demonstrated to the reasonable
satisfaction of the Security Trustee within
10 Business Days of the appointment that no
Material Adverse Effect will, or is likely
to, result from the investigation or as a
consequence thereof; or
(r) (SEIZURE): all or any material part of the
assets of a Purchaser are seized or otherwise
appropriated by, or custody thereof is
assumed by any Governmental Agency or a
Purchaser is otherwise prevented from
exercising normal control over all or a
material part of its assets or loses
any of the rights or privileges necessary to
maintain its existence or to carry on its
business, unless the Purchaser has
demonstrated to the reasonable satisfaction
of the Security Trustee within 10 Business
Days of such seizure, appropriation,
assumption of custody or execution
("EXERCISE OF RIGHTS") that no Material
Adverse Effect will, or is likely to, result
from such Exercise of Rights or as a
consequence thereof; or
(s) (ENVIRONMENTAL EVENT): any Governmental
Agency takes any action, or there is any
claim or requirement of substantial
expenditure or alteration of activity,
under any Environmental Law, or there is any
breach or threatened breach of any
Authorisation, which is likely to be a
Material Adverse Effect or any circumstance
arises which may give rise to such action,
claim, requirement or breach and, if capable
<PAGE>
of remedy, the Purchaser fails to take steps
(to the satisfaction of the Security
Trustee) to remedy the matter within 30 days
of becoming aware of such Governmental
Agency action, claim, breach or threatened
breach; or
(t) (LICENCES):
(i) a Purchaser fails to take any step
necessary or desirable to preserve a
Licence or to avoid a Licence being
placed in jeopardy;
(ii) a Licence is varied in a material
adverse respect without the prior
written consent of the Security
Trustee or is suspended, cancelled,
transferred, revoked or allowed to
lapse;
(iii) any person (other than the relevant
Purchaser) is issued a distribution
licence in respect of all or any part
of the Distribution Area and the issue
of the licence is likely to be a
Material Adverse Effect;
(iv) a Purchaser receives any notice under
clause 3.4 of a Licence;
(v) a Purchaser transfers, attempts to
transfer or agrees to transfer a
Licence or any interest in it;
(vi) an administrator is appointed to all
or any part of the business of a
Purchaser under the Gas Industry Act
1994 or the Electricity Industry Act
1993;
(vii) the receipt by a Purchaser of a
notice of intention to serve a
provisional or final enforcement
order or the receipt by a Purchaser
of a provisional or final enforcement
order under section 35 of the Office
of the Regulator-General Act 1994; or
(viii)a material clause in a Licence is or
becomes wholly or partly void,
voidable or unenforceable, or is
claimed to be so by a Purchaser or by
anyone on its behalf and, if capable
of remedy, that state of affairs is
not remedied within 10 Business Days
of the Purchaser becoming aware of it;
or
(u) (LEGISLATION): any legislation is passed or
amended (including, without limitation, any
amendment to the Gas Industry Act 1994, the
Electricity Industry Act 1993, the Office of
the Regulator-General Act 1994) or a Material
Regulatory Instrument is amended which is a
Material Adverse Effect; or
(v) (VOIDABLE PROVISIONS): a Material Contract or
any material provision of a Material Contract
is or becomes void, voidable or
unenforceable; or
<PAGE>
(w) (BREACH): there occurs a breach or event of
default under any of the Material Contract ,
or a Purchaser fails to exercise or enforce
its rights under any of them, and the breach
or failure is or is likely to be a Material
Adverse Effect; or
(x) (ANY OTHER EVENT): any other event which an
Obligor and the Security Trustee may agree
shall be an Event of Default for the purposes
of this clause 8.1 occurs; or
(y) (CHANGE IN GROUP STRUCTURE): an Obligor
(other than the Core Borrower) ceases to be a
wholly owned Subsidiary of the Core Borrower;
or
(z) (HEDGE AGREEMENT): an event of default
(other than in relation to the Hedge
Counterparty) occurs under a Hedge
Agreement; or
(aa) (DISTRIBUTION): upon the receipt of the
Financial Statements required to be given to
the Security Trustee in accordance with this
deed it becomes evident that the amount
distributed by an Obligor in accordance with
clause 6.5 is greater than the amount which
would have been distributable if the
Consolidated Interest Cover Ratio had been
calculated upon the basis of those Financial
Statements and not upon the basis of the
management accounts and the amount of the
excess is not repaid within 10 Business Days
of demand; or
(bb) (SUSPENSION): an event of default or default
event occurs in relation to a Purchaser under
the MSO Rules or the National Electricity
Code which is likely to lead to the
suspension of the Purchaser under those Rules
or that Code.
CONSEQUENCES OF DEFAULT
8.2 If an Event of Default occurs, then the Security
Trustee may declare at any time by notice to the
Core Borrowers that:
(a) an amount equal to the total Amount Owing to
all Senior Creditors is either:
(i) payable to the Security Trustee on
demand; or
(ii) immediately due for payment to the
Security Trustee; and/or
(b) the Senior Creditors' obligations specified
in the notice are terminated.
The Security Trustee may make either or both of these declarations. The
making of either of them gives immediate effect to its provisions. The
Core Borrowers must pay any amount demanded by the Security Trustee in
accordance with the demand.
<PAGE>
9 DISTRIBUTION OF RECOVERED MONEY
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9.1 If at any time the Security Trustee receives money
under a Bank Finance Document which is available for
distribution (this includes money which is received
by the Security Trustee before a notice is given
under clause 8.2 but which, for any reason
whatsoever, has not been distributed by the time a
notice is given under clause 8.2 on or after the
Fixed Date whether or not it represents the proceeds
of recovery action taken under any Bank Finance
Document, then the money must be distributed by the
Security Trustee in accordance with clause 9.4.
9.2 Unless the Majority of Senior Creditors decide
otherwise, money referred to in clause 9.1 does not
form part of the Recovered Money on a Recovered
Money Distribution Date if any Bank Finance Document
permits the money to be placed to the credit of a
suspense account in order to preserve rights to
prove in the bankruptcy or liquidation of any
person.
9.3 Any suspense account to which money is placed under
clause 9.2 is to be an interest bearing account
selected reasonably by the Security Trustee.
Interest earned on the account is to be treated as
Recovered Money.
9.4 Recovered Money is to be distributed by the Security
Trustee as soon as practicable after the Security
Trustee receives it as follows:
(a) first, to the extent that the Recovered Money
represents money recovered under a Security
which provides for the appointment of a
receiver, in the order provided for under the
Security up to and including the category of
satisfying the remuneration of the receiver
(as defined in that Security);
(b) secondly, towards satisfaction of all costs,
charges and expenses incurred by the Security
Trustee in or incidental to the exercise or
performance or attempted exercise or
performance of any of the rights, powers or
remedies conferred under any Bank Finance
Document;
(c) thirdly, towards satisfaction of any other
expenses or outgoings in connection with any
receivership under or the enforcement of any
Bank Finance Document;
(d) fourthly, towards payment to the Security
Trustee of any money due to it in its
capacity as Security Trustee under any Bank
Finance Document;
(e) fifthly, towards payment to each Senior
Creditor of an amount (not exceeding the
Amount Owing of that Senior Creditor) equal
to that Senior Creditor's Share at that time
of the Recovered Money;
(f) sixthly, to the extent that the Security
secures the payment of other amounts, towards
payment to the persons entitled to those
amounts and, if more than one, in a
proportion for each person equal to the
<PAGE>
proportion that the amount owed to that
person bears to the aggregate amount owed to
all those persons,
or in such other manner as the Security Trustee determines.
10 REPLACEMENT OF SECURITY TRUSTEE
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REMOVAL OF SECURITY TRUSTEE
10.1 If they are different persons, the Agent may remove
the Security Trustee from office, or if the Agent
and the Security Trustee are the same person, the
Majority of Senior Creditors may remove the Security
Trustee from office, in each case by notice given to
the Security Trustee, if:
(a) an Insolvency Event occurs or arises in
relation to the Security Trustee; or
(b) the Security Trustee is guilty of negligence
or wilful misconduct in the discharge of its
duties as trustee of the Security Trust.
Subject to clause 10.3, removal of the Security Trustee from office will
take effect:
(c) (if notice of removal is given pursuant to
paragraph (a)): when the notice is given; or
(d) (in any other case): 20 Business Days after
the notice of removal is given to the
Security Trustee.
RETIREMENT
10.2 The Security Trustee may retire as Security Trustee
by giving to Core Borrower and each other Senior
Creditor not less than 30 days' notice of its
intention to do so. No retirement takes effect
unless:
(a) there has been appointed as a successor
Security Trustee approved by the Core
Borrowers (which approval may not be
unreasonably withheld or delayed) either:
(i) a Financier nominated by a Majority
of Senior Creditors or, failing such
a nomination;
(ii) a reputable and experienced bank or
financial institution nominated by the
Security Trustee; and
(b) the successor Security Trustee has obtained
title to each Security in its capacity as
Security Trustee in a manner approved by each
Senior Creditor.
10.3 Subject to clause 10.4 when a successor Security
Trustee is appointed, the retiring or removed
Security Trustee is discharged (without prejudice
to any accrued right or obligation) from any further
obligation under the Bank Finance Documents. The
new Security Trustee and each other party to the Bank
Finance Documents has the same rights and obligations
among themselves as they would have had if the new
<PAGE>
Security Trustee had been a party to the Bank Finance
Documents.
10.4 The retiring or removed Security Trustee agrees, at
its own expense, to execute and cause its successors
to execute documents and do everything else
necessary or appropriate to transfer the Trust Fund
into the name of the new Security Trustee and to
ensure that all public registers record the new
Security Trustee as the trustee of the Trust Fund.
11 LIMITED RECOURSE
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LIMITED RECOURSE
11.1 The Security Trustee may enforce its rights against
a Limited Recourse Obligor only arising from
non-observance of the Limited Recourse Obligations
only to the extent necessary to enforce its rights
under the relevant Security granted by that Limited
Recourse Obligor or, in the case of TUA, under the
TUA Mortgage.
11.2 If the Security Trustee does not recover all money
owing to it in connection with the non-observance of
the Limited Recourse Obligations by enforcing the
rights referred to in clause 11.1, it may not seek
to recover the shortfall by:
(a) bringing proceedings against the Limited
Recourse Obligor; or
(b) applying to have the Limited Recourse Obligor
wound up or proving in the winding up of the
relevant Limited Recourse Obligor.
11.3 Nothing in this clause 11:
(a) releases the Limited Recourse Obligor from
its obligations under the Transaction
Documents except to the extent that clause
11.1 is a limitation on recourse with respect
of the Limited Recourse Obligations; or
(b) affects the liability of the Limited Recourse
Obligor to the Security Trustee or the
remedies of the Security Trustee (including,
without limitation, the right to sue and
recover money payable under the Transaction
Documents and apply to have the Limited
Recourse Obligor wound up) arising because a
representation or warranty made by or on
behalf of the Limited Recourse Obligor in
connection with the Transaction Documents is
found to be incorrect or misleading or an
undertaking (other than the Limited Recourse
Obligations) in connection with the
Transaction Documents is breached; or
(c) prevents the Security Trustee from obtaining
equitable relief in connection with the
Transaction Documents other than an order
requiring the payment of money the subject of
the Limited Recourse Obligations in a manner
other than as contemplated by clauses 11.1 to
11.2 inclusive; or
<PAGE>
(d) in any way limits the amount of the Amount
Owing, the Guaranteed Money or the Secured
Money; or
(e) in any way limits the recourse of the
Security Trustee and the Finance Parties
against any Obligor other than the Limited
Recourse Obligors.
CALCULATION OF GUARANTEED MONEY
11.4 For the purpose of ascertaining an Amount Owing,
Guaranteed Money or Secured Money for which the
Limited Recourse Obligor is liable under a
Transaction Document, the provisions of clauses 11.1
to 11.3 inclusive shall not apply, but nothing in
this clause 11 shall render the Limited Recourse
Obligor personally liable to pay the Guaranteed
Money or Secured Money except to the extent provided
in this clause 11.4.
LIMITATION ON LIABILITY
11.5 The Security Trustee acknowledges that the liability
of TU Australia Holdings No. 1 Ltd and TU Australia
Holdings No. 2 Ltd to contribute to the debts or
obligations of the Partnership is, subject to the
Partnership Act 1958 of Victoria limited to the
amount shown in relation to it in the Register (as
defined in the Partnership Act 1958 of Victoria) as
to the extent to which it is liable to contribute.
Nothing in this deed or the other Transaction
Documents imposes any liability on TU Australia
Holdings No. 1 Ltd and TU Australia Holdings No. 2
Ltd in excess of the limit referred to in this
clause 11.5 provided that this limitation does not
affect:
(a) the rights of the Creditors or the liability
of the Core Borrowers under the Partnership
Mortgage; or
(b) the amount of the Amount Owing, the
Guaranteed Money or the Secured Money or the
liability of the Guarantors under the Bank
Finance Documents.
12 COSTS, CHARGES, EXPENSES AND INDEMNITIES
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WHAT THE BORROWERS AGREE TO PAY
12.1 The Borrowers agree to pay or reimburse the Security
Trustee on demand for:
(a) the reasonable Costs of the Security Trustee
and each other Senior Creditor in connection
with:
(i) the negotiation, preparation,
execution and registration of and
payment of Taxes on any Bank Finance
Document (other than a Substitution
Agreement executed after the primary
syndication of the Facilities); and
(ii) their being satisfied that conditions
to drawing have been met; and
<PAGE>
(iii) giving and considering consents,
approvals, agreements, waivers,
discharges and releases and any
variation or amendment of, under, to
or otherwise in connection with a Bank
Finance Document; and
(b) the reasonable Costs of the Joint Lead Banks
in connection with the syndication of the
Facilities for a period of not more than six
months from Financial Close; and
(c) the Costs of the Security Trustee and each
other Senior Creditor in connection with the
enforcing of or preserving rights (or
considering enforcing or preserving them)
under any Bank Finance Document, or doing
anything in connection with any enquiry by an
authority involving the Obligor or any of its
Related Entities; and
(d) Taxes and fees (including registration fees)
and fines and penalties in respect of fees
paid, or that the Security Trustee reasonably
believes are payable, in connection with any
Bank Finance Document or a payment or receipt
or any other transaction contemplated by any
Bank Finance Document. However, the Borrower
need not pay a fine or penalty in connection
with Taxes or fees to the extent that it has
placed the Security Trustee in sufficient
cleared funds for the Security Trustee to be
able to pay the Taxes or fees by the due
date.
The Security Trustee may debit any of these amounts
to a Borrower's account after asking the Borrower to
pay and the Borrower has failed to pay the amount
requested.
INDEMNITY
12.2 The Borrowers indemnify the Security Trustee and
each other Senior Creditor against any liability or
loss arising from, and any Costs incurred in
connection with:
(a) financial accommodation requested under a
Bank Finance Document not being provided in
accordance with the request for any reason
except default of the Security Trustee or the
Financier; or
(b) financial accommodation under a Bank Finance
Document being repaid, discharged or made
payable other than at its maturity or on an
Interest Payment Date relevant to that
accommodation; or
(c) the Security Trustee or the any other Senior
Creditor acting in connection with a Bank
Finance Document in good faith on fax or
telephone instructions purporting to
originate from the offices of an Obligor or
to be given by an Authorised Officer of an
Obligor and which it believes to be genuine
and correct; or
(d) an Event of Default; or
<PAGE>
(e) the Security Trustee or the Senior Creditor
exercising or attempting to exercise a right
or remedy in connection with a Bank Finance
Document after an Event of Default and for so
long as it subsists; or
(f) any indemnity the Security Trustee or any
other Senior Creditor properly gives a
Controller or an administrator of an Obligor
or to the Security Trustee in respect of an
indemnity properly given by the Security
Trustee to such Controller or administrator.
ITEMS INCLUDED IN LOSS, LIABILITY AND COSTS
12.3 The Borrowers agree that:
(a) the Costs referred to in clause 12.1 (What
the Borrower agrees to pay) and the
liability, loss or Costs referred to in
clause 12.2 (Indemnity) include in relation
to clause 12.1(a) and (b), reasonable legal
Costs and in relation to clause 12.1(c) and
12.2, legal Costs in accordance with any
written agreement as to legal costs or, if
no agreement, on whichever is the higher of
a full indemnity basis or solicitor and own
client basis; and
(b) the Costs referred to in clause 12.1((a)) and
(c)(What the Borrowers agrees to pay)
include those paid, or that the Security
Trustee or relevant Senior Creditor
reasonably believes are payable, to persons
engaged by the Security Trustee or a Senior
Creditor in connection with the Bank Finance
Documents (such as consultants); and
(c) loss or liability and any Costs in any
indemnity under the Bank Finance Documents
may include "break costs". These may be
calculated by any method the Senior Creditor
reasonably chooses including by reference to
any loss it incurs because the Senior
Creditor terminates arrangements it has made
with others to fund (or to maintain its
funding of) financial accommodation under the
Bank Finance Documents.
PAYMENT OF EMPLOYEES' LOSSES
12.4 The Borrowers agree to pay the Security Trustee an
amount equal to any liability or loss and any Costs
of the kind referred to in clause 12.2 (Indemnity)
suffered or incurred by any employee, officer,
Security Trustee or contractor of the Security
Trustee or the Senior Creditor unless caused by that
person's gross negligence.
CURRENCY CONVERSION ON JUDGMENT DEBT
12.5 If a judgment, order or proof of debt for an amount
in connection with a Bank Finance Document is
expressed in a currency other than that in which the
amount is due under the Bank Finance Document, then
the Borrowers indemnify the Security Trustee and
each Senior Creditor against:
(a) any difference arising from converting the
other currency if the rate of exchange used
by the Security Trustee or the Senior
Creditor in accordance with the Bank Finance
Documents for converting currency when it
receives a payment in the other currency is
<PAGE>
less favourable to the Security Trustee or
the Senior Creditor than the rate of exchange
used for the purpose of the judgment, order
or acceptance of proof of debt; and
(b) the Costs of conversion.
13 NOTICES
- ----------------------------------------------------------------------------
FORM
13.1 Unless expressly stated otherwise in the Finance
Documents, all notices, certificates, consents,
approvals, waivers and other communications in
connection with a Finance Document:
(a) must be in writing, signed by an Authorised
Officer of the sender and marked for
attention as set out in schedule 2 if the
recipient has notified otherwise, then marked
for attention in the way last notified; and
(b) must be:
(i) left at the address set out in
schedule 2; or
(ii) sent by prepaid post (airmail, if
appropriate) to the address set out in
schedule 2; or
(iii) sent by fax to the fax number set out
in the schedule 2,
but if the intended recipient has notified a
changed postal address or fax number, then
the communication must be to that address or
number; and
(c) take effect from the time they are received
unless a later time is specified in them; and
(d) if sent by post, are taken to be received
three days after posting (or seven days after
posting if sent to or from a place outside
Australia); and
(e) if sent by fax, are taken to be received at
the time shown in the transmission report as
the time that the whole fax was sent.
WAIVER OF NOTICE PERIOD
13.2 The Security Trustee may waive a period of notice
required to be given by an Obligor under this deed.
14 CHANGE IN CREDITORS
- ----------------------------------------------------------------------------
CHANGE IN CREDITORS
14.1
(a) If any Creditor assigns any of its rights or
transfers by novation any of its rights and
obligation under any Transaction Document (in
accordance with the relevant provisions of
the relevant Transaction Document) it must
<PAGE>
cause the new assignee or transferee to
become a new Creditor (a "NEW CREDITOR") by
executing a New Creditor Accession Deed.
(b) Each other party to this deed irrevocably
authorises the Security Trustee to execute
any New Creditor Accession Deed signed by a
New Creditor on its behalf.
(c) If a Financier substitutes a new financier
for all or part of its participation under
the Syndicated Facilities Agreement by
executing a substitution certificate under
the Syndicated Facilities Agreement, the
relevant substituted financier will be a new
Senior Creditor. Clause 14.2 will apply to
it.
(d) A Junior Financier who agrees to be bound by
this deed in consideration for being an
assignee or participant of the Junior Debt
will be a new Junior Creditor.
Clause 14.2 will apply to it.
EFFECT OF ACCESSION
14.2 When a new Financier or Junior Financier is
appointed:
(a) it becomes bound by this deed and receives
the benefits under this deed as if it were a
party to this deed;
(b) the assigning or transferring party continues
to the bound by this deed, unless the
Relevant Senior Debt or Relevant Junior Debt
(as the case may be), is reduced to zero, in
which case it is released from further
obligations under this deed; and
(c) each other party continues to be bound by
this deed on the basis that the New Creditor
is a Creditor.
NOTICE OF CHANGE
14.3 The Security Trustee may treat each Creditor (or any
assignee or substitute or New Creditor of which the
Security Trustee has actual notice) as the holder of
the benefit of that Creditor's interests and subject
to the Creditor's obligations under the relevant
Transaction Documents for all purposes, unless and
until it receives notice to the contrary.
15 GENERAL
- ----------------------------------------------------------------------------
SET-OFF
15.1 At any time after an Event of Default and for so
long as it subsists, the Security Trustee or a
Senior Creditor may set off any amount due for
payment by the Security Trustee or the Senior
Creditor, respectively, to an Obligor against any
amount due for payment by that Obligor to the
Security Trustee or the Senior Creditor,
respectively, under the Bank Finance Documents.
CERTIFICATES
15.2 The Security Trustee, a Senior Creditor or the
Junior Financier may give a Borrower a certificate
about an amount payable or other matter in
connection with a Transaction Document. The
<PAGE>
certificate is sufficient evidence of the amount or
other matter, unless it is proved to be incorrect.
PROMPT PERFORMANCE
15.3 If this deed specifies when an Obligor agrees to
perform an obligation, the Obligor agrees to perform
it by the time specified. The Obligor agrees to
perform all other obligations promptly.
DISCRETION IN EXERCISING RIGHTS
15.4 The Security Trustee, a Senior Creditor or the
Junior Financier may exercise a right or remedy or
give or refuse its consent in any way it considers
appropriate (including by imposing conditions),
unless a Transaction Document expressly states
otherwise.
CONSENTS
15.5 Each Obligor agrees to comply with all conditions in
any consent the Security Trustee, a Senior Creditor
or the Junior Financier gives in connection with a
Transaction Document.
PARTIAL EXERCISING OF RIGHTS
15.6 If the Security Trustee, a Senior Creditor or the
Junior Financier does not exercise a right or remedy
fully or at a given time, the Security Trustee or
the Financier can still exercise it later.
NO LIABILITY FOR LOSS
15.7 None of the Security Trustee, a Senior Creditor or
the Junior Financier is liable for loss caused by
the exercise or attempted exercise of, failure to
exercise, or delay in exercising, a right or remedy.
CONFLICT OF INTEREST
15.8 The Security Trustee's or a Senior Creditor's or the
Junior Financier's rights and remedies under this
deed may be exercised even if this involves a
conflict of duty or the Security Trustee or the
Senior Creditor has a personal interest in their
exercise.
REMEDIES CUMULATIVE
15.9 The rights and remedies of the Security Trustee, a
Senior Creditor or the Junior Financier under this
deed are in addition to other rights and remedies
given by law independently of this deed.
RIGHTS AND OBLIGATIONS ARE UNAFFECTED
15.10 Rights given to the Security Trustee, a Senior
Creditor or the Junior Financier under this deed and
the Obligor's liabilities under it are not affected
by any law that might otherwise affect them.
INDEMNITIES
15.11 The indemnities in this deed are continuing
obligations, independent of the Obligors' other
obligations under this agreement and continue after
this deed ends. It is not necessary for the Security
Trustee, a Senior Creditor or the Junior Financier
to incur expense or make payment before enforcing a
right of indemnity under this deed.
<PAGE>
VARIATION AND WAIVER
15.12 Unless this deed expressly states otherwise, a
provision of this deed, or right created under it,
may not be waived or varied except in writing signed
by the party or parties to be bound.
CONFIDENTIALITY
15.13 The Security Trustee, a Senior Creditor and the
Junior Financier agree not to disclose information
provided by the Obligors that is not publicly
available except:
(a) in connection with any person exercising
rights or dealing with rights or obligations
under a Transaction Document (including when
consulting other Senior Creditors and Junior
Financier after a Potential Event of Default
or an Event of Default or in connection with
preparatory steps such as negotiating with
any potential assignee or potential
participant of the Financier's rights or
other person who is considering contracting
with the Financier in connection with a
Transaction Document); or
(b) to a person considering entering into (or who
enters into) a credit swap with the Security
Trustee, a Senior Creditor or the Junior
Financier involving credit events relating to
the Borrowers or any of their Related
Entities; or
(c) to officers, employees, legal and other
advisers and auditors of the Security
Trustee, a Senior Creditor or the Junior
Financier; or
(d) to any party to this agreement or any Related
Entity of the Security Trustee, a Senior
Creditor or the Junior Financier, provided
the recipient agrees to act consistently with
this clause 15.13; or
(e) with the Obligors' consent (not to be
unreasonably withheld); or
(f) as allowed, requested or required by any
law, stock exchange or regulatory authority.
The Obligors consent to disclosures made in accordance with this
clause 15.13.
FURTHER STEPS
15.14 The Obligors agree to do anything the Security
Trustee asks (such as obtaining consents, signing
and producing documents and getting documents
completed and signed) to bind the Obligors and any
other person intended to be bound under the Bank
Finance Documents.
INCONSISTENT LAW
15.15 To the extent permitted by law, this deed prevails
to the extent it is inconsistent with any law.
SUPERVENING LEGISLATION
15.16 Any present or future legislation which operates to
vary the obligations of the Obligors in connection
with a Finance Document with the result that the
Security Trustee's, a Senior Creditor's or the
<PAGE>
Junior Financier's rights, powers or remedies are
adversely affected (including by way of delay or
postponement) is excluded except to the extent that
its exclusion is prohibited or rendered ineffective
by law.
TIME OF THE ESSENCE
15.17 Time is of the essence in any Bank Finance Document
in respect of an obligation of an Obligor to pay
money.
COUNTERPARTS
15.18 This deed may consist of a number of copies of this
deed each signed by one or more parties to the deed.
When taken together, the signed copies are treated
as making up the one document.
SERVING DOCUMENTS
15.19 Without preventing any other method of service, any
document in a court action may be served on a party
by being delivered to or left at that party's
address for service of notices under clause 13
(Notices). TU Australia Holdings No. 1 Ltd and
TU Australia Holdings No. 2 Ltd irrevocably appoint
TU Australia Holdings (AGP) Pty Ltd to receive any
document referred to in this clause. If, for any
reason, TU Australia Holdings (AGP) Pty Ltd ceases to
be able to act as Security Trustee, TU Australia
Holdings No. 1 Ltd and TU Australia Holdings No. 2
Ltd must immediately appoint another person within
Victoria to receive any such document and notify the
Security Trustee.
16 GOVERNING LAW, JURISDICTION AND SERVICE OF PROCESS
- ----------------------------------------------------------------------------
16.1 This deed is governed by the law in force in
Victoria.
16.2 Each party irrevocably and unconditionally submits
to the non-exclusive jurisdiction of the courts of
Victoria and courts of appeal from them. Each party
waives any right it has to object to an action being
brought in those courts including, without
limitation, by claiming that the action has been
brought in an inconvenient forum or that those
courts do not have jurisdiction.
16.3 Without preventing any other mode of service, any
document in an action (including, without
limitation, any writ of summons or other originating
process or any third or other party notice) may be
served on any party by being delivered to or left
for that party at its address for service of notices
under clause 13.
<PAGE>
EXECUTED as a deed
SCHEDULE 1 NEW CREDITOR ACCESSION DEED
- -----------------------------------------------------------------------------
DEED dated between:
[ ] (the New Creditor); and
[ ] (the Retiring Creditor); and]
[ ] (the Security Trustee) for itself and on behalf of the other
parties to the Security Trust Deed.
DEFINITIONS AND INTERPRETATION
1.1 DEFINITIONS
In this deed, "Security Trust Deed" means the security trust deed dated
[ ] between the Security Trustee and others. Terms defined in the
Security Trust Deed have the same meaning in this deed.
1.2 INTERPRETATION
Clause 1.2 of the Security Trust Deed applies to this deed.
2. ACCESSION AND RELEASE
2.1 With effect from and including [the date of this deed/other date as
appropriate]:
(a) the New Creditor assumes the obligations and acquire the rights
of the Retiring Creditor [or specify portion of rights acquired]
under the Security Trust Deed and each [Bank/Junior] Finance
Document, as a [Senior/Junior] Creditor;
(b) each other party to the Security Trust Deed and each
[Bank/Junior] Finance Document acquires corresponding rights
against and assumes corresponding obligations towards the New
Creditor; and
(c) the Retiring Creditor is released from its obligations [or
specify portion of obligations] under the Security Trust Deed but
without prejudice to any existing liability).]
2.2 This deed is a [Bank/Junior] Finance Document and the New Creditor is a
[Senior Creditor/Junior Creditor] for the purposes of the Security Trust
Deed.
3. NOTICES
For the purpose of the [Bank/Junior] Finance Documents, the address for
correspondence of the New Creditor is the address set out below:
[ ]
4. LAW
This deed is governed by the laws of the Victoria.
Each attorney executing this certificate states that he or she has no
notice of revocation or suspension of his or her power of attorney.
EXECUTED as a deed.
[Execution provisions]
<PAGE>
SCHEDULE 2 NOTICES
- -----------------------------------------------------------------------------
CORE BORROWERS, GUARANTORS, TUA, TEXAS
PURCHASERS AND EASTERN
Address: Energy Plaza
Address: Level 49 1601 Bryan Street
525 Collins Street Dallas, Texas 75201
Melbourne Vic 3000 United States of America
Fax: 9629 8292 Fax: (214) 812 2488
Tel:
Attention: Managing Director Attention:
CITIBANK, N.A.
Address: Level 26
101 Collins Street
Melbourne Vic 3000
Fax: 9653 7301
SECURITY TRUSTEE AGENT
Address: Level 2 Address: Level 2
271 Collins Street 271 Collins Street
Melbourne Vic 3000 Melbourne Vic 3000
Fax: 9659 6927 Fax: 9659 6927
Tel: 9659 6755 Tel: 9659 6755
Attention: Head of Agency Attention: Head of Agency
<PAGE>
EXECUTION PAGE
- --------------------------------------------------------------------------
SIGNED, SEALED AND DELIVERED for TU )
AUSTRALIA HOLDINGS (PARTNERSHIP) LIMITED )
PARTNERSHIP by being signed by R.S. )
Shapard an attorney for TU AUSTRALIA )
HOLDINGS (AGP) PTY LTD the general )
partner of the TU Australia Holdings )
(Partnership) Limited Partnership under )
power of attorney dated 23/2/99 )
in the presence of: )
)
Steven J Pascoe (signed) ) R.S. Shapard (signed)
- ---------------------------------------- ---------------------------------
Signature of witness ) By executing this deed the
) attorney states that the attorney
Steven J Pascoe ) has received no notice of
- ---------------------------------------- revocation of the power of
Name of witness (block letters) ) attorney
49/525 Collins Street, Melbourne
- ----------------------------------------
Address of witness
Business Manager
- ----------------------------------------
Occupation of witness
SIGNED, SEALED AND DELIVERED )
by R.S. Shapard )
as attorney for TU AUSTRALIA HOLDINGS PTY )
LTD under power of attorney dated 23/2/99 )
)
in the presence of: )
)
Steven J Pascoe (signed) )
- ----------------------------------------
Signature of witness )
)
)
Steven J Pascoe )
- ----------------------------------------
Name of witness (block letters) ) R.S. Shapard (signed)
) ---------------------------------
49/525 Collins Street, Melbourne ) By executing this deed the
- ---------------------------------------- attorney states that the attorney
Address of witness ) has received no notice of
) revocation of the power of
) attorney
Business Manager
- ----------------------------------------
Occupation of witness
<PAGE>
SIGNED, SEALED AND DELIVERED )
by R.S. Shapard )
as attorney for TUA (NO. 8) PTY LTD )
under power of attorney dated 23/2/99 )
)
in the presence of: )
)
Steven J Pascoe (signed) )
- ----------------------------------------
Signature of witness )
)
Steven J Pascoe )
- ----------------------------------------
Name of witness (block letters) )
)
49/525 Collins Street, Melbourne ) R.S. Shapard (signed)
- ---------------------------------------- ---------------------------------
Address of witness ) By executing this deed the
) attorney states that the attorney
Business Manager ) has received no notice of
- ---------------------------------------- ) revocation of the power of
Occupation of witness attorney
SIGNED, SEALED AND DELIVERED )
by R.S.Shapard )
as attorney for TUA (NO. 9) PTY LTD )
under power of attorney dated 23/2/99 )
)
in the presence of: )
)
Steven J Pascoe (signed) )
- ----------------------------------------
Signature of witness )
)
Steven J Pascoe )
- ----------------------------------------
Name of witness (block letters )
)
49/525 Collins Street, Melbourne ) R.S. Shapard (signed)
- ---------------------------------------- ---------------------------------
Address of witness ) By executing this deed the
) attorney states that the attorney
has received no notice of
Business Manager ) revocation of the power of
- ----------------------------------------- attorney
Occupation of witness
<PAGE>
SIGNED, SEALED AND DELIVERED )
by R.S. Shapard )
as attorney for TEXAS UTILITIES )
AUSTRALIA PTY LTD under power of )
attorney dated 23/2/99 )
)
in the presence of: )
)
Steven J Pascoe (signed) )
- ----------------------------------------
Signature of witness )
)
Steven J Pascoe )
- ----------------------------------------
Name of witness (block letters) )
) R.S. Shapard (signed)
49/525 Collins Street, Melbourne ) ---------------------------------
- ---------------------------------------- By executing this deed the
Address of witness ) attorney states that the attorney
) has received no notice of
Business Manager ) revocation of the power of
- ---------------------------------------- attorney
Occupation of witness
SIGNED, SEALED AND DELIVERED )
by R.S. Shapard )
as attorney for TUA (NO. 10) PTY LTD )
under power of attorney dated 23/2/99 )
)
in the presence of: )
)
Steven J Pascoe (signed) )
- ---------------------------------------- )
Signature of witness )
)
Steven J Pascoe )
- ---------------------------------------- )
Name of witness (block letters) )
)
49/525 Collins Street, Melbourne ) R.S. Shapard (signed)
- ---------------------------------------- ) ---------------------------------
Address of witness ) By executing this deed the
) attorney states that the attorney
Business Manager ) has received no notice of
- ---------------------------------------- revocation of the power of
Occupation of witness attorney
<PAGE>
SIGNED, SEALED AND DELIVERED )
by R.S. Shapard )
as attorney for TUA (NO. 11) PTY LTD )
under power of attorney dated 23/2/99 )
)
in the presence of: )
)
Steven J Pascoe (signed) )
- ---------------------------------------- )
Signature of witness )
)
Steven J Pascoe )
- ---------------------------------------- )
Name of witness (block letters) )
)
49/525 Collins Street, Melbourne ) R.S. Shapard (signed)
- ---------------------------------------- ) ---------------------------------
Address of witness ) By executing this deed the
) attorney states that the attorney
Business Manager has received no notice of
- ---------------------------------------- revocation of the power of
Occupation of witness attorney
SIGNED, SEALED AND DELIVERED )
by R.S. Shapard )
as attorney for EASTERN ENERGY )
LIMITED under power of attorney dated )
23/2/99 )
)
in the presence of: )
)
Steven J Pascoe (signed) )
- ----------------------------------------
Signature of witness )
)
Steven J Pascoe )
- ----------------------------------------
Name of witness (block letters) )
) R.S. Shapard (signed)
49/525 Collins Street, Melbourne ) ---------------------------------
- ---------------------------------------- By executing this deed the
Address of witness ) attorney states that the attorney
) has received no notice of
Business Manager revocation of the power of
- ---------------------------------------- attorney
Occupation of witness
<PAGE>
SIGNED, SEALED AND DELIVERED )
by TEXAS UTILITIES COMPANY by )
its duly authorised representative )
)
in the presence of: )
)
Christine Larkin (signed) )
- ----------------------------------------
Signature of witness )
)
Christine Larkin )
- ----------------------------------------
Name of witness (block letters) )
)
1601 Bryan Street, 30th Floor, Dallas, )
- ----------------------------------------
Texas )
- ---------------------------------------- ---------------------------------
Address of witness Authorised Representative
Attorney
- ----------------------------------------
Occupation of witness
JUNIOR FINANCIER
SIGNED, SEALED AND DELIVERED )
by Joseph Sheehan, Vice President )
)
and Dale Murphy, Vice President )
)
as attorneys for CITIBANK, N.A. under )
power of attorney dated 20 August 1996 )
)
in the presence of: )
)
W.A. Glover (signed) ) Joseph Sheehan (signed)
- ---------------------------------------- ---------------------------------
Signature of witness )
)
W.A. Glover (signed) )
- ----------------------------------------
Name of witness (block letters) ) Dale Murphy (signed)
) ----------------------------------
101 Collins Street, Melbourne ) By executing this deed the
- ---------------------------------------- attorneys state that the attorneys
Address of witness have received no notice of
revocation of the power of
Solicitor attorney
- ----------------------------------------
Occupation of witness
<PAGE>
<PAGE>
AGENT
SIGNED, SEALED AND DELIVERED )
by Peter Robinson )
as attorney for NATIONAL )
AUSTRALIA BANK LIMITED under )
power of attorney dated 28 February 1991 )
in the presence of: )
)
Melanie Butcher (signed) )
- ----------------------------------------
Signature of witness )
)
Melanie L Butcher )
- ----------------------------------------
Name of witness (block letters) )
)
Level 28, 525 Collins Street, Melbourne ) Peter Robinson (signed)
- ---------------------------------------- ---------------------------------
Address of witness ) By executing this deed the
) attorney states that the attorney
Solicitor ) has received no notice of
- ---------------------------------------- revocation of the power of
Occupation of witness attorney
SECURITY TRUSTEE
SIGNED, SEALED AND DELIVERED )
by Peter Robinson )
as attorney for NATIONAL )
AUSTRALIA BANK LIMITED under )
power of attorney dated 28 February 1991 )
in the presence of: )
)
Melanie Butcher (signed) )
- ----------------------------------------
Signature of witness )
)
Melanie L Butcher )
- ----------------------------------------
Name of witness (block letters) )
)
Level 28, 525 Collins Street, Melbourne ) Peter Robinson (signed)
- ---------------------------------------- ---------------------------------
Address of witness ) By executing this deed the
) attorney states that the attorney
Solicitor ) has received no notice of
- ---------------------------------------- revocation of the power of
Occupation of witness attorney
