FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Registrant; State of I.R.S.Employer
Commission Incorporation; Address; Identification
File No and Telephone Number Number
1-9760 ATLANTIC ENERGY, INC. 22-2871471
(a New Jersey Corporation)
6801 BLACK HORSE PIKE,
EGG HARBOR TOWNSHIP, NEW JERSEY 08234
609-645-4500
1-3559 ATLANTIC CITY ELECTRIC COMPANY 21-0398280
(a New Jersey Corporation)
6801 BLACK HORSE PIKE
EGG HARBOR TOWNSHIP, NEW JERSEY 08234
609-645-4100
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, No Par Value New York Stock Exchange
of Atlantic Energy, Inc. Philadelphia Stock Exchange
Pacific Stock Exchange
8.25% Cumulative Quarterly Income New York Stock Exchange
Preferred Securities,
liquidation preference $25 per
preferred security issued by
Atlantic Capital I
Securities registered pursuant to Section 12(g) of the Act: None
<PAGE>
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10K. X
Estimated aggregate market value of the voting stock of
Atlantic Energy, Inc. held by non-affiliates at March 6, 1997,
was $898,943,385.00 based on a closing price of $17.25 per
share for the 52,502,479 outstanding shares at such date.
Atlantic Energy, Inc. owns all of the 18,320,937 outstanding
shares of Common Stock of Atlantic City Electric Company.
Documents Incorporated by Reference:
Certain sections of the Notice of Annual Meeting of
Shareholders and Proxy Statement in connection with the
Annual Meeting of Shareholders, to be held April 23, 1997, have
been incorporated by reference to provide information required by
the following parts of this report:
Part III-Item 10, Directors and Executive Officers of the
Registrant; Item 11, Executive Compensation; Item 12, Security
Ownership of Certain Beneficial Owners and Management.
This combined Form 10-K is filed separately by Atlantic Energy,
Inc. and Atlantic City Electric Company. Information contained
herein relating to any individual registrant is filed by such
registrant on its own behalf. Atlantic City Electric Company
makes no representation as to information relating to Atlantic
Energy, Inc.
<PAGE>
PART I
ITEM 1 BUSINESS 1
General 1
Competition 2
Nonutility Subsidiaries 8
Construction and Financing 10
Rates 12
Energy Requirements and Power Supply 13
Power Pool and Interconnection Agreements 15
Power Purchases and Sales 16
Capacity Planning 16
Nonutility Generation 18
Nuclear Generating Station Developments 19
Salem Station 22
Hope Creek Station 24
Peach Bottom 25
Fuel Supply 26
Oil 26
Coal 26
Gas 27
Nuclear Fuel 27
Nuclear Decommissioning 29
Regulation 31
Environmental Matters 33
General 33
Air 36
Water 37
Executive Officers 40
ITEM 2 PROPERTIES 43
ITEM 3 LEGAL PROCEEDINGS 43
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 44
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS 44
ITEM 6 SELECTED FINANCIAL DATA 46
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 47
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 66
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE 108
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT 108
ITEM 11 EXECUTIVE COMPENSATION 108
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 108
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 108
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K 109
SIGNATURES 110
i<PAGE>
GLOSSARY OF TERMS
The following is a glossary of frequently used abbreviations or
acronyms that are found in this report:
Term Definition
ACE ..... Atlantic City Electric Company
ACO ..... Administrative Consent Order
AEE ..... Atlantic Energy Enterprises, Inc.
AEI ..... Atlantic Energy, Inc. or the Company
AET ..... Atlantic Energy Technology, Inc.
AGI ..... Atlantic Generation Inc.
ASP ..... Atlantic Southern Properties
ATS ..... Atlantic Thermal Systems, Inc.
BPU ..... New Jersey Board of Public Utilities
BWR ..... Boiling water reactor
CAAA .... Clear Air Act Amendments
CAFRA ... New Jersey Coastal Area Facility Review Act
CCI ..... CoastalComm Inc.
CERCLA .. Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980
CON ..... Certificate of Need
CORP .... New Jersey Commission on Radiation Protection
CQIPS ... 8.25% Cumulative Quarterly Income Preferred
Securities
DOE ..... U. S. Department of Energy
DRBC .... Delaware River Basin Commission
EFNAA ... Electric Facilities Need Assessment Act
EMF ..... Electric and magnetic fields
EPA ..... Environmental Protection Agency
EPAct ... Energy Policy Act of 1992
FERC .... Federal Energy Regulatory Commission
GE ...... General Electric Company
Hope
Creek .. Hope Creek Nuclear Generating Plant
HSW ..... Harrisburg Steam Works, Ltd.
IGM ..... Interstate Gas Marketing
IPP ..... Independent power producer
ISO ..... Independent System Operator
KW ...... Kilowatt-hours
LEC ..... Levelized Energy Clause
LLRW .... Low-level radioactive waste
LLRWPA .. Low Level Radioactive Policy Act
MTC ..... Market Transition Charge
MTN ..... Medium Term Notes
MW ...... Megawatt
NJEDA ... New Jersey Economic Development Authority
NJDEP ... New Jersey Department of Environmental Protection
NJPDES .. New Jersey Pollution Discharge Elimination System
NPDES ... National Pollution Discharge Elimination System
- ii -<PAGE>
GLOSSARY OF TERMS, cont'd
NOx ..... Nitrogen Oxide
NPDES ... National pollution discharge elimination system
NRC ..... Nuclear Regulatory Commission
NUG ..... Nonutility generators
NWPA .... Nuclear Waste Policy Act
OTRA..... Off-Tariff rate agreements
PCCA .... Paxton Creek Cogeneration Associates
Peach
Bottom .. Peach Bottom Atomic Power Station
PE ...... PECO Energy Company
PJM ..... Pennsylvania-Jersey-Maryland Interconnection Assoc.
Plan .... New Jersey Energy Master Plan, Draft Phase II
PP&L .... Pennsylvania Power & Light Company
PS ...... Public Service Electric and Gas Company
PUHCA ... Public Utility Holding Company Act of 1935
PURPA ... Public Utility Regulatory Policy Act
PWR ..... Pressurized water reactor
RCRA .... Federal Resource Conservation and Recovery Act of
1976
Salem ... Salem Nuclear Generating Station
SALP .... Systematic Assessment of Licensee Performance
SARA .... Superfund Amendments and Reauthorization Act of 1986
SEC ..... Securities and Exchange Commission
SERT .... Significant event response team
SIP ..... State implementation plans
Spill
Act ... New Jersey Spill Compensation and Control Act
- iii -<PAGE>
PART I
ITEM 1 BUSINESS
General
Atlantic Energy, Inc. (AEI or the Company), the principal
office of which is located at 6801 Black Horse Pike, Egg Harbor
Township, New Jersey, 08232-4130, telephone 609-645-4500 was
organized under the laws of New Jersey in August 1986. The
Company is a public utility holding company as defined in the
Public Utility Holding Company Act of 1935 (PUHCA), and has
claimed an exemption from substantially all of the provisions of
the 1935 Act. For a complete description of the Company and its
subsidiaries, see Note 1 of the Notes to Consolidated Financial
Statements herein.
Principal cash inflows of the Company include the receipt of
dividends from Atlantic City Electric Company (ACE) and loans
outstanding from a revolving credit and term loan facility
established by AEI in September 1995. As of December 31, 1996,
AEI has $37.6 million outstanding under such facility. Principal
cash outflows of the Company in 1996 were primarily for the
payment of dividends to common shareholders.
ACE, which has a wholly-owned subsidiary, Deepwater
Operating Company, is the principal subsidiary of the Company and
is engaged in the generation, transmission, distribution, and
sale of electric energy in the southern part of New Jersey.
ACE's principal office is located at 6801 Black Horse Pike, Egg
Harbor Township, New Jersey, 08232-4130, telephone 609-645-4100,
and was organized under the laws of New Jersey on April 28, 1924,
by merger and consolidation of several utility companies. ACE is
subject to regulation by the New Jersey Board of Public Utilities
(BPU) and the Federal Energy Regulatory Commission (FERC). At
December 31, 1996, ACE had over 475,000 customers and employed
1,466 persons, of which 633 were affiliated with a national labor
organization. With the exception of a municipal electric system
providing electric service within the municipal boundaries of the
City of Vineland, New Jersey, ACE supplies electric service to
the southern one-third of the State of New Jersey. ACE is a
utility whose peak load normally occurs during the summer months.
Approximately 29% of 1996 revenues were recorded during the
quarter ended September 30, 1996.
<PAGE>
Pending Merger
On August 12, 1996, the Boards of Directors of AEI and
Delmarva Power & Light Company (Delmarva) jointly announced an
agreement to merge the companies into a new company named
Conectiv, Inc. Following the merger, AEI will be merged into
Conectiv, which will become the parent of Delmarva and AEI as
well as AEI's subsidiaries. The purpose of the proposed merger
is to create a regional company from two companies that share a
common vision of the strategic path necessary to succeed in the
increasingly competitive utility and energy services marketplace.
Following the approval of the merger by the shareholders of
both companies on January 30, 1996, ACE and Delmarva filed
applications with the New Jersey Board of Public Utilities (BPU),
the Delaware Public Service Commission and the Virginia State
Corporation Commission. The applications seek the approval of
each state's commission, as soon as possible, or before December
31, 1997, to merge the two companies. The proposed merger is
also subject to review by the Pennsylvania Public Utility
Commission and the Maryland Public Service Commission with the
request for approval expected to be filed before the end of the
first quarter 1997.
In addition to state regulatory approvals, the proposed
merger requires the approval of the FERC, the Nuclear Regulatory
Commission (NRC), the Securities and Exchange Commission (SEC),
the U.S. Department of Justice and the Federal Trade Commission.
Application was made to the FERC on November 27, 1996 and
subsequently amended on March 7, 1997 to reflect the additional
information required under FERC's Merger Policy Statement issued
in December 1996.
The target date for receiving all necessary approvals,
fulfilling all other conditions of the Merger Agreement, and
closing the merger is December 31, 1997. For further information
regarding the pending merger, refer to Note 1 of AEI's Notes to
Consolidated Financial Statements.
Competition
Competition exists and is expected to increase for certain
electric energy markets historically served exclusively by
regulated utilities. In recent years, changing laws and
governmental regulations permitting competition from other
utilities as well as nonregulated energy suppliers have prompted
some customers to use self-generation or alternative sources to
meet their electric needs. The transition from strictly
regulated to competitive resale and retail markets is changing
the structure of the utility industry and the way in which it
conducts business.
The Public Utility Regulatory Policy Act (PURPA) created a
new class of generating facilities, operated by independent power
producers (IPPs), and required electric utilities to purchase the
excess power from each IPP. As a direct result of PURPA, ACE has
long-term contracts with four such IPPs for the purchase of 579
megawatts (MWs) of capacity and energy and experienced a decline
in its sales to industrial customers, three of which contracted
with IPPs for their power supply. ACE has subsequently regained
two such customers.
The Energy Policy Act of 1992 (EPAct) represented another
significant step toward deregulation of the electric utility
industry. The EPAct facilitated development of the wholesale
power market and increased competition between utility and non-
utility generators (NUGs). The EPAct created a class of NUGs
called exempt wholesale generators that would be exempt from
certain PUHCA regulations. The EPAct also gave the FERC the
authority to order open access to the transmission facilities of
electric utilities and the wheeling of wholesale electric power.
In April 1996, the FERC issued Order No. 888 "Promoting
Wholesale Competition Through Open Access Non-Discriminatory
Transmission Service by Public Utilities; Recovery of Stranded
Costs by Public Utilities and Transmitting Utilities". The Order
was designed to remove impediments to competition in the
wholesale bulk power marketplace, to bring more efficient, lower
cost power to electricity consumers, and provide an equitable
means to transition the industry to the new environment. Under
this Order, utilities that own, control or operate interstate
transmission facilities are required to offer transmission
services for wholesale energy transactions to others on a
nondiscriminatory basis. Tariffs were established by the
utilities for these services, under which a utility must also
apply these tariffs to its own wholesale energy transactions.
The Order also permits utilities to seek recovery of legitimate,
prudent and verifiable unrecovered costs that become stranded as
a result of providing open access transmission services pursuant
to the Order. A utility may have been obligated to incur a cost
on behalf of a customer(s) in the reasonable expectation of
providing service and recovery of that cost. When the
customer(s) no longer uses the utility for the service related to
the cost, or there is a change in a regulator's recovery policy
due to market forces concerning the cost, the cost may become
stranded if the utility is precluded from recovery.
As the electric utility industry transitions from a
regulated to a competitive industry, utilities may not be able to
recover certain costs which are known as "stranded" costs.
Potential types of stranded costs could be (i) above-market costs
associated with generation facilities or long term power purchase
agreements and (ii) regulatory assets, which are expenses
deferred and expected to be recovered from customers in the
future.
Flex-rate legislation promulgated into law in New Jersey in
July 1995 allows the BPU, upon petition from any electric or gas
utility, to adopt a plan of regulation other than the traditional
rate base/rate of return regulation. In addition, on a case-by-
case basis, the law allows utilities to petition the BPU for the
right to offer customers, who meet certain conditions, off-
tariff, discounted rates. The law provides for the recovery of
up to 50 percent of the value of discounts in a subsequent base
rate case if it can be adequately demonstrated that the discount
benefits all ratepayers. A limited number of off-tariff pricing
arrangements with ACE's customers have been made. Refer to
"Results of Operations" in AEI's Management's Discussion and
Analysis of Financial Condition and Results of Operations herein
for further information regarding off-tariff rates (OTRAs).
New Jersey Energy Master Plan
On January 16, 1997, the BPU issued Draft Phase II of the
New Jersey Energy Master Plan addressing wholesale and retail
competition in New Jersey (the "Plan"). The Plan contains
specific proposals for restructuring the electric power industry
in the State of New Jersey. Beginning in October 1998, 5% of
retail electric customer load of all classes (industrial,
commercial and residential) would be given the ability to
directly choose their electric power supplier. All customers
would be phased-in, with the percentage increasing to 20% in
April 1999, 35% in October 1999, 50% in April 2000, 75% in
October 2000 and 100% in April 2001. The Plan suggests that
retail competition in New Jersey be introduced approximately 12
to 18 months after the implementation of full wholesale
competition as provided by FERC Order 888.
The BPU proposes in its Plan that beginning October 1998,
the costs for bundled electricity services, consisting of power
generation, transmission, distribution and auxiliary customer
services, such as metering and billing, be unbundled. Each
electric utility, including ACE, would continue to be
responsible for providing distribution service to all customers.
Price and service quality for distribution service would continue
to be regulated by the BPU. Other customer services would also
continue to be offered by the electric utility, for a monthly
fee, including metering, billing and account administration,
which would also be regulated by the BPU.
Transmission service would be provided by an Independent
System Operator (ISO), which would be responsible for maintaining
the reliability of the regional power grid. The ISO would be
regulated by the FERC. The utility would continue to pass
through the cost of transmission to customers in its regulated
rates. The Plan also calls for further review of metering and
billing in order to make recommendations for the long term
related to introduction of competition into the customer services
area. A distribution utility would be permitted to offer
customer-side services, such as equipment repair and service
contracts in a competitive marketplace.
The Plan suggests that the BPU is committed to assuring that
a fully competitive marketplace exists prior to the ending of its
economic regulation of power supply. At a minimum, utility
generating assets and functions must be functionally separated
and operate at arms length from the transmission, distribution
and customer service functions of the electric utility. The BPU
reserves final judgment on the issue of requiring divestiture of
utility generating assets until detailed analyses of the
potential for market power abuses by utilities have been
performed. In addition, the BPU believes that it is necessary to
have a fully independent and operating ISO prior to the
implementation of customer choice.
The Plan would require each electric utility to file, no
later than July 15, 1997, complete restructuring plans, stranded
cost filings and unbundled rate filings. Review of the filings
would be completed by October 1998.
Consumer protections proposed in the Plan include
maintaining the electric utility as a universal service or "basic
generation service" provider; continued funding of social
programs now provided by electric utilities; registration of all
third party electric power suppliers with the BPU; establishment
of standards of conduct for such third party suppliers; and
continued funding for energy efficiency programs.
The Plan proposes that utilities have an opportunity for a
limited number of years to recover through rates stranded costs
associated with generating capacity commitments made prior to the
advent of competition. However, while the BPU proposes that the
quantification of eligible stranded costs and a determination of
stranded cost recovery should be undertaken on a case-by-case
basis, the Plan recommends that there not be a guarantee for 100%
recovery of all eligible stranded costs. The Plan provides that
the opportunity for full recovery of such eligible costs is
contingent upon and may be constrained by the utility meeting a
number of conditions, including achievement of the goal of
delivering a near term rate reduction to all customers of 5% to
10%. The Plan states that independent power contracts must be
eligible for stranded cost recovery and strongly encourages all
stakeholders to renew efforts to explore all reasonable means to
mitigate independent power contracts. The Plan invites the FERC,
the Congress and the New Jersey State Legislature to review the
issue in order to provide an added impetus for parties to these
contracts to seriously consider mitigation.
<PAGE>
With regard to utility-owned generation, the Plan states
that the utility-owned generation costs permitted to be recovered
in rates in the last base rate case prior to the Plan would be
presumed to be eligible for recovery through a Market Transition
Charge (MTC). Costs for utility generating plants incurred
subsequent to the last base rate case of the utility would not be
presumptively eligible for recovery through the MTC. The Plan
further states that the BPU would entertain requests for recovery
of such costs incurred after the conclusion of a utility's last
base rate case; however, there would be a substantial shift in
the burden of proof to be met by the utility to demonstrate that
the utility had no more cost effective resource alternatives
available to it at the time the commitment was made, which may
include evidence of a market test.
The BPU's Plan further states that utilities are
obligated to take all reasonably available measures to mitigate
stranded costs caused by the introduction of retail competition.
The Plan notes that New Jersey is studying the "securitization"
of stranded costs as a means of financing these costs at interest
rates lower than the utility cost of capital, thereby helping to
mitigate the rate impact of stranded cost recovery.
A specific MTC would be established for each utility and
would be a separate component of a customer's electric bill. The
MTC would provide a mechanism to allow utilities the opportunity
to recover stranded costs for a limited number of years, ranging
from four to eight. Recovery of securitization may occur over a
different period of time. The proposal also suggests that a cap
may be imposed on the level of the MTC as a mechanism to achieve
the goal of overall rate reduction.
The Plan suggests the need for federal action in a number of
areas as an integral part of electric restructuring. Of
particular concern is the transport of nitrogen oxides and other
pollutants to New Jersey from power plants located in the Midwest
and Southeast. The Plan states that New Jersey will develop a
contingency action plan if federal action fails to mitigate
adverse environmental impacts caused by electric restructuring.
The Plan states that the preliminary findings and
recommendations contained therein are being released for the
purpose of making the preliminary conclusions of the BPU
concerning electric restructuring known and available to the
State Legislature, the public, and interested parties, and for
soliciting and receiving further public comments. After the
analysis of the next round of public comments, the Plan states
that the BPU intends to issue final findings and recommendations
on electric industry restructuring in New Jersey to the Governor
and the State Legislature for their consideration in April 1997.
<PAGE>
ACE is currently analyzing the BPU's Plan to determine its
impact if adopted as drafted and intends to file its comments
during the public comment period. ACE cannot predict what action
will ultimately be taken by the BPU.
If changes in the regulatory environment ultimately require
a recognition of any amounts considered to be stranded costs,
ACE, as the case may be, would be required to write down asset
values, and such writedowns could be material. The effect of
competition on the Company's equity from reductions in profit
margins or extraordinary charges against income would reduce the
amount of common equity in the capital structure and could result
in lowered credit ratings on existing debt securities and higher
corresponding financing costs. To the extent that additional
equity capital is required, issuances of common stock may be
necessary. To the extent that additional equity capital is
required, the effect would be to reduce reported earnings per
share, the amount of which ACE cannot presently determine.
Other proposed regulatory and accounting changes have been
suggested relating to matters at the state and Federal level
which could have operating and financial implications for ACE.
See "Regulation" and "Environmental Controls" herein for
additional information and Note 10 of the accompanying Notes to
Financial Statements herein.
<PAGE>
Nonutility Subsidiaries
Atlantic Energy Enterprises, Inc.
In January 1995, the Company formed a subsidiary,
Atlantic Energy Enterprises, Inc. (AEE), a holding company, to
which ownership of the existing nonutility businesses was
transferred. Information regarding the principal assets and the
results of operation of each these subsidiaries can be found in
Note 6 of AEI's Consolidated Financial Statements.
AEE's five-year business plan projects an investment of
approximately $307 million primarily in Atlantic Thermal
Systems, Inc. (ATS), Atlantic Generation, Inc. (AGI) and ATE
Investment, Inc. (ATE). The amount of capital invested by AEE in
these and other nonutility subsidiaries will be affected, to a
large degree, by the rate of development of the respective
businesses, by the business opportunities which may exist and by
the opportunities for external financings by such subsidiaries.
Atlantic Thermal Systems, Inc.
AEE's wholly-owned subsidiary, ATS, commenced operations in
1994 and is engaged in the development and operation of thermal
heating and cooling systems. Through a special purpose limited
partnership, ATS currently provides heating and cooling service
to six hotel/casinos located in Atlantic City under long-term
requirements contracts, and is actively engaged in negotiations
to provide comparable service to other large use commercial and
institutional customers located in Atlantic City, New Jersey.
This subsidiary is currently completing construction of a $60
million district heating and cooling production plant and
distribution piping system. When completed in mid-1997, this
system will produce steam and chilled water for distribution to a
number of casino/hotel and other large use customers located in
the Midtown region of Atlantic City.
In April 1995, ATS filed a petition with the BPU for an
Order declaring that ATS is not a public utility subject to the
BPU's jurisdiction by reason of its business activities in
Atlantic City. It is ATS' position that its service to a limited
number of large use energy consumers does not invoke the
requisite public interest that is a prerequisite to public
utility classification. The petition is still pending final
resolution. ATS has obtained $12.5 million for certain qualified
equipment at the Atlantic City facility from the New Jersey
Economic Development Authority (NJEDA). These funds are
currently held in escrow pending resolution of the public utility
issue. During 1997, ATS expects to apply for additional funds
from the NJEDA and will seek to have the public utility issue
restriction removed as a condition for use of the NJEDA funds.
ATS is actively pursuing potential business opportunities
throughout the United States. Depending on the degree of success
that ATS will have in bringing these projects to completion, ATS
anticipates the potential of an additional capital investment of
$221.6 million over the next five years.
Atlantic Generation, Inc.
At December 31, 1996, AGI's activities were represented by
partnership interests in three cogeneration power projects:
Project Fuel Capacity Commercial Ownership
Location Type Megawatt (MW) Operation Interest
Pedricktown,
New Jersey gas 117 1992 50%
Vineland,
New Jersey gas 46.5 1994 50%
Binghamton,
New York gas 50 1992 33%
Subsidiaries of Tristar Ventures Corporation, a subsidiary
of The Columbia Gas System, Inc. have partnership interests in
the Pedricktown and Vineland projects. In addition to Tristar
Ventures Corporation, Stone & Webster Development Corporation has
a one-third partnership interest in the Binghamton project. In
December 1996, the Boards of AEE and AEI authorized the
restructuring of Binghamton which became effective in January
1997. Under the restructuring, the power purchase agreement with
New York State Gas & Electric was sold to a third party and the
project debt was retired. As a result of the restructuring, AGI
recorded a loss from the sale of the Binghamton facility of $1.6
million, net-of-tax.
The Pedricktown facility is hosted by a chemical
manufacturer, currently a retail customer of ACE, and provides
116 MW of generating capacity to ACE. The Vineland facility is
hosted by a food processor and provides 46.5 MW of capacity and
related energy to the City of Vineland under a 25 year contract.
AGI anticipates additional capital investments of $46.0
million over the next five years.
<PAGE>
ATE Investment, Inc.
ATE provides financing to affiliates and manages a portfolio
of $79.7 million in investments in leveraged leases of three
commercial aircraft and two containerships. In August 1996, ATE
joined with Safeguard Scientifics, Inc., an unaffiliated company,
to create EnerTech Capital Partners, L.P., (EnerTech) an equity
limited partnership to make, manage, own and supervise private
equity investments in early-to-late stage energy-related growth
companies. At December 31, 1996, EnerTech had invested $7.3
million in five such companies. ATE anticipates additional
capital investment of $39.6 million over the next five years.
Enerval, LLC
In 1995, AEE and Cenerprise, a subsidiary of Northern States
Power, established Enerval, LLC (Enerval), formerly known as
Atlantic CNRG Services, LLC. AEE and Cenerprise each own 50
percent of Enerval. Enerval provides energy management services,
including natural gas procurement, transportation and marketing.
On February 1, 1996, Enerval acquired the natural gas marketing
assets of Interstate Gas Marketing (IGM). IGM, which has offices
in Scranton and Pittsburgh, Pennsylvania, markets natural gas to
customers in the northeastern United States. Enerval has certain
gas transportation agreements, which include obligations for the
transportation of specified volumes of gas, or to make payments
in lieu thereof. At December 31, 1996, Enerval was committed to
approximately $3.4 million in such obligations under generally
short-term contracts.
For further information regarding AEI's nonutility
subsidiaries, refer to Note 6 of the accompanying Notes to
Financial Statements and to the Liquidity and Capital Resources
section of Management's Discussion and Analysis of Financial
Condition and Results of Operation herein.
Construction and Financing
ACE maintains a continuous construction program, principally
for electric generation, transmission and distribution
facilities. The construction program, including the estimates of
construction expenditures, as well as the timing of construction
additions, undergoes continuous review. ACE's construction
expenditures will depend upon factors such as long-term load,
customer growth, the effects of competition and retail wheeling,
general economic conditions, the ability of ACE to raise the
necessary capital, regulatory and environmental requirements, the
availability of capacity and energy from utility and nonutility
sources and the Company's return on such investments. Although
deferrals in construction timing may result in near-term
expenditure reductions, changes in capacity plans and general
inflationary price trends could increase ultimate construction
costs. Reference is made to "Energy Requirements and Power
Supply" herein for information with respect to ACE's estimates of
future load growth and capacity plans. The table below presents
ACE's estimated cash construction costs for utility plant for the
years 1997 through 1999:
(Millions of Dollars) 1997 1998 1999 Total
Nuclear Generating $ 9,615 $ 5,108 $ 5,677 $20,400
Fossil Steam
Generating 8,961 8,750 17,070 34,781
Transmission and
Distribution 46,135 45,614 42,844 134,593
General Plant 32,384 26,335 16,113 74,832
Combustion Turbine 2,400 11,175 5,275 18,850
Total Cash
Construction Costs $99,495 $96,982 $86,979 $283,456
For additional information regarding construction of a
district heating and cooling facility in Atlantic City, New
Jersey refer to "Nonutility Subsidiaries" herein.
ACE's debt securities are currently rates "A-/A3" by two
major rating agencies. Its preferred stock is rated "BBB+/Baa1"
and its commercial paper is rated "A-2/P2."
One rating agency has recently placed ACE's ratings on
Creditwatch with positive implications reflecting the proposed
merger between AEI and Delmarva Power & Light Company. See Note
1 of the Notes to Consolidated Financial Statements for further
information relating to the proposed merger.
No assurances can be given that the ratings of ACE's
securities will be maintained or continue at their present
levels, or be withdrawn if such credit rating agency should, in
its opinion, take such action. Downward revisions or changes in
ratings of a company's securities could have an adverse effect on
the market price of such securities and could increase a
company's cost of capital.
<PAGE>
Rates
ACE's rates for retail electric service are subject to the
approval of the BPU. For information concerning changes in base
rates and the levelized energy clause (LEC) for the years 1994
through 1996 and certain other proceedings relating to rates, see
"Purchased Power" herein and Note 3 of the Company's Notes to
Consolidated Financial Statements.
A performance standard for ACE's five jointly-owned nuclear
units was adopted in 1987 by the BPU, with certain aspects of the
performance standards revised, effective January 1, 1990. Under
the standard, the composite target capacity factor for such units
is 70%, based upon the maximum dependable capacity of the units.
The zone of reasonable performance (deadband) is between 65% and
75%. Penalties or rewards are based on graduated percentages of
estimated costs of replacement power. Such amount is calculated
monthly, utilizing the average PJM monthly billing rate as the
cost basis for replacement power, to the boundaries of the
deadband, with penalties calculated incrementally in steps. Any
penalties incurred are not permitted to be recovered from
customers and are required to be charged against income.
Adjustments to rates based on the nuclear unit performance
standard is done through ACE's annually adjusted LEC.
The 1996 composite capacity factor for Peach Bottom and Hope
Creek was 83.9%. Salem Units 1 and 2 have been out-of-service
since May 16, 1995 and June 7, 1995, respectively. Based on an
agreement among ACE, the NJ Division of Ratepayer Advocate and
the Staff of the BPU, the performance of the Salem units was not
to be included in the calculation of the composite capacity
factor for the purpose of assessing a penalty. In addition, no
penalty or reward would be imposed on ACE for the years 1995 and
1996 as part of such agreement.
On February 27, 1997, the Coalition for Competitive Energy
filed an appeal in the Superior Court of New Jersey, Appellate
Division. The appeal was based on the BPU's Summary Decision and
Order dated December 31, 1996 approving settlements regarding the
rate treatment of the Salem Nuclear Generating Station and
alleges, among other things, that the BPU's use of a Summary
Order was illegal under the Administrative Procedure Act. ACE is
unable to predict the outcome of this appeal.
For further information concerning this agreement and Board
Order and the Salem Station, refer to "Nuclear Generating Station
Developments" herein and to Note 3 of the Company's Consolidated
Financial Statements.
On February 28, 1997, ACE filed a petition with the BPU
requesting an increase in LEC revenues of $20 million for the
period June 1, 1997 through May 31, 1998. Among other things,
the filing includes the recovery of $29.5 million of previously
deferred replacement power costs associated with Salem Units 1
and 2 and a deferral of $1.4 million in recoverable costs until
ACE's next LEC period. ACE also requested that the BPU approve
the proposed rates as provisional, in the event a final decision
cannot be rendered by June 1, 1997. ACE cannot predict what
action the BPU will take in this matter.
Energy Requirements and Power Supply
ACE's 1996 kilowatt-hour sales increased by approximately
3.6% over 1995 sales. Residential sales grew 3.2%; commercial
sales grew 3.0%; and, industrial sales grew 7.1%. The 1996
Utility System Peak demand of 1,774 MWs occurred on August 23,
1996 and was 13.1% below the previous peak demand recorded on
July 10, 1995 of 2,042 MWs.
For the five year period beginning in 1997, ACE's estimate
of projected compound annual sales growth is 3.5%, and peak load
growth (weather adjusted) is 2.8%. Sales growth for the five
year forecast period reflects the on-going and anticipated
expansion of the Atlantic City casino-hotel and entertainment
industries and the associated spin-off effects of stronger labor
and housing markets in the region. ACE's energy sales forecast
quantifies the expected consumption in ACE's traditional
franchise area and does not reflect any potential developments
regarding open retail access to competitive energy markets.
ACE's forecast is adjusted for the effects of demand-side
management programs, customer-initiated energy efficiency
improvements and customers taking service under off-tariff rates.
ACE has generally been able to provide for the growth of
energy requirements through the capacity purchases from other
utilities and nonutilities, joint ownership in larger units and
construction of additional generating capacity. ACE's net summer
installed capacity, at December 31, 1996, consisted of the
following:<PAGE>
Year(s) Net
Station and Primary Unit(s) Capability
Location Fuels Installed (MW)
Deepwater
Salem Co., N.J. Oil/Coal/Gas 1930/ 54.0
1954-1958 166.0
B.L. England
Cape May Co., N.J. Coal/Oil 1962-1964/ 284.0
1974 155.0
Keystone
Indiana Co., PA. Coal 1967-1968 42.0 (1)
Conemaugh
Indiana Co., PA. Coal 1970-1971 65.0 (1)
Peach Bottom
York Co., PA. Nuclear 1974 164.0 (1)
Salem
Salem Co., N.J. Nuclear 1977-1981 164.0 (1)
Hope Creek
Salem Co., N.J. Nuclear 1987 52.0 (1)
Combustion Turbine
Units Oil/Gas 1967-1991 524.0
(various locations)
Diesel Units Oil 1961-1970 8.7
Firm Capacity Purchases and Sales-Net 707.0 (2)
Total Generating Capability 2,385.7
==========
Notes
(1) ACE's share of jointly-owned stations. See Note 5 of AEI's
Notes to Consolidated Financial Statements. (2)Primarily
consists of 125 MW from thirteen coal-fired units of PP&L and
579 MW from four nonutility suppliers.
Certain of ACE's units at the Deepwater and B. L. England
Stations and certain combustion turbine units have the capability
of using more than one primary fuel type. In such instances, the
use of a particular fuel type depends upon relative cost,
availability and applicable environmental regulations and
requirements. See Note 5 of the accompanying Notes to Financial
Statements for additional information regarding capital and
operating expenses of ACE's jointly-owned nuclear facilities.
<PAGE>
Power Pool and Interconnection Agreements
ACE is a member of the Pennsylvania-New Jersey-Maryland
Interconnection Association (PJM), an integrated power pool which
coordinates the bulk power supply of eight electric utility
companies in Pennsylvania, New Jersey, Delaware, Maryland,
Virginia and the District of Columbia, and is interconnected with
other major utilities in the northeastern United States. The
member utilities coordinate generation/supply planning and own
and control the bulk power transmission system in the region. As
a member of PJM, ACE is required to plan for reserve capacity
based on estimated aggregate PJM requirements allocated to member
companies. ACE periodically files its capacity addition plans
with PJM which are intended to meet forecast capacity and reserve
obligations. ACE is also a party to the Mid-Atlantic Area
Coordination Agreement, which provides for coordinated planning
of generation and transmission facilities by the companies
included in PJM. Further coordination of short-term power supply
planning is provided by inter-area agreements with adjacent power
pools. PJM currently operates on the basis of reliability of
service and operating economy whereby generating units are
subject to central dispatch, from order of lowest operating cost
to highest cost.
In July 1996, ACE, together with other regional
mid-Atlantic utilities, filed with the FERC, a restructuring plan
designed to establish a new wholesale energy market. The plan
proposed to 1) create an independent system operator, a nonprofit
corporation with an independent board of directors, to manage the
PJM Power Pool's energy market and transmission operation; 2)
establish a spot-energy market open to any buyer or seller and
provide utilities, nonutility power generators and wholesale
energy brokers comparable pool-wide transmission service; 3)
provide for bilateral energy arrangements, and 4) allow
load-serving entities within the PJM control area to share
generating capacity reserves and provide mutual assistance during
emergencies. The restructuring plan was designed to meet the
FERC requirements of Order 888 to functionally unbundle
transmission services. PECO Energy Company (PE), also a member
of the PJM, filed a competing proposal to FERC. While both
proposals outlined the establishment of an ISO, there were a
number of differences between the proposals. FERC failed to
accept either proposal as filed, set a deadline of December 31,
1996 for resubmission of the filing and suggested that all
parties achieve consensus around certain issues concerning
reliability, savings to ratepayers, market access, etc. In
compliance with the FERC, ACE filed an interim proposal with PE
and other members of the PJM.
On February 28, 1997, FERC issued an order approving the
implementation of the restructuring proposed by the PJM
companies, on an interim basis, with an exception noted in the
area of congestion pricing. FERC plans to hold a technical
conference on the issue of congestion pricing. Implementation of
the interim guidelines is expected to occur by April 1, 1997. A
final proposal is to be submitted by May 31, 1997, which will
address remaining ISO issues and congestion pricing.
Power Purchases and Sales
ACE is currently purchasing 125 MW of capacity and energy
from PP&L coal-fired sources. By letter dated March 16, 1995,
the Company notified PP&L that this capacity and energy sales
agreement will be terminated effective March 1998. To replace
the PP&L arrangement, the Company has signed a letter of intent
with PECO Energy (PE) for the purchase of 125 MWs of capacity and
energy for the period beginning March 16, 1998 through May 31,
2000. A second agreement with PE, subject to the approval of the
BPU, arranges for the purchase of 175 MWs of capacity and energy
beginning in June 1999 through May 2009. ACE also has agreements
with certain other electric utilities for the purchase of short-
term generating capacity, energy and transmission capacity on an
as-needed basis, which are utilized to the extent they are
economic and available.
Bulk Power Marketing
As a result of the developing wholesale bulk power market,
in 1996, ACE applied to, and was approved by, the FERC to trade
wholesale electric power in the United States. In the course of
this business, ACE enters into commitments to buy and sell power.
At December 31, 1996, ACE has agreements to purchase from
unaffiliated companies energy associated with 1,740 MW of
capacity. At December 31, 1996, these purchases result in
commitments of approximately $11.4 million through 1997. The
duration of each of these contracts does not exceed three months.
Capacity Planning
The Electric Facilities Need Assessment Act (EFNAA) requires
public utilities in the State of New Jersey to obtain a
Certificate of Need (CON) prior to constructing any electric
power generating unit or combination of units at a single site
with a combined capacity of 100 MW or more of any electric
generating units added to an existing generating facility which
will increase its installed capacity by 25% or by more than 100
MW, whichever is smaller. In addition, New Jersey utilities are
required to comply with a stipulation of settlement approved by
the BPU in July 1988 the purpose of which is to procure future
capacity and energy from qualified cogeneration and small power
production facilities through an annual competitive bidding
process, based on a long-term capacity plan. The amount to be
bid upon is subject to BPU review and will be based upon such
factors as a utility's five year projected capacity needs and its
current generating capacity, service life extension plans for
existing units, new construction, power purchases and commitments
from other utilities and nonutility sources.
The stipulation of settlement referred to above was due to
expire on September 15, 1993. Similarly, the CON was
set to expire on January 30, 1994. Since no processes were in
place to replace the CON, the New Jersey Department of
Environmental Protection (NJDEP) readopted the legislation and
extended it through January 28, 1999. ACE, pursuant to the terms
of the July 1988 stipulation, filed data with the BPU in
September 1996 covering the 15 year period from 1996 through
2010. The filing indicated that ACE did not require additional
capacity until 2000 when the need would be met with combined
cycle units and/or power purchases.
The ongoing outage of the Salem units has reduced ACE's
installed generating capacity and has required ACE to secure
additional capacity, sufficient to meet PJM reserve requirements.
Assuming the return of the Salem units in 1997, ACE's installed
capacity and capacity purchase arrangements for 1997-1999 are
expected to be sufficient to supply its share of PJM reserve
requirements during that period. On an operational basis, ACE
expects to be able to continue to meet the demand for electricity
on its system through operation of available equipment and by
power purchases. However, if periods of unusual demand should
coincide with forced outages of equipment, ACE could find it
necessary at times to reduce or curtail load in order to
safeguard the continued operation of its system.
The BPU's Energy Master Plan, Draft Phase II report,
recommends that, concurrent with the transition to a competitive
retail electric marketplace, the EFNAA be repealed. In addition,
the Plan also suggests that in order to provide for an orderly
transition to a competitive market, the local distribution
utility should be assigned the responsibility of providing basic
generation service. This basic generation service will apply to
service for any customer 1) who has not notified the distribution
company of an alternative supplier and 2) who is dropped by its
alternative supplier for any reason, including non-payment. As
the 'provider of last resort', ACE will be required to draft a
basic generation service plan with greater uncertainty as to how
large this customer group will be. See Note 10 of the
accompanying Notes to Consolidated Financial Statements herein
for additional information.
<PAGE>
Nonutility Generation
Additional sources of capacity for use by ACE are made
available by nonutility sources, principally cogenerators. ACE
currently has four, BPU-approved power purchase agreements for
the purchase of capacity and energy from nonutility sources
under the standard offer methodology developed and approved by
the BPU in August 1987 and as previously discussed.
Project Fuel MW Date of
Location Type Provided Commercial Operation
Chester, solid
Pennsylvania waste 75 September 1991
Pedricktown,
New Jersey gas 116 March 1992
Carney's Point,
New Jersey coal 188 March 1994
Logan Township,
New Jersey coal 200 September 1994
Total 579
Amendments to the agreements between ACE and the sponsors
of the Logan and Pedricktown facilities have restructured ACE's
payment for capacity and energy reducing the energy component of
such payments. The amendment to the agreement between ACE and
the sponsors of the Pedricktown facility, which includes an
affiliate of ACE, also increased the available capacity of the
facility from 106 MW to 116 MW and returned the project's thermal
host to ACE as a retail customer effective November 1995.
<PAGE>
Nuclear Generating Station Developments
ACE is a joint owner of the Hope Creek and Salem Nuclear
Generating Stations, to the extent of 5% and 7.41%, respectively.
The Hope Creek Unit and Salem Units 1 and 2 are located
adjacent to each other in Salem County, New Jersey and are
operated by PS.
ACE is also a joint owner of 7.51% of Peach Bottom Units 2
and 3, which are located in York County, Pennsylvania and are
operated by PE. See Note 5 of AEI's Notes to Consolidated
Financial Statements for additional information relating to the
Company's investment in jointly-owned generating stations.
In 1996, nuclear generation provided 15% of ACE's total
energy output. The approximate capacity factors (based on
maximum dependable capacity ratings) for ACE's jointly-owned
units for 1995 and 1996 were as follows:
Unit 1996 1995
Salem Unit 1 0.0% 26.0%
Salem Unit 2 0.0% 20.8%
Peach Bottom Unit 2 79.8% 95.8%
Peach Bottom Unit 3 98.2% 88.2%
Hope Creek 74.6% 78.2%
See "Salem Station" below for additional information on operating
performance at Salem.
ACE has been advised that the Nuclear Regulatory Commission
(NRC) has raised concerns that the Thermo-Lag 330 fire barrier
systems used to protect cables and equipment at the Peach Bottom
Station may not provide the necessary level of fire protection
and has requested licensees to describe short- and long-term
measures being taken to address this concern. ACE has been
advised that PE has informed the NRC that it has taken short-term
corrective actions to address the inadequacies of the Thermo-Lag
barriers installed at Peach Bottom and is participating in an
industry-coordinated program to provide long-term corrective
solutions. By letter dated December 21, 1992, the NRC stated
that PE's interim actions were acceptable. PE has advised ACE
that PE has been in contact with the NRC regarding PE's long-term
measures to address Thermo-Lag fire barrier issues. In 1995, PE
completed its engineering re-analysis for Peach Bottom. The
re-analysis identified proposed modifications to be performed
over the next several years in order to implement the long-term
measures addressing the concern over Thermo-Lag use.
ACE has been advised that in 1990 General Electric Company
(GE) reported that crack indications were discovered near the
seam welds in the core shroud assembly in a GE boiling water
reactor (BWR) located outside the United States. As a result, GE
issued a letter requesting that the owners of GE BWR plants take
interim corrective actions, including a review of fabrication
records and visual examinations of accessible areas of the core
shroud seam welds. Both Peach Bottom Units 2 and 3 and Hope
Creek are affected by this issue and both PE and PS are
participating in the GE BWR Owners Group to evaluate this issue
and develop long-term corrective action. In June 1994, an
industry group was formed and subsequently established generic
inspection guidelines which were approved by the NRC. PE has
advised ACE that Peach Bottom 3 was last examined during its fall
1995 refueling outage and the extent of the cracking identified
was determined to be within industry-established guidelines. In
a letter to the NRC dated November 3, 1995, PE concluded that
there is a substantial margin for each core shroud weld to allow
for continued operation of Unit 3. PE has also advised ACE
that Peach Bottom 2 was reinspected during its 1996 refueling
outage. The examinations disclosed that while additional minor
flaw indications were discovered, PE concluded, and the NRC
concurred, that neither repair nor modification to the core
shroud was necessary prior to restarting the reactor. At the
Hope Creek Unit, PS advised ACE that during the spring 1994
refueling outage, PS inspected the shroud of Hope Creek in
accordance with GE's recommendations and found no cracks. PS
reports that due to the age and materials of the Hope Creek
shroud and the historical maintenance of low conductivity water
chemistry, Hope Creek has been placed in the lowest
susceptibility category under industry-established guidelines.
Hope Creek must undergo another shroud inspection during its next
refueling outage in 1997, or install a preemptive repair that
would maintain the structural integrity of the shroud under all
normal and design basis accident conditions for the remaining
life of the plant. ACE cannot predict what further action will
be taken with regard to these units or what long-term corrective
actions, if any, will be identified.
In a separate matter, PS has advised that as a result of
several BWRs experiencing clogging of some emergency core cooling
system suction strainers, which supply water from the suppression
pool for emergency cooling of the core and related structures,
the NRC issued a Bulletin in May 1996 to operators of BWRs
requesting that measure be taken to minimize the potential for
clogging. The NRC has proposed three resolution options, with a
request that actions be completed by the end of the unit's first
refueling outage after January 1997. Alternative resolution
options will be subject to NRC approval. PS has advised ACE that
PS has responded to the NRC, indicating its intention to comply
with the Bulletin, and expects to submit its planned actions and
schedules for Hope Creek after the NRC approves a utility
resolution guidance document. PE has advised ACE that large
capacity passive strainers will be installed at Peach Bottom
Units 2 and 3 during their next refueling outages in September
1998 and September 1997, respectively. ACE, PE or PS cannot
predict what actions, if any, the NRC may take in this matter.
PS has advised ACE that in October 1996, PS, along with
other nuclear plant owners, received a request for information
regarding the adequacy and availability of each plant's design
bases data. The NRC is requiring that information be submitted
under oath and affirmation to provide it added confidence and
assurance that all nuclear units are operated and maintained
within the design bases of the facilities and that any deviations
are reconciled in a timely manner. PS advised ACE that PS
responded to the NRC's request on February 11, 1997 with a
detailed description of ongoing activities and new initiatives to
ensure that Salem and Hope Creek are operated and maintained
within their design bases. Since the information which was
submitted will be used by the NRC to determine follow-up
inspection activity or potential enforcement actions, neither
ACE, nor PS, can predict at this time what impact the NRC's
request will have.
ACE has been advised by PS that in August 1996, the NRC
conducted an investigation of the Physical Security Program for
Salem and Hope Creek. Based on the results of that inspection,
apparent violations were identified. On December 11, 1996, PS
received a $100,000 civil penalty for two severity level III
violations. Three severity level IV violations were received with
no civil penalty. PS has advised ACE that PS will not dispute
these violations.
ACE has been advised that on December 11, 1996, PS received
a severity level II violation and an $80,000 civil penalty from
the NRC for apparent violations which occurred in 1993 and early
1994, involving alleged discrimination against two employees for
their engagement in protected activities in accordance with
federal regulations. PS has advised ACE that PS will not dispute
this violation.
As previously reported, PS, operator of the Salem and Hope
Creek Nuclear Generating Stations and PE, operator of the Peach
Bottom Atomic Power Station, announced on June 24, 1996 the
commissioning of a study to investigate competitive alternatives
to the current independent nuclear power plant operations of the
two companies. The goal of the study is to determine viable
alternatives to permit diversification of financial risks and
reduction of costs for both companies in order to increase
competitiveness. PE has advised that a preliminary draft of the
study indicates opportunities for risk diversification,
performance improvement and cost savings. PE indicates further
review will take place, the timing of which is unknown.
The periodic review and evaluation of nuclear generating
station licensees conducted by the NRC is known as the Systematic
Assessment of Licensee Performance (SALP). Under the revised
SALP process, ratings are assigned in four assessment areas,
reduced from seven assessment areas: Operations, Maintenance,
Engineering and Plant Support (the Plant Support area includes
security, emergency preparedness, radiological controls, fire
protection, chemistry and housekeeping). Ratings are assigned
from "1" to "3", with "1" being the highest and "3" being the
lowest.
Salem Station
ACE is a 7.41% owner of Salem Nuclear Generating Station
(Salem) operated by PS. Salem consists of two 1,106 MW
pressurized water nuclear reactors (PWR) representing 164 MWs of
ACE's total installed capacity of 2,385.7 MW.
The NRC's most recent SALP report for the Salem Station for
the period covering June 20, 1993 through November 5, 1994 was
issued on January 3, 1995. The NRC assigned ratings of "1" in
the functional area of Plant Support, "2" in the area of
Engineering and "3" in the areas of Operations and Maintenance.
Due to the current outage at Salem, described below, the end of
the current SALP period has not yet been determined.
As previously reported, Salem 1 and 2 have been out of
service since May 16, 1995 and June 7, 1995, respectively.
During these outages, ACE has been advised that PS has made
significant changes and improvements related to the people,
processes and equipment at Salem to improve the long-term
reliability of the units.
ACE has been advised by PS that Salem Unit 2 is in the final
stage of preparation for restart. The reactor has been refueled
and reassembled and the reactor coolant pumps have been tested
and placed in service. Over 90% of the total work activities
have been completed and approximately 80% of the plant systems
have been restored. The unit is scheduled to enter Mode 4 in
March 1997 which will allow additional testing to be performed in
preparation for start-up.
During the course of these outages, PS has also been
required to address certain generic issues applicable to nuclear
power plants, which have also affected the length of the outages.
ACE was advised by PS that a Generic Letter from the NRC
identified an issue that impacted the Salem Unit 2 startup
schedule. This Generic Letter (96-06) requested all nuclear
utilities, including PS, to review systems for potential
waterhammer events (hydrodynamic stress caused by steam formation
in a piping system) and the impact that these events could have
on the system's safety function. PS reported that in order to
address the concerns of Generic Letter 96-06, modifications were
necessary to the containment fan coil units of Salem Units 1 and
2, which provide containment air cooling. As a result of these
modifications and the time required for NRC acceptance of PS's
proposed resolution of these issues, PS reported that the
expected start-up of Salem Unit 2 will be in the second quarter
of 1997.
PS has advised ACE that Salem Unit 1 is now expected to
return to service in the Fall of 1997, after replacement of the
unit's four steam generators, which was required in order to
correct a generic problem with certain PWRs. All four of the
original generators have been removed from the containment
structure and two have been shipped offsite for disposal at the
Barnwell, South Carolina low-level radioactive waste burial
facility. The remaining two will be shipped offsite in the near
future. Installation of all four replacement steam generators is
scheduled to be complete in March 1997. Salem Unit 1 will also
require modifications similar to Salem Unit 2 to respond to
Generic Letter 96-06, but PS advises that such modifications are
not expected to further delay that unit's return to service.
On January 29, 1997, PS advised ACE that the NRC held a
public meeting and identified Salem Units 1 and 2 as Category 2
plants placed on the "NRC Watch List". In the press release, the
staff of the NRC announced that the decision to place the Salem
units on the Watch List was not based on any recent performance
problems or decline. In addition, the staff believes that
Salem's efforts to achieve needed improvements are correctly
targeted and that the NRC is satisfied with the licensee's
overall approach. However, the staff noted that Salem should
have been placed on the Watch List previously because of Salem's
past safety performance. The staff also indicated that the
agency increased its attention and resources at Salem
commensurate with a Watch List plant. The staff concluded that,
notwithstanding the improvements at Salem, it would not have been
removed from the Watch List at this time had it been previously
identified because it has yet to demonstrate a period of safe
performance at power. A Category 2 facility is a plant that is
authorized to operate but that the NRC will monitor closely. A
plant will remain in this category until the licensee either
demonstrates a period of improved performance, or until a further
deterioration of performance results in the plant being shutdown
until the licensee can demonstrate that adequate programs have
been established and implemented to ensure substantial
improvement.
Restart of the units is subject to completion of the
requirements of the restart plan to the satisfaction of PS and
the NRC, which encompasses a review and improvement of personnel,
process and equipment issues. On January 14, 1997, U.S. Senator
Joseph Biden of Delaware wrote to the NRC to request that the
full Commission vote on the decision to restart Salem, rather
than permit the NRC staff to authorize the restart under
applicable NRC rules. By letter to Senator Biden dated February
20, 1997, the NRC advised that it would not require a full
commission vote on Salem restart.
On February 27, 1996, the Salem co-owners filed a Complaint
in United States District Court for the District of New Jersey
against Westinghouse Electric Corporation, the designer and
manufacturer of the Salem steam generators, under state and
federal RICO statutes alleging fraud, negligent misrepresentation
and breach of contract. The Westinghouse complaint seeks
compensatory and punitive damages. Subsequently, Westinghouse
filed a counterclaim of $2.5 million for unpaid work. The
litigation is now in the process of discovery and investigation.
While ACE cannot predict the outcome of this litigation, the co-
owners are aggressively pursuing the claim.
ACE has been advised that on October 5, 1995, PS declared an
alert at Salem Unit 1. The event involved a problem with the
overhead annunciator panel in the Unit 1 control room. PS had
chartered a significant event response team (SERT) to investigate
the event, determine the root causes and suggest corrective
actions. Simultaneously, the NRC formed a special inspection
team to investigate the event during the period October 6 through
October 18. What actions the NRC might take, if any, cannot be
determined at this time. At the time of the event there was no
fuel in the reactor, no release of radiation and no danger to the
public or on-site personnel.
For information concerning 1) the BPU's 1996 investigation
into the ongoing Salem outage, 2) capital, operations and
maintenance costs associated with Salem Units 1 and 2, and 3) the
effects of the Salem outage on operations, see Notes 3 and 10 of
the Company's Consolidated Financial Statements and Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations, respectively.
Hope Creek Station
ACE is a 5% owner of Hope Creek Nuclear Generating Station
(Hope Creek) which is operated by PS. ACE has been advised that
Hope Creek completed its sixth refueling and maintenance outage
in March 1996.
PS advised ACE that on December 24, 1996, the NRC issued its
latest periodic SALP report for Hope Creek for the period between
April 23, 1995 to November 9, 1996. The NRC noted that overall
performance improved during the SALP period, after a significant
decline in performance that occurred early in the period.
Further, the NRC noted that PS's actions to address the areas of
concern, once identified, were comprehensive and generally
effective. Three areas, Operations, Maintenance and Engineering,
were each rated Category 2, as they had been in the previous SALP
rating. Improvements were noted in these areas with most of the
improvement in Operations and Maintenance occurring later in the
period. The fourth area, Plant Support, was also rated Category
2, a decline from the previous SALP rating due to problems
principally with security, radiation protection and emergency
preparedness implementation. Weaknesses in communication
contributed to performance issues across the organization.
Peach Bottom Station
ACE is a 7.51% owner of Peach Bottom Atomic Power Station
(Peach Bottom) operated by PE. ACE has been advised that PE
successfully completed a scheduled refueling and maintenance
outage in November 1996.
ACE has also been advised that on January 19, 1996, the NRC
issued its SALP report for the Peach Bottom Station for the
period covering May 1, 1994 through October 14, 1995. The NRC
assigned ratings of "1" in the functional areas of Plant
Operations, Maintenance and Plant Support. Engineering received
a rating of "2". The NRC found continued improvement in
performance during the period. Operator performance continued to
be a strength, as well as operations management oversight.
Effective engineering management actions to improve the overall
self-assessment and system performance were noted, as well as
good management oversight activities. Response to emerging
issues, equipment problems and event related issues were noted as
particularly strong. However, lapses in the quality of technical
work and in modification implementation indicated inconsistent
performance, and resulted in a repeat rating of "2" for the
Engineering area. ACE has been advised that PE will be taking
actions to address weaknesses discussed in the SALP Report.
An NRC inspection of the implementation of the Peach Bottom
Maintenance Rule Program was conducted on August 5 through 9,
1996. During that inspection, an apparent violation of NRC
requirements was identified involving the failure to establish
adequate performance criteria for the determination of
appropriate preventive maintenance. An enforcement conference
was held on November 15, 1996 to discuss the apparent violation
and for PE to present its plan to respond to the associated
issues. On January 3, 1997, the NRC issue the violation,
exercising enforcement discretion by not assessing an associated
civil penalty.
During the subject routine NRC Resident Inspector's
inspection for the period of July 7 through September 7, 1996, an
apparent violation of NRC requirements was identified involving
inadequate engineering analysis of control circuitry and load
sequencing of the plant's emergency diesel generators. An
enforcement conference was held on December 11, 1996 to discuss
the issue and PE's response to it. On December 27, 1996, the NRC
issued one violation with no associated civil penalty.
Fuel Supply
ACE's sources of electrical energy (including power
purchases) for the years indicated are shown below:
Source 1996 1995 1994
Coal 28% 33% 29%
Nuclear 15% 19% 23%
Oil/Natural Gas 2% 3% 7%
Interchange and
Purchased Power 35% 21% 24%
Nonutility 20% 24% 17%
The prices of all types of fuels used by ACE for the
generation of electricity are subject to various factors, such as
world markets, labor unrest and actions by governmental
authorities, including allocations of fuel supplies, over which
ACE has no control.
Oil
Residual oil and distillate oil for ACE's wholly-owned
stations are furnished under two separate contracts with a major
fuel supplier. ACE has a contract for the supply of 1.0% sulfur
residual oil for both Deepwater and B. L. England Stations and
for distillate oil sufficient to supply ACE's combustion
turbines. Both contracts expire October 31, 1997. See
"Environmental Controls-Air" for information concerning the use
of particular fuels at B. L. England Station.
On December 31, 1996, the oil supply at Deepwater Station
was sufficient to operate Deepwater Unit 1 for 24 days, and the
supply at B. L. England Station was sufficient to operate Unit 3
for 42 days.
Coal
ACE has contracted with one supplier for the purchase of
2.6% sulfur coal for B. L. England Units 1 and 2 through April
30, 1999. On December 31, 1996, the coal inventory at the B. L.
England Station was sufficient to operate Units 1 and 2 for 60
days. See "Environmental Controls-Air" herein for additional
information relating to B.L. England Station.
ACE has contracted with one supplier for the purchase of
1.0% sulfur coal for Deepwater Unit 6/8 through June 30, 2001.
On December 31, 1996, the coal inventory at Deepwater Station was
sufficient to operate Unit 6/8 for 54 days.
The Keystone and Conemaugh Stations, in which ACE has joint
ownership interests of 2.47% and 3.83%, respectively, are mine-
mouth generating stations located in western Pennsylvania. The
owners of the Keystone Station have a contract through 2004,
providing for a portion of the annual bituminous coal
requirements of the Keystone Station. A combination of long and
short term contracts provide for the annual bituminous coal
requirements of the Conemaugh Station. To the extent that the
requirements of both plants are not covered by these contracts,
coal supplies are obtained from local suppliers. As of December
31, 1996, Keystone and Conemaugh had approximately a 24 day
supply and a 34 day supply of coal, respectively.
Gas
ACE is currently capable of firing natural gas in six
combustion turbine peaking units and in two conventional steam
turbine generating units. ACE has entered into a firm electric
service tariff with the local distribution company for the supply
of natural gas to its units. The tariff provides for the payment
of certain commodity and demand charges. Portions of the gas
supply are obtained from the spot market under short term
renewable gas supply and transportation contracts with various
producers/suppliers and pipelines.
Nuclear Fuel
As a joint-owner of the Peach Bottom, Salem and Hope Creek
generating units, ACE relies upon the respective operating
company for arrangements for nuclear fuel supply and management.
ACE is responsible for the costs thereof to the extent of its
particular ownership interest through an arrangement with a third
party. Generally, the supply of fuel for nuclear generating
units involves the mining and milling of uranium ore to uranium
concentrate, conversion of the uranium concentrate to uranium
hexafluoride, enrichment of uranium hexafluoride gas, conversion
of the enriched gas to fuel pellets and fabrication of fuel
assemblies. After spent fuel is removed from a nuclear
reactor, it is placed in temporary storage for cooling in a spent
fuel pool at the nuclear station site. Under the Nuclear Waste
Policy Act of 1982 (NWPA), the Federal government has a
contractual obligation for transportation and ultimate disposal
of the spent fuel. See Note 12 of the accompanying Notes to
Consolidated Financial Statements for financing arrangements for
nuclear fuel.
<PAGE>
ACE has been advised by PE, operator of the Peach Bottom
units, that it has contracts for uranium concentrates to fully
operate Peach Bottom Units 2 and 3 through 2002. ACE has been
advised by PS, operator for the Salem and Hope Creek Stations,
that it has arrangements which are expected to provide sufficient
uranium concentrates to meet the currently projected requirements
of the Salem and Hope Creek units fully through the year 2001
and, thereafter, 50% of the requirements through 2003. ACE has
been advised that neither PE, nor PS, anticipate any difficulties
in obtaining its requirements for uranium concentrates. PE
advises that its contracts for uranium concentrates will be
allocated to the Peach Bottom units, and other PE nuclear
facilities in which ACE has no ownership interest, on an
as-needed basis.
PE and PS report contracts for the following segments of the
nuclear fuel supply cycle with respect each of the joint-owned
units through the following years:
Nuclear Unit Conversion Enrichment Fabrication
Peach Bottom Unit 2 (1) (2) 1999
Peach Bottom Unit 3 (1) (2) 2000
Salem Unit 1 2001 (3) 2004
Salem Unit 2 2001 (3) 2005
Hope Creek 2001 (3) 2000
(1) 100% of conversion services for Peach Bottom through 2001 and
at least 60% of the conversion services requirements are covered
through 2002. PE does not anticipate any difficulty in obtaining
necessary conversion services for Peach Bottom.
(2) Contractual commitments for enrichment services for Peach
Bottom with the Unites State Enrichment Corporation represent
100% of the enrichment services through 2004. PE does not
anticipate any difficulty in obtaining necessary enrichment
services for Peach Bottom.
(3) Contractual commitments for 100% of enrichments requirements
through 1998, approximately 50% through 2002; and approximately
30% through 2004. PS does not anticipate difficulties in
obtaining necessary enrichment service for the Salem and Hope
Creek units.
There are no commercial facilities for the reprocessing of
nuclear fuel currently in operation in the United States, nor has
the NRC licensed any such facilities. PE currently stores all
spent nuclear fuel from its nuclear generating facilities in on-
site, spent-fuel storage pools. Spent-fuel racks at Peach Bottom
have storage capacity until 2000 for Unit 2 and 2001 for Unit 3.
Options for expansion of storage capacity at Peach bottom,
including rod consolidation, has been investigated. ACE has been
advised by PS that as a result of reracking the two spent-fuel
pools at Salem, the spent-fuel storage capability of Salem Units
1 and 2 is estimated to be 2008 and 2012, respectively. The Hope
Creek pool is also fully racked and it is conservatively expected
to provide storage capacity until 2006.
In conformity with the NWPA, PS and PECO, on behalf of the
co-owners of the Salem and Hope Creek, and Peach Bottom stations,
respectively, have entered into contracts with the U.S.
Department of Energy (DOE) for the disposal of spent nuclear fuel
from those stations. Under these contracts, the DOE is to take
title to the spent fuel at the site, then transport it and
provide for its permanent disposal at a cost to utilities based
on nuclear generation, subject to such escalation as may be
required to assure full cost recovery by the Federal government.
Under NWPA, the DOE was to begin accepting spent fuel for
permanent offsite storage no later than 1998, but it is possible
that such storage may be delayed indefinitely. ACE has been
advised that the DOE has stated that it would not be able to open
a permanent, high-level nuclear waste storage facility until
2015, at the earliest. In July 1996, the Circuit Court for the
District of Columbia decided that the DOE has a legal obligation
to begin to accept spent fuel in January 1998. The DOE chose not
to appeal this ruling. The U.S. Senate passed an amendment to
the NWPA that would have required the DOE to construct an interim
storage facility which would accept spent nuclear fuel from
utilities beginning in 1998 or soon thereafter. The U.S. House
of Representatives did not vote on the legislation. The bill has
been reintroduced for consideration in 1997. Although progress
is being made at the Yucca Mountain site and several communities
have expressed interest in providing a temporary storage site, it
is unknown when the temporary federal storage facilities or
permanent repository will become available. The DOE is exploring
options to address delays in the currently projected waste
acceptance schedules. The options under consideration include
offsetting a portion of the financial burden associated with the
costs of continued on-site storage of spent fuel after 1998.
Nuclear Decommissioning
The Energy Policy Act states, among other things, that
utilities with nuclear reactors must pay for the decommissioning
and decontamination of the DOE nuclear fuel enrichment
facilities. The total costs are estimated to be $150 million per
year for 15 years, of which ACE's share is estimated to be $8.5
million. The Act provides that these costs are to be recoverable
in the same manner as other fuel costs. ACE has recorded a
liability of $5.3 million and a related regulatory asset of $5.7
million for such costs at December 31, 1996. ACE made its first
payment related to this liability to the respective operating
companies in September 1993 and continues to make payments as
required. In ACE's 1993 LEC filing, the BPU approved a
stipulation of settlement which included, among other things, the
full LEC recovery of this and future assessments.
In January 1993, the BPU adopted N.J.A.C. 14:5A which was
designed to provide a mechanism for periodic review of the
estimated costs of decommissioning nuclear generating stations
owned by New Jersey electric utilities. The purpose of this
regulation is to insure that adequate funds are available to
assure completion of decommissioning activities at the cessation
of commercial operation. The regulation established
decommissioning trust fund reporting requirements for electric
utilities in order to provide the BPU with timely information for
its oversight of these funds. N.J.A.C. 14:5A-2.1 requires that
all New Jersey electric utilities file with the BPU a nuclear
decommissioning cost update by January 1, 1996 and every four
years thereafter.
On January 3, 1996, PS and ACE jointly filed with the BPU
its 1995 Nuclear Decommissioning Cost updates. ACE and PS
jointly filed NRC cost estimates for each of their five jointly-
owned nuclear units. These cost estimates are based on the NRC's
existing generic formula. ACE and PS do not believe that these
NRC generic estimates provide an accurate estimate of the cost of
decommissioning the nuclear units. Inclusion of these NRC
generic estimates should not be interpreted as a validation by
ACE and PS of the appropriateness of these estimates for
estimating the cost of decommissioning the nuclear units. ACE
and PS believe these costs are best estimated with periodic
site-specific studies. PS, on behalf of the co-owners of the
Salem, Hope Creek and Peach Bottom stations, has engaged an
independent engineer to develop this estimate. Site specific
studies have been performed and have been filed with the BPU for
review. Adjustments to funding amount may be required.
ACE is collecting through rates amounts to fund its share of
estimated future costs relating to the decommissioning of the
five nuclear units in which it has joint-ownership interests.
Funding to cover the future costs of decommissioning each of the
five nuclear units, as currently authorized by the BPU and
provided for in rates, is $6.4 million annually. See Note 10 -
Nuclear Plant Decommissioning and Other of the accompanying Notes
to Consolidated Financial Statements for information relating to
decommissioning of the five nuclear units in which ACE has an
ownership interest.
<PAGE>
Regulation
ACE is a public utility organized under the laws of New
Jersey and is subject to regulation as such by the BPU, among
others, which is also charged with the responsibility for energy
planning and coordination within the State of New Jersey. ACE is
also subject to regulation by the Pennsylvania Public Utility
Commission in limited respects concerning property and operations
in Pennsylvania. ACE is also subject, in certain respects, to
the jurisdiction of the FERC, and ACE maintains a system of
accounts in conformity with the Uniform System of Accounts
prescribed for public utilities and licensees subject to the
provisions of the Federal Power Act.
The construction of generating stations and the availability
of generating units for commercial operation are subject to the
receipt of necessary authorizations and permits from regulatory
agencies and governmental bodies. Standards as to environmental
suitability and operating safety are subject to change.
Litigation or legislation designed to delay or prevent
construction of generating facilities and to limit the use of
existing facilities may adversely affect the planned installation
and operation of such facilities. No assurance can be given that
necessary authorizations and permits will be received or
continued in effect, or that standards as to environmental
suitability or operating safety will not be changed in a manner
to adversely affect the Company, ACE or its operations.
Operation of nuclear generating units involves continuous
close regulation by the NRC. Such regulation involves testing,
evaluation and modification of all aspects of plant operation in
light of NRC safety and environmental requirements, and
continuous demonstration to the NRC that plant operations meet
applicable requirements. The NRC has the ultimate authority to
determine whether any nuclear generating plant may operate. In
addition, the Federal Emergency Management Agency has
responsibility for the review, in conjunction with the NRC, of
certain aspects of emergency planning relating to the operation
of nuclear plants.
As a by-product of nuclear operations, nuclear generating
units produce substantial amounts of low-level radioactive waste
(LLRW). Such waste is presently accumulated on-site and
permanently disposed of at a federally licensed disposal
facility. ACE had been advised by both PE and PS that LLRW
generated at Peach Bottom, Salem and Hope Creek is shipped to the
site located in Barnwell, South Carolina for disposal. Due to
the uncertainty of the continued availability of LLRW disposal
sites, on-site storage facilities were constructed at Peach
Bottom with a five-year storage capacity. PS advises that it
also has an on-site LLRW storage facility at Salem also with a
five-year storage capacity.
PE has advised ACE that PE is pursuing alternative disposal
strategies for LLRW generated at Peach Bottom including an
aggressive LLRW reduction program. Pennsylvania is the host site
for LLRW generators located in Pennsylvania, Delaware, Maryland
an West Virginia and is pursuing a permanent disposal site
through a volunteer sitting process. PS has advised ACE that New
Jersey also plans to host a LLRW disposal site.
In March 1983, New Jersey enacted the Public Utility Fault
Determination Act which requires that the BPU make a
determination of fault with regard to any past or future accident
at any electric generating or transmission facility, prior to
granting a request by that utility for a rate increase to cover
accident-related costs in excess of $10 million. However, the
law allows the affected utility to file for non-accident related
rate increases during such fault determination hearings and to
recover contributions to federally mandated or voluntary cost-
sharing plans. The law further allows the BPU to authorize the
recovery of certain fault-related repair, cleanup, power
replacement or damage costs if substantiated by the evidence
presented and if authorized in writing by the BPU.
For information regarding the regulation of AEI's
subsidiary, ATS, refer to "Nonutility Subsidiaries" herein.
For information regarding ACE's nuclear power replacement
cost insurance and liability under the Federal Price-Anderson
Act, see Note 10 of AEI's Notes to Consolidated Financial
Statements, herein.
<PAGE>
Environmental Matters
General
ACE is subject to regulation with respect to air and water
quality and other environmental matters by various Federal, state
and local authorities. Emissions and discharges from ACE's
facilities are required to meet established criteria, and
numerous permits are required to construct new facilities and to
operate new and existing facilities. Additional regulations and
requirements are continually being developed by various
government agencies. The principal laws, regulations and
agencies relating to the protection of the environment which
affect ACE's operations are described below.
Construction projects and operations of ACE are affected by
the National Environmental Policy Act under which all Federal
agencies are required to give appropriate consideration to
environmental values in major Federal actions significantly
affecting the quality of the human environment.
The Federal Resource Conservation and Recovery Act of 1976
(RCRA) provides for the identification of hazardous waste and
includes standards and procedures that must be followed by all
persons that generate, transport, treat, store or dispose of
hazardous waste. ACE has filed notifications and plans with the
U. S. Environmental Protection Agency (EPA) relating to the
generation and treatment of hazardous waste at certain of its
facilities and generating stations.
The Federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA), as amended by
the Superfund Amendments and Reauthorization Act of 1986 (SARA),
and RCRA authorize the EPA to bring an enforcement action to
compel responsible parties to take investigative and/or cleanup
actions at any site that is determined to present an imminent and
substantial danger to the public or to the environment because of
an actual or threatened release of one or more hazardous
substances. The New Jersey Spill Compensation and Control Act
(Spill Act) provides similar authority to the NJDEP. Because of
the nature of ACE's business, including the production of
electricity, various by-products and substances are produced
and/or handled which are classified as hazardous under the above
laws. ACE generally provides for the disposal and/or processing
of such substances through licensed independent contractors.
However, the statutory provisions may impose joint and several
responsibility without regard to fault on the generators of
hazardous substances for certain investigative and/or cleanup
costs at the site where these substances were disposed and/or
processed. Generally, actions directed at funding such site
investigations and/or cleanups include all known allegedly
responsible parties.
ACE has received requests for information under CERCLA with
respect to certain sites. One site, a sanitary landfill
comprising approximately 40 acres, is situated in Atlantic
County, New Jersey. ACE received a Directive, dated November 7,
1991, from the NJDEP, identifying ACE as one of a number of
parties allegedly responsible for the placement of certain
hazardous substances, namely, flyash which had been approved as
landfill material. An Administrative Consent Order (ACO) has
been executed and submitted to the NJDEP by ACE and at least four
other identified responsible parties. Site remediation will
include a soil cover of the site. ACE has joined with three
other parties and will cooperate in implementing the terms of the
ACO. Approximately eight additional responsible parties have
also been identified by the NJDEP. ACE, together with the other
signatories to the ACO, will pursue recovery against those
persons who may also pursue recovery against other responsible
parties not named in the NJDEP Directive. ACE's contribution to-
date for the remediation and clean-up of the Atlantic County site
has been approximately $300,000. It is not anticipated that
future contributions, if any, will be significant.
ACE has been served a Summons and Complaint dated June 30,
1992 in a civil action brought pursuant to Section 107(a) of
CERCLA on behalf of the EPA. ACE has been named as one of
several defendants in connection with the recovery of costs
incurred, and to be incurred, in response to the alleged release
of hazardous substances located in Gloucester County, New Jersey.
Approximately 70 separate financially solvent entities have been
identified as having responsibility for remediation which is now
predicted to be in excess of $175 million. Sufficient discovery
has been conducted to establish that ACE's contribution to the
clean-up and remediation activity will be within the lower tiers
of financial participation. Notwithstanding the joint and
several liability imposed by law, primary responsibility will be
apportioned among others, including Federal and state agencies
and private parties. ACE's contribution to-date for the
remediation and clean-up of the Gloucester County site has been
$105,000. It is not anticipated that future contributions, if
any, will be significant.
The New Jersey Environmental Clean-up Responsibility Act was
supplemented and amended in June 1993 and became the New Jersey
Industrial Site Recovery Act. The act provides, among other
things, that any business having certain Standard Industrial
Classification Code numbers that generates, uses, transports,
manufactures, refines, treats, stores, handles or disposes of
hazardous substances or hazardous wastes is subject to the
requirements of the act upon the closing of operations or a
transfer of ownership or operations. As a precondition to such
termination or transfer of ownership or operations, the approval
of the NJDEP of a negative declaration, a remedial action work
plan or a remediation agreement and the establishment of the
remediation funding source is required.
Various state and Federal legislation has established a
comprehensive program for the disclosure of information about
hazardous substances in the workplace and the community, and
provided a procedure whereby workers and residents can gain
access to this information. Implementing the regulations
provides for extensive recordkeeping, labeling and training to be
accomplished by each employer responsible for the handling of
hazardous substances. ACE has implemented the requirements of
this legislation to achieve substantial compliance with
appropriate schedules.
ACE is also subject to the Wetlands Act of 1970, which
requires applications to and permits from the NJDEP for
conducting regulated activities (including construction and
excavation) within the "coastal wetlands," as defined therein.
Legislation enacted in 1987 by the State of New Jersey designates
certain areas as fresh water wetlands and restricts development
in those areas.
The New Jersey Coastal Area Facility Review Act (CAFRA)
requires applications to and permits from the NJDEP for
construction of certain types of facilities within the "coastal
area" as defined by CAFRA. Recent amendments to the CAFRA
regulations expanded the area under CAFRA control as well as the
types of developments subject to CAFRA. The current regulations
provide exemptions for the maintenance and repair of existing
electrical substations, but are not clear as to whether a CAFRA
permit would be required for construction, maintenance and/or
repair of transmission lines within the CAFRA area.
Public concern continues over the health effects from
exposure to electric and magnetic fields (EMF). To date, there
are not conclusive scientific studies to support such concerns.
The New Jersey Commission on Radiation Protection (CORP) is
considering promulgation of regulations which would authorize the
NJDEP to review all new power line projects of 100 kilovolts or
more. While the promulgation of such regulations may affect the
design and location of ACE's existing and future electric power
lines and facilities and the cost thereof, current discussions
with CORP indicate that such regulations would not significantly
impact ACE's operations. ACE's program of Prudent Field
Management implements reasonable measures, at modest cost, to
limit magnetic field levels in the design and location of new
facilities. Such amounts as may be necessary to comply with any
new EMF rules cannot be determined at this time and are not
included in ACE's 1997-1999 estimated construction expenditures.
<PAGE>
Air
The Federal Clean Air Act, as amended, requires that all
states achieve specified primary ambient air quality standards
(relating to public health) by December 31, 1982 unless the
deadline is extended for certain pollutants for a particular
state by appropriate action taken by the EPA, and also requires
that states achieve secondary ambient air quality standards
(relating to public welfare) under the Clean Air Act within a
reasonable time. The Clean Air Act also requires the
Administrator of the EPA to promulgate revised new source
performance standards for sulfur dioxide, particulates and
nitrogen dioxide, mandate the use of the "best technological
system of continuous emission reduction" and preclude the use of
low sulfur coal as a sole means of achieving compliance with
sulfur regulations for new power plants. The Clean Air Act
Amendments (CAAA), which provide for penalties in the event of
noncompliance, further provide that State Implementation Plans
(SIP) contain emission limitations and such other measures as may
be necessary, as determined under regulations promulgated by the
EPA, to prevent "significant deterioration" of air quality based
on regional non-degradation classifications.
The NJDEP is using the New Jersey Administrative Code, Title
7, Chapter 27 (NJAC 7:27) as its SIP to achieve compliance with
the national ambient air quality standards adopted by EPA under
the Clean Air Act. NJAC 7:27 currently provides ambient air
quality standards and emission limitations, all of which have EPA
approval, for seven pollutants, including sulfur dioxide and
particulates. ACE believes that all of its fossil fuel-fired
generating units are, in all substantial respects, currently
operating in compliance with NJAC 7:27 and the EPA approved SIP.
In November 1990, the CAAA was enacted to provide for
further restrictions and limitations on sulfur dioxide and other
emission sources as a means to reduce acid deposition. Phase I
of the legislation mandated compliance with the sulfur dioxide
reduction provisions of the legislation by January 1, 1995 by
utility power plants emitting sulfur dioxide at a rate of above
2.5 pounds per million BTU. Plants utilizing certain control
technologies to meet the Phase I sulfur dioxide reductions could
be permitted, subject to EPA approval, to either postpone
compliance until 1997 or receive an early reduction bonus
allowance for reductions achieved between 1995 and 1997. Phase
II of the legislation requires controls by January 1, 2000 on
plants emitting sulfur dioxide at a rate above 1.2 pounds per
million BTU.
ACE's wholly-owned B. L. England Units 1 and 2 and its
jointly-owned Conemaugh Units 1 and 2, in which ACE has a 3.83%
ownership interest, were affected by Phase I, and all of ACE's
other fossil-fueled steam generating units are affected by Phase
II. The Keystone Station, in which ACE has a 2.47% ownership
interest, is impacted by the sulfur dioxide provisions of Title
IV of the CAAA during Phase II. In addition, all of ACE's
fossil-fueled steam generating units will be affected by the
nitrogen oxide provisions of the CAAA.
A portion of the capital costs necessary to continue
compliance with the CAAA are included in ACE's current estimate
of construction expenditures shown under "Construction and
Financing" above. ACE expects that costs associated with
compliance would be recoverable through rates, and may be offset,
in part, by utilization of certain allowances as permitted by the
CAAA.
The CAAA requires that reductions in nitrogen oxide (NOx) be
made from the emissions of major contributing sources and each
state must impose reasonable available control technologies on
these major sources. NJDEP regulations adopted in November 1993
require that a compliance plan be filed with the NJDEP. ACE's
compliance plan, filed April 22, 1994, and subsequent amendments,
have been accepted by the NJDEP. Preliminary capital
expenditures are estimated at $8.5 million over the next five
years to achieve compliance with Phase II NOx reductions. The
necessary emission reductions are based on modeling results and
regulatory agency discussions and could result in additional
changes to equipment and in methods of operation and fuel, the
extent of which has not been fully determined.
On April 26, 1991, the NJDEP renewed ACE's expiring
Certificates to Operate Control Apparatus or Equipment for the
three generating units at B.L. England Station for a period of
five years, expiring April 26, 1995. The NJDEP issued the permit
renewal in June 1996. The CAAA Title V operating permit,
becoming effective in 1997, will supersede the current permitting
requirements.
On January 23, 1997, the EPA issued Compliance Order 113-97-
001 (Order) for failure to comply with emission monitoring
requirements on a combustion turbine unit at the Sherman Avenue
Generating Station. The Order carries a potential penalty of
$25,000 a day, retroactive to May 30, 1991. ACE has installed
and continues to modify the necessary emissions monitoring
equipment satisfying the EPA's request for compliance plans. ACE
cannot predict the outcome of this matter.
Water
The Federal Water Pollution Control Act, as amended (the
Clean Water Act) provides for the imposition of effluent
limitations to regulate the discharge of pollutants, including
heat, into the waters of the United States. The Clean Water Act
also requires that cooling water intake structures be designed to
minimize adverse environmental impact. Under the Clean Water
Act, compliance with applicable effluent limitations is to be
achieved by a National Pollution Discharge Elimination System
(NPDES) permit program to be administered by the EPA or by the
state involved if such state establishes a permit program and
water quality standards satisfactory to the EPA. Having
previously adopted the New Jersey Pollution Discharge Elimination
System (NJPDES), NJDEP assumed authority to operate the NJPDES
permit program. During 1981, ACE received NJPDES permits for
discharges to surface waters for all facilities with existing
EPA-issued NPDES permits. During 1986, ACE received draft
renewal permits for both B.L.England Station and Deepwater
Station for discharges to surface waters as well as groundwater.
Most of the contested conditions were resolved with the NJDEP
with the issuance of the NJPDES permit renewal effective January
1, 1995. There are no other outstanding issues relative to this
permit for B.L.England station.
Effective December 2, 1974, the NJDEP adopted new surface
water quality standards which, in part, provide guidelines for
heat dissipation from any source and which become standards for
subsequent Federal permits. These NJDEP guidelines were included
in the final EPA permits issued for the B. L. England, Deepwater,
Salem, and Hope Creek stations. On receipt of the permits for B.
L. England and Deepwater stations, ACE filed with the EPA a
request for alternative thermal limitations (variance) in
accordance with the provisions of Section 316(a) of the Act. The
NJDEP and EPA have subsequently determined that B. L. England
Units 1 and 2 are in compliance with applicable thermal water
quality standards. The request for a Section 316(a) variance for
Deepwater Station has not yet been acted upon and ACE is
currently awaiting a draft of the new NJPDES permit. ACE is not
able
at this time to predict the outcome of the request, but it
believes that it has adequately supported the request for such
variance. ACE believes that all of its wholly-owned steam
electric generating units are, in all substantial respects,
currently operating in compliance with all applicable standards
and NJPDES permit limitations, except as described herein above.
All current surface water discharge permits for B.L. England have
been renewed as of January 1, 1995 and ACE has filed for renewal
of the ground water discharge permits for B. L. England and
surface water discharge permits for Deepwater.
The Delaware River Basin Commission (DRBC) has required
various electric utilities, as a condition of being permitted to
withdraw water from the Delaware River for use in connection with
the operation of certain electric generating stations, to provide
for a means of replacing water withdrawn from the river during
certain periods of low river flow. Such a requirement presently
applies to the Salem and Hope Creek Stations. As a result of
such requirement, ACE and certain other electric utilities
constructed the Merrill Creek Reservoir Project. ACE owns a 4.8%
ownership interest in the reservoir project. Although ACE
expects that sufficient replacement water would be provided by
Merrill Creek during periods of low river flow to permit the full
operation of Salem and Hope Creek, such events cannot be assured.
Environmental control technology, generally, is in the
process of further development and the implementation of such may
require, in many instances, balancing of the needs for additional
quantities of energy in future years and the need to protect the
environment. As a result, ACE cannot estimate the precise effect
of existing and potential regulations and legislation upon any of
its existing and proposed facilities and operations, or the
additional costs of such regulations. ACE's capital expenditures
related to compliance with environmental requirements in 1996
amounted to $18 million, and its most recent estimate for such
compliance for the years 1997-1999 is $30 million. Such
estimates do not include amounts which ACE may be required to
expend to comply with Phase II requirements of the CAAA at B.L.
England Unit 1 and Keystone Station or the normal costs of
compliance with radiation protection. Such additional costs
which ACE may incur in affecting compliance with potential
regulations and legislation are not included in the estimated
construction costs for the period 1997-1999 (see "Construction
and Financing"). Future regulatory and legislative developments
may require ACE to further modify, supplement or replace
equipment and facilities, and may delay or impede the
construction and operation of new facilities, at costs which
could be substantial. See Note 10 of the accompanying Notes to
Consolidated Financial Statements for further information.
<PAGE>
Executive Officers
Information concerning the Executive Officers of the Company
and ACE, as of December 31, 1996, is set forth below. Executive
Officers are elected by the respective Boards of Directors of the
Company and ACE and may be removed from office at any time by a
vote of a majority of all the Directors in office.
Name (age) Title(s) (effective date of
election to current position(s)
Jerrold L. Jacobs (57) Chairman and Chief Executive Officer
of the Company (7/1/96) and Chairman
and Chief Executive Officer of ACE
(4/27/96).
Michael J. Chesser (48) President and Chief Operating Officer
of the Company (7/1/96) and
President and Chief Operating Officer
of ACE (4/27/95). Director of ACE.
Michael J. Barron (47) Vice President and Chief Financial
Officer of the Company and Senior
Vice President and Chief Financial
Officer of ACE (9/15/95). Director of
ACE.
Frank E. DiCola (49) Vice President, Thermal Systems &
Enerval (10/10/96).
Robert H. Fiedler (50) Acting Vice President-Distribution
of ACE (10/10/96).
James E. Franklin II (50) Vice President, Secretary and General
Counsel to the Company (4//26/95)and
Senior Vice President, Secretary and
General Counsel of ACE (4/27/95).
Director of ACE.
Meredith I. Vice President-Power System of the
Harlacher, Jr.(54) Company(4/26/95) and Senior Vice
President-Power System of ACE
(4/3/95), Director of ACE.
Ernest L. Jolly (44) Vice President-Energy Supply for the
Company and Acting Senior Vice
President-Energy Supply of ACE
(10/10/96).
Henry K. Levari, Jr. (48) Vice President-External Affairs of
the Company and Senior Vice
President-External Affairs of ACE
(11/13/95), Director of ACE.
J. David McCann (45) Vice President-Strategic Customer
Support of ACE (4/27/94).
Marilyn T. Powell (49) Vice President Marketing and
Distribution of the Company and
Senior Vice President-Marketing
and Distribution of ACE (10/10/96).
Director of ACE.<PAGE>
Scott B. Ungerer (38)
Vice President-Energy Technology
of the Company (10/10/96).
Louis M. Walters (44) Treasurer of the Company (4/26/95)
and Vice President-Treasurer and
Assistant Secretary of ACE (1/31/95).
Prior to election to the positions above, the following
officers held other positions with the Company and ACE (unless
otherwise noted) since January 1, 1992:
J.L. Jacobs Chairman and Chief Executive Officer of ACE
(4/26/95); President and Chief Executive
Officer of the Company (4/27/94);
Chairman, President and Chief Executive
Officer of ACE (4/28/93).
M.J. Chesser Senior Vice President of the Company
(4/26/95); President and Chief Operating
Officer of ACE (4/27/95);
Vice President of the Company (2/1/94);
Executive Vice President and Chief Operating
Officer of ACE (2/1/94);
Vice President-Marketing & Gas Operations,
Baltimore Gas & Electric Company
M.J. Barron Vice President and Treasurer of Maxus Energy
Corporation, Dallas, Texas.
J.E. Franklin II Secretary and General Counsel to the Company
and ACE (2/1/95); General Counsel to the
Company and ACE (10/1/94); Partner in the law
firm Megargee, Youngblood, Franklin &
Corcoran, P.A.
M.I. Harlacher, Jr. Vice President of the Company and Senior Vice
President-Energy Supply of ACE (4/28/93);
Senior Vice President-Utility Operations of
ACE (8/9/91).
R. H. Fiedler General Manager Customer Operations of ACE
(3/13/95); Manager Ocean Region of ACE
(11/1/93); Manager Customer Service &
Information of ACE (1/4/93); General Manager
Administration of ACE (9/7/92)
E.L. Jolly Vice President-Human Resources and
Transformation of the Company and ACE
(1/8/96); Vice President-Atlantic
Transformation of ACE (5/23/94); Vice
President-External Affairs of ACE (3/1/92).
H.K. Levari, Jr. Senior Vice President-Planning and External
Affairs of ACE (4/3/95);
Vice President- Planning & External Affairs
of the Company (4/26/95);
Vice President of the Company (4/27/94);
Senior Vice President-Customer Operations of
ACE (9/16/94); Senior Vice President-
Marketing & Customer Operations of ACE
(4/28/93). Senior Vice President-Planning
and Services of ACE (8/9/91).
J. D. McCann Vice President-Power Delivery of ACE
(8/9/91).
M.T. Powell Vice President-Marketing of the Company
and Senior Vice President-Marketing of ACE
(11/9/95); Vice President-Marketing of ACE
(9/16/94);
Director of marketing process, International
Business Machines Corporation.
S.B. Ungerer Vice President-Enterprise Activities of the
Company (4/26/95); Vice President of the
Company (1/17/94);
Manager, Business Planning Services (1/4/93);
Manager, Strategic Business Planning
(1/6/92).
L.M. Walters Treasurer and Acting Chief Financial Officer
(4/26/95); Vice President-Treasurer and
Secretary (4/28/94); Vice President-Treasurer
and Assistant Secretary (4/28/93);
General Manager, Treasury and Finance
(8/9/91). <PAGE>
ITEM 2 PROPERTIES
Under New Jersey law, the State of New Jersey owns in fee
simple for the benefit of the public schools all lands now or
formerly flowed by the tide up to the mean high-water line,
unless it has made a valid conveyance of its interests in such
property. In 1981, because of uncertainties raised as to
possible claims of State ownership, the New Jersey Constitution
was amended to provide that lands formerly tidal-flowed, but
which were not then tidal-flowed at any time for a period of 40
years, were not to be subject to State claim unless the State has
specifically defined and asserted a claim within one year period
ending November 2, 1982. As a result, the State published maps
of the eastern (Atlantic) coast of New Jersey depicting claims to
portions of many properties, including certain properties owned
by the Company. The Company believes it has good title to such
properties and will vigorously defend its title, or will obtain
such grants from the State as may ultimately be required. The
cost to acquire any such grants may be covered by title insurance
policies. Assuming that all of such State claims were determined
adversely to the Company, they would relate to land, which,
together with the improvements thereon, would amount to less than
1% of net utility plant. No maps depicting State Claims to
property owned by the Company on the western (Delaware River)
side of New Jersey were published within one year period mandated
by the Constitutional Amendment. Nevertheless, the Company
believes it has obtained all necessary grants from the State for
its improved properties along the Delaware River.
Reference is made to the Consolidated Financial Statements
for information regarding investment in such property by the
Company and ACE. Substantially all of ACE's electric plant is
subject to the lien of the Mortgage and Deed of Trust under which
First Mortgage Bonds of ACE are issued. Reference is made to
Item 1 - Business "General" and "Energy Requirements and Power
Supply" for information regarding ACE's properties. Information
concerning leases is set forth in Note 10 of AEI's Notes to
Consolidated Financial Statements incorporated herein by
reference. Information regarding electric generating stations is
set forth in Item 1, Business-"Energy Requirements and Power
Supply."
ITEM 3 LEGAL PROCEEDINGS
Reference is made to Item 1-Business and the Notes to
the Consolidated Financial Statements of the Company (Notes 3 and
10) for information regarding various pending administrative and
judicial proceedings involving rate and operating and
environmental matters, respectively.
<PAGE>
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of shareholders was held on January 30,
1997 to approve The Agreement and Plan of merger between AEI and
Delmarva. Shareholders voted to approve the merger as well as an
incentive compensation plan for the new company created by the
merger. See SEC Form 8-K dated January 31, 1997, which is
incorporated herein by reference.
PART II
ITEM 5 MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock is listed on the New York Stock
Exchange. All of ACE's Common Stock is owned by the Company. At
December 31, 1996, there were 48,825 holders of record of the
Company's Common Stock. The following table indicates the high
and low sale prices for the Company's Common Stock as reported in
the Wall Street Journal-Composite Transactions, and dividends
paid for the periods indicated:
Dividends
High Low per Share
Common Stock:
1996
First Quarter $20.000 $16.625 $ .385
Second Quarter $18.750 $16.000 $ .385
Third Quarter $18.500 $17.000 $ .385
Fourth Quarter $18.875 $17.000 $ .385
1995
First Quarter $19.000 $17.750 $ .385
Second Quarter $19.625 $17.875 $ .385
Third Quarter $19.875 $18.125 $ .385
Fourth Quarter $20.125 $19.000 $ .385
The funds required to enable the Company to pay dividends on
its Common Stock are derived primarily from the dividends paid by
ACE on its Common Stock, all of which is held by the Company.
Therefore the ability of the Company to pay dividends on its
Common Stock will be governed by the ability of ACE to pay
dividends on its Common Stock. The rate and timing of future
dividends of the Company will depend upon the earnings and
financial condition of the Company and its subsidiaries,
including ACE, and upon other factors affecting dividend policy
not presently determinable. ACE is subject to certain
limitations on the payment of dividends to the Company. Whenever
full dividends on Preferred Stock have been paid for all past
quarter-yearly periods, ACE may pay dividends on its Common Stock
from funds legally available for such purpose. Until all
cumulative dividends have been paid upon all series of Preferred
Stock and until certain required sinking fund redemptions of such
Preferred Stock have been made, no dividend or other distribution
may be paid or declared on the Common Stock of ACE and no Common
Stock of ACE shall be purchased or otherwise acquired for value
by ACE. In addition, as long as any Preferred Stock is
outstanding, ACE may not pay dividends or make other
distributions to the holder of its Common Stock if, after giving
effect to such payment or distribution, the capital of ACE
represented by its Common Stock, together with its surplus as
then stated on its books of account, shall in the aggregate, be
less than the involuntary liquidation value of the then
outstanding shares of Preferred Stock.
<PAGE>
ITEM 6 SELECTED FINANCIAL DATA
Selected financial data for the Company and ACE for each of
the last five years is listed below.
<TABLE>
<CAPTION>
Atlantic Energy, Inc.
1996 1995 1994 1993 1992
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Operating
Revenues $ 980,255 $ 953,137 $ 913,039 $ 865,675 $ 816,825
Net Income $ 58,767 $ 81,768 $ 76,113 $ 95,297 $ 86,210
Earnings per Average
Common Share $ 1.12 $ 1.55 $ 1.41 $ 1.80 $ 1.67
Total Assets
(Year-end) $2,670,762 $2,617,888 $2,542,385 $2,487,508 $2,219,338
Long Term Debt and
Redeemable Preferred
Stock (Year-end)(b) $1,051,945 $1,032,103 $ 940,788 $ 952,101 $ 842,236
Capital Lease
Obligations
(Year-end)(b) $ 39,914 $ 40,886 $ 42,030 $ 45,268 $ 49,303
Common Dividends
Declared $ 1.54 $ 1.54 $ 1.54 $ 1.535 $ 1.515
</TABLE>
<TABLE>
<CAPTION>
Atlantic City Electric Company
1996 1995 1994 1993 1992
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Operating
Revenues $ 982,492 $ 953,779 $ 913,226 $ 865,799 $ 816,931
Net Income $ 75,017 $ 98,752 $ 93,174 $ 109,026 $ 107,446
Earnings for Common
Shareholder (a) $ 65,113 $ 84,125 $ 76,458 $ 91,621 $ 89,634
Total Assets
(Year-end) $2,460,741 $2,459,104 $2,418,784 $2,363,584 $2,100,278
Long Term Debt and
Redeemable Preferred
Stock (Year-end)(b) $ 926,370 $ 951,603 $ 924,788 $ 937,101 $ 817,108
Capital Lease
Obligations
(Year-end)(b) $ 39,914 $ 40,877 $ 42,030 $ 45,268 $ 49,303
Common Dividends
Declared (a) $ 82,162 $ 81,239 $ 83,482 $ 81,347 $ 78,336
(a) Amounts shown as total, rather than on a per-share basis, since ACE is a
wholly-owned subsidiary of the Company.
(b) Includes current portion.
</TABLE>
<PAGE>
ITEM 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Summary
Consolidated operating revenues for 1996, 1995 and 1994 were
$980.3 million, $953.1 million and $913.0 million, respectively.
The increase in 1996 revenues over 1995 reflects an increase in
sales and an increase in annual Levelized Energy Clause (LEC)
revenues in July 1995 of $37 million and an increase in July 1996
of $27.6 million. These increases were offset in part by a $13.0
million revenue credit recorded in September 1996 as a result of
stipulation agreements (See Note 3 to the consolidated financial
statements) and a decrease in unbilled revenues. The increase in
1995 revenue over 1994 largely reflects the increase in annual
LEC revenues granted in July 1995 and an increase in unbilled
revenues.
Consolidated earnings per share for 1996 were $1.12 on net income
of $58.8 million compared to a $1.55 on net income of $81.8
million in 1995 and $1.41 on net income of $76.1 million in 1994.
The 1996 earnings reflect charges resulting from provisions for
rate refunds, write-downs of nonutility property, losses from
nonutility investments and higher operations and maintenance
expenses associated with the continuing outage at the Salem
Station. Excluding the 1994 special charges of $.37 cents per
share, 1995 earnings per share decreased from 1994 primarily due
to reduced sales of energy.
The quarterly dividend paid on Common Stock was $.385 per share,
or an annual rate of $1.54 per share. Information with respect
to Common Stock is as follows:
1996 1995 1994
Dividends Paid Per Share $ 1.54 $ 1.54 $ 1.54
Book Value Per Share $15.00 $15.42 $15.50
Annualized Dividend Yield 9.0% 8.0% 8.7%
Return on Average Common Equity 7.4% 9.9% 9.1%
Total Return (Dividends paid
plus change in share price) (3.0)% 18.0% (11.9)%
Market to Book Value 114% 125% 114%
Price/Earnings Ratio 15 12 13
Year End Closing Price-NYSE $17.13 $19.25 $17.63
<PAGE>
Liquidity and Capital Resources
Atlantic Energy, Inc.
Atlantic Energy, Inc. (AEI, Company or parent) is the parent of
Atlantic City Electric Company (ACE), Atlantic Energy
Enterprises, Inc. (AEE) and Atlantic Energy International, Inc.
(AEII) which are wholly-owned subsidiaries. The Company's cash
flows are dependent on the cash flows of its subsidiaries,
primarily ACE.
Principal cash inflows of the Company were as follows:
1996 1995 1994
(millions)
Dividends from ACE $82.2 $81.2 $83.5
Credit Facility 3.1 34.5 -
Dividend Reinvestment
and Stock Purchase Plan - - 6.7
AEI has a $75 million revolving credit and term loan facility.
The revolver is comprised of a 364-day senior revolving credit
facility in the amount of $35 million and a three-year senior
revolving credit facility in the amount of $40 million. Interest
rates are based on senior debt ratings and on the borrowing
option selected by the Company. As of December 31, 1996 and
1995, AEI had $37.6 million and $34.5 million outstanding,
respectively, from this credit facility. This facility can be
used to fund further reacquisitions of Company Common Stock and
for other general corporate purposes.
Principal cash outflows of the Company were as follows:
1996 1995 1994
(Millions)
Dividends to Shareholders $81.2 $81.2 $83.5
Advances and Capital
Contributions to Subsidiaries* (1.4) (6.7) 25.6
Common Stock Reacquisitions - 29.6 3.9
Loans to Subsidiaries (7.5) 7.5 -
* Net of repayments
The Company has a program to reacquire up to three million shares
of the Company's Common Stock outstanding. There is no schedule
or specific share price target associated with the
reacquisitions. The authorized number of shares is not to be
affected. During 1995, the Company reacquired and cancelled
1,625,000 shares for a total cost of $29.6 million with prices
ranging from $17.625 to $18.875 per share. At December 31, 1996
and 1995, the Company has reacquired and cancelled a total of
1,846,700 shares of its Common Stock at a cost of $33.5 million.
The Company did not reacquire and cancel any shares under this
program during 1996.
Miscellaneous Receivables on the Consolidated Balance Sheet at
December 31, 1996 increased compared to December 31, 1995
primarily due to receivables from amounts advanced to Enerval,
LLC to fund operations in the amount of $10.0 million.
Agreements between the Company and its subsidiaries provide for
allocation of tax liabilities and benefits generated by the
respective subsidiaries. Credit support agreements exist between
the Company and ATE and AGI.
On August 12, 1996, the Boards of Directors of AEI and Delmarva
Power & Light Company (DP&L) jointly announced an agreement to
merge the companies into a new company named Conectiv, Inc.
(Conectiv). Conectiv, a newly formed Delaware corporation, will
become the parent of Atlantic Energy's subsidiaries and the
parent of DP&L and its subsidiaries.
The merger is to be a tax-free, stock-for-stock transaction
accounted for as a purchase. Under the terms of the agreement,
DP&L shareholders will receive one share of Conectiv's common
stock for each share of DP&L common stock held. AEI shareholders
will receive 0.75 shares of Conectiv's common stock and 0.125
shares of Conectiv's Class A common stock for each share of AEI
common stock held. On January 30, 1997, the merger was approved
by the shareholders of both companies. In order for the merger
to become effective, approvals are still needed from a number of
Federal and state regulatory agencies. The Company expects the
regulatory approval process to be completed in late 1997 or early
1998.
The total consideration to be paid to the Company's common
stockholders, measured by the average daily closing market price
of the Company's common stock for the ten trading days following
public announcement of the merger, is $948.6 million. The
consideration paid plus estimated acquisition costs and
liabilities assumed in connection with the merger are expected to
exceed the net book value of the Company's net assets by
approximately $204.5 million, which will be recorded as goodwill
by Conectiv. The goodwill will be amortized over 40 years.
Atlantic City Electric Company
ACE is a public utility primarily engaged in the generation,
transmission, distribution and sale of electric energy. ACE's
service territory encompasses approximately 2,700 square miles
within the southern one-third of New Jersey with the majority of
customers being residential and commercial. ACE, with its
wholly-owned subsidiary that operates certain generating
facilities, is the principal subsidiary within the consolidated
group. Cash construction expenditures for 1994-1996 amounted to
$307.7 million and included expenditures for upgrades to existing
transmission and distribution facilities and compliance with
provisions of the Clean Air Act Amendments of 1990. ACE's
current estimate of cash construction expenditures for 1997-1999
is $283.5 million. These estimated expenditures reflect
necessary improvements to generation, transmission and distribu-
tion facilities.
On an interim basis, ACE finances construction costs and other
capital requirements in excess of internally generated funds
through the issuance of unsecured short term debt, consisting of
commercial paper and notes from banks. As of December 31, 1996,
ACE had authority to issue $150 million of short term debt,
comprised of $100 million of committed lines of credit and $50
million on a when offered basis. At December 31, 1996, ACE had
$85.1 million of unused short-term borrowing capacity. Permanent
financing by ACE is undertaken through the issuance of long term
debt and preferred stock, and from capital contributions by AEI.
ACE's nuclear fuel requirements associated with its jointly-owned
units have been financed through arrangements with a third party.
ACE also utilizes cash for mandatory redemptions of preferred
stock and maturities and redemption of long term debt. Optional
redemptions of securities are reviewed on an ongoing basis with a
view toward reducing the overall cost of capital. Redemptions of
Preferred Stock for the period were as follows:
Shares
1996 1995 1994 Redemption
Preferred Stock Price
(Series)
$8.53 120,000 $101.00
7.52% 100,000 101.88
$8.20 200,000 100.00
$8.25 50,000 104.45
$7.80 460,500 111.00
$8.53 240,000 240,000 100.00
$8.25 5,000 5,000 100.00
Aggregate Amount
(000) $98,876* $24,500 $24,500
*includes commissions and premiums
<PAGE>
Long term debt redeemed, acquired and retired or matured in the
period 1994-1996 were as follows:
Date Series Principal Redemption
Amount Price %
(000)
February 1996 5-1/8% due 1996 $ 9,980 100.00
February 1996 5-1/4% due 1996 2,267 100.00
October 1995 9-1/4% due 2019 53,857 105.15
October 1995 10-1/2% due 2014 850 101.00
November 1994 7-5/8% due 2005 6,500 100.00
June 1994 10-1/2% due 2014 23,150 102.00
Various 1994 Dates 9-1/4% due 2019 11,910 105.38*
* Average price
Scheduled maturities and sinking fund requirements for long term
debt and preferred stock aggregate $216.5 million for 1997-2001.
On or before April 1 of each year, ACE and other New Jersey
utilities are required to pay excise taxes to the State of New
Jersey. In March 1996, ACE paid $91.7 million funded through the
issuance of short term debt with repayment of such debt occurring
during the second and third quarters.
During 1996 and 1995, ACE made $7.2 million and $19.1 million,
respectively, in payments related to its workforce reduction
program. Payments in settlement of this obligation are
substantially complete.
Short term debt at December 31, 1996 increased $34.4 million
compared to December 31, 1996 due to funding of $12.3 million for
maturing long term debt and debentures and other general
corporate funding.
A summary of the issue and sale of ACE's long term debt and
preferred securities for 1994-1996 is as follows:
(millions) 1996 1995 1994
Medium Term Notes - $105 -
Pollution Control Bonds - - $55
Cumulative Quarterly Income
Preferred Securities $70 - -
The proceeds from these financings were used to refund higher
cost debt, preferred stock, and for construction purposes.
During 1997-1999, ACE may issue up to $175 million in long term
debt to be used for construction, refundings and repayment of
short term debt. The provisions of ACE's charter, mortgage and
debenture agreements can limit, in certain cases, the amount and
type of additional financing which may be used. At December 31,
1996, ACE estimates additional funding capacities of $346 million
of First Mortgage Bonds, or $333 million of preferred stock, or
$196 million of unsecured debt. These amounts are not
necessarily additive.
On October 1, 1996, Atlantic Capital I, a newly formed grantor
trust, issued $70 million of 8.25% Cumulative Quarterly Income
Preferred Securities (CQIPS) with a stated liquidation preference
of $25 each. Atlantic Capital I, established for the sole
purpose of issuing the CQIPS, invested the proceeds in 8.25%
Junior Subordinated Deferrable Interest Debentures (Junior
Debentures) of ACE. ACE reserves the right to defer payment of
interest on the debentures for up to 20 consecutive quarters.
During such a deferral period, certain dividend restrictions
would apply to ACE's capital stock. The CQIPS and Junior
Debentures are scheduled to mature on October 1, 2026, but such
maturity may be extended to a date not later than October 1,
2045, if certain conditions are met. Proceeds from the sale of
the Junior Debentures were used to fund the redemption and
purchase of shares of ACE's preferred stock described above.
Atlantic Capital I is a grantor trust of ACE and as such, the
transactions of the trust are consolidated into the financial
statements of ACE. The Junior Debentures are eliminated in
consolidation.
Atlantic Energy Enterprises, Inc.
AEE is a holding company which is responsible for the management
of the investments in the nonutility companies consisting of:
Atlantic Generation, Inc. (AGI); Atlantic Southern Properties,
Inc. (ASP); ATE Investment, Inc. (ATE); Atlantic Thermal Systems,
Inc. (ATS); CoastalComm, Inc. (CCI) and Atlantic Energy
Technology, Inc. (AET). Also, AEE has a 50% equity interest in
Enerval, LLC, a company which provides energy management
services, including natural gas supply, transportation and
marketing. As of December 31, 1996, AEE had an equity investment
of $3.9 million in the partnership. AEE obtains funds for its
investments and operating needs through advances from AEI and
notes payable from ATE. Management has developed a five-year
business strategy to expand operations and improve its financial
performance. AEE's business strategy reflects the potential
investment of approximately $307 million over the next five
years. Funds for AEE capital investments will be provided
through issuance of long term debt and equity investments by AEI.
<PAGE>
Atlantic Generation, Inc.
AGI and its wholly-owned subsidiaries are engaged in the
development, acquisition, ownership and operation of cogeneration
power projects. AGI's activities through its subsidiaries are
primarily represented by partnership interests in cogeneration
facilities located in New Jersey and New York. In December 1996
AGI recorded a loss contingency in the amount of $1.6 million,
net of tax, for the sale of its cogeneration facility in New
York. AGI, through a support agreement with AEI, has entered
into an indemnification agreement secured by a $6.0 million
letter of credit in connection with the sale of this facility.
All conditions of the sale are expected to be complete by the
middle of 1997. At December 31, 1996, total investments in these
partnerships amounted to $21.8 million. Net cash outlays for
capital investments by AGI for 1994-1996 totaled $3.2 million.
AGI obtained the funds for its investments through capital
contributions from AEI.
Atlantic Southern Properties, Inc.
ASP owns and manages a 280,000 square-foot commercial office and
warehouse facility located in Atlantic County, New Jersey with a
net book value of $8.5 million at December 31, 1996 after a
write-down of the carrying value in 1996 of $0.8 million, net of
tax. The write-down reflects the recognition of the diminished
value due to the excess vacancy and a decline in the local
commercial real estate market. This investment has been funded
by capital contributions from AEI and borrowings under a loan
agreement with ATE.
ATE Investment, Inc.
ATE provides financing to affiliates and manages a portfolio of
investments in leveraged leases. ATE has invested $79.7 million
in leveraged leases of three commercial aircraft and two
containerships. In August 1996, ATE joined with an unaffiliated
company to create EnerTech Capital Partners, L.P., an equity
limited partnership that will invest in and support a variety of
energy related technology growth companies. At December 31, 1996
ATE had invested $7.3 million in this partnership. ATE obtained
funds for its business activities and loans to affiliates through
capital contributions from AEI and external borrowings. These
borrowings include $15 million principal amount of 7.44% Senior
Notes due 1999 and a revolving credit and term loan facility of
up to $25 million. At December 31, 1996, $18.5 million was
outstanding under this facility. ATE's cash flows are provided
from lease rental receipts and realization of tax benefits
generated by the leveraged leases. ATE has notes receivable,
including interest, outstanding with ASP which totaled $10.0
million at December 31, 1996. ATE has established credit
arrangements with AEE, of which $14.1 million was a receivable,
including interest, from AEE at December 31, 1996.
Atlantic Thermal Systems, Inc.
ATS and its wholly-owned subsidiaries are engaged in the
development and operation of thermal heating and cooling systems.
ATS plans to make $125 million in capital expenditures related to
district heating and cooling systems to serve the business and
casino district in Atlantic City, New Jersey and has invested
$29.3 million as of December 31, 1996. Construction for the
Midtown Energy Center is expected to be completed by mid-1997.
ATS has obtained funds for its project development through a $100
million revolving credit agreement and term loan facility in
August 1996. As of December 31, 1996, $42 million was
outstanding under this facility. Additional funding for the
project is expected from $12.5 million from the proceeds of bonds
issued by the New Jersey Economic Development Authority with a
remarketed rate of interest of 3.5%. These funds are currently
restricted in trust and invested in U.S. Treasury Securities
pending resolution of certain conditions. ATS cannot estimate,
with any certainty, when or if the conditions attached to the
escrow release will be satisfied. ATS has a $10 million
revolving credit agreement with ATE. There were no outstanding
amounts under the agreement at December 31, 1996.
ATS has agreements with three casinos in Atlantic City, New
Jersey to operate their heating and cooling systems. As part of
these agreements, ATS has paid $18.0 million in license fees for
the right to operate and service such systems for a period of 20
years. These fees are recorded on the Consolidated Balance Sheet
as License Fees and are being amortized to expense over the life
of the contracts.
Atlantic Energy International, Inc.
In July 1996, AEI formed AEII, to provide utility consulting
services and equipment sales to international markets. AEII funds
its operating needs from advances from AEI.
RESULTS OF OPERATIONS
Operating results of AEI as a consolidated group are dependent
upon the performance of its subsidiaries, primarily ACE. Since
ACE is the principal subsidiary within the consolidated group,
the operating results presented in the Consolidated Statement of
Income are those of ACE, after elimination of transactions among
members of the consolidated group. Results of the nonutility
companies are reported in Other Income.
Revenues
Operating Revenues - Electric increased 2.9% and 4.4% in 1996 and
1995, respectively. Components of the overall changes are shown
as follows:
1996 1995
(millions)
Base Revenues $ (8.9) $(1.9)
Refund Credits (13.0) -
Levelized Energy Clause 29.3 49.2
Kilowatt-hour Sales 32.2 (10.0)
Unbilled Revenues (17.6) 16.6
Sales for Resale 6.0 (11.9)
Other (0.9) (1.9)
Total $ 27.1 $40.1
The decrease in Base Revenues for the current year reflect a
reduced average realization per kilowatt-hour sold resulting from
less favorable summer weather conditions relative to last year
and the effects of ACE's BPU approved Off-Tariff Rate Agreements
(OTRAs). OTRAs are special reduced rates offered by ACE to at-
risk customers which aggregated $3.5 million, or $2.2 million,
net of tax. At-risk customers are customers who may choose to
leave ACE's energy system because they have alternative energy
sources available. The Refund Credits are the result of the
October 22, 1996 stipulations for the $13.0 million settlement
concerning the outages of the Salem Units and the alleged
overrecovery of capacity costs from nonutility generation
facilities. See Note 3 of the consolidated financial statements
for further details regarding the stipulations.
LEC revenues increased in 1996 due to a rate increase of $27.6
million in July 1996 and a $37 million increase in July 1995.
Changes in kilowatt-hour sales are discussed under "Billed Sales
to Ultimate Utility Customers." Overall, the combined effects of
changes in rates charged to customers and kilowatt-hour sales
resulted in increases of 9.4% and 5.9% in revenues per
kilowatt-hour in 1996 and 1995, respectively. The changes in
Unbilled Revenues are a result of the amount of kilowatt-hours
consumed by, but not yet billed to, ultimate customers at the end
of the respective periods, which are affected by weather and
economic conditions, and the corresponding price per kilowatt-
hour.
The changes in Sales for Resale are a function of ACE's energy
mix strategy, which in turn is dependent upon ACE's needs for
energy, the energy needs of other utilities participating in the
regional power pool of which ACE is a member, and the sources and
prices of energy available. The increase in the 1996 Sales for
Resale reflects an increase in bulk power market sales outside of
the regional power pool. The decline in the 1995 Sales for
Resale reflects a decrease in the demand of the power pool, the
decline in market prices and a reduction in excess energy sources
when compared to the previous year.
Billed Sales to Ultimate Utility Customers
Changes in kilowatt-hour sales are generally due to changes in
the average number of customers and average customer use, which
is affected by economic and weather conditions. Energy sales
statistics, stated as percentage changes from the previous year,
are shown as follows:
1996 1995
Avg Avg# Avg Avg #
Customer Class Sales Use of Cust Sales Use of Cust
Residential 3.2% 2.4% 0.8% (2.0)% (3.1)% 1.2%
Commercial 3.0 2.0 1.0 1.4 (0.1) 1.5
Industrial 7.1 5.5 1.5 (7.4) (9.0) 1.7
Total 3.6 2.8 0.8 (1.4) (2.6) 1.2
In 1996, the growth rate of actual billed sales increased
significantly from 1995 due to an increase in the number of
billing days and more favorable weather conditions. Unfavorable
weather conditions in 1995 reduced sales significantly, compared
to the weather conditions in 1996. Sales growth was offset by
cooler than normal summer weather conditions in 1996. Casino
expansions and construction around Atlantic City, New Jersey were
significant contributors to commercial sales growth in 1996. The
increases in 1996 Industrial sales were primarily due to the
impact of two customers that had previously been supplied by an
independent power producer.
Costs and Expenses
Total Operating Expenses increased 5.4% and 3.6% in 1996 and
1995, respectively. Included in these expenses are the costs of
energy, purchased capacity, operations, maintenance, depreciation
and taxes.
Energy expense reflects costs incurred for energy needed to meet
load requirements, various energy supply sources used and
operation of the LEC. Changes in costs reflect the varying
availability of low-cost generation from ACE-owned and purchased
energy sources, and the corresponding unit prices of the energy
sources used, as well as changes in the needs of other utilities
participating in the Pennsylvania-New Jersey-Maryland
Interconnection Power Pool. The cost of energy is recovered from
customers primarily through the operation of the LEC. Generally,
earnings are not affected by energy costs because these costs are
adjusted to match the associated LEC revenues. However, ACE has
voluntarily foregone recovery of certain amounts of otherwise
recoverable fuel costs through its Southern New Jersey Economic
Initiative (SNJEI), thereby reducing earnings through May 1996,
as indicated below. Such reduced recoveries are discretionary by
ACE, and are influenced by competitive and economic factors. ACE
elected not to continue the SNJEI beyond May 1996. Otherwise, in
any period, the actual amount of LEC revenue recovered from
customers may be greater or less than the actual amount of energy
cost incurred in that period. Such respective overrecovery or
underrecovery of energy costs is recorded on the Consolidated
Balance Sheet as a liability or an asset as appropriate. Amounts
from the balance sheet are recognized in the Consolidated
Statement of Income within Energy expense during the period in
which they are subsequently recovered through the LEC. ACE was
underrecovered by $33.5 million and by $31.4 million at December
31, 1996 and 1995, respectively.
As a result of implementing the SNJEI, ACE has foregone the
recovery of energy costs in LEC rates in the amount of $10.0
million and $28.0 million for the 1995 and 1994 LEC periods,
respectively. After tax net income has been reduced by $2.7
million and $12.2 million due to the effects of the initiative
for 1996 and 1995, respectively.
Energy expense increased 16.3% in 1996 primarily due to the
changes in the LEC effective July 17, 1996, permitting ACE to
begin recovering over $35.3 million in previously deferred energy
costs. Energy expense decreased 9.1% in 1995 primarily due to
the increase in underrecovered fuel costs, offset in part by the
effects of the SNJEI referred to above. Production related
energy costs for 1996 increased 5.3% due to increased sales and
decreased 1.9% for 1995 due to reduced generation.
Purchased Capacity expense reflects entitlement to generating
capacity owned by others. Purchased Capacity expense increased
2.7% and 45.6% in 1996 and 1995, respectively. The increases
reflect additional contract capacity supplied by nonutility power
producers in each year.
Operations expense increased in 1996 by 3.1% and decreased in
1995 by 2.8%. The 1996 increase reflects additional costs
associated with Salem Station restart activities offset in part
by a credit of the estimated 1995 Nuclear Performance Penalty.
The 1995 decrease reflected the benefits of ACE's employee
separation programs, offset in part by the aforementioned costs
associated with Salem Station.
Maintenance expense increased 29.2% in 1996 as a result of
additional costs associated with Salem Station restart activities
and increased maintenance initiatives. The 1995 decrease of 8.5%
was due to cost saving measures employed by ACE.
State Excise Taxes expense increased 5.9% in 1995 due to an
increase in the tax base used to calculate the tax in comparison
to the 1994 tax base.
Federal Income Taxes decreased 29.7% in 1996 and increased 37.9%
in 1995 as a result of the level of taxable income during those
periods.
Other-Net within Other Income (Expense) decreased in 1996 due to
the net after-tax impacts of the write-down of the carrying value
of ASP's commercial property of $0.8 million, the contingency
loss for the sale of Binghamton Cogeneration facility of $1.6
million, reduced nonutility earnings and increased income taxes
related to other income. Also included is a loss of $1.1 million
after-tax from AEE's investment in Enerval, LLC due to a
combination of unhedged gas sales agreements and higher spot
market prices for gas.
Interest on Long Term Debt increased 5.2% in 1995 due to
increased amounts of debt outstanding during the year. Other
Interest expense increased 88.9% in 1996 and 128.9% in 1995 due
primarily to increased short-term debt borrowings.
Preferred Securities Dividend Requirements decreased 22.5% and
12.5% in 1996 and 1995, respectively, as a result of mandatory
and optional redemptions.
Salem Nuclear Generating Station
ACE is an owner of 7.41% of Salem Units 1 and 2, which are
operated by Public Service Electric & Gas Co. (PS). Salem Units
1 and 2 have been out of service since May 16, 1995 and June 7,
1995, respectively. The Salem units represent 164 megawatts (MWs)
of ACE's total installed capacity of 2,385.7 MWs.
During these outages, PS has made significant changes and
improvements related to the people, processes and equipment at
Salem to improve the long-term reliability of the units. Salem
Unit 2 is in the final stages of preparation for restart. The
reactor has been refueled and reassembled and the reactor coolant
pumps have been tested and placed in service. Over 90% of the
total work activities have been completed and approximately 80%
of the plant systems have been restored. Salem Unit 2 is
currently expected to return to service in the second quarter of
1997.
Salem Unit 1 is currently expected to return to service in the
fall of 1997, after replacement of the unit's four steam
generators, which was required in order to correct a generic
problem with certain pressurized water reactors. Removal of the
old steam generators has been completed and installation of the
new steam generators is underway. The estimated cost of
purchasing and installing the steam generators is between $150
million and $170 million, of which ACE's share is between $11.1
million and $12.6 million. In addition, the cost of the disposal
of the old steam generators could be as much as $20 million, of
which ACE's share would be $1.5 million.
Effective December 31, 1996, ACE entered into a Stipulation
Agreement (Agreement) with PS for the purpose of limiting ACE's
exposure to Salem's 1997 operation and maintenance (O&M)
expenses. Pursuant to the terms of the Agreement, ACE will pay
to PS $10.0 million of O&M expense as a fixed charge payable in
twelve equal installments beginning February 1, 1997. ACE's
obligation for any additional contribution to 1997 Salem O&M
expenses, of which ACE's estimated share would be $21.8 million,
is based on performance and directly related to the timely return
and operation of Salem Units 1 and 2. To the extent ACE derives
a savings against 1997 O&M expenditures, those savings will
offset replacement power costs incurred due to the unavailability
of the Salem Units. As a result of this Agreement, ACE has
agreed to dismiss the complaint filed in the Superior Court of
New Jersey in March 1996 alleging negligence and breach of
contract.
On February 27, 1996, the Salem co-owners filed a Complaint in
United States District Court for the District of New Jersey
against Westinghouse Electric Corporation, the designer and
manufacturer of the Salem steam generators, under Federal and
state statutes alleging fraud, negligent misrepresentation and
breach of contract. The Westinghouse complaint seeks
compensatory and punitive damages. On April 30, 1996,
Westinghouse filed an answer and a counterclaim of $2.5 million
for unpaid work. The litigation is in the process of discovery
and investigation.
ACE is subject to a performance standard for its five jointly-
owned nuclear units. This standard is used by the BPU in
determining recovery of replacement energy costs when output from
the nuclear units is reduced or not available. Underperformance
results in penalties which are not permitted to be recovered from
customers and are charged against income. In accordance with the
standard, ACE anticipated that it would incur a nuclear
performance penalty for 1995 and had recorded a provision for
such. According to the Salem outage stipulation agreement as
previously discussed in Note 3, the performances of Salem Units 1
and 2 are not included in the calculation of a nuclear
performance penalty for the period each unit was taken out of
service up to each unit's respective return-to-service date. The
parties to the stipulation agreed that for the years 1995 and
1996, there will be no penalty or reward under the nuclear
performance standard. ACE had recorded a 1995 performance
penalty of $0.8 million, net of tax. This amount has been
incorporated into the net amount recorded for the Salem
stipulation as discussed in Note 3 to the Consolidated Financial
Statements.
The outage of each Salem unit causes ACE to incur replacement
power costs of approximately $0.7 million per unit per month.
ACE's replacement power costs for the current outage for each
unit, up to the agreed upon return-to-service dates, will be
recoverable in rates in ACE's next LEC proceeding. As discussed
above, replacement power costs incurred after the respective
agreed upon return-to-service dates for the Salem Units will not
be recoverable in rates.
Competition
Competition is expected to increase for electric energy markets
historically served exclusively by regulated utilities. In
recent years, changing laws and governmental regulations
permitting competition from other utilities and nonregulated
energy suppliers have prompted some customers to use self-
generation or alternative sources to meet their electric needs.
As the electric utility industry transitions from a regulated to
a competitive industry, utilities may not be able to recover
certain costs. These costs, which are known as "stranded" costs,
could result from the shift from cost of service based pricing to
market-based pricing and from customers choosing different energy
suppliers than ACE. Potential types of stranded costs include 1)
above-market costs associated with generation facilities or long
term power purchase agreements and 2) regulatory assets, which
are expenses deferred and expected to be recovered from customers
in the future.
In April 1996, the Federal Energy Regulatory Commission issued
Order No. 888 "Promoting Wholesale Competition Through Open
Access Non-Discriminatory Transmission Service by Public
Utilities; Recovery of Stranded Costs by Public Utilities and
Transmitting Utilities". The Order is designed to remove
impediments to competition in the wholesale bulk power
marketplace, to bring more efficient, lower cost power to
electricity consumers, and provide an equitable means to
transition the industry to the new environment. Under this
Order, utilities are required to offer transmission services for
wholesale energy transactions to others on a nondiscriminatory
basis. Tariffs have been established by ACE for these services,
which ACE must also apply to its own wholesale energy
transactions.
On January 16, 1997, the BPU issued a Draft Phase II of the New
Jersey Energy Master Plan (the Plan). In the Plan, the BPU has
recommended that retail customers in New Jersey have the ability
to choose their electric energy supplier beginning in October
1998 using a phase-in plan that will include all retail customers
by April 2001. Customers would be able to sign an agreement with
a third-party energy supplier and each electric utility,
including ACE, would continue to be responsible for providing
distribution service. Price and service quality for such
distribution would continue to be regulated by the BPU.
Beginning October 1998, costs for electric service, which consist
of power generation, transmission, distribution, metering and
billing will need to be unbundled. Transmission service would be
provided by an Independent System Operator which would be
responsible for maintaining a regional power grid that would
continue to be regulated by FERC.
The Plan states that the BPU is committed to assuring that a
fully competitive marketplace exists prior to the ending of its
economic regulation of power supply. At a minimum, utility
generating assets and functions must be separated and operate at
arms length from the transmission, distribution and customer
service functions of the electric utility. The BPU reserves
final judgment on the issue of requiring divestiture of utility
generating assets until detailed analyses of the potential for
market power abuses by utilities have been performed.
The Plan addresses the issue of "stranded" costs related to the
generating capacity currently in utility rates. High costs of
construction and operations incurred by the jointly-owned nuclear
power plants and the long-term high cost supply contracts with
independent power producers are two significant contributing
factors. The report proposes recovery of stranded costs over a
four to eight year period, through a specific market transition
charge which will be a separate component of a customer's bill.
Determination of the recoverability of costs will be on a case by
case basis with no guarantee for 100% recovery of eligible
stranded costs.
The Plan provides that the opportunity for full recovery of such
eligible costs is contingent upon and may be constrained by the
utility meeting a number of conditions, including achievement of
a BPU goal of delivering a near term rate reduction to customers
of five to ten percent. The Plan states that the independent
power contracts must be eligible for stranded cost recovery.
The Plan further states that utilities are obligated to take all
reasonably available measures to mitigate stranded costs caused
by the introduction of retail competition. The Plan further
notes that New Jersey is studying the "securitization" of
stranded costs as a means of financing these costs at interest
rates lower than the utility cost of capital, thereby helping to
mitigate the rate impact of stranded cost recovery. Recovery of
securitization may occur over a different period of time. The
plan also suggest that a cap may be imposed on the level of the
charge as a mechanism to achieve the goal of overall rate
reduction.
The BPU intends to issue final findings and recommendations on
the electric utility industry restructuring plan in April 1997.
Each electric utility in the State is to file a complete
restructuring plan, stranded cost filing and unbundled rate
filing no later than July 15, 1997.
ACE has not filed for accelerated depreciation of any capital
assets or special rate plans applicable to particular classes of
customers. However, in 1996 ACE has entered into BPU approved
Off-Tariff Rate Agreements (OTRA's) with at-risk customers which
provide for special rates for customers who may choose to leave
ACE's energy system because they have alternative energy sources
available. To date, the aggregate amount of such reduced rate
agreements was $2.2 million, net of tax.
ACE has significant long term contract commitments to purchase
capacity and energy from nonutility sources at above-market
costs. Recovery of amounts associated with these contracts is
through ACE's LEC, for which rates are subject to approval by the
BPU annually.
In connection with the BPU's Plan, ACE is uncertain as to the
level of stranded costs that may arise or the degree to which
these costs will be recovered. If the final restructuring plan
requires ACE to recognize amounts as unrecoverable, ACE may be
required to write down asset values, and such writedowns could be
material.
In March 1996, the New Jersey Department of Treasury and the BPU
jointly proposed to replace the energy excise tax currently
imposed on electric and gas utilities. Under the proposal,
utilities would pay a state corporate business tax, a state sales
tax of six percent collected on all retail sales of energy
services and a state transitional energy facilities assessment
tax (TEFA) for a limited number of years. A gradual phase-out of
the TEFA is proposed. At the completion of the TEFA phase-out,
the total energy tax burden would be reduced by approximately
45%.
Statement of Position of the Accounting Standards Board 96-1
"Environmental Remediation Liabilities" (SOP 96-1) is effective
for fiscal years that begin after December 15, 1996. SOP 96-1
provides guidance where remediation is required because of the
threat of litigation, a claim or an assessment. This Statement
does not provide guidance on accounting for pollution control
costs as it applies to current operations, costs of future site
restoration or closure that are required upon the cessation of
operations or sale of facilities or for remediation obligations
undertaken at the sole discretion of management. The adoption of
SOP 96-1 is not expected to have a material impact on the
financial position, results of operations or net cash flows of
the Company.
<PAGE>
Outlook
The electric utility industry is undergoing fundamental change
through the introduction of competition and customer choice. The
timing and scope of regulatory changes currently being proposed
in New Jersey will have a significant impact on ACE's economic
viability and ability to compete in the energy marketplace. Any
legislative initiatives permitting the orderly and efficient
transition to competition, through such means as market
transition charges, tax reallocation or enabling amendments to
existing laws, will serve to insure recovery of prudently
incurred investments.
In anticipation of heightened competition in energy markets, ACE
is pursuing a number of initiatives designed to strengthen its
position in the marketplace. The proposed merger and formation
of Conectiv provides strategic and operational opportunities to
better meet the coming competitive environment. Those
opportunities are derived from increased financial strength,
improved management, efficiencies of operations, better
utilization and coordination of existing and future facilities.
The proposed merger is part of a wider trend in the utility
industry toward consolidation and strategic partnerships in order
to create larger, stronger companies ready for the onset of
competition. The receipt of all requisite regulatory approvals
to consummate the merger is expected to be obtained by late 1997
or early 1998, but cannot be assured.
The cost of ACE's power supply, including the cost of power
purchased from independent power producers, along with its retail
prices are expected to be critical success factors in a
competitive marketplace. ACE is focusing on cost and rate
control measures as well as the development of new energy-related
products and services. Alternate pricing mechanisms and rate
discounts for key at-risk customers will be necessary, and while
having a long term economic benefit, will cause detrimental
impacts on revenues and income in the near term. New value-added
products and services for the retail energy consumer which create
customer loyalty and satisfaction will be a keystone of the
Company's strategic business focus.
AEI's utility business will continue to be affected by regional
economic trends and social initiatives, as well as the impacts of
abnormal weather and inflation. Such regional economic trends
are favorable and include the growth of the Atlantic City gaming
industry which appears poised for a "second wave" of development.
Ongoing requirements for service reliability, and compliance with
existing and new environmental regulations, will cause additional
capital investments to be made by ACE. ACE's planned
construction budget is $417 million for the five year period
beginning in 1997 with an expected reduction in its external cash
requirements. ACE's ability to generate cash flows or access the
capital markets may be affected by competitive pressures on
revenues and income.
The operational performance of ACE's jointly-owned nuclear units,
as well as significant changes in the costs to decommission those
facilities at the end of their useful lives, will continue to be
a factor in ACE's financial results. ACE will attempt to
mitigate such factors whenever possible. ACE has entered into a
performance-based agreement with PS, the operator of the Salem
Station to limit its exposure for operations and maintenance
expenses in 1997. To the extent that ACE derives a savings in
1997 O&M expenditures, those savings will offset unrecovered
replacement power costs incurred as a result of the
unavailability of the Salem units.
AEI's utility business will continue to be the primary factor
influencing the Company's overall financial performance.
However, growth in new business ventures such as ATS and enabling
strategic alliances like Enerval, LLC, will require the efficient
development of entrepreneurial expertise and financial resources
to be successful.
Inflation
Inflation affects the level of operating expenses and also the
cost of new utility plant placed in service. Traditionally, the
rate making practices that have applied to ACE have involved the
use of historical test years and the actual cost of utility
plant. However, the ability to recover increased costs through
rates, whether resulting from inflation or otherwise, depends
upon both market circumstances and the frequency, timing and
results of rate case decisions.
Other
The Private Securities Litigation Reform Act of 1995 (the Act)
provides a new "safe harbor" for forward-looking statements to
encourage such disclosures without the threat of litigation
providing those statements are identified as forward-looking and
are accompanied by meaningful, cautionary statements identifying
important factors that could cause the actual results to differ
materially from those projected in the statement. Forward-
looking statements have been and will be made in written
documents and oral presentation of AEI and its subsidiaries.
Such statements are based on managements beliefs as well as
assumptions made by and information currently available to
management. When used in AEI and subsidiary documents or oral
presentation, the words "anticipate", "estimate", "expect",
"objective" and similar expressions are intended to identify such
forward-looking statements. In addition to any assumptions and
other factors referred to specifically in connection with such
forward-looking statements, factors that could cause actual
results to differ materially from those contemplated in any
forward-looking statements include, among others, the following:
deregulation, and the unbundling of energy supplies and services;
an increasingly competitive energy marketplace; sales retention
and growth potential in a mature service territory and a need to
contain costs; ability to obtain adequate and timely rate relief,
cost recovery, including the potential impact of stranded costs,
and other necessary regulatory approvals; federal and state
regulatory actions; costs of construction; operating
restrictions, increased cost and construction delays attributable
to environmental regulations; controversies regarding electric
and magnetic fields; nuclear decommissioning and the availability
of reprocessing and storage facilities for spent nuclear fuel;
licensing and regulatory approval necessary for nuclear and other
operating station; and credit market concerns with these issues.
AEI and its subsidiaries undertake no obligation to publicly
update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise. The
foregoing review of factors pursuant to the Act should not be
construed as exhaustive or as any admission regarding the
adequacy of disclosures made by AEI and its subsidiaries prior to
the effective date of the Act.
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY AND SUBSIDIARY
The information required by this item is incorporated herein by
reference from the following portions of AEI's Management's
Discussion and Analysis of Financial Condition and Results of
Operations, insofar as they relate to ACE and its subsidiary:
Financial Summary, Liquidity and Capital Resources - Atlantic
City Electric Company, Results of Operations, Salem Nuclear
Generating Station, Competition, Outlook, Inflation and Other.
<PAGE>
ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF MANAGEMENT-Atlantic Energy, Inc.
The management of Atlantic Energy, Inc. and its subsidiaries (the
Company) is responsible for the preparation of the consolidated
financial statements presented in this Annual Report. The
financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the
consolidated financial statements, management made informed
judgments and estimates, as necessary, relating to events and
transactions reported.
Management has established a system of internal accounting and
financial controls and procedures designed to provide reasonable
assurance as to the integrity and reliability of financial
reporting. In any system of financial reporting controls,
inherent limitations exist. Management continually examines the
effectiveness and efficiency of this system, and actions are
taken when opportunities for improvement are identified.
Management believes that, as of December 31, 1996, the system of
internal accounting and financial controls over financial
reporting is effective. Management also recognizes its
responsibility for fostering a strong ethical climate in which
the Company's affairs are conducted according to the highest
standards of corporate conduct. This responsibility is
characterized and reflected in the Company's code of ethics and
business conduct policy.
The consolidated financial statements have been audited by
Deloitte & Touche LLP, Certified Public Accountants. Deloitte &
Touche LLP, provides objective, independent audits as to
management's discharge of its responsibilities insofar as they
relate to the fairness of the financial statements. Their audits
are based on procedures believed by them to provide reasonable
assurance that the financial statements are free of material
misstatement.
The Company's internal auditing function conducts audits and
appraisals of the Company's operations. It evaluates the system
of internal accounting, financial and operational controls and
compliance with established procedures. Both the external
auditors and the internal auditors periodically make
recommendations concerning the Company's internal control
structure to management and the Audit Committee of the Board of
Directors. Management responds to such recommendations as
appropriate in the circumstances. None of the recommendations
made for the year ended December 31, 1996 represented significant
deficiencies in the design or operation of the Company's internal
control structure.
/s/ J. L. Jacobs /s/ M. J. Barron
J. L. Jacobs M. J. Barron
Chairman and Vice President and
Chief Executive Officer Chief Financial Officer
February 7, 1997<PAGE>
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors is comprised solely of
independent directors. The members of the Committee are: Matthew
Holden, Jr., Kathleen MacDonnell, Bernard J. Morgan and Harold J.
Raveche. The Committee held 5 meetings during 1996.
The Committee oversees the Company's financial reporting process on
behalf of the Board of Directors. In fulfilling its responsibility,
the Committee recommended to the Board of Directors, subject to
shareholder ratification, the selection of the Company's independent
auditors, Deloitte & Touche LLP. The Committee discussed with the
Company's internal auditors and Deloitte & Touche LLP, the overall
scope of and specific plans for their respective activities concerning
the Company. The Committee meets regularly with the internal and
external auditors, without management present, to discuss the results
of their activities, the adequacy of the Company's system of
accounting, financial and operational controls and the overall quality
of the Company's financial reporting. The meetings are designed to
facilitate any private communication with the Committee desired by the
internal and external auditors. No significant actions by the
Committee were required during the year ended December 31, 1996 as a
result of any communications conducted.
/s/ Matthew Holden, Jr.
Matthew Holden, Jr.
Chairman, Audit Committee
February 7, 1997
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and the Board of Directors
of Atlantic Energy, Inc.:
We have audited the accompanying consolidated balance sheets of
Atlantic Energy, Inc. and subsidiaries as of December 31, 1996 and
1995 and the related consolidated statements of income, changes in
common shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the
audits 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 Atlantic Energy,
Inc. and subsidiaries at December 31, 1996 and 1995 and the results of
their operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
February 7, 1997
Parsippany, New Jersey <PAGE>
Atlantic Energy, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(Thousands of Dollars, except per share amounts)
For the Years Ended December 31,
1996 1995 1994
Operating Revenues-Electric $980,255 $953,137 $913,039
Operating Expenses:
Energy 223,091 191,766 210,891
Purchased Capacity 195,699 190,570 130,929
Operations 156,799 152,060 156,409
Employee Separation Costs - - 26,600
Maintenance 44,418 34,379 37,568
Depreciation and Amortization 80,845 78,461 73,344
State Excise Taxes 104,815 102,811 97,072
Federal Income Taxes 32,272 45,876 33,264
Other Taxes 9,888 8,677 10,757
Total Operating Expenses 847,827 804,600 776,834
Operating Income 132,428 148,537 136,205
Other Income and Expense:
Allowance for Equity Funds Used
During Construction 879 817 3,634
Other-Net 663 8,241 8,678
Total Other Income and Expense 1,542 9,058 12,312
Income Before Interest Charges 133,970 157,595 148,517
Interest Charges:
Interest on Long Term Debt 60,029 60,329 57,346
Other Interest Expense 4,818 2,550 1,114
Total Interest Charges 64,847 62,879 58,460
Allowance for Borrowed Funds
Used During Construction (976) (1,679) (2,772)
Net Interest Charges 63,871 61,200 55,688
Less Preferred Securities Dividend
Requirements of Subsidiary 11,332 14,627 16,716
Net Income $ 58,767 $ 81,768 $ 76,113
Average Number of Shares of Common
Stock Outstanding(in thousands) 52,702 52,815 54,149
Per Common Share:
Earnings $1.12 $1.55 $1.41
Dividends Declared $1.54 $1.54 $1.54
Dividends Paid $1.54 $1.54 $1.54
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
Atlantic Energy, Inc. and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars) For the Years Ended December 31,
1996 1995 1994
Cash Flows Of Operating Activities:
Net Income $ 58,767 $ 81,768 $ 76,113
Unrecovered Purchased Power Costs 16,417 15,721 14,920
Deferred Energy Costs (2,095) (20,435) (3,819)
Preferred Securities Dividend of ACE 11,332 14,627 16,716
Depreciation and Amortization 80,845 78,461 73,344
Deferred Income Taxes-Net 6,192 25,946 17,863
Unrecovered State Excise Taxes 9,560 9,560 (40,128)
Employee Separation Costs (7,179) (19,112) 26,600
Net Changes Working Capital Components:
Accounts Receivable&Unbilled Revenues (5,004) (24,400) 1,840
Accounts Payable 5,651 (5,222) 2,233
Inventory (2,602) 4,960 (12,988)
Other 26,372 (18,406) (12,557)
Other-Net (3,772) 4,893 (2,457)
Net Cash Provided by Operating
Activities 194,484 148,361 157,680
Cash Flows Of Investing Activities:
Utility Construction Expenditures (86,805) (100,904) (119,961)
Leased Nuclear Fuel Material (6,833) (10,446) (10,713)
Nonutility Construction Expenditures (25,451) (5,226) (6,807)
Other-Net (14,783) (23,794) (10,893)
Net Cash Used by Investing Activities (133,872) (140,370) (148,374)
Cash Flows Of Financing Activities:
Proceeds from Long Term Debt 45,075 168,904 54,572
Retirement/Maturity of Long Term Debt (12,266) (57,489) (42,664)
Issuance of Cumulative Quarterly Income
Preferred Securities 70,000 - -
Increase in Short Term Debt 34,405 21,945 8,600
Proceeds from Common Stock Issued - - 10,289
Repurchase of Common Stock - (29,626) (3,909)
Redemption of Preferred Stock-ACE (98,876) (24,500) (24,500)
Dividends Declared-ACE Preferred
Securities (11,332) (14,627) (16,716)
Dividends Declared on Common Stock (81,163) (81,088) (75,829)
Proceeds-Capital Lease Obligations 6,833 10,466 10,734
Other-Net (3,701) (1,399) 1,596
Net Cash Used by Financing Activities (51,025) (7,414) (77,827)
Net Increase (Decrease) in Cash and
Temporary Investments 9,587 577 (68,521)
Cash and Temporary Investments:
Beginning of year 5,691 5,114 73,635
End of year $ 15,278 $ 5,691 $ 5,114
Supplemental Schedule of Payments:
Interest $ 68,551 $ 61,160 $ 62,855
Income taxes $ 28,101 $ 30,769 $ 23,374
Noncash Financing Activities:
Common Stock issued
under stock plans-net $ - $ 120 $ 7,652
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
<PAGE>
Atlantic Energy, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
December 31,
1996 1995
Assets
Electric Utility Plant:
In Service:
Production $1,212,380 $1,187,169
Transmission 373,358 366,242
Distribution 731,272 691,830
General 191,210 183,935
Total In Service 2,508,220 2,429,176
Less Accumulated Depreciation 871,531 794,479
Utility Plant in Service-Net 1,636,689 1,634,697
Construction Work in Progress 117,188 119,270
Land Held for Future Use 5,604 6,941
Leased Property-Net 39,914 40,878
Electric Utility Plant-Net 1,799,395 1,801,786
Investments and Nonutility Property:
Investment in Leveraged Leases 79,687 78,959
Nuclear Decommissioning Trust Fund 71,120 61,802
Nonutility Property and Equipment-Net 46,147 22,743
Other Investments and Funds 53,550 52,780
Total Investments and Nonutility Property 250,504 216,284
Current Assets:
Cash and Temporary Investments 15,278 5,691
Accounts Receivable:
Utility Service 64,432 66,099
Miscellaneous 32,547 17,477
Allowance for Doubtful Accounts (3,500) (3,300)
Unbilled Revenues 33,315 41,515
Fuel (at average cost) 29,682 25,459
Materials and Supplies (at average cost) 23,815 25,434
Working Funds 15,517 14,421
Deferred Energy Costs 33,529 31,434
Prepaid Excise Tax 7,125 10,753
Other 11,354 13,339
Total Current Assets 263,094 248,322
Deferred Debits:
Unrecovered Purchased Power Costs 83,400 99,817
Recoverable Future Federal Income Taxes 85,858 85,858
Unrecovered State Excise Taxes 54,714 64,274
Unamortized Debt Costs 44,423 39,004
Other Regulatory Assets 59,575 54,568
License Fees 17,733 -
Other 12,066 7,975
Total Deferred Debits 357,769 351,496
Total Assets $2,670,762 $2,617,888
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
<PAGE>
Atlantic Energy, Inc. and Subsidiaries
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
December 31,
1996 1995
Liabilities and Capitalization
Capitalization:
Common Shareholders' Equity:
Common Stock, no par value; 75,000,000
shares authorized; issued and outstanding:
1996 - 52,502,479 ; 1995 - 52,531,878 $ 562,746 $ 563,436
Retained Earnings 227,630 249,741
Unearned Compensation (2,982) (3,008)
Total Common Shareholders' Equity 787,394 810,169
Preferred Securities of Atlantic Electric:
Not Subject to Mandatory Redemption 30,000 40,000
Subject to Mandatory Redemption 43,950 114,750
Cumulative Quarterly Income
Preferred Securities 70,000 -
Long Term Debt 829,745 829,856
Total Capitalization (excluding current
portion) 1,761,089 1,794,775
Current Liabilities:
Preferred Stock Redemption Requirement 10,000 22,250
Capital Lease Obligation-Current Portion 702 659
Long Term Debt-Current Portion 98,250 65,247
Short Term Debt 64,950 30,545
Accounts Payable 66,508 60,858
Taxes Accrued 7,504 3,450
Interest Accrued 20,241 20,315
Dividends Declared 21,701 23,490
Deferred Income Taxes 3,190 2,569
Provision for Rate Refunds 13,000 -
Other 24,696 27,383
Total Current Liabilities 330,742 256,766
Deferred Credits and Other Liabilities:
Deferred Income Taxes 434,108 425,875
Deferred Investment Tax Credits 46,577 49,112
Capital Lease Obligations 39,212 40,227
Other 59,034 51,133
Total Deferred Credits and Other Liabilities 578,931 566,347
Commitments and Contingencies (Note 10)
Total Liabilities and Capitalization $2,670,762 $2,617,888
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
<PAGE>
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Atlantic Energy, Inc. (the Company, AEI or parent) is the parent of
Atlantic City Electric Company (ACE), Atlantic Energy Enterprises,
Inc. (AEE) and Atlantic Energy International, Inc. (AEII), which are
wholly-owned subsidiaries. ACE is a public utility primarily engaged
in the generation, transmission, distribution and sale of electric
energy. ACE's service territory encompasses approximately 2,700
square miles within the southern one-third of New Jersey with the
majority of customers being residential and commercial. ACE, with its
wholly-owned subsidiary that operates certain generating facilities,
is the principal subsidiary within the consolidated group. AEE is a
holding company which is responsible for the management of the
investments in the nonutility companies consisting of: Atlantic
Generation, Inc. (AGI), Atlantic Southern Properties, Inc. (ASP), ATE
Investment, Inc. (ATE), Atlantic Thermal Systems, Inc. (ATS),
CoastalComm, Inc. (CCI) and Atlantic Energy Technology, Inc. (AET).
AGI and its wholly-owned subsidiaries are engaged in the development,
acquisition, ownership and operation of cogeneration power projects.
AGI's activities, through its subsidiaries, are represented by
partnership interests in cogeneration facilities located in New Jersey
and New York. ASP owns and manages a commercial office and warehouse
facility located in Atlantic County, New Jersey. ATE provides
financing management and financing to affiliates and manages a
portfolio of investments in leveraged leases for equipment used in the
airline and shipping industries. In August 1996, ATE joined with an
unaffiliated company to create EnerTech Capital Partners, L.P., an
equity limited partnership that will invest in a variety of energy-
related technology growth companies. ATS and its wholly-owned
subsidiaries are engaged in the development and operation of thermal
heating and cooling systems. CCI manages an investment in
telecommunication technology. AEE also has a 50% equity interest in
Enerval, LLC which provides energy management services, including
natural gas supply, transportation and marketing. In July 1996, AEI
formed a new subsidiary AEII, to provide utility consulting services
and equipment sales to international markets.
Pending Merger
On August 12, 1996, the Boards of Directors of AEI and Delmarva Power
& Light Company (DP&L) jointly announced an agreement to merge the
companies into a new company named Conectiv, Inc. (Conectiv).
Conectiv, a newly formed Delaware corporation, will become the parent
of Atlantic Energy's subsidiaries and the parent of DP&L and its
subsidiaries.
DP&L is predominately a public utility engaged in electric and gas
service. DP&L provides retail and wholesale electric service to
customers located in about a 6,000 square mile territory located in
Delaware, eastern shore counties in Maryland and the eastern shore
area of Virginia. DP&L provides gas service to retail and
transportation customers in an area consisting of about 275 square
miles in Northern Delaware, including the City of Wilmington.
The merger is to be a tax-free, stock-for-stock transaction accounted
for as a purchase by Conectiv. Under the terms of the agreement, DP&L
shareholders will receive one share of Conectiv's common stock for
each share of DP&L common stock held. AEI shareholders will receive
0.75 shares of Conectiv's common stock and 0.125 shares of Conectiv's
Class A common stock for each share of AEI common stock held. On
January 30, 1997, the merger was approved by the shareholders of both
companies. In order for the merger to become effective, approvals are
still needed from a number of Federal and state regulatory agencies.
The Company expects the regulatory approval process to be completed in
late 1997 or early 1998.
The total consideration to be paid to the Company's common
stockholders, measured by the average daily closing market price of
the Company's common stock for the ten trading days following public
announcement of the merger, is $948.6 million. The consideration paid
plus estimated acquisition costs and liabilities assumed in connection
with the merger are expected to exceed the net book value of the
Company's net assets by approximately $204.5 million, which will be
recorded as goodwill by Conectiv. The goodwill will be amortized over
40 years.
Selected information on each company at December 31, 1996 and the year
then ended is shown below (in thousands, except for number of
customers):
AEI DP&L
Operating Revenues $ 980,255 $1,094,961
Net Income $ 58,767 $ 116,187
Assets $2,670,762 $2,979,153
Electric Customers 477,611 442,116
Gas Customers - 100,904
Combination of the above amounts would not necessarily be reflective
of the amounts that would result from a consolidation of the
companies.
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated in consolidation. ACE and AEE
consolidate their respective subsidiaries. Ownership interests in
other entities, between 20% and 50%, where control is not evident, are
accounted for using the equity method of accounting. Certain prior
year amounts have been reclassified to conform to the current year
reporting of these items.
Regulation - ACE
The accounting policies and rates of service for ACE are subject to
the regulations of the New Jersey Board of Public Utilities (BPU) and
in certain respects to the Federal Energy Regulatory Commission
(FERC). ACE follows generally accepted accounting principles (GAAP)
and financial reporting requirements employed by all industries as
specified by the Financial Accounting Standards Board (FASB) and the
Securities and Exchange Commission (SEC). However, accounting for
rate regulated industries may depart from GAAP as permitted by
Statement of Financial Accounting Standards No. 71 (SFAS No. 71).
SFAS No. 71 provides guidance on circumstances where the economic
effect of a regulator's decision warrants different applications of
GAAP as a result of the rate making process. In setting rates, a
regulator may provide recovery of an incurred cost in a year or years
other than the year the cost was incurred. As permitted by SFAS No.
71, costs ordered by a regulator to be deferred or capitalized for
future recovery are recorded as a regulatory asset because the
regulator's rate action provides reasonable assurance of future
economic benefits attributable to these costs. In a non-rate
regulated industry, such costs are charged to expense in the year
incurred. SFAS No. 71 further specifies that a regulatory liability
is recorded when a regulator orders a refund to customers of revenues
previously collected, or when existing rates provide for recovery of
future costs not yet incurred. Such treatment is not afforded to non-
rate regulated companies. When collection of regulatory assets or
relief of regulatory liabilities is no longer probable, the assets and
liabilities are applied to income in the year that the assessment is
made. Specific regulatory assets and liabilities that have been
recorded are discussed in Note 11.
Electric Operating Revenues - ACE
Revenues are recognized when electric energy services are rendered,
and include estimates for amounts unbilled at the end of the year for
energy used by customers subsequent to the last bill rendered for the
calendar year.
Nuclear Fuel - ACE
Fuel costs associated with ACE's participation in jointly-owned
nuclear generating stations, including spent nuclear fuel disposal
costs, are charged to Energy expense based on the units of thermal
energy produced.
Electric Utility Plant and Depreciation - ACE
Property is stated at original cost. Generally, Utility Plant is
subject to a first mortgage lien. The cost of property additions,
including replacement of units of property and betterments, are
capitalized. Included in certain property additions is an Allowance
for Funds Used During Construction (AFDC), which is defined in the
applicable regulatory system of accounts as the cost, during the
period of construction, of borrowed funds used for construction
purposes and a reasonable rate on other funds when so used. AFDC has
been calculated using a semi-annually compounded rate of 8.25% for all
periods. ACE provides for straight-line depreciation based on:
transmission and distribution property - estimated remaining life;
nuclear property - remaining life of the related plant operating
license in existence at the time of the last base rate case; other
depreciable property - estimated average service life. The overall
composite rate of depreciation was 3.3% for the last three years.
Accumulated depreciation is charged with the cost of depreciable
property retired together with removal costs less salvage and other
recoveries.
Nonutility Property and Equipment
Nonutility Property and Equipment includes project development costs
and construction work in progress, including capitalized interest,
related to the development and construction of thermal heating and
cooling systems of ATS. Capitalized interest related to Nonutility
expenditures was not material to the financial results of the Company.
ASP's commercial site, including the cost of improvements and certain
preacquisition costs is stated at fair market value. In 1996 and
1994, management of the Company authorized write-downs of $1.2 million
and $2.6 million, respectively, of the carrying value of this
commercial site reflecting diminished value due to excess vacancy and
the decline in the local commercial real estate market.
Nuclear Plant Decommissioning Reserve - ACE
A reserve for decommissioning costs is presented as a component of
accumulated depreciation and amounted to $70.2 million and $60.9
million at December 31, 1996 and 1995, respectively.
The SEC has questioned certain accounting practices employed by the
electric utility industry concerning decommissioning costs for nuclear
generating facilities. In 1996, the FASB issued a Proposed Statement
of Financial Accounting Standard "Accounting for Certain Liabilities
Related to Closure or Removal of Long-lived Assets" which would
establish accounting standards for certain obligations that are
incurred for the closure and removal of long-lived assets. Under the
proposed statement, which includes decommissioning costs for nuclear
generating facilities, a regulated utility would recognize a
regulatory asset or liability for differences, if any, in the timing
of recognition of the costs of closure and removal of assets for
financial reporting purposes and rate making treatment. To date, the
FASB has not issued a final accounting standard.
Deferred Energy Costs - ACE
As approved by the BPU, ACE has a Levelized Energy Clause (LEC)
through which energy and energy-related costs (energy costs) are
charged to customers. LEC rates are based on projected energy costs
and prior period underrecoveries or overrecoveries. Generally, energy
costs are recovered through levelized rates over the period of
projection, which is usually a 12-month period. In any period, the
actual amount of LEC revenues recovered from customers may be greater
or less than the recoverable amount of energy costs incurred in that
period. Energy expense is adjusted to match the associated LEC
revenues. Any underrecovery (an asset representing energy costs
incurred that are to be collected from customers) or overrecovery (a
liability representing previously collected energy costs to be
returned to customers) of costs is deferred on the Consolidated
Balance Sheet as Deferred Energy Costs. These deferrals are
recognized in the Consolidated Statement of Income as Energy expense
during the period in which they are subsequently included in the LEC.
Income Taxes
Deferred Federal and state income taxes are provided on all
significant temporary differences between book bases and tax bases of
assets and liabilities, transactions that reflect taxable income in a
year different than book income and tax carryforwards. Investment tax
credits previously used for income tax purposes have been deferred on
the Consolidated Balance Sheet and are recognized in book income over
the life of the related property. The Company and its subsidiaries
file a consolidated Federal income tax return. Income taxes are
allocated to each of the companies within the consolidated group based
on the separate return method.
Cash & Temporary Investments
AEI and ACE consider all highly liquid investments and debt securities
purchased with a maturity of three months or less to be cash
equivalents.
Earnings Per Common Share
This is computed based upon the weighted average number of common
shares outstanding during the year. Common stock equivalents exist
but are not included in the computation of earnings per share because
they are currently antidilutive.
Use of Estimates
The preparation of financial statements in conformity with GAAP
requires management at times to make certain judgments, estimates and
assumptions that affect amounts and matters reported at the year end
dates and for the annual periods presented. Actual results could
differ from those estimates. Any change in the judgments, estimates
and assumptions used, which in management's opinion would have a
significant effect on the financial statements, will be reported when
management becomes aware of such changes.
Other
Debt premium, discount and expense of ACE are amortized over the life
of the related debt. Premiums associated with the 1996 Preferred Stock
redemptions are being deferred and amortized over the life of the
related Cumulative Quarterly Income Preferred Securities in accordance
with BPU approval.
<PAGE>
In March 1995, the FASB issued Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" (SFAS No. 121), which
requires that long-lived assets be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. On January 1, 1996, the Company
adopted SFAS No. 121 and there was no material impact on its results
of operations.
The FASB issued Statement No. 123, "Accounting for Stock-Based
Compensation"(SFAS No. 123), effective January 1, 1996. This statement
encourages a fair value method to account for stock-based
compensation, as an alternative to the intrinsic value currently
permitted by Accounting Principles Board Opinion No. 25 (APB No. 25),
"Accounting for Stock Issued to Employees". The Company is continuing
to use the intrinsic value method presented by APB No. 25 to record
compensation expense. See Note 4.
<PAGE>
NOTE 2. INCOME TAXES
The components of Federal income tax expense for the years ended
December 31 are as follows:
(000) 1996 1995 1994
Current $ 27,061 $ 20,483 $ 19,729
Deferred 6,587 25,993 17,414
Investment Tax Credits Recognized
on Leveraged Leases (78) (28) -
Total Federal Income Tax Expense 33,570 46,448 37,143
Less Amounts in Other Income 1,298 572 3,879
Federal Income Taxes in
Operating Expenses $ 32,272 $ 45,876 $ 33,264
A reconciliation of the expected Federal income taxes compared to the
reported Federal income tax expense computed by applying the statutory
rate for the years ended December 31 follows:
1996 1995 1994
Statutory Federal Income Tax Rate 35% 35% 35%
(000)
Income Tax Computed at the
Statutory Rate $ 36,058 $ 49,995 $ 45,490
Plant Basis Differences 3,096 1,307 (27)
Amortization of Investment Tax
Credits (2,612) (2,562) (2,534)
Tax Adjustments (68) (897) (4,097)
Other-Net (2,904) (1,395) (1,689)
Total Federal Income Tax Expense $ 33,570 $ 46,448 $ 37,143
Effective Federal Income Tax Rate 33% 33% 29%
State income tax expense is not significant.
Items comprising deferred tax balances as of December 31 are as
follows:
(000) 1996 1995
Deferred Tax Liabilities:
Plant Basis Differences $326,673 $316,834
Leveraged Leases 76,671 71,180
Unrecovered Purchased Power Costs 22,630 28,209
State Excise Taxes 20,141 22,527
Other 33,192 32,825
Total Deferred Tax Liabilities 479,307 471,575
Deferred Tax Assets:
Deferred Investment Tax Credits 25,143 26,511
Employee Separation Costs 526 2,621
Other 16,340 13,999
Total Deferred Tax Assets 42,009 43,131
Total Deferred Taxes-Net $437,298 $428,444
At December 31, 1996 and 1995, deferred tax assets exist for
cumulative state income tax net operating loss (NOL's)
carryforwards. Valuation allowances of virtually the same
amounts have been recorded. The effects of the state NOL's and
associated valuation allowances are not material to consolidated
results of operations and financial position. At December 31,
1996 unexpired state NOL's amount to approximately $72 million,
with expiration dates from 1997 through 2003.
As of December 31, 1996, AEI used the balance of its Federal
Alternative Minimum Tax credit. This credit was included in the
tax effects of the ATE leveraged leases.
NOTE 3. RATE MATTERS OF ACE
Energy Clause Proceedings
Changes in Levelized Energy Clause Rates
1994 - 1996
Amount Amount
Date Requested Granted Date
Filed (millions) (millions) Effective
2/94 $63.0 $55.0 7/94
4/95 37.0 37.0 7/95
3/96 49.7 27.6 7/96
ACE's LEC is subject to annual review by the BPU.
In February 1994, ACE filed a petition with the BPU requesting an
increase in LEC revenues of $63 million for the period June 1,
1994 through May 31, 1995. This filing introduced the Southern
New Jersey Economic Initiative (SNJEI), an ACE initiative
designed to phase in the impact of nonutility purchased power
contracts by forgoing the recovery of $28 million in energy costs
incurred during the 1994/1995 LEC period. In November 1994, the
BPU approved the continuation of a provisional LEC rate increase
of $55 million that had been in effect since July 1994.
In April 1995, ACE filed a petition with the BPU requesting a $37
million increase in LEC revenues for the period June 1, 1995
through May 31, 1996. ACE reduced the amount requested by $10
million under the SNJEI. ACE also reduced the request by $20.6
million for deferral, without carrying costs, to be recovered in
the next LEC period. In March 1996, the BPU approved the
continuance of the provisional increase of $37 million that had
been in effect since July 1995.
On March 29, 1996, ACE submitted to the BPU a request for a $49.7
million increase in annual LEC revenues effective June 1, 1996.
The request included the recovery of $20.6 million of LEC costs
previously deferred from the 1995 LEC request as well as a
proposal to defer $14.7 million of 1996/1997 LEC costs, to be
recovered without carrying costs in the next LEC period. A
stipulation was reached among ACE, the New Jersey Division of the
Ratepayer Advocate (Ratepayer Advocate) and the Staff of the BPU
(collectively the parties) and approved by the BPU on July 17,
1996, allowing ACE to implement provisional rates resulting in an
increase of annual LEC revenues of $27.6 million. The
stipulation provided for hearings to decide the following LEC
rate issues: recovery of $27.8 million for the estimated
replacement power costs related to the Salem Nuclear Generating
Station (Salem) Unit 1 and 2 outages; $1.7 million in deferred
replacement power costs associated with a 1994 Salem Unit 1
outage and $1.7 million in New Jersey emission fees. The
provisional LEC rates also included the deferral of $6.4 million
in 1996/97 LEC costs to be recovered without carrying costs in
the next LEC period. On December 19 and December 31, 1996, the
BPU issued Orders approving two stipulations reached on October
22, 1996 among the parties settling certain issues concerning the
LEC petition. The issue of the $1.7 million in emission fees
remains unresolved. See Other Rate Proceedings below and Note 10
for information relating to the return to service of Salem
Station.
ACE filed a petition with the BPU on February 28, 1997 for a
request of $20.0 million for the 1997/1998 LEC period.
Other Rate Proceedings
The Ratepayer Advocate has previously alleged that ACE, along
with other New Jersey electric utility companies, were recovering
cogeneration capacity costs concurrently in base rates and LEC
rates. ACE and other New Jersey electric utilities have entered
into separate stipulations of settlement with respect to this
matter. ACE's stipulation of settlement specifies that ACE would
provide credits to customers totaling $1.0 million during the
months of January and February 1997 based on customers usage
between January 1, 1996 and October 31, 1996. All issues raised
previously with regard to alleged overrecovery of nonutility
capacity costs are deemed closed and resolved.
By an Order dated March 14, 1996 the BPU initiated an
investigation of the ongoing outage at Salem. ACE has a 7.41%
ownership in Salem which is operated by Public Service Electric
and Gas Company (PS). By its Order, the BPU declared the base
rates associated with ACE's ownership in Salem Unit 1 interim and
subject to refund pending a hearing as to whether Salem Unit 1 is
currently used and useful. The BPU, in an Order dated June 26,
1996, also declared the base rates associated with ACE's
ownership in Salem Unit 2 interim and subject to refund. The BPU
voted on July 31, 1996 to include Unit 2 in the hearings
originally scheduled for October 1996 to determine if both units
were still considered used and useful. On December 31, 1996, the
BPU issued an Order approving a stipulation of settlement among
the parties relating to the ongoing outage of the Salem Station.
Under the terms of the stipulation, ACE provided credits to
customers totaling $12.0 million. The credits were made during
January and February 1997 and were based on customer usage
between January 1, 1996 and October 31, 1996. The stipulation
also provided that replacement power costs incurred, up to the
agreed upon return-to-service dates (June 30, 1997 for Unit 1 and
December 31, 1996 for Unit 2) will be recoverable in the next
annual LEC revenue proceeding. Should either unit not return to
service by its agreed upon return-to-service date, replacement
power costs incurred after such dates will not be recoverable by
ACE. In addition, the stipulation provided that the performance
of the Salem Units will not be included in the calculation of the
BPU Nuclear Performance Standard from the period each unit was
taken out of service to each unit's respective return-to-service
date. As such, ACE was not subject to a penalty or reward under
the Nuclear Performance Standard for 1995 or 1996.
Net income reflects a net charge of $7.6 million, net of tax, ACE
recorded in 1996 as a result of the stipulations regarding the
Provision for Rate Refund discussed above. The net charge
consists of a $13 million reduction in revenues, a reduction of
$1.3 million in operations expense for amounts previously
recorded for the nuclear performance penalty and a Federal income
tax benefit of $4.1 million.
On January 8, 1997, the BPU approved a stipulation related to its
generic proceeding for methods of implementing FASB Statement of
Financial Accounting Standard No. 106 - "Employers' Accounting
for Post-retirement Benefits Other Than Pensions" (SFAS No. 106).
SFAS No. 106 required publicly held companies to change from the
practice of accounting for post-retirement benefits such as
medical benefits, hospitalization and life insurance (OPEB), on a
pay-as-you-go basis to an accrual basis of accounting. For the
transition, SFAS No. 106 required that companies recognize an
obligation composed of the present value of OPEB obligations for
retirees and current employees incurred as of the date of
adoption. SFAS No. 71 allowed the recognition of a regulatory
asset relating to costs for which rate recovery has been
deferred. By an Order dated August 1, 1996, the BPU initiated a
generic proceeding to inquire into methods of implementing
recovery of SFAS No. 106 expenses through utility rates. Under
the terms of a stipulation, ACE will file a petition requesting
ratemaking treatment of OPEB expenses in the second quarter of
1997. See Notes 4 and 11 for further information regarding OPEB
expenses and the corresponding regulatory asset.
NOTE 4. BENEFITS
Retirement Benefits - ACE
Pension
ACE has a noncontributory defined benefit pension plan covering
substantially all of its employees and those of its wholly-owned
subsidiary. Benefits are based on an employee's years of service
and average final pay. ACE's policy is to fund pension costs
within the guidelines of the minimum required by the Employee
Retirement Income Security Act and the maximum allowable as a tax
deduction.
Net periodic pension costs include:
(000) 1996 1995 1994
Service cost-benefits earned
during the period $ 6,870 $ 6,363 $ 6,871
Interest cost on projected benefit
obligation 14,569 14,794 15,390
Actual return on plan assets (36,443) (44,067) (860)
Other-net 19,123 28,379 (16,885)
Net periodic pension costs $ 4,119 $ 5,469 $ 4,516
Of these costs, $3.0 million annually was charged to operating expense
in 1996, 1995 and 1994. The remaining costs, which are associated
with construction labor, were charged to the cost of new utility
plant. Actual return on plan assets and Other-net for 1996 and 1995
primarily reflect the favorable market conditions from the investment
of plan assets and expected returns compared with unfavorable market
conditions in 1994.
A reconciliation of the funded status of the plan as of December 31 is
as follows:
(000) 1996 1995
Fair value of plan assets $236,000 $212,000
Projected benefit obligation 207,340 213,470
Plan assets in excess of (less
than) projected benefit obligation 28,660 (1,470)
Unrecognized net transition asset (1,377) (1,550)
Unrecognized prior service cost 259 282
Unrecognized net(gain)loss (18,958) 10,006
Prepaid pension cost $ 8,584 $ 7,268
Accumulated benefit obligation:
Vested benefits $170,751 $169,044
Nonvested benefits 2,023 3,413
Total $172,774 $172,457
At December 31, 1996, approximately 66% of plan assets were invested
in equity securities, 25% in fixed income securities and 9% in other
investments. The assumed rates used in determining the actuarial
present value of the projected benefit obligation at December 31 were
as follows:
1996 1995 1994
Weighted average discount 7.5% 7.0% 8.0%
Anticipated increase in compensation 3.5% 3.5% 3.5%
Assumed long term rate of return 8.5% 8.5% 8.5%
Other Postretirement Benefits
ACE and its subsidiary provide certain health care and life insurance
benefits for retired employees and their eligible dependents.
Substantially all employees may become eligible for these benefits if
they reach retirement age while working for the companies. Benefits
are provided through insurance companies and other plan providers
whose premiums and related plan costs are based on the benefits paid
during the year. ACE has a tax-qualified trust to fund these
benefits.
Net periodic other postretirement benefit costs include:
(000) 1996 1995 1994
Service cost-benefits attributed to
service during the period $ 2,688 $ 2,891 $ 3,817
Interest cost on accumulated
postretirement benefits obligation 7,482 8,107 8,450
Actual return on plan assets (771) (1,437) 100
Amortization of unrecognized
transition obligation 2,768 3,893 3,893
Other-net 215 404 (700)
Net periodic other postretirement
costs $12,382 $13,858 $15,560
These costs were allocated as follows:
(millions) 1996 1995 1994
Operating expense $3.6 $3.1 $3.8
New utility plant-associated with
construction labor 2.4 2.5 2.0
Regulatory asset 6.4 8.3 9.8
The regulatory asset represents the amount of annual costs in excess
of the amount of cost currently recovered in rates. These excess
costs are deferred as authorized by an accounting order of
the BPU pending future recovery through rates. See Note 3 for
additional information.
A reconciliation of the funded status of the plan as of December 31
is as follows:
(000) 1996 1995
Accumulated benefits obligation:
Retirees $ 63,095 $ 64,516
Fully eligible active plan participants 4,038 6,954
Other active plan participants 39,972 33,649
Total accumulated benefits obligation 107,105 105,119
Less fair value of plan assets 18,000 16,500
Accumulated benefits obligation in
excess of plan assets 89,105 88,619
Unrecognized net loss (12,207) (15,335)
Unamortized unrecognized transition
obligation (44,289) (47,057)
Accrued other postretirement benefits
cost obligation $ 32,609 $ 26,227
At December 31, 1996, approximately 75% of plan assets were invested
in fixed income securities and 25% in other investments.
The assumed health care costs trend rate for 1997 is 8% and is assumed
to evenly decline to an ultimate constant rate of 5% in the year 2001
and thereafter. If the assumed health care costs trend rate was
increased by 1% in each future year, the aggregate service and
interest costs of the 1996 net periodic benefits cost would increase
by $1.3 million, and the accumulated postretirement benefits
obligation at December 31, 1996 would increase by $10.8 million. The
weighted average discount rate assumed in determining the accumulated
benefits obligation was 7.5%, 7% and 7.5% for 1996, 1995 and 1994,
respectively. The assumed long term return rate on plan assets was 7%
for each of the three year periods.
Other
Savings and Investment Plans A and B (401(k))
ACE has two 401(k) plans for union and non-union employees that match
plan contributions up to 6% of a participating employee's base pay.
The rate at which Company contributions are made is 50%. All full and
part-time employees are eligible to participate. The cost of the
plans for 1996, 1995 and 1994 was $1.9 million, $1.9 million and $2.0
million, respectively.
<PAGE>
Equity Incentive Plan(EIP) - AEI
Eligible participants of the EIP are officers, general managers and
nonemployee directors of the Company and its subsidiaries. Under the
EIP, nonemployee director participants are entitled to receive a grant
of 1,000 shares of restricted stock. Restrictions on these grants
expire over a five-year period. Employee participants may be awarded
shares of restricted common stock, stock options and other common
stock-based awards. Actual awards of restricted shares are based on
attainment of certain Company performance criteria within a three-year
period. Restrictions lapse upon actual award at the end of the three-
year performance period. Shares not awarded are forfeited. Dividends
earned on restricted stock issued through the EIP are invested in
additional restricted stock under the EIP which is subject to the same
award criteria.
Restricted stock activity of the EIP, initiated in April 1994, was as
follows:
Weighted Average
Restricted Fair Value
Shares Grant Date
Issued/Granted 175,712 $20.975
Balance, December 31, 1994 175,712
Issued/Granted 24,435
Forfeited (7,587)
Balance, December 31, 1995 192,560 20.697
Issued/Granted 237,782
Forfeited (207,805)
Balance, December 31, 1996 222,537 19.160
The 1996 and 1995 restricted shares granted include 13,786 shares and
7,614 shares, respectively, purchased on the open market from
reinvestment of dividends on EIP shares outstanding. Compensation
expense for the restricted stock has been measured based on the
intrinsic value of the stock. The total compensation expense for the
years 1996 through 1994 amounted to less than $.7 million and reflect
an adjustment for the restricted shares associated with the first
three-year period that were not awarded and were forfeited.
Stock options granted are nonqualified and are exercisable three years
after but within ten years from the date of grant. Stock options are
priced at an amount at least equal to 100% of the fair market value of
the related common stock at the date of grant.
The Company applied APB No. 25 in accounting for its EIP plan.
Accordingly, no compensation expense has been recognized for its stock
option plan. Fair value compensation cost of the options was
determined using the Black-Scholes model with the following
assumptions for 1996: dividend yield of 7.9%, an average expected life
of 3-7 years, expected volatility of 17.85% and a risk-free interest
rate of 5.04%. Option information is as follows:
1996 1995
Weighted Weighted
Average Average
Exercise Exercise
Options Shares Price Shares Price
Outstanding
beginning of year 166,987 $ 21.125 167,300 $21.125
Granted 207,250 19.296 6,387 21.125
Forfeited (2,800) 21.125 (6,700) 21.125
Outstanding at end
of year 371,437 20.105 166,987 21.125
Options exercisable
at year end - -
Weighted Average Fair
Value of Options
Granted $1.33 N/A
The combined effects of accounting for restricted shares and options
under the EIP plans consistent with the fair value disclosure
requirements of SFAS No. 123 upon the net income of the Company for
1996 is less than $.2 million and as such is not considered material.
<PAGE>
NOTE 5. JOINTLY-OWNED GENERATING STATIONS - ACE
ACE owns jointly with other utilities several electric production
facilities. ACE is responsible for its pro-rata share of the costs of
construction, operation and maintenance of each facility.
The amounts shown represent ACE's share of each facility at, or for
the year ended, December 31, including AFDC as appropriate.
Peach Hope
Keystone Conemaugh Bottom Salem Creek
Energy Source Coal Coal Nuclear Nuclear Nuclear
Company's Share
(%/MWs) 2.47/42.3 3.83/65.4 7.51/164.0 7.41/164.0 5.00/52.0
(000)
Electric Plant in Service:
1996 $13,275 $34,489 $130,011 $218,603 $240,079
1995 12,719 35,371 128,398 214,306 239,499
Accumulated Depreciation:
1996 $ 3,609 $ 7,333 $ 54,854* $ 79,635* $ 68,286*
1995 3,277 6,445 50,825* 73,088* 60,998*
Construction Work in Progress:
1996 $ 300 $ 270 $ 12,992 $ 27,015 $ 1,321
1995 442 873 11,056 11,198 655
Operations and Maintenance Expenses (including fuel):
1996 $ 5,626 $ 7,507 $ 29,337 $ 34,403 $ 10,899
1995 5,143 7,252 29,647 28,306 10,360
1994 5,085 7,211 29,530 27,731 10,471
Working Funds:
1996 $ 44 $ 69 $ 3,833 $ 7,252 $ 3,545
1995 44 69 4,505 5,782 1,919
Generation (MWHr):
1996 311,934 436,289 1,275,371 - 336,872
1995 285,899 451,211 1,232,921 334,572 352,316
1994 257,561 419,313 1,214,776 836,725 355,390
* Excludes Nuclear Decommissioning Reserve.
ACE provides financing during the construction period for its share of
the jointly-owned facilities and includes its share of direct
operations and maintenance expenses in the Consolidated Statement of
Income. Additionally, ACE provides an amount of working funds to the
operators of the facilities to fund operational needs.
The decrease in Salem's generation for 1996 and 1995 is due to both
Units 1 and 2 being taken out of service in May and June 1995,
respectively, by its operator PS for review and resolution of certain
equipment and management issues. Effective December 31, 1996, ACE
entered into an agreement with PS in its capacity as operator of Salem
for the purpose of limiting ACE's exposure to operation and
maintenance expenses to be incurred during calendar year 1997. See
Note 10 for further information concerning Salem Nuclear Generating
Station.
NOTE 6. NONUTILITY COMPANIES
Principal assets of each of the subsidiary companies of AEE at
December 31, 1996 were: AGI - investments of approximately $21.8
million in cogeneration facilities; ASP - commercial real estate site
with a net book value of $8.5 million; ATE - leveraged lease
investments of $79.7 million and $7.3 million invested in EnerTech
Capital Partners, L.P.; ATS - construction costs in thermal heating
and cooling projects of $29.3 million. CCI has $0.5 million invested
in telecommunication licenses. Other financial information regarding
the subsidiary companies is as follows:
Net Worth Net Income (Loss)
Company 1996 1995 1996 1995 1994
(000)
AGI $21,361 $26,082 $ 979 $2,513 $ 2,959
ASP 561 2,334 (1,773) (841) (1,956)
ATE 11,139 9,399 71 (50) 266
ATS 2,498 2,187 311 (213) (327)
CCI 544 5,258 (18) - -
AGI's results in each year primarily reflect the equity in earnings of
cogeneration facilities in which AGI has an ownership interest. AGI's
1996 results reflect the contingency of a $1.6 million net of tax loss
from the sale of a cogeneration facility located in New York.
ASP's results in each year reflect the vacancy in its commercial site
due to generally poor market conditions in commercial real estate.
Additionally, 1996 and 1994 include net after tax write-downs of the
carrying value of the commercial site of $0.8 million and $1.7
million, respectively.
ATE's 1996 and 1995 results reflect changes in interest expense
associated with its revolving credit and term loan agreement during
each year.
ATS's results for the years 1996 and 1995 reflect administrative and
general costs for business development and construction of heating and
cooling systems. Operating expenses were offset in part by revenues
generated from the operation and maintenance of customer heating and
cooling facilities in 1996 and 1995. ATS has agreements with three
casinos in Atlantic City, New Jersey to operate their heating and
cooling systems. As part of these agreements, ATS has paid $18.0
million in license fees for the right to operate and service such
systems for a period of 20 years. These fees are recorded on the
Consolidated Balance Sheet as License Fees and are being amortized to
expense over the life of the contracts.
AEI and AEE parent-only operations, excluding equity in the results of
subsidiary companies, generally reflect administrative and general
expenses for management of their respective subsidiaries. AEI
incurred losses of $3.6 million and $1.6 million in 1996 and 1995,
respectively. AEI's 1996 results reflect the impact of merger-related
costs. AEI's 1996 and 1995 results also reflect interest charges
associated with a line of credit established to fund repurchases of
common stock and certain affiliate capital needs. AEE incurred losses
of $1.7 million and $2.4 million in 1996 and 1995, respectively. AEE
1996 activity reflects an after tax loss of $1.1 million from its
equity investment in Enerval, LLC, due to a combination of unhedged
gas sales agreements and higher spot market prices for gas.
AEII reflects a net loss of $0.6 million in 1996 due to the consulting
and administrative costs of developing a new line of business.
<PAGE>
NOTE 7. CUMULATIVE PREFERRED SECURITIES OF ACE
ACE has authorized 799,979 shares of Cumulative Preferred Stock, $100
Par Value, two million shares of No Par Preferred Stock and three
million shares of Preference Stock, No Par Value. Information
relating to outstanding shares at December 31 is shown in the table
below.
Current
Optional
Par 1996 1995 Redemption
Series Value Shares (000) Shares (000) Price
Not Subject to Mandatory Redemption:
4% $100 77,000 $ 7,700 77,000 $ 7,700 $105.50
4.10% 100 72,000 7,200 72,000 7,200 101.00
4.35% 100 15,000 1,500 15,000 1,500 101.00
4.35% 100 36,000 3,600 36,000 3,600 101.00
4.75% 100 50,000 5,000 50,000 5,000 101.00
5% 100 50,000 5,000 50,000 5,000 100.00
7.52% 100 - - 100,000 10,000 -
Total $30,000 $ 40,000
Subject to Mandatory Redemption:
$8.25 None - $ - 50,000 $ 5,000 -
$8.53 None - - 120,000 12,000 -
$8.20 None 300,000 30,000 500,000 50,000 -
$7.80 None 239,500 23,950 700,000 70,000 -
Total 53,950 137,000
Less portion due within
one year 10,000 22,250
Total $43,950 $114,750
Cumulative Quarterly Preferred Income Securities:
8.25% None 2,800,000 $70,000 $ - -
Cumulative Preferred Stock Not Subject to Mandatory Redemption is
redeemable solely at the option of ACE. If preferred dividends are in
arrears for at least a full year, preferred stockholders have the
right to elect a majority of directors to the Board of Directors until
all dividends in arrears have been paid.
On February 1, 1996, ACE redeemed the remaining 120,000 shares of its
$8.53 No Par Preferred Stock at a price of $101.00 per share.
On August 1, 1996, ACE redeemed 200,000 shares of its $8.20 No Par
Preferred Stock at a price of $100 per share in accordance with its
annual sinking fund requirement. Sinking fund provisions require
100,000 shares be redeemed annually on August 1st and, at ACE's
option, an additional 100,000 shares may be redeemed on any sinking
fund date without premium.
On September 16, 1996, ACE redeemed 100,000 shares of its 7.52%
Preferred Stock $100 Par Value at a price of $101.88 per share and the
remaining 50,000 shares of its $8.25 No Par Preferred Stock at a price
of $104.45 per share. On August 29, 1996, a tender offer was
initiated for ACE's $7.80 No Par Preferred Stock. Pursuant to the
tender offer and subsequent agreements, ACE purchased a total of
460,500 shares at a price of $111.00 per share. In accordance with
BPU approval, premiums associated with these redemptions are being
deferred and amortized over the life of the 8.25% Cumulative Quarterly
Income Preferred Securities.
Beginning May 1, 2001, 115,000 shares of the remaining $7.80 No Par
Preferred Stock must be redeemed annually through the operation of a
sinking fund at a redemption price of $100 per share. ACE has the
option to redeem up to an additional 115,000 shares without premium on
any annual sinking fund date.
Embedded cost of Preferred Securities as of December 31, 1996, 1995
and 1994 was 7.4%, 7.4% and 7.6%, respectively.
At December 31, 1996, the minimum annual sinking fund requirements of
the Cumulative Preferred Stock Subject to Mandatory Redemption for the
next five years are $10 million in each of the years 1997 through 1999
and $11.5 million in 2001.
On October 1, 1996, Atlantic Capital I, a newly formed grantor trust,
issued $70 million of 8.25% Cumulative Quarterly Income Preferred
Securities (CQIPS) with a stated liquidation preference of $25 each.
Atlantic Capital I, established for the sole purpose of issuing the
CQIPS, invested the proceeds in 8.25% Junior Subordinated Deferrable
Interest Debentures (Junior Debentures) of ACE. ACE reserves the
right to defer payment of interest on the debentures for up to 20
consecutive quarters. During such a deferral period, certain dividend
restrictions would apply to ACE's Common and Preferred stock. The
CQIPS and Junior Debentures are scheduled to mature on October 1,
2026, but such maturity may be extended to a date not later than
October 1, 2045, if certain conditions are met. Proceeds from the
sale of the Junior Debentures were used to fund the redemption and
purchase of shares of ACE's preferred stock described above. Atlantic
Capital I is a grantor trust of ACE and as such, the transactions of
the trust are consolidated into the financial statements of ACE. The
Junior Debentures are eliminated in consolidation.<PAGE>
NOTE 8. DEBT
Maturity December 31,
Series Date 1996 1995
(000)
5-1/8% First Mortgage Bonds 2/1/1996 $ - $ 9,980
Medium Term Notes Series B (6.28%) 1998 56,000 56,000
Medium Term Notes Series A (7.52%) 1999 30,000 30,000
Medium Term Notes Series B (6.83%) 2000 46,000 46,000
Medium Term Notes Series C (6.86%) 2001 40,000 40,000
7-1/2% First Mortgage Bonds 4/1/2002 20,000 20,000
Medium Term Notes Series C (7.02%) 2002 30,000 30,000
Medium Term Notes Series B (7.18%) 2003 20,000 20,000
7-3/4% First Mortgage Bonds 6/1/2003 29,976 29,976
Medium Term Notes Series A (7.98%) 2004 30,000 30,000
Medium Term Notes Series B (7.125%) 2004 28,000 28,000
Medium Term Notes Series C (7.15%) 2004 9,000 9,000
Medium Term Notes Series B (6.45%) 2005 40,000 40,000
6-3/8% Pollution Control Series 12/1/2006 2,500 2,500
Medium Term Notes Series C (7.15%) 2007 1,000 1,000
Medium Term Notes Series B (6.76%) 2008 50,000 50,000
Medium Term Notes Series C (7.25%) 2010 1,000 1,000
6-5/8% First Mortgage Bonds 8/1/2013 75,000 75,000
7-3/8% Pollution Control Series A 4/15/2014 18,200 18,200
Medium Term Notes Series C (7.63%) 2014 7,000 7,000
Medium Term Notes Series C (7.68%) 2015 15,000 15,000
Medium Term Notes Series C (7.68%) 2016 2,000 2,000
8-1/4% Pollution Control Series A 7/15/2017 4,400 4,400
6.80% Pollution Control Series A 3/1/2021 38,865 38,865
7% First Mortgage Bonds 9/1/2023 75,000 75,000
5.60% Pollution Control Series A 11/1/2025 4,000 4,000
7% First Mortgage Bonds 8/1/2028 75,000 75,000
6.15% Pollution Control Series A 6/1/2029 23,150 23,150
7.20% Pollution Control Series A 11/1/2029 25,000 25,000
7% Pollution Control Series B 11/1/2029 6,500 6,500
Total 802,591 812,571
Debentures:
5-1/4% 2/1/1996 - 2,267
7-1/4% 5/1/1998 2,600 2,619
Total 2,600 4,886
Amortized Premium and Discount-Net (2,771) (2,854)
Total Long Term Debt-ACE 802,420 814,603
Less Portion Due within one year-ACE 175 12,247
Long Term Debt-ACE 802,245 802,356
Long Term Debt-AEI 37,575 34,500
Long Term Debt-ATE 33,500 33,500
Long Term Debt-ATS 54,500 12,500
Less Portion Due within One Year 98,075 53,000
$829,745 $829,856
Medium Term Notes have varying maturity dates and are shown with the
weighted average interest rate of the related issues within the year
of maturity. Substantially all of ACE's utility plant is subject to
the lien of the Mortgage and Deed of Trust dated January 15, 1937, as
amended and supplemented, collateralizing ACE's First Mortgage Bonds.
ACE
ACE had authority to issue $150 million in short term debt,
comprised of $100 million of committed lines of credit and $50
million on a when offered basis. At December 31, 1996 ACE had
$85.1 million of unused short-term borrowing capacity. ACE's
weighted daily average interest rate on short term debt was 5.6%
for 1996 and 6.3% for 1995.
On February 1, 1996, $9.98 million of 5-1/8% First Mortgage Bonds
and $2.267 million of 5-1/4% Debentures of the Company matured.
On May 1, 1996, the Company satisfied the sinking fund
requirements of $0.1 million for its 7-1/4% Debentures.
At December 31, 1996, 1995 and 1994, ACE's embedded cost of long
term debt was 7.5%, 7.5% and 7.6%, respectively.
AEE
Long term debt of ATE includes $15 million of 7.44% Senior Notes
due 1999. Also, ATE has a revolving credit and term loan
agreement which provides for borrowings of up to $25 million
during successive revolving credit and term loan periods through
June 1997. There were $18.5 million in borrowings outstanding
under this agreement at December 31, 1996 and 1995. Interest
rates on borrowings when outstanding are determined by reference
to periodic pricing options available under the facility. ATE
was charged interest rates ranging from 5.8% to 6.5% on these
loans during 1996.
In December 1995, ATS through a partnership arrangement, borrowed
$12.5 million of proceeds from the sale of special, limited bonds
issued by the New Jersey Economic Development Authority due
December 1, 2009. The bonds paid an initial rate of 3.7% for the
120 day period ending on April 30, 1996. The bonds were subject
to a mandatory tender and were remarketed at fixed rates ranging
from 3.5% to 3.6% twice within the year. The borrowed funds are
currently restricted in trust and invested in U. S. Treasury
Securities. The availability of the borrowed funds for their
intended use and the ultimate term of the borrowings are subject
to certain conditions. The bonds may be remarketed for
additional periods until December 1998, at which time, the bonds
must be redeemed if the escrow release conditions are not
satisfied. ATS cannot estimate, with any certainty, when or if
the conditions attached to the escrow release will be satisfied.
In August 1996, ATS established a $100 million revolving credit
and term loan facility, of which up to $20 million can be used to
establish letters of credit. As of December 31, 1996, $42
million was outstanding under this facility. Interest rates on
borrowings are based on senior debt ratings and on the borrowing
options selected by ATS. Interest rates on the borrowings
outstanding ranged from 5.8% to 6.0% in 1996. This facility will
be primarily used for construction of the Midtown Energy Center
in Atlantic City, New Jersey which began in November 1996.
Aggregate commitment fees on unused credit lines of revolving AEE
credit agreements were not significant.
AEI
Under AEI's $75 million revolving credit and term loan facility,
AEI had $37.6 million and $34.5 million outstanding in borrowings
at December 31, 1996 and 1995, respectively. Interest rates are
based on senior debt ratings and on the borrowing option selected
by AEI. Interest on the borrowings outstanding ranged from 5.59%
to 8.25% for 1996. This facility, established in September 1995,
has been used to fund acquisitions of Company common stock and
other general corporate purposes. Commitment fees were not
significant.
AEI's weighted daily average interest rate on its short term debt
was 6.3% for 1995. AEI had no short term debt in 1996.
Long Term Debt
Maturities and Sinking Fund Requirements
ACE AEI ATS ATE TOTAL
(000)
1997 $ 175 $37,575 $42,000 $18,500 $98,250
1998 58,575 - 12,500 - 71,075
1999 30,075 - - 15,000 45,075
2000 46,075 - - - 46,075
2001 40,075 - - - 40,075
NOTE 9. COMMON SHAREHOLDERS' EQUITY
In addition to public offerings, Common Stock may be issued
through the Dividend Reinvestment and Stock Purchase Plan (DRP),
ACE benefit plans (ACE plans), the Equity Incentive Plan (EIP)
and Employee Stock Purchase Plan (ESPP). The number of shares of
Common Stock issued (forfeited), and the number of shares
reserved for issuance at December 31, 1996, were as follows:
1996 1995 1994 Reserved
DRP - - 699,493 723,975
ACE Plans (28,844) (7,601) (5,046) 177,483
EIP (555) 9,234 175,712 615,609
ESPP - - - 400,000
Total (29,399) 1,633 870,159
The Company has a program to reacquire up to three million shares
of the Company's Common Stock outstanding. There is no schedule
or specific share price target associated with the
reacquisitions. The authorized number of shares is not to be
affected. During 1995, the Company reacquired and cancelled
1,625,000 shares for a total cost of $29.6 million with prices
ranging from $17.625 to $18.875 per share. At December 31, 1996
and 1995, the Company has reacquired and cancelled 1,846,700
shares of its common stock at a total cost of $33.5 million. The
Company did not reacquire and cancel any shares under this
program during 1996.
In April 1996, the shareholders of AEI approved the ESPP. Under
this plan, eligible employees can purchase shares of common stock
at a 15% discount. The offering periods begin on August 15 in
each of the years 1996-1999 and end August 14 of the following
year. The maximum number of shares that shall be issued under
this plan shall be 100,000 in each of the offering periods up to
a total of 400,000 shares.
Pursuant to ACE's certificate of incorporation, ACE is subject to
certain limitations on the payment of dividends to the Company,
which is the holder of all of ACE's common stock. When full
dividends have been paid on the Preferred Stock Securities of ACE
for all past quarterly-yearly dividend periods, dividends may be
declared and paid by ACE on its common stock, as determined by
the Board of Directors of ACE, out of funds legally available for
the payment of dividends.
NOTE 10. COMMITMENTS AND CONTINGENCIES
Construction Program
ACE cash construction expenditures for 1997 are estimated to be
approximately $99 million. Nonutility capital expenditures for
1997 are estimated to be $67 million.
Insurance Programs - ACE
Nuclear
ACE is a member of certain insurance programs that provide
coverage for contamination and property damage to members'
nuclear generating plants. Facilities at the Peach Bottom, Salem
and Hope Creek stations are insured against property damage
losses up to $2.75 billion per site under these programs.
In addition, ACE is a member of an insurance program which
provides coverage for the cost of replacement power during
prolonged outages of nuclear units caused by certain specific
conditions. The insurer for nuclear extra expense insurance
provides stated value coverage for replacement power costs
incurred in the event of an outage at a nuclear unit resulting
from physical damage to the nuclear unit. The stated value
coverage is subject to a deductible period of the first 21 weeks
of any outage. Limitations of coverage include, but are not
limited to, outages 1) not resulting from physical damage to the
unit, 2) resulting from any government mandated shutdown of the
unit, 3) resulting from any gradual deterioration, corrosion,
wear and tear, etc. of the unit, 4) resulting from any
intentional acts committed by an insured and 5) resulting from
certain war risk conditions. Under the property and replacement
power insurance programs, ACE could be assessed retrospective
premiums in the event the insurers' losses exceed their reserves.
As of December 31, 1996, the maximum amount of retrospective
premiums ACE could be assessed for losses during the current
policy year was $4.9 million under these programs.
The Price-Anderson provisions of the Atomic Energy Act of 1954,
as amended by the Price-Anderson Amendments Act of 1988, govern
liability and indemnification for nuclear incidents. All nuclear
facilities could be assessed, after exhaustion of private
insurance, up to $79.275 million each reactor per incident,
payable at $10 million per year. Based on its ownership share of
nuclear facilities, ACE could be assessed up to an aggregate of
$27.6 million per incident. This amount would be payable at an
aggregate of $3.48 million per year, per incident.
Other
ACE's comprehensive general liability insurance provides
pollution liability coverage, subject to certain terms and
limitations for environmental costs incurred in the event of
bodily injury or property damage resulting from the discharge or
release of pollutants into or upon the land, atmosphere or water.
Limitations of coverage include any pollution liability 1)
resulting subsequent to the disposal of such pollutants, 2)
resulting from the operation of a storage facility of such
pollutants, 3) resulting in the formation of acid rain, 4) caused
to property owned by an insured and 5) resulting from any
intentional acts committed by an insured.
Nuclear Plant Decommissioning - ACE
ACE has a trust to fund the future costs of decommissioning each
of the five nuclear units in which it has an ownership interest.
The current annual funding amount, as authorized by the BPU,
totals $6.4 million and is provided for in rates charged to
customers. The funding amount is based on estimates of the
future cost of decommissioning each of the units, the dates that
decommissioning activities are expected to begin and return to be
earned by the assets of the fund. The present value of ACE's
nuclear decommissioning obligation, based on costs adopted by the
BPU in 1991 and restated in 1996 dollars, is $158 million.
Decommissioning activities as approved by the BPU were expected
to begin in 2006 and continue through 2032. The total estimated
value of the trust at December 31, 1996, inclusive of the present
value of future funding, based on current annual funding amounts
and expected decommissioning dates approved by the BPU, is
approximately $137 million, without earnings on or appreciation
of the fund assets. In accordance with BPU regulations, updated
site-specific studies based on 1995 costs have been performed and
submitted to the BPU for review. Any revisions to the amounts to
be recognized and recovered in rates as a result of the updated
studies are subject to the review and approval of the BPU and
cannot be determined at this time. ACE will seek to adjust these
estimates and the level of rates collected from customers in
future BPU proceedings to reflect changes in decommissioning cost
estimates and the expected levels of inflation and interest to be
earned by the assets in the trust.
Purchased Capacity and Energy Arrangements - ACE
ACE arranges with various providers of bulk energy to obtain
sufficient supplies of energy to satisfy current and future
energy requirements of the company. Arrangements may be for
generating capacity and associated energy or for energy only.
Terms of the arrangements vary in length to enable ACE to
optimally manage its supply portfolio in response to changing
near and long term market conditions. At December 31, 1996, ACE
has contracted for 707 megawatts (MWs) of purchased capacity with
terms remaining of 2 to 28 years and an additional 175 MWs
commencing in 1999 for 10 years. Information regarding these
arrangements relative to ACE was as follows:
1996 1995 1994
As a % of Capacity (year end) 30% 30% 29%
As a % of Generation 55% 52% 48%
Capacity charges (millions) $195.7 $190.6 $130.9
Energy charges (millions) $145.1 $135.4 $128.6
Amounts for purchased capacity are shown on the Consolidated
Statement of Income as Purchased Capacity. Of these amounts,
charges of certain nonutility providers are recoverable through
the LEC, which amounted to $165.3 million, $162.7 million and
$77.0 million in 1996, 1995 and 1994, respectively. Minimum
future payments for purchased capacity and energy under contract
for the years 1997 through 2001 are performance driven and cannot
be reasonably estimated.
Environmental Matters - ACE
The provisions of Title IV of the Clean Air Act Amendments of
1990 (CAAA) require, among other things, phased reductions of
sulfur dioxide (SO2) emissions by 10 million tons per year, a
limit on SO2 emissions nationwide by the year 2000 and reductions
in emissions of nitrogen oxides (NOx) by approximately 2 million
tons per year. ACE's wholly-owned B.L. England Units 1 and 2 and
its jointly-owned Conemaugh Units 1 and 2 are in compliance with
Phase I requirements as the result of installation of scrubbers
at each station. All of ACE's fossil-fuel steam generating units
are affected by Phase II (2000) of the CAAA. A compliance plan
for these units currently reflects capital expenditures of
approximately $8.5 million in 1997 through 2001. The jointly-
owned Keystone Station is impacted by the SO2 and NOx provisions
of Title IV of the CAAA during Phase II. The Keystone owners
plan to primarily rely on emission allowances to comply with the
CAAA through the year 2000.
Salem Nuclear Generating Station
ACE is an owner of 7.41% of Salem Units 1 and 2, which are
operated by PS. Salem Units 1 and 2 have been out of service
since May 16, 1995 and June 7, 1995, respectively. The Salem
units represent 164 MWs of ACE's total installed capacity of
2,385.7 MWs.
During these outages, PS has made significant changes and
improvements related to the people, processes and equipment at
Salem to improve the long-term reliability of the units. Salem
Unit 2 is in the final stages of preparation for restart. The
reactor has been refueled and reassembled and the reactor coolant
pumps have been tested and placed in service. Over 90% of the
total work activities have been completed and approximately 80%
of the plant systems have been restored. Salem Unit 2 is
currently expected to return to service in the second quarter of
1997.
Salem Unit 1 is currently expected to return to service in the
fall of 1997, after replacement of the unit's four steam
generators, which was required in order to correct a generic
problem with certain pressurized water reactors. Removal of the
old steam generators has been completed and installation of the
new steam generators is underway. The estimated cost of
purchasing and installing the steam generators is between $150
million and $170 million, of which ACE's share is between $11.1
million and $12.6 million. In addition, the cost of the disposal
of the old steam generators could be as much as $20 million, of
which ACE's share would be $1.5 million.
Effective December 31, 1996, ACE entered into a Stipulation
Agreement (Agreement) with PS for the purpose of limiting ACE's
exposure to Salem's 1997 operation and maintenance (O&M)
expenses. Pursuant to the terms of the Agreement, ACE will pay
to PS $10.0 million of O&M expense as a fixed charge payable in
twelve equal installments beginning February 1, 1997. ACE's
obligation for any additional contribution to 1997 Salem O&M
expenses, of which ACE's estimated share would be $21.8 million,
is based on performance and directly related to the timely return
and operation of Salem Units 1 and 2. To the extent ACE derives
a savings against 1997 O&M expenditures, those savings will
offset replacement power costs incurred due to the unavailability
of the Salem Units. As a result of this Agreement, ACE has
agreed to dismiss the complaint filed in the Superior Court of
New Jersey in March 1996 alleging negligence and breach of
contract.
On February 27, 1996, the Salem co-owners filed a Complaint in
United States District Court for the District of New Jersey
against Westinghouse Electric Corporation, the designer and
manufacturer of the Salem steam generators, under Federal and
state statutes alleging fraud, negligent misrepresentation and
breach of contract. The Westinghouse complaint seeks
compensatory and punitive damages. On April 30, 1996,
Westinghouse filed an answer and a counterclaim of $2.5 million
for unpaid work. The litigation is in the process of discovery
and investigation.
ACE is subject to a performance standard for its five jointly-
owned nuclear units. This standard is used by the BPU in
determining recovery of replacement energy costs when output from
the nuclear units is reduced or not available. Underperformance
results in penalties which are not permitted to be recovered from
customers and are charged against income. In accordance with the
standard, ACE anticipated that it would incur a nuclear
performance penalty for 1995 and had recorded a provision for
such. According to the Salem outage stipulation agreement as
previously discussed in Note 3, the performance of Salem Units 1
and 2 shall not be included in the calculation of a nuclear
performance penalty for the period each unit was taken out of
service up to each unit's respective return-to-service date. The
parties to the stipulation agreed that for the years 1995 and
1996, there will be no penalty or reward under the nuclear
performance standard. ACE had recorded a 1995 performance
penalty of $0.8 million, net of tax. This amount has been
incorporated into the net amount recorded for the Salem
stipulation discussed in Note 3.
The outage of each Salem unit causes ACE to incur replacement
power costs of approximately $0.7 million per unit per month.
ACE's replacement power costs for the current outage for each
unit, up to the agreed upon return-to-service dates, will be
recoverable in rates in ACE's next LEC proceeding. As discussed
above, replacement power costs incurred after the respective
agreed upon return-to-service dates for the Salem units will not
be recoverable in rates.
<PAGE>
Competition
Competition is expected to increase for electric energy markets
historically served exclusively by regulated utilities. In
recent years, changing laws and governmental regulations
permitting competition from other utilities and nonregulated
energy suppliers have prompted some customers to use self-
generation or alternative sources to meet their electric needs.
As the electric utility industry transitions from a regulated to
a competitive industry, utilities may not be able to recover
certain costs. These costs, which are known as "stranded" costs,
could result from the shift from cost of service based pricing to
market based pricing and from customers choosing different energy
suppliers than ACE. Potential types of stranded costs include 1)
above-market costs associated with generation facilities or long
term power purchase agreements and 2) regulatory assets, which
are expenses deferred and expected to be recovered from customers
in the future.
In April 1996, the Federal Energy Regulatory Commission issued
Order No. 888 "Promoting Wholesale Competition Through Open
Access Non-Discriminatory Transmission Service by Public
Utilities; Recovery of Stranded Costs by Public Utilities and
Transmitting Utilities". The Order is designed to remove
impediments to competition in the wholesale bulk power
marketplace, to bring more efficient, lower cost power to
electricity consumers, and provide an equitable means to
transition the industry to the new environment. Under this Order
utilities are required to offer transmission services for
wholesale energy transactions to others on a nondiscriminatory
basis. Tariffs have been established by ACE for these services,
which ACE must also apply to its own wholesale energy
transactions.
On January 16, 1997, the BPU issued a Draft Phase II of the New
Jersey Energy Master Plan (the Plan). In the Plan, the BPU has
recommended that retail customers in New Jersey have the ability
to choose their electric energy supplier beginning in October
1998 using a phase-in plan that will include all retail customers
by April 2001. Customers would be able to sign an agreement with
a third-party energy supplier and each electric utility,
including ACE, would continue to be responsible for providing
distribution service. Price and service quality for such
distribution would continue to be regulated by the BPU.
Beginning October 1998, costs for electric service, which consist
of power generation, transmission, distribution, metering and
billing will need to be unbundled. Transmission service would be
provided by an Independent System Operator which would be
responsible for maintaining a regional power grid that would
continue to be regulated by FERC.
The Plan states that the BPU is committed to assuring that a
fully competitive marketplace exists prior to the ending of its
economic regulation of power supply. At a minimum, utility
generating assets and functions must be separated and operate at
arms length from the transmission, distribution and customer
service functions of the electric utility. The BPU reserves
final judgment on the issue of requiring divestiture of utility
generating assets until detailed analyses of the potential for
market power abuses by utilities have been performed.
The Plan addresses the issue of "stranded" costs related to the
generating capacity currently in utility rates. High costs of
construction and operations incurred by the jointly-owned nuclear
power plants and the long-term high cost supply contracts with
independent power producers are two significant contributing
factors. The report proposes recovery of stranded costs over a
four to eight year period, through a specific market transition
charge which will be a separate component of a customer's bill.
Determination of the recoverability of costs will be on a case by
case basis with no guarantee for 100% recovery of eligible
stranded costs.
The Plan provides that the opportunity for full recovery of such
eligible costs is contingent upon and may be constrained by the
utility meeting a number of conditions, including achievement of
a BPU goal of delivering a near term rate reduction to customers
of five to ten percent. The Plan states that the independent
power contracts must be eligible for stranded cost recovery.
The Plan further states that utilities are obligated to take all
reasonably available measures to mitigate stranded costs caused
by the introduction of retail competition. The Plan further
notes that New Jersey is studying the "securitization" of
stranded costs as a means of financing these costs at interest
rates lower than the utility cost of capital, thereby helping to
mitigate the rate impact of stranded cost recovery. Recovery of
securitization may occur over a different period of time. The
Plan also suggests that a cap may be imposed on the level of the
charge as a mechanism to achieve the goal of overall rate
reduction.
The BPU intends to issue final findings and recommendations on
the electric utility industry restructuring Plan in April 1997.
Each electric utility in the State is to file a complete
restructuring plan, stranded cost filing and unbundled rate
filing no later than July 15, 1997.
ACE has not filed for accelerated depreciation of any capital
assets or special rate plans applicable to particular classes of
customers. However, in 1996 ACE entered into BPU approved Off-
Tariff Rate Agreements (OTRA's) with at-risk customers which
provide for special rates for customers who may choose to leave
ACE's energy system because they have alternative energy sources
available. To date, the aggregate amount of such reduced rate
agreements was $2.2 million, net of tax.
ACE has significant long term contract commitments to purchase
capacity and energy from nonutility sources at above-market
costs. Recovery of amounts associated with these contracts is
through ACE's LEC, for which rates are subject to approval by the
BPU annually.
In connection with the BPU's Plan, ACE is uncertain as to the
level of stranded costs that may arise or the degree to which
these costs will be recovered. If the final restructuring plan
requires ACE to recognize amounts as unrecoverable, ACE may be
required to write down asset values, and such writedowns could be
material.
Other
The Energy Policy Act of 1992 permits the Federal government to
assess investor-owned electric utilities that have ownership
interests in nuclear generating facilities. The assessment funds
the decontamination and decommissioning of Federally operated
nuclear enrichment facilities. Based on its ownership in five
nuclear generating units, ACE has a liability of $5.3 million and
$6.0 million at December 31, 1996 and 1995, respectively, for its
obligation to be paid over the next 12 years. ACE has an
associated regulatory asset of $5.7 million and $6.4 million at
December 31, 1996 and 1995, respectively. Amounts are currently
being recovered in rates for this liability and the regulatory
asset is concurrently being amortized to expense based on the
annual assessment billed by the Federal government.
In March 1996, the New Jersey Department of Treasury and the BPU
jointly proposed to replace the energy excise tax currently
imposed on electric and gas utilities. Under the proposal,
utilities would pay a state corporate business tax, a state sales
tax of six percent collected on all retail sales of energy
services and a state transitional energy facilities assessment
tax (TEFA) for a limited number of years. A gradual phase-out of
the TEFA is proposed. At the completion of the TEFA phase-out,
the total energy tax burden would be reduced by approximately
45%.<PAGE>
Note 11. REGULATORY ASSETS AND LIABILITIES - ACE
Costs incurred by ACE that have been permitted, or are expected to be
permitted, by the BPU to be deferred for recovery in rates in more than
one year, or for which future recovery is probable, are recorded as
regulatory assets. Regulatory assets are amortized to expense over the
period of recovery. Total regulatory assets at December 31 are as
follows:
Remaining
Recovery
(000) 1996 1995 Period*
Recoverable Future Federal
Income Taxes $85,858 $85,858 (A)
Unrecovered Purchased Power Costs:
Capacity Cost 64,658 80,598 4 years
Contract Renegotiation Costs 18,742 19,219 18 years
Unrecovered State Excise Taxes 54,714 64,274 6 years
Unamortized Debt Costs-Refundings 29,878 33,110 1-30 years
Deferred Energy Costs(See Note 1) 33,529 31,434 (B)
Other Regulatory Assets:
Postretirement Benefits Other
Than Pensions (See Notes 3&4) 32,609 26,227 (A)
Asbestos Removal Costs 9,086 9,356 33 years
Decommissioning/Decontaminating
Federally-owned Nuclear Units
(See Note 10) 5,726 6,404 12 years
Other 12,154 12,581
$346,954 $369,061
*From December 31, 1996
(A) Pending future recovery
(B) Recovered over annual LEC period
Recoverable Future Federal Income Taxes is the amount of revenue
expected to be collected from ratepayers for deferred tax costs to be
paid in future years. Unrecovered Purchased Power Capacity Costs
represent deferrals of prior capacity costs then in excess of
levelized revenues associated with a certain long term capacity
arrangement. Levelized revenues have since been greater than costs,
permitting the deferred costs to be amortized to expense. Contract
Renegotiation Costs were incurred through renegotiation of a long
term capacity and energy contract with a certain independent power
producer. Unrecovered State Excise Taxes represent additional
amounts paid as a result of prior legislative changes in the
computation of state excise taxes. Unamortized Debt Costs
associated with debt reacquired by refundings are amortized over
the life of the related new debt. Asbestos Removal Costs were
incurred to remove asbestos insulation from a wholly-owned generating
station. Included in Other are certain amounts being recovered over a
period of one to five years. At December 31, 1996, ACE had a $13
million liability recorded as a result of the credits to customers
from the October 22, 1996 Stipulation Agreements (See Note 3). The
credits have been made during January and February 1997 and were based
on customer usage from January through October 1996. No regulatory
liabilities existed at December 31, 1995.
NOTE 12. LEASES
ACE leases from others various types of property and equipment for use
in its operations. Certain of these lease agreements are capital
leases consisting of the following at December 31:
(000) 1996 1995
Production plant $ 6,642 $ 9,097
Less accumulated amortization 5,005 6,810
Net 1,637 2,287
Nuclear fuel 38,277 38,591
Leased property-net $39,914 $40,878
ACE has a contractual obligation to obtain nuclear fuel for the Salem,
Hope Creek and Peach Bottom stations. The asset and related
obligation for the leased fuel are reduced as the fuel is burned and
are increased as additional fuel purchases are made. No commitments
for future payments beyond satisfaction of the outstanding obligation
exist. Operating expenses for 1996, 1995 and 1994 include leased
nuclear fuel costs of $8.7 million, $11.2 million and $14.1 million,
respectively, and rentals and lease payments for all other capital and
operating leases of $2.6 million, $3.9 million and $5.3 million,
respectively. Future minimum rental payments for all noncancellable
lease agreements are less than $2.4 million per year for each of the
next 5 years.
ATE is the lessor in five leveraged lease transactions consisting of
three aircraft and two containerships with total respective costs of
approximately $168 million and $76 million. Remaining lease terms for
all leases approximate 14 to 15 years. The Company's equity
participation in the leases range from 22% to 32%. Funding of the
investment in the leveraged lease transactions is comprised of equity
participation by ATE and financing provided by third parties as long
term debt without recourse to ATE. The lease transactions provide
collateral for such third parties, including a security interest in
the leased equipment. Net investment in leveraged leases at December
31 was as follows:
(000) 1996 1995
Rentals receivable (net of principal
and interest on nonrecourse debt) $ 50,898 $ 50,955
Estimated residual values 53,435 53,435
Unearned and deferred income (24,646) (25,431)
Investment in leveraged leases 79,687 78,959
Deferred taxes arising from leveraged
leases (76,671) (71,064)
Net investment in leveraged leases $ 3,016 $ 7,895
<PAGE>
Note 13. Financial Instruments
A number of items within Current Assets and Current Liabilities on the
Consolidated Balance Sheet are considered to be financial instruments
because they are cash or are to be settled in cash. Due to their
short-term nature, the carrying values of these items approximate
their fair market values. Accounts Receivable - Utility Service and
Unbilled Revenues are subject to concentration of credit risk because
they pertain to utility service conducted within a fixed geographic
region. Investments in Leveraged Leases are subject to concentration
of credit risk because they are exclusive to a small number of parties
within two industries. The Company has recourse to the affected
assets under lease. These leased assets are of general use within
their respective industries.
ACE's long term debt and preferred securities and ATE's long term debt
securities are not widely held and generally trade infrequently. The
estimated aggregate fair market value of debt securities has been
determined based on quoted market prices for the same or similar debt
issues or on securities of companies with similar credit quality,
coupon rates and maturities. The aggregate fair market value of
preferred securities has been determined using market information
available from actual trades or of trades of similar instruments of
companies with similar credit quality. At December 31 the amounts are
as follows:
Market Value
Long Term Debt and Preferred Securities
(in millions)
1996 1995
Carrying Market Carrying Market
Value Value Value Value
ACE Long Term Debt $802.4 $828.8 $814.6 $851.0
ACE Preferred Stock 74.0 77.1 177.0 172.0
CQIPS 70.0 69.3 - -
ATE Long Term Debt 33.5 34.0 33.5 34.5
ATS Long Term Debt 54.5 54.5 12.5 12.5
AEI Long Term Debt 37.6 37.6 34.5 34.5
<PAGE>
NOTE 14. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Quarterly financial data, reflecting all adjustments necessary in the
opinion of management for a fair presentation of such amounts, are as
follows:
Dividends
Operating Operating Net Earnings Paid
Quarter Revenues Income Income Per Share Per Share
1996 (000) (000) (000)
1st $245,325 $ 32,980 $15,535 $ .29 $.385
2nd 225,678 27,685 10,250 .20 .385
3rd 281,965 51,344 32,567 .62 .385
4th 227,287 20,418 415 .01 .385
Annual $980,255 $132,428 $58,767 $1.12 $1.54
1995
1st $218,626 $ 27,584 $ 11,469 $ .21 .385
2nd 206,232 27,771 10,568 .20 .385
3rd 302,685 66,482 48,745 .93 .385
4th 225,594 26,700 10,986 .21 .385
Annual $953,137 $148,537 $81,768 $1.55 $1.54
Third quarter results generally exceed those of other quarters due to
increased sales and higher residential rates for ACE.
Individual quarters may not add to the total due to rounding.
The fourth quarter 1996 Net Income reflects an increase in ACE's
electric sales offset in part by the increase in energy expense due to
increased sales, recovery of previously deferred energy costs and an
increase in operations and maintenance expense related to Salem.
During the fourth quarter of 1996 nonutility operations recorded a
$1.6 million, net of tax loss contingency for the sale of the
Binghamton Cogeneration Facility by AGI, $0.8 million, net of tax
write-down of the carrying value of ASP's commercial building and $1.1
million, net of tax loss for AEE's investment in Enerval, LLC.
<PAGE>
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information for this item concerning Directors of the
Company is set forth in the section entitled "Nominees for
Election" on page 3 of the Company's Notice of 1997 Annual
Meeting of Shareholders and definitive Proxy Statement, which is
incorporated by reference. The information required by Item 10
of Form 10-K with respect to the executive officers of the
Company and the directors of ACE is, pursuant to Instruction 3
to Item 401(b) of Regulation S-K, set forth in Part I of this
Form 10-K under the heading "Executive Officers".
ITEM 11 EXECUTIVE COMPENSATION
Information for this item with respect to the amounts paid
to the five most highly compensated executive officers of the
Company and ACE, is set forth in the section entitled "Table 1-
Summary Compensation Table" on page 14 of the Company's Notice
of 1997 Annual Meeting of Shareholders and definitive Proxy
Statement, which is incorporated herein by reference. The cash
compensation paid to 11 executive officers of ACE, as a group,
in 1996 was $2,399,052.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this item as to compliance with
Section 16(a) of the Exchange Act is contained in the section
captioned "Stock Ownership of Directors and Officers" on page 6
of the Company's Notice of 1997 Annual Meeting of Shareholders
and definitive Proxy Statement, which is incorporated herein by
reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1996, Marilyn T. Powell, Vice President of the
Company and Senior Vice President-Marketing and Distribution of
ACE was provided a bridge loan for the purpose of establishing a
local residence within commuting distance of the Company's
principal offices. This bridge loan had been offered as an
inducement to the employment of Marilyn T. Powell in order to
relocate from the State of Connecticut. Pursuant to an
agreement, an interest-free loan in the amount of $185,000 was
made, to be repaid six months from the date of the agreement or
upon sale of Ms. Powell's primary residence. The loan was
repaid in full on May 23, 1996.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
Exhibits: See Exhibit Index attached.
The following financial information, financial statements and
notes to financial statements for the Company and ACE are filed
herein:
Management's Discussion and Analysis of Financial Condition and
Results of Operations; Consolidated Statement of Income for the
three years ended December 31, 1996; Consolidated Statement of
Cash Flows for the three years ended December 31, 1996;
Consolidated Balance Sheet - December 31, 1996 and December 31,
1995; Consolidated Statement of Changes in Common Shareholder's
Equity; Notes to Consolidated Financial Statements;
Independent Auditors' Report.
Reports on Form 8-K:
Current Reports on Form 8-K were filed, dated February 23,
1996, May 29, 1996, June 26, 1996, July 25, 1996, August 13,
1996, October 23, 1996, January 6, 1997, January 27, 1997 and
January 31, 1997 relating to the shutdown, and subsequent
events, of Salem Units 1 and 2, the announcement of the merger
agreement between the Company and Delmarva Power & Light
Company, the settlement agreement between ACE and PS and the
BPU's Draft Phase II of the New Jersey Energy Master Plan. <PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, who also signed in the capacity
indicated.
ATLANTIC ENERGY, INC.
ATLANTIC CITY ELECTRIC COMPANY
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
in the capacities and on the date indicated.
Date: March 14, 1997 By: /s/ J. L. Jacobs
J. L. Jacobs
Title: Chairman, Chief Executive Officer
and Director of Atlantic Energy, Inc. and Chairman,
Chief Executive Officer and Director of
Atlantic City Electric Company
Date: March 14, 1997 By: /s/ M. J. Barron
M. J. Barron
Title: Vice President and Chief Financial Officer of Atlantic
Energy, Inc. and Senior Vice President and Chief
Financial Officer of Atlantic City Electric Company
DIRECTORS OF ATLANTIC ENERGY, INC.:
Gerald A. Hale* Richard B. McGlynn*
Matthew Holden, Jr.* Bernard J. Morgan*
Cyrus H. Holley* Harold J. Raveche*
Kathleen MacDonnell*
A MAJORITY OF DIRECTORS OF ATLANTIC CITY ELECTRIC COMPANY:
Michael J. Chesser* James E. Franklin II*
Meredith I. Harlacher, Jr.* Henry K. Levari, Jr.*
M. T. Powell *
Date: March 14, 1997 *By: /s/ M. J. Barron
M. J. Barron
Attorney-in-Fact
<PAGE>
EXHIBIT INDEX
3a Restated Certificate of Incorporation of Atlantic Energy,
Inc. (File No. 1-9760, Form 10-Q for quarter ended September 30,
1987-Exhibit 4(a)); Certificate of Amendment to restated
Certificate of Incorporation of Atlantic Energy, Inc. dated
April 15, 1992. File No. 33-53511, Form S-8 dated May 6,
1994-Exhibit No. 3(ii).
3b By-Laws of Atlantic Energy, Inc. as amended July 13, 1995
(File No. 1-9760, Form 10-Q for the quarter ended June 30, 1995
- - Exhibit 3b(1).
3c Agreement of Merger between Atlantic City Electric Company
and South Jersey Power & Light Company filed June 30, 1949, and
Amendments through May 3, 1991 (File No. 2-71312-Exhibit No.
3(a); File No. 1-3559, Form 10-Q for quarter ended June 30,
1982- Exhibit No. 3(b); Form 10-Q for quarter ended March 31,
1985- Exhibit No. 3(a); Form 10-Q for quarter ended March 31,
1987- Exhibit No. 3(a): Form 8-K dated October 12, 1988-Exhibit
No. 3(a); Form 10-K for fiscal year ended December 31,
1990-Exhibit No. 3c; and Form 10-Q for quarter ended September
30, 1991- Exhibit No. 3c).
3d By-Laws of Atlantic City Electric Company, as amended April
24, 1989 (File No. 1-3559, Form 10-Q for the quarter ended
September 31, 1989-Exhibit No. 3).
4b Mortgage and Deed of Trust, dated January 15, 1937, between
Atlantic City Electric Company and The Bank of New York
(formerly Irving Trust Company) and Supplemental Indentures
through November 1, 1994 (File No. 2-66280-Exhibit No. 2(b);
File No. 1- 3559, Form 10-K for year ended December 31,
1980-Exhibit No. 4(d); Form 10-Q for quarter ended June 30,
1981-Exhibit No. 4(a); Form 10-K for year ended December 31,
1983-Exhibit No. 4(d); Form 10-Q for quarter ended March 31,
1984-Exhibit No. 4(a); Form 10-Q for quarter ended June 30,
1984-Exhibit 4(a); Form 10-Q for quarter ended September 30,
1985-Exhibit 4; Form 10-Q for quarter ended March 31,
1986-Exhibit No. 4; Form 10-K for year ended December 31,
1987-Exhibit No. 4(d); Form 10-Q for quarter ended September 30,
1989-Exhibit No. 4(a); Form 10-K for year ended December 31,
1990-Exhibit No. 4(c); File No. 33-49279-Exhibit No. 4(b); File
No. 1-3559, Form 10-Q for the quarter ended September 30, 1993 -
Exhibits 4(a) & 4(b); Form 10-K for the year ended December 31,
1993 - Exhibit 4c(i); File no. 1-3559, Form 10-Q for the quarter
ended June 30, 1994 - Exhibit 4(a); File No. 1-3559, Form 10-Q
for the quarter ended September 30, 1994 - Exhibit 4(a); Form
10-K for year ended December 31, 1994-Exhibit 4(c)(1).
4e Agreement dated as of February 1, 1966, between Atlantic
City Electric Company and Fidelity Union Trust Company and
Supplement dated as of May 1, 1968. (File No. 1-3559, Form 8-K
dated March 7, 1966-Exhibit 13(b)(2); Form 8-K dated June 6,
1968- Exhibit No. 13(b)(1)).
4f(1) Revolving Credit and Term Loan Agreement dated as of May
24, 1988 by and between ATE Investment, Inc. and The Bank of New
York (File No.1-9760, Form 10-K for year ended December 31,
1988- Exhibit No. 4g(1)).
4f(2) Support Agreement dated as of May 24, 1988 between
Atlantic Energy, Inc. and ATE Investment, Inc. (File No. 1-9760,
Form 10-K for year ended December 31, 1988-Exhibit No. 4g(2)).
4f(3) Letter Agreement dated as of May 24, 1988 between
Atlantic Energy, Inc. and The Bank of New York (File No. 1-9760,
Form 10-K for year ended December 31, 1988-Exhibit No. 4g(3)).
4f(4) Amendment No. 1 dated as of February 22, 1989 to
Revolving Credit and Term Loan Agreement dated as of May 24,
1988 by and between ATE Investment, Inc. and The Bank of New
York (File No. 1-9760, Form 10-K for the fiscal year ended
December 31, 1988).
4f(5) Amendment No. 2 dated as of June 1, 1991, to Revolving
Credit and Term Loan Agreement dated as of May 24, 1988 by and
between ATE Investment, Inc. and The Bank of New York (File No.
1-9760, Form 10-K for year ended December 31, 1991-Exhibit No.
4f(5)).
4f(6) Revolving Credit Agreements dated as of September 28, 1995
by and among Atlantic Energy, Inc., The Bank of New York, as
agent, and Lender party thereto (File No. 1-9760, Form 10-K for
year ended December 31, 1995-Exhibit 4f(6)).
4f(7) Amended and Restated Trust Agreement, dated as of October
1, 1996, by and among Atlantic City Electric Company, as
Depositor, The Bank of New York, as Property Trustee, The Bank
of New York (Delaware) as Delaware Trustee and the
Administrative Trustees Named Therein, filed herewith.
4f(8) Junior Subordinated Indenture, dated as of October 1,
1996, by and between Atlantic City Electric Company and The Bank
of New York, as Trustee, filed herewith.
4f(9) Guarantee Agreement, dated as of October 1, 1996, by and
between Atlantic City Electric Company as Guarantor, and The
Bank of New York as Guarantee Trustee, filed herewith.
<PAGE>
10a(1) Atlantic Energy, Inc. Directors Deferred Compensation
Plan revised as of February 4, 1988 (File No. 1-9760, Form 10-K
for year ended December 31, 1988-Exhibit No. 10a(1)). Amendment
to the Deferred Compensation Plan for Directors effective
December 10, 1992 (File No. 1-9760, Form 10-K for year ended
December 31, 1992-Exhibit No. 10a(2)).
10a(2) Deferred Compensation Plan for Employees of Atlantic
Energy, Inc. and Participating Subsidiaries (File No. 1-9760,
Form 10-K for year ended December 31, 1988-Exhibit No. 10a(2)).
Amendment to Deferred Compensation Plan for Employees of
Atlantic Energy, Inc. and Participating Subsidiaries effective
December 10, 1992 (File No. 1-9760, Form 10-K for year ended
December 31, 1992-Exhibit No. 10a(4)).
10a(3) Supplemental Executive Retirement Plan for Officers of
Atlantic City Electric Company, as amended effective March 1,
1990 (File No. 1-9760, Form 10-K for year ended December 31,
1989-Exhibit No. 10a(4)).
10a(4) Supplemental Executive Retirement Plan - II for Officers
of Atlantic City Electric effective September 8, 1995 (File No.
1-9760, Form 10-K for year ended December 31, 1995- Exhibit No.
10a(5)1).
10a(5) Description of amendment to Supplemental Executive
Retirement Plan effective December 10, 1992 (File No. 2-9760,
Form 10-K for year ended December 31, 1992-Exhibit 10a(3)).
Supplemental Executive Retirement Plan for Officers of
Atlantic City Electric Company, amendment No. 1995-1 (File No.
1-9760, Form 10-K for year ended December 31, 1995-Exhibit
10a(6)1).
10a(6) Copy of Atlantic Electric Excess Benefit Retirement
Income Program, as amended, effective as of August 2, 1990 (File
No. 1-3559, Form 10-K for year ended December 31, 1991-Exhibit
No. 10a(6)). Amendment to the Excess Benefit Retirement Income
Program effective December 10, 1992 (File No. 1-9760, Form 10-K
for year ended December 31, 1992-Exhibit 10a(6)). Atlantic City
Electric Company Excess Benefit Retirement Income Program,
Amendment No. 1995-1 (File No. 1-9760, Form 10-K for year ended
December 31, 1995-Exhibit 10a(10)1).
10a(7) Atlantic Energy, Inc. Retirement Plan for Directors, as
amended effective November 13, 1991 (File No. 1-9760, Form 10-K
for year ended December 31, 1991-Exhibit No. 10a(9)). Atlantic
Energy, Inc. Retirement Plan for Directors, Amendment No. 1995-1
(File No. 1-9760, Form 10-K for year ended December 31,
1995-Exhibit 10a(14)1).
10a(8) Copy of Atlantic Energy, Inc. Restricted Stock Plan for
Non-employee Directors, effective January 1, 1991 (File No. 1-
9760, Form 10-K for year ended December 31, 1991-Exhibit No.
10a(10)).
10a(9) Agreement dated August 10, 1995 between Atlantic
Energy, Inc. and Jerrold L. Jacobs, as supplemented (File No.
1-9760, Form 10-K for year ended December 31, 1995-Exhibit
10a(16)1).
10a(10) Agreement dated August 10, 1995 between Atlantic
Energy, Inc. and Meredith I. Harlacher, Jr. as supplemented
(File No. 1-9760, Form 10-K for year ended December 31, 1995 -
Exhibit 10a(17)1).
10a(11) Agreement dated August 10, 1995 between Atlantic
Energy, Inc. and Michael J. Chesser, as amended (File No.
1-9760, Form 10-K for year ended December 31, 1995- Exhibit
10a(20)1).
10a(12) Atlantic Energy, Inc. Equity Incentive Plan (File No.
33-53511, Form S-8 filed May 6, 1994-Exhibit 10.)
10a(13) Employment Agreement dated September 15, 1995 between
Atlantic Energy, Inc. and Michael J. Barron, as supplemented,
filed herewith.
10a(14) Employment Agreement dated August 10, 1995 between
Atlantic Energy, Inc. and James E. Franklin II, as supplemented,
filed herewith.
Agreements in substantially the same form have been entered into
with the following other executive officers of the Company:
Scott Ungerer, Ernest L. Jolly, H. K. Levari, Jr., Louis M.
Walters and Frank E. DiCola.
10b(1) Agreement as to ownership as tenants in common of the
Salem Nuclear Generating Station Units 1, 2, and 3, dated
November 24, 1971, and of Supplements, dated as of September 1,
1975, and as of January 26, 1977 (File No. 2-43137-Exhibit No.
5(p); File No. 2-60966-Exhibit No. 5(m); and File No. 2-58430-
Exhibit No. 5(o)).
10b(2) Agreement as to ownership as tenants in common of the
Peach Bottom Atomic Power Station Units 2 and 3, dated November
24, 1971 and of Supplements dated as of September 1, 1975 and as
of January 26, 1977 (File No. 2-43137-Exhibit No. 5(o); File No.
2-60966-Exhibit No. 5(j); File No. 2-58430-Exhibit No. 5(m)).
10b(3) Owners Agreement, dated April 28, 1977 between Atlantic
City Electric Company and Public Service Electric & Gas Company
for the Hope Creek Generating Station Units No. 1 and 2 (File
No. 2-60966-Exhibit No. 5(v)).
10b(3-1) Amendment to Owners Agreement for Hope Creek
Generating Station, dated as of December 23, 1981, between
Atlantic City Electric Company and Public Service Electric & Gas
Company (File No. 1-3559, Form 10-K for year ended December 31,
1983-Exhibit No. 10b(3-2)).
10b(4) Pennsylvania-New Jersey-Maryland Interconnection
Agreement, dated September 26, 1956 between Public Service
Electric & Gas Company, Philadelphia Electric Company,
Pennsylvania Power & Light Company, Baltimore Gas & Electric
Company, Jersey Central Power & Light Company, Metropolitan
Edison Company, Pennsylvania Electric Company, Potomac Electric
Power Company and supplemental agreements through June 15, 1977
(File No. 1-3559, Form 10-K for year ended December 31, 1981-
Exhibit No. 10(p)).
10b(5) Pennsylvania-New Jersey-Maryland Interconnection
Supplemental Agreement, dated March 26, 1981, between Public
Service Electric & Gas Company, Philadelphia Electric Company,
Pennsylvania Power & Light Company, Baltimore Gas & Electric
Company, Jersey Central Power & Light Company, Metropolitan
Edison Company, Pennsylvania Electric Company, Potomac Electric
Power Company, Atlantic City Electric Company and Delmarva Power
& Light Company (File No. 1-3559, Form 10-Q for quarter ended
March 31, 1981-Exhibit No. 20b).
12 Computation of Ratios of Earnings to Fixed Charges, filed
herewith.
21 Subsidiaries of the Registrants, filed herewith.
24 Independent Auditors' Consent, filed herewith.
25a Powers of Attorney for Atlantic Energy, Inc. dated as of
March 13, 1997, filed herewith.
25b Powers of Attorney for Atlantic City Electric Company dated
as of March 10, 1997, filed herewith.
27 Financial Data Schedules for Atlantic Energy, Inc. and
Atlantic City Electric Company for periods ended December 31,
1996.
<PAGE>
INDEPENDENT AUDITORS' REPORT
To Atlantic City Electric Company:
We have audited the accompanying consolidated balance sheets of
Atlantic City Electric Company and subsidiary as of December 31,
1996 and 1995 and the related consolidated statements of income,
changes in common shareholder's equity, and cash flows for each
of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits 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
Atlantic City Electric Company and subsidiary at December 31,
1996 and 1995 and the results of their operations and their cash
flows for each of the three years in the period ended December
31, 1996 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
February 7, 1997
Parsippany, New Jersey <PAGE>
REPORT OF MANAGEMENT-Atlantic City Electric Company
The management of Atlantic City Electric Co. and its subsidiary
(the Company) is responsible for the preparation of the
consolidated financial statements presented in this Annual
Report. The financial statements have been prepared in
conformity with generally accepted accounting principles. In
preparing the consolidated financial statements, management made
informed judgments and estimates, as necessary, relating to
events and transactions reported.
Management has established a system of internal accounting and
financial controls and procedures designed to provide reasonable
assurance as to the integrity and reliability of financial
reporting. In any system of financial reporting controls,
inherent limitations exist. Management continually examines the
effectiveness and efficiency of this system, and actions are
taken when opportunities for improvement are identified.
Management believes that, as of December 31, 1996, the system of
internal accounting and financial controls over financial
reporting is effective. Management also recognizes its
responsibility for fostering a strong ethical climate in which
the Company's affairs are conducted according to the highest
standards of corporate conduct. This responsibility is
characterized and reflected in the Company's code of ethics and
business conduct policy.
The consolidated financial statements have been audited by
Deloitte & Touche LLP, Certified Public Accountants. Deloitte &
Touche LLP, provides objective, independent audits as to
management's discharge of its responsibilities insofar as they
relate to the fairness of the financial statements. Their
audits are based on procedures believed by them to provide
reasonable assurance that the financial statements are free of
material misstatement.
The Company's internal auditing function conducts audits and
appraisals of the Company's operations. It evaluates the system
of internal accounting, financial and operational controls and
compliance with established procedures. Both the external
auditors and the internal auditors periodically make
recommendations concerning the Company's internal control
structure to management and the Audit Committee of the Board of
Directors. Management responds to such recommendations as
appropriate in the circumstances. None of the recommendations
made for the year ended December 31, 1996 represented
significant deficiencies in the design or operation of the
Company's internal control structure.
/s/ M. J. Chesser
M. J. Chesser
President and Chief Operating Officer
/s/ M. J. Barron
M. J. Barron
Senior Vice President and Chief Financial Officer
February 7, 1997
<PAGE>
Atlantic City Electric Company and Subsidiary
CONSOLIDATED STATEMENT OF INCOME
(Thousands of Dollars)
For the Years Ended December 31,
1996 1995 1994
Operating Revenues-Electric $982,492 $953,779 $913,226
Operating Expenses:
Energy 223,091 191,766 210,891
Purchased Capacity 195,699 190,570 130,929
Operations 156,891 152,277 157,047
Employee Separation Costs - - 26,600
Maintenance 44,462 34,414 37,662
Depreciation and Amortization 80,845 78,461 73,344
State Excise Taxes 104,815 102,811 97,072
Federal Income Taxes 32,272 45,876 33,264
Other Taxes 9,888 8,677 10,757
Total Operating Expenses 847,963 804,852 777,566
Operating Income 134,529 148,927 135,660
Other Income and Expense:
Allowance for Equity Funds Used
During Construction 879 817 3,634
Other-Net 4,908 10,208 9,568
Total Other Income and Expense 5,787 11,025 13,202
Income Before Interest Charges 140,316 159,952 148,862
Interest Charges:
Interest on Long Term Debt 60,029 60,329 57,346
Other Interest Expense 4,818 2,550 1,114
Total Interest Charges 64,847 62,879 58,460
Allowance for Borrowed Funds Used
During Construction (976) (1,679) (2,772)
Net Interest Charges 63,871 61,200 55,688
Less Cumulative Quarterly Income
Preferred Securities Dividend
of Trust 1,428 - -
Net Income $ 75,017 $ 98,752 $ 93,174
Earnings for Common Stock:
Net Income $ 75,017 $ 98,752 $ 93,174
Less Preferred Stock Dividend
Requirements 9,904 14,627 16,716
Income Available for Common Stock $ 65,113 $ 84,125 $ 76,458
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
<PAGE>
Atlantic City Electric Company and Subsidiary
CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars) For the Years Ended December 31,
1996 1995 1994
Cash Flows Of Operating Activities:
Net Income $ 75,017 $ 98,752 $ 93,174
Unrecovered Purchased Power Costs 16,417 15,721 14,920
Deferred Energy Costs (2,095) (20,435) (3,819)
Cumulative Quarterly Income Preferred
Securities Dividends of Trust 1,428 - -
Depreciation and Amortization 80,845 78,461 73,344
Deferred Income Taxes-Net 1,448 15,694 6,116
Unrecovered State Excise Taxes 9,560 9,560 (40,128)
Changes-Net Working Capital Components:
Accounts Receivable and Unbilled
Revenues 5,795 (22,565) 337
Accounts Payable 2,814 (4,801) 1,813
Inventory (2,523) 4,960 (12,988)
Other 14,125 (8,890) (11,726)
Employee Separation Costs (7,179) (19,112) 26,600
Other-Net 17,020 10,318 3,935
Net Cash Provided by Operating
Activities 212,672 157,663 151,578
Cash Flows Of Investing Activities:
Construction Expenditures (86,805) (100,904) (119,961)
Leased Nuclear Fuel Material (6,833) (10,446) (10,713)
Plant Removal Costs (2,109) (4,525) (8,000)
Other-Net (15,707) 892 799
Net Cash Used by Investing Activities (111,454) (114,983) (137,875)
Cash Flows Of Financing Activities:
Issuance of Cumulative Income
Preferred Securities 70,000 - -
Proceeds from Long Term Debt - 104,404 53,572
Retirement and Maturity of
Long Term Debt (12,266) (57,489) (42,664)
Increase in Short Term Debt 34,405 21,945 8,600
Proceeds from Nuclear Fuel Capital
Lease Obligations 6,833 10,446 10,713
Redemption of Preferred Stock (98,876) (24,500) (24,500)
Dividends Declared on Capital Stock (92,066) (95,866) (100,198)
Dividends on Cumulative Quarterly
Income Preferred Securities of Trust (1,428) - -
Capital Contributions from Parent(net) (567) (223) 22,389
Other-Net (3,313) (869) 1,601
Net Cash Used by Financing Activities (97,278) (42,152) (70,487)
Net Increase (Decrease) in Cash
and Temporary Investments 3,940 528 (56,784)
Cash and Temporary Investments:
beginning of year 3,987 3,459 60,243
end of year $ 7,927 $ 3,987 $ 3,459
Supplemental Schedule of Payments:
Interest $ 65,269 $ 58,274 $ 61,035
Federal income taxes $ 36,937 $ 31,999 $ 32,254
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.<PAGE>
Atlantic City Electric Company and Subsidiary
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
December 31,
1996 1995
Assets
Electric Utility Plant:
In Service:
Production $1,212,380 $1,187,169
Transmission 373,358 366,242
Distribution 731,272 691,830
General 191,210 183,935
Total In Service 2,508,220 2,429,176
Less Accumulated Depreciation 871,531 794,479
Utility Plant in Service-Net 1,636,689 1,634,697
Construction Work in Progress 117,188 119,270
Land Held for Future Use 5,604 6,941
Leased Property-Net 39,914 40,878
Electric Utility Plant-Net 1,799,395 1,801,786
Investments and Nonutility Property:
Nuclear Decommissioning Trust Fund 71,120 61,802
Other 9,750 2,077
Total Investments and Nonutility
Property 80,870 63,879
Current Assets:
Cash and Temporary Investments 7,927 3,987
Accounts Receivable:
Utility Service 64,432 66,099
Miscellaneous 21,650 17,379
Allowance for Doubtful Accounts (3,500) (3,300)
Unbilled Revenues 33,315 41,515
Fuel (at average cost) 29,603 25,459
Materials and Supplies (at average cost) 23,815 25,434
Working Funds 15,517 14,420
Deferred Energy Costs 33,529 31,434
Prepaid Excise Tax 7,125 10,753
Other Prepayments 10,089 10,249
Total Current Assets 243,502 243,429
Deferred Debits:
Unrecovered Purchased Power Costs 83,400 99,817
Recoverable Future Federal Income Taxes 85,858 85,858
Unrecovered State Excise Taxes 54,714 64,274
Unamortized Debt Costs 43,579 38,924
Other Regulatory Assets 59,575 54,568
Other 9,848 6,569
Total Deferred Debits 336,974 350,010
Total Assets $2,460,741 $2,459,104
The accompanying Notes to Consolidated Financial Statements are an
integral part of these statements.
<PAGE>
Atlantic City Electric Company and Subsidiary
CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
December 31,
1996 1995
Liabilities and Capitalization
Capitalization:
Common Shareholder's Equity:
Common Stock $ 54,963 $ 54,963
Premium on Capital Stock 231,081 231,081
Contributed Capital 259,078 259,645
Capital Stock Expense (1,645) (2,131)
Retained Earnings 234,948 252,484
Total Common Shareholder's Equity 778,425 796,042
Preferred Securities:
Not Subject to Mandatory Redemption 30,000 40,000
Subject to Mandatory Redemption 43,950 114,750
Cumulative Quarterly Income
Preferred Securities of Trust 70,000 -
Long Term Debt 802,245 802,356
Total Capitalization(excluding current
portion) 1,724,620 1,753,148
Current Liabilities:
Preferred Stock Redemption Requirement 10,000 22,250
Capital Lease Obligations-Current 702 650
Long Term Debt-Current 175 12,247
Short Term Debt 64,950 30,545
Accounts Payable 63,644 60,831
Federal Income Taxes Payable-Affiliate 7,398 11,574
Other Taxes Accrued 7,494 3,382
Interest Accrued 19,619 19,961
Dividends Declared 21,701 23,490
Deferred Income Taxes 3,190 2,569
Provision for Rate Refunds 13,000 -
Other 22,980 24,958
Total Current Liabilities 234,853 212,457
Deferred Credits and Other Liabilities:
Deferred Income Taxes 357,580 354,218
Deferred Investment Tax Credits 46,577 49,112
Capital Lease Obligations 39,212 40,227
Other 57,899 49,942
Total Deferred Credits and Other
Liabilities 501,268 493,499
Commitments and Contingencies (Note 10)
Total Liabilities and Capitalization $2,460,741 $2,459,104
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
<PAGE>
CONSOLIDATED STATEMENT OF CHANGES IN
COMMON SHAREHOLDER'S EQUITY
(Thousands of Dollars)
Premium On Capital
Common Capital Contrib. Stock Retained
Stock Stock Capital Expense Earnings
Balance,
December 31, 1993 $54,963 $231,081 $237,479 $(2,470) $256,961
Net Income 93,174
Capital stock
expense 170 (170)
Capital contrib.
from parent (net) 22,389
Less dividends
declared:
Preferred (16,716)
Common (83,482)
Balance,
December 31, 1994 54,963 231,081 259,868 (2,300) 249,767
Net Income 98,752
Capital stock
expense 169 (169)
Capital contrib.
from parent (net) (223)
Less dividends
declared:
Preferred (14,627)
Common (81,239)
Balance,
December 31, 1995 54,963 231,081 259,645 (2,131) 252,484
Net Income 75,017
Capital Stock expense 486 (486)
Capital Contributions
from parent (net) (567)
Less dividends
declared:
Preferred (9,904)
Common (82,163)
Balance $54,963 $231,081 $259,078 (1,645) $234,948
December 31, 1996
As of December 31, 1996, the Company had 25 million authorized
shares of Common Stock at $3 par value. Shares outstanding at
December 31, 1996, 1995 and 1994 were 18,320,937.
The accompanying Notes to Consolidated Financial Statements are
an integral part of these statements.
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY AND SUBSIDIARY
Notes to Consolidated Financial Statements
Except as modified below, Notes 1 through 14, excluding Note 6
and Note 9, to the Consolidated Financial Statements of Atlantic
Energy Inc. (AEI) are incorporated herein by reference insofar as
they relate to Atlantic City Electric Company (ACE) and its
subsidiary:
Note 1. Principles of Consolidation
The consolidated financial statements include the accounts of ACE
and its subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain
prior year amounts have been reclassified to conform to the
current year reporting of these items.
Related Party Transactions - ACE has a contract for a total of
116 megawatts of capacity and related energy from a cogeneration
facility that is 50% owned by a wholly-owned subsidiary of
Atlantic Energy Enterprises, Inc.(AEE). Capacity costs totaled
$27.8 million in 1996, $23.8 million in 1995 and $23.0 million in
1994. ACE sells electricity to subsidiaries of AEE. The
electric sales totaled $2.2 million for 1996, $0.6 million for
1995 and $0.2 million for 1994. ACE also rents office space from
a wholly-owned subsidiary of AEE which amounts are not
significant. The amounts receivable from affiliates were not
significant at December 31, 1996 and 1995.
<PAGE>
Note 2. Income Taxes
The components of Federal income tax expense for the years ended
December 31 are as follows:
(000) 1996 1995 1994
Current $ 35,510 $ 32,457 $ 30,013
Deferred 1,448 15,694 6,116
Total Federal Income Tax Expense 36,958 48,151 36,129
Less Amounts in Other Income 4,686 2,275 2,865
Federal Income Taxes in
Operating Expenses $ 32,272 $ 45,876 $ 33,264
A reconciliation of the expected Federal income taxes compared to
the reported Federal income tax expense computed by applying the
statutory rate for the years ended December 31 follows:
1996 1995 1994
Statutory Federal Income Tax Rate 35% 35% 35%
(000)
Income Tax Computed at the
Statutory Rate $39,191 $51,417 $ 45,256
Plant Basis Differences 3,096 1,307 (27)
Amortization of Investment Tax
Credits (2,534) (2,534) (2,534)
Tax Adjustments - - (4,874)
Other-Net (2,795) (2,039) (1,692)
Total Federal Income Tax Expense $36,958 $48,151 $ 36,129
Effective Federal Income Tax Rate 33% 33% 28%
Items comprising deferred tax balances as of December 31 are as
follows:
(000) 1996 1995
Deferred Tax Liabilities:
Plant Basis Differences $326,673 $316,834
Unrecovered Purchased
Power Costs 22,630 28,209
State Excise Taxes 20,141 22,527
Other 29,344 29,519
Total Deferred Tax
Liabilities 398,788 397,089
Deferred Tax Assets:
Deferred Investment
Tax Credits 25,143 26,511
Employee Separation Costs 526 2,621
Other 12,349 11,170
Total Deferred Tax Assets 38,018 40,302
Total Deferred Taxes-Net $360,770 $356,787
<PAGE>
Note 14. Quarterly Financial Results (Unaudited).
Quarterly financial data of ACE, reflecting all adjustments
necessary in the opinion of management for all fair presentation
of such amounts, are as follows:
ATLANTIC CITY ELECTRIC COMPANY AND SUBSIDIARY
Operating Operating Net Earnings for
Quarter Revenues Income Income Common Stock
1996 (000) (000) (000) (000)
1st $245,472 $33,075 $19,316 $16,307
2nd 226,035 28,007 13,464 10,455
3rd 282,577 51,929 35,611 33,154
4th 228,408 21,518 6,627 5,197
Annual $982,492 $134,529 $75,017 $65,113
1995
1st $218,666 $27,565 $15,779 $11,992
2nd 206,246 27,755 15,111 11,324
3rd 303,031 67,026 52,666 48,879
4th 225,836 26,581 15,195 11,930
Annual $953,779 $148,927 $98,752 $84,125
Individual quarters may not add to the total due to rounding.
Third quarter results generally exceed those of other quarters
due to increased sales and higher residential rates for ACE.
The fourth quarter 1996 Net Income reflects an increase in ACE's
electric sales offset in part by the increase in energy expense
due to the increased sales, recovery of previously deferred
energy costs and an increase in operations and maintenance
expense related to Salem.
<PAGE>
Exhibit 12
Atlantic City Electric Company
SEC Registration Method
Ratio of Earnings to
Fix Charges
Years Ended December 31,
1991 1992 1993
Net Income $ 107,428 $ 107,446 $ 109,026
Federal Income Taxes
Current $ 37,759 $ 33,661 $ 29,680
Deferred 3,957 16,064 18,747
Investment Tax Credits-net (2,537) (2,534) (2,534)
Total Taxes $ 39,179 $ 47,191 $ 45,893
Fixed Charges
Interest on long term
debt $ 49,081 $ 50,719 $ 56,279
Amortization of debt
expense, discount &
premium, net 2,520 2,565 3,106
Interest on short term
debt 1,946 1,579 1,421
Other interest expense 1,179 1,099 212
Interest factors associated
with rentals 5,551 4,177 3,884
Total Fixed Charges $ 60,277 $ 60,139 $ 64,902
Earnings before income
taxes and fixed
charges (a) $ 205,279 $ 213,716 $ 218,950
Ratios of earnings to
Fixed Charges 3.41 3.55 3.37
(a) Excludes the amount of capitalized interest associated with
fixed charges.<PAGE>
Atlantic City Electric Company
SEC Registration Method
Ratio of Earnings to
Fix Charges
Years Ended December 31,
1994 1995 1996
Net Income $ 93,174 $ 98,752 $ 75,017
Federal Income Taxes
Current $ 30,014 $ 32,458 $ 35,510
Deferred 8,650 18,230 3,982
Investment Tax Credits-net (2,534) (2,534) (2,534)
Total Taxes $ 36,130 $ 48,154 $ 36,958
Fixed Charges
Interest on long term
debt $ 53,747 $ 56,547 $ 56,111
Amortization of debt
expense, discount &
premium, net 3,599 3,782 3,918
Interest on short term
debt 1,778 3,081 4,597
Other interest expense (664) (531) 1,649
Interest factors associated
with rentals 4,148 4,364 4,019
Total Fixed Charges $ 62,608 $ 67,243 $ 70,294
Earnings before income
taxes and fixed
charges (a) $ 190,884 $ 212,777 $ 181,178
Ratios of earnings to
Fixed Charges 3.05 3.16 2.58
(a) Excludes the amount of capitalized interest associated with
fixed charges.
Exhibit 21
Subsidiaries
of the
Registrants
Subsidiaries of Atlantic Energy, Inc.:
State of Date of
Company Name Incorporation Incorporation
Atlantic City Electric
Company New Jersey 4/28/24
Atlantic Energy
International, Inc. Delaware 7/6/96
Atlantic Energy
Enterprises, Inc. New Jersey 1/3/95
Subsidiaries of Atlantic City Electric Company:
State of Date of
Company Name Incorporation Incorporation
Deepwater Operating
Company New Jersey 12/17/29
Atlantic Capital I Delaware 6/20/96
(Grantor Trust)
Exhibit 24
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration No.
33-49683 of Atlantic Energy, Inc. on Form S-3 and Registration
Nos. 33-53511, 333-11683, and 333-07745 of Atlantic Energy, Inc.
on Form S-8 and Registration Statement No. 333-06625 of Atlantic
City Electric Company and Atlantic Capital 1 on Form S-3 and
Registration No. 333-18843 of Conectiv, Inc. on Form S-4 of our
reports dated February 7, 1997 appearing in this Annual Report of
Form 10-K of Atlantic Energy, Inc. and Atlantic City Electric
Company for the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
Parsippany, New Jersey
March 14, 1997
EXHIBIT 25(a)
ATLANTIC ENERGY, INC.
POWER OF ATTORNEY
The undersigned, a director or officer of Atlantic Energy,
Inc., a New Jersey corporation, does hereby appoint J. L. JACOBS,
M. J. CHESSER, M. J. BARRON AND J. E. FRANKLIN II and each of
them (with power to act without the other), including full power
of substitution and revocation, as the undersigned's true and
lawful attorneys-in-fact and agents, with full power and
authority to act in all capacities for him and in his name, place
and stead in connection with the filing with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of
1934, as amended, of an Annual Report on Form 10-K for the year
ended December 31, 1996 and any and all amendments thereto, and
execute and deliver for the undersigned and in his name, place
and stead all such other documents or instruments and to take
such further action as they, or any of them, deem appropriate.
The undersigned hereby ratifies and adopts as his own act and
deed the acts lawfully taken by said attorneys-in-fact and
agents, or any of them, or by their respective substitutes
pursuant to the powers and authorities granted herein.
IN WITNESS WHEREOF, the undersigned has executed this
document as of this 13th day of March, 1997.
/s/ M. Holden, Jr.
M. Holden, Jr.
<PAGE>
ATLANTIC ENERGY, INC.
POWER OF ATTORNEY
The undersigned, a director or officer of Atlantic Energy,
Inc., a New Jersey corporation, does hereby appoint J. L. JACOBS,
M. J. CHESSER, M. J. BARRON AND J. E. FRANKLIN II and each of
them (with power to act without the other), including full power
of substitution and revocation, as the undersigned's true and
lawful attorneys-in-fact and agents, with full power and
authority to act in all capacities for him and in his name, place
and stead in connection with the filing with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of
1934, as amended, of an Annual Report on Form 10-K for the year
ended December 31, 1996 and any and all amendments thereto, and
execute and deliver for the undersigned and in his name, place
and stead all such other documents or instruments and to take
such further action as they, or any of them, deem appropriate.
The undersigned hereby ratifies and adopts as his own act and
deed the acts lawfully taken by said attorneys-in-fact and
agents, or any of them, or by their respective substitutes
pursuant to the powers and authorities granted herein.
IN WITNESS WHEREOF, the undersigned has executed this
document as of this 13th day of March, 1997.
/s/ G. A. Hale
G. A. Hale
<PAGE>
ATLANTIC ENERGY, INC.
POWER OF ATTORNEY
The undersigned, a director or officer of Atlantic Energy,
Inc., a New Jersey corporation, does hereby appoint J. L. JACOBS,
M. J. CHESSER, M. J. BARRON AND J. E. FRANKLIN II and each of
them (with power to act without the other), including full power
of substitution and revocation, as the undersigned's true and
lawful attorneys-in-fact and agents, with full power and
authority to act in all capacities for her and in her name, place
and stead in connection with the filing with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of
1934, as amended, of an Annual Report on Form 10-K for the year
ended December 31, 1996 and any and all amendments thereto, and
execute and deliver for the undersigned and in her name, place
and stead all such other documents or instruments and to take
such further action as they, or any of them, deem appropriate.
The undersigned hereby ratifies and adopts as her own act and
deed the acts lawfully taken by said attorneys-in-fact and
agents, or any of them, or by their respective substitutes
pursuant to the powers and authorities granted herein.
IN WITNESS WHEREOF, the undersigned has executed this
document as of this 13th day of March, 1997.
/s/ K. MacDonnell
K. MacDonnell<PAGE>
ATLANTIC ENERGY, INC.
POWER OF ATTORNEY
The undersigned, a director or officer of Atlantic Energy,
Inc., a New Jersey corporation, does hereby appoint J. L. JACOBS,
M. J. CHESSER, M. J. BARRON AND J. E. FRANKLIN II and each of
them (with power to act without the other), including full power
of substitution and revocation, as the undersigned's true and
lawful attorneys-in-fact and agents, with full power and
authority to act in all capacities for him and in his name, place
and stead in connection with the filing with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of
1934, as amended, of an Annual Report on Form 10-K for the year
ended December 31, 1996 and any and all amendments thereto, and
execute and deliver for the undersigned and in his name, place
and stead all such other documents or instruments and to take
such further action as they, or any of them, deem appropriate.
The undersigned hereby ratifies and adopts as his own act and
deed the acts lawfully taken by said attorneys-in-fact and
agents, or any of them, or by their respective substitutes
pursuant to the powers and authorities granted herein.
IN WITNESS WHEREOF, the undersigned has executed this
document as of this 13th day of March, 1997.
/s/ B. J. Morgan
B. J. Morgan
<PAGE>
ATLANTIC ENERGY, INC.
POWER OF ATTORNEY
The undersigned, a director or officer of Atlantic Energy,
Inc., a New Jersey corporation, does hereby appoint J. L. JACOBS,
M. J. CHESSER, M. J. BARRON AND J. E. FRANKLIN II and each of
them (with power to act without the other), including full power
of substitution and revocation, as the undersigned's true and
lawful attorneys-in-fact and agents, with full power and
authority to act in all capacities for him and in his name, place
and stead in connection with the filing with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of
1934, as amended, of an Annual Report on Form 10-K for the year
ended December 31, 1996 and any and all amendments thereto, and
execute and deliver for the undersigned and in his name, place
and stead all such other documents or instruments and to take
such further action as they, or any of them, deem appropriate.
The undersigned hereby ratifies and adopts as his own act and
deed the acts lawfully taken by said attorneys-in-fact and
agents, or any of them, or by their respective substitutes
pursuant to the powers and authorities granted herein.
IN WITNESS WHEREOF, the undersigned has executed this
document as of this 13th day of March, 1997.
/s/ H. J. Raveche
H. J. Raveche
<PAGE>
ATLANTIC ENERGY, INC.
POWER OF ATTORNEY
The undersigned, a director or officer of Atlantic Energy,
Inc., a New Jersey corporation, does hereby appoint J. L. JACOBS,
M. J. CHESSER, M. J. BARRON AND J. E. FRANKLIN II and each of
them (with power to act without the other), including full power
of substitution and revocation, as the undersigned's true and
lawful attorneys-in-fact and agents, with full power and
authority to act in all capacities for him and in his name, place
and stead in connection with the filing with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of
1934, as amended, of an Annual Report on Form 10-K for the year
ended December 31, 1996 and any and all amendments thereto, and
execute and deliver for the undersigned and in his name, place
and stead all such other documents or instruments and to take
such further action as they, or any of them, deem appropriate.
The undersigned hereby ratifies and adopts as his own act and
deed the acts lawfully taken by said attorneys-in-fact and
agents, or any of them, or by their respective substitutes
pursuant to the powers and authorities granted herein.
IN WITNESS WHEREOF, the undersigned has executed this
document as of this 13th day of March, 1997.
/s/ R. B. McGlynn
R. B. McGlynn
<PAGE>
ATLANTIC ENERGY, INC.
POWER OF ATTORNEY
The undersigned, a director or officer of Atlantic Energy,
Inc., a New Jersey corporation, does hereby appoint J. L. JACOBS,
M. J. CHESSER, M. J. BARRON AND J. E. FRANKLIN II and each of
them (with power to act without the other), including full power
of substitution and revocation, as the undersigned's true and
lawful attorneys-in-fact and agents, with full power and
authority to act in all capacities for him and in his name, place
and stead in connection with the filing with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of
1934, as amended, of an Annual Report on Form 10-K for the year
ended December 31, 1996 and any and all amendments thereto, and
execute and deliver for the undersigned and in his name, place
and stead all such other documents or instruments and to take
such further action as they, or any of them, deem appropriate.
The undersigned hereby ratifies and adopts as his own act and
deed the acts lawfully taken by said attorneys-in-fact and
agents, or any of them, or by their respective substitutes
pursuant to the powers and authorities granted herein.
IN WITNESS WHEREOF, the undersigned has executed this
document as of this 13th day of March, 1997.
/s/ C. H. Holley
C. H. Holley
<PAGE>
ATLANTIC ENERGY, INC.
POWER OF ATTORNEY
The undersigned, a director or officer of Atlantic Energy,
Inc., a New Jersey corporation, does hereby appoint J. L. JACOBS,
M. J. CHESSER, M. J. BARRON AND J. E. FRANKLIN II and each of
them (with power to act without the other), including full power
of substitution and revocation, as the undersigned's true and
lawful attorneys-in-fact and agents, with full power and
authority to act in all capacities for him and in his name, place
and stead in connection with the filing with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of
1934, as amended, of an Annual Report on Form 10-K for the year
ended December 31, 1996 and any and all amendments thereto, and
execute and deliver for the undersigned and in his name, place
and stead all such other documents or instruments and to take
such further action as they, or any of them, deem appropriate.
The undersigned hereby ratifies and adopts as his own act and
deed the acts lawfully taken by said attorneys-in-fact and
agents, or any of them, or by their respective substitutes
pursuant to the powers and authorities granted herein.
IN WITNESS WHEREOF, the undersigned has executed this
document as of this 13th day of March, 1997.
/s/ M. J. Chesser
M. J. Chesser
<PAGE>
ATLANTIC ENERGY, INC.
POWER OF ATTORNEY
The undersigned, a director or officer of Atlantic Energy,
Inc., a New Jersey corporation, does hereby appoint J. L. JACOBS,
M. J. CHESSER, M. J. BARRON AND J. E. FRANKLIN II and each of
them (with power to act without the other), including full power
of substitution and revocation, as the undersigned's true and
lawful attorneys-in-fact and agents, with full power and
authority to act in all capacities for him and in his name, place
and stead in connection with the filing with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of
1934, as amended, of an Annual Report on Form 10-K for the year
ended December 31, 1996 and any and all amendments thereto, and
execute and deliver for the undersigned and in his name, place
and stead all such other documents or instruments and to take
such further action as they, or any of them, deem appropriate.
The undersigned hereby ratifies and adopts as his own act and
deed the acts lawfully taken by said attorneys-in-fact and
agents, or any of them, or by their respective substitutes
pursuant to the powers and authorities granted herein.
IN WITNESS WHEREOF, the undersigned has executed this
document as of this 13th day of March, 1997.
/s/ J. L. Jacobs
J. L. Jacobs
EXHIBIT 25(b)
ATLANTIC CITY ELECTRIC COMPANY
POWER OF ATTORNEY
The undersigned, a director or officer of Atlantic Energy,
Inc., a New Jersey corporation, does hereby appoint J. L. JACOBS,
M. J. CHESSER, M. J. BARRON AND J. E. FRANKLIN II and each of
them (with power to act without the other), including full power
of substitution and revocation, as the undersigned's true and
lawful attorneys-in-fact and agents, with full power and
authority to act in all capacities for him and in his name, place
and stead in connection with the filing with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of
1934, as amended, of an Annual Report on Form 10-K for the year
ended December 31, 1996 and any and all amendments thereto, and
execute and deliver for the undersigned and in his name, place
and stead all such other documents or instruments and to take
such further action as they, or any of them, deem appropriate.
The undersigned hereby ratifies and adopts as his own act and
deed the acts lawfully taken by said attorneys-in-fact and
agents, or any of them, or by their respective substitutes
pursuant to the powers and authorities granted herein.
IN WITNESS WHEREOF, the undersigned has executed this
document as of this 13th day of March, 1997.
/s/ J. L. Jacobs
J. L. Jacobs
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
POWER OF ATTORNEY
The undersigned, a director or officer of Atlantic Energy,
Inc., a New Jersey corporation, does hereby appoint J. L. JACOBS,
M. J. CHESSER, M. J. BARRON AND J. E. FRANKLIN II and each of
them (with power to act without the other), including full power
of substitution and revocation, as the undersigned's true and
lawful attorneys-in-fact and agents, with full power and
authority to act in all capacities for him and in his name, place
and stead in connection with the filing with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of
1934, as amended, of an Annual Report on Form 10-K for the year
ended December 31, 1996 and any and all amendments thereto, and
execute and deliver for the undersigned and in his name, place
and stead all such other documents or instruments and to take
such further action as they, or any of them, deem appropriate.
The undersigned hereby ratifies and adopts as his own act and
deed the acts lawfully taken by said attorneys-in-fact and
agents, or any of them, or by their respective substitutes
pursuant to the powers and authorities granted herein.
IN WITNESS WHEREOF, the undersigned has executed this
document as of this 13th day of March, 1997.
/s/ M. J. Chesser
M. J. Chesser
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
POWER OF ATTORNEY
The undersigned, a director or officer of Atlantic Energy,
Inc., a New Jersey corporation, does hereby appoint J. L. JACOBS,
M. J. CHESSER, M. J. BARRON AND J. E. FRANKLIN II and each of
them (with power to act without the other), including full power
of substitution and revocation, as the undersigned's true and
lawful attorneys-in-fact and agents, with full power and
authority to act in all capacities for him and in his name, place
and stead in connection with the filing with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of
1934, as amended, of an Annual Report on Form 10-K for the year
ended December 31, 1996 and any and all amendments thereto, and
execute and deliver for the undersigned and in his name, place
and stead all such other documents or instruments and to take
such further action as they, or any of them, deem appropriate.
The undersigned hereby ratifies and adopts as his own act and
deed the acts lawfully taken by said attorneys-in-fact and
agents, or any of them, or by their respective substitutes
pursuant to the powers and authorities granted herein.
IN WITNESS WHEREOF, the undersigned has executed this
document as of this 13th day of March, 1997.
/s/ J. E. Franklin II
J. E. Franklin II
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
POWER OF ATTORNEY
The undersigned, a director or officer of Atlantic Energy,
Inc., a New Jersey corporation, does hereby appoint J. L. JACOBS,
M. J. CHESSER, M. J. BARRON AND J. E. FRANKLIN II and each of
them (with power to act without the other), including full power
of substitution and revocation, as the undersigned's true and
lawful attorneys-in-fact and agents, with full power and
authority to act in all capacities for him and in his name, place
and stead in connection with the filing with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of
1934, as amended, of an Annual Report on Form 10-K for the year
ended December 31, 1996 and any and all amendments thereto, and
execute and deliver for the undersigned and in his name, place
and stead all such other documents or instruments and to take
such further action as they, or any of them, deem appropriate.
The undersigned hereby ratifies and adopts as his own act and
deed the acts lawfully taken by said attorneys-in-fact and
agents, or any of them, or by their respective substitutes
pursuant to the powers and authorities granted herein.
IN WITNESS WHEREOF, the undersigned has executed this
document as of this 13th day of March, 1997.
/s/ M. I. Harlacher, Jr.
M. I. Harlacher, Jr.
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
POWER OF ATTORNEY
The undersigned, a director or officer of Atlantic Energy,
Inc., a New Jersey corporation, does hereby appoint J. L. JACOBS,
M. J. CHESSER, M. J. BARRON AND J. E. FRANKLIN II and each of
them (with power to act without the other), including full power
of substitution and revocation, as the undersigned's true and
lawful attorneys-in-fact and agents, with full power and
authority to act in all capacities for him and in his name, place
and stead in connection with the filing with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of
1934, as amended, of an Annual Report on Form 10-K for the year
ended December 31, 1996 and any and all amendments thereto, and
execute and deliver for the undersigned and in his name, place
and stead all such other documents or instruments and to take
such further action as they, or any of them, deem appropriate.
The undersigned hereby ratifies and adopts as his own act and
deed the acts lawfully taken by said attorneys-in-fact and
agents, or any of them, or by their respective substitutes
pursuant to the powers and authorities granted herein.
IN WITNESS WHEREOF, the undersigned has executed this
document as of this 13th day of March, 1997.
/s/ H. K. Levari, Jr.
H. K. Levari, Jr.
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
POWER OF ATTORNEY
The undersigned, a director or officer of Atlantic Energy,
Inc., a New Jersey corporation, does hereby appoint J. L. JACOBS,
M. J. CHESSER, M. J. BARRON AND J. E. FRANKLIN II and each of
them (with power to act without the other), including full power
of substitution and revocation, as the undersigned's true and
lawful attorneys-in-fact and agents, with full power and
authority to act in all capacities for him and in his name, place
and stead in connection with the filing with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of
1934, as amended, of an Annual Report on Form 10-K for the year
ended December 31, 1996 and any and all amendments thereto, and
execute and deliver for the undersigned and in his name, place
and stead all such other documents or instruments and to take
such further action as they, or any of them, deem appropriate.
The undersigned hereby ratifies and adopts as his own act and
deed the acts lawfully taken by said attorneys-in-fact and
agents, or any of them, or by their respective substitutes
pursuant to the powers and authorities granted herein.
IN WITNESS WHEREOF, the undersigned has executed this
document as of this 13th day of March, 1997.
/s/ M. J. Barron
M. J. Barron<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
POWER OF ATTORNEY
The undersigned, a director or officer of Atlantic Energy,
Inc., a New Jersey corporation, does hereby appoint J. L. JACOBS,
M. J. CHESSER, M. J. BARRON AND J. E. FRANKLIN II and each of
them (with power to act without the other), including full power
of substitution and revocation, as the undersigned's true and
lawful attorneys-in-fact and agents, with full power and
authority to act in all capacities for her and in her name, place
and stead in connection with the filing with the Securities and
Exchange Commission, pursuant to the Securities Exchange Act of
1934, as amended, of an Annual Report on Form 10-K for the year
ended December 31, 1996 and any and all amendments thereto, and
execute and deliver for the undersigned and in her name, place
and stead all such other documents or instruments and to take
such further action as they, or any of them, deem appropriate.
The undersigned hereby ratifies and adopts as her own act and
deed the acts lawfully taken by said attorneys-in-fact and
agents, or any of them, or by their respective substitutes
pursuant to the powers and authorities granted herein.
IN WITNESS WHEREOF, the undersigned has executed this
document as of this 13th day of March, 1997.
/s/ M. T. Powell
M. T. Powell
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000008192
<NAME> ATLANTIC CITY ELECTRIC COMPANY
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,799,395
<OTHER-PROPERTY-AND-INVEST> 80,870
<TOTAL-CURRENT-ASSETS> 243,502
<TOTAL-DEFERRED-CHARGES> 336,974
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,460,741
<COMMON> 54,963
<CAPITAL-SURPLUS-PAID-IN> 488,514
<RETAINED-EARNINGS> 234,948
<TOTAL-COMMON-STOCKHOLDERS-EQ> 778,425
43,950
30,000
<LONG-TERM-DEBT-NET> 802,245
<SHORT-TERM-NOTES> 64,950
<LONG-TERM-NOTES-PAYABLE> 0
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<LONG-TERM-DEBT-CURRENT-PORT> 175
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<CAPITAL-LEASE-OBLIGATIONS> 39,212
<LEASES-CURRENT> 702
<OTHER-ITEMS-CAPITAL-AND-LIAB> 691,082
<TOT-CAPITALIZATION-AND-LIAB> 2,460,741
<GROSS-OPERATING-REVENUE> 982,492
<INCOME-TAX-EXPENSE> 32,272
<OTHER-OPERATING-EXPENSES> 815,691
<TOTAL-OPERATING-EXPENSES> 847,963
<OPERATING-INCOME-LOSS> 134,529
<OTHER-INCOME-NET> 5,787
<INCOME-BEFORE-INTEREST-EXPEN> 140,316
<TOTAL-INTEREST-EXPENSE> 63,871
<NET-INCOME> 75,017
9,904
<EARNINGS-AVAILABLE-FOR-COMM> 65,113
<COMMON-STOCK-DIVIDENDS> 82,162
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 212,672
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<CIK> 0000806393
<NAME> ATLANTIC ENERGY INC
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,799,395
<OTHER-PROPERTY-AND-INVEST> 250,504
<TOTAL-CURRENT-ASSETS> 263,094
<TOTAL-DEFERRED-CHARGES> 357,769
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 2,670,762
<COMMON> 562,746
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 224,648
<TOTAL-COMMON-STOCKHOLDERS-EQ> 787,394
43,950
30,000
<LONG-TERM-DEBT-NET> 829,745
<SHORT-TERM-NOTES> 64,950
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 98,250
10,000
<CAPITAL-LEASE-OBLIGATIONS> 39,212
<LEASES-CURRENT> 702
<OTHER-ITEMS-CAPITAL-AND-LIAB> 766,559
<TOT-CAPITALIZATION-AND-LIAB> 2,670,762
<GROSS-OPERATING-REVENUE> 980,255
<INCOME-TAX-EXPENSE> 32,272
<OTHER-OPERATING-EXPENSES> 815,555
<TOTAL-OPERATING-EXPENSES> 847,827
<OPERATING-INCOME-LOSS> 132,428
<OTHER-INCOME-NET> 1,542
<INCOME-BEFORE-INTEREST-EXPEN> 133,970
<TOTAL-INTEREST-EXPENSE> 63,871
<NET-INCOME> 58,767
0
<EARNINGS-AVAILABLE-FOR-COMM> 58,767
<COMMON-STOCK-DIVIDENDS> 81,163
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 194,484
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.12
</TABLE>
Exhibit4f(7)
=================================================================
AMENDED AND RESTATED
TRUST AGREEMENT
among
ATLANTIC CITY ELECTRIC COMPANY, as Depositor,
The Bank of New York, as Property Trustee
and The Bank of New York (Delaware) as Delaware Trustee
and
THE ADMINISTRATIVE TRUSTEES NAMED HEREIN
Dated as of October 1, 1996
ATLANTIC CAPITAL I
=================================================================<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINED TERMS . . . . . . . . . . . . . . 1
SECTION 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II
ESTABLISHMENT OF THE TRUST . . . . . . . . . . . 11
SECTION 2.1. Name. . . . . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.2. Office of the Delaware
Trustee; Principal
Place of Business . . . . . . . . . . . . . . . . . . 11
SECTION 2.3. Initial Contribution of
Trust Property;
Organizational
Expenses. . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 2.4. Issuance of the
Preferred Securities. . . . . . . . . . . . . . . . . 11
SECTION 2.5. Issuance of Common Securities; Subscription
and Purchase of Debentures. . . . . . . . . . . . . . 12
SECTION 2.6. Declaration of Trust. . . . . . . . . . . . . . . . . . 12
SECTION 2.7. Authorization to Enter into Certain
Transactions. . . . . . . . . . . . . . . . . . . . . . 13
SECTION 2.8. Assets of Trust . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.9. Title to Trust Property . . . . . . . . . . . . . . . . 17
ARTICLE III
PAYMENT ACCOUNT. . . . . . . . . . . . . . 17
SECTION 3.1. Payment Account . . . . . . . . . . . . . . . . . . . . 17
ARTICLE IV
DISTRIBUTIONS; REDEMPTION . . . . . . . . . . . 18
SECTION 4.1. Distributions . . . . . . . . . . . . . . . . . . . . . 18
SECTION 4.2. Redemption. . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 4.3. Subordination of Common
Securities. . . . . . . . . . . . . . . . . . . . . . 21
SECTION 4.4. Payment Procedures. . . . . . . . . . . . . . . . . . . 21
SECTION 4.5. Tax Returns and Reports . . . . . . . . . . . . . . . . 21
SECTION 4.6. Payment of Taxes, Duties, Etc. of the Trust . . . . . . 22
SECTION 4.7. Payments under Indenture. . . . . . . . . . . . . . . . 22
ARTICLE V
TRUST SECURITIES CERTIFICATES . . . . . . . . . . 22
SECTION 5.1. Initial Ownership . . . . . . . . . . . . . . . . . . . 22
SECTION 5.2. The Trust Securities
Certificates. . . . . . . . . . . . . . . . . . . . . 22
SECTION 5.3. Execution and Delivery
of Trust Securities
Certificates. . . . . . . . . . . . . . . . . . . . . 23
SECTION 5.4. Registration of Transfer
and Exchange of
Preferred Securities
Certificates. . . . . . . . . . . . . . . . . . . . . 23
SECTION 5.5. Mutilated, Destroyed,
Lost or Stolen Trust
Securities
Certificates. . . . . . . . . . . . . . . . . . . . . 24
SECTION 5.6. Persons Deemed
Securityholders . . . . . . . . . . . . . . . . . . . 24
SECTION 5.7. Access to List of
Securityholders' Names
and Addresses . . . . . . . . . . . . . . . . . . . . 25
SECTION 5.8. Maintenance of Office or
Agency. . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 5.9. Appointment of Paying
Agent . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 5.10. Ownership of Common Securities by Depositor . . . . . 26
SECTION 5.11. Book-Entry Preferred Securities
Certificates;
Common Securities Certificate . . . . . . . . . . . . . 26
SECTION 5.12. Notices to Clearing
Agency. . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 5.13. Definitive Preferred
Securities
Certificates. . . . . . . . . . . . . . . . . . . . 28
SECTION 5.14. Rights of
Securityholders . . . . . . . . . . . . . . . . . . 28
ARTICLE VI
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING . . . . . . . 29
SECTION 6.1. Limitations on Voting
Rights. . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 6.2. Notice of Meetings. . . . . . . . . . . . . . . . . . . 30
SECTION 6.3. Meetings of Preferred
Securityholders . . . . . . . . . . . . . . . . . . . 30
SECTION 6.4. Voting Rights . . . . . . . . . . . . . . . . . . . . . 31
SECTION 6.5. Proxies, etc. . . . . . . . . . . . . . . . . . . . . . 31
SECTION 6.6. Securityholder Action by
Written Consent . . . . . . . . . . . . . . . . . . . 31
SECTION 6.7. Record Date for Voting and Other Purposes . . . . . . . 31
SECTION 6.8. Acts of Securityholders . . . . . . . . . . . . . . . . 32
SECTION 6.9. Inspection of Records . . . . . . . . . . . . . . . . . 33
ARTICLE VII. . . . . . . . . . . . . . . 33
REPRESENTATIONS AND WARRANTIES OF THE PROPERTY
TRUSTEE AND THE DELAWARE TRUSTEE. . . . . . . . . . 33
SECTION 7.1. Property Trustee. . . . . . . . . . . . . . . . . . . 33
SECTION 7.2. Delaware Trustee. . . . . . . . . . . . . . . . . . . . 34
SECTION 7.3. Representations and Warranties of Depositor . . . . . . 34
ARTICLE VIII
THE TRUSTEES. . . . . . . . . . . . . . . 35
SECTION 8.1. Certain Duties and
Responsibilities. . . . . . . . . . . . . . . . . . . 35
SECTION 8.2. Certain Notices.. . . . . . . . . . . . . . . . . . . . 36
SECTION 8.3. Certain Rights of
Property Trustee. . . . . . . . . . . . . . . . . . . 37
SECTION 8.4. Not Responsible for
Recitals or Issuance
of Securities . . . . . . . . . . . . . . . . . . . . 39
SECTION 8.5. May Hold Securities . . . . . . . . . . . . . . . . . . 40
SECTION 8.6. Compensation; Indemnity;
Fees. . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.7. Corporate Property Trustee Required;
Eligibility of Trustees . . . . . . . . . . . . . . . 41
SECTION 8.8. Conflicting Interests . . . . . . . . . . . . . . . . . 41
SECTION 8.9. Co-Trustees and Separate
Trustee . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.10. Resignation and Removal;
Appointment of
Successor . . . . . . . . . . . . . . . . . . . . . 43
SECTION 8.11. Acceptance of
Appointment by
Successor . . . . . . . . . . . . . . . . . . . . . 44
SECTION 8.12. Merger, Conversion,
Consolidation or
Succession to Business. . . . . . . . . . . . . . . 45
SECTION 8.13. Preferential Collection
of Claims Against
Depositor or Trust. . . . . . . . . . . . . . . . . 45
SECTION 8.14. Reports by Property
Trustee . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 8.15. Reports to the Property
Trustee . . . . . . . . . . . . . . . . . . . . . . 46
SECTION 8.16. Evidence of Compliance
with Conditions
Precedent . . . . . . . . . . . . . . . . . . . . . 46
SECTION 8.17. Number of Trustees. . . . . . . . . . . . . . . . . . 46
SECTION 8.18. Delegation of Power . . . . . . . . . . . . . . . . . 47
ARTICLE IX
TERMINATION, LIQUIDATION AND MERGER. . . . . . . . . 47
SECTION 9.1. Termination Upon
Expiration Date . . . . . . . . . . . . . . . . . . . 47
SECTION 9.2. Early Termination . . . . . . . . . . . . . . . . . . . 47
SECTION 9.3. Termination . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 9.4. Liquidation . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 9.5. Mergers, Consolidations,
Amalgamations or
Replacements of the
Trust . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE X
MISCELLANEOUS PROVISIONS. . . . . . . . . . . . 50
SECTION 10.1. Limitation of Rights of
Securityholders . . . . . . . . . . . . . . . . . . 50
SECTION 10.2. Amendment . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 10.3. Separability. . . . . . . . . . . . . . . . . . . . . 52
SECTION 10.4. GOVERNING LAW.. . . . . . . . . . . . . . . . . . . . 52
SECTION 10.5. Payments Due on
Non-Business Day. . . . . . . . . . . . . . . . . . 52
SECTION 10.6. Successors. . . . . . . . . . . . . . . . . . . . . . 52
SECTION 10.7. Headings. . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 10.8. Reports, Notices and
Demands . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 10.9. Agreement Not to
Petition. . . . . . . . . . . . . . . . . . . . . . 53
SECTION 10.10. Trust Indenture Act;
Conflict with Trust
Indenture Act . . . . . . . . . . . . . . . . . . . 54
SECTION 10.12. Counterparts. . . . . . . . . . . . . . . . . . . . . 55
Exhibit A Certificate of Trust
Exhibit B Form of Certificate Depository Agreement
Exhibit C Form of Common Securities Certificate
Exhibit D Form of Expense Agreement
Exhibit E Form of Preferred Securities
<PAGE>
AMENDED AND RESTATED TRUST AGREEMENT, dated as of
October 1, 1996, among (i) Atlantic City Electric Company, a New
Jersey corporation (including any successors or assigns, the
"Depositor"), (ii) The Bank of New York, a New York banking
corporation duly organized and existing under the laws of the
State of New York, as property trustee (in such capacity, the
"Property Trustee" and, in its separate corporate capacity and
not in its capacity as Property Trustee, the "Bank"), (iii) The
Bank of New York (Delaware), as Delaware trustee (the "Delaware
Trustee"), (iv) Robert K. Marshall, an individual, and Stephanie
M. Scola, an individual, each of whose address is c/o Atlantic
City Electric Company, 6801 Black Horse Pike, Egg Harbor
Township, New Jersey 08234-4130 (each, an "Administrative
Trustee" and, collectively, the "Administrative Trustees" and,
collectively with the Property Trustee and Delaware Trustee, the
"Trustees") and (v) the several Holders, as hereinafter defined.
W I T N E S S E T H :
WHEREAS, the Depositor and the Delaware Trustee have
heretofore duly declared and established a business trust
pursuant to the Delaware Business Trust Act by the entering into
of that certain Trust Agreement, dated as of June 20, 1996 (the
"Original Trust Agreement"), and by the execution and filing by
the Delaware Trustee with the Secretary of State of the State of
Delaware of the Certificate of Trust, filed on June 20, 1996,
attached as Exhibit A (the "Certificate of Trust"); and
WHEREAS, the Depositor and the Delaware Trustee desire
to amend and restate the Original Trust Agreement in its entirety
as set forth herein to provide for, among other things, (i) the
issuance of the Common Securities by the Trust to the Depositor,
(ii) the issuance and sale of the Preferred Securities by the
Trust pursuant to the Underwriting Agreement, (iii) the
acquisition by the Trust from the Depositor of all of the right,
title and interest in the Debentures and (iv) the appointment of
the Property Trustee and the Administrative Trustees;
NOW THEREFORE, in consideration of the agreements and
obligations set forth herein and for other good and valuable
consideration, the sufficiency of which is hereby acknowledged,
each party, for the benefit of the other parties and for the
benefit of the Securityholders, hereby amends and restates the
Original Trust Agreement in its entirety and agrees as follows:
ARTICLE I
DEFINED TERMS
SECTION 1.1. Definitions. For all purposes of this
Trust Agreement, except as otherwise expressly provided or unless
the context otherwise requires:
(a) the terms defined in this Article have the
meanings assigned to them in this Article and include the
plural as well as the singular;
(b) all other terms used herein that are defined in
the Trust Indenture Act, either directly or by reference
therein, have the meanings assigned to them therein;
(c) unless the context otherwise requires, any
reference to an "Article" or a "Section" refers to an
Article or a Section, as the case may be, of this Trust
Agreement; and
(d) the words "herein", "hereof" and "hereunder"
and other words of similar import refer to this Trust
Agreement as a whole and not to any particular Article,
Section or other subdivision.
"Act" has the meaning specified in Section 6.8.
"Additional Amount" means, with respect to Trust
Securities of a given Liquidation Amount and/or a given period,
the amount of Additional Interest (as defined in the Indenture)
paid by the Depositor on a Like Amount of Debentures for such
period.
"Additional Sums" has the meaning specified in Section
10.5 of the Indenture.
"Administrative Trustee" means each of Robert K.
Marshall and Stephanie M. Scola, each solely in such person's
capacity as Administrative Trustee of the Trust formed and
continued hereunder and not in such person's individual capacity,
or such Administrative Trustee's successor in interest in such
capacity, or any successor trustee appointed as herein provided.
"Affiliate" of any specified Person means any other
Person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified
Person. For the purposes of this definition, "control" when used
with respect to any specified Person means the power to direct
the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities,
by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Bank" has the meaning specified in the preamble to
this Trust Agreement.
"Bankruptcy Event" means, with respect to any Person:
(a) the entry of a decree or order by a court having
jurisdiction in the premises judging such Person a bankrupt
or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjudication or
composition of or in respect of such Person under any
applicable federal or state bankruptcy, insolvency,
reorganization or other similar law, or appointing a
receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of such Person or of any substantial
part of its property or ordering the winding-up or
liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 60
consecutive days; or
(b) the institution by such Person of proceedings to
be adjudicated a bankrupt or insolvent, or the consent by it
to the institution of bankruptcy or insolvency proceedings
against it, or the filing by it of a petition or answer or
consent seeking reorganization or relief under any
applicable federal or state bankruptcy, insolvency,
reorganization or other similar law, or the consent by it to
the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or
similar official) of such Person or of any substantial part
of its property, or the making by it of an assignment for
the benefit of creditors, or the admission by it in writing
of its inability to pay its debts generally as they become
due and its willingness to be adjudicated a bankrupt, or the
taking of corporate action by such Person in furtherance of
any such action.
"Bankruptcy Laws" has the meaning specified in Section
10.9.
"Board Resolution" means a copy of a resolution
certified by the Secretary or an Assistant Secretary of the
Depositor to have been duly adopted by the Depositor's Board of
Directors, or such committee of the Board of Directors or
officers of the Company to which authority to act on behalf of
the Board of Directors has been delegated, and to be in full
force and effect on the date of such certification, and delivered
to the Trustees.
"Book-Entry Preferred Securities Certificates" means a
beneficial interest in the Preferred Securities Certificates,
ownership and transfers of which shall be made through book
entries by a Clearing Agency as described in Section 5.11.
"Business Day" means a day other than (a) a Saturday or
Sunday, (b) a day on which banking institutions in The City of
New York are authorized or required by law or executive order to
remain closed, or (c) a day on which the Property Trustee's
Corporate Trust Office or the Corporate Trust Office of the
Debenture Trustee is closed for business.
"Certificate Depository Agreement" means the agreement
among the Trust, the Depositor and The Depository Trust Company,
as the initial Clearing Agency, dated as of the Closing Date,
relating to the Trust Securities Certificates, substantially in
the form attached as Exhibit B, as the same may be amended and
supplemented from time to time.
"Certificate of Trust" has the meaning specified in the
recitals hereof.
"Clearing Agency" means an organization registered as a
"clearing agency" pursuant to Section 17A of the Securities
Exchange Act of 1934, as amended. The Depository Trust Company
will be the initial Clearing Agency.
"Clearing Agency Participant" means a broker, dealer,
bank, other financial institution or other Person who maintains
an account with and for whom from time to time a Clearing Agency
effects book-entry transfers and pledges of securities deposited
with the Clearing Agency.
"Closing Date" means the date of execution and delivery
of this Trust Agreement.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Commission" means the Securities and Exchange
Commission, as from time to time constituted, created under the
Securities Exchange Act of 1934, as amended, or, if at any time
after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the
Trust Indenture Act, then the body performing such duties at such
time.
"Common Security" means an undivided beneficial
interest in the assets of the Trust, having a Liquidation Amount
of $25 and having the rights provided therefor in this Trust
Agreement, including the right to receive Distributions and a
Liquidation Distribution as provided herein.
"Common Securities Certificate" means a certificate
evidencing ownership of Common Securities, substantially in the
form attached as Exhibit C.
"Corporate Trust Office" means the principal office of
the Property Trustee located in New York, New York, which at the
date hereof is 101 Barclay Street, New York, New York 10286.
"Debenture Event of Default" means an "Event of
Default" as defined in the Indenture.
"Debenture Redemption Date" means, with respect to any
Debentures to be redeemed under the Indenture, the date fixed for
redemption under the Indenture.
"Debenture Tax Event" means a "Tax Event" as defined in
the Indenture.
"Debenture Trustee" means The Bank of New York, a New
York banking corporation, as trustee under the Indenture.
"Debentures" means the aggregate principal amount of
the Depositor's 8.25% Junior Subordinated Deferrable Interest
Debentures, issued pursuant to the Indenture.
"Definitive Preferred Securities Certificates" means
either or both (as the context requires) of (a) Preferred
Securities Certificates issued as Book-Entry Preferred Securities
Certificates as provided in Section 5.11(a) and (b) Preferred
Securities Certificates issued in certificated, fully registered
form as provided in Section 5.13.
"Delaware Business Trust Act" means Chapter 38 of Title
12 of the Delaware Code, 12 Del. C. 3801, et seq., as it may be
amended from time to time.
"Delaware Trustee" means the commercial bank or trust
company identified as the "Delaware Trustee" in the preamble to
this Trust Agreement solely in its capacity as Delaware Trustee
of the Trust formed and continued hereunder and not in its
individual capacity, or its successor in interest in such
capacity, or any successor trustee appointed as herein provided.
"Depositor" has the meaning specified in the preamble
to this Trust Agreement.
"Distribution Date" has the meaning specified in
Section 4.1(a).
"Distributions" means amounts payable in respect of the
Trust Securities as provided in Section 4.1.
"Early Termination Event" has the meaning specified in
Section 9.2.
"Event of Default" means any one of the following
events (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation
of law or pursuant to any judgment, decree or order of any court
or any order, rule or regulation of any administrative or
governmental body):
(a) the occurrence of a Debenture Event of Default; or
(b) default in the payment of any Distribution when it
becomes due and payable, and continuation of such default
for a period of 30 days; or
(c) default in the payment of any Redemption Price of
any Trust Security when it becomes due and payable; or
(d) default in the performance, or breach, in any
material respect, of any covenant or warranty of the
Trustees in this Trust Agreement (other than a covenant or
warranty a default in the performance of which or the breach
of which is dealt with in clause (b) or (c) above) and
continuation of such default or breach for a period of 60
days after there has been given, by registered or certified
mail, to the defaulting Trustee or Trustees by the Holders
of at least 25% in aggregate liquidation preference of the
Outstanding Preferred Securities a written notice specifying
such default or breach and requiring it to be remedied and
stating that such notice is a "Notice of Default" hereunder;
or
(e) the occurrence of a Bankruptcy Event with respect
to the Trust.
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Expense Agreement" means the Agreement as to Expenses
and Liabilities between the Depositor and the Trust,
substantially in the form attached as Exhibit D, as amended from
time to time.
"Expiration Date" has the meaning specified in Section
9.1.
"Guarantee" means the Guarantee Agreement executed and
delivered by the Depositor and The Bank of New York, as trustee,
contemporaneously with the execution and delivery of this Trust
Agreement, for the benefit of the holders of the Preferred
Securities, as amended from time to time.
"Indenture" means the Junior Subordinated Indenture,
dated as of October 1, 1996, between the Depositor and the
Debenture Trustee, as trustee, as amended or supplemented from
time to time.
"Investment Company Event" means the receipt by the
Trust of an Opinion of Counsel, rendered by a law firm having a
recognized national tax and securities practice, to the effect
that, as a result of the occurrence of a change in law or
regulation or a change in interpretation or application of law or
regulation by any legislative body, court, governmental agency or
regulatory authority (a "Change in 1940 Act Law"), the Trust is
or will be considered an "investment company" that is required to
be registered under the 1940 Act, which Change in 1940 Act Law
becomes effective on or after the date of original issuance of
the Preferred Securities under this Trust Agreement.
"Lien" means any lien, pledge, charge, encumbrance,
mortgage, deed of trust, adverse ownership interest,
hypothecation, assignment, security interest or preference,
priority or other security agreement or preferential arrangement
of any kind or nature whatsoever.
"Like Amount" means (a) with respect to a redemption of
Trust Securities, Trust Securities having a Liquidation Amount
equal to the principal amount of Debentures to be
contemporaneously redeemed in accordance with the Indenture the
proceeds of which will be used to pay the Redemption Price of
such Trust Securities and (b) with respect to a distribution of
Debentures to Holders of Trust Securities in connection with a
dissolution or liquidation of the Trust, Debentures having a
principal amount equal to the Liquidation Amount of the Trust
Securities of the Holder to whom such Debentures are distributed.
"Liquidation Amount" means the stated amount of $25 per
Trust Security.
"Liquidation Date" means the date on which Debentures
are to be distributed to Holders of Trust Securities in
connection with a termination and liquidation of the Trust
pursuant to Section 9.4(a).
"Liquidation Distribution" has the meaning specified in
Section 9.4(d).
"1940 Act" means the Investment Company Act of 1940, as
amended.
"Officers' Certificate" means a certificate signed by
the Chairman and Chief Executive Officer, President or a Vice
President, and by the Treasurer, an Assistant Treasurer, the
Controller, the Secretary or an Assistant Secretary, of the
Depositor, and delivered to the appropriate Trustee. One of the
officers signing an Officers' Certificate given pursuant to
Section 8.16 shall be the principal executive, financial or
accounting officer of the Depositor. Any Officers' Certificate
delivered with respect to compliance with a condition or covenant
provided for in this Trust Agreement shall include:
(a) a statement that each officer signing the
Officers' Certificate has read the covenant or condition and
the definitions relating thereto;
(b) a brief statement of the nature and scope of the
examination or investigation undertaken by each officer in
rendering the Officers' Certificate;
(c) a statement that each such officer has made such
examination or investigation as, in such officer's opinion,
is necessary to enable such officer to express an informed
opinion as to whether or not such covenant or condition has
been complied with; and
(d) a statement as to whether, in the opinion of each
such officer, such condition or covenant has been complied
with.
"Opinion of Counsel" means a written opinion of
counsel, who may be counsel for the Trust, the Property Trustee,
or the Depositor or General Counsel of the Depositor, and who
shall be reasonably acceptable to the Property Trustee.
"Original Trust Agreement" has the meaning specified in
the recitals to this Trust Agreement.
"Outstanding", when used with respect to Preferred
Securities, means, as of the date of determination, all Preferred
Securities theretofore executed and delivered under this Trust
Agreement, except:
(a) Preferred Securities theretofore cancelled by the
Property Trustee or delivered to the Property Trustee for
cancellation;
(b) Preferred Securities for whose payment or
redemption money in the necessary amount has been
theretofore deposited with the Property Trustee or any
Paying Agent for the Holders of such Preferred Securities;
provided that, if such Preferred Securities are to be
redeemed, notice of such redemption has been duly given
pursuant to this Trust Agreement; and
(c) Preferred Securities which have been paid or in
exchange for or in lieu of which other Preferred Securities
have been executed and delivered pursuant to this Trust
Agreement, including pursuant to Sections 5.4, 5.5, 5.11 and
5.13;
provided, however, that in determining whether the Holders of the
requisite Liquidation Amount of the Outstanding Preferred
Securities have given any request, demand, authorization,
direction, notice, consent or waiver hereunder, Preferred
Securities owned by the Depositor, any Trustee or any Affiliate
of the Depositor or any Trustee shall be disregarded and deemed
not to be Outstanding, except that (a) in determining whether any
Trustee shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only
Preferred Securities that such Trustee knows to be so owned shall
be so disregarded and (b) the foregoing shall not apply at any
time when all of the outstanding Preferred Securities are owned
by the Depositor, one or more of the Trustees and/or any such
Affiliate. Preferred Securities so owned which have been pledged
in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Administrative Trustees
the pledgee's right so to act with respect to such Preferred
Securities and that the pledgee is not the Depositor or any
Affiliate of the Depositor.
"Owner" means each Person who is the beneficial owner
of a Book-Entry Preferred Securities Certificate as reflected in
the records of the Clearing Agency or, if a Clearing Agency
Participant is not the beneficial owner, then as reflected in the
records of a Person maintaining an account with such Clearing
Agency (directly or indirectly, in accordance with the rules of
such Clearing Agency).
"Paying Agent" means any paying agent or co-paying
agent appointed pursuant to Section 5.9 and shall initially be
the Bank.
"Payment Account" means a segregated
non-interest-bearing corporate trust account maintained by the
Property Trustee with the Bank in its trust department for the
benefit of the Securityholders in which all amounts paid in
respect of the Debentures will be held and from which the
Property Trustee or Paying Agent in accordance with Section 5.9
shall make payments to the Securityholders in accordance with
Sections 4.1 and 4.2.
"Person" means any individual, corporation,
partnership, joint venture, trust, limited liability company or
corporation, unincorporated organization or government or any
agency or political subdivision thereof.
"Preferred Security" means an undivided beneficial
interest in the assets of the Trust, having a Liquidation Amount
of $25 and having the rights provided therefor in this Trust
Agreement, including the right to receive Distributions and a
Liquidation Distribution as provided herein.
"Preferred Securities Certificate" means a certificate
evidencing ownership of Preferred Securities, substantially in
the form attached as Exhibit E.
"Property Trustee" means the commercial bank or trust
company identified as the "Property Trustee" in the preamble to
this Trust Agreement solely in its capacity as Property Trustee
of the Trust heretofore created and continued hereunder and not
in its individual capacity, or its successor in interest in such
capacity, or any successor property trustee appointed as herein
provided.
"Redemption Date" means, with respect to any Trust
Security to be redeemed, the date fixed for such redemption by or
pursuant to this Trust Agreement; provided that each Debenture
Redemption Date and the Stated Maturity of the Debentures (as
defined in the Indenture) shall be a Redemption Date for a Like
Amount of Trust Securities.
"Redemption Price" means, with respect to Redemption
Date of any Trust Security, the Liquidation Amount of such Trust
Security, plus accumulated and unpaid Distributions to such
Redemption Date, plus the related amount of the premium, if any,
paid by the Depositor upon the concurrent redemption of a Like
Amount of Debentures, allocated on a pro rata basis (based on
Liquidation Amounts) among the Trust Securities.
"Registrar" shall mean the registrar for the Preferred
Securities appointed by Depositor to Section 5.4 and shall be
initially The Bank of New York.
"Relevant Trustee" shall have the meaning specified in
Section 8.10.
"Responsible Officer," when used with respect to the
Property Trustee means an officer of the Property Trustee
assigned by the Property Trustee to administer its corporate
trust matters.
"Securities Register" and "Securities Registrar" have
the respective meanings specified in Section 5.4.
"Securityholder" or "Holder" means a Person in whose
name a Trust Security or Securities is registered in the
Securities Register; any such Person shall be deemed to be a
beneficial owner within the meaning of the Delaware Business
Trust Act.
"Special Event" means either a Tax Event or an
Investment Company Event.
"Tax Event" means the receipt by the Trust of an
Opinion of Counsel, rendered by a law firm having a national tax
and securities practice, to the effect that, as a result of any
amendment to, change in or announced proposed change in the laws
(or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein, or
as a result of any official administrative pronouncement or
judicial decision interpreting or applying such laws or
regulations, which amendment or change is adopted or which
pronouncement or decision is announced on or after the date of
issuance of the Preferred Securities under this Trust Agreement,
there is more than an insubstantial risk that (i) the Trust is,
or will be within 90 days after the date of such Opinion of
Counsel, subject to United States federal income tax with respect
to income received or accrued on the Debentures, (ii) interest
payable by the Depositor on the Debentures is not, or within 90
days after the date of such Opinion of Counsel, will not be,
deductible by the Depositor, in whole or in part, for United
States federal income tax purposes or (iii) the Trust is, or will
be within 90 days after the date of such Opinion of Counsel,
subject to more than a de minimis amount of other taxes, duties,
assessments or other governmental charges.
"Transfer Agent" shall mean one or more transfer agents
for the Preferred Securities appointed by the Depositor pursuant
to Section 5.4 and shall be initially The Bank of New York.
"Trust" means the Delaware business trust heretofore
created and continued hereby and identified on the cover page to
this Trust Agreement.
"Trust Agreement" means this Amended and Restated Trust
Agreement, as the same may be modified, amended or supplemented
in accordance with the applicable provisions hereof, including
all exhibits hereto, including, for all purposes of this Amended
and Restated Trust Agreement and any such modification, amendment
or supplement, the provisions of the Trust Indenture Act that are
deemed to be a part of and govern this Trust Agreement and any
such modification, amendment or supplement, respectively.
"Trust Indenture Act" means the Trust Indenture Act of
1939 as in force at the date as of which this instrument was
executed; provided, however, that in the event the Trust
Indenture Act of 1939 is amended after such date, "Trust
Indenture Act" means, to the extent required by any such
amendment, the Trust Indenture Act of 1939 as so amended.
"Trust Property" means (a) the Debentures, (b) any cash
on deposit in, or owing to, the Payment Account and (c) all
proceeds and rights in respect of the foregoing and any other
property and assets for the time being held by the Property
Trustee or the Trust pursuant to the terms of this Trust
Agreement.
"Trust Security" means any one of the Common Securities
or the Preferred Securities.
"Trust Securities Certificate" means any one of the
Common Securities Certificates or the Preferred Securities
Certificates.
"Trustees" means, collectively, the Property Trustee,
the Delaware Trustee and the Administrative Trustees.
"Underwriting Agreement" means the Underwriting
Agreement, dated September 26, 1996, among the Trust, the
Depositor and the Underwriters named therein.
ARTICLE II
ESTABLISHMENT OF THE TRUST
SECTION 2.1. Name. The Trust heretofore created and
continued hereby shall be known as "Atlantic Capital I," as such
name may be modified from time to time by the Administrative
Trustees following written notice to the Holders of Trust
Securities and the other Trustees, in which name the Trustees
engage in the transactions contemplated hereby, make and execute
contracts and other instruments on behalf of the Trust and sue
and be sued.
SECTION 2.2. Office of the Delaware Trustee; Principal
Place of Business.
The address of the Delaware Trustee in the State of
Delaware is c/o The Bank of New York (Delaware), White Clay
Center, Route 273 Newark, Delaware, 19711, or such other address
in the State of Delaware as the Delaware Trustee may designate by
written notice to the Securityholders and the Depositor. The
principal executive office of the Trust is c/o Atlantic City
Electric Company, 6801 Black Horse Pike, Egg Harbor Township, New
Jersey 08234-4130.
SECTION 2.3. Initial Contribution of Trust Property;
Organizational Expenses.
The Property Trustee acknowledges receipt in trust from
the Depositor in connection with the Original Trust Agreement of
the sum of $10, which constituted the initial Trust Property.
The Depositor shall pay organizational expenses of the Trust as
they arise or shall, upon request of any Trustee, promptly
reimburse such Trustee for any such expenses paid by such
Trustee. The Depositor shall make no claim upon the Trust
Property for the payment of such expenses.
SECTION 2.4. Issuance of the Preferred Securities.
On September 26, 1996 the Depositor, on behalf of the
Trust and pursuant to the Original Trust Agreement, executed and
delivered the Underwriting Agreement. Contemporaneously with the
execution and delivery of this Trust Agreement, an Administrative
Trustee, on behalf of the Trust, shall execute in accordance with
Section 5.2 and deliver to the Underwriters named in the
Underwriting Agreement Preferred Securities Certificates,
registered in the name of the nominee of the initial Clearing
Agency, in an aggregate amount of 2,800,000 Preferred Securities
having an aggregate Liquidation Amount of $70,000,000, against
receipt of the aggregate purchase price of such Preferred
Securities of $70,000,000, which amount the Trust shall promptly
deliver or direct to be delivered to the Depositor.
SECTION 2.5. Issuance of Common Securities;
Subscription and Purchase of Debentures.
On the Closing Date, an Administrative Trustee, on
behalf of the Trust, (i) shall execute and deliver to the
Depositor Common Securities Certificates, registered in the name
of the Depositor, evidencing 86,598 Common Securities having an
aggregate Liquidation Amount of $2,164,950 against payment
therefor of $2,164,950, and (ii) shall subscribe to and purchase
from the Depositor Debentures, registered in the name of the
Property Trustee on behalf of the Trust, in an aggregate
principal amount of $72,164,950 against payment therefor of
$72,164,950.
SECTION 2.6. Declaration of Trust; Appointment of
Property Trustee and Administrative Trustees.
The exclusive purposes and functions of the Trust are
(a) to issue and sell Trust Securities and use the proceeds from
such sale to acquire the Debentures and (b) to engage in those
activities necessary, convenient or incidental thereto. The
Depositor hereby appoints the Trustees as trustees of the Trust,
to have all the rights, powers and duties to the extent set forth
herein, and the Trustees hereby accept such appointment. The
Property Trustee hereby declares that it will hold the Trust
Property in trust upon and subject to the conditions set forth
herein for the benefit of the Securityholders. The
Administrative Trustees shall have all rights, powers and duties
set forth herein and in accordance with applicable law with
respect to accomplishing the purposes of the Trust. Anything in
this Trust Agreement to the contrary notwithstanding, the
Delaware Trustee shall not be entitled to exercise any powers,
nor shall the Delaware Trustee have any of the duties and
responsibilities, of the Property Trustee or the Administrative
Trustees set forth herein. The Delaware Trustee shall be one of
the Trustees of the Trust for the sole and limited purpose of
fulfilling the requirements of Section 3807 of the Delaware
Business Trust Act.
<PAGE>
SECTION 2.7. Authorization to Enter into Certain
Transactions.
(a) The Trustees shall conduct the affairs of the
Trust in accordance with the terms of this Trust Agreement.
Subject to the limitations set forth in paragraph (b) of this
Section, Article VIII and in accordance with the following
provisions (i) and (ii), the Administrative Trustees shall have
the authority to enter into all transactions and agreements
determined by the Trustees to be appropriate in exercising the
authority, express or implied, otherwise granted to the Trustees
under this Trust Agreement, and to perform all acts in
furtherance thereof, including without limitation, the following:
(i) As among the Trustees, each Administrative
Trustee shall have the power and authority to act on
behalf of the Trust with respect to the following
matters:
(A) the issuance and sale of the Trust
Securities;
(B) to cause the Trust to enter into, and
to execute, deliver and perform on behalf of
the Trust, the Expense Agreement the
Certificate Depository Agreement and, such
agreements as may be necessary or desirable in
connection with the consummation of the
Underwriting Agreement, and such other
agreements as may be necessary or desirable in
connection with the purposes and function of
the Trust;
(C) to qualify the Trust to do business in
any jurisdiction as may be necessary or
desirable;
(D) the collection of interest, principal
and any other payments made in respect of the
Debentures in the Payment Account;
(E) assisting in the registration of the
Preferred Securities under the Securities Act
of 1933, as amended, and under state securities
or blue sky laws, and the qualification of this
Trust Agreement as a trust indenture under the
Trust Indenture Act;
(F) assisting in the listing of the
Preferred Securities upon such national
securities exchange, the Nasdaq National Market
or such other interdealer quotation system or
self-regulatory organization as shall be
determined by the Depositor and the
registration of the Preferred Securities under
the Exchange Act and the preparation and filing
of all periodic and other reports and other
documents pursuant to the foregoing;
(G) the sending of notices (other than
notices of default) and other information
regarding the Trust Securities and the
Debentures to the Securityholders in accordance
with this Trust Agreement;
(H) the appointment of a Paying Agent,
authenticating agent and a Registrar in
accordance with this Trust Agreement;
(I) registering transfer of the Trust
Securities in accordance with this Trust
Agreement;
(J) to the extent provided in this Trust
Agreement, the winding-up of the affairs of and
liquidation of the Trust and the preparation,
execution and filing of the certificate of
cancellation with the Secretary of State of the
State of Delaware;
(K) unless otherwise determined by the
Depositor, the Property Trustee or the
Administrative Trustees, or as otherwise
required by the Delaware Business Trust Act or
the Trust Indenture Act, to execute on behalf
of the Trust (either acting alone or together
with any or all of the Administrative Trustees)
any documents that the Administrative Trustees
have the power to execute pursuant to this
Trust Agreement; and
(L) the taking of any action incidental to
the foregoing as the Administrative Trustees
may from time to time determine is necessary or
advisable to give effect to the terms of this
Trust Agreement for the benefit of the
Securityholders (without consideration of the
effect of any such action on any particular
Securityholder).
(ii) As among the Trustees, the Property Trustee
shall have the power, duty and authority to act on
behalf of the Trust with respect to the following
ministerial matters:
(A) the establishment of the Payment
Account;
(B) the receipt of the Debentures;
(C) the deposit of interest, principal and
any other payments made in respect of the
Debentures in the Payment Account;
(D) the distribution of amounts owed to the
Securityholders in respect of the Trust
Securities in accordance with the terms of this
Trust Agreement;
(E) subject to the applicable provisions of
this Trust Agreement, the exercise of all of
the rights, powers and privileges of a holder
of the Debentures, which the Property Trustee,
in its sole discretion, deems necessary or
advisable to exercise under the circumstances;
(F) the sending of notices of default and
other information regarding the Trust
Securities and the Debentures to the
Securityholders in accordance with this Trust
Agreement;
(G) the distribution of the Trust Property
in accordance with the terms of this Trust
Agreement;
(H) to the extent provided in this Trust
Agreement, the winding-up of the affairs of and
liquidation of the Trust and the execution of
the certificate of cancellation to be prepared
and filed by the Administrative Trustees with
the Secretary of State of the State of
Delaware;
(I) subject to the applicable provisions of
this Trust Agreement, after an Event of Default
the taking of any action incidental to the
foregoing as the Property Trustee may from time
to time determine is necessary or advisable to
give effect to the terms of this Trust
Agreement and protect and conserve the Trust
Property for the benefit of the Securityholders
(without consideration of the effect of any
such action on any particular Securityholder);
(J) registering transfers of the Trust
Securities in accordance with this Trust
Agreement; and
(K) except as otherwise provided in this
Section 2.7(a)(ii), the Property Trustee shall
have none of the duties, liabilities, powers or
the authority of the Administrative Trustees
set forth in Section 2.7(a)(i) or of the
Depositor set forth in Section 2.7(c).
(b) So long as this Trust Agreement remains in effect,
the Trust (or the Trustees acting on behalf of the Trust) shall
not undertake any business, activities or transaction except as
expressly provided herein or contemplated hereby. In particular,
the Trustees shall not (i) acquire any investments or engage in
any activities not authorized by this Trust Agreement, (ii) sell,
assign, transfer, exchange, mortgage, pledge, set-off or
otherwise dispose of any of the Trust Property or interests
herein, including to Securityholders, except as expressly
provided herein or in the Guarantee, (iii) take any action that
would cause the Trust to fail or cease to qualify as a "grantor
trust" for United States federal income tax purposes, (iv) incur
any indebtedness for borrowed money or issue any other debt or
(v) take or consent to any action that would result in the
placement of a Lien on any of the Trust Property. The
Administrative Trustees shall defend all claims and demands of
all Persons at any time claiming any Lien on any of the Trust
Property adverse to the interest of the Trust or the
Securityholders in their capacity as Securityholders.
(c) In connection with the issue and sale of the
Preferred Securities, the Depositor shall have the right and
responsibility to assist the Trust with respect to, or effect on
behalf of the Trust, the following (and any actions taken by the
Depositor in furtherance of the following prior to the date of
this Trust Agreement are hereby ratified and confirmed in all
respects):
(i) the preparation and filing by the Trust with
the Commission and the execution on behalf of the Trust
of a registration statement on the appropriate form in
relation to the Preferred Securities and the
Debentures, including any amendments thereto;
(ii) the determination of the states in which to
take appropriate action to qualify or register for sale
all or part of the Preferred Securities and the doing
of any and all such acts, other than actions which must
be taken by or on behalf of the Trust, and the advice
to the Trustees of actions they must take on behalf of
the Trust, and the preparation for execution and filing
of any documents to be executed and filed by the Trust
or on behalf of the Trust, as the Depositor deems
necessary or advisable in order to comply with the
applicable laws of any such states;
(iii) the preparation for filing by the Trust and
execution on behalf of the Trust of an application to
the New York Stock Exchange or any other national stock
exchange or the Nasdaq National Market for listing upon
notice of issuance of any Preferred Securities file or
cause the Administrative Trustees to file thereafter
with such exchange such notifications and documents as
may be necessary from time to time to maintain such
listing;
(iv) the preparation for filing by the Trust with
the Commission and the execution on behalf of the Trust
of a registration statement on Form 8-A relating to the
registration of the Preferred Securities under Section
12(b) or 12(g) of the Exchange Act, including any
amendments thereto;
(v) the negotiation of the terms of, and the
execution and delivery of, the Underwriting Agreement
providing for the sale of the Preferred Securities and
such other agreements as may be necessary or desirable
in connection with the consummation thereof; and
(vi) the taking of any other actions necessary or
desirable to carry out any of the foregoing activities.
(d) Notwithstanding anything herein to the
contrary, the Administrative Trustees are authorized and directed
to conduct the affairs of the Trust and to operate the Trust so
that the Trust will not be deemed to be an "investment company"
required to be registered under the 1940 Act, or taxed as other
than a grantor trust for United States federal income tax
purposes and so that the Debentures will be treated as
indebtedness of the Depositor for United States federal income
tax purposes. In this connection, subject to the provisions of
Section 10.2, the Depositor and the Administrative Trustees are
authorized to take any action, not inconsistent with applicable
law, the Certificate of Trust as amended or restated from time to
time or this Trust Agreement, that each of the Depositor and the
Administrative Trustees determines in their discretion to be
necessary or desirable for such purposes, as long as such action
does not adversely affect in any material respect the interests
of the holders of the Preferred Securities.
SECTION 2.8. Assets of Trust.
The assets of the Trust shall consist of the Trust
Property.
SECTION 2.9. Title to Trust Property.
Legal title to all Trust Property shall be vested at
all times in the Property Trustee (in its capacity as such) and
shall be held and administered by the Property Trustee for the
benefit of the Securityholders in accordance with this Trust
Agreement.
ARTICLE III
PAYMENT ACCOUNT
SECTION 3.1. Payment Account.
(a) On or prior to the Closing Date, the Property
Trustee shall establish the Payment Account. The Property
Trustee and any agent of the Property Trustee shall have
exclusive control and sole right of withdrawal with respect to
the Payment Account for the purpose of making deposits in and
withdrawals from the Payment Account in accordance with this
Trust Agreement. All monies and other property deposited or held
from time to time in the Payment Account shall be held by the
Property Trustee in the Payment Account for the exclusive benefit
of the Securityholders and for distribution as herein provided,
including (and subject to) any priority of payments provided for
herein.
(b) The Property Trustee shall deposit in the
Payment Account, promptly upon receipt, all payments of principal
of or interest on, and any other payments or proceeds with
respect to, the Debentures. Amounts held in the Payment Account
shall not be invested by the Property Trustee pending
distribution thereof.
ARTICLE IV
DISTRIBUTIONS; REDEMPTION
SECTION 4.1. Distributions.
(a) Distributions on the Trust Securities shall be
cumulative, and will accumulate whether or not there are funds of
the Trust available for the payment of Distributions.
Distributions shall accrue from the Closing Date, and, except in
the event that the Depositor exercises its right to defer the
payment of interest on the Debentures pursuant to Section 3.1 of
the Indenture, shall be payable quarterly in arrears on March 31,
June 30, September 30 and December 31 of each year, commencing on
December 31, 1996. Distributions on the Trust Securities will
accumulate from the Closing Date. If any date on which a
Distribution is otherwise payable on the Trust Securities is not
a Business Day, then the payment of such Distribution shall be
made on the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such
delay) except that, if such Business Day is in the next
succeeding calendar year, payment of such Distribution shall be
made on the immediately preceding Business Day, in each case with
the same force and effect as if made on such date (each date on
which distributions are payable in accordance with this Section
4.1(a), a "Distribution Date").
(b) The Trust Securities represent undivided
beneficial interests in the Trust Property, and, the
Distributions on the Trust Securities shall be payable at a rate
of 8.25% per annum of the Liquidation Amount of the Trust
Securities. The amount of Distributions payable on December 31,
1996 will be computed on the basis of 89 days in a 360-day year.
The amount of Distributions payable for any full quarterly period
thereafter shall be computed on the basis of a 360-day year of
twelve 30-day months. The amount of Distributions for any
partial period shall be computed on the basis of the actual
number of days elapsed in a 360-day year of twelve 30-day months.
The amount of Distributions payable for any period shall include
the Additional Amounts, if any.
(c) Distributions on the Trust Securities shall be
made by the Property Trustee from the Payment Account and shall
be deemed payable on each Distribution Date only to the extent
that the Trust has funds then on hand and available in the
Payment Account for the payment of such Distributions.
(d) Distributions on the Trust Securities with respect
to a Distribution Date (other than a Redemption Date) shall be
payable to the Holders thereof as they appear on the Securities
Register for the Trust Securities on the relevant record date,
which shall be one Business Day prior to such Distribution Date;
provided, however, that in the event that the Preferred
Securities do not remain in book-entry-only form, the relevant
record date shall be the date 15 days prior to such Distribution
Date.
SECTION 4.2. Redemption.
(a) On each Debenture Redemption Date and on the
Stated Maturity of the Debentures (as defined in the Indenture),
the Trust will be required to redeem a Like Amount of Trust
Securities at the Redemption Price.
(b) Notice of redemption shall be given by the
Property Trustee by first-class mail, postage prepaid, mailed not
less than 30 nor more than 60 days prior to the Redemption Date
to each Holder of Trust Securities to be redeemed, at such
Holder's address appearing in the Security Register. All notices
of redemption shall state:
(i) the Redemption Date;
(ii) the Redemption Price;
(iii) the CUSIP number;
(iv) if less than all the Outstanding Trust
Securities are to be redeemed, the identification and
the total Liquidation Amount of the particular Trust
Securities to be redeemed; and
(v) that on the Redemption Date the Redemption
Price will become due and payable upon each such Trust
Security to be redeemed and that distributions thereon
will cease to accrue on and after said date.
(c) The Trust Securities redeemed on each
Redemption Date shall be redeemed at the Redemption Price with
the proceeds from the contemporaneous redemption or payment at
stated maturity of Debentures. Redemptions of the Trust
Securities shall be made and the Redemption Price shall be
payable on each Redemption Date only to the extent that the Trust
has funds then on hand and available in the Payment Account for
the payment of such Redemption Price.
(d) If the Property Trustee gives a notice of
redemption in respect of any Preferred Securities, then, by 12:00
noon, New York City time, on the Redemption Date, subject to
Section 4.2(c), the Property Trustee shall, so long as the
Preferred Securities are in book-entry-only form, irrevocably
deposit with the Clearing Agency for the Preferred Securities
funds sufficient to pay the applicable Redemption Price and shall
give such Clearing Agency irrevocable instructions and authority
to pay the Redemption Price to the holders thereof. If the
Preferred Securities are no longer in book-entry-only form, the
Property Trustee, subject to Section 4.2(c), shall irrevocably
deposit with the Paying Agent funds sufficient to pay the
applicable Redemption Price and shall give the Paying Agent
irrevocable instructions and authority to pay the Redemption
Price to the Holders thereof upon surrender of their Preferred
Securities Certificates. Notwithstanding the foregoing,
Distributions payable prior to the Redemption Date for any Trust
Securities called for redemption shall be payable to the Holders
of such Trust Securities as they appear on the Securities
Register for the Trust Securities on the relevant record dates
for the related Distribution Dates. If notice of redemption
shall have been given and funds deposited as required, then upon
such Redemption Date, all rights of Securityholders holding Trust
Securities so called for redemption will cease, except the right
of such Securityholders to receive the Redemption Price and any
Distribution payable on or prior to the Redemption Date, but
without interest thereon, and such Trust Securities will cease to
be outstanding. In the event that any Redemption Date is not a
Business Day, then payment of the Redemption Price payable on
such date shall be made on the next succeeding day that is a
Business Day (and without any interest or other payment in
respect of any such delay), except that, if such Business Day
falls in the next calendar year, such payment will be made on the
immediately preceding Business Day, in each case, with the same
force and effect as if made on such date. In the event that
payment of the Redemption Price in respect of any Trust
Securities called for redemption is improperly withheld or
refused and not paid either by the Trust or by the Depositor
pursuant to the Guarantee, Distributions on such Trust
Securities will continue to accrue, at the then applicable rate,
from the Redemption Date originally established by the Trust for
such Trust Securities to the date such Redemption Price is
actually paid, in which case the actual payment date will be the
date fixed for redemption for purposes of calculating the
Redemption Price. Notwithstanding anything herein to the
contrary, if the Redemption Date is a Distribution Date, the
Distribution payable on such Distribution Date shall be payable
to the Holder entitled to the payment of the Redemption Price
upon presentation and surrender of the related Trust Security.
(e) Subject to Section 4.3(a), if less than all the
Outstanding Trust Securities are to be redeemed on a Redemption
Date, then the aggregate Liquidation Amount of Trust Securities
to be redeemed shall be allocated on a pro rata basis (based on
Liquidation Amounts) among the Common Securities and the
Preferred Securities. The particular Preferred Securities to be
redeemed shall be selected on a pro rata basis (based upon
Liquidation Amounts) not more than 60 days prior to the
Redemption Date by the Property Trustee from the Outstanding
Preferred Securities not previously called for redemption, by
such method (including, without limitation, by lot) as the
Property Trustee shall deem fair and appropriate and which may
provide for the selection for redemption of portions (equal to
$25 or an integral multiple of $25 in excess thereof) of the
Liquidation Amount of Preferred Securities of a denomination
larger than $25. The Property Trustee shall promptly notify the
Transfer Agent and Registrar in writing of the Preferred
Securities selected for redemption and, in the case of any
Preferred Securities selected for partial redemption, the
Liquidation Amount thereof to be redeemed. For all purposes of
this Trust Agreement, unless the context otherwise requires, all
provisions relating to the redemption of Preferred Securities
shall relate, in the case of any Preferred Securities redeemed or
to be redeemed only in part, to the portion of the Liquidation
Amount of Preferred Securities that has been or is to be
redeemed.
<PAGE>
SECTION 4.3. Subordination of Common Securities.
(a) Payment of Distributions (including Additional
Amounts, if applicable) on, and the Redemption Price of, the
Trust Securities, as applicable, shall be made, subject to
Section 4.2(e), pro rata among the Common Securities and the
Preferred Securities based on the Liquidation Amount of the Trust
Securities; provided, however, that if on any Distribution Date
or Redemption Date any Event of Default resulting from a
Debenture Event of Default shall have occurred and be continuing,
no payment of any Distribution (including Additional Amounts, if
applicable) on, or Redemption Price of, any Common Security, and
no other payment on account of the redemption, liquidation or
other acquisition of Common Securities, shall be made unless
payment in full in cash of all accumulated and unpaid
Distributions (including Additional Amounts, if applicable) on
all Outstanding Preferred Securities for all Distribution periods
terminating on or prior thereto, or in the case of payment of the
Redemption Price the full amount of such Redemption Price on all
Outstanding Preferred Securities, shall have been made or
provided for, and all funds immediately available to the Property
Trustee shall first be applied to the payment in full in cash of
all Distributions (including Additional Amounts, if applicable)
on, or the Redemption Price of, Preferred Securities then due and
payable.
(b) In the case of the occurrence of any Event of
Default resulting from a Debenture Event of Default, the Holder
of Common Securities will be deemed to have waived any right to
act with respect to any such Event of Default under this Trust
Agreement until the effect of all such Events of Default with
respect to the Preferred Securities have been cured, waived or
otherwise eliminated. Until any such Event of Default under this
Trust Agreement with respect to the Preferred Securities has been
so cured, waived or otherwise eliminated, the Property Trustee
shall act solely on behalf of the Holders of the Preferred
Securities and not the Holder of the Common Securities, and only
the Holders of the Preferred Securities will have the right to
direct the Property Trustee to act on their behalf.
SECTION 4.4. Payment Procedures.
Payments of Distributions (including Additional
Amounts, if applicable) in respect of the Preferred Securities
shall be made by check mailed to the address of the Person
entitled thereto as such address shall appear on the Securities
Register or, if the Preferred Securities are held by a Clearing
Agency, such Distributions shall be made to the Clearing Agency
in immediately available funds, which shall credit the relevant
Persons' accounts at such Clearing Agency on the applicable
distribution dates. Payments in respect of the Common Securities
shall be made in such manner as shall be mutually agreed between
the Property Trustee and the Common Security Holder.
SECTION 4.5. Tax Returns and Reports.
The Administrative Trustees shall prepare (or cause to
be prepared), at the Depositor's expense, and file all United
States federal, state and local tax and information returns and
reports required to be filed by or in respect of the Trust. In
this regard, the Administrative Trustees shall (a) prepare and
file (or cause to be prepared and filed) the appropriate Internal
Revenue Service form required to be filed in respect of the Trust
in each taxable year of the Trust and (b) prepare and furnish (or
cause to be prepared and furnished) to each Securityholder the
appropriate Internal Revenue Service form required to be
furnished to such Securityholder or the information required to
be provided on such form. The Administrative Trustees shall
provide the Depositor and the Property Trustee with a copy of all
such returns and reports promptly after such filing or
furnishing. The Trustees shall comply with United States federal
withholding and backup withholding tax laws and information
reporting requirements with respect to any payments to
Securityholders under the Trust Securities.
SECTION 4.6. Payment of Taxes, Duties, Etc. of the
Trust.
Upon receipt under the Debentures of Additional Sums,
the Property Trustee shall promptly pay any taxes, duties or
governmental charges of whatsoever nature (other than withholding
taxes) imposed on the Trust by the United States or any other
taxing authority which the Property Trustee is directed in
writing to pay by the Administrative Trustees.
SECTION 4.7. Payments under Indenture.
The Holders of Common Securities will be subrogated to
the rights of any Holder of Preferred Securities (and any Owner
with respect thereto) to the extent of any payment to such Holder
(and Owner) pursuant to Section 5.8 of the Indenture.
ARTICLE V
TRUST SECURITIES CERTIFICATES
SECTION 5.1. Initial Ownership.
Upon the creation of the Trust and the contribution by
the Depositor pursuant to Section 2.3 and until the issuance of
the Trust Securities, and at any time during which no Trust
Securities are outstanding, the Depositor shall be the sole
beneficial owner of the Trust.
SECTION 5.2. The Trust Securities Certificates.
The Preferred Securities Certificates shall be issued
in minimum denominations of $25 Liquidation Amount and integral
multiples of $25 in excess thereof, and the Common Securities
Certificates shall be issued in denominations of $25 Liquidation
Amount and integral multiples thereof. Subject to Section 2.4
relating to the original issuance of the Preferred Securities
Certificate registered in the name of the nominee of the
Depositary Trust Company, the Trust Securities Certificates shall
be executed on behalf of the Trust by the manual or facsimile
signature of at least one Administrative Trustee and, if executed
on behalf of the Trust by facsimile signature, countersigned by a
Transfer Agent or its agent. Trust Securities Certificates
bearing the manual signatures of individuals who were, at the
time when such signatures shall have been affixed, authorized to
sign on behalf of the Trust and, if executed on behalf of the
Trust by facsimile signature, countersigned by a Transfer Agent
or its agent, shall be validly issued and entitled to the
benefits of this Trust Agreement, notwithstanding that such
individuals or any of them shall have ceased to be so authorized
prior to the delivery of such Trust Securities Certificates or
did not hold such offices at the date of delivery of such Trust
Securities Certificates. A transferee of a Trust Securities
Certificate shall become a Securityholder, and shall be entitled
to the rights and subject to the obligations of a Securityholder
hereunder, upon due registration of such Trust Securities
Certificate in such transferee's name pursuant to Sections 5.4,
5.11 and 5.13. Depositor agrees to indemnify, defend and hold
each Transfer Agent harmless against any and all costs and
liabilities incurred without negligence arising out of or in
connection with any such countersigning by it.
SECTION 5.3. Execution and Delivery of Trust
Securities Certificates.
On the Closing Date, the Administrative Trustees shall
cause Trust Securities Certificates, in an aggregate Liquidation
Amount as provided in Sections 2.4 and 2.5, to be executed on
behalf of the Trust and in the case of Preferred Securities
executed by facsimile signature, countersigned by a Transfer
Agent or its agent, and delivered to or upon the written order of
the Depositor, signed by its chairman of the board, its
president, any executive vice president, senior vice president or
any vice president, treasurer or assistant treasurer or
controller without further corporate action by the Depositor, in
authorized denominations.
SECTION 5.4. Registration of Transfer and Exchange of
Preferred Securities Certificates.
The Depositor shall keep or cause to be kept, at the
office or agency maintained pursuant to Section 5.8, a register
or registers for the purpose of registering Trust Securities
Certificates and transfers and exchanges of Preferred Securities
Certificates (the "Securities Register") in which, one or more
the transfer agents (the each a "Transfer Agent") and registrars
designated by the Depositor (each a "Registrar"), subject to such
reasonable regulations as it may prescribe, shall provide for,
respectively, the transfer and registration of Preferred
Securities Certificates and Common Securities Certificates
(subject to Section 5.10 in the case of the Common Securities
Certificates) and registration of transfers and exchanges of
Preferred Securities Certificates as herein provided. The Bank
shall be the initial Registrar.
Upon surrender for registration of transfer of any
Preferred Securities Certificate at the office or agency
maintained pursuant to Section 5.8, the Administrative Trustees
or any one of them shall execute on behalf of the Trust by manual
or facsimile signature and, if executed by on behalf of the Trust
by facsimile signature, cause a Transfer Agent or its agent to
countersign, and deliver, in the name of the designated
transferee or transferees, one or more new Preferred Securities
Certificates in authorized denominations of a like aggregate
Liquidation Amount dated the date of execution by such
Administrative Trustee or Trustees. The Trust shall not be
required (i) to register or cause to be registered the transfer
or exchange of any Preferred Security during a period beginning
at the opening of business 15 days before the day of the mailing
of the relevant notice of redemption and ending of the close of
business on the day of mailing of such notice of redemption or
(ii) to register or cause to be registered the transfer or
exchange of any Preferred Securities selected for redemption in
whole or in part, except, in the case of any Preferred Security
to be redeemed in part, any portion thereof not to be redeemed.
At the option of a Holder, Preferred Securities Certificates may
be exchanged for other Preferred Securities Certificates in
authorized denominations of the same class and of a like
aggregate Liquidation Amount upon surrender of the Preferred
Securities Certificates to be exchanged at the office or agency
maintained pursuant to Section 5.8.
Every Preferred Securities Certificate presented or
surrendered for registration of transfer or exchange shall be
accompanied by a written instrument of transfer in form
satisfactory to the Property Trustee, the Transfer Agent and the
Registrar duly executed by the Holder or his attorney duly
authorized in writing. Each Preferred Securities Certificate
surrendered for registration of transfer or exchange shall be
cancelled and subsequently disposed of by the Property Trustee in
accordance with its customary practice.
No service charge shall be made for any registration of
transfer or exchange of Preferred Securities Certificates, but a
Transfer Agent may require payment of a sum sufficient to cover
any tax or governmental charge that may be imposed in connection
with any transfer or exchange of Preferred Securities
Certificates.
SECTION 5.5. Mutilated, Destroyed, Lost or Stolen
Trust Securities Certificates.
If (a) any mutilated Trust Securities Certificate shall
be surrendered to a Transfer Agent, or if a Transfer Agent shall
receive evidence to its satisfaction of the destruction, loss or
theft of any Trust Securities Certificate and (b) there shall be
delivered to such Transfer Agent and the Administrative Trustees
such security or indemnity as may be required by them to save
each of them harmless, then in the absence of notice that such
Trust Securities Certificate shall have been acquired by a bona
fide purchaser, the Administrative Trustees, or any one of them,
on behalf of the Trust shall execute by manual or facsimile
signature and, if executed on behalf of the Trust by facsimile
signature, such certificate shall be countersigned by a Transfer
Agent, and the Administrative Trustees, or any one of them on
behalf of the Trust shall make available for delivery, in
exchange for or in lieu of any such mutilated, destroyed, lost or
stolen Trust Securities Certificate, a new Trust Securities
Certificate of like class, tenor and denomination. In connection
with the issuance of any new Trust Securities Certificate under
this Section, the Administrative Trustees or the Transfer Agent
may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection
therewith. Any duplicate Trust Securities Certificate issued
pursuant to this Section shall constitute conclusive evidence of
an undivided beneficial interest in the assets of the Trust, as
if originally issued, whether or not the lost, stolen or
destroyed Trust Securities Certificate shall be found at any
time.
SECTION 5.6. Persons Deemed Securityholders.
The Administrative Trustees, the Property Trustee, each
Transfer Agent and each Registrar shall treat the Person in whose
name any Trust Securities Certificate shall be registered in the
Securities Register as the owner of such Trust Securities
Certificate for the purpose of receiving distributions and for
all other purposes whatsoever, and neither the Trustees nor any
Transfer Agent or Registrar shall be bound by any notice to the
contrary.
SECTION 5.7. Access to List of Securityholders' Names
and Addresses.
The Administrative Trustees or the Depositor shall
furnish or cause to be furnished (a) to the Property Trustee,
semi-annually on or before January 15 and July 15 in each year
and (b) to the Property Trustee, promptly after receipt by any
Administrative Trustee or the Depositor of a request therefor
from the Property Trustee in order to enable the Property Trustee
to discharge its obligations under this Trust Agreement, a list,
in such form as the Property Trustee may reasonably require, of
the names and addresses of the Securityholders as of the most
recent Record Date in each case to the extent such information is
in the possession or control of the Administrative Trustees or
the Depositor and is not identical to a previously supplied list
or has not otherwise been received by the Property Trustee in
its capacity as Securities Registrar. The rights of
Securityholders to communicate with other Securityholders with
respect to their rights under this Trust Agreement or under the
Trust Securities, and the corresponding rights of the Trustee
shall be as provided in the Trust Indenture Act. Each Holder, by
receiving and holding a Trust Securities Certificate, and each
Owner shall be deemed to have agreed not to hold the Depositor,
the Property Trustee or the Administrative Trustees accountable
by reason of the disclosure of its name and address, regardless
of the source from which such information was derived.
SECTION 5.8. Maintenance of Office or Agency.
The Administrative Trustees shall maintain an office or
offices or agency or agencies where Preferred Securities
Certificates may be surrendered for registration of transfer or
exchange and where notices and demands to or upon the Trustees in
respect of the Trust Securities Certificates may be served. The
Administrative Trustees initially designate the Bank, 101 Barclay
Street, New York, New York 10286, as the office for such
purposes. The Administrative Trustees shall give prompt written
notice to the Depositor, the Property Trustee, the Transfer
Agent, the Registrar and to the Securityholders of any change in
the location of the Securities Register or any such office or
agency.
SECTION 5.9. Appointment of Paying Agent.
The Paying Agent shall make distributions to
Securityholders from the Payment Account and shall report the
amounts of such distributions to the Property Trustee and the
Administrative Trustees. Any Paying Agent shall have the
revocable power to withdraw funds from the Payment Account for
the purpose of making the distributions referred to above. The
Property Trustee shall be entitled to rely upon a certificate of
the Paying Agent stating in effect the amount of such funds so to
be withdrawn and that same are to be applied by the Paying Agent
in accordance with this Section 5.9. The Administrative Trustees
may revoke such power and remove the Paying Agent if the
Administrative Trustees determine in their sole discretion that
the Paying Agent shall have failed to perform its obligations
under this Trust Agreement in any material respect. The Paying
Agent shall initially be the Bank. The Paying Agent may choose
any co-paying that is acceptable to the Administrative Trustees
and the Depositor. Any Person acting as Paying Agent shall be
permitted to resign as Paying Agent upon 30 days' written notice
to the Administrative Trustees, the Property Trustee and the
Depositor. In the event that the Bank shall no longer be the
Paying Agent or a successor Paying Agent shall resign or its
authority to act be revoked, the Administrative Trustees shall
appoint a successor that is acceptable to the Property Trustee
and the Depositor to act as Paying Agent (which shall be a bank
or trust company). The Administrative Trustees shall cause such
successor Paying Agent or any additional Paying Agent appointed
by the Administrative Trustees to execute and deliver to the
Trustees an instrument in which such successor Paying Agent or
additional Paying Agent shall agree with the Trustees that as
Paying Agent, such successor Paying Agent or additional Paying
Agent will hold all sums, if any, held by it for payment to the
Securityholders in trust for the benefit of the Securityholders
entitled thereto until such sums shall be paid to such
Securityholders. The Paying Agent shall return all unclaimed
funds to the Property Trustee and upon resignation or removal of
a Paying Agent such Paying Agent shall also return all funds in
its possession to the Property Trustee. The provisions of
Sections 8.1, 8.3 and 8.6 shall apply to the Bank also in its
role as Paying Agent, for so long as the Bank shall act as Paying
Agent and, to the extent applicable, to any other paying agent
appointed hereunder, and any Paying Agent shall be bound by the
requirements with respect to paying agents of securities issued
pursuant to the Trust Indenture Act. Any reference in this
Agreement to the Paying Agent shall include any co-paying agent
unless the context requires otherwise.
SECTION 5.10. Ownership of Common Securities by
Depositor.
On the Closing Date, the Depositor shall acquire and
retain beneficial and record ownership of the Common Securities.
To the fullest extent permitted by law, other than a transfer in
connection with a consolidation or merger of the Depositor into
another corporation, or any conveyance, transfer or lease by the
Depositor of its properties and assets substantially as an
entirety to any Person, pursuant to Section 8.1 of the Indenture,
any attempted transfer of the Common Securities shall be void.
The Administrative Trustees shall cause each Common Securities
Certificate issued to the Depositor to contain a legend stating
"THIS CERTIFICATE IS NOT TRANSFERABLE".
SECTION 5.11. Book-Entry Preferred Securities
Certificates; Common Securities Certificate.
(a) The Preferred Securities Certificates, upon
original issuance, will be issued in the form of a typewritten
Preferred Securities Certificate or Certificates representing
Book-Entry Preferred Securities Certificates, to be delivered to
The Depository Trust Company, the initial Clearing Agency, by, or
on behalf of, the Trust. Such Preferred Securities Certificate
or Certificates shall initially be registered on the Securities
Register in the name of Cede & Co., the nominee of the initial
Clearing Agency, and no beneficial owner will receive a
Definitive Preferred Securities Certificate representing such
beneficial owner's interest in such Preferred Securities, except
as provided in Section 5.13. Unless and until Definitive
Preferred Securities Certificates have been issued to beneficial
owners pursuant to Section 5.13:
(i) the provisions of this Section 5.11(a) shall
be in full force and effect;
(ii) the Transfer Agent, Registrar and the
Trustees shall be entitled to deal with the Clearing
Agency for all purposes of this Trust Agreement
relating to the Book-Entry Preferred Securities
Certificates (including the payment of the Liquidation
Amount of and Distributions on the Book-Entry Preferred
Securities and the giving of instructions or directions
to Owners of Book-Entry Preferred Securities) as the
sole Holder of Book-Entry Preferred Securities and
shall have no obligations to the Owners thereof;
(iii) to the extent that the provisions of this
Section 5.11 conflict with any other provisions of this
Trust Agreement, the provisions of this Section 5.11
shall control; and
(iv) the rights of the Owners of the Book-Entry
Preferred Securities Certificates shall be exercised
only through the Clearing Agency and shall be limited
to those established by law and agreements between such
Owners and the Clearing Agency and/or the Clearing
Agency Participants. Pursuant to the Certificate
Depository Agreement, unless and until Definitive
Preferred Securities Certificates are issued pursuant
to Section 5.13, the initial Clearing Agency will make
book-entry transfers among the Clearing Agency
Participants and receive and transmit payments on the
Preferred Securities to such Clearing Agency
Participants.
In the event that, in accordance with the procedures of
The Depository Trust Company, the Property Trustee receives from
The Depository Trust Company an omnibus proxy in connection with
any vote solicited of the Holders of Preferred Securities, the
Property Trustee shall deliver such omnibus proxy to the
Administrative Trustees who shall be solely responsible for
soliciting votes from the Owners and in otherwise coordinating
with and complying with such procedures in respect of any such
solicitation.
(b) A single Common Securities Certificate
representing the Common Securities shall be issued to the
Depositor in the form of a definitive Common Securities
Certificate, which may be typewritten.
SECTION 5.12. Notices to Clearing Agency.
To the extent that a notice or other communication to
the Owners is required under this Trust Agreement, unless and
until Definitive Preferred Securities Certificates shall have
been issued to Owners pursuant to Section 5.13, the Trustees
shall give all such notices and communications specified herein
to be given to Owners to the Clearing Agency, and shall have no
obligations to the Owners.
SECTION 5.13. Definitive Preferred Securities
Certificates.
If (a) the Depositor advises the Trustees in writing
that the Clearing Agency is no longer willing or able to properly
discharge its responsibilities with respect to the Preferred
Securities Certificates, and the Depositor is unable to locate a
qualified successor, (b) the Depositor at its option advises the
Trustees in writing that it elects to terminate the book-entry
system through the Clearing Agency, or (c) after the occurrence
of a Debenture Event of Default, Owners of Preferred Securities
Certificates representing beneficial interests aggregating at
least a majority of the Liquidation Amount advise the Property
Trustee in writing that the continuation of a book-entry system
through the Clearing Agency is no longer in the best interest of
the Owners of Preferred Securities Certificates, then the
Property Trustee shall notify the Administrative Trustees, and
then the Administrative Trustees shall notify the Clearing Agency
and the Clearing Agency shall notify all Owners of Preferred
Securities Certificates and the other Trustees of the occurrence
of any such event and of the availability of the Definitive
Preferred Securities Certificates to Owners of such class or
classes, as applicable, requesting the same. Upon surrender to
the Property Trustee of the typewritten Preferred Securities
Certificate or Certificates representing the Book-Entry Preferred
Securities Certificates by the Clearing Agency, accompanied by
registration instructions, the Administrative Trustees, or any
one of them, shall execute the Definitive Preferred Securities
Certificates in accordance with the instructions of the Clearing
Agency. The Administrative Trustees shall be responsible for
obtaining any lists of Owners necessary to effect any exchange of
Definitive Preferred Securities Certificates for Book-Entry
Preferred Securities Certificates hereunder and for otherwise
satisfying any related requirements of the Clearing Agency.
Neither the Securities Registrar nor the Trustees shall be liable
for any delay in delivery of such instructions and may
conclusively rely on, and shall be protected in relying on, such
instructions. Upon the issuance of Definitive Preferred
Securities Certificates, the Trustees shall recognize the Holders
of the Definitive Preferred Securities Certificates as
Securityholders. The Definitive Preferred Securities
Certificates shall be printed, lithographed or engraved or may be
produced in any other manner as is reasonably acceptable to the
Administrative Trustees, as evidenced by the execution thereof by
the Administrative Trustees or any one of them.
SECTION 5.14. Rights of Securityholders.
(a) The legal title to the Trust Property is vested
exclusively in the Property Trustee (in its capacity as such) in
accordance with Section 2.9, and the Securityholders shall not
have any right or title therein other than the undivided
beneficial interest in the assets of the Trust conferred by their
Trust Securities and they shall have no right to call for any
partition or division of property, profits or rights of the Trust
except as described below. The Trust Securities shall be
personal property giving only the rights specifically set forth
therein and in this Trust Agreement. The Trust Securities shall
have no preemptive or similar rights and when issued and
delivered to Securityholders against payment of the purchase
price therefor will be fully paid and nonassessable by the Trust.
The Holders of the Trust Securities, in their capacities as such,
shall be entitled to the same limitation of personal liability
extended to stockholders of private corporations for profit
organized under the General Corporation Law of the State of
Delaware.
(b) For so long as any Preferred Securities remain
Outstanding, if, upon a Debenture Event of Default, the Debenture
Trustee fails or the holders of not less than 25% in principal
amount of the outstanding Debentures fail to declare the
principal of all of the Debentures to be immediately due and
payable, the Holders of at least 25% in Liquidation Amount of the
Preferred Securities then Outstanding shall have such right by a
notice in writing to the Depositor and the Debenture Trustee;
and upon any such declaration such principal amount of and the
accrued interest on all of the Debentures shall become
immediately due and payable, provided that the payment of
principal and interest on such Debentures shall remain
subordinated to the extent provided in the Indenture.
(c) For so long as any Preferred Securities remain
Outstanding, to the fullest extent permitted by law and subject
to the terms of this Trust Agreement, upon a Debenture Event of
Default specified in Section 5.1(1) or 5.1(2) of the Indenture,
any Holder of Preferred Securities shall have the right to
institute a proceeding directly against the Depositor for
enforcement of payment to such Holder of the principal amount of
or interest on the Debentures having a principal amount equal to
the Liquidation Amount of the Preferred Securities of such Holder
(a "Direct Action"). In connection with such Direct Action, the
Holders of the Common Securities will be subrogated to the rights
of any Holder of the Preferred Securities to the extent of any
payment made by the Depositor to such Holder of Preferred
Securities in such Direct Action. Except as set forth in this
Section 5.14(c), the Holders of Preferred Securities will not be
able to exercise directly any other rights or remedy available to
the holders of the Debentures or, except as set forth in Section
5.14(b), assert directly any other rights in respect of the
Debentures. The Depositor may not amend the Indenture to remove
the right of Direct Action without the prior written consent of
the Holders of all Preferred Securities.
ARTICLE VI
ACTS OF SECURITYHOLDERS; MEETINGS; VOTING
SECTION 6.1. Limitations on Voting Rights.
(a) Except as provided in this Section, in Sections
5.14, 8.10 and 10.2 and in the Indenture and as otherwise
required by law, no Holder of Preferred Securities shall have any
right to vote or in any manner otherwise control the
administration, operation and management of the Trust or the
obligations of the parties hereto, nor shall anything herein set
forth, or contained in the terms of the Trust Securities
Certificates, be construed so as to constitute the
Securityholders from time to time as partners or members of an
association.
(b) So long as any Debentures are held by the
Property Trustee, the Trustees shall not (i) direct the time,
method and place of conducting any proceeding for any remedy
available to the Debenture Trustee, or executing any trust or
power conferred on the Debenture Trustee with respect to such
Debentures, (ii) waive any past default which is waiveable under
Section 5.13 of the Indenture, (iii) exercise any right to
rescind or annul a declaration that the principal of all the
Debentures shall be due and payable or (iv) consent to any
amendment, modification or termination of the Indenture or the
Debentures, where such consent shall be required, without, in
each case, obtaining the prior approval of the Holders of at
least a majority in Liquidation Amount of all Outstanding
Preferred Securities; provided, however, that where a consent
under the Indenture would require the consent of each Holder of
Debentures affected thereby, no such consent shall be given by
the Property Trustee without the prior written consent of each
Holder of Preferred Securities.
The Trustees shall not revoke any action previously
authorized or approved by a vote of the Holders of Preferred
Securities, except pursuant to a subsequent Vote of the Holders
of Preferred Securities. The Property Trustee shall notify all
Holders of the Preferred Securities of any notice of default
received from the Debenture Trustee with respect to the
Debentures. In addition to obtaining the foregoing approvals of
the Holders of the Preferred Securities, prior to taking any of
the foregoing actions, the Trustees shall, at the expense of the
Depositor, obtain an Opinion of Counsel experienced in such
matters to the effect that the Trust will not be classified as
other than a grantor trust for United States federal income tax
purposes on account of such action.
SECTION 6.2. Notice of Meetings.
Notice of all meetings of the Preferred
Securityholders, stating the time, place and purpose of the
meeting, shall be given by the Administrative Trustees pursuant
to Section 10.8 to each Preferred Securityholder of record, at
his registered address, at least 15 days and not more than 90
days before the meeting. At any such meeting, any business
properly before the meeting may be so considered whether or not
stated in the notice of the meeting. Any adjourned meeting may
be held as adjourned without further notice.
SECTION 6.3. Meetings of Preferred Securityholders.
No annual meeting of Securityholders is required to be
held. The Administrative Trustees, however, shall call a meeting
of Securityholders to vote on any matter upon the written request
of the Preferred Securityholders of record of 25% of the
Preferred Securities (based upon their Liquidation Amount) and
the Administrative Trustees or the Property Trustee may, at any
time in their discretion, call a meeting of Preferred
Securityholders to vote on any matters as to which Preferred
Securityholders are entitled to vote.
Preferred Securityholders of record of 50% of the
Outstanding Preferred Securities (based upon their Liquidation
Amount), present in person or by proxy, shall constitute a quorum
at any meeting of Securityholders.
If a quorum is present at a meeting, an affirmative
vote by the Preferred Securityholders of record present, in
person or by proxy, holding more than a majority of the Preferred
Securities (based upon their Liquidation Amount) held by the
Preferred Securityholders of record present, either in person or
by proxy, at such meeting shall constitute the action of the
Securityholders, unless this Trust Agreement requires a greater
number of affirmative votes.
SECTION 6.4. Voting Rights.
Securityholders shall be entitled to one vote for each
$25 of Liquidation Amount represented by their Trust Securities
in respect of any matter as to which such Securityholders are
entitled to vote.
SECTION 6.5. Proxies, etc.
At any meeting of Securityholders, any Securityholder
entitled to vote thereat may vote by proxy, provided that no
proxy shall be voted at any meeting unless it shall have been
placed on file with the Administrative Trustees, or with such
other officer or agent of the Trust as the Administrative
Trustees may direct, for verification prior to the time at which
such vote shall be taken. Pursuant to a resolution of the
Property Trustee, proxies may be solicited in the name of the
Property Trustee or one or more officers of the Property Trustee.
Only Securityholders of record shall be entitled to vote. When
Trust Securities are held jointly by several persons, any one of
them may vote at any meeting in person or by proxy in respect of
such Trust Securities, but if more than one of them shall be
present at such meeting in person or by proxy, and such joint
owners or their proxies so present disagree as to any vote to be
cast, such vote shall not be received in respect of such Trust
Securities. A proxy purporting to be executed by or on behalf of
a Securityholder shall be deemed valid unless challenged at or
prior to its exercise or, if earlier, until eleven months after
it is sent, and the burden of proving invalidity shall rest on
the challenger. No proxy shall be valid more than three years
after its date of execution.
SECTION 6.6. Securityholder Action by Written Consent.
Any action which may be taken by Securityholders at a
meeting may be taken without a meeting if Securityholders holding
more than a majority of all Outstanding Trust Securities (based
upon their Liquidation Amount) entitled to vote in respect of
such action (or such larger proportion thereof as shall be
required by any express provision of this Trust Agreement) shall
consent to the action in writing.
SECTION 6.7. Record Date for Voting and Other
Purposes.
For the purposes of determining the Securityholders who
are entitled to notice of and to vote at any meeting or by
written consent, or to participate in any distribution on the
Trust Securities in respect of which a record date is not
otherwise provided for in this Trust Agreement, or for the
purpose of any other action, the Administrative Trustees may from
time to time fix a date, not more than 90 days prior to the date
of any meeting of Securityholders or the payment of a
distribution or other action, as the case may be, as a record
date for the determination of the identity of the Securityholders
of record for such purposes.
SECTION 6.8. Acts of Securityholders.
Any request, demand, authorization, direction, notice,
consent, waiver or other action provided or permitted by this
Trust Agreement to be given, made or taken by Securityholders or
Owners may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such
Securityholders or Owners in person or by an agent duly appointed
in writing; and, except as otherwise expressly provided herein,
such action shall become effective when such instrument or
instruments are delivered to an Administrative Trustee. Such
instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act"
of the Securityholders or Owners signing such instrument or
instruments. Proof of execution of any such instrument or of a
writing appointing any such agent shall be sufficient for any
purpose of this Trust Agreement and (subject to Section 8.1)
conclusive in favor of the Trustees, if made in the manner
provided in this Section.
The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a
witness of such execution or by a certificate of a notary public
or other officer authorized by law to take acknowledgments of
deeds, certifying that the individual signing such instrument or
writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his
individual capacity, such certificate or affidavit shall also
constitute sufficient proof of his authority. The fact and date
of the execution of any such instrument or writing, or the
authority of the Person executing the same, may also be proved in
any other manner which any Trustee receiving the same deems
sufficient.
The ownership of Preferred Securities shall be proved
by the Securities Register.
Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Securityholder of any Trust
Security shall bind every future Securityholder of the same Trust
Security and the Securityholder of every Trust Security issued
upon the registration of transfer thereof or in exchange therefor
or in lieu thereof in respect of anything done, omitted or
suffered to be done by the Trustees or the Trust in reliance
thereon, whether or not notation of such action is made upon such
Trust Security.
Without limiting the foregoing, a Securityholder
entitled hereunder to take any action hereunder with regard to
any particular Trust Security may do so with regard to all or any
part of the Liquidation Amount of such Trust Security or by one
or more duly appointed agents each of which may do so pursuant to
such appointment with regard to all or any part of such
liquidation amount.
If any dispute shall arise between the Securityholders
and the Administrative Trustees or among such Securityholders or
Trustees with respect to the authenticity, validity or binding
nature of any request, demand, authorization, direction, consent,
waiver or other Act of such Securityholder or Trustee under this
Article VI, then the determination of such matter by the Property
Trustee shall be conclusive with respect to such matter.
A Securityholder may institute a legal proceeding
directly against the Depositor under the Guarantee to enforce its
rights under the Guarantee without first instituting a legal
proceeding against the Guarantee Trustee (as defined in the
Guarantee), the Trust or any person or entity.
SECTION 6.9. Inspection of Records
Subject to Section 5.7 concerning access to the list of
Securityholders, upon reasonable notice to the Administrative
Trustees and the Property Trustee, the records of the Trust shall
be open to inspection by Securityholders during normal business
hours for any purpose reasonably related to such Securityholder's
interest as a Securityholder.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF THE PROPERTY
TRUSTEE AND THE DELAWARE TRUSTEE
SECTION 7.1. Property Trustee.
The Property Trustee hereby represents and warrants for
the benefit of the Depositor and the Securityholders that:
(a) the Property Trustee is a banking
corporation or trust company duly organized, validly existing and
in good standing under the laws of the State of New York;
(b) the Property Trustee has full corporate power,
authority and legal right to execute, deliver and perform
its obligations under this Trust Agreement and has taken all
necessary action to authorize the execution, delivery and
performance by it of this Trust Agreement;
(c) this Trust Agreement has been duly authorized,
executed and delivered by the Property Trustee and
constitutes the valid and legally binding agreement of the
Property Trustee enforceable against it in accordance with
its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors'
rights and to general equity principles;
(d) the execution, delivery and performance by the
Property Trustee of this Trust Agreement will not violate,
conflict with or constitute a breach of the Property
Trustee's charter or by-laws; and
(e) neither the authorization, execution or
delivery by the Property Trustee of this Trust Agreement nor
the consummation of any of the transactions by the Property
Trustee contemplated herein require the consent or approval
of, the giving of notice to the registration with or the
taking of any other action, under any existing Federal or
New York law governing the banking or trust powers of the
Property Trustee with respect to any governmental authority
or agency.
SECTION 7.2. Delaware Trustee.
The Delaware Trustee represents and warrants for the
benefit of the Depositor and the Securityholders that:
(a) the Delaware Trustee is a banking corporation
or trust company duly organized, validly existing and in good
standing under the laws of the State of Delaware;
(b) the Delaware Trustee has full corporate power,
authority and legal right to execute, deliver and perform its
obligations under this Trust Agreement and has taken all
necessary action to authorize the execution, delivery and
performance by it of this Trust Agreement;
(c) this Trust Agreement has been duly authorized,
executed and delivered by the Delaware Trustee and constitutes
the valid and legally binding agreement of the Delaware Trustee
enforceable against it in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to
or affecting creditors' rights and to general equity principles;
(d) the execution, delivery and performance by the
Delaware Trustee of this Trust Agreement will not violate the
Delaware Trustee's charter or by-laws; and
(e) neither the authorization, execution or
delivery by the Delaware Trustee of this Trust Agreement nor the
consummation of any of the transactions by the Delaware Trustee
contemplated herein require the consent or approval of, the
giving of notice to, the registration with or the taking of any
other action, under any existing Federal or Delaware law
governing the banking or trust powers of the Delaware Trustee,
with respect to any governmental authority or agency.
SECTION 7.3. Representations and Warranties of
Depositor.
The Depositor hereby represents and warrants for the
benefit of the Securityholders that:
(a) the Trust Securities Certificates issued at
each Time of Delivery on behalf of the Trust have been duly
authorized and will have been duly and validly executed,
issued and delivered by the Trustees pursuant to the terms
and provisions of, and in accordance with the requirements
of, this Trust Agreement and the Securityholders will be, as
of such date, entitled to the benefits of this Trust
Agreement; and
(b) there are no taxes, fees or other governmental
charges payable by the Trust (or the Trustees on behalf of
the Trust) under the laws of the State of Delaware or any
political subdivision thereof in connection with the
execution, delivery and performance by the Bank, the
Property Trustee or the Delaware Trustee, as the case may
be, of this Trust Agreement.
ARTICLE VIII
THE TRUSTEES
SECTION 8.1. Certain Duties and Responsibilities
(a) The duties and responsibilities of the Trustees
shall be as restricted to those set forth in the express
provisions of this Trust Agreement and, in the case of the
Property Trustee, as provided in the Trust Indenture Act, and no
implied covenants or obligations shall be read into this Trust
Agreement against any of the Trustees. Notwithstanding the
foregoing, no provision of this Trust Agreement shall require any
of the Trustees to expend or risk its own funds or otherwise
incur any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk
or liability is not reasonably assured to it. Notwithstanding
anything contained in this Trust Agreement to the contrary, the
duties and responsibilities of the Property Trustee under this
Trust Agreement shall be subject to the protections, exculpations
and limitations on liability afforded to the Property Trustee
under the provisions of the Trust Indenture Act, the Delaware
Business Trust Act and, to the extent applicable, Rule 3a-7 under
the 1940 Act, or any successor rule thereunder. Whether or not
therein expressly so provided, every provision of this Trust
Agreement relating to the conduct or affecting the liability of
or affording protection to the Trustees shall be subject to the
provisions of Section 8.1. Nothing in this Trust Agreement shall
be construed to release the Delaware Trustee or any
Administrative Trustee from liability for its own grossly
negligent action, its own grossly negligent failure to act, or
its own willful misconduct. To the extent that, at law or in
equity, a Trustee has duties (including fiduciary duties) and
liabilities thereto to the Trust or the Securityholders, such
Trustee shall not be liable to the Trust or to any Securityholder
for such Trustee's good faith reliance on the provisions of this
Trust Agreement. The provisions of this Trust Agreement, to the
extent that they restrict the duties and liabilities of the
Property Trustee, the Delaware Trustee and the Administrative
Trustees otherwise existing at law or in equity (other than the
duties imposed on the Property Trustee under the Trust Indenture
Act), are agreed by the Depositor and the Securityholders to
replace such other duties and liabilities of the Administrative
Trustees.
(b) All payments made by the Property Trustee or a
Paying Agent in respect of the Trust Securities shall be made
only from the revenue and proceeds from the Trust Property and
only to the extent that there shall be sufficient revenue or
proceeds from the Trust Property to enable the Property Trustee
or a Paying Agent to make payments in accordance with the terms
hereof. Each Securityholder, by its acceptance of a Trust
Security, agrees that it will look solely to the revenue and
proceeds from the Trust Property to the extent legally available
for distribution to it as herein provided and that the Trustees
are not personally liable to it for any amount distributable in
respect of any Trust Security or for any other liability in
respect of any Trust Security. This Section 8.1(b) does not
limit the liability of the Trustees expressly set forth elsewhere
in this Trust Agreement or, in the case of the Property Trustee,
in the Trust Indenture Act.
(c) All duties and responsibilities of the Property
Trust contained in this Trust Agreement are subject to the
following:
(i) the Property Trustee's sole duty with respect
to the custody, safe keeping and physical preservation of
the Debentures and the Payment Account shall be to deal with
such property in a similar manner as the Property Trustee
deals with similar property for its own account, subject to
the protections and limitations on liability afforded to the
Property Trustee under this Trust Agreement, the Trust
Indenture Act, the Delaware Business Trust Act and, to the
extent applicable, Rule 3a-7 under the Investment Company
Act;
(ii) the Property Trustee shall have no duty or
liability for or with respect to the value, genuineness,
existence or sufficiency of the Trust Property or the
payment of any taxes or assessments levied thereon or in
connection therewith;
(iii) the Property Trustee shall not be liable for any
interest on any money received by it except as it may
otherwise agree with the Depositor, and money held by the
Property Trustee need not be segregated from other funds
held by it except in relation to the Payment Account
maintained by the Property Trustee pursuant to Section 3.1
and except to the extent otherwise required by law; and
(iv) the Property Trustee shall not be responsible
for monitoring the compliance by the Administrative Trustees
or the Depositor with their respective duties under this
Trust Agreement, nor shall the Property Trustee be liable
for the default or misconduct of the Administrative
Trustees or the Depositor.
SECTION 8.2. Certain Notices.
Within five Business Days after the occurrence of any
Event of Default actually known to the Property Trustee, the
Property Trustee shall transmit, in the manner and to the extent
provided in Section 10.8, notice of such Event of Default to the
Securityholders, the Administrative Trustees and the Depositor,
unless such Event of Default shall have been cured or waived.
Within five Business Days after the receipt of notice
of the Depositor's exercise of its right to defer the payment of
interest on the Debentures pursuant to the Indenture, the
Administrative Trustee shall transmit, in the manner and to the
extent provided in Section 10.9, notice of such exercise to the
Securityholders and the Property Trustee, unless such exercise
shall have been revoked.
SECTION 8.3. Certain Rights of Property Trustee.
Subject to the provisions of Section 8.1:
(a) the Property Trustee may rely and shall be
protected in acting or refraining from acting in good faith
upon any resolution, Opinion of Counsel, certificate,
written representation of a Holder or transferee,
certificate of auditors or any other certificate, statement,
instrument, opinion, report, notice, request, direction,
consent, order, appraisal, bond, debenture, note, other
evidence of indebtedness or other paper or document believed
by it to be genuine and to have been signed or presented by
the proper party or parties;
(b) if (i) in performing its duties under this
Trust Agreement the Property Trustee is required to decide
between alternative courses of action or (ii) in construing
any of the provisions of this Trust Agreement the Property
Trustee finds the same ambiguous or inconsistent with any
other provisions contained herein or (iii) the Property
Trustee is unsure of the application of any provision of
this Trust Agreement, then, except as to any matter as to
which the Preferred Securityholders are entitled to vote
under the terms of this Trust Agreement, the Property
Trustee shall be entitled to deliver a notice to the
Depositor requesting written instructions of the Depositor
as to the course of action to be taken and the Property
Trustee may, but shall be under no duty to, take such
action, or refrain from taking such action, as the Property
Trustee shall be instructed in writing to take, or to
refrain from taking, by the Depositor, in which event the
Property Trustee shall have no liability except for its own
bad faith, negligence or willful misconduct; provided,
however, that if the Property Trustee does not receive such
instructions of the Depositor within ten Business Days after
it has delivered such notice, or such reasonably shorter
period of time set forth in such notice (which to the extent
practicable shall not be less than two Business Days), it
may, but shall be under no duty to, take or refrain from
taking such action not inconsistent with this Trust
Agreement as it shall deem advisable and in the best
interests of the Securityholders, in which event the
Property Trustee shall have no liability except for its own
bad faith, negligence or willful misconduct;
(c) any direction or act of the Depositor or the
Administrative Trustees contemplated by this Trust Agreement
shall be sufficiently evidenced by an Officers' Certificate;
(d) whenever in the administration of this Trust
Agreement, the Property Trustee shall deem it desirable that
a matter be proved or established before undertaking,
suffering or omitting any action hereunder, the Property
Trustee (unless other evidence is herein specifically
prescribed) may, in the absence of bad faith on its part,
request and rely upon an Officers' Certificate which, upon
receipt of such Request, shall be promptly delivered by the
Depositor or the Administrative Trustees;
(e) the Property Trustee shall have no duty to see
to any recording, filing or registration of any instrument
(including any financing or continuation statement or any
filing under tax or securities laws) or any rerecording,
refiling or reregistration thereof;
(f) the Property Trustee may consult with counsel
of its choice (which counsel may be counsel to the Depositor
or any of its Affiliates, and may include any of its
employees) and the advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or
omitted by it hereunder in good faith and in reliance
thereon and in accordance with such advice; the Property
Trustee shall have the right at any time to seek
instructions concerning the administration of this Trust
Agreement from any court of competent jurisdiction;
(g) the Property Trustee shall be under no
obligation to exercise any of the rights or powers vested in
it by this Trust Agreement at the request or direction of
any of the Securityholders pursuant to this Trust Agreement,
unless such Securityholders shall have offered to the
Property Trustee reasonable security or indemnity against
the costs, expenses (including attorney fees and expenses)
and liabilities which might be incurred by it in compliance
with such request or direction;
(h) the Property Trustee shall not be bound to make
any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion,
report, notice, request, direction consent, order, approval,
bond, debenture, note or other evidence of indebtedness or
other paper or document, unless requested in writing to do
so by one or more Securityholders, but the Property Trustee,
in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit,
and, if the Property Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to
examine the books, records and premises of the Depositor,
personally or by agent or attorney;
(i) the Property Trustee may execute any of the
trusts or powers hereunder or perform any duties hereunder
either directly or by or through its agents or attorneys,
and the Property Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or
attorney appointed with due care by it hereunder; provided
that the Property Trustee shall be responsible for its own
negligence or recklessness with respect to selection of any
agent or attorney appointed by it hereunder;
(j) whenever in the administration of this Trust
Agreement the Property Trustee shall deem it desirable to
receive instructions with respect to enforcing any remedy or
right or taking any other action hereunder the Property
Trustee (i) may request instructions from the Holders of the
Trust Securities which instructions may only be given by the
Holders of the same proportion in Liquidation Amount of the
Trust Securities as would be entitled to direct the Property
Trustee under the terms of the Trust Securities in respect
of such remedy, right or action, (ii) may refrain from
enforcing such remedy or right or taking such other action
until such instructions are received, and (iii) shall be
protected in acting in accordance with such instructions;
(k) the Property Trustee shall not be liable for any
action taken, suffered, or omitted to be taken by it in good
faith and reasonably believed by it to be authorized or
within the discretion or rights or it by this Trust
Agreement;
(l) the Property Trustee shall not be charged with
knowledge of any default or Event of Default with respect to
the Trust Securities or default or Debenture Event of
Default with respect to the Debentures unless either (1) a
Responsible Officer of the Property Trustee shall have
actual knowledge of any such default, Event of Default or
Debenture Event of Default or (2) written notice of any such
default, Event of Default or Debenture Event of Default
shall have been given to the Property Trustee by the
Depositor, the Administrative Trustee or by any Holder of
the Trust Securities;
(m) the Property Trustee shall be fully protected in
relying in good faith upon the records of the Trust and upon
such information, opinions, reports or statements presented
to the Trust by any Person as to matters the Property
Trustee reasonably believes are within such other Person's
professional or expert competence and who has been selected
with reasonable care by or on behalf of the Trust, including
information, opinions, reports or statements as to the value
and amount of the assets, liabilities, profits, losses, or
any other facts pertinent to the existence and amount of
assets from the Distributions to Holders of Trust Securities
might properly be paid;
(n) except as otherwise expressly provided by this
Trust Agreement, the Property Trustee shall not be under any
obligation to take any action that is discretionary under
the provisions of this Trust Agreement.
No provision of this Trust Agreement shall be deemed to
impose any duty or obligation on the Property Trustee to perform
any act or acts or exercise any right, power, duty or obligation
conferred or imposed on it, in any jurisdiction in which it shall
be illegal, or in which the Property Trustee shall be unqualified
or incompetent in accordance with applicable law, to perform any
such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the
Property Trustee shall be construed to be a duty.
SECTION 8.4. Not Responsible for Recitals or Issuance
of Securities
The recitals contained herein and in the Trust
Securities Certificates shall be taken as the statements of the
Trust, and the Trustees do not assume any responsibility for
their correctness. The Trustee make no representations as to the
value or condition of the property of the Trust, or any part
thereof, or as to the title of the Trust thereto, or as to the
security afforded thereby or hereby, or as to the validity of
genuineness of any securities at any time pledged and deposited
with any trustees hereunder, or as to the validity or sufficiency
of this Trust Agreement or the Trust Securities. The Trustees
shall not be accountable for the use or application by the
Depositor of the proceeds of the Debentures.
SECTION 8.5. May Hold Securities.
Except as provided in the definition of the term
"Outstanding" in Article I, any Trustee or any other agent of
any Trustee or the Trust, in its individual or any other
capacity, may become the owner or pledgee of Trust Securities
and, subject to Sections 8.8 and 8.13, may otherwise deal with
the Trust with the same rights it would have if it were not a
Trustee or such other agent.
SECTION 8.6. Compensation; Indemnity; Fees.
The Depositor agrees:
(a) to pay to the Trustees from time to time
reasonable compensation for all services rendered by them
hereunder as agreed to in writing from time to time by the
Depositor and such Trustees (which compensation shall not be
limited by any provision of law in regard to the
compensation of a trustee of an express trust);
(b) except as otherwise expressly provided herein,
to reimburse the Trustees upon request for all reasonable
expenses, disbursements and advances incurred or made by the
Trustees in accordance with any provision of this Trust
Agreement (including the reasonable compensation and the
expenses and disbursements of its agents and counsel),
except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(c) to indemnify each of the Trustees or any
predecessor Trustee for, and to hold the Trustees harmless
against, any loss, damage, claims, liability, penalty or
expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance of
the trust created by, or the administration of, this Trust
Agreement, including the costs and expenses of defending
itself against any claim or liability in connection with the
exercise or performance of any of its powers or duties
hereunder.
As security for the performance of the obligations of
the Depositor under this Section, each of the trustees shall have
a lien prior to the Trust Securities upon all property and funds
held or collected by such Trustee as such, except funds held in
trust for the payment of Distributions on the Trust Securities.
When a Trustee incurs expenses or renders services after an Event
of Default which occurs as a consequence of a Debenture Event of
Default specified in Section 5.1(4) or (5) of the Indenture, the
expenses and the compensation for the services are intended to
constitute expenses of administration under any Bankruptcy Reform
Act of 1978 or a successor statute.
SECTION 8.7. Corporate Property Trustee Required;
Eligibility of Trustees
(a) There shall at all times be a Property Trustee
hereunder with respect to the Trust Securities. The Property
Trustee shall be a Person that is eligible pursuant to the Trust
Indenture Act to act as such and has a combined capital and
surplus of at least $50,000,000. If any such Person publishes
reports of condition at least annually, pursuant to law or to the
requirements of its supervising or examining authority, then for
the purposes of this Section, the combined capital and surplus of
such Person shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so
published. If at any time the Property Trustee with respect to
the Trust Securities shall cease to be eligible in accordance
with the provisions of this Section, it shall resign immediately
in the manner and with the effect hereinafter specified in this
Article VIII.
(b) There shall at all times be one or more
Administrative Trustees hereunder with respect to the Trust
Securities. Each Administrative Trustee shall be either a
natural person who is at least 21 years of age or a legal entity
that shall act through one or more persons authorized to bind
that entity.
(c) There shall at all times be a Delaware Trustee
with respect to the Trust Securities. The Delaware Trustee shall
either be (i) a natural person who is at least 21 years of age
and a resident of the State of Delaware or (ii) a legal entity
with its principal place of business in the State of Delaware and
that otherwise meets the requirements of applicable Delaware law
that shall act through one or more persons authorized to bind
such entity.
SECTION 8.8. Conflicting Interests.
If the Property Trustee has or shall acquire a
conflicting interest within the meaning of the Trust Indenture
Act, the Property Trustee shall either eliminate such interest or
resign, to the extent and in the manner provided by, and subject
to the provisions of, the Trust Indenture Act and this Trust
Agreement.
SECTION 8.9. Co-Trustees and Separate Trustee.
Unless an Event of Default shall have occurred and be
continuing, at any time or times, for the purpose of meeting the
legal requirements of the Trust Indenture Act or of any
jurisdiction in which any part of the Trust Property may at the
time be located, the Depositor and the Administrative Trustees,
by agreed action of the majority of such Trustees, shall have
power to appoint, and upon the written request of the
Administrative Trustees, the Depositor shall for such purpose
join with the Administrative Trustees in the execution, delivery
and performance of all instruments and agreements necessary or
proper to appoint, one or more Persons approved by the Property
Trustee either to act as co-trustee, jointly with the Property
Trustee, of all or any part of such Trust Property, or to the
extent required by law to act as separate trustee of any such
property, in either case with such powers as may be provided in
the instrument of appointment, and to vest in such Person or
Persons in the capacity aforesaid, any property, title, right or
power deemed necessary or desirable, subject to the other
provisions of this Section. If the Depositor does not join in
such appointment within 15 days after the receipt by it of a
request so to do, or in case a Debenture Event of Default has
occurred and is continuing, the Property Trustee alone shall have
power to make such appointment. Any co-trustee or separate
trustee appointed pursuant to this Section shall either be (i) a
natural person who is at least 21 years of age and a resident of
the United States or (ii) a legal entity with its principal place
of business in the United States that shall act through one or
more persons authorized to bind such entity.
Should any written instrument from the Depositor be
required by any co-trustee or separate trustee so appointed for
more fully confirming to such co-trustee or separate trustee such
property, title, right, or power, any and all such instruments
shall, on request, be executed, acknowledged and delivered by the
Depositor.
Every co-trustee or separate trustee shall, to the
extent permitted by law, but to such extent only, be appointed
subject to the following terms, namely:
(a) The Trust Securities shall be executed and
delivered and all rights, powers, duties and obligations
hereunder in respect of the custody of securities, cash and
other personal property held by, or required to be deposited
or pledged with, the Trustees specified hereunder, shall be
exercised, solely by such Trustees and not by such
co-trustee or separate trustee.
(b) The rights, powers, duties and obligations hereby
conferred or imposed upon the Property Trustee in respect of
any property covered by such appointment shall be conferred
or imposed upon and exercised or performed by the Property
Trustee or by the Property Trustee and such co-trustee or
separate trustee jointly, as shall be provided in the
instrument appointing such co-trustee or separate trustee,
except to the extent that under any law of any jurisdiction
in which any particular act is to be performed, the Property
Trustee shall be incompetent or unqualified to perform such
act, in which event such rights, powers, duties and
obligations shall be exercised and performed by such
co-trustee or separate trustee.
(c) Property Trustee at any time, by an instrument in
writing executed by it, with the written concurrence of the
Depositor, may accept the resignation of or remove any
co-trustee or separate trustee appointed under this Section,
and, in case a Debenture Event of Default has occurred and
is continuing, the Property Trustee shall have power to
accept the resignation of, or remove, any such co-trustee or
separate trustee without the concurrence of the Depositor.
Upon the written request of the Property Trustee, the
Depositor shall join with the Property Trustee in the
execution, delivery and performance of all instruments and
agreements necessary or proper to effectuate such
resignation or removal. A successor to any co-trustee or
separate trustee so resigned or removed may be appointed in
the manner provided in this Section.
(d) No co-trustee or separate trustee hereunder shall
be personally liable by reason of any act or omission of the
Property Trustee or any other trustee hereunder.
(e) The Property Trustee shall not be liable by reason
of any act of a co-trustee or separate trustee.
(f) Any Act of Holders delivered to the Property
Trustee shall be deemed to have been delivered to each such
co-trustee and separate trustee.
SECTION 8.10. Resignation and Removal; Appointment of
Successor.
No resignation or removal of any Trustee (the "Relevant
Trustee") and no appointment of a successor Trustee pursuant to
this Article shall become effective until the acceptance of
appointment by the successor Trustee in accordance with the
applicable requirements of Section 8.11.
Subject to the immediately preceding paragraph, the
Relevant Trustee may resign at any time with respect to the Trust
Securities by giving written notice thereof to the
Securityholders. If the instrument of acceptance by the
successor Trustee required by Section 8.11 shall not have been
delivered to the Relevant Trustee within 30 days after the giving
of such notice of resignation, the Relevant Trustee may petition,
at the expense of the Company, any court of competent
jurisdiction for the appointment of a successor Relevant Trustee
with respect to the Trust Securities.
Unless a Debenture Event of Default shall have occurred
and be continuing, any Trustee may be removed at any time by Act
of the Common Securityholder. If a Debenture Event of Default
shall have occurred and be continuing, the Property Trustee or
the Delaware Trustee, or both of them, may be removed at such
time by Act of the Holders of a majority in Liquidation Amount of
the Preferred Securities, delivered to the Relevant Trustee (in
its individual capacity and on behalf of the Trust). An
Administrative Trustee may be removed by the Common
Securityholder at any time.
If any Trustee shall resign, be removed or become
incapable of acting as Trustee, or if a vacancy shall occur in
the office of any Trustee for any cause, at a time when no
Debenture Event of Default shall have occurred and be continuing,
the Common Securityholder, by Act of the Common Securityholder
delivered to the retiring Trustee, shall promptly appoint a
successor Trustee or Trustees with respect to the Trust
Securities and the Trust, and the successor Trustee shall comply
with the applicable requirements of Section 8.11. If the
Property Trustee or the Delaware Trustee shall resign, be removed
or become incapable of continuing to act as the Property Trustee
or the Delaware Trustee, as the case may be, at a time when a
Debenture Event of Default shall have occurred and be continuing,
the Preferred Securityholders, by Act of the Securityholders of a
majority in Liquidation Amount of the Preferred Securities then
Outstanding delivered to the retiring Relevant Trustee, shall
promptly appoint a successor Relevant Trustee or Trustees with
respect to the Trust Securities and the Trust, and such successor
Trustee shall comply with the applicable requirements of Section
8.11. If an Administrative Trustee shall resign, be removed or
become incapable of acting as Administrative Trustee, at a time
when a Debenture Event of Default shall have occurred and be
continuing, the Common Securityholder, by Act of the Common
Securityholder delivered to the Administrative Trustee, shall
promptly appoint a successor Administrative Trustee or
Administrative Trustees with respect to the Trust Securities and
the Trust, and such successor Administrative Trustee or
Administrative Trustees shall comply with the applicable
requirements of Section 8.11. If no successor Relevant Trustee
with respect to the Trust Securities shall have been so appointed
by the Common Securityholder or the Preferred Securityholders and
accepted appointment in the manner required by Section 8.11, any
Securityholder who has been a Securityholder of Trust Securities
for at least six months may, on behalf of himself and all others
similarly situated, petition any court of competent jurisdiction
for the appointment of a successor Relevant Trustee with respect
to the Trust Securities.
The retiring Relevant Trustee shall give notice of each
resignation and each removal of a Trustee and each appointment of
a successor Trustee to all Securityholders in the manner provided
in Section 10.8 and shall give notice to the Depositor. Each
notice shall include the name of the successor Relevant Trustee
and the address of its Corporate Trust Office if it is the
Property Trustee.
Notwithstanding the foregoing or any other provision of
this Trust Agreement, in the event any Administrative Trustee or
a Delaware Trustee who is a natural person dies or becomes, in
the opinion of the Depositor, incompetent or incapacitated, the
vacancy created by such death, incompetence or incapacity may be
filled by (a) the unanimous act of remaining Administrative
Trustees if there are at least two of them or (b) otherwise by
the Depositor (with the successor in each case being a Person who
satisfies the eligibility requirement for Administrative Trustees
set forth in Section 8.7).
SECTION 8.11. Acceptance of Appointment by Successor.
In case of the appointment hereunder of a successor
Trustee such successor Trustee so appointed shall execute,
acknowledge and deliver to the Trust and to the retiring Trustee
an instrument accepting such appointment, and thereupon the
resignation or removal of the retiring Trustee shall become
effective and such successor Trustee, without any further act,
deed or conveyance, shall become vested with all the rights,
powers, trusts and duties of the retiring Trustee; but, on the
request of the Depositor or the successor Trustee, such retiring
Trustee shall, upon payment of its charges, execute and deliver
an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and if the
Property Trustee is the resigning Trustee shall duly assign,
transfer and deliver to the successor Trustee all property and
money held by such retiring Property Trustee hereunder.
In case of the appointment hereunder of a successor
Relevant Trustee with respect to the Trust Securities and the
Trust, the retiring Relevant Trustee and each successor Relevant
Trustee with respect to the Trust Securities shall execute and
deliver an amendment hereto wherein each successor Relevant
Trustee shall accept such appointment and which (a) shall contain
such provisions as shall be necessary or desirable to transfer
and confirm to, and to vest in, each successor Relevant Trustee
all the rights, powers, trusts and duties of the retiring
Relevant Trustee with respect to the Trust Securities and the
Trust and (b) shall add to or change any of the provisions of
this Trust Agreement as shall be necessary to provide for or
facilitate the administration of the trusts hereunder by more
than one Relevant Trustee, it being understood that nothing
herein or in such amendment shall constitute such Relevant
Trustees co-trustees of the same trust and that each such
Relevant Trustee shall be trustee of a trust or trusts hereunder
separate and apart from any trust or trusts hereunder
administered by any other such Relevant Trustee and upon the
execution and delivery of such amendment the resignation or
removal of the retiring Relevant Trustee shall become effective
to the extent provided therein and each such successor Relevant
Trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts and duties of
the retiring Relevant Trustee with respect to the Trust
Securities and the Trust; but, on request of the Trust or any
successor Relevant Trustee such retiring Relevant Trustee shall
duly assign, transfer and deliver to such successor Relevant
Trustee all Trust Property, all proceeds thereof and money held
by such retiring Relevant Trustee hereunder with respect to the
Trust Securities and the Trust.
Upon request of any such successor Relevant Trustee,
the Trust shall execute any and all instruments for more fully
and certainly vesting in and confirming to such successor
Relevant Trustee all such rights, powers and trusts referred to
in the first or second preceding paragraph, as the case may be.
No successor Relevant Trustee shall accept its
appointment unless at the time of such acceptance such successor
Relevant Trustee shall be qualified and eligible under this
Article.
SECTION 8.12. Merger, Conversion, Consolidation or
Succession to Business.
Any corporation into which the Property Trustee or the
Delaware Trustee may be merged or converted or with which it may
be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which such Relevant Trustee shall
be a party, or any corporation succeeding to all or substantially
all the corporate trust business of such Relevant Trustee, shall
be the successor of such Relevant Trustee hereunder, provided
such corporation shall be otherwise qualified and eligible under
this Article, without the execution or filing of any paper or any
further act on the part of any of the parties hereto.
SECTION 8.13. Preferential Collection of Claims
Against Depositor or Trust.
If and when the Property Trustee or the Delaware
Trustee shall be or become a creditor of the Depositor or the
Trust (or any other obligor upon the Debentures or the Trust
Securities), the Property Trustee or the Delaware Trustee, as the
case may be, shall be subject to and shall take all actions
necessary in order to comply with the provisions of the Trust
Indenture Act regarding the collection of claims against the
Depositor or Trust (or any such other obligor).
SECTION 8.14. Reports by Property Trustee.
(a) The Property Trustee shall transmit to Securityholders
such reports concerning the Property Trustee and its actions
under this Trust Agreement as may be required pursuant to the
Trust Indenture Act at the time and in the manner provided
pursuant thereto. Such of those reports as are required to be
transmitted by the Property Trustee pursuant to Section 313(a) of
the Trust Indenture Act shall be so transmitted within 60 days
after July 1 of each year, commencing July 1, 1997.
(b) A copy of each such report shall, at the time of
such transmission to Holders, be filed by the Property Trustee
with each stock exchange upon which the Trust Securities are
listed, with the Commission and with the Depositor. The
Depositor will notify the Property Trustee when any Trust
Securities are listed on any stock exchange.
SECTION 8.15. Reports to the Property Trustee.
The Depositor and the Administrative Trustees on behalf
of the Trust shall provide to the Property Trustee such
documents, reports and information as required by Section 314 of
the Trust Indenture Act (if any) and the compliance certificate
required by Section 314(a) of the Trust Indenture Act in the
form, in the manner and at the times required by Section 314 of
the Trust Indenture Act.
SECTION 8.16. Evidence of Compliance with Conditions
Precedent.
Each of the Depositor and the Administrative Trustees
on behalf of the Trust shall provide to the Property Trustee such
evidence of compliance with any conditions precedent, if any,
provided for in this Trust Agreement that relate to any of the
matters set forth in Section 314(c) of the Trust Indenture Act.
Any certificate or opinion required to be given by an officer
pursuant to Section 314(c)(1) of the Trust Indenture Act shall be
given in the form of an Officers' Certificate.
SECTION 8.17. Number of Trustees.
(a) The number of Trustees shall be four, provided
that the Holder of all of the Common Securities by written
instrument may increase or decrease the number of Administrative
Trustees. The Property Trustee and the Delaware Trustee may be
the same person.
(b) If a Trustee ceases to hold office for any
reason and the number of Administrative Trustees is not reduced
pursuant to Section 8.17(a), or if the number of Trustees is
increased pursuant to Section 8.17(a), a vacancy shall occur.
The vacancy shall be filled with a Trustee appointed in
accordance with Section 8.10.
(c) The death, resignation, retirement, removal,
bankruptcy, incompetence or incapacity to perform the duties of a
Trustee shall not operate to annul the Trust. Whenever a vacancy
in the number of Administrative Trustees shall occur, until such
vacancy is filled by the appointment of an Administrative Trustee
in accordance with Section 8.10, the Administrative Trustees in
office, regardless of their number (and notwithstanding any other
provision of this Agreement), shall have all the powers granted
to the Administrative Trustees and shall discharge all the duties
imposed upon the Administrative Trustees by this Trust Agreement.
SECTION 8.18. Delegation of Power.
(a) Any Administrative Trustee may, by power of
attorney consistent with applicable law, delegate to any other
natural person over the age of 21 his or her power for the
purpose of executing any documents contemplated in Section
2.7(a), including any registration statement or amendment thereto
filed with the Commission, or making any other governmental
filing.
(b) The Administrative Trustees shall have power to
delegate from time to time to such of their number or to the
Depositor the doing of such things and the execution of such
instruments either in the name of the Trust or the names of the
Administrative Trustees or otherwise as the Administrative
Trustees may deem expedient, to the extent such delegation is not
prohibited by applicable law or contrary to the provisions of the
Trust, as set forth herein.
ARTICLE IX
TERMINATION, LIQUIDATION AND MERGER
SECTION 9.1. Termination Upon Expiration Date.
Unless earlier terminated, the Trust shall
automatically terminate on October 1, 2051 (the "Expiration
Date"), following the distribution of the Trust Property in
accordance with Section 9.4.
SECTION 9.2. Early Termination.
The first to occur of any of the following events is an
"Early Termination Event":
(a) the occurrence of a Bankruptcy Event in respect
of, or the dissolution or liquidation of, the Depositor;
(b) the written direction to the Property Trustee from
the Depositor at any time (which direction is optional and
wholly within the discretion of the Depositor) to terminate
the Trust and distribute the Debentures in exchange for the
Preferred Securities;
(c) the redemption of all of the Trust Securities in
connection with the redemption of all of the Debentures; and
(d) the entry of an order for dissolution of the Trust
by a court of competent jurisdiction.
SECTION 9.3. Termination.
The respective obligations and responsibilities of the
Trustees and the Trust created and continued hereby shall
terminate upon the latest to occur of the following: (a) the
distribution by the Property Trustee to Securityholders upon the
liquidation of the Trust pursuant to Section 9.4, or upon the
redemption of all of the Trust Securities pursuant to Section
4.2, of all amounts required to be distributed hereunder upon the
final payment of the Trust Securities; (b) the payment of any
expenses owed by the Trust; and (c) the discharge of all
administrative duties of the Administrative Trustees, including
the performance of any tax reporting obligations with respect to
the Trust or the Securityholders.
SECTION 9.4. Liquidation.
(a) If an Early Termination Event specified in clause
(a), (b) or (d) of Section 9.2 occurs or upon the Expiration
Date, the Trust shall be liquidated by the Trustees as
expeditiously as the Trustees determine to be possible by
distributing, after satisfaction or the making of reasonable
provisions for the payment of liabilities to creditors of the
Trust as provided by applicable law, to each Securityholder a
Like Amount of Debentures, subject to Section 9.4(d). Notice of
liquidation shall be given by the Property Trustee by first-class
mail, postage prepaid, mailed not later than 30 nor more than 60
days prior to the Liquidation Date to each Holder of Trust
Securities at such Holder's address appearing in the Securities
Register. All notices of liquidation shall:
(i) state the Liquidation Date;
(ii) state that from and after the Liquidation Date,
the Trust Securities will no longer be deemed to be
Outstanding and any Trust Securities Certificates not
surrendered for exchange will be deemed to represent a Like
Amount of Debentures; and
(iii) provide such information with respect to the
mechanics by which Holders may exchange Trust Securities
Certificates for Debentures, or if Section 9.4(d) applies
receive a Liquidation Distribution, as the Administrative
Trustees or the Property Trustee shall deem appropriate.
(b) Except where Section 9.2(c) or 9.4(d) applies, in
order to effect the liquidation of the Trust and distribution of
the Debentures to Securityholders, the Property Trustee shall
establish a record date for such distribution (which shall be not
more than 45 days prior to the Liquidation Date) and, either
itself acting as exchange agent or through the appointment of a
separate exchange agent, shall establish such procedures as it
shall deem appropriate to effect the distribution of Debentures
in exchange for the Outstanding Trust Securities Certificates.
(c) Except where Section 9.2(c) or 9.4(d) applies,
after the Liquidation Date, (i) the Trust Securities will no
longer be deemed to be Outstanding, (ii) certificates
representing a Like Amount of Debentures will be issued to
holders of Trust Securities Certificates, upon surrender of such
certificates to the Administrative Trustees or their agent for
exchange, (iii) the Depositor shall use its reasonable efforts to
have the Debentures listed on the New York Stock Exchange or on
such other stock exchange, interdealer quotation system or
self-regulatory organization as the Preferred Securities are then
listed or traded, (iv) any Trust Securities Certificates not so
surrendered for exchange will be deemed to represent a Like
Amount of Debentures, accruing interest at the rate provided for
in the Debentures from the last Distribution Date on which a
Distribution was made on such Trust Securities Certificates until
such certificates are so surrendered (and until such certificates
are so surrendered, no payments of interest or principal will be
made to holders of Trust Securities Certificates with respect to
such Debentures), and (v) all rights of Securityholders holding
Trust Securities will cease, except the right of such
Securityholders to receive Debentures upon surrender of Trust
Securities Certificates.
(d) In the event that, notwithstanding the other
provisions of this Section 9.4, whether because of an order for
dissolution entered by a court of competent jurisdiction or
otherwise, distribution of the Debentures in the manner provided
herein is determined by the Property Trustee not to be practical,
the Trust Property shall be liquidated, and the Trust shall be
dissolved, wound-up or terminated, by the Property Trustee in
such manner as the Property Trustee determines. In such event,
on the date of the dissolution, winding-up or other termination
of the Trust, Securityholders will be entitled to receive out of
the assets of the Trust available for distribution to
Securityholders, after satisfaction of liabilities to creditors
of the Trust as provided by applicable law, an amount equal to
the Liquidation Amount per Trust Security plus accumulated and
unpaid Distributions thereon to the date of payment (such amount
being the "Liquidation Distribution"). If, upon any such
dissolution, winding-up or termination, the Liquidation
Distribution can be paid only in part because the Trust has
insufficient assets available to pay in full the aggregate
Liquidation Distribution, then, subject to the next succeeding
sentence, the amounts payable by the Trust on the Trust
Securities shall be paid on a pro rata basis (based upon
Liquidation Amounts). The holder of the Common Securities will
be entitled to receive Liquidation Distributions upon any such
dissolution, winding-up or termination pro rata (determined as
aforesaid) with Holders of Preferred Securities, except that, if
a Debenture Event of Default has occurred and is continuing, the
Preferred Securities shall have a priority over the Common
Securities.
SECTION 9.5. Mergers, Consolidations, Amalgamations or
Replacements of the Trust.
The Trust may not merge with or into, consolidate,
amalgamate, or be replaced by, or convey, transfer or lease its
properties and assets substantially as an entirety to any
corporation or other body, except pursuant to this Section 9.5.
At the request of the Depositor, with the consent of the
Administrative Trustees and without the consent of the Delaware
Trustee, the Property Trustee or the holders of the Preferred
Securities, the Trust may merge with or into, consolidate,
amalgamate, or be replaced by or convey, transfer or lease its
properties and assets substantially as an entirety to a trust
organized as such under the laws of any state; provided, that (i)
such successor entity either (a) expressly assumes all of the
obligations of the Trust with respect to the Preferred Securities
or (b) substitutes for the Preferred Securities other securities
having substantially the same terms as the Preferred Securities
(the "Successor Securities") so long as the Successor Securities
rank the same as the Preferred Securities rank in priority with
respect to distributions and payments upon liquidation,
redemption and otherwise, (ii) the Depositor expressly appoints a
trustee of such successor entity possessing the same powers and
duties as the Property Trustee as the holder of the Debentures,
(iii) the Successor Securities are listed or traded, or any
Successor Securities will be listed upon notification of
issuance, on any national securities exchange or other
organization on which the Preferred Securities are then listed or
traded, if any, (iv) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not cause the
Preferred Securities (including any Successor Securities) to be
downgraded by any nationally recognized statistical rating
organization, (v) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of
the Preferred Securities (including any Successor Securities) in
any material respect, (vi) such successor entity has a purpose
identical to that of the Trust, (vii) prior to such merger,
consolidation, amalgamation, replacement, conveyance, transfer or
lease, the Depositor has received an Opinion of Counsel to the
effect that (a) such merger, consolidation, amalgamation,
replacement, conveyance, transfer or lease does not adversely
affect the rights, preferences and privileges of the holders of
the Preferred Securities (including any Successor Securities) in
any material respect, and (b) following such merger,
consolidation, amalgamation, replacement, conveyance, transfer or
lease, neither the Trust nor such successor entity will be
required to register as an investment company under the 1940 Act,
(viii) the Depositor owns all of the Common Securities of such
successor entity and guarantees the obligations of such successor
entity under the Successor Securities at least to the extent
provided by the Guarantee and (ix) such successor entity
expressly assumes all of the obligations of the Trust with
respect to the Trustees. Notwithstanding the foregoing, the
Trust shall not, except with the consent of holders of 100% in
Liquidation Amount of the Preferred Securities, consolidate,
amalgamate, merge with or into, be replaced by or convey,
transfer or lease its properties and assets substantially as an
entirety to any other entity or permit any other entity to
consolidate, amalgamate, merge with or into, or replace it if
such consolidation, amalgamation, merger, replacement,
conveyance, transfer or lease would cause the Trust or the
successor entity to be classified as other than a grantor trust
for United States federal income tax purposes.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. Limitation of Rights of Securityholders.
The death or incapacity of any person having an
interest, beneficial or otherwise, in a Trust Security shall not
operate to terminate this Trust Agreement, nor entitle the legal
representatives or heirs of such person or any Securityholder for
such person, to claim an accounting, take any action or bring any
proceeding in any court for a partition or winding-up of the
arrangements contemplated hereby, nor otherwise affect the
rights, obligations and liabilities of the parties hereto or any
of them.
SECTION 10.2. Amendment.
(a) This Trust Agreement may be amended from time
to time by the Trustees and the Depositor, without the consent of
any Securityholders, (i) to cure any ambiguity, correct or
supplement any provision herein which may be inconsistent with
any other provision herein, or to make any other provisions with
respect to matters or questions arising under this Trust
Agreement, which shall not be inconsistent with the other
provisions of this Trust Agreement, or (ii) to modify, eliminate
or add to any provisions of this Trust Agreement to such extent
as shall be necessary to ensure that the Trust will be classified
for United States federal income tax purposes as a grantor trust
at all times that any Trust Securities are outstanding or to
ensure that the Trust will not be required to register as an
investment company under the 1940 Act; provided, however, that
such action shall not adversely affect in any material respect
the interests of any Securityholder, and any amendments of this
Trust Agreement shall become effective when notice thereof is
given to the Securityholders.
(b) Except as provided in Section 10.2(c) hereof,
any provision of this Trust Agreement may be amended by the
Trustees and the Depositor with (i) the consent of
Securityholders representing not less than a majority (based upon
Liquidation Amounts) of the Trust Securities then Outstanding and
(ii) receipt by the Trustees of an Opinion of Counsel to the
effect that such amendment or the exercise of any power granted
to the Trustees in accordance with such amendment will not affect
the Trust's status as a grantor trust for United States federal
income tax purposes or the Trust's exemption from status of an
investment company under the 1940 Act.
(c) In addition to and notwithstanding any other
provision in this Trust Agreement, without the consent of each
affected Securityholder (such consent being obtained in
accordance with Section 6.3 or 6.6 hereof), this Trust Agreement
may not be amended to (i) change the amount or timing of any
Distribution on the Trust Securities or otherwise adversely
affect the amount of any Distribution required to be made in
respect of the Trust Securities as of a specified date or (ii)
restrict the right of a Securityholder to institute suit for the
enforcement of any such payment on or after such date;
notwithstanding any other provision herein, without the unanimous
consent of the Securityholders (such consent being obtained in
accordance with Section 6.3 or 6.6 hereof), this paragraph (c) of
this Section 10.2 may not be amended.
(d) Notwithstanding any other provisions of this
Trust Agreement, no Trustee shall enter into or consent to any
amendment to this Trust Agreement which would cause the Trust to
fail or cease to qualify for the exemption from status of an
investment company under the 1940 Act or fail or cease to be
classified as a grantor trust for United States federal income
tax purposes.
(e) Notwithstanding anything in this Trust
Agreement to the contrary, without the consent of the Depositor,
this Trust Agreement may not be amended in a manner which imposes
any additional obligation on the Depositor.
(f) In the event that any amendment to this Trust
Agreement is made, the Administrative Trustees shall promptly
provide to the Depositor a copy of such amendment.
(g) Neither the Property Trustee nor the Delaware
Trustee shall be required to enter into any amendment to this
Trust Agreement which affects its own rights, duties or
immunities under this Trust Agreement. The Property Trustee is
entitled to receive an Opinion of Counsel and Officers'
Certificate a conclusive evidence that any amendment to this
Trust Agreement executed pursuant to Section 10.3 is authorized
or permitted by, and conforms to, the terms of this Section 10.3,
has been duly authorized by and lawfully executed and delivered
on behalf of the other requisite parties, and that it is proper
for the Property Trustee under the provisions of this Section
10.3 to join in the execution thereof.
SECTION 10.3. Separability.
In case any provision in this Trust Agreement or in the
Trust Securities Certificates shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired
thereby.
SECTION 10.4. GOVERNING LAW.
THIS TRUST AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
EACH OF THE SECURITYHOLDERS, THE TRUST AND THE TRUSTEES WITH
RESPECT TO THIS TRUST AGREEMENT AND THE TRUST SECURITIES SHALL BE
CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF DELAWARE.
SECTION 10.5. Payments Due on Non-Business Day.
If the date fixed for any payment on any Trust Security
shall be a day that is not a Business Day, then such payment need
not be made on such date but may be made on the next succeeding
day that is a Business Day (except as otherwise provided in
Sections 4.1(a) and 4.2(d)), with the same force and effect as
though made on the date fixed for such payment, and no interest
shall accrue thereon for the period after such date.
SECTION 10.6. Successors.
This Trust Agreement shall be binding upon and shall
inure to the benefit of any successor to the Depositor, the Trust
or the Relevant Trustee, including any successor by operation of
law. Except in connection with a consolidation, merger or sale
involving the Depositor that is permitted under Article Eight of
the Indenture and pursuant to which the assignee agrees in
writing to perform the Depositor's obligations hereunder, the
Depositor shall not assign its obligations hereunder.
SECTION 10.7. Headings.
The Article and Section headings are for convenience
only and shall not affect the construction of this Trust
Agreement.
SECTION 10.8. Reports, Notices and Demands.
Any report, notice, demand or other communication which
by any provision of this Trust Agreement is required or permitted
to be given or served to or upon any Securityholder or the
Depositor may be given or served in writing by deposit thereof,
first-class postage prepaid, in the United States mail, hand
delivery or facsimile transmission, in each case, addressed, (a)
in the case of a Preferred Securityholder, to such Preferred
Securityholder as such Securityholder's name and address may
appear on the Securities Register; and (b) in the case of the
Common Securityholder or the Depositor, to Atlantic City Electric
Company, 6801 Black Horse Pike, Egg Harbor Township, New Jersey
08234-4130, Attention: Treasurer, facsimile no.: (609) 645-4132.
Any notice to Preferred Securityholders shall also be given to
such owners as have, within two years preceding the giving of
such notice, filed their names and addresses with the Property
Trustee for that purpose. Such notice, demand or other
communication to or upon a Securityholder shall be deemed to have
been sufficiently given or made, for all purposes, upon hand
delivery, mailing or transmission.
Any notice, demand or other communication which by any
provision of this Trust Agreement is required or permitted to be
given or served to or upon the Trust, the Property Trustee or the
Administrative Trustees shall be given in writing addressed
(until another address is published by the Trust) as follows:
(a) with respect to the Property Trustee to The Bank of New York,
101 Barclay Street, New York, New York 10286, Attention:
Corporate Trust Department; (b) with respect to the Delaware
Trustee, to The Bank of New York (Delaware), White Clay Center,
Route 273, Newark, Delaware 19711 with a copy to the Property
Trustee at the address set forth in clause (a); and (c) with
respect to the Administrative Trustees, to them at the address
above for notices to the Depositor, marked "Attention:
Administrative Trustees of Atlantic Capital I." Such notice,
demand or other communication to or upon the Trust or the
Property Trustee shall be deemed to have been sufficiently given
or made only upon actual receipt of the writing by the Trust or
the Property Trustee.
SECTION 10.9. Agreement Not to Petition.
Each of the Trustees and the Depositor agree for the
benefit of the Securityholders that, until at least one year and
one day after the Trust has been terminated in accordance with
Article IX, they shall not file, or join in the filing of, a
petition against the Trust under any bankruptcy, insolvency,
reorganization or other similar law (including, without
limitation, the United States Bankruptcy Code) (collectively,
"Bankruptcy Laws") or otherwise join in the commencement of any
proceeding against the Trust under any Bankruptcy Law. In the
event the Depositor takes action in violation of this Section
10.9, the Property Trustee agrees, for the benefit of
Securityholders, that at the expense of the Depositor, it shall
file an answer with the bankruptcy court or otherwise properly
contest the filing of such petition by the Depositor against the
Trust or the commencement of such action and raise the defense
that the Depositor has agreed in writing not to take such action
and should be stopped and precluded therefrom and such other
defenses, if any, as counsel for the Trustee or the Trust may
assert. The provisions of this Section 10.9 shall survive the
termination of this Trust Agreement.
SECTION 10.10. Trust Indenture Act; Conflict with
Trust Indenture Act.
(a) This Trust Agreement is subject to the provisions
of the Trust Indenture Act that are required or deemed to be part
of this Trust Agreement and shall, to the extent applicable, be
governed by such provisions.
(b) The Property Trustee shall be the only Trustee
which is a trustee for the purposes of the Trust Indenture Act.
(c) If any provision hereof limits, qualifies or
conflicts with another provision hereof which is required or
deemed to be included in this Trust Agreement by any of the
provisions of the Trust Indenture Act, such required or deemed
provision shall control.
(d) The application of the Trust Indenture Act to
this Trust Agreement shall not affect the nature of the
Securities as equity securities representing undivided beneficial
interests in the assets of the Trust.
SECTION 10.11. ACCEPTANCE OF TERMS OF TRUST
AGREEMENT,GUARANTEE AND INDENTURE.
THE RECEIPT AND ACCEPTANCE OF A TRUST SECURITY OR ANY
INTEREST THEREIN BY OR ON BEHALF OF A SECURITYHOLDER OR ANY
BENEFICIAL OWNER, WITHOUT ANY SIGNATURE OR FURTHER MANIFESTATION
OF ASSENT, SHALL CONSTITUTE THE UNCONDITIONAL ACCEPTANCE BY THE
SECURITYHOLDER AND ALL OTHERS HAVING A BENEFICIAL INTEREST IN
SUCH TRUST SECURITY OF ALL THE TERMS AND PROVISIONS OF THIS TRUST
AGREEMENT AND AGREEMENT TO THE SUBORDINATION PROVISIONS AND OTHER
TERMS OF THE GUARANTEE AND THE INDENTURE, AND SHALL CONSTITUTE
THE AGREEMENT OF THE TRUST, SUCH SECURITYHOLDER AND SUCH OTHERS
THAT THE TERMS AND PROVISIONS OF THIS TRUST AGREEMENT SHALL BE
BINDING, OPERATIVE AND EFFECTIVE AS BETWEEN THE TRUST AND SUCH
SECURITYHOLDER AND SUCH OTHERS.<PAGE>
SECTION 10.12. Counterparts.
This Trust Agreement may
contain more than one counterpart of the signature page and this
Trust Agreement may be executed by the affixing of the signature
of each of the Trustees of one of such counterpart signature
pages. All of such counterpart signature pages shall be read as
though one, and they shall have the same force and effect as
though all of the signers had signed a single signature page.
ATLANTIC CITY ELECTRIC COMPANY
By: /s/ L.M. Walters
L.M. Walters
Vice President, Treasurer
and Assistant
Secretary
THE BANK OF NEW YORK
as Property Trustee
By: /s/ Lucille Firrincieli
Lucille Firrincieli
Assistant Vice President
THE BANK OF NEW YORK (DELAWARE)
as Delaware Trustee
By: /s/ Joseph G. Ernst
Joseph G. Ernst
Assistant Vice President
By: /s/ Robert K. Marshall
Robert K. Marshall
as Administrative Trustee
By: /s/ Stephanie M. Scola
Stephanie M. Scola
as Administrative Trustee<PAGE>
EXHIBIT A
CERTIFICATE OF TRUST OF
ATLANTIC CAPITAL I
THIS Certificate of Trust of Atlantic Capital I (the
"Trust"), dated as of June 20, 1996, is being duly executed and
filed by The Bank of New York (Delaware), a Delaware banking
corporation, as trustee, to form a business trust under the
Delaware Business Trust Act (12 Del. C. Section 3801 et seq.).
1. Name. The name of the business trust created
hereby is Atlantic Capital I.
2. Delaware Trustee. The name and business address of
the trustee of the Trust in the State of Delaware are The Bank of
New York (Delaware), White Clay Center, Route 273, Newark,
Delaware 19711.
3. Effective Date. This Certificate of Trust shall be
effective upon filing with the Secretary of State.
IN WITNESS WHEREOF, the undersigned, being the sole
trustee of the Trust, has executed this Certificate of Trust as
of the date first above written.
THE BANK OF NEW YORK (DELAWARE),
as trustee
By
Name:
Title:
<PAGE>
EXHIBIT B
September 30, 1996
The Depository Trust Company,
55 Water Street, 49th Floor,
New York, New York 10041-0099
Attention: General Counsel's Office
Re: Atlantic Capital I 8.25% Cumulative Quarterly Income
Preferred Securities
CUSIP 048272 20 7
Ladies and Gentlemen:
The purpose of this letter is to set forth certain matters
relating to the issuance and deposit with The Depository Trust
Company ("DTC") of the Atlantic Capital I 8.25% Cumulative
Quarterly Income Preferred Securities (the "Preferred
Securities"), of Atlantic Capital I, a Delaware business trust
(the "Issuer"), created pursuant to a Trust Agreement between
Atlantic City Electric Company ("the Company") and The Bank of
New York (Delaware), as Trustee, as amended and restated etc.
The payment of distributions on the Preferred Securities and
payments due upon liquidation of the Issuer or redemption of the
Preferred Securities, to the extent the Issuer has funds
available for the payment thereof, are guaranteed by the Company
to the extent set forth in a Guarantee Agreement dated as of
October 1, 1996 entered into by the Company and The Bank of New
York, as guarantee trustee with respect to the Preferred
Securities. The Company and the Issuer propose to sell the
Preferred Securities to certain Underwriters (the "Underwriters")
pursuant to an Underwriting Agreement dated September 26, 1996 by
and among the Underwriters, the Issuer and the Company, and the
Underwriters wish to take delivery of the Preferred Securities
through DTC. The Bank of New York is acting as transfer agent and
registrar with respect to the Preferred Securities (the "Transfer
Agent and Registrar").
To induce DTC to accept the Preferred Securities as eligible
for deposit at DTC, and to act in accordance with DTC's rules
with respect to the Preferred Securities, the Issuer, the
Transfer Agent and Registrar and DTC agree among each other as
follows:
1. Prior to the closing of the sale of the Preferred
Securities to the Underwriters, which is expected to occur on or
about October 1, 1996, there shall be deposited with, or held by
the Transfer Agent and Registrar as custodian for, DTC one or
more global certificates (individually and collectively, the
"Global Certificate") registered in the name of DTC's nominee,
Cede & Co., representing an aggregate of 2,800,000 Preferred
Securities and bearing the following legend:
Unless this certificate is presented by an authorized
representative of The Depository Trust Company, a New York
corporation ("DTC"), to Issuer or its agent for registration
of transfer, exchange, or payment, and any certificate
issued is registered in the name of Cede & Co. or in such
other name as is requested by an authorized representative
of DTC (and any payment is made to Cede & Co. or to such
other entity as is requested by an authorized representative
of DTC), ANY TRANSFER, PLEDGE, OR OTHER USE HEREOF FOR VALUE
OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL inasmuch as the
registered owner hereof, Cede & Co., has an interest herein.
2. The Amended and Restated Trust Agreement of the Issuer
provides for the voting by holders (with no provision for
revocation of consents or votes by subsequent holders) of the
Preferred Securities under certain limited circumstances. The
Issuer shall establish a record date for such purposes and shall,
to the extent possible, give DTC notice of such record date not
less than 15 calendar days in advance of such record date.
3. In the event of a stock split, conversion,
recapitalization, reorganization or any other similar transaction
resulting in the cancellation of all or any part of the Preferred
Securities outstanding, the Issuer or the Transfer Agent and
Registrar shall send DTC a notice of such event as soon as
possible but, at least 5 business days prior to the effective
date of such event.
4. In the event of distribution on, or an offering or
issuance of rights with respect to, the Preferred Securities
outstanding, the Issuer or the Transfer Agent and Registrar shall
send DTC a notice specifying: (a) the amount of and conditions,
if any, applicable to the payment of any such distribution or any
such offering or issuance of rights; (b) any applicable
expiration or deadline date, or any date by which any action on
the part of the holders of Preferred Securities is required; and
(c) the date any required notice is to be mailed by or on behalf
of the Issuer to holders of Preferred Securities or published by
or on behalf of the Issuer (whether by mail or publication, the
"Publication Date"). Such notice shall be sent to DTC by a secure
means (e.g., legible telecopy, registered or certified mail,
overnight delivery) in a timely manner designed to assure that
such notice is in DTC's possession no later than the close of
business on the business day before the Publication Date. The
Issuer or the Transfer Agent and Registrar will forward such
notice either in a separate secure transmission for each CUSIP
number or in a secure transmission of multiple CUSIP numbers (if
applicable) that includes a manifest or list of each CUSIP number
submitted in that transmission. (The party sending such notice
shall have a method to verify subsequently the use of such means
and the timeliness Of such notice.) The Publication Date shall be
not less than 30 calendar days nor more than 60 calendar days
prior to the payment of any such distribution or any such
offering or issuance of rights with respect to the Preferred
Securities. After establishing the amount of payment to be made
on the Preferred Securities, the Issuer or the Transfer Agent and
Registrar will notify DTC's Dividend Department of such payment 5
business days prior to payment date. Notices to DTC's Dividend
Department by telecopy shall be sent to (212) 709-1723. Such
notices by mail or by any other means shall be sent to:
Manager, Announcements
Dividend Department
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695
The Issuer or the Transfer Agent and Registrar shall
confirm DTC's receipt of such telecopy by telephoning the
Dividend Department at (212) 709-1270.
5. In the event of a redemption by the Issuer of the
Preferred Securities, notice specifying the terms of the
redemption and the Publication Date of such notice shall be sent
by the Issuer or the Transfer Agent and Registrar to DTC not less
than 30 calendar days prior to such event by a secure means in
the manner set forth in paragraph 4. Such redemption notice
shall be sent to DTC's Call Notification Department at (516)
227-4164 or (516) 227-4190, and receipt of such notice shall be
confirmed by telephoning (516) 227-4070. Notice by mail or by
any other means shall be sent to:
Call Notification Department
The Depository Trust Company
711 Stewart Avenue
Garden City, New York 11530-4719
6. In the event of any invitation to tender the Preferred
Securities, notice specifying the terms of the tender and the
Publication Date of such notice shall be sent by the Issuer or
the Transfer Agent and Registrar to DTC by a secure means and in
a timely manner as described in paragraph 4. Notices to DTC
pursuant to this paragraph and notices of other corporate actions
(including mandatory tenders, exchanges and capital changes),
shall be sent, unless notification to another department is
expressly provided for herein, by telecopy to DTC's
Reorganization Department at (212) 709-1093 or (212) 709-1094 and
receipt of such notice shall be confirmed by telephoning (212)
709-6884, or by mail or any other means to:
Manager, Reorganization Department
Reorganization Window
The Depository Trust Company
7 Hanover Square, 23rd Floor
New York, New York 10004-2695
7. All notices and payment advices sent to DTC shall
contain the CUSIP number or numbers of the Preferred Securities
and the accompanying designation of the Preferred Securities,
which, as of the date of this letter, is "Atlantic Capital I
8.25% Cumulative Quarterly Income Preferred Securities".
8. Distribution payments or other cash payments with
respect to the Preferred Securities shall be governed by DTC's
current Principal and Income Payments Rider, a copy of which is
attached hereto as Annex I. For purposes of this letter, the
term "Agent" used in Annex I shall be deemed to refer to The Bank
of New York.
9. DTC may direct the Issuer and the Transfer Agent and
Registrar to use any other telecopy number or address of DTC as
the number or address to which notices or payments may be sent.
10. In the event of a conversion, redemption, or any other
similar transaction (e.g., tender made and accepted in response
to the Issuer's or the Transfer Agent and Registrar's invitation)
necessitating a reduction in the aggregate number of Preferred
Securities outstanding evidenced by the Global Certificate, DTC,
in its discretion: (a) may request the Issuer or the Transfer
Agent and Registrar to issue and countersign a new Global
Certificate; or (b) may make an appropriate notation on the
Global Certificate indicating the date and amount of such
reduction.
11. DTC may discontinue its services as a securities
depositary with respect to the Preferred Securities at any time
by giving reasonable prior written notice to the Issuer and the
Transfer Agent and Registrar (at which time DTC will confirm with
the Issuer or the Transfer Agent and Registrar the aggregate
number of Preferred Securities deposited with it) and discharging
its responsibilities with respect thereto under applicable law.
Under such circumstances, the Issuer may determine to make
alternative arrangements for book-entry settlement for the
Preferred Securities, make available one or more separate global
certificates evidencing Preferred Securities to any Participant
having Preferred Securities credited to its DTC account, or issue
definitive Preferred Securities to the beneficial holders
thereof, and in any such case, DTC agrees to cooperate fully with
the Issuer and the Transfer Agent and Registrar and to return the
Global Certificate, duly endorsed for transfer as directed by the
Issuer or the Transfer Agent and Registrar, together with any
other documents of transfer reasonably requested by the Issuer or
the Transfer Agent and Registrar.
12. In the event that the Issuer determines that beneficial
owners of Preferred Securities shall be able to obtain definitive
Preferred Securities, the Issuer or the Transfer Agent and
Registrar shall notify DTC of the availability of certificates.
In such event, the Issuer or the Transfer Agent and Registrar
shall issue, transfer and exchange certificates in appropriate
amounts, as required by DTC and others, and DTC agrees to
cooperate fully with the Issuer and the Transfer Agent and
Registrar and to return the Global Certificate, duly endorsed for
transfer as directed by the Issuer or the Transfer Agent and
Registrar, together with any other documents of transfer
reasonably requested by the Issuer or the Transfer Agent and
Registrar.
13. This letter may be executed in any number of
counterparts, each of which when so executed shall be deemed to
be an original, but all such counterparts shall together
constitute but one and the same instrument.
Nothing herein shall be deemed to require the Transfer Agent
and Registrar to advance funds on behalf of Atlantic Capital I.
Very truly yours,
ATLANTIC CAPITAL I
(As Issuer)
By:
Administrative Trustee
THE BANK OF NEW YORK
(As Transfer Agent and Registrar)
By
Name:
Title:
RECEIVED AND ACCEPTED:
THE DEPOSITORY TRUST COMPANY
By__________________________
Authorized Officer
<PAGE>
EXHIBIT C
THIS CERTIFICATE IS NOT TRANSFERABLE
Certificate Number Number of Common Securities
C-1
Certificate Evidencing Common Securities
of
Atlantic Capital I
8.25% Common Securities
(liquidation amount $25 per Common Security)
Atlantic Capital I, a statutory business trust created under
the laws of the State of Delaware (the "Trust"), hereby certifies
that Atlantic City Electric Company (the "Holder") is the
registered owner of ____________________ ____________________
(________) common securities of the Trust representing undivided
beneficial interests in the assets of the Trust and designated
the 8.25% Common Securities (liquidation amount $25 per Common
Security) (the "Common Securities"). In accordance with Section
5.10 of the Trust Agreement (as defined below) the Common
Securities are not transferable and any attempted transfer hereof
shall be void. The designations, rights, privileges,
restrictions, preferences and other terms and provisions of the
Common Securities are set forth in, and this certificate and the
Common Securities represented hereby are issued and shall in all
respects be subject to the terms and provisions of, the Amended
and Restated Trust Agreement of the Trust dated as of October 1,
1996, among Atlantic City Electric Company, a New Jersey
corporation, The Bank of New York, a New York banking
corporation, as trustee, The Bank of New York (Delaware), a
Delaware banking corporation, as trustee, Robert K. Marshall, an
individual, as trustee, and Stephanie M. Scola, an individual, as
trustee, as the same may be amended from time to time (the "Trust
Agreement"), including the designation of the terms of the Common
Securities as set forth therein. The Trust will furnish a copy
of the Trust Agreement to the Holder without charge upon written
request to the Trust at its principal place of business or
registered office.
Upon receipt of this certificate, the Holder is bound
by the Trust Agreement and is entitled to the benefits
thereunder.
IN WITNESS WHEREOF, one of the Administrative Trustees
of the Trust has executed this certificate this ______ day of
______, ____.
ATLANTIC CAPITAL I
By
Name:
Administrative Trustee
<PAGE>
EXHIBIT D
AGREEMENT AS TO EXPENSES AND LIABILITIES
AGREEMENT dated as of October 1, 1996, between Atlantic
City Electric Company, a New Jersey corporation ("the Company"),
and Atlantic Capital I, a Delaware business trust (the "Trust").
WHEREAS, the Trust intends to issue its Common
Securities (the "Common Securities") to and receive 8.25% Junior
Subordinated Deferrable Interest Debentures ("Debentures") from
the Company and to issue and sell to the public 8.25% Cumulative
Quarterly Income Preferred Securities (the "Preferred
Securities") with such powers, preferences and special rights and
restrictions as are set forth in the Amended and Restated Trust
Agreement of the Trust dated as of October 1, 1996, as the same
may be amended from time to time (the "Trust Agreement");
WHEREAS, The Company will directly or indirectly own
all of the Common Securities of Trust and will issue the
Debentures to the Trust;
NOW, THEREFORE, in consideration of the purchase by
each holder of the Preferred Securities, which purchase the
Company hereby agrees shall benefit the Company and which
purchase the Company acknowledges will be made in reliance upon
the execution and delivery of this Agreement, the Company and
Trust hereby agree as follows:
ARTICLE I
Section 1.1. Guarantee by the Company.
Subject to the terms and conditions hereof, the Company
hereby irrevocably and unconditionally guarantees to each person
or entity to whom the Trust is now or hereafter becomes indebted
or liable (the "Beneficiaries") the full payment, when and as
due, of any and all Obligations (as hereinafter defined) to such
Beneficiaries. As used herein, "Obligations" means any costs,
expenses or liabilities of the Trust, other than obligations of
the Trust to pay to holders of any Preferred Securities or other
similar interests in the Trust the amounts due such holders
pursuant to the terms of the Preferred Securities or such other
similar interests, as the case may be. This Agreement is intended
to be for the benefit of, and to be enforceable by, all such
Beneficiaries, whether or not such Beneficiaries have received
notice hereof.
SECTION 1.2. Term of Agreement.
This Agreement shall terminate and be of no further
force and effect upon the later of (a) the date on which full
payment has been made of all amounts payable to all holders of
all the Preferred Securities (whether upon redemption,
liquidation, exchange or otherwise) and (b) the date on which
there are no Beneficiaries remaining; provided, however, that
this Agreement shall continue to be effective or shall be
reinstated, as the case may be, if at any time any holder of
Preferred Securities or any Beneficiary must restore payment of
any sums paid under the Preferred Securities, under any
Obligation, under the Guarantee Agreement dated the date hereof
by the Company and The Bank of New York as guarantee trustee or
under this Agreement for any reason whatsoever. This Agreement
is continuing, irrevocable, unconditional and absolute.
Section 1.3. Waiver of Notice.
The Company hereby waives notice of acceptance of this
Agreement and of any Obligation to which it applies or may apply,
and the Company hereby waives presentment, demand for payment,
protest, notice of nonpayment, notice of dishonor, notice of
redemption and all other notices and demands.
Section 1.4. No Impairment.
The obligations, covenants, agreements and duties of
the Company under this Agreement shall in no way be affected or
impaired by reason of the happening from time to time of any of
the following:
(a) the extension of time for the payment by the
Trust of all or any portion of the Obligations or for the
performance of any other obligation under, arising out of,
or in connection with, the Obligations;
(b) any failure, omission, delay or lack of diligence
on the part of the Beneficiaries to enforce, assert or
exercise any right, privilege, power or remedy conferred on
the Beneficiaries with respect to the Obligations or any
action on the part of the Trust granting indulgence or
extension of any kind; or
(c) the voluntary or involuntary liquidation,
dissolution, sale of any collateral, receivership,
insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or
readjustment of debt of, or other similar proceedings
affecting, the Trust or any of the assets of the Trust.
There shall be no obligation of the Beneficiaries to give notice
to, or obtain the consent of, the Company with respect to the
happening of any of the foregoing.
Section 1.5. Enforcement.
A Beneficiary may enforce this Agreement directly
against the Company and the Company waives any right or remedy to
require that any action be brought against the Trust or any other
person or entity before proceeding against the Company.
Section 1.6. Subrogation.
The Company shall be subrogated to all (if any) rights
of the Trust in respect of any amounts paid to the Beneficiaries
by the Company under this Agreement; provided, however, that the
Company shall not (except to the extent required by mandatory
provisions of law) be entitled to enforce or exercise any rights
which it may acquire by way of subrogation or any indemnity,
reimbursement or other agreement, in all cases as a result of
payment under this Agreement, if, at the time of any such
payment, any amounts are due and unpaid under this Agreement.
ARTICLE II
Section 2.1. Binding Effect.
All guarantees and agreements contained in this
Agreement shall bind the successors, assigns, receivers, trustees
and representatives of the Company and shall inure to the benefit
of the Beneficiaries.
Section 2.2. Amendment.
So long as there remains any Beneficiary or any
Preferred Securities are outstanding, this Agreement shall not be
modified or amended in any
manner adverse to such Beneficiary or to the holders of the
Preferred Securities.
Section 2.3. Notices.
Any notice, request or other communication required or
permitted to be given hereunder shall be given in writing by
delivering the same against receipt therefor by facsimile
transmission (confirmed by mail) or by registered or certified
mail, addressed as follows (and if so given, shall be deemed
given when mailed):
Atlantic Capital I
c/o The Bank of New York
101 Barclay Street - 21W
New York, New York 10286
Attention: Corporate Trust Department
Facsimile No.: (212) 815-5915
Atlantic City Electric Company
6801 Black Horse Pike
Egg Harbor Township
New Jersey 08234-4130
Facsimile No.: (609) 645-4132
Attention: Treasurer
Section 2.4. Applicable Law.
This agreement shall be governed by and construed and
interpreted in accordance with the laws of the State of New York.
THIS AGREEMENT is executed as of the day and year first
above written.
ATLANTIC CITY ELECTRIC COMPANY
By:_________________________
Name:
Title:
ATLANTIC CAPITAL I
By:_________________________
Name:
Administrative Trustee
<PAGE>
EXHIBIT E
IF THE PREFERRED SECURITY IS TO BE A GLOBAL CERTIFICATE
INSERT - This Preferred Security is a Global Certificate within
the meaning of the Trust Agreement hereinafter referred to and is
registered in the name of The Depository Trust Company (the
"Depository") or a nominee of the Depository. This Preferred
Security is exchangeable for Preferred Securities registered in
the name of a person other than the Depository or its nominee
only in the limited circumstances described in the Trust
Agreement and no transfer of this Preferred Security (other than
a transfer of this Preferred Security as a whole by the
Depository to a nominee of the Depository or by a nominee of the
Depository to the Depository or another nominee of the
Depository) may be registered except in limited circumstances.
Unless this Preferred Security is presented by an
authorized representative of The Depository Trust Company (55
Water Street, New York) to Atlantic Capital I or its agent for
registration of transfer, exchange or payment, and any Preferred
Security issued is registered in the name of Cede & Co. or such
other name as requested by an authorized representative of The
Depository Trust Company and any payment hereon is made to Cede &
Co. or to such other entities as is requested by an authorized
representative of The Depository Trust Company, ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY A PERSON IS
WRONGFUL inasmuch as the registered owner hereof, Cede & Co., has
an interest herein.
Certificate Number Number of Preferred Securities
P- CUSIP NO. 048272 20 7
Certificate Evidencing Preferred Securities
of
Atlantic Capital I
8.25% Cumulative Quarterly Income Preferred Securities
(liquidation preference $25 per Preferred Security)
Atlantic Capital I, a statutory business trust created
under the laws of the State of Delaware (the "Trust"), hereby
certifies that ____________________ (the "Holder") is the
registered owner of ______ (______) preferred securities of the
Trust representing an undivided beneficial interest in the assets
of the Trust and designated the Atlantic Capital I 8.25%
Cumulative Quarterly Income Preferred Securities (liquidation
preference $25 per Preferred Security) (the "Preferred
Securities"). The Preferred Securities are transferable on the
books and records of the Trust, in person or by a duly authorized
attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer as provided in Section 5.4 of the Trust
Agreement (as defined below). The designations, rights,
privileges, restrictions, preferences and other terms and
provisions of the Preferred Securities are set forth in, and this
certificate and the Preferred Securities represented hereby are
issued and shall in all respects be subject to the terms and
provisions of, the Amended and Restated Trust Agreement of the
Trust dated as of October 1, 1996, among Atlantic City Electric
Company, a New Jersey corporation (the "Company"), The Bank of
New York, a New York banking corporation, as trustee, The Bank of
New York (Delaware), a Delaware banking corporation, as trustee,
Robert K. Marshall, an individual, as trustee, and Stephanie M.
Scola, an individual, as trustee, as the same may be amended from
time to time (the "Trust Agreement"), including the designation
of the terms of Preferred Securities as set forth therein. The
payment of distributions on the Preferred Securities is
deferrable and the Preferred Securities may be redeemed as more
fully set forth in the Trust Agreement. The Holder is entitled
to the benefits of the Guarantee Agreement entered into by the
Company and The Bank of New York, as guarantee trustee, dated as
of October 1, 1996 (the "Guarantee"), to the extent provided
therein. The Trust will furnish a copy of the Trust Agreement and
the Guarantee to the Holder without charge upon written request
to the Trust at its principal place of business or registered
office.
<PAGE>
Upon receipt of this certificate, the Holder is bound
by the Trust Agreement and is entitled to the benefits
thereunder.
IN WITNESS WHEREOF, one of the Administrative Trustees
of the Trust has executed this certificate this ___________ day
of ______, ____, 1996.
ATLANTIC CAPITAL I
By:______________________________
Name:
Administrative Trustee
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and
transfers this Preferred Security to:
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
agent to transfer this Preferred Security Certificate on the
books of the Trust. The agent may substitute another to act for
him or her.
Date:_____________
Signature:___________________________
(Sign exactly as your name appears on the other side of this
Preferred Security Certificate)
Signature(s) Guaranteed:
- -------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN
ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT
TO S.E.C. RULE 17Ad-15.<PAGE>
Exhibit 4f(8)
ATLANTIC CITY ELECTRIC COMPANY
to
THE BANK OF NEW YORK
Trustee
JUNIOR SUBORDINATED INDENTURE
Dated as of October 1, 1996
8.25% Junior Subordinated Deferrable Interest
Debentures
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION. . . . .1
SECTION 1.1. Definitions . . . . . . . . . . . . . . . . . . . . . .1
SECTION 1.2. Compliance Certificates
and Opinions. . . . . . . . . . . . . . . . . . . . .9
SECTION 1.3. Forms of Documents Delivered to Trustee . . . . . . . .9
SECTION 1.4. Acts of Holders.. . . . . . . . . . . . . . . . . . . 10
SECTION 1.5. Notices, Etc., to
Trustee and Company . . . . . . . . . . . . . . . . 11
SECTION 1.6. Notice to Holders;
Waiver. . . . . . . . . . . . . . . . . . . . . . . 11
SECTION 1.7. Conflict With Trust
Indenture Act . . . . . . . . . . . . . . . . . . . 12
SECTION 1.8. Effect of Headings and Table of Contents. . . . . . . 12
SECTION 1.9. Successors and Assigns. . . . . . . . . . . . . . . . 12
SECTION 1.10. Separability Clause . . . . . . . . . . . . . . . . . 12
SECTION 1.11. Benefits of Indenture . . . . . . . . . . . . . . . . 12
SECTION 1.12. Governing Law.. . . . . . . . . . . . . . . . . . . . 12
SECTION 1.13. Non-Business Days . . . . . . . . . . . . . . . . . . 12
ARTICLE II
SECURITY FORMS . . . . . . . . . . . . . . 13
SECTION 2.1. Forms Generally . . . . . . . . . . . . . . . . . . . 13
SECTION 2.2. Form of Face of Security. . . . . . . . . . . . . . . 13
SECTION 2.3. Form of Reverse of
Security. . . . . . . . . . . . . . . . . . . . . . 17
SECTION 2.4. Additional Provisions Required in Global
Security. . . . . . . . . . . . . . . . . . . . . . 20
SECTION 2.5. Form of Trustee's Certificate of
Authentication. . . . . . . . . . . . . . . . . . . 20
ARTICLE III
THE SECURITIES . . . . . . . . . . . . . . 20
SECTION 3.1. Title and Terms . . . . . . . . . . . . . . . . . . . 20
SECTION 3.2. Denominations . . . . . . . . . . . . . . . . . . . . 22
SECTION 3.3. Execution, Authentication, Delivery and
Dating. . . . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.4. Temporary Securities. . . . . . . . . . . . . . . . . 23
SECTION 3.5. Registration, Transfer
and Exchange. . . . . . . . . . . . . . . . . . . . 24
SECTION 3.6. Mutilated, Destroyed, Lost and Stolen
Securities. . . . . . . . . . . . . . . . . . . . . 25
SECTION 3.7. Payment of Interest; Interest Rights
Preserved . . . . . . . . . . . . . . . . . . . . . 26
SECTION 3.8. Persons Deemed Owners . . . . . . . . . . . . . . . . 27
SECTION 3.9. Cancellation. . . . . . . . . . . . . . . . . . . . . 27
SECTION 3.10. Computation of Interest . . . . . . . . . . . . . . . 27
SECTION 3.11. Right of Set-Off. . . . . . . . . . . . . . . . . . . 28
SECTION 3.12. Agreed Tax Treatment. . . . . . . . . . . . . . . . . 28
SECTION 3.13. Change or Extension of Stated Maturity;
Adjustment
of Stated Maturity Upon an Exchange . . . . . . . . 28
SECTION 3.14. CUSIP Numbers . . . . . . . . . . . . . . . . . . . . 28
ARTICLE IV
SATISFACTION AND DISCHARGE . . . . . . . . . . . 29
SECTION 4.1. Satisfaction and
Discharge of Indenture. . . . . . . . . . . . . . . 29
SECTION 4.2. Application of Trust
Money . . . . . . . . . . . . . . . . . . . . . . . 29
ARTICLE V
REMEDIES. . . . . . . . . . . . . . . . 30
SECTION 5.1. Events of Default . . . . . . . . . . . . . . . . . . 30
SECTION 5.2. Acceleration of Maturity; Rescission and
Annulment . . . . . . . . . . . . . . . . . . . . . 31
SECTION 5.3. Collection of Indebtedness and Suits for
Enforcement by Trustee. . . . . . . . . . . . . . . 33
SECTION 5.4. Trustee May File Proofs
of Claim. . . . . . . . . . . . . . . . . . . . . . 33
SECTION 5.5. Trustee May Enforce Claim Without Possession
of Securities . . . . . . . . . . . . . . . . . . . 34
SECTION 5.6. Application of Money
Collected . . . . . . . . . . . . . . . . . . . . . 34
SECTION 5.7. Limitation on Suits . . . . . . . . . . . . . . . . . 35
SECTION 5.8. Unconditional Right of Holders to Receive
Principal, Premium and Interest . . . . . . . . . . 36
SECTION 5.9. Restoration of Rights and Remedies. . . . . . . . . . 36
SECTION 5.10. Rights and Remedies
Cumulative. . . . . . . . . . . . . . . . . . . . . 36
SECTION 5.11. Delay or Omission Not
Waiver. . . . . . . . . . . . . . . . . . . . . . . 36
SECTION 5.12. Control by Holders. . . . . . . . . . . . . . . . . . 37
SECTION 5.13. Waiver of Past Defaults . . . . . . . . . . . . . . . 37
SECTION 5.14. Undertaking for Costs . . . . . . . . . . . . . . . . 38
SECTION 5.15. Waiver of Usury, Stay or Extension Laws . . . . . . . 38
ARTICLE VI
THE TRUSTEE . . . . . . . . . . . . . . . 39
SECTION 6.1 Certain Duties and Responsibilities . . . . . . . . . 39
SECTION 6.2. Notice of Defaults. . . . . . . . . . . . . . . . . . 40
SECTION 6.3. Certain Rights of
Trustee . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 6.4. Not Responsible for Recitals or Issuance
of Securities . . . . . . . . . . . . . . . . . . . 41
SECTION 6.5. May Hold Securities . . . . . . . . . . . . . . . . . 41
SECTION 6.6. Money Held in Trust . . . . . . . . . . . . . . . . . 41
SECTION 6.7. Compensation and Reimbursement. . . . . . . . . . . . 41
SECTION 6.8. Disqualification; Conflicting Interests . . . . . . . 42
SECTION 6.9. Corporate Trustee Required; Eligibility . . . . . . . 42
SECTION 6.10. Resignation and Removal; Appointment of
Successor . . . . . . . . . . . . . . . . . . . . . . 43
SECTION 6.11. Acceptance of Appointment by Successor. . . . . . . . 44
SECTION 6.12. Merger, Conversion, Consolidation or
Succession to Business. . . . . . . . . . . . . . . 45
SECTION 6.13. Preferential Collection of Claims Against
Company . . . . . . . . . . . . . . . . . . . . . . 45
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY . . . . . 45
SECTION 7.1. Company to Furnish Trustee Names and
Addresses of Holders. . . . . . . . . . . . . . . . 45
SECTION 7.2. Preservation of Information, Communications
to Holders. . . . . . . . . . . . . . . . . . . . . 46
SECTION 7.3. Reports by Trustee. . . . . . . . . . . . . . . . . . 46
SECTION 7.4. Reports by Company. . . . . . . . . . . . . . . . . . 46
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE. . . . . 47
SECTION 8.1. Company May Consolidate,
Etc., Only on Certain
Terms.. . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 8.2. Successor Person
Substituted.. . . . . . . . . . . . . . . . . . . . 48
ARTICLE IX
SUPPLEMENTAL INDENTURES. . . . . . . . . . . . 48
SECTION 9.1. Supplemental Indentures Without Consent of
Holders . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 9.2. Supplemental Indentures with Consent of
Holders.. . . . . . . . . . . . . . . . . . . . . . 49
SECTION 9.3. Execution of Supplemental Indentures. . . . . . . . . 50
SECTION 9.4. Effect of Supplemental Indentures.. . . . . . . . . . 50
SECTION 9.5. Conformity with Trust Indenture Act.. . . . . . . . . 51
SECTION 9.6. Reference in Securities to Supplemental
Indentures. . . . . . . . . . . . . . . . . . . . . 51
ARTICLE X
COVENANTS . . . . . . . . . . . . . . . 51
SECTION 10.1. Payment of Principal, Premium and Interest. . . . . . 51
SECTION 10.2. Maintenance of Office or
Agency. . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 10.3. Money for Security Payments to be Held in
Trust.. . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 10.4. Statement as to
Compliance. . . . . . . . . . . . . . . . . . . . . 53
SECTION 10.5. Additional Sums.. . . . . . . . . . . . . . . . . . . 53
SECTION 10.6. Additional Covenants. . . . . . . . . . . . . . . . . 54
ARTICLE XI
REDEMPTION OF SECURITIES. . . . . . . . . . . . 54
SECTION 11.1. Company's Rights of
Redemption. . . . . . . . . . . . . . . . . . . . . 54
SECTION 11.2. Applicability of This
Article.. . . . . . . . . . . . . . . . . . . . . . 55
SECTION 11.3. Election to Redeem; Notice to Trustee.. . . . . . . . 55
SECTION 11.4. Selection of Securities to be Redeemed. . . . . . . . 55
SECTION 11.5. Notice of Redemption. . . . . . . . . . . . . . . . . 56
SECTION 11.6. Deposit of Redemption
Price.. . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 11.7. Payment of Securities Called for Redemption.. . . . . 57
ARTICLE XII
SUBORDINATION OF SECURITIES. . . . . . . . . . . 57
SECTION 12.1. Securities Subordinate to Senior Debt.. . . . . . . . 57
SECTION 12.2. Payment Over of Proceeds Upon Dissolution,
Etc.. . . . . . . . . . . . . . . . . . . . . . . . . 57
SECTION 12.3. Prior Payment to Senior Debt Upon
Acceleration
of Securities. . . . . . . . . . . . . . . . . . . 59
SECTION 12.4. No Payment When Senior Debt in Default. . . . . . . . 59
SECTION 12.5. Payment Permitted If No
Default.. . . . . . . . . . . . . . . . . . . . . . 60
SECTION 12.6. Subrogation to Rights of Holders of Senior
Debt. . . . . . . . . . . . . . . . . . . . . . . . . 60
SECTION 12.7. Provisions Solely to Define Relative Rights.. . . . . 60
SECTION 12.8. Trustee to Effectuate Subordination.. . . . . . . . . 61
SECTION 12.9. No Waiver of Subordination Provisions.. . . . . . . . 61
SECTION 12.10. Notice to Trustee.. . . . . . . . . . . . . . . . . . 61
SECTION 12.11. Reliance on Judicial Order or Certificate
of Liquidating Agent. . . . . . . . . . . . . . . . 62
SECTION 12.12. Trustee Not Fiduciary
for Holders of Senior
Debt. . . . . . . . . . . . . . . . . . . . . . . . 62
SECTION 12.13. Rights of Trustee as Holder of Senior Debt;
Preservation of Trustee's Rights. . . . . . . . . . 62
SECTION 12.14. Article Applicable to Paying Agents.. . . . . . . . . 62
Annex A Form of Trust Agreement
Annex B Form of Amended and Restated Trust Agreement
Annex C Form of Guarantee Agreement
<PAGE>
JUNIOR SUBORDINATED INDENTURE, dated as of October 1,
1996 between ATLANTIC CITY ELECTRIC COMPANY, a New Jersey
corporation (hereinafter called the "Company") having its
principal office at 6801 Black Horse Pike, Egg Harbor Township,
New Jersey 08234, and THE BANK OF NEW YORK, a New York banking
corporation, as Trustee (hereinafter called the "Trustee") having
its principal corporate trust office at 101 Barclay Street, New
York, New York 10286.
RECITALS OF THE COMPANY
The Company has duly authorized the execution and
delivery of this Indenture to provide for the issuance of its
8.25% Junior Subordinated Deferrable Interest Debentures
(hereinafter called the "Securities") of substantially the tenor
hereinafter provided, to evidence loans made to the Company of
the proceeds from the issuance by Atlantic Capital I, a Delaware
statutory business trust ("Atlantic Capital I") of its 8.25%
Cumulative Quarterly Income Preferred Securities (the "Preferred
Securities") and common securities of Atlantic Capital I (the
"Common Securities" and, collectively with the Preferred
Securities, the "Trust Securities"), and to provide the terms and
conditions upon which the Securities are to be authenticated,
issued and delivered.
All things necessary to make the Securities, when
executed by the Company and authenticated and delivered hereunder
and duly issued by the Company, the valid obligations of the
Company, and to make this Indenture a valid agreement of the
Company, in accordance with their and its terms, have been done.
NOW THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the
purchase of the Securities by the Holders thereof, it is mutually
covenanted and agreed, for the equal and proportionate benefit of
all Holders of the Securities or of any series thereof, as
follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 1.1. Definitions. For all purposes of this
Indenture, except as otherwise expressly provided or unless the
context otherwise requires:
(1) the terms defined in this Article have the
meanings assigned to them in this Article and include the
plural as well as the singular;
(2) all other terms used herein which are defined in
the Trust Indenture Act, either directly or by reference
therein, have the meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein
have the meanings assigned to them in accordance with
generally accepted accounting principles, and the term
"generally accepted accounting principles" with respect to
any computation required or permitted hereunder shall mean
such accounting principles which are generally accepted at
the date or time of such computation; and
(4) the words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Indenture as a
whole and not to any particular Article, Section or other
subdivision.
Certain terms, used principally in Article Six, are
defined in that Article.
"Act", when used with respect to any Holder, has the
meaning specified in Section 1.4.
"Additional Interest" means the interest, if any, that
shall accrue on any interest on the Securities the payment of
which has not been made (due to deferral of the payment of
interest during an Extension Period or due to default in the
payment thereof) on the applicable Interest Payment Date and
which shall accrue at the Interest Rate and which shall be
payable to the extent permitted by law (whether or not so
stated).
"Additional Sums" has the meaning specified in Section
10.5.
"Additional Taxes" means the sum of any additional
taxes, duties and other governmental charges to which Atlantic
Capital I has become subject from time to time as a result of a
Tax Event.
"Affiliate" of any specified Person means any other
Person directly or indirectly controlling or controlled by or
under direct or indirect common control with such specified
Person; provided, however, that an Affiliate of the Company shall
not be deemed to include Atlantic Capital I. For the purposes of
this definition, "control" when used with respect to any
specified Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Atlantic Capital I" has the meaning specified in the
first recital of this Indenture.
"Authenticating Agent" means any Person authorized by
the Trustee pursuant to Section 6.14 to act on behalf of the
Trustee to authenticate Securities.
"Board of Directors" means either the board of
directors of the Company or any committee of that board duly
authorized to act hereunder.
"Board Resolution" means a copy of a resolution
certified by the Secretary or an Assistant Secretary of the
Company to have been duly adopted by the Board of Directors, or
such committee of the Board of Directors or officers
of the Company to which authority to act on behalf of the Board
of Directors has been delegated, and to be in full force and
effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means any day other than (i) a Saturday
or Sunday, (ii) a day on which banking institutions in The City
of New York are authorized or required by law or executive order
to remain closed or (iii) a day on which the Corporate Trust
Office of the Trustee, or, with respect to Securities which at
the time of determination are registered in the Securities
Register in the name of Atlantic Capital I, the principal office
of the Property Trustee, is closed for business.
"Commission" means the Securities and Exchange
Commission, as from time to time constituted, created under the
Securities Exchange Act of 1934, or if at any time after the
execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties on such date.
"Common Securities" has the meaning specified in the
first recital of this Indenture.
"Common Stock" means the common stock of the Company.
"Company" means the Person named as the "Company" in
the first paragraph of this instrument until a successor Person
shall have become such pursuant to the applicable provisions of
this Indenture, and thereafter "Company" shall mean such
successor Person.
"Company Guarantee" means the guarantee by the Company
of distributions on the Preferred Securities to the extent
provided in the Guarantee Agreement, substantially in the form
attached hereto as Annex C, as amended from time
to time.
"Company Request" and "Company Order" mean,
respectively, the written request or order signed in the name of
the Company by its Chairman of the Board, its Vice Chairman, its
President or a Vice President, and by its Treasurer, an Assistant
Treasurer, its Controller, its Secretary or an Assistant
Secretary, and delivered to the Trustee.
"Corporate Trust Office" means the principal office of
the Trustee at which at any particular time its corporate trust
business shall be administered, which at the date hereof is 101
Barclay Street, New York, New York 10286.
"Corporation" means a corporation, association,
company, joint-stock company or business trust.
"Debt" means, with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and
whether or not contingent, (i) every obligation of such Person
for money borrowed; (ii) every obligation of such Person
evidenced by bonds, debentures, notes or other similar
instruments, including obligations incurred in connection with
the acquisition of property, assets or businesses; (iii) every
reimbursement obligation of such Person with respect to letters
of credit, bankers' acceptances or similar facilities issued
for the account of such Person; (iv) every obligation of such
Person issued or assumed as the deferred purchase price of
property or services (but excluding trade accounts payable or
accrued liabilities arising in the ordinary course of business);
(v) every capital lease obligation of such Person; and (vi) every
obligation of the type referred to in clauses (i) through (v) of
another Person and all dividends of another Person the payment of
which, in either case, such Person has guaranteed or is
responsible or liable for, directly or indirectly, as obligor or
otherwise.
"Defaulted Interest" has the meaning specified in
Section 3.7.
"Depositary" means, with respect to the Securities
issuable or issued in whole or in part in the form of one or more
Global Securities, the Person designated as Depositary by the
Company pursuant to Section 3.1 (or any successor thereto).
"Dollar" means the currency of the United States of
America that, as at the time of payment, is legal tender for the
payment of public and private debts.
"Event of Default" has the meaning specified in Article
Five.
"Extension Period" has the meaning specified in Section
3.1.
"Foreign Currency" means any currency issued by the
government of one or more countries other than the United States
of America or by any recognized confederation or association of
such governments.
"Global Security" means a Security in the form
prescribed in Section 2.4 issued to the Depositary or its nominee
and registered in the name of such Depositary or its nominee.
"Government Obligations" means securities which are (i)
direct obligations of the United States of America or (ii)
obligations of a Person controlled or supervised by and acting as
an agency or instrumentality of the United States of America the
payment of which is unconditionally guaranteed by the United
States of America and which, in either case, are full faith and
credit obligations of the United States of America and are not
callable or redeemable at the option of the issuer thereof and
shall also include a depository receipt issued by a bank (as
defined in Section 3(a)(2) of the Securities Act of 1933, as
amended) as custodian with respect to any such Government
Obligation or a specific payment of interest on or principal of
any such Government Obligation held by such custodian for the
account of the holder of such depository receipt; provided that
(except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such
depository receipt from any amount received by the custodian in
respect of the Government Obligation or the specific payment of
interest on or principal of the Government Obligation evidenced
by such depository receipt.
"Holder" means a Person in whose name a Security is
registered in the Securities Register.
"Indenture" means this instrument as originally
executed or as it may from time to time be supplemented or
amended by one or more indentures supplemental hereto entered
into pursuant to the applicable provisions hereof.
"Interest Payment Date" means the Stated Maturity of an
installment of interest on the Securities.
"Interest Rate" means the rate of interest specified or
determined as specified in the Security as being the rate of
interest payable on the Security.
"Investment Company Event" means the receipt by
Atlantic Capital I of an Opinion of Counsel, rendered by a law
firm having a recognized national tax and securities practice, to
the effect that, as a result of the occurrence of a change in law
or regulation or a change in interpretation or application of law
or regulation by any legislative body, court, governmental agency
or regulatory authority (a "Change in 1940 Act Law"), Atlantic
Capital I is or will be considered an "investment company" that
is required to be registered under the 1940 Act, which Change in
1940 Act Law becomes effective on or after the date of original
issuance of the Preferred Securities.
"Junior Subordinated Payment" has the meaning specified
in Section 12.2.
"Lien" means any mortgage, pledge, lien, security
interest or other encumbrance.
"Maturity", when used with respect to any Security,
means the date on which the principal of such Security becomes
due and payable as therein or herein provided, whether at the
Stated Maturity or by declaration of acceleration, call for
redemption or otherwise.
"1940 Act" means the Investment Company Act of 1940, as
amended.
"Officers' Certificate" means a certificate signed by
the Chairman and Chief Executive Officer, President or a Vice
President, and by the Treasurer, an Assistant Treasurer, the
Controller, the Secretary or an Assistant Secretary of the
Company, and delivered to the Trustee.
"Opinion of Counsel" means a written opinion of
counsel, who may be counsel for the Company, including General
Counsel of the Company.
"Outstanding" means, when used in reference to
Securities, as of the date of determination, all Securities
theretofore authenticated and delivered under this Indenture,
except:
(A Securities theretofore canceled by the
Trustee or delivered to the Trustee for cancellation;
(B Securities for whose payment money or
Government Obligations in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent
in trust for the Holders of such Securities; and
(C Securities in substitution for or in lieu
of which other Securities have been authenticated and
delivered or which have been paid pursuant to Section 3.6,
unless proof satisfactory to the Trustee is presented that
any such Securities are held by Holders in whose hands such
Securities are valid, binding and legal obligations of the
Company;
provided, however, that in determining whether the Holders of the
requisite principal amount of Outstanding Securities have given
any request, demand, authorization, direction, notice, consent or
waiver hereunder, Securities owned by the Company or any other
obligor upon the Securities or any Affiliate of the Company or
such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee
shall be protected in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only
Securities which the Trustee knows to be so owned shall be so
disregarded. Securities so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes
to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the
Company or any other obligor upon the Securities or any Affiliate
of the Company or such other obligor. Upon the written request
of the Trustee, the Company shall furnish to the Trustee promptly
an Officers' Certificate listing and identifying all Securities,
if any, known by the Company to be owned or held by or for the
account of the Company, or any other obligor on the Securities or
any Affiliate of the Company or such obligor, and, subject to the
provisions of Section 6.1, the Trustee shall be entitled to
accept such Officers' Certificate as conclusive evidence of the
facts therein set forth and of the fact that all Securities not
listed therein are Outstanding for the purpose of any such
determination.
"Paying Agent" means the Trustee or any Person
authorized by the Company to pay the principal of (any premium,
if any) or interest on any Securities on behalf of the Company.
"Person" means any individual, corporation,
partnership, joint venture, association, joint-stock company
trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Place of Payment" means the place or places where the
principal of (and premium, if any) and interest on the Securities
are payable pursuant to Section 3.1 or 3.11.
"Predecessor Security" of any particular Security means
every previous Security evidencing all or a portion of the same
debt as that evidenced by such particular Security; and, for the
purposes of this definition, any security authenticated and
delivered under Section 3.6 in lieu of a lost, destroyed or
stolen Security shall be deemed to evidence the same debt as the
lost, destroyed or stolen Security.
"Preferred Securities" has the meaning specified in the
first recital of this Indenture.
"Proceeding" has the meaning specified in Section 12.2.
"Property Trustee" means The Bank of New York, solely
in its capacity as Property Trustee of Atlantic Capital I under
the Trust Agreement and not in its individual capacity, or its
successor in interest in such capacity, or any successor property
trustee appointed as therein provided.
"Redemption Date", when used with respect to any
Security to be redeemed, means the date fixed for such redemption
by or pursuant to this Indenture.
"Redemption Price", when used with respect to any
Security to be redeemed, means the price at which it is to be
redeemed pursuant to this Indenture.
"Regular Record Date" for the interest payable on any
Interest Payment Date means the Business Day next preceding such
Interest Payment Date; provided, however, that in the event that
the Securities are distributed to holders of Preferred Securities
pursuant to a liquidation of the Trust in accordance with Section
9.04 of the Trust Agreement and that at any time thereafter
Securities no longer remain in book-entry-only form, the Regular
Record Date shall be the date (whether or not a Business Day)
which is the fifteenth day of the month in which occurs the
relevant Interest Payment Date.
"Responsible Officer" when used with respect to the
Trustee means any officer of the Trustee assigned by the Trustee
from time to time to administer its corporate trust matters.
"Securities" has the meaning specified in the Recitals
to this instrument.
"Securities Register" and "Securities Registrar" have
the respective meanings specified in Section 3.5.
"Senior Debt" means the principal of (and premium, if
any) and interest, if any (including interest accruing on or
after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not such claim
for post-petition interest is allowed in such proceeding), on
Debt, whether incurred on or prior to the date of this Indenture
or thereafter incurred, unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding,
it is provided that such obligations are not superior in right of
payment to the Securities or to other Debt which is pari passu
with, or subordinated to, the Securities, provided, however, that
Senior Debt shall not be deemed to include (a) any Debt of the
Company which when incurred and without respect to any election
under Section 1111(b) of the Bankruptcy Reform Act of 1978, was
without recourse to the Company, (b) any Debt of the Company to
any of its Subsidiaries, (c) Debt to any employee of the Company,
(d) any liability for taxes, (e) Debt or other monetary
obligations to trade creditors created or assumed by the Company
or any of its Subsidiaries in the ordinary course of business in
connection with the obtaining of goods, materials or services and
(f) the Securities.
"Special Event" means a Tax Event or an Investment
Company Event.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section
3.7.
"Stated Maturity", when used with respect to any
Security or any installment of interest thereon, means the date
specified pursuant to the terms of the Security as the date on
which the principal of such Security or such installment of
interest is due and payable.
"Subsidiary" means a corporation more than 50% of the
outstanding voting stock of which is owned, directly or
indirectly, by the Company or by one or more other Subsidiaries,
or by the Company and one or more other Subsidiaries. For the
purposes of this definition, "voting stock" means stock which
ordinarily has voting power for the election of directors,
whether at all times or only so long as no senior class of stock
has such voting power by reason of any contingency.
"Tax Event" means the receipt by Atlantic Capital I of
an Opinion of Counsel, rendered by a law firm having a recognized
national tax and securities practice, to the effect that, as a
result of any amendment to, change in or announced proposed
change in the laws (or any regulations thereunder) of the United
States or any political subdivision or taxing authority thereof
or therein, or as a result of any official administrative
pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is adopted or
which pronouncement or decision is announced on or after the date
of issuance of the Preferred Securities, there is more than an
insubstantial risk that (i) Atlantic Capital I is, or will be
within 90 days of the date of such Opinion of Counsel, subject to
United States federal income tax with respect to income received
or accrued on the Securities, (ii) interest payable by the
Company on the Securities is not, or within 90 days of the date
of such Opinion of Counsel, will not be, deductible, in whole or
in part, for United States federal income tax purposes or (iii)
Atlantic Capital I is, or will be within 90 days of the date of
such Opinion of Counsel, subject to more than a de minimis amount
of other taxes, duties or other governmental charges.
"Trust Agreement" means the Trust Agreement in the form
attached hereto as Annex A, as amended and restated by the
Amended and Restated Trust Agreement substantially in the form
attached hereto as Annex B as amended from time to time.
"Trustee" means the Person named as the "Trustee" in
the first paragraph of this instrument until a successor Trustee
shall have become such pursuant to the applicable provisions of
this Indenture, and thereafter "Trustee" shall mean such
successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of
1939 (15 U.S.C. 77aaa-77bbb), as amended and as in effect on
the date as of this Indenture, except as provided in Section 9.5.
"Trust Securities" has the meaning specified in the
first recital of this Indenture.
"Vice President" when used with respect to the Company,
means any duly appointed or elected vice president, whether or
not designated by a number or a word or words added before or
after the title "vice president."
SECTION 1.2. Compliance Certificates and Opinions.
Upon any application or request by the Company to the
Trustee to take any action under any provision of this Indenture,
the Company shall furnish to the Trustee an Officers' Certificate
stating that all conditions precedent (including covenants,
compliance with which constitutes a condition precedent), if any,
provided for in this Indenture relating to the proposed action
have been complied with and an Opinion of Counsel stating that in
the opinion of such counsel all such conditions precedent
(including covenants compliance with which constitute a condition
precedent), if any, have been complied with, except that in the
case of any such application or request as to which the
furnishing of such documents is specifically required by any
provision of this Indenture relating to such particular
application or request, no additional certificate or
opinion need be furnished.
Every certificate or opinion with respect to compliance
with a condition or covenant provided for in this Indenture
(other than the certificates provided pursuant to Section 10.4)
shall include:
(1) a statement that each individual signing such
certificate or opinion has read such covenant or condition
and the definitions herein relating thereto;
(2) a brief statement as to the nature and scope of
the examination or investigation upon which the statements
or opinions contained in such certificate or opinion are
based;
(3) a statement that, in the opinion of each such
individual, he has made such examination or investigation as
is necessary to enable him to express an informed opinion as
to whether or not such covenant or condition has been
complied with; and
(4) a statement as to whether, in the opinion of each
such individual, such condition or covenant has been
complied with.
SECTION 1.3. Forms of Documents Delivered to Trustee.
In any case where several matters are required to be
certified by, or covered by an opinion of, any specified Person,
it is not necessary that all such matters be certified by, or
covered by the opinion of, only one such Person, or that they be
so certified or covered by only one document, but one such Person
may certify or give an opinion with respect to some matters and
one or more other such Persons as to other matters, and any such
Person may certify or give an opinion as to such matters in one
or several documents.
Any certificate or opinion of an officer of the Company
may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless
such officer knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with
respect to matters upon which his certificate or opinion is based
are erroneous. Any such certificate or Opinion of Counsel may be
based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or
officers of the Company stating that the information with respect
to such factual matters is in the possession of the Company,
unless such counsel knows, or in the exercise of reasonable care
should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute
two or more applications, requests, consents, certificates,
statements, opinions or other instruments under this Indenture,
they may, but need not, be consolidated and form one instrument.
SECTION 1.4. Acts of Holders.
(a) Any request, demand, authorization, direction,
notice, consent, waiver or other action provided by this
Indenture to be given to or taken by Holders may be embodied in
and evidenced by one or more instruments of substantially similar
tenor signed by such Holders in person or by an agent duly
appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument
or instruments is or are delivered to the Trustee, and, where it
is hereby expressly required, to the Company. Such instrument or
instruments (and the action embodied therein and evidenced
thereby) are herein sometimes referred to as the "Act" of the
Holders signing such instrument or instruments. Proof of
execution of any such instrument or of a writing appointing any
such agent shall be sufficient for any purpose of this Indenture
and (subject to Section 6.1) conclusive in favor of the Trustee
and the Company, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person
of any such instrument or writing may be proved by the affidavit
of a witness of such execution or by the certificate of any
notary public or other officer authorized by law to take
acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution
thereof. Where such execution is by a person acting in other
than his individual capacity, such certificate or affidavit shall
also constitute sufficient proof of his authority.
(c) The fact and date of the execution by any person
of any such instrument or writing, or the authority of the person
executing the same, may also be proved in any other manner which
the Trustee deems sufficient and in accordance with such
reasonable rules as the Trustee may determine.
(d) The ownership of Securities shall be proved by the
Securities Register.
(e) Any request, demand, authorization, direction,
notice, consent, waiver or other action by the Holder of any
Security shall bind every future Holder of the same Security and
the Holder of every Security issued upon the transfer thereof or
in exchange therefor or in lieu thereof in respect of anything
done or suffered to be done by the Trustee or the Company in
reliance thereon, whether or not notation of such action is made
upon such Security.
(f) The Company may, but shall not be obligated to,
fix a record date for the purpose of determining the Holders
entitled to take any action under this Indenture by vote or
consent. Except as otherwise provided herein, such record date
shall be the later of 30 days prior to the first solicitation of
such consent or vote or the date of the most recent list of
Securityholders furnished to the Trustee pursuant to Section 7.1
prior to such solicitation. If a record date is fixed, those
persons who were Securityholders at such record date (or their
duly designated proxies), and only those persons, shall be
entitled to take such action by vote or consent or to revoke any
vote or consent previously given, whether or not such persons
continue to be Holders after such record date, provided, however,
that unless such vote or consent is obtained from the Holders (or
their duly designated proxies) of the requisite principal amount
of Outstanding Securities prior to the date which is the 120th
day after such record date, any such vote or consent previously
given shall automatically and without further action by any
Holder be canceled and of no further effect.
SECTION 1.5. Notices, Etc., to Trustee and Company.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or
permitted by this Indenture to be made upon, given or furnished
to, or filed with,
(1) the Trustee by any Holder or by the Company shall
be sufficient for every purpose hereunder if made, given,
furnished or filed in writing to or with the Trustee at its
Corporate Trust Office, or
(2) the Company by the Trustee or by any Holder shall
be sufficient for every purpose (except as otherwise provided in
Section 5.1 hereof) hereunder if in writing and mailed, first
class, postage prepaid, to the Company addressed to it at the
address of its principal office specified in the first paragraph
of this instrument or at any other address previously furnished
in writing to the Trustee by the Company.
SECTION 1.6. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of
any event, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed,
first class postage prepaid, to each Holder affected by such
event, at the address of such Holder as it appears in the
Securities Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such
notice. In any case where notice to Holders is given by mail,
neither the failure to mail such notice, nor any defect in any
notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where
this Indenture provides for notice in any manner, such notice may
be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall
be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a
condition precedent to the validity of any action taken in
reliance upon such waiver.
SECTION 1.7. Conflict With Trust Indenture Act.
If any provision of this Indenture limits, qualifies or
conflicts with the duties imposed by any of Sections 310 to 317,
inclusive, of the Trust Indenture Act through operation of
Section 318(c) thereof, such imposed duties shall control.
SECTION 1.8. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table
of Contents are for convenience only and shall not affect the
construction hereof.
SECTION 1.9. Successors and Assigns.
All covenants and agreements in this Indenture by the
Company shall bind its successors and assigns, whether so
expressed or not.
SECTION 1.10. Separability Clause.
In case any provision in this Indenture or in the
Securities shall be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions
shall not in any way be affected or impaired thereby.
SECTION 1.11. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express
or implied, shall give to any Person, other than the parties
hereto, any Paying Agent and their successors and assigns, the
holders of Senior Debt and the Holders of the Securities, any
benefit or any legal or equitable right, remedy or claim under
this Indenture.
SECTION 1.12. Governing Law.
This Indenture and the Securities shall be governed by
and construed in accordance with the laws of the State of New
York.
SECTION 1.13. Non-Business Days.
In any case where any Interest Payment Date, Redemption
Date or Stated Maturity of any Security shall not be a Business
Day, then (notwithstanding any other provision of this Indenture
or the Securities) payment of interest or principal need not be
made on such date, but may be made on the next succeeding
Business Day (except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the
immediately preceding Business Day), in each case with the same
force and effect as if made on the Interest Payment Date or
Redemption Date or at the Stated Maturity of principal (and no
interest shall accrue for the period from and after such Interest
Payment Date, Redemption Date or Stated Maturity of principal, as
the case may be, until such next succeeding Business Day).
ARTICLE II
SECURITY FORMS
SECTION 2.1. Forms Generally.
The Securities and the Trustee's certificates of
authentication thereon shall be in substantially the forms set
forth in this Article, with such appropriate insertions,
omissions, substitutions and other variations as are required or
permitted by this Indenture and may have such letters, numbers or
other marks of identification and such legends or endorsements
placed thereon as may be required to comply with applicable tax
laws or the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing
such securities, as evidenced by their execution of the
Securities.
The definitive Securities shall be printed,
lithographed or engraved or produced by any combination of these
methods, if required by any securities exchange, the Nasdaq
National Market or other applicable interdealer quotation system
or self-regulatory organization on which the Securities may be
listed or traded, on a steel engraved border or steel engraved
borders or may be produced in any other manner permitted by the
rules of any securities exchange, the Nasdaq National Market or
other applicable interdealer quotation system or self- regulatory
organization on which the Securities may be listed or traded, or
otherwise may be typewritten all as determined by the officers
executing such Securities, as evidenced by their execution of
such Securities.
SECTION 2.2. Form of Face of Security
[IF THE SECURITY IS TO BE A GLOBAL SECURITY - This
Security is a Global Security within the meaning of the Indenture
hereinafter referred to and is registered in the name of The
Depository Trust Company (the "Depository") or a nominee of the
Depository. This Security is exchangeable for Securities
registered in the name of a person other than the Depository or
its nominee only in the limited circumstances described in the
Indenture and no transfer of this Security (other than a transfer
of this Security as a whole by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or
another nominee of the Depository) may be registered except in
limited circumstances. Unless this Security is presented by an
authorized representative of The Depository Trust Company (55
Water Street, New York) to Atlantic City Electric Company or its
agent for registration of transfer, exchange or payment, and any
Security issued is registered in the name of Cede & Co. or such
other name as requested by an authorized representative of The
Depository Trust Company and any payment hereon is made to Cede &
Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY A PERSON IS WRONGFUL inasmuch as the registered
owner hereof, Cede & Co., has an interest herein.]
ATLANTIC CITY ELECTRIC COMPANY
8.25% Junior Subordinated Deferrable Interest Debentures
No. $
CUSIP
ATLANTIC CITY ELECTRIC COMPANY, a corporation organized
and existing under the laws of New Jersey (hereinafter called the
"Company", which term includes any successor corporation under
the Indenture hereinafter referred to), for value received,
hereby promises to pay to , or registered
assigns, the principal sum of Dollars on October
1, 2026; provided, that the Company may (i) change the maturity
date upon the occurrence of an exchange of the Securities for the
Trust Securities subject to certain conditions set forth in
Section 3.13 of the Indenture, which changed maturity date shall
in no case be earlier than October 1, 2001 or later than October
1, 2045 and/or (ii) extend the maturity date subject to certain
conditions specified in Section 3.13 of the Indenture, which
extended maturity date shall in no case be later than October 1,
2045. The Company further promises to pay interest on said
principal sum from October 1, 1996 or from the most recent
interest payment date (each such date, an "Interest Payment
Date") on which interest has been paid or duly provided for,
quarterly (subject to deferral as set forth herein) in arrears on
March 31, June 30, September 30 and December 31 of each year,
commencing December 31, 1996, at the rate of 8.25% per annum,
until the principal hereof shall have become due and payable,
plus Additional Interest, if any, until the principal hereof is
paid or duly provided for or made available for payment and on
any overdue principal and (without duplication and to the extent
that payment of such interest is enforceable under applicable
law) on any overdue installment of interest at the rate of 8.25%
per annum, compounded quarterly. The amount of interest payable
on December 31, 1996 shall be computed on the basis of 89 days in
a 360-day year. The amount of interest payable on any Interest
Payment Date thereafter shall be computed on the basis of a 360-
day year of twelve 30-day months. In the event that any date on
which interest is payable on this Security is not a Business Day,
then payment of interest payable on such date will be made on the
next succeeding day which is a Business Day (and without any
interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar
year, such payment shall be made on the immediately preceding
Business Day, in each case with the same force and effect as if
made on the date the payment was originally payable. A "Business
Day" shall mean any day other than (i) a Saturday or Sunday, (ii)
a day on which banking institutions in the City of New York are
authorized or required by law or executive order to remain closed
or (iii) a day on which the Corporate Trust Office of the Trustee
or the principal office of the Property Trustee under the Trust
Agreement (as defined herein), is closed for business. The
interest installment so payable, and punctually paid or duly
provided for, on any Interest Payment Date (other than a
Redemption Date or the maturity date) will, as provided in the
Indenture, be paid to the Person in whose name this Security (or
one or more Predecessor Securities, as defined in the Indenture)
is registered at the close of business on the Regular Record Date
for such interest installment, which shall be the close of
business on the Business Day next preceding such Interest Payment
Date (if the Securities are distributed to holders of Preferred
Securities pursuant to a liquidation of the Trust in accordance
with Section 9.4 of the Trust Agreement and at any time
thereafter any such Securities no longer remain in book-entry-
only form, the Regular Record Date shall be the date (whether or
not a business day) which is the fifteenth day of the month in
which occurs the relevant Interest Payment Date). Any such
interest installment not so punctually paid or duly provided for
shall forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name
this Security (or one or more Predecessor Securities) is
registered at the close of business on a Special Record Date for
the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders not less than
10 days prior to such Special Record Date, or be paid at any time
in any other lawful manner not inconsistent with the requirements
of any securities exchange on which the Securities may be listed,
and upon such notice as may be required by such exchange, all as
more fully provided in said Indenture. So long as no Event of
Default under the Indenture has occurred and is continuing, the
Company shall have the right at any time during the term of this
Security, from time to time, to defer the payment of interest on
such Security for up to 20 consecutive quarters with respect to
each deferral period (each an "Extension Period"), during which
Extension Periods the Company shall have the right to make full
or partial payments of interest on any Interest Payment Date, and
at the end of which the Company shall pay all interest then
accrued and unpaid (together with Additional Interest thereon to
the extent permitted by applicable law); provided that during any
such Extension Period, the Company will not, and will not permit
any Subsidiary of the Company to (i) declare or pay any dividends
or distributions or redeem, purchase, acquire or make a
liquidation payment with respect to, any of the Company's
outstanding capital stock or (ii) make any payment of principal,
interest or premium, if any, on or repay, repurchase or redeem
any debt security that ranks pari passu with or junior in
interest to this Security or make any guarantee payments with
respect to the foregoing (other than (a) dividends or
distributions in Common Stock of the Company, and (b) payments
under the Company Guarantee). Prior to the termination of any
such Extension Period, the Company may further extend the
interest payment period, provided that no Extension Period shall
exceed 20 consecutive quarters or extend beyond the Maturity of
this Security. Upon the termination of any such Extension Period
and upon the payment of all accrued and unpaid interest and any
Additional Interest then due, the Company may elect to begin a
new Extension Period, subject to the above requirements. No
interest shall be due and payable during an Extension Period
except at the end thereof. The Company shall give the Holder of
this Security and the Trustee notice of its election to begin or
continue an Extension Period at least one Business Day prior to
the earlier of (i) the date the Distributions on the Preferred
Securities are payable or (ii) the date Atlantic Capital I is
required to give notice to any securities exchange, the Nasdaq
National Market or other applicable interdealer quotation system
or self-regulatory organization or to holders of such Preferred
Securities of the record date applicable to such Distributions or
the date such Distributions are payable, but in any event not
less than one Business Day prior to such record date. Payment of
the principal of (and premium, if any) and interest on this
Security will be made at the office or agency of the Company
maintained for that purpose in the City of New York, in such coin
or currency of the United States of America as at the time of
payment is legal tender for payment of public and private debts;
provided, however, that at the option of the Company payment of
interest may be made (i) by check mailed to the address of the
Person entitled thereto as such address shall appear in the
Securities Register or (ii) by wire transfer in immediately
available funds at such place and to such account as may be
designated by the Person entitled thereto as specified in the
Securities Register at the relevant Record Date.
The indebtedness evidenced by this Security is, to the
extent provided in the Indenture, subordinate and subject in
right of payments to the prior payment in full of all Senior
Debt, and this Security is issued subject to the provisions of
the Indenture with respect thereto. Each Holder of this
Security, by accepting the same, (a) agrees to and shall be bound
by such provisions, (b) authorizes and directs the Trustee on his
behalf to take such actions as may be necessary or appropriate to
effectuate the subordination so provided and (c) appoints the
Trustee his attorney-in-fact for any and all such purposes. Each
Holder hereof, by his acceptance hereof, waives all notice of the
acceptance of the subordination provisions contained herein and
in the Indenture by each holder of Senior Debt, whether now
outstanding or hereafter incurred, and waives reliance by each
such holder upon said provisions. Reference is hereby made to
the further provisions of this Security set forth on the reverse
hereof, which further provisions shall for all purposes have the
same effect as if set forth at this place. Unless the
certificate of authentication hereon has been executed by the
Trustee referred to on the reverse hereof by manual signature,
this Security shall not be entitled to any benefit under the
Indenture or be valid or obligatory for any purpose.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this
instrument to be duly executed under its corporate seal.
ATLANTIC CITY ELECTRIC COMPANY
By:
Name:
Title:
Attest:
Name:
Title:
Dated:
This is one of the Securities referred to in the within
mentioned Indenture.
THE BANK OF NEW YORK
as Trustee
By:
Authorized Signatory
SECTION 2.3. Form of Reverse of Security.
This Security is one of a duly authorized issue of
securities of the Company designated as its 8.25% Junior
Subordinated Deferrable Interest Debentures (herein called the
"Securities"), limited in aggregate principal amount to
$72,164,950, issued and to be issued under a Junior Subordinated
Indenture, dated as of October 1, 1996 (herein called the
"Indenture"), between the Company and The Bank of New York, as
Trustee (herein called the "Trustee", which term includes any
successor trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for
a statement of the respective rights, limitations of rights,
duties and immunities thereunder of the Trustee, the Company and
the Holders of the Securities, and of the terms upon which the
Securities are, and are to be, authenticated and delivered.
All terms used in this Security that are defined in the
Indenture or in the Amended and Restated Trust Agreement, dated
as of October 1, 1996 (the "Trust Agreement"), of Atlantic
Capital I among Atlantic City Electric Company, as Depositor, and
the Trustees named therein, shall have the meanings assigned to
them in the Indenture or the Trust Agreement, as the case may be.
On or after October 1, 2001, the Company may at any
time, at its option, subject to the terms and conditions of
Article XI of the Indenture, redeem this Security in whole at any
time or in part from time to time, without premium or penalty, at
a redemption price equal to 100% of the principal amount thereof
plus the accrued and unpaid interest, including Additional
Interest, if any, to the date fixed for redemption.
If a Special Event shall occur and be continuing, the
Company may, at its option, redeem this Security within 90 days
of the occurrence of such Special Event, in whole but not in
part, subject to the provisions of Section 11.7 and the other
provisions of Article XI of the Indenture. The redemption price
for this Security if so redeemed shall be equal to 100% of the
principal amount thereof plus accrued and unpaid interest,
including Additional Interest, if any, to the date fixed for
redemption.
In the event of redemption of this Security in part
only, a new Security or Securities for the unredeemed portion
hereof will be issued in the name of the Holder hereof upon the
cancellation hereof.
If an Event of Default, as defined in the Indenture,
shall occur and be continuing, the principal of the Securities
may be declared due and payable in the manner, with the effect
and subject to the conditions provided in the Indenture.
The Indenture contains provisions for satisfaction,
discharge and defeasance at any time of the entire indebtedness
of this Security upon compliance by the Company with certain
conditions set forth in the Indenture.
The Indenture permits, with certain exceptions as
therein provided, the Company and the Trustee at any time to
enter into a supplemental indenture or indentures for the purpose
of modifying in any manner the rights and obligations of the
Company and of the Holders of the Securities, with the consent of
the Holders of not less than a majority in principal amount of
the Outstanding Securities of each series to be affected by such
supplemental indenture. The Indenture also contains provisions
permitting Holders of specified percentages in principal amount
of the Securities at the time Outstanding, on behalf of the
Holders of all Securities, to waive certain past defaults under
the Indenture and their consequences. Any such consent or waiver
by the Holder of this Security shall be conclusive and binding
upon such Holder and upon all future Holders of this Security and
of any Security issued upon the registration of transfer hereof
or in exchange herefor or in lieu hereof, whether or not notation
of such consent or waiver is made upon this Security.
As provided in and subject to the provisions of the
Indenture, if an Event of Default occurs and is continuing, then
and in every such case the Trustee or the Holders of not less
than 25% in principal amount of the Outstanding Securities may
declare the principal amount of all the Securities to be due and
payable immediately, by a notice in writing to the Company (and
to the Trustee if given by Holders), provided that, if upon an
Event of Default, the Trustee or the Holders of not less than 25%
in principal amount of the Outstanding Securities fail to declare
the principal of all the Securities to be immediately due and
payable, the holders of at least 25% in aggregate liquidation
amount of Preferred Securities then outstanding shall have such
right by a notice in writing to the Company and the Trustee; and
upon any such declaration such principal amount (or specified
amount) of and the accrued interest (including any Additional
Interest) on all the Securities shall become immediately due and
payable, provided that the payment of principal and interest
(including any Additional Interest) on such Securities shall
remain subordinated to the extent provided in Article Twelve of
the Indenture.
No reference herein to the Indenture and no provision
of this Security or of the Indenture shall alter or impair the
obligation of the Company, which is absolute and unconditional,
to pay the principal of (and premium, if any) and interest on
this Security at the times, place and rate, and in the coin or
currency, herein prescribed.
As provided in the Indenture and subject to certain
limitations therein set forth, the transfer of this Security is
registrable in the Securities Register, upon surrender of this
Security for registration of transfer at the office or agency of
the Company in the City of New York maintained for such purpose,
duly endorsed by, or accompanied by a written instrument of
transfer in form satisfactory to the Company and the Securities
Registrar duly executed by, the Holder hereof or his attorney
duly authorized in writing, and thereupon one or more new
Securities, of authorized denominations and for the same
aggregate principal amount, will be issued to the designated
transferee or transferees. The Securities of this series are
issuable only in registered form without coupons in denominations
of $25 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein set forth,
Securities are exchangeable for a like aggregate principal
amount of Securities of such series of a different authorized
denomination, as requested by the Holder surrendering the same.
No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge
payable in connection therewith.
Prior to due presentment of this Security for
registration of transfer, the Company, the Trustee and any agent
of the Company or the Trustee may treat the Person in whose name
this Security is registered as the owner hereof for the purpose
of receiving payment as herein provided and for all other
purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by
notice to the contrary.
The Company and, by its acceptance of this Security or
a beneficial interest therein, the Holder of, and any Person that
acquires a beneficial interest in, this Security agree that for
United States federal, state and local tax purposes it is
intended that this Security constitute indebtedness.
THE INDENTURE AND THIS SECURITY SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW
YORK WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
SECTION 2.4. Additional Provisions Required in Global
Security.
Any Global Security issued hereunder shall, in addition
to the provisions contained in Sections 2.2 and 2.3 bear a legend
in substantially the following form:
"This Security is a Global Security within the meaning
of the Indenture hereinafter referred to and is registered
in the name of a Depositary or a nominee of a Depositary.
This Security is exchangeable for Securities registered in
the name of a person other than the Depositary or its
nominee only in the limited circumstances described in the
Indenture and may not be transferred except as a whole by
the Depositary to a nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another
nominee of the Depositary."
SECTION 2.5. Form of Trustee's Certificate of
Authentication.
This is one of the Securities referred to in the
within-mentioned Indenture.
as Trustee
By:
Authorized Signatory
ARTICLE III
THE SECURITIES
SECTION 3.1. Title and Terms. The principal amount of
the Securities Outstanding (together with any accrued and unpaid
interest (including any Additional Interest, to the extent
permitted by law) thereon) shall be payable in a single
installment on October 1, 2026; provided, that the Company may
(i) change the maturity date upon the occurrence of an exchange
of the Securities for the Preferred Securities subject to certain
conditions set forth in Section 3.13, which changed maturity date
shall in no case be earlier than October 1, 2001 or later than
October 1, 2045 and (ii) extend the maturity date subject to
certain conditions specified in Section 3.13, which extended
maturity date shall in no case be later than October 1, 2045.
The rate of interest on each Security shall be 8.25%
per annum, accruing from October 1, 1996 and, subject to the next
paragraph, interest shall be payable, quarterly in arrears, on
March 31, June 30, September 30 and December 31 of each year
(each such date, an "Interest Payment Date"), commencing December
31, 1996. The rate of any Additional Interest that shall accrue
on each Security shall be at the same rate per annum. The amount
of interest payable on December 31, 1996 shall be computed on the
basis of 89 days in a 360-day year. The amount of interest
payable for any period thereafter shall be computed on the basis
of a 360-day year of twelve 30-day months. In the event that any
date on which interest is payable on a Security is not a Business
Day, then a payment of the interest payable on such date will be
made on the next succeeding day which is a Business Day (and
without any interest or other payment in respect of any such
delay), except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same
force and effect as if made on the date such payment was
originally payable. The interest installment so payable (other
than interest payable on a Redemption Date or the maturity date),
and punctually paid or duly provided for, on any Interest Payment
Date shall be paid to the Person in whose name such Security (or
one or more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest
installment, which, if such Security is a Global Security issued
to the Depositary, shall be the close of business on the Business
Day next preceding such Interest Payment Date. The interest so
payable on any Security which is not punctually paid or duly
provided for on any Interest Payment Date shall forthwith cease
to be payable to the Holder on such Regular Record Date and may
either be paid to the Person in whose name such Security (or one
or more Predecessor Securities) is registered at the close of
business on a Special Record Date for the payment of such
Defaulted Interest to be fixed by the Trustee, notice whereof
shall be given to Holders of Securities not less than 10 days
prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any
securities exchange, the Nasdaq National Market or other
applicable interdealer quotation system or self-regulatory
organization on which the Securities may be listed, and upon such
notice as may be required by such exchange or other
self-regulatory organization, all as more fully provided in
Section 3.7.
So long as no Event of Default has occurred and is
continuing, the Company shall have the right, at any time during
the term of the Securities, from time to time, to defer the
payment of interest on the Securities for up to 20 consecutive
quarters with respect to each deferred period (each, an
"Extension Period"), during which Extension Periods the Company
shall have the right to make full or partial payments of interest
on any Interest Payment Date. At the end of any such Extension
Period the Company shall pay all interest then accrued and unpaid
on the Securities (together with Additional Interest thereon at
the annual rate of 8.25%, compounded quarterly, to the extent
permitted by applicable law), provided, that during any such
Extension Period, the Company will not, and will not permit any
Subsidiary of the Company to (i) declare or pay any dividends or
distributions or redeem, purchase, acquire or make a liquidation
payment with respect to, any of the Company's outstanding capital
stock or (ii) make any payment of principal, interest or premium,
if any, on or repay, repurchase or redeem any debt security that
ranks pari passu with or junior in interest to the Securities or
make any guarantee payments with respect to the foregoing (other
than (a) dividends or distributions in Common Stock of the
Company, and (b) payments under the Company Guarantee. Prior to
the termination of any such Extension Period, the Company may
further extend the interest payment period, provided that no
Extension Period shall exceed 20 consecutive quarters or extend
beyond the Maturity of the Securities. Upon termination of any
such Extension Period and upon the payment of all accrued and
unpaid interest and any Additional Interest then due, the Company
may elect to begin a new Extension Period, subject to the above
requirements. No interest shall be due and payable during an
Extension Period, except at the end thereof. The Company shall
give the Holders of the Securities and the Property Trustee, the
Administrative Trustees and the Trustee notice of its election to
begin or continue any such Extension Period at least one Business
Day prior to the earlier of (i) the date the Distributions on the
Preferred Securities are payable or (ii) the date Atlantic
Capital I is required to give notice to any securities exchange,
the Nasdaq National Market or other applicable interdealer
quotation system or self-regulatory organization or to holders of
such Preferred Securities of the record date applicable to such
Distributions or the date such Distributions are payable, but in
any event not less than one Business Day prior to such record
date. The Trustee shall promptly give notice of the Company's
election to begin or continue any such Extension Period to the
holders of the outstanding Preferred Securities.
The Place of Payment where the Securities may be
presented or surrendered for payment, where the Securities may be
surrendered for registration of transfer or exchange and where
notices and demands to or upon the Company in respect of the
Securities and the Indenture may be served shall be the Corporate
Trust Office of the Trustee.
At any time on or after October 1, 2001, the Company
may, at its option, subject to the terms and conditions of
Article Eleven of the Indenture, redeem the Securities in whole
at any time or in part from time to time, without premium or
penalty, at a redemption price equal to 100% of the principal
amount thereof plus the accrued and unpaid interest, including
Additional Interest, if any, to the date fixed for redemption.
If a Special Event shall occur and be continuing, the Company
may, at its option, redeem the Securities within 90 days of the
occurrence of such Special Event, in whole but not in part,
subject to the provisions of Article Eleven of the Indenture.
The redemption price for any Security so redeemed shall be equal
to 100% of the principal amount thereof plus accrued and unpaid
interest, including Additional Interest, if any, to the date
fixed for redemption.
At any time, the Company may terminate Atlantic Capital
I and cause the Securities to be distributed to Holders of the
Trust Securities in liquidation of Atlantic Capital I.
Principal and interest on the Securities shall be
payable in Dollars.
The Trustee shall initially serve as Securities
Registrar and Paying Agent.
The Company has no obligation to redeem or purchase any
Securities pursuant to any sinking fund or analogous requirement
or upon the happening of a specified event or at the option of a
Holder thereof.
SECTION 3.2. Denominations.
The Securities shall be in registered form without
coupons and shall be issuable in denominations of $25 and any
integral multiple thereof.
<PAGE>
SECTION 3.3. Execution, Authentication, Delivery and
Dating.
The Securities shall be executed on behalf of the
Company by its President or one of its Vice Presidents under its
corporate seal reproduced or impressed thereon and attested by
its Secretary or one of its Assistant Secretaries. The signature
of any of these officers on the Securities may be manual or
facsimile.
Securities bearing the manual or facsimile signatures
of individuals who were at any time the proper officers of the
Company shall bind the Company, notwithstanding that such
individuals or any of them have ceased to hold such offices prior
to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities. At any time
and from time to time after the execution and delivery of this
Indenture, the Company may deliver Securities executed by the
Company to the Trustee for authentication, together with a
Company order for the authentication and delivery of such
Securities; and the Trustee in accordance with such Company Order
shall authenticate and deliver such Securities as in this
Indenture provided and not otherwise.
Each Security shall be dated the date of its
authentication.
No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose, unless there
appears on such Security a certificate of authentication
substantially in the form provided for herein executed by the
Trustee by the manual signature of one of its authorized officers
or signatories, and such certificate upon any Security shall be
conclusive evidence, and the only evidence, that such Security
has been duly authenticated and delivered hereunder.
SECTION 3.4. Temporary Securities.
Pending the preparation of definitive Securities, the
Company may execute, and upon Company Order the Trustee shall
authenticate and deliver, temporary Securities which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in
any denomination, substantially of the tenor of the definitive
Securities in lieu of which they are issued and with such
appropriate insertions, omissions, substitutions and other
variations as the officers executing such Securities may
determine, as evidenced by their execution of such Securities.
If temporary Securities are issued, the Company will
cause definitive Securities to be prepared without unreasonable
delay. After the preparation of definitive Securities, the
temporary Securities shall be exchangeable for definitive
Securities upon surrender of the temporary Securities at the
office or agency of the Company in a Place of Payment without
charge to the Holder. Upon surrender for cancellation of any one
or more temporary Securities, the Company shall execute and the
Trustee shall authenticate and deliver in exchange therefor a
like principal amount of definitive Securities of authorized
denominations. Until so exchanged, the temporary Securities
shall in all respects be entitled to the same benefits under this
Indenture as definitive Securities.
SECTION 3.5. Registration, Transfer and Exchange.
The Company shall cause to be kept at the Corporate
Trust Office of the Trustee a register in which, subject to such
reasonable regulations as it may prescribe, the Company shall
provide for the registration of Securities and of transfers of
Securities. Such register is herein sometimes referred to as the
"Securities Register." The Trustee is hereby appointed
"Securities Registrar" for the purpose of registering Securities
and transfers of Securities as herein provided.
Upon surrender for registration of transfer of any
Security at the office or agency of the Company in a Place of
Payment designated for that purpose the Company shall execute,
and the Trustee shall authenticate and deliver, in the name of
the designated transferee or transferees, one or more new
Securities of any authorized denominations, of a like aggregate
principal amount.
At the option of the Holder, Securities may be
exchanged for other Securities of any authorized denominations,
of a like aggregate principal amount, upon surrender of the
Securities to be exchanged at such office or agency. Whenever
any securities are so surrendered for exchange, the Company shall
execute, and the Trustee shall authenticate and deliver, the
Securities which the Holder making the exchange is entitled to
receive.
All Securities issued upon any transfer or exchange of
Securities shall be the valid obligations of the Company,
evidencing the same debt, and entitled to the same benefits under
this Indenture, as the Securities surrendered upon such transfer
or exchange.
Every Security presented or surrendered for transfer or
exchange shall (if so required by the Company or the Securities
Registrar) be duly endorsed, or be accompanied by a written
instrument of transfer in form satisfactory to the Company and
the Securities Registrar, duly executed by the Holder thereof or
his attorney duly authorized in writing.
No service charge shall be made to a Holder for any
transfer or exchange of Securities, but the Company may require
payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any
transfer or exchange of Securities.
Notwithstanding any of the foregoing, any Global
Security shall be exchangeable pursuant to this Section 3.5 for
Securities registered in the names of Persons other than the
Depositary for such Security or its nominee only if (i) such
Depositary notifies the Company that it is unwilling or unable to
continue as Depositary for such Global Security or if at any time
such Depositary ceases to be a clearing agency registered under
the Securities Exchange Act of 1934, as amended, (ii) the Company
executes and delivers to the Trustee a Company Order that such
Global Security shall be so exchangeable or (iii) there shall
have occurred and be continuing an Event of Default with respect
to the Securities of such series. Any Global Security that is
exchangeable pursuant to the preceding sentence shall be
exchangeable for definitive certificates registered in such names
as such Depositary shall direct.
Notwithstanding any other provision in this Indenture,
a Global Security may not be transferred except as a whole by the
Depositary with respect to such Global Security to a nominee of
such Depositary or by a nominee of such Depositary to such
Depositary or another nominee of such Depositary.
Neither the Company nor the Trustee shall be required
(a) to issue, transfer or exchange any Security during a period
beginning at the opening of business 15 days before the day of
the mailing of a notice of redemption of Securities selected for
redemption of Securities pursuant to Article Eleven and ending at
the close of business on the day of mailing of said notice of
redemption or (b) to transfer or exchange any Security so
selected for redemption in whole or in part, except, in the case
of any Security to be redeemed in part, any portion thereof not
to be redeemed.
SECTION 3.6. Mutilated, Destroyed, Lost and Stolen
Securities.
If any mutilated Security is surrendered to the Trustee
together with such security or indemnity as may be required by
the Company or the Trustee to save each of them harmless, the
Company shall execute and the Trustee shall authenticate and
deliver in exchange therefor a new Security of like tenor and
principal amount, Security, and bearing a number not
contemporaneously outstanding.
If there shall be delivered to the Company and to the
Trustee (i) evidence to their satisfaction of the destruction,
loss or theft of any Security, and (ii) such security or
indemnity as may be required by them to save each of them
harmless, then, in the absence of notice to the Company or the
Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and upon its request the
Trustee shall authenticate and deliver, in lieu of any such
destroyed, lost or stolen Security, a new Security of like tenor
and principal amount, and bearing a number not contemporaneously
outstanding.
In case any such mutilated, destroyed, lost or stolen
Security has become or is about to become due and payable, the
Company in its discretion may, instead of issuing a new Security,
pay such Security.
Upon the issuance of any new Security under this
Section, the Company may require the payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed
in relation thereto and any other expenses (including the fees
and expenses of the Trustee) connected therewith.
Every new Security issued pursuant to this Section in
lieu of any destroyed, lost or stolen Security shall constitute
an original additional contractual obligation of the Company,
whether or not the destroyed, lost or stolen Security shall be at
any time enforceable by anyone, and shall be entitled to all the
benefits of this Indenture equally and proportionately with any
and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies
with respect to the replacement or payment of mutilated,
destroyed, lost or stolen Securities.
SECTION 3.7. Payment of Interest; Interest Rights
Preserved.
Interest on any Security which is payable, and is
punctually paid or duly provided for, on any Interest Payment
Date, shall be paid to the Person in whose name that Security (or
one or more Predecessor Securities) is registered at the close of
business on the Regular Record Date for such interest, except
that interest payable on the Stated Maturity or the Redemption
Date of a Security shall be paid to the Person to whom principal
is paid. The initial payment of interest on any Security which
is issued between a Regular Record Date and the related Interest
Payment Date shall be payable as provided in such Security.
Any interest on any Security which is payable, but is
not timely paid or duly provided for, on any Interest Payment
Date (herein called "Defaulted Interest"), shall forthwith cease
to be payable to the registered Holder on the relevant Regular
Record Date by virtue of having been such Holder, and such
Defaulted Interest may be paid by the Company, at its election in
each case, as provided in Clause (1) or (2) below:
(1) The Company may elect to make payment of any
Defaulted Interest to the Persons in whose names the
Securities in respect of which interest is in default (or
their respective Predecessor Securities) are registered at
the close of business on a Special Record Date for the
payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee
in writing of the amount of Defaulted Interest proposed to
be paid on each Security and the date of the proposed
payment, and at the same time the Company shall deposit with
the Trustee an amount of money equal to the aggregate amount
proposed to be paid in respect of such Defaulted Interest or
shall make arrangements satisfactory to the Trustee for such
deposit prior to the date of the proposed payment, such
money when deposited to be held in trust for the benefit of
the Persons entitled to such Defaulted Interest as in this
Clause provided. Thereupon the Trustee shall fix a Special
Record Date for the payment of such Defaulted Interest which
shall be not more than 15 days and not less than 10 days
prior to the date of the proposed payment and not less than
10 days after the receipt by the Trustee of the notice of
the proposed payment. The Trustee shall promptly notify the
Company of such Special Record Date and, in the name and at
the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the Special
Record Date therefor to be mailed, first class, postage
prepaid, to each Holder at the address of such Holder as it
appears in the Securities Register not less than 10 days
prior to such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record
Date therefor having been mailed as aforesaid, such
Defaulted Interest shall be paid to the Persons in whose
names the Securities (or their respective Predecessor
Securities) are registered on such Special Record Date and
shall no longer be payable pursuant to the following Clause
(2).
(2) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with
the requirements of any securities exchange, the Nasdaq
National Market or other applicable interdealer quotation
system or self-regulatory organization on which the
Securities in respect of which interest is in default may be
listed or traded and, upon such notice as may be required by
such exchange or other self-regulatory organization (or by
the Trustee if the Securities are not listed or traded), if,
after notice given by the Company to the Trustee of the
proposed payment pursuant to this Clause, such payment shall
be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section,
each Security delivered under this Indenture upon transfer of or
in exchange for or in lieu of any other Security shall carry the
rights to interest accrued and unpaid, and to accrue, which were
carried by such other Security.
SECTION 3.8. Persons Deemed Owners.
The Company, the Trustee and any agent of the Company
or the Trustee may treat the Person in whose name any Security is
registered as the owner of such Security for the purpose of
receiving payment of principal of and (subject to Section 3.7)
interest on such Security and for all other purposes whatsoever,
whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be
affected by notice to the contrary.
SECTION 3.9. Cancellation.
All Securities surrendered for payment, redemption,
transfer or exchange shall, if surrendered to any Person other
than the Trustee, be delivered to the Trustee, and any such
Securities and Securities surrendered directly to the Trustee for
any such purpose shall be promptly canceled by it. The Company
may at any time deliver to the Trustee for cancellation any
Securities previously authenticated and delivered hereunder which
the Company may have acquired in any manner whatsoever, and all
Securities so delivered shall be promptly canceled by the
Trustee. No Securities shall be authenticated in lieu of or in
exchange for any Securities canceled as provided in this Section,
except as expressly permitted by this Indenture. All canceled
Securities shall be disposed of as directed by a Company Order;
provided, however, that the Trustee shall not be required to
destroy the certificate or certificates representing any of such
canceled Securities.
SECTION 3.10. Computation of Interest.
Interest on the Securities for any period shall be
computed on the basis of a 360-day year of twelve 30-day months.
<PAGE>
SECTION 3.11. Right of Set-Off.
With respect to Securities which at the time of
determination are registered in the Securities Register in the
name of Atlantic Capital I (or the Property Trustee),
notwithstanding anything to the contrary in this Indenture, the
Company shall have the right to set-off any payment it is
otherwise required to make hereunder in respect of such
Securities to the extent the Company has theretofore made, or is
concurrently on the date of such payment making, a payment under
the Company Guarantee.
SECTION 3.12. Agreed Tax Treatment.
Each Security issued hereunder shall provide that the
Company and, by its acceptance of a Security or a beneficial
interest therein, the Holder of, and any Person that acquires a
beneficial interest in, such Security agree that for United
States federal, state and local tax purposes it is intended that
such Security constitute indebtedness.
SECTION 3.13. Change or Extension of Stated Maturity;
Adjustment of Stated Maturity Upon an Exchange.
The Company shall have the right to (a) change the
Stated Maturity of principal of the Securities upon the
liquidation of Atlantic Capital I and the exchange of such
Securities for the Preferred Securities pursuant to Section 9.4
of the Trust Agreement and (b) extend the Stated Maturity of
principal of the Securities provided that at the time of any
election of such right to extend the Stated Maturity is made and
at the time of such extension (i) the Company is not in
bankruptcy, otherwise insolvent or in liquidation, (ii) the
Company is not in default in the payment of any interest or
principal on the Securities of such series and no deferred
interest payments thereon have accrued, (iii) Atlantic Capital I
is not in arrears on payments of Distributions on its Preferred
Securities and no deferred Distributions thereon are accumulated,
(iv) the Securities are rated not less than BBB by Standard &
Poor's or Baa3 by Moody's Investors Service, Inc. or the
equivalent by any other nationally recognized statistical rating
organization and (v) the extended Stated Maturity is no later
than the 49th anniversary of the date of the initial issuance of
the Preferred Securities; and provided, further, that, if the
Company exercises its right to liquidate Atlantic Capital I and
exchange the Securities for the Preferred Securities as specified
in clause (a) above, any changed Stated Maturity of the
Securities shall be (A) no earlier than the date five years after
the initial issuance of the Preferred Securities and (B) no later
than the date 30 years (plus an extended term of up to an
additional 19 years if the above-referenced conditions are
satisfied) after the date of the initial issuance of the
Preferred Securities. If the Company elects to change or extend
the Stated Maturity of the Securities in accordance herewith, the
Company shall give notice to Holders of the Securities, the
Property Trustee, Atlantic Capital I and the Trustee of such
change or extension at least 90 days before the Stated Maturity.
SECTION 3.14. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP"
numbers (if then generally in use), and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to
Holders; provided that any such notice may state that no
representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice
of a redemption and that reliance may be placed only on the other
identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of
such numbers.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 4.1. Satisfaction and Discharge of Indenture.
If at any time: (a) the Company shall have delivered to
the Trustee for cancellation all Securities of a series
theretofore authenticated (other than any Securities which shall
have been destroyed, lost or stolen and which shall have been
replaced or paid as provided in Section 3.6 and Securities for
whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereupon repaid
to the Company or discharged from such trust, as provided in
Section 10.3); or (b) the Company shall deposit or cause to be
deposited with the Trustee as trust funds (i) the entire amount
in monies or Government Obligations or (ii) a combination of
monies and Government Obligations, sufficient in the opinion of a
nationally recognized firm of independent public accountants
expressed in a written certification thereof delivered to the
Trustee, to pay at maturity or upon redemption under arrangements
satisfactory to the Trustee for the giving of notice of
redemption, all Securities not theretofore delivered to the
Trustee for cancellation, including principal (and premium, if
any) and interest due or to become due to their date of maturity
or date fixed for redemption, as the case may be, and if such
deposit shall be made prior to the stated maturity date of the
Securities, the Company shall have delivered to the Trustee an
Officer's Certificate and an Opinion of Counsel each to the
effect that all conditions precedent herein provided for relating
to the satisfaction and discharge of this Indenture have been
complied with, an Opinion of Counsel to the effect that the
holders of Securities will not recognize gain, loss or income for
federal income tax purposes as a result of the satisfaction and
discharge of this Indenture and such holders will be subject to
federal income taxation on the same amounts and in the same
manner and at the same times as if such satisfaction and
discharge had not occurred, and if the Company shall also pay or
cause to be paid all other sums payable hereunder by the Company,
then this Indenture shall thereupon cease to be of further effect
except for the provisions of Sections 3.5, 3.6, 6.10 and 10.2
which shall survive until the date of maturity or redemption
date, as the case may be, and Sections 6.7 and 10.3 which shall
survive to such date and thereafter, and the Trustee, on demand
of the Company and at the cost and expense of the Company, shall
execute proper instruments acknowledging satisfaction of and
discharging this Indenture with respect to such series.
SECTION 4.2. Application of Trust Money.
Subject to the provisions of the last paragraph of
Section 10.3, all money or Government Obligations deposited with
the Trustee pursuant to Section 4.1 shall be held in trust and
applied by the Trustee, in accordance with the provisions of the
Securities and this Indenture, to the payment, either directly or
through any Paying Agent (including the Company acting as its own
Paying Agent) as the Trustee may determine, to the Persons
entitled thereto, of the principal (and premium, if any) and
interest for the payment of which such money or obligations have
been deposited with or received by the Trustee; provided,
however, such moneys or Government Obligations need not be
segregated from other funds except to the extent required by law.
ARTICLE V
REMEDIES
SECTION 5.1. Events of Default.
"Event of Default" means any one of the following
events (whatever the reason for such Event of Default and whether
it shall be voluntary or involuntary or be effected by operation
of law or pursuant to any judgment, decree or order of any court
or any order, rule or regulation of any administrative or
governmental body):
(1) default in the payment of any interest upon any
Security, including any Additional Interest in respect
thereof, when it becomes due and payable, and continuance of
such default for a period of 30 days (subject to the
deferral of any due date in the case of an Extension
Period); or
(2) default in the payment of the principal of (or
premium, if any, on) any Security at its Maturity, provided,
however, that an extension of the maturity of the Securities
in accordance with the terms of the Indenture shall not
constitute an Event of Default; or
(3) default in the performance, or breach, in any
material respect, of any covenant or warranty of the Company
in this Indenture (other than a covenant or warranty a
default in the performance of which or the breach of which
is elsewhere in this Section specifically dealt with), and
continuance of such default or breach for a period of 90
days after there has been given, by registered or certified
mail, to the Company by the Trustee or to the Company and
the Trustee by the Holders of at least 25% in principal
amount of the Outstanding Securities a written notice
specifying such default or breach and requiring it to be
remedied; or
(4) the entry of a decree or order by a court having
jurisdiction in the premises adjudging the Company a
bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company under any
applicable federal or state bankruptcy, insolvency,
reorganization or other similar law, or appointing a
receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Company or of any substantial
part of its property or ordering the winding up or
liquidation of its affairs, and the continuance of any such
decree or order unstayed and in effect for a period of 60
consecutive days; or
(5) the institution by the Company of proceedings to
be adjudicated a bankrupt or insolvent, or the consent by it
to the institution of bankruptcy or insolvency proceedings
against it, or the filing by it of a petition or answer or
consent seeking reorganization or relief under any
applicable federal or state bankruptcy, insolvency,
reorganization or other similar law, or the consent by it to
the filing of any such petition or to the appointment of a
receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Company or of any substantial
part of its property, or the making by it of an assignment
for the benefit of creditors, or the admission by it in
writing of its inability to pay its debts generally as they
become due and its willingness to be adjudicated a bankrupt,
or the taking of corporate action by the Company in
furtherance of any such action.
SECTION 5.2. Acceleration of Maturity; Rescission and
Annulment.
If an Event of Default occurs and is continuing, then
and in every such case the Trustee or the Holders of not less
than 25% in principal amount of the Outstanding Securities may
declare the principal amount of all the Securities to be due and
payable immediately, by a notice in writing to the Company (and
to the Trustee if given by Holders), provided that, in the case
of Securities registered in the Securities Register in the name
of Atlantic Capital I (or the Property Trustee), if, upon an
Event of Default, the Trustee or the Holders of not less than 25%
in principal amount of the Outstanding Securities fail to declare
the principal of all the Securities to be immediately due and
payable, the holders of at least 25% in aggregate liquidation
amount of the Preferred Securities then outstanding shall have
such right by a notice in writing to the Company and the Trustee;
and upon any such declaration such principal amount (or specified
amount) of and the accrued interest (including any Additional
Interest) on all the Securities shall become immediately due and
payable, provided that the payment of principal and interest
(including any Additional Interest) on such Securities shall
remain subordinated to the extent provided in Article Thirteen.
At any time after such a declaration of acceleration
has been made and before a judgment or decree for payment of the
money due has been obtained by the Trustee as hereinafter in this
Article provided, the Holders of a majority in principal amount
of the Outstanding Securities, by written notice to the Company
and the Trustee, may rescind and annul such declaration and its
consequences if:
(1) the Company has paid or deposited with the Trustee
a sum sufficient to pay
(A) all overdue installments of interest
(including any Additional Interest, to the extent
permitted by law) on all Securities,
(B) the principal of (and premium, if any, on)
any Securities which have become due otherwise than by
such declaration of acceleration and interest thereon
at the rate borne by the Securities, and
(C) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents
and counsel; and
(2) all Events of Default, other than the non-payment
of the principal of Securities which has become due solely
by such acceleration, have been cured or waived as provided
in Section 5.13.
The holders of a majority in aggregate outstanding
principal amount of the Securities may waive any past default,
except a default in the payment of principal or interest (unless
such default has been cured and a sum sufficient to pay all
matured installments of interest and principal due otherwise than
by acceleration has been deposited with the Trustee) or a default
in respect of a covenant or provision which under this Indenture
cannot be modified or amended without the consent of the holder
of each outstanding Security and, in the case of Securities
registered in the Securities Register in the name of Atlantic
Capital I (or the Property Trustee), should the holder of such
Securities fail to annul such declaration and waive such default,
the holders of a majority in aggregate liquidation preference of
the Preferred Securities shall have such right.
No such rescission shall affect any subsequent default
or impair any right consequent thereon.
Upon receipt by the Trustee of written notice declaring
such an acceleration, or rescission and annulment thereof, with
respect to Securities all or part of which are represented by a
Global Security, a record date shall be established for
determining Holders of Outstanding Securities entitled to join in
such notice, which record date shall be at the close of business
on the day the Trustee receives such notice. The Holders on such
record date, or their duly designated proxies, and only such
Persons, shall be entitled to join in such notice, whether or not
such Holders remain Holders after such record date; provided,
that, unless such declaration of acceleration, or rescission and
annulment, as the case may be, shall have become effective by
virtue of the requisite percentage having joined in such notice
prior to the day which is 90 days after such record date, such
notice of declaration of acceleration, or rescission and
annulment, as the case may be, shall automatically and without
further action by any Holder be canceled and of no further
effect. Nothing in this paragraph shall prevent a Holder, or a
proxy of a Holder, from giving, after expiration of such 90-day
period, a new written notice of declaration of acceleration, or
rescission and annulment thereof, as the case may be, that is
identical to a written notice which has been canceled pursuant to
the proviso to the preceding sentence, in which event a new
record date shall be established pursuant to the provisions of
this Section 5.2.
SECTION 5.3. Collection of Indebtedness and Suits for
Enforcement by Trustee.
The Company covenants that if:
(1) default is made in the payment of any installment
of interest (including any Additional Interest) on any
Security when such interest becomes due and payable and such
default continues for a period of 30 days, or
(2) default is made in the payment of the principal of
(and premium, if any, on) any Security at the Maturity
thereof.
The Company will, upon demand of the Trustee, pay to the Trustee,
for the benefit of the Holders of such Securities, the whole
amount then due and payable on such Securities for principal,
(and premium, if any) and interest (including any Additional
Interest, to the extent permitted by law); and, in addition
thereto, such further amount as shall be sufficient to cover the
costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon
such demand, the Trustee, in its own name and as trustee of an
express trust, may institute a judicial proceeding for the
collection of the sums so due and unpaid, and may prosecute such
proceeding to judgment or final decree, and may enforce the same
against the Company or any other obligor upon the Securities and
collect the moneys adjudged or decreed to be payable in the
manner provided by law out of the property of the Company or any
other obligor upon the Securities, wherever situated.
If an Event of Default occurs and is continuing, the
Trustee may in its discretion proceed to protect and enforce its
rights and the rights of the Holders by such appropriate judicial
proceedings as the Trustee shall deem most effectual to protect
and enforce any such rights, whether for the specific enforcement
of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other
proper remedy.
SECTION 5.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership,
insolvency, liquidation, bankruptcy, reorganization, arrangement,
adjustment, composition or other judicial proceeding relative to
the Company or any other obligor upon the Securities or the
property of the Company or of such other obligor or their
creditors,
(a) the Trustee (irrespective of whether the principal
of the Securities shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the
Company for the payment of overdue principal (and premium,
if any) or interest (including any Additional Interest))
shall be entitled and empowered, by intervention in such
proceeding or otherwise,
(i) to file and prove a claim for the whole
amount of principal (and premium, if any) and interest
(including any Additional Interest) owing and unpaid in
respect to the Securities and to file such other papers
or documents as may be necessary or advisable and to
take any and all actions as are authorized under the
Trust Indenture Act in order to have the claims of the
Trustee and any predecessor to the Trustee under
Section 6.7 and of the Holders allowed in any such
judicial proceedings; and
(ii) and in particular, the Trustee shall be
authorized to collect and receive any moneys or other
property payable or deliverable on any such claims and
to distribute the same in accordance with Section 5.6;
and
(b) any custodian, receiver, assignee, trustee,
liquidator, sequestrator (or other similar official) in any
such judicial proceeding is hereby authorized by each Holder
to make such payments to the Trustee for distribution in
accordance with Section 5.6, and in the event that the
Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount
due to it and any predecessor Trustee under Section 6.7.
Nothing herein contained shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on
behalf of any Holder any plan of reorganization, arrangement,
adjustment or composition affecting the Securities or the rights
of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding;
provided, however, that the Trustee may, on behalf of the
Holders, vote for the election of a trustee in bankruptcy or
similar official and be a member of a creditors' or other similar
committee.
SECTION 5.5. Trustee May Enforce Claim Without
Possession of Securities.
All rights of action and claims under this Indenture or
the Securities may be prosecuted and enforced by the Trustee
without the possession of any of the Securities or the production
thereof in any proceeding relating thereto, and any such
proceeding instituted by the Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment
shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee
and any predecessor Trustee and their agents and counsel, be for
the ratable benefit of the Holders of the Securities in respect
of which such judgment has been recovered.
SECTION 5.6. Application of Money Collected.
Any money or property collected or to be applied by the
Trustee pursuant to this Article shall be applied in the
following order, at the date or dates fixed by the Trustee and,
in case of the distribution of such money or property on account
of principal (or premium, if any) or interest (including any
Additional Interest), upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee
and any predecessor Trustee under Section 6.7;
SECOND: To the payment of the amounts then due and
unpaid upon Securities for principal (and premium, if any) and
interest (including any Additional Interest), in respect of which
or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to
the amounts due and payable on such Securities for principal (and
premium, if any) and interest (including any Additional
Interest), respectively; and
THIRD: The balance, if any, to the Person or Persons
entitled thereto.
SECTION 5.7. Limitation on Suits.
No Holder of any Securities shall have any right to
institute any proceeding, judicial or otherwise, with respect to
this Indenture or for the appointment of a receiver, assignee,
trustee, liquidator, sequestrator (or other similar official) or
for any other remedy hereunder, unless:
(1) such Holder has previously given written notice to
the Trustee of a continuing Event of Default;
(2) the Holders of not less than 25% in principal
amount of the Outstanding Securities shall have made written
request to the Trustee to institute proceedings in respect
of such Event of Default in its own name as Trustee
hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and
liabilities to be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such
notice, request and offer of indemnity has failed to
institute any such proceeding; and
(5) no direction inconsistent with such written
request has been given to the Trustee during such 60-day
period by the Holders of a majority in principal amount of
the Outstanding Securities;
it being understood and intended that no one or more Holders
shall have any right in any manner whatever by virtue of, or by
availing itself of, any provision of this Indenture to affect,
disturb or prejudice the rights of any other Holders of
Securities, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under
this Indenture, except in the manner herein provided and for the
equal and ratable benefit of all Holders. <PAGE>
SECTION 5.8. Unconditional Right of Holders to Receive
Principal, Premium and Interest.
Notwithstanding any other provision in this Indenture,
the Holder of any Security shall have the right which is absolute
and unconditional to receive payment of the principal of (and
premium, if any) and (subject to Section 3.7) interest (including
any Additional Interest, to the extent permitted by law) on such
Security on the respective Stated Maturities (or, in the case of
redemption, on the Redemption Date) and to institute suit for the
enforcement of any such payment, and such right shall not be
impaired without the consent of such Holder. In the case of
Securities which at the time of determination are registered in
the Securities Register in the name of Atlantic Capital I (or the
Property Trustee), any holder of the Preferred Securities shall
have the right set forth in the preceding sentence to institute a
proceeding directly for enforcement of payment of the principal
of (and premium, if any) and (subject to Section 3.7) interest
(including any Additional Interest) on any Security to such
holder of the principal amount of or interest on the Securities
having a principal amount equal to the aggregate liquidation
preference of the Preferred Securities held of record by such
Holder.
SECTION 5.9. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any
proceeding to enforce any right or remedy under this Indenture
and such proceeding has been discontinued or abandoned for any
reason, or has been determined adversely to the Trustee or to
such Holder, then and in every such case the Company, the Trustee
and the Holders shall, subject to any determination in such
proceeding, be restored severally and respectively to their
former positions hereunder, and thereafter all rights and
remedies of the Trustee and the Holders shall continue as though
no such proceeding had been instituted.
SECTION 5.10. Rights and Remedies Cumulative.
Except as otherwise provided in the last paragraph of
Section 3.6, no right or remedy herein conferred upon or reserved
to the Trustee or to the Holders is intended to be exclusive of
any other right or remedy, and every right and remedy shall, to
the extent permitted by law, be cumulative and in addition to
every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 5.11. Delay or Omission Not Waiver.
Except as otherwise provided in the last paragraph of
Section 3.6, no delay or omission of the Trustee or of any Holder
of any Security to exercise any right or remedy accruing upon any
Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an
acquiescence therein.
Every right and remedy given by this Article or by law
to the Trustee or to the Holders may be exercised from time to
time, and as often as may be deemed expedient, by the Trustee or
by the Holders, as the case may be.
SECTION 5.12. Control by Holders.
The Holders of a majority in principal amount of the
Outstanding Securities shall have the right to direct the time,
method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power
conferred on the Trustee, provided that:
(1) such direction shall not be in conflict with any
rule of law or with this Indenture,
(2) the Trustee may take any other action deemed
proper by the Trustee which is not inconsistent with such
direction, and
(3) subject to the provisions of Section 6.1, the
Trustee shall have the right to decline to follow such
direction if the Trustee in good faith shall, by a
Responsible Officer or Officers of the Trustee, determine
that the proceeding so directed would be unjustly
prejudicial to the Holders not joining in any such direction
or would involve the Trustee in personal liability.
Upon receipt by the Trustee of any written notice
directing the time, method or place of conducting any such
proceeding or exercising any such trust or power, with respect to
Securities all or part of which are represented by a Global
Security, a record date shall be established for determining
Holders of Outstanding Securities entitled to join in such
notice, which record date shall be at the close of business on
the day the Trustee receives such notice. The Holders on such
record date, or their duly designated proxies, and only such
Persons, shall be entitled to join in such notice, whether or not
such Holders remain Holders after such record date; provided,
that, unless the Holders of a majority in principal amount of the
Outstanding Securities shall have joined in such notice prior to
the day which is 90 days after such record date, such notice
shall automatically and without further action by any Holder be
canceled and of no further effect. Nothing in this paragraph
shall prevent a Holder, or a proxy of a Holder, from giving,
after expiration of such 90-day period, a new notice identical to
a notice which has been canceled pursuant to the proviso to the
preceding sentence, in which event a new record date shall be
established pursuant to the provisions of this Section 5.12.
SECTION 5.13. Waiver of Past Defaults.
The Holders of not less than a majority in principal
amount of the Outstanding Securities may on behalf of the Holders
of all the Securities waive any past default hereunder and its
consequences, except a default:
(1) in the payment of the principal of (or premium, if
any) or interest (including any Additional Interest) on any
Security, or
(2) in respect of a covenant or provision hereof which
under Article Nine cannot be modified or amended without the
consent of the Holder of each Outstanding Security affected.
Upon any such waiver, such default shall cease to
exist, and any Event of Default arising therefrom shall be deemed
to have been cured, for every purpose of this Indenture; but no
such waiver shall extend to any subsequent or other default or
impair any right consequent thereon.
SECTION 5.14. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of
any Security by his acceptance thereof shall be deemed to have
agreed, that any court may in its discretion require, in any suit
for the enforcement of any right or remedy under this Indenture,
or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in
such suit of an undertaking to pay the costs of such suit, and
that such court may in its discretion assess reasonable costs,
including reasonable attorneys' fees, against any party litigant
in such suit, having due regard to the merits and good faith of
the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted
by the Trustee, to any suit instituted by any Holder, or group of
Holders, holding in the aggregate more than 10% in principal
amount of the Outstanding Securities, or to any suit instituted
by any Holder for the enforcement of the payment of the principal
of (or premium, if any) or interest (including any Additional
Interest) on any Security on or after the respective Stated
Maturities expressed in such Securities (or in the case of
redemption on or after the Redemption Date).
SECTION 5.15. Waiver of Usury, Stay or Extension Laws.
The Company covenants (to the extent that it may
lawfully do so) that it will not at any time insist upon, or
plead, or in any manner whatsoever claim or take the benefit or
advantage of, any usury, stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the
covenants or the performance of this Indenture; and the Company
(to the extent that it may lawfully do so) hereby expressly
waives all benefit or advantage of any such law, and covenants
that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit
the execution of every such power as though no such law had been
enacted.
<PAGE>
ARTICLE VI
THE TRUSTEE
SECTION 6.1. Certain Duties and Responsibilities.
(a) Except during the continuance of an Event of
Default,
(1) the Trustee undertakes to perform such duties
and only such duties as are specifically set forth in this
Indenture, and no implied covenants or obligations shall be
read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this
Indenture; but in the case of any such certificates or
opinions which by any provisions hereof are specifically
required to be furnished to the Trustee, the Trustee shall
be under a duty to examine the same to determine whether or
not they conform to the requirements of this Indenture.
(b) In case an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture, and use the same degree of
care and skill in their exercise, as a prudent person would
exercise or use under the circumstances in the conduct of his own
affairs.
(c) No provision of this Indenture shall be construed
to relieve the Trustee from liability for its own negligent
action, its own negligent failure to act, or its own willful
misconduct except that
(1) this Subsection shall not be construed to limit
the effect of Subsection (a) of this Section;
(2) the Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer, unless
it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts;
(3) the Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith
in accordance with the direction of the Holders of a
majority in principal amount of the Outstanding Securities
relating to the time, method and place of conducting any
proceeding for any remedy available to the Trustee, or
exercising any trust or power conferred upon the Trustee,
under this Indenture; and
(4) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur
any financial liability in the performance of any of its
duties hereunder, or in the exercise of any of its rights or
powers, if there shall be reasonable grounds for believing
that repayment of such funds or adequate indemnity against
such risk or liability is not reasonably assured to it.
(d) Whether or not therein expressly so provided,
every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee
shall be subject to the provisions of this Section.
SECTION 6.2. Notice of Defaults.
Within 90 days after a Responsible Officer of the
Trustee obtains actual knowledge of the occurrence of any default
hereunder, the Trustee shall transmit by mail to all Holders, as
their names and addresses appear in the Securities Register,
notice of such default hereunder known to the Trustee, unless
such default shall have been cured or waived; provided, however,
that, except in the case of a default in the payment of the
principal of (or premium, if any) or interest (including any
Additional Interest) on any Security, the Trustee shall be
protected in withholding such notice if and so long as the board
of directors, the executive committee or a trust committee of
directors and/or Responsible Officers of the Trustee in good
faith determines that the withholding of such notice is in the
interests of the Holders; and provided, further, that, in the
case of any default of the character specified in Section 5.1(3),
no such notice to Holders of Securities shall be given until at
least 30 days after the occurrence thereof. For the purpose of
this Section, the term "default" means any event which is, or
after notice or lapse of time or both would become, an Event of
Default.
SECTION 6.3. Certain Rights of Trustee.
Subject to the provisions of Section 6.1:
(a) the Trustee may rely and shall be protected in
acting or refraining from acting upon any resolution,
certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, Security or
other paper or document believed by it to be genuine and to have
been signed or presented by the proper party or parties;
(b) any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or
Company Order and any resolution of the Board of Directors may be
sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture
the Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action
hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its
part, rely upon an Officers' Certificate;
(d) the Trustee may consult with counsel and the
advice of such counsel or any Opinion of Counsel shall be full
and complete authorization and protection in respect of any
action taken, suffered or omitted by it hereunder in good faith
and in reliance thereon;
(e) the Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
Indenture at the request or direction of any of the Holders
pursuant to this Indenture, unless such Holders shall have
offered to the Trustee reasonable security or indemnity against
the costs, expenses and liabilities which might be incurred by it
in compliance with such request or direction;
(f) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, indenture,
Security or other paper or document, but the Trustee in its
discretion may make such inquiry or investigation into such facts
or matters as it may see fit, and, if the Trustee shall determine
to make such inquiry or investigation, it shall be entitled to
examine the books, records and premises of the Company,
personally or by agent or attorney; and
(g) the Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly
or by or through agents or attorneys and the Trustee shall not be
responsible for any misconduct or negligence on the part of any
agent or attorney appointed with due care by it hereunder.
SECTION 6.4. Not Responsible for Recitals or Issuance
of Securities.
The recitals contained herein and in the Securities,
except the Trustee's certificates of authentication, shall be
taken as the statements of the Company, and the Trustee assumes
no responsibility for their correctness. The Trustee makes no
representations as to the validity or sufficiency of this
Indenture or of the Securities. The Trustee shall not be
accountable for the use or application by the Company of the
Securities or the proceeds thereof.
SECTION 6.5. May Hold Securities.
The Trustee, any Paying Agent, Securities Registrar or
any other agent of the Company, in its individual or any other
capacity, may become the owner or pledgee of Securities and,
subject to Sections 6.8 and 6.13, may otherwise deal with the
Company with the same rights it would have if it were not
Trustee, Paying Agent, Securities Registrar or such other agent.
SECTION 6.6. Money Held in Trust.
Money held by the Trustee in trust hereunder need not
be segregated from other funds except to the extent required by
law. The Trustee shall be under no liability for interest on any
money received by it hereunder except as otherwise agreed with
the Company.
SECTION 6.7. Compensation and Reimbursement.
The Company agrees
(1) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder in
such amounts as the Company and the Trustee shall agree from
time to time (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee
of an express trust);
(2) to reimburse the Trustee upon its request for all
reasonable expenses, disbursements and advances incurred or
made by the Trustee in accordance with any provision of this
Indenture (including the reasonable compensation and the
expenses and disbursements of its agents and counsel),
except any such expense, disbursement or advance as may be
attributable to its negligence or bad faith; and
(3) to indemnify the Trustee for, and to hold it
harmless against, any loss, liability or expense (including
the reasonable compensation and the expenses and
disbursements of its agents and counsel) incurred without
negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of this
trust or the performance of its duties hereunder, including
the costs and expenses of defending itself against any claim
or liability in connection with the exercise or performance
of any of its powers or duties hereunder. This
indemnification shall survive the termination of this
Agreement.
To secure the Company's payment obligations in this
Section, the Company and the Holders agree that the Trustee shall
have a lien prior to the Securities on all money or property held
or collected by the Trustee. Such lien shall survive the
satisfaction and discharge of this Indenture. When the Trustee
incurs expenses or renders services after an Event of Default
specified in Section 5.1(4) or (5) occurs, the expenses and the
compensation for the services are intended to constitute expenses
of administration under any Bankruptcy Reform Act of 1978 or a
successor statute.
SECTION 6.8. Disqualification; Conflicting Interests.
The Trustee shall be subject to the provisions of
Section 310(b) of the Trust Indenture Act. Nothing herein shall
prevent the Trustee from filing with the Commission the
application referred to in the second to last paragraph of
Section 310(b) of the Trust Indenture Act.
SECTION 6.9. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which
shall be
(a) a corporation organized and doing business under
the laws of the United States of America or of any State,
Territory or the District of Columbia, authorized under such
laws to exercise corporate trust powers and subject to
supervision or examination by federal, state, territorial or
District of Columbia authority, or
(b) a corporation or other Person organized and doing
business under the laws of a foreign government that is
permitted to act as Trustee pursuant to a rule, regulation
or order of the Commission, authorized under such laws to
exercise corporate trust powers, and subject to supervision
or examination by authority of such foreign government or a
political subdivision thereof substantially equivalent to
supervision or examination applicable to United States
institutional trustees,
in either case having a combined capital and surplus of at least
$50,000,000, subject to supervision or examination by federal or
state authority. If such corporation publishes reports of
condition at least annually, pursuant to law or to the
requirements of the aforesaid supervising or examining authority,
then, for the purpose of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of
condition so published. If at anytime the Trustee shall cease to
be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect
hereinafter specified in this Article. Neither the Company nor
any Person directly or indirectly controlling, controlled by or
under common control with the Company shall serve as Trustee for
the Securities.
SECTION 6.10. Resignation and Removal; Appointment of
Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall
become effective until the acceptance of appointment by the
successor Trustee under Section 6.11.
(b) The Trustee may resign at any time by giving
written notice thereof to the Company. If an instrument of
acceptance by a successor Trustee shall not have been delivered
to the Trustee within 30 days after the giving of such notice of
resignation, the resigning Trustee may petition any court of
competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by Act of
the Holders of a majority in principal amount of the Outstanding
Securities, delivered to the Trustee and to the Company.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 6.8
after written request therefor by the Company or by any
Holder who has been a bona fide Holder of a Security for at
least six months, or
(2) the Trustee shall cease to be eligible under
Section 6.9 and shall fail to resign after written request
therefor by the Company or by any such Holder, or
(3) the Trustee shall become incapable of acting or
shall be adjudged a bankrupt or insolvent or a receiver of
the Trustee or of its property shall be appointed or any
public officer shall take charge or control of the Trustee
or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, acting under authority
of a Board Resolution, may remove the Trustee, or (ii) subject to
Section 5.14, any Holder who has been a bona fide Holder of a
Security for at least six months may, on behalf of himself and
all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment
of a successor Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of
Trustee for any cause, the Company, by a Board Resolution, shall
promptly appoint a successor Trustee. If, within one year after
such resignation, removal or incapability, or the occurrence of
such vacancy, a successor Trustee shall be appointed by Act of
the Holders of a majority in principal amount of the Outstanding
Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its
acceptance of such appointment, become the successor Trustee and
supersede the successor Trustee appointed by the Company. If no
successor Trustee shall have been so appointed by the Company or
the Holders and accepted appointment in the manner hereinafter
provided, any Holder who has been a bona fide Holder of a
Security for at least six months may, subject to Section 5.14, on
behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the appointment of a
successor Trustee.
(f) The Company shall give notice of each resignation
and each removal of the Trustee and each appointment of a
successor Trustee by mailing written notice of such event by
first-class mail, postage prepaid, to the Holders of Securities
as their names and addresses appear in the Securities Register.
Each notice shall include the name of the successor Trustee and
the address of its Corporate Trust Office.
SECTION 6.11. Acceptance of Appointment by Successor.
(a) Every successor Trustee appointed hereunder shall
execute, acknowledge and deliver to the Company and to the
retiring Trustee an instrument accepting such appointment, and
thereupon the resignation or removal of the retiring Trustee
shall become effective and such successor Trustee, without any
further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but,
on the request of the Company or the successor Trustee, such
retiring Trustee shall, upon payment of its charges, execute and
deliver an instrument transferring to such successor Trustee all
the rights, powers and trusts of the retiring Trustee and shall
duly assign, transfer and deliver to such successor Trustee all
property and money held by such retiring Trustee hereunder
subject nevertheless to its lien provided for in Section 6.7.
(b) Upon request of any such successor Trustee, the
Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all
rights, powers and trusts referred to in paragraph (a) of this
Section.
(c) No successor Trustee shall accept its appointment
unless at the time of such acceptance such successor Trustee
shall be qualified and eligible under this Article.
SECTION 6.12. Merger, Conversion, Consolidation or
Succession to Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any
corporation resulting from any merger, conversion or
consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the
corporate trust business of the Trustee, shall be the successor
of the Trustee hereunder, provided such corporation shall be
otherwise qualified and eligible under this Article, without the
execution or filing of any paper or any further act on the part
of any of the parties hereto. In case any Securities shall have
been authenticated, but not delivered, by the Trustee then in
office, any successor by merger, conversion or consolidation to
such authenticating Trustee may adopt such authentication and
deliver the Securities so authenticated, and in case any
Securities shall not have been authenticated, any successor to
the Trustee may authenticate such Securities either in the name
of any predecessor Trustee or in the name of such successor
Trustee, and in all cases the certificate of authentication shall
have the full force which it is provided anywhere in the
Securities or in this Indenture that the certificate of the
Trustee shall have.
SECTION 6.13. Preferential Collection of Claims
Against Company.
If and when the Trustee shall be or become a creditor
of the Company(or any other obligor upon the Securities), the
Trustee shall be subject to the provisions of the Trust Indenture
Act regarding the collection of claims against the Company (or
any such other obligor).
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY
SECTION 7.1. Company to Furnish Trustee Names and
Addresses of Holders.
The Company will furnish or cause to be furnished to
the Trustee:
(a) semi-annually, not more than 15 days after January
15 and July 15, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the
Holders as of such January 1 and July 1, and
(b) at such other times as the Trustee may request in
writing, within 30 days after the receipt by the Company of
any such request, a list of similar form and content as of a
date not more than 15 days prior to the time such list is
furnished,
excluding from any such list names and addresses received by the
Trustee in its capacity as Securities Registrar.
SECTION 7.2. Preservation of Information,
Communications to Holders.
(a) The Trustee shall preserve, in as current a form
as is reasonably practicable, the names and addresses of Holders
contained in the most recent list furnished to the Trustee as
provided in Section 7.1 and the names and addresses of Holders
received by the Trustee in its capacity as Securities Registrar.
The Trustee may destroy any list furnished to it as provided in
Section 7.1 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other
Holders with respect to their rights under this Indenture or
under the Securities, and the corresponding rights and privileges
of the Trustee, shall be as provided in the Trust Indenture Act.
(c) Every Holder of Securities, by receiving and
holding the same, agrees with the Company and the Trustee that
neither the Company nor the Trustee nor any agent of either of
them shall be held accountable by reason of the disclosure of
information as to the names and addresses of the Holders made
pursuant to the Trust Indenture Act, regardless of the source
from which such information was derived, and that the Trustee
shall not be held accountable by reason of mailing any material
pursuant to a request made under Section 312(b) of the Trust
Indenture Act, or any successor section of such Act.
SECTION 7.3. Reports by Trustee.
(a) The Trustee shall transmit to Holders such reports
concerning the Trustee and its actions under this Indenture as
may be required pursuant to the Trust Indenture Act, at the times
and in the manner provided pursuant thereto.
(b) Reports so required to be transmitted at stated
intervals of not more than 12 months shall be dated as of July 1
in each calendar year and shall be transmitted no later than 60
days after each such July 1, commencing with the first July 1
after the first issuance of Securities under this Indenture.
(c) A copy of each such report shall, at the time of
such transmission to Holders, be filed by the Trustee with each
stock exchange or self-regulatory organization upon which the
Securities are listed or traded and also with the Commission.
The Company will notify the Trustee whenever the Securities are
listed or traded on any stock exchange or self-regulatory
organization.
SECTION 7.4. Reports by Company.
The Company shall file with the Trustee and with the
Commission, and transmit to Holders, such information, documents
and other reports, and such summaries thereof, as may be required
pursuant to the Trust Indenture Act at the times and in the
manner provided in the Trust Indenture Act; provided that any
such information, documents or reports required to be filed with
the Commission pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 shall be filed with the Trustee
within 15 days after the same is required to be filed with the
Commission. Notwithstanding that the Company may not be required
to remain subject to the reporting requirements of Section 13 or
15(d) of the Securities Exchange Act of 1934, the Company shall
continue to file with the Commission and provide the Trustee with
the annual reports and the information, documents and other
reports which are specified in Sections 13 and 15(d) of the
Securities Exchange Act of 1934. The Company also shall comply
with the other provisions of Trust Indenture Act Section 314(a).
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
SECTION 8.1. Company May Consolidate, Etc., Only on
Certain Terms.
The Company shall not consolidate with or merge into
any other Person or convey, transfer or lease its properties and
assets substantially as an entirety to any Person, unless:
(1) the Person formed by such consolidation or into
which the Company is merged or the Person which acquires by
conveyance or transfer, or which leases, the properties and
assets of the Company substantially as an entirety shall be
a corporation, partnership or trust, shall be organized and
existing under the laws of the United States of America or
any State or the District of Columbia, and shall expressly
assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the
Trustee, the due and punctual payment of the principal of
(and premium, if any) and interest (including any Additional
Interest) on all the Securities and the performance of every
covenant of this Indenture on the part of the Company to be
performed or observed;
(2) immediately after giving effect to such
transaction, no Event of Default, and no event which, after
notice or lapse of time, or both, would become an Event of
Default, shall have happened and be continuing;
(3) for so long as Securities registered on the
Securities Register in the name of Atlantic Capital I (or
the Property Trustee) are outstanding, such consolidation,
merger, conveyance, transfer or lease is permitted under the
Trust Agreement, and the Company Guarantee and does not give
rise to any breach or violation of the Trust Agreement or
the Company Guarantee;
(4) any such lease shall provide that it will remain
in effect so long as any Securities are Outstanding; and
(5) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each stating
that such consolidation, merger, conveyance, transfer or
lease and any such supplemental indenture complies with
this Article and that all conditions precedent herein
provided for relating to such transaction have been complied
with; and the Trustee, subject to Section 6.1, may rely upon
such Officers' Certificate and Opinion of Counsel as
conclusive evidence that such transaction complies with
this Section 8.1.
SECTION 8.2. Successor Person Substituted.
Upon any consolidation or merger by the Company with or
into any other Person, or any conveyance, transfer or lease by
the Company of its properties and assets substantially as an
entirety to any Person in accordance with Section 8.1, the
successor Person formed by such consolidation or into which the
Company is merged or to which such conveyance, transfer or lease
is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this
Indenture with the same effect as if such successor Person had
been named as the Company herein; and in the event of any
such conveyance, transfer or lease the Company shall be
discharged from all obligations and covenants under the Indenture
and the Securities and may be dissolved and liquidated.
Such successor Person may cause to be signed, and may
issue either in its own name or in the name of the Company, any
or all of the Securities issuable hereunder which theretofore
shall not have been signed by the Company and delivered to the
Trustee; and, upon the order of such successor Person instead of
the Company and subject to all the terms, conditions and
limitations in this Indenture prescribed, the Trustee shall
authenticate and shall deliver any Securities which previously
shall have been signed and delivered by the officers of the
Company to the Trustee for authentication pursuant to such
provisions and any Securities which such successor Person
thereafter shall cause to be signed and delivered to the Trustee
on its behalf for the purpose pursuant to such provisions. All
the Securities so issued shall in all respects have the same
legal rank and benefit under this Indenture as the Securities
theretofore or thereafter issued in accordance with the terms of
this Indenture as though all of such Securities had been issued
at the date of the execution hereof.
In case of any such consolidation, merger, sale,
conveyance or lease, such changes in phraseology and form may be
made in the Securities thereafter to be issued as may be
appropriate.
ARTICLE IX
SUPPLEMENTAL INDENTURES
SECTION 9.1. Supplemental Indentures Without Consent
of Holders.
Without the consent of any Holders, the Company, when
authorized by a Board Resolution, and the Trustee, at any time
and from time to time, may enter into one or more indentures
supplemental hereto, in form satisfactory to the Trustee, for any
of the following purposes:
(1) to evidence the succession of another Person to
the Company, and the assumption by any such successor of the
covenants of the Company herein and in the Securities
contained; or
(2) to convey, transfer, assign, mortgage or pledge
any property to or with the Trustee or to surrender any
right or power herein conferred upon the Company; or
(3) to add to the covenants of the Company for the
benefit of the Holders of Securities or to surrender any
right or power herein conferred upon the Company; or
(4) to add any additional Events of Default; or
(5) to cure any ambiguity, to correct or supplement
any provision herein which may be inconsistent with any
other provision herein, or to make any other provisions with
respect to matters or questions arising under this
Indenture, provided that such action pursuant to this clause
shall not materially adversely affect the interest of the
Holders of Securities or, for so long as any of the
Preferred Securities shall remain outstanding, the holders
of such Preferred Securities; or
(6) to comply with the requirements of the Commission
in order to maintain the qualification of this Indenture
under the Trust Indenture Act.
SECTION 9.2. Supplemental Indentures with Consent of
Holders.
With the consent of the Holders of not less than a
majority in principal amount of the Outstanding Securities by Act
of said Holders delivered to the Company and the Trustee, the
Company, when authorized by a Board Resolution, and the Trustee
may enter into an indenture or indentures supplemental hereto for
the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of this Indenture or of
modifying in any manner the rights of the Holders of Securities
under this Indenture; provided, however, that no such
supplemental indenture shall, without the consent of the Holder
of each Outstanding Security affected thereby,
(1) except to the extent permitted by Section 3.13
change the Stated Maturity of the principal of, or any
instalment of interest (including any Additional Interest)
on, any Security, or reduce the principal amount thereof or
the rate of interest thereon or reduce any premium payable
upon the redemption thereof, or change any Place of Payment
where, or the coin or currency in which, any Security or
interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or
after the Stated Maturity thereof (or, in the case of
redemption, on or after the Redemption Date thereof), or
(2) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is
required for any such supplemental indenture, or the consent
of whose Holders is required for any waiver (of compliance
with certain provisions of this Indenture or certain
defaults hereunder and their consequences) provided for in
this Indenture, or
(3) modify any of the provisions of this Section,
Section 5.13 or Section 10.5, except to increase any such
percentage or to provide that certain other provisions of
this Indenture cannot be modified or waived without the
consent of the Holder of each Security affected thereby; or
(4) modify the provisions in Article XII of this
Indenture with respect to the subordination of Outstanding
Securities in a manner adverse to the Holders thereof;
provided that, so long as any of the Preferred Securities remains
outstanding, no such amendment shall be made that adversely
affects the holders of such Preferred Securities in any material
respect, and no termination of this Indenture shall occur, and no
waiver of any Event of Default or compliance with any covenant
under this Indenture shall be effective, without the prior
consent of the holders of at least a majority of the aggregate
liquidation preference of such Preferred Securities then
outstanding unless and until the principal (and premium, if any)
of the Securities and all accrued and unpaid interest (including
any Additional Interest) thereon have been paid in full; and
provided, further that, so long as any of the Preferred
Securities remains outstanding, no amendment shall be made to
Section 5.8 under this Indenture without the prior consent of the
holders of each Preferred Security then outstanding unless and
until the principal (and premium, if any) of the Securities and
all accrued and unpaid interest (including any Additional
Interest) thereon have been paid in full.
It shall not be necessary for any Act of Holders under
this Section to approve the particular form of any proposed
supplemental indenture, but it shall be sufficient if such Act
shall approve the substance thereof.
SECTION 9.3. Execution of Supplemental Indentures.
In executing or accepting the additional trusts created
by any supplemental indenture permitted by this Article or the
modifications thereby of the trusts created by this Indenture,
the Trustee shall be entitled to receive, and (subject to Section
6.1) shall be fully protected in relying upon, an Officers'
Certificate and an Opinion of Counsel stating that the execution
of such supplemental indenture is authorized or permitted by this
Indenture, and that all conditions precedent provided for in this
Indenture with respect to such execution and acceptance
(including any covenants compliance with which constitutes a
condition precedent) have been complied with. The Trustee may,
but shall not be obligated to, enter into any such supplemental
indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
SECTION 9.4. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under
this Article, this Indenture shall be modified in accordance
therewith, and such supplemental indenture shall form a part of
this Indenture for all purposes; and every Holder of Securities
theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 9.5. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this
Article shall conform to the requirements of the Trust Indenture
Act as then in effect.
SECTION 9.6. Reference in Securities to Supplemental
Indentures.
Securities authenticated and delivered after the
execution of any supplemental indenture pursuant to this Article
may, and shall if required by the Trustee, bear a notation in
form approved by the Trustee as to any matter provided for in
such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the
Trustee and the Company (as evidenced by an Officers'
Certificate), to any such supplemental indenture may be prepared
and executed by the Company and authenticated and delivered by
the Trustee in exchange for Outstanding Securities.
ARTICLE X
COVENANTS
SECTION 10.1. Payment of Principal, Premium and
Interest.
The Company will duly and punctually pay the principal
of (and premium, if any) and interest on the Securities in
accordance with the terms of the Securities and this Indenture.
SECTION 10.2. Maintenance of Office or Agency.
The Company will maintain in each Place of Payment an
office or agency where Securities may be presented or surrendered
for payment and an office or agency where Securities may be
surrendered for transfer or exchange and where notices and
demands to or upon the Company in respect of the Securities and
this Indenture may be served. The Company initially appoints the
Trustee, acting through its Corporate Trust Office, as its agent
for said purposes. The Company will give prompt written notice
to the Trustee of any change in the location of any such office
or agency. If at any time the Company shall fail to maintain
such office or agency or shall fail to furnish the Trustee with
the address thereof, such presentations, surrenders, notices and
demands may be made or served at the Corporate Trust Office of
the Trustee, and the Company hereby appoints the Trustee as its
agent to receive all such presentations, surrenders, notices and
demands.
The Company may also from time to time designate one or
more other offices or agencies where the Securities may be
presented or surrendered for any or all of such purposes, and may
from time to time rescind such designations; provided, however,
that no such designation or rescission shall in any manner
relieve the Company of its obligation to maintain an office or
agency in each Place of Payment for Securities for such purposes.
The Company will give prompt written notice to the Trustee of any
such designation and any change in the location of any such
office or agency.
SECTION 10.3. Money for Security Payments to be Held
in Trust.
If the Company shall at any time act as its own Paying
Agent, it will, on or before each due date of the principal of
(and premium, if any) or interest on any of the Securities,
segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal (and
premium, if any) or interest so becoming due until such sums
shall be paid to such Persons or otherwise disposed of as herein
provided, and will promptly notify the Trustee of its failure so
to act.
Whenever the Company shall have one or more Paying
Agents, it will, prior to 10:00 a.m. New York City time on each
due date of the principal of or interest on any Securities,
deposit with a Paying Agent a sum sufficient to pay the principal
(and premium, if any) or interest so becoming due, such sum to be
held in trust for the benefit of the Persons entitled to such
principal and premium (if any) or interest, and (unless such
Paying Agent is the Trustee) the Company will promptly notify the
Trustee of its failure so to act.
The Company will cause each Paying Agent other than the
Trustee to execute and deliver to the Trustee an instrument in
which such Paying Agent shall agree with the Trustee, subject to
the provisions of this Section, that such Paying Agent will:
(1) hold all sums held by it for the payment of the
principal of (and premium, if any) or interest on Securities
in trust for the benefit of the Persons entitled thereto
until such sums shall be paid to such Persons or otherwise
disposed of as herein provided;
(2) give the Trustee notice of any default by the
Company (or any other obligor upon the Securities) in the
making of any payment of principal (and premium, if any) or
interest;
(3) at any time during the continuance of any such
default, upon the written request of the Trustee, forthwith
pay to the Trustee all sums so held in trust by such Paying
Agent; and
(4) comply with the provisions of the Trust Indenture
Act applicable to it as a Paying Agent.
The Company may at any time, for the purpose of
obtaining the satisfaction and discharge of this Indenture or for
any other purpose, pay, or by Company Order direct any Paying
Agent to pay, to the Trustee all sums or Government Obligations
held in trust by such Paying Agent, such sums or Government
Obligations to be held by the Trustee upon the same trusts as
those upon which such sums or Government Obligations were held by
the Company or such Paying Agent; and, upon such payment by any
Paying Agent to the Trustee, such Paying Agent shall be released
from all further liability with respect to such money or
Government Obligations.
Any money or Government Obligations deposited with the
Trustee or any Paying Agent, or then held by the Company, in
trust for the payment of the principal of (and premium, if any)
or interest on any Security and remaining unclaimed for two years
after such principal (and premium, if any) or interest has become
due and payable shall (unless otherwise required by mandatory
provision of applicable escheat or abandoned or unclaimed
property law) be paid on Company Request to the Company, or (if
then held by the Company) shall (unless otherwise required by
mandatory provision of applicable escheat or abandoned or
unclaimed property law) be discharged from such trust; and the
Holder of such Security shall thereafter, as an unsecured general
creditor, look only to the Company for payment thereof, and all
liability of the Trustee or such Paying Agent with respect to
such trust money or Government Obligations, and all liability of
the Company as trustee thereof, shall thereupon cease.
SECTION 10.4. Statement as to Compliance.
The Company shall deliver to the Trustee, within 120
days after the end of each calendar year of the Company ending
after the date hereof, an Officers' Certificate which need not
comply with Section 1.2, executed by the principal executive
officer, the principal financial officer or the principal
accounting officer of the Company, as to such officer's knowledge
of the Company's compliance with all conditions and covenants
under this Indenture, such compliance to be determined without
regard to any period of grace or requirement of notice under this
Indenture.
SECTION 10.5. Additional Sums.
Except as otherwise specified as contemplated by
Section 3.1, in the event that (i) Atlantic Capital I (or the
Property Trustee) is the Holder of all of the Outstanding
Securities, (ii) a Tax Event in respect of such Atlantic Capital
I shall have occurred and be continuing and (iii) the Company
shall not have (x) redeemed the Securities pursuant to Section
11.7 hereof or (y) terminated Atlantic Capital I pursuant to
Section 9.2(b) of the Trust Agreement, the Company shall pay
Atlantic Capital I (and its permitted successors or assigns under
the Trust Agreement) for so long as Atlantic Capital I (or its
permitted successor or assignee) is the Holder of any Securities,
such additional amounts as may be necessary in order that the
amount of distributions (including any Additional Amounts (as
defined in the Trust Agreement)) then due and payable by Atlantic
Capital I on the related Preferred Securities and Common
Securities that at any time remain outstanding in accordance with
the terms thereof shall not be reduced as a result of any
Additional Taxes (the "Additional Sums"). Whenever in this
Indenture or the Securities there is a reference in any context
to the payment of principal of or interest on the Securities,
such reference shall be deemed to include the payments of the
Additional Sums provided for in this paragraph to the extent
that, in such context, Additional Sums are, were or would be
payable in respect thereof pursuant to the provisions of this
paragraph and express mention of the payment of Additional Sums
(if applicable) in any provisions hereof shall not be construed
as excluding Additional Sums in those provisions hereof where
such express mention is not made, provided, however, that the
extension of an interest payment period pursuant to Section 3.1
or the Securities shall not extend the payment of any Additional
Sums that may be due and payable during such interest payment
period.
SECTION 10.6. Additional Covenants.
The Company covenants and agrees with Atlantic Capital
I that it will not, and it will not permit any Subsidiary of the
Company to, (a) declare or pay any dividends or distributions on,
or redeem, purchase, acquire or make a liquidation payment with
respect to, any shares of the Company's capital stock, or (b)
make any payment of principal, interest or premium, if any, on or
repay, repurchase or redeem any debt securities that rank pari
passu with or junior to the Securities or make any guarantee
payments with respect to the foregoing (other than (a) dividends
or distributions in Common Stock of the Company, and (b)
payments under the Company Guarantee), if at such time (i) there
shall have occurred any event of which the Company has actual
knowledge that (a) with the giving of notice or the lapse of time
or both, would constitute an Event of Default hereunder and (b)
in respect of which the Company shall not have taken reasonable
steps to cure, (ii) the Company shall be in default with respect
to its payment of any obligations under the Company Guarantee or
(iii) the Company shall have given notice of its election to
begin an Extension Period as provided herein and shall not have
rescinded such notice, or such period, or any extension thereof,
shall be continuing.
The Company also covenants with Atlantic Capital I (i)
to maintain directly or indirectly 100% ownership of the Common
Securities of Atlantic Capital I; provided, however, that any
permitted successor of the Company hereunder may succeed to the
Company's ownership of such Common Securities, (ii) not to
voluntarily terminate, wind-up or liquidate Atlantic Capital I,
except (a) in connection with a distribution of the Securities
to the holders of Preferred Securities in liquidation of Atlantic
Capital I or (b) in connection with certain mergers,
consolidations or amalgamations permitted by the Trust Agreement
and (iii) to use its reasonable efforts, consistent with the
terms and provisions of the Trust Agreement, to cause Atlantic
Capital I to remain classified as a grantor trust and not as an
association taxable as a corporation for United States federal
income tax purposes.
ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 11.1. Company's Rights of Redemption.
(a) Unless otherwise specified as contemplated by
Section 3.1 with respect to the Securities and notwithstanding
any additional redemption rights that may be so specified, the
Company may, at its option, redeem the Securities after their
date of issuance in whole at any time or in part from time to
time, subject to the provisions of this clause (a) and the other
provisions of this Article Eleven. Unless otherwise specified as
contemplated by Section 3.1, the redemption price for any
Security so redeemed pursuant to this clause (a) shall be equal
to 100% of the principal amount of such Securities plus any
accrued and unpaid interest, including any Additional Interest,
to the date fixed for redemption. The Company shall not redeem
the Securities in part unless all accrued and unpaid interest
(including any Additional Interest) has been paid in full on all
Securities Outstanding for all interest periods terminating on or
prior to the date fixed for redemption.
(b) In the case of Securities in respect of which
Atlantic Capital I (or the Property Trustee) is the Holder,
except as otherwise specified as contemplated by Section 3.1, if
a Special Event shall occur and be continuing, the Company may,
at its option, redeem such Securities within 90 days of the
occurrence of such Special Event, in whole but not in part,
subject to the provisions of this clause (b) and the other
provisions of this Article XI. The redemption price for any
Security so redeemed pursuant to this clause (b) shall be equal
to 100% of the principal amount of such Securities then
Outstanding plus accrued and unpaid interest, including any
Additional Interest, to the date fixed for redemption.
SECTION 11.2. Applicability of This Article.
Redemption of Securities at the election of the
Company, as permitted by Section 11.1, shall be made in
accordance with the terms of the Securities, Section 3.1 and this
Article; provided, however, that if any provision of any such
form of Security shall conflict with any provision of this
Article, the provision of the form of Security shall govern.
Each Security shall be subject to partial redemption only in the
amount of $25 or integral multiples thereof.
SECTION 11.3. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities
shall be established by or pursuant to authority of the Board of
Directors as evidenced by a Board Resolution. In case of any
redemption at the election of the Company of less than all of the
Securities, the Company shall, not less than 30 nor more than 60
days prior to the date fixed for redemption (unless a shorter
notice shall be satisfactory to the Trustee), notify the Trustee
of such date and of the principal amount of Securities to be
redeemed. In the case of any redemption of Securities prior to
the expiration of any restriction on such redemption provided in
the terms of such Securities, the Company shall furnish the
Trustee with an Officers' Certificate and an Opinion of
Independent Counsel evidencing compliance with such restriction.
SECTION 11.4. Selection of Securities to be Redeemed.
If less than all the Securities are to be redeemed, the
particular Securities to be redeemed shall be selected not more
than 60 days prior to the Redemption Date by the Trustee, from
the Outstanding Securities not previously called for redemption,
by such method as the Trustee shall deem fair and appropriate and
which may provide for the selection for redemption of a portion
of the principal amount of any Security, provided that the
unredeemed portion of the principal amount of any Security shall
be in an authorized denomination for such Security or integral
multiples thereof.
The Trustee shall promptly notify the Company in
writing of the Securities selected for redemption as aforesaid
and, in case of any Securities selected for partial redemption
and the principal amount thereof to be redeemed. For all
purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities
shall relate, in the case of any Security redeemed or to be
redeemed only in part, to the portion of the principal amount of
such Security which has been or is to be redeemed. If the
Company shall so direct, Securities registered in the name of the
Company, any Affiliate or any Subsidiary thereof shall not be
included in the Securities selected for redemption.
SECTION 11.5. Notice of Redemption.
Notice of redemption shall be given by first-class
mail, postage prepaid, mailed not later than the thirtieth day,
and not earlier than the sixtieth day, prior to the date fixed
for redemption, to each Holder of Securities to be redeemed, at
the address of such Holder as it appears in the Securities
Register.
Each notice of redemption shall state:
(a) the Redemption Date;
(b) the Redemption Price;
(c) if less than all Outstanding Securities are to be
redeemed, the identification (and, in the case of partial
redemption, the respective principal amounts) of the particular
Securities to be redeemed;
(d) that on the Redemption Date, the Redemption Price
will become due and payable upon each such Security or portion
thereof, and that interest thereon, if any, shall cease to accrue
on and after said date; and
(e) the place or places where such Securities are to
be surrendered for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at
the election of the Company shall be given by the Company or, at
the Company's request, by the Trustee in the name and at the
expense of the Company and shall not be irrevocable. The notice
if mailed in the manner herein provided shall be conclusively
presumed to have been duly given, whether or not the Holder
receives such notice. In any case, a failure to give such notice
by mail or any defect in the notice to the Holder of any Security
designated for redemption as a whole or in part shall not affect
the validity of the proceedings for the redemption of any other
Security.
SECTION 11.6. Deposit of Redemption Price.
Prior to 10:00 a.m. New York City time on the
Redemption Date specified in the notice of redemption given as
provided in Section 11.5, the Company will deposit with the
Trustee or with one or more paying agents an amount of money
sufficient to redeem on the Redemption Date all the Securities so
called for redemption at the applicable Redemption Price.
SECTION 11.7. Payment of Securities Called for
Redemption.
If any notice of redemption has been given as provided
in Section 11.5, the Securities or portion of Securities with
respect to which such notice has been given shall become due and
payable on the date and at the place or places stated in such
notice at the applicable Redemption Price. On presentation and
surrender of such Securities at a place of payment in said notice
specified, the said securities or the specified portions thereof
shall be paid and redeemed by the Company at the applicable
redemption price.
Upon presentation of any Security redeemed in part
only, the Company shall execute and the Trustee shall
authenticate and deliver to the Holder thereof, at the expense of
the Company, a new Security or Securities of the same series, of
authorized denominations, in aggregate principal amount equal to
the unredeemed portion of the Security so presented. If a Global
Security is so surrendered, such new Security will also be a new
Global Security.
If any Security called for redemption shall not be so
paid upon surrender thereof for redemption, the principal of and
premium, if any, on such Security shall, until paid, bear
interest from the Redemption Date at the rate prescribed therefor
in the Security.
ARTICLE XII
SUBORDINATION OF SECURITIES
SECTION 12.1. Securities Subordinate to Senior Debt.
The Company covenants and agrees, and each Holder of a
Security, by its acceptance thereof, likewise covenants and
agrees, that, to the extent and in the manner hereinafter set
forth in this Article, the payment of the principal of (and
premium, if any) and interest (including any Additional Interest)
on each and all of the Securities are hereby expressly made
subordinate and subject in right of payment to the prior payment
in full of all amounts then due and payable in respect of all
Senior Debt.
SECTION 12.2. Payment Over of Proceeds Upon
Dissolution, Etc.
In case of the pendency of any receivership,
insolvency, liquidation, bankruptcy, reorganization, arrangement,
adjustment, composition or other judicial proceeding relative to
the Company (each such event, if any, herein sometimes referred
to as a "Proceeding"), then the holders of Senior Debt shall be
entitled to receive payment in full of principal of (and premium,
if any) and interest, if any, on such Senior Debt, or provision
shall be made for such payment in cash or cash equivalents or
otherwise in a manner satisfactory to the holders of Senior Debt,
before the Holders of the Securities are entitled to receive or
retain any payment or distribution of any kind or character,
whether in cash, property or securities (including any payment or
distribution which may be payable or deliverable by reason of the
payment of any other Debt of the Company subordinated to the
payment of the Securities, such payment or distribution being
hereinafter referred to as a "Junior Subordinated Payment"), on
account of principal of (or premium, if any) or interest
(including any Additional Interest) on the Securities or on
account of the purchase or other acquisition of Securities by the
Company or any Subsidiary and to that end the holders of Senior
Debt shall be entitled to receive, for application to the payment
thereof, any payment or distribution of any kind or character,
whether in cash, property or securities, including any Junior
Subordinated Payment, which may be payable or deliverable in
respect of the Securities in any such Proceeding.
In the event that, notwithstanding the foregoing
provisions of this Section, the Trustee or the Holder of any
Security shall have received any payment or distribution of
assets of the Company of any kind or character, whether in cash,
property or securities, including any Junior Subordinated
Payment, before all Senior Debt is paid in full or payment
thereof is provided for in cash or cash equivalents or otherwise
in a manner satisfactory to the holders of Senior Debt, and if
such fact shall, at or prior to the time of such payment or
distribution, have been made known to the Trustee or, as the case
may be, such Holder, then and in such event such payment or
distribution shall be paid over or delivered forthwith to the
trustee in bankruptcy, receiver, liquidating trustee, custodian,
assignee, agent or other Person making payment or distribution of
assets of the Company for application to the payment of all
Senior Debt remaining unpaid, to the extent necessary to pay all
Senior Debt in full, after giving effect to any concurrent
payment or distribution to or for the holders of Senior Debt.
For purposes of this Article only, the words "any
payment or distribution of any kind or character, whether in
cash, property or securities" shall not be deemed to include
shares of stock of the Company as reorganized or readjusted, or
securities of the Company or any other corporation provided for
by a plan of reorganization or readjustment which securities are
subordinated in right of payment to all then outstanding Senior
Debt to substantially the same extent as the Securities are so
subordinated as provided in this Article. The consolidation of
the Company with, or the merger of the Company into, another
Person or the liquidation or dissolution of the Company following
the sale of all or substantially all of its properties and assets
as an entirety to another Person or the liquidation or
dissolution of the Company following the sale of all or
substantially all of its properties and assets as an entirety to
another Person upon the terms and conditions set forth in Article
Eight shall not be deemed a Proceeding for the purposes of this
Section if the Person formed by such consolidation or into which
the Company is merged or the Person which acquires by sale such
properties and assets as an entirety, as the case may be, shall,
as a part of such consolidation, merger, or sale comply with the
conditions set forth in Article Eight.
SECTION 12.3. Prior Payment to Senior Debt Upon
Acceleration of Securities.
In the event that any Securities are declared due and
payable before their Maturity, then and in such event the holders
of the Senior Debt outstanding at the time such Securities so
become due and payable shall be entitled to receive payment in
full of all amounts due on or in respect of such Senior Debt
(including any amounts due upon acceleration), or provision shall
be made for such payment in cash or cash equivalents or otherwise
in a manner satisfactory to the holders of Senior Debt, before
the Holders of the Securities are entitled to receive any payment
or distribution of any kind or character, whether in cash,
properties or securities (including any Junior Subordinated
Payment) by the Company on account of the principal of (or
premium, if any) or interest (including any Additional Interest)
on the Securities or on account of the purchase or other
acquisition of Securities by the Company or any Subsidiary.
In the event that, notwithstanding the foregoing, the
Company shall make any payment to the Trustee or the Holder of
any Security prohibited by the foregoing provisions of this
Section, and if such fact shall, at or prior to the time of such
payment, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment shall be
paid over and delivered forthwith to the Company.
The provisions of this Section shall not apply to any
payment with respect to which Section 12.2 would be applicable.
SECTION 12.4. No Payment When Senior Debt in Default.
(a) In the event and during the continuation of any
default in the payment of principal of (or premium, if any) or
interest on any Senior Debt, or in the event that any event of
default with respect to any Senior Debt shall have occurred and
be continuing and shall have resulted in such Senior Debt
becoming or being declared due and payable prior to the date on
which it would otherwise have become due and payable, unless and
until such event of default shall have been cured or waived or
shall have ceased to exist and such acceleration shall have been
rescinded or annulled, or (b) in the event any judicial
proceeding shall be pending with respect to any such default in
payment or such event or default, then no payment or distribution
of any kind or character, whether in cash, properties or
securities (including any Junior Subordinated Payment) shall be
made by the Company on account of principal of (or premium, if
any) or interest (including any Additional Interest), if any, on
the Securities or on account of the purchase or other acquisition
of Securities by the Company or any Subsidiary.
In the event that, notwithstanding the foregoing, the
Company shall make any payment to the Trustee or the Holder of
any Security prohibited by the foregoing provisions of this
Section, and if such fact shall, at or prior to the time of such
payment, have been made known to the Trustee or, as the case may
be, such Holder, then and in such event such payment shall be
paid over and delivered forthwith to the Company.
The provisions of this Section shall not apply to any
payment with respect to which Section 12.2 would be applicable.
SECTION 12.5. Payment Permitted If No Default.
Nothing contained in this Article or elsewhere in this
Indenture or in any of the Securities shall prevent (a) the
Company, at any time except during the pendency of any Proceeding
referred to in Section 12.2 or under the conditions described in
Sections 12.3 and 12.4, from making payments at any time of
principal of (and premium, if any) or interest on the Securities,
or (b) the application by the Trustee of any money or Government
Obligations deposited with it hereunder to the payment of or on
account of the principal of (and premium, if any) or interest
(including any Additional Interest) on the Securities or the
retention of such payment by the Holders, if, at the time of such
application by the Trustee, it did not have knowledge that such
payment would have been prohibited by the provisions of this
Article.
SECTION 12.6. Subrogation to Rights of Holders of
Senior Debt.
Subject to the payment in full of all Senior Debt, or
the provision for such payment in cash or cash equivalents or
otherwise in a manner satisfactory to the holders of Senior Debt,
the Holders of the Securities shall be subrogated to the extent
of the payments or distributions made to the holders of such
Senior Debt pursuant to the provisions of this Article (equally
and ratably with the holders of all indebtedness of the Company
which by its express terms is subordinated to Senior Debt of the
Company to substantially the same extent as the Securities are
subordinated to the Senior Debt and is entitled to like rights of
subrogation by reason of any payments or distributions made to
holders of such Senior Debt) to the rights of the holders of such
Senior Debt to receive payments and distributions of cash,
property and securities applicable to the Senior Debt until the
principal of (and premium, if any) and interest on the Securities
shall be paid in full. For purposes of such subrogation or
assignment, no payments or distributions to the holders of the
Senior Debt of any cash, property or securities to which the
Holders of the Securities or the Trustee would be entitled except
for the provisions of this Article, and no payments over pursuant
to the provisions of this Article to the holders of Senior Debt
by Holders of the Securities or the Trustee, shall, as among the
Company, its creditors other than holders of Senior Debt, and the
Holders of the Securities, be deemed to be a payment or
distribution by the Company to or on account of the Senior Debt.
SECTION 12.7. Provisions Solely to Define Relative
Rights.
The provisions of this Article are and are intended
solely for the purpose of defining the relative rights of the
Holders of the Securities on the one hand and the holders of
Senior Debt on the other hand. Nothing contained in this Article
or elsewhere in this Indenture or in the Securities is intended
to or shall (a) impair, as between the Company and the Holders of
the Securities, the obligations of the Company, which are
absolute and unconditional, to pay to the Holders of the
Securities the principal of (and premium, if any) and interest
(including any Additional Interest) on the Securities as and when
the same shall become due and payable in accordance with their
terms; or (b) affect the relative rights against the Company of
the Holders of the Securities and creditors of the Company other
than their rights in relation to the holders of Senior Debt; or
(c) prevent the Trustee or the Holder of any Security from
exercising all remedies otherwise permitted by applicable law
upon default under this Indenture including, without limitation,
filing and voting claims in any Proceeding, subject to the
rights, if any, under this Article of the holders of Senior Debt
to receive cash, property and securities otherwise payable or
deliverable to the Trustee or such Holder.
SECTION 12.8. Trustee to Effectuate Subordination.
Each Holder of a Security by his or her acceptance
thereof authorizes and directs the Trustee on his or her behalf
to take such action as may be necessary or appropriate to
acknowledge or effectuate the subordination provided in this
Article and appoints the Trustee his or her attorney-in-fact for
any and all such purposes.
SECTION 12.9. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior
Debt to enforce subordination as herein provided shall at any
time in any way be prejudiced or impaired by any act or failure
to act on the part of the Company or by any act or failure to
act, in good faith, by any such holder, or by any noncompliance
by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof that any such
holder may have or be otherwise charged with.
SECTION 12.10. Notice to Trustee.
The Company shall give prompt written notice to the
Trustee of any fact known to the Company which would prohibit the
making of any payment to or by the Trustee in respect of the
Securities. Notwithstanding the provisions of this Article or
any other provision of this Indenture, the Trustee shall not be
charged with knowledge of the existence of any facts which would
prohibit the making of any payment to or by the Trustee in
respect of the Securities, unless and until the Trustee shall
have received written notice thereof from the Company or a holder
of Senior Debt or from any trustee, agent or representative
therefor (whether or not the facts contained in such notice are
true); provided, however, that if the Trustee shall not have
received the notice provided for in this Section at least two
Business Days prior to the date upon which by the terms hereof
any monies may become payable for any purpose (including, without
limitation, the payment of the principal of (and premium, if any)
or interest (including any Additional Interest) on any Security),
then, anything herein contained to the contrary notwithstanding,
the Trustee shall have full power and authority to receive such
monies and to apply the same to the purpose for which they were
received and shall not be affected by any notice to the contrary
which may be received by it within two Business Days prior to
such date.
SECTION 12.11. Reliance on Judicial Order or
Certificate of Liquidating Agent.
Upon any payment or distribution of assets of the
Company referred to in this Article, the Trustee, subject to the
provisions of Article Six, and the Holders of the Securities
shall be entitled to rely upon any order or decree entered by any
court of competent jurisdiction in which such Proceeding is
pending, or a certificate of the trustee in bankruptcy, receiver,
liquidating trustee, custodian, assignee for the benefit of
creditors, agent or other Person making such payment or
distribution, delivered to the Trustee or to the Holders of
Securities, for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of
the Senior Debt and other indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to
this Article.
SECTION 12.12. Trustee Not Fiduciary for Holders of
Senior Debt.
The Trustee, in its capacity as trustee under this
Indenture, shall not be deemed to owe any fiduciary duty to the
holders of Senior Debt and shall not be liable to any such
holders if it shall in good faith mistakenly pay over or
distribute to Holders of Securities or to the Company or to any
other Person cash, property or securities to which any holders of
Senior Debt shall be entitled by virtue of this Article or
otherwise.
SECTION 12.13. Rights of Trustee as Holder of Senior
Debt; Preservation of Trustee's Rights.
The Trustee in its individual capacity shall be
entitled to all the rights set forth in this Article with respect
to any Senior Debt which may at any time be held by it, to the
same extent as any other holder of Senior Debt, and nothing in
this Indenture shall deprive the Trustee of any of its rights as
such holder. Nothing in this Article XII shall apply to the
claims of, or payments to, the Trustee under or pursuant to
Section 6.7.
SECTION 12.14. Article Applicable to Paying Agents.
In case at any time any Paying Agent other than the
Trustee shall have been appointed by the Company and be then
acting hereunder, the term "Trustee" as used in this Article
shall in such case (unless the context otherwise requires) be
construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such
Paying Agent were named in this Article in addition to or in
place of the Trustee.
* * * *
This instrument may be executed in any number of
counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate
seals to be hereunto affixed and attested, all as of the day and
year first above written.
ATLANTIC CITY ELECTRIC COMPANY
By: /s/ L.M. Walters
L.M. Walters
Vice President, Treasurer
and Secretary
[SEAL]
Attest: /s/ James E. Franklin, II
James E. Franklin, II
Senior Vice President, General
Counsel and Secretary
THE BANK OF NEW YORK
as Trustee
By: /s/ Lucille Firrincieli
Lucille Firrincieli
Assistant Vice President
[SEAL]
Attest: /s/ N. Gill
<PAGE>
State of New Jersey :
: ss.
County of Atlantic :
On the 1st day of October, 1996 before me personally
came L.M. Walters, to me known, who being duly sworn, did depose
and say that he is Vice President, Treasurer and Assistant
Secretary of Atlantic City Electric Company, one of the
corporations described in and which executed the foregoing
instrument; that the seal of said corporation; that the seal
affixed to said instrument is such corporate seal; that it was so
affixed by authority of the Board of Directors of said
corporation, and that he signed his name thereto by like
authority.
_____________________________
Notary Public
My Commission Expires:
State of New York :
: ss.
County of New York :
On the 1st day of October, 1996 before me personally
came Lucille Firrincieli, to me known, who being duly sworn, did
depose and say that she is Assistant Vice President of The Bank
of New York, a New York banking corporation, described in and
which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is
such corporate seal; that it was so affixed by authority of the
Board of Directors of said corporation, and that she signed her
name thereto by like authority.
______________________________
Notary Public
My Commission Expires:
<PAGE>
Exhibit 4f(9)
- -----------------------------------------------------------------
GUARANTEE AGREEMENT
Between
Atlantic City Electric Company
(as Guarantor)
and
The Bank of New York
(as Trustee)
dated as of
October 1, 1996
-----------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS . . . . . . . . . . . . . . . 1
SECTION 1.1. Definitions. . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
TRUST INDENTURE ACT. . . . . . . . . . . . . 5
SECTION 2.1. Trust Indenture Act; Application. . . . . . . . . . 5
SECTION 2.2. List of Holders. . . . . . . . . . . . . . . . . . . 5
SECTION 2.3. Reports by the Guarantee Trustee.. . . . . . . . . . 5
SECTION 2.4. Periodic Reports to Guarantee Trustee. . . . . . . . 5
SECTION 2.5. Evidence of Compliance with Conditions
Precedent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 2.6. Events of Default; Waiver. . . . . . . . . . . . . . 6
SECTION 2.7. Event of Default; Notice.. . . . . . . . . . . . . . 6
SECTION 2.8. Conflicting Interests. . . . . . . . . . . . . . . . 6
ARTICLE III
POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE . . . . . 7
SECTION 3.1. Powers and Duties of the Guarantee Trustee.. . . . . 7
SECTION 3.2. Certain Rights of Guarantee Trustee. . . . . . . . . 9
ARTICLE IV
GUARANTEE TRUSTEE . . . . . . . . . . . . . 11
SECTION 4.1. Guarantee Trustee; Eligibility. . . . . . . . . . . 11
SECTION 4.2. Compensation and Reimbursement.. . . . . . . . . . . 11
SECTION 4.3. Appointment, Removal and Resignation of the
Guarantee Trustee. . . . . . . . . . . . . . . . . . 12
ARTICLE V
GUARANTEE . . . . . . . . . . . . . . . 13
SECTION 5.1. Guarantee. . . . . . . . . . . . . . . . . . . . . . 13
SECTION 5.2. Waiver of Notice and Demand. . . . . . . . . . . . . 13
SECTION 5.3. Obligations Not Affected. . . . . . . . . . . . . . 13
SECTION 5.4. Rights of Holders. . . . . . . . . . . . . . . . . . 14
SECTION 5.5. Guarantee of Payment. . . . . . . . . . . . . . . . 15
SECTION 5.6. Subrogation. . . . . . . . . . . . . . . . . . . . . 15
SECTION 5.7. Independent Obligations. . . . . . . . . . . . . . . 15
ARTICLE VI
COVENANTS AND SUBORDINATION. . . . . . . . . . . 15
SECTION 6.1. Subordination. . . . . . . . . . . . . . . . . . . . 15
ARTICLE VII
TERMINATION. . . . . . . . . . . . . . . 16
SECTION 7.1. Termination. . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VIII
MISCELLANEOUS . . . . . . . . . . . . . . 16
SECTION 8.1. Successors and Assigns. . . . . . . . . . . . . . . 16
SECTION 8.2. Amendments. . . . . . . . . . . . . . . . . . . . . 16
SECTION 8.3. Notices. . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 8.4. Benefit. . . . . . . . . . . . . . . . . . . . . . . 18
SECTION 8.5. Interpretation. . . . . . . . . . . . . . . . . . . 18
SECTION 8.6. GOVERNING LAW. . . . . . . . . . . . . . . . . . . . 18
<PAGE>
GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT ("Guarantee Agreement"),
dated as of October 1, 1996, is executed and delivered by
Atlantic City Electric Company, a New Jersey corporation (the
"Guarantor"), and The Bank of New York, a New York banking
corporation organized under the laws of the State of New York, as
trustee (the "Guarantee Trustee"), for the benefit of the Holders
(as defined herein) from time to time of the Preferred Securities
(as defined herein) of Atlantic Capital I, a Delaware statutory
business trust (the "Issuer").
WHEREAS, pursuant to an Amended and Restated Trust
Agreement (the "Trust Agreement"), dated as of October 1, 1996
among the Issuer Trustees named therein, the Guarantor, as
Depositor, and the Holders (as therein defined) from time to time
of undivided beneficial interests in the assets of the Issuer,
the Issuer is issuing 2,800,000 of its 8.25% Cumulative Quarterly
Income Preferred Securities (liquidation preference $25 per
preferred security) (the "Preferred Securities") representing
preferred undivided beneficial interests in the assets of the
Issuer and having the terms set forth in the Trust Agreement;
WHEREAS, the Preferred Securities will be issued
by the Issuer and the proceeds thereof, together with the
proceeds from the issuance of the Issuer's Common Securities (as
defined below), will be used to purchase the Debentures (as
defined in the Trust Agreement) of the Guarantor which will be
deposited with The Bank of New York, as Property Trustee under
the Trust Agreement, as trust assets; and
WHEREAS, as incentive for the Holders to purchase
Preferred Securities the Guarantor desires irrevocably and
unconditionally to agree, to the extent set forth herein, to pay
to the Holders (as defined herein) of the Preferred Securities
the Guarantee
Payments (as defined herein) and to make certain other payments
on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the purchase
by each Holder of Preferred Securities, which purchase the
Guarantor hereby agrees shall benefit the Guarantor, the
Guarantor executes and delivers this Guarantee Agreement for the
benefit of the Holders from time to time of the Preferred
Securities.
ARTICLE I
DEFINITIONS
SECTION 1.1. Definitions.
As used in this Guarantee Agreement, the terms set
forth below shall, unless the context otherwise requires, have
the following meanings. Capitalized or otherwise defined terms
used but not otherwise defined herein shall have the meanings
assigned to such terms in the Trust Agreement as in effect on the
date hereof.
"Affiliate" of any specified Person means any
other Person directly or indirectly controlling or controlled by
or under direct or indirect common control with such specified
Person, provided, however, that an Affiliate of the Guarantor
shall not be deemed to include the Issuer. For the purposes of
this definition, "control" when used with respect to any
specified Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and
the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Common Securities" means the securities
representing common undivided beneficial interests in the assets
of the Issuer.
"Debt" means, with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and
whether or not contingent, (i) every obligation of such Person
for money borrowed; (ii) every obligation of such Person
evidenced by bonds, debentures, notes or other similar
instruments, including obligations incurred in connection with
the acquisition of property, assets or businesses; (iii) every
reimbursement obligation of such Person with respect to letters
of credit, bankers' acceptances or similar facilities issued for
the account of such Person; (iv) every obligation of such Person
issued or assumed as the deferred purchase price of property or
services (but excluding trade accounts payable or accrued
liabilities arising in the ordinary course of business); (v)
every capital lease obligation of such Person; and (vi) every
obligation of the type referred to in clauses (i) through (v) of
another Person and all dividends of another Person the payment of
which, in either case, such Person has guaranteed or is
responsible or liable for, directly or indirectly, as obligor
or otherwise.
"Event of Default" means a default by the
Guarantor on any of its payment or other obligations under this
Guarantee Agreement; provided, however, that, except with respect
to a default in payment of any Guarantee Payments, the Guarantor
shall have received notice of default and shall not have cured
such default within 60 days after receipt of such notice.
"Guarantee Payments" means the following payments
or distributions, without duplication, with respect to the
Preferred Securities, to the extent not paid or made by or on
behalf of the Issuer: (i) any accumulated and unpaid
Distributions (as defined in the Trust Agreement) required to be
paid on the Preferred Securities, to the extent the Issuer shall
have funds on hand available therefor at such time, (ii) the
redemption price, including all accrued and unpaid Distributions
to the date of redemption (the "Redemption Price"), with respect
to the Preferred Securities called for redemption by the Issuer
to the extent the Issuer shall have funds on hand available
therefor at such time, and (iii) upon a voluntary or involuntary
dissolution, winding-up or liquidation of the Issuer, unless
Debentures are distributed to the Holders in exchange for all of
the Preferred Securities, the lesser of (a) the aggregate of the
liquidation preference of $25 per Preferred Security plus
accumulated and unpaid Distributions on the Preferred Securities
to the date of payment to the extent the Issuer shall have funds
on hand available to make such payment at such time and (b) the
amount of assets of the Issuer remaining available for
distribution to Holders in liquidation of the Issuer (in either
case, the "Liquidation Distribution").
"Guarantee Trustee" means The Bank of New York,
until a Successor Guarantee Trustee has been appointed and has
accepted such appointment pursuant to the terms of this Guarantee
Agreement and thereafter means each such Successor Guarantee
Trustee.
"Holder" means any holder, as registered on the
books and records of the Issuer, of any Preferred Securities;
provided, however, that in determining whether the holders of the
requisite percentage of Preferred Securities have given any
request, notice, consent or waiver hereunder, "Holder" shall not
include the Guarantor, the Guarantee Trustee or any Affiliate of
the Guarantor or the Guarantee Trustee.
"Indenture" means the Junior Subordinated
Indenture dated as of October 1, 1996, as supplemented and
amended between the Guarantor and the Bank of New York, as
trustee.
"List of Holders" has the meaning specified in
Section 2.2(a).
"Majority in liquidation preference of the
Securities" means, except as provided by the Trust Indenture Act,
a vote by the Holder(s), voting separately as a class, of more
than 50% of the liquidation preference of all then outstanding
Preferred Securities issued by the Issuer.
"Officers' Certificate" means, with respect to any
Person, a certificate signed by the Chairman and Chief Executive
Officer, President or a Vice President, and by the Treasurer, an
Assistant Treasurer, the Controller, the Secretary or an
Assistant Secretary of such Person, and delivered to the
Guarantee Trustee. Any Officers' Certificate delivered with
respect to compliance with a condition or covenant provided for
in this Guarantee Agreement shall include:
(a) a statement that each officer signing the
Officers' Certificate has read the covenant or condition
and the definitions relating thereto;
(b) a brief statement of the nature and scope of
the examination or investigation undertaken by each
officer in rendering the Officers' Certificate;
(c) a statement that each such officer has made
such examination or investigation as, in such officer's
opinion, is necessary to enable such officer to express an
informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion of
each such officer, such condition or covenant has been
complied with.
"Person" means a legal person, including any
individual, corporation, estate, partnership, joint venture,
association, joint stock company, limited liability company,
trust, unincorporated association, or government or any agency or
political subdivision thereof, or any other entity of whatever
nature.
"Responsible Officer" means, with respect to the
Guarantee Trustee, any Senior Vice President, any Vice President,
any Assistant Vice President, the Secretary, any Assistant
Secretary, the Treasurer, any Assistant Treasurer, any Trust
Officer or Assistant Trust Officer or any other officer of the
Corporate Trust Department of the Guarantee Trustee customarily
performing functions similar to those performed by any of the
above designated officers and also means, with respect to a
particular corporate trust matter, any other officer to whom such
matter is referred because of that officer's knowledge of and
familiarity with the particular subject.
"Senior Debt" means the principal of (and premium,
if any) and interest, if any (including interest accruing on or
after the filing of any petition in bankruptcy or for
reorganization relating to the Guarantor whether or not such
claim for post-petition interest is allowed in such proceeding),
on Debt, whether incurred on or prior to the date of this
Guarantee or thereafter incurred, unless, in the instrument
creating or evidencing the same or pursuant to which the same is
outstanding, it is provided that such obligations are not
superior in right of payment to the Guarantee or to other Debt
which is pari passu with, or subordinated to, the Guarantee;
provided, however, that Senior Debt shall not be deemed to
include (a) any Debt of the Guarantor which when incurred and
without respect to any election under Section 1111(b) of the
Bankruptcy Reform Act of 1978, was without recourse to the
Guarantor, (b) any Debt of the Guarantor to any of its
Subsidiaries, (c) Debt to any employee of the Guarantor, (d) any
liability for taxes, (e) Debt or other monetary obligations to
trade creditors created or assumed by the Guarantor or any of its
Subsidiaries in the ordinary course of business in connection
with the obtaining of goods, materials or services and (f) Debt
issued under the Indenture and (g) the Guarantee.
"Successor Guarantee Trustee" means a successor
Guarantee Trustee possessing the qualifications to act as
Guarantee Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture
Act of 1939, as amended.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1. Trust Indenture Act; Application.
(a) This Guarantee Agreement is subject to the
provisions of the Trust Indenture Act that are required or
deemed to be part of this Guarantee Agreement and shall,
to the extent applicable, be governed by such provisions.
(b) If and to the extent that any provision of
this Guarantee Agreement limits, qualifies or conflicts
with the duties imposed by Sections 310 to 317, inclusive,
of the Trust Indenture Act, such imposed duties shall
control.
SECTION 2.2. List of Holders.
(a) The Guarantor shall furnish or cause to be
furnished to the Guarantee Trustee (i) semiannually, on or
before January 15 and July 15 of each year, a list, in
such form as the Guarantee Trustee may reasonably require,
of the names and addresses of the Holders ("List of
Holders") as of a date not more than 15 days prior to the
delivery thereof, and (ii) at such other times as the
Guarantee Trustee may request in writing, within 30 days
after the receipt by the Guarantor of any such request, a
List of Holders as of a date not more than 15 days prior
to the time such list is furnished; provided that, the
Guarantor shall not be obligated to provide such List of
Holders at any time the List of Holders does not differ
from the most recent List of Holders given to the
Guarantee Trustee by the Guarantor. The Guarantee Trustee
may destroy any List of Holders previously given to it on
receipt of a new List of Holders.
(b) The Guarantee Trustee shall comply with its
obligations under Section 311(a) of the Trust Indenture
Act (subject to the provisions of Section 311(b) of the
Trust Indenture Act) and Section 312(b) of the Trust
Indenture Act.
SECTION 2.3. Reports by the Guarantee Trustee.
Not later than July 15 of each year, commencing
July 15, 1997, the Guarantee Trustee shall provide to the Holders
such reports as are required by Section 313(a) of the Trust
Indenture Act, if any, in the form and in the manner provided by
Section 313(a) of the Trust Indenture Act. The Guarantee Trustee
shall also comply with the requirements of Section 313(d) of the
Trust Indenture Act.
SECTION 2.4. Periodic Reports to Guarantee Trustee.
The Guarantor shall provide to the Guarantee
Trustee, the Securities and Exchange Commission and the Holders
such documents, reports and information, if any, as required by
Section 314 of the Trust Indenture Act and the compliance
certificate required by Section 314 of the Trust Indenture Act in
the form, in the manner and at the times required by Section 314
of the Trust Indenture Act.
SECTION 2.5. Evidence of Compliance with Conditions Precedent.
The Guarantor shall provide to the Guarantee
Trustee such evidence of compliance with such conditions
precedent, if any, provided for in this Guarantee Agreement that
relate to any of the matters set forth in Section 314(c) of the
Trust Indenture Act. Any certificate or opinion required to be
given by an officer pursuant to Section 314(c)(1) may be given in
the form of an Officers' Certificate.
SECTION 2.6. Events of Default; Waiver.
The Holders of a Majority in liquidation
preference of the Preferred Securities may, by vote on behalf of
all of the Holders, waive any past Event of Default and its
consequences. Upon such waiver, any such Event of Default shall
cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured, for every purpose of this Guarantee
Agreement, but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent
therefrom.
SECTION 2.7. Event of Default; Notice.
(a) The Guarantee Trustee shall, within 90 days
after the occurrence of an Event of Default, transmit by
mail, first class postage prepaid, to the Holders, notices
of all Events of Default known to the Guarantee Trustee,
unless such defaults have been cured before the giving of
such notice, provided, that, except in the case of a
default in the payment of a Guarantee Payment, the
Guarantee Trustee shall be protected in withholding such
notice if and so long as the Board of Directors, the
executive committee or a trust committee of directors
and/or Responsible Officers of the Guarantee Trustee in
good faith determines that the withholding of such notice
is in the interests of the Holders.
(b) The Guarantee Trustee shall not be deemed to
have knowledge of any Event of Default unless the
Guarantee Trustee shall have received written notice, or a
Responsible Officer charged with the administration of the
Trust Agreement shall have obtained written notice, of
such Event of Default.
SECTION 2.8. Conflicting Interests.
The Trust Agreement shall be deemed to be
specifically described in this Guarantee Agreement for the
purposes of clause (i) of the first proviso contained in Section
310(b) of the Trust Indenture Act.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF THE GUARANTEE TRUSTEE
SECTION 3.1. Powers and Duties of the Guarantee Trustee.
(a) This Guarantee Agreement shall be held by the
Guarantee Trustee for the benefit of the Holders, and the
Guarantee Trustee shall not transfer this Guarantee
Agreement to any Person except a Holder exercising his or
her rights pursuant to Section 5.4(iv) or to a Successor
Guarantee Trustee on acceptance by such Successor
Guarantee Trustee of its appointment to act as Successor
Guarantee Trustee. The right, title and interest of the
Guarantee Trustee shall automatically vest in any
Successor Guarantee Trustee, upon acceptance by such
Successor Guarantee Trustee of its appointment hereunder,
and such vesting (and, as to the Guarantee Trustee
cessation of holding) of title shall be effective whether
or not conveyancing documents have been executed and
delivered pursuant to the appointment of such Successor
Guarantee Trustee.
(b) If an Event of Default has occurred and is
continuing, the Guarantee Trustee may in its discretion
proceed to protect and enforce its rights and other rights
of the Holders by such appropriate judicial proceedings as
it shall deem most effectual to protect and enforce any
such rights, whether for the specific enforcement of any
covenant or agreement in this Guaranty Agreement or in aid
of the exercise of any power granted herein, or to enforce
any other proper remedy.
(c) The Guarantee Trustee, before the occurrence
of any Event of Default and after the curing of all Events
of Default that may have occurred, shall undertake to
perform such duties and only such duties as are
specifically set forth in this Guarantee Agreement, and no
implied covenants shall be read into this Guarantee
Agreement against the Guarantee Trustee. In case an Event
of Default has occurred (that has not been cured or waived
pursuant to Section 2.6), the Guarantee Trustee shall
exercise such of the rights and powers vested in it by
this Guarantee Agreement, and use the same degree of care
and skill in its exercise thereof, as a prudent person
would exercise or use under the circumstances in the
conduct of his or her own affairs.
(d) No provision of this Guarantee Agreement
shall be construed to relieve the Guarantee Trustee from
liability for its own negligent action, its own negligent
failure to act or its own willful misconduct, except that:
(i prior to the occurrence of any Event of
Default and after the curing or waiving of all
such Events of Default that may have occurred:
(A) the duties and obligations of the
Guarantee Trustee shall be determined solely
by the express provisions of this Guarantee
Agreement, and the Guarantee Trustee shall
not be liable except for the performance of
such duties and obligations as are
specifically set forth in this Guarantee
Agreement; and
(B) in the absence of bad faith on the part
of the Guarantee Trustee, the Guarantee
Trustee may conclusively rely, as to the
truth of the statements and the correctness
of the opinions expressed therein, upon any
certificates or opinions furnished to the
Guarantee Trustee and conforming to the
requirements of this Guarantee Agreement; but
in the case of any such certificates or
opinions that by any provision hereof or of
the Trust Indenture Act are specifically
required to be furnished to the Guarantee
Trustee, the Guarantee Trustee shall be under
a duty to examine the same to determine
whether or not they conform to the
requirements of this Guarantee Agreement;
(ii the Guarantee Trustee shall not be liable
for any error of judgment made in good faith by a
Responsible Officer of the Guarantee Trustee,
unless it shall be proved that the Guarantee
Trustee was negligent in ascertaining the
pertinent facts upon which such judgment was made;
(iii the Guarantee Trustee shall not be liable
with respect to any action taken or omitted to be
taken by it in good faith in accordance with the
direction of the Holders of not less than a
Majority in liquidation preference of the
Preferred Securities relating to the time, method
and place of conducting any proceeding for any
remedy available to the Guarantee Trustee, or
exercising any trust or power conferred upon the
Guarantee Trustee under this Guarantee Agreement;
(iv no provision of this Guarantee Agreement
shall require the Guarantee Trustee to expend or
risk its own funds or otherwise incur personal
financial liability in the performance of any of
its duties hereunder or in the exercise of any of
its rights or powers, if the Guarantee Trustee
shall have reasonable grounds for believing that
the repayment of such funds or liability is not
reasonably assured to it under the terms of this
Guarantee Agreement or adequate indemnity against
such risk or liability is not reasonably assured
to it; and
(v) whether or not therein
expressly so provided, every
provision of this Guarantee
Agreement relating to the conduct
or affecting the liability of or
affording protection to the
Guarantee Trustee shall be subject
to the provisions of this Section.
SECTION 3.2. Certain Rights of Guarantee Trustee.
(a) Subject to the provisions of Section 3.1:
(i The Guarantee Trustee may rely and shall
be fully protected in acting or refraining from
acting upon any resolution, certificate,
statement, instrument, opinion, report, notice,
request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or
other paper or document reasonably believed by it
to be genuine and to have been signed, sent or
presented by the proper party or parties.
(ii Any direction or act of the Guarantor
contemplated by this Guarantee Agreement shall be
sufficiently evidenced by an Officers' Certificate
of the Guarantor unless otherwise prescribed
herein.
(iii Whenever, in the administration of this
Guarantee Agreement, the Guarantee Trustee shall
deem it desirable that a matter be proved or
established before taking, suffering or omitting
to take any action hereunder, the Guarantee
Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of
bad faith on its part, request and rely upon an
Officers' Certificate of the Guarantor which, upon
receipt of such request from the Guarantee
Trustee, shall be promptly delivered by the
Guarantor.
(iv The Guarantee Trustee shall have no duty
to see to any recording, filing or registration of
any instrument (or any re-recording, re-filing or
registration thereof).
(v The Guarantee Trustee may consult with
legal counsel, and the written advice or opinion
of such legal counsel with respect to legal
matters shall be full and complete authorization
and protection in respect of any action taken,
suffered or omitted to be taken by it hereunder in
good faith and in accordance with such advice or
opinion. Such legal counsel may be legal counsel
to the Guarantor or any of its Affiliates and may
be one of its employees. The Guarantee Trustee
shall have the right at any time to seek
instructions concerning the administration of this
Guarantee Agreement from any court of competent
jurisdiction.
(vi The Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers
vested in it by this Guarantee Agreement at the
request or direction of any Holder, unless such
Holder shall have provided to the Guarantee
Trustee such adequate security and indemnity as
would satisfy a reasonable person in the position
of the Guarantee Trustee, against the costs,
expenses (including attorneys' fees and expenses)
and liabilities that might be incurred by it in
complying with such request or direction,
including such reasonable advances as may be
requested by the Guarantee Trustee; provided that,
nothing contained in this Section 3.2(a)(vi) shall
be taken to relieve the Guarantee Trustee, upon
the occurrence of an Event of Default, of its
obligation to exercise the rights and powers
vested in it by this Guarantee Agreement.
(vii The Guarantee Trustee shall not be bound
to make any investigation into the facts or
matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice,
request, direction, consent, order, bond,
debenture, note, other evidence of indebtedness or
other paper or document, but the Guarantee
Trustee, in its discretion, may make such further
inquiry or investigation into such facts or
matters as it may see fit.
(viii The Guarantee Trustee may execute any of
the trusts or powers hereunder or perform any
duties hereunder either directly or by or through
its agents or attorneys, and the Guarantee Trustee
shall not be responsible for any misconduct or
negligence on the part of any such agent or
attorney appointed with due care by it hereunder.
(ix Any action taken by the Guarantee Trustee
or its agents hereunder shall bind the Holders,
and the signature of the Preferred Guarantee
Trustee or its agents alone shall be sufficient
and effective to perform any such action. No
third party shall be required to inquire as to the
authority of the Guarantee Trustee to so act or as
to its compliance with any of the terms and
provisions of this Guarantee Agreement, both of
which shall be conclusively evidenced by the
Guarantee Trustee's or its agent's taking such
action.
(x Whenever in the administration of this
Guarantee Agreement the Guarantee Trustee shall
deem it desirable to receive instructions with
respect to enforcing any remedy or right or taking
any other action hereunder, the Guarantee Trustee
(A) may request instructions from the Holders, (B)
may refrain from enforcing such remedy or right or
taking such other action until such instructions
are received, and (C) shall be protected in acting
in accordance with such instructions.
(xi) the Guarantee Trustee shall not be
charged with knowledge of any Event of Default
unless either (1) a Responsible Officer of the
Trustee shall have actual knowledge of the Event
of Default or (2) written notice of such Event of
Default shall have been given to the Guarantee
Trustee by the Guarantor, any other obligor on the
Preferred Securities or by any Holder of the
Preferred Securities.
(b) No provision of this Guarantee
Agreement shall be deemed to impose any duty or
obligation on the Guarantee Trustee to perform any
act or acts or exercise any right, power, duty or
obligation conferred or imposed on it in any
jurisdiction in which it shall be illegal, or in
which the Guarantee Trustee shall be unqualified or
incompetent in accordance with applicable law, to
perform any such act or acts or to exercise any
such right, power, duty or obligation. No
permissive power or authority available to the
Guarantee Trustee shall be construed to be a duty
to act in accordance with such power and authority.
ARTICLE IV
GUARANTEE TRUSTEE
SECTION 4.1. Guarantee Trustee; Eligibility.
(a) There shall at all times be a Guarantee
Trustee which shall:
(i not be an Affiliate of the Guarantor; and
(ii be a Person that is eligible pursuant to
the Trust Indenture Act to act as such and has a
combined capital and surplus of at least
$50,000,000, and shall be a corporation meeting
the requirements of Section 310(c) of the Trust
Indenture Act. If such corporation publishes
reports of condition at least annually, pursuant
to law or to the requirements of the supervising
or examining authority, then, for the purposes of
this Section and to the extent permitted by the
Trust Indenture Act, the combined capital and
surplus of such corporation shall be deemed to be
its combined capital and surplus as set forth in
its most recent report of condition so published.
(b) If at any time the Guarantee Trustee shall
cease to be eligible to so act under Section 4.1(a), the
Guarantee Trustee shall immediately resign in the manner
and with the effect set out in Section 4.3.
(c) If the Guarantee Trustee has or shall acquire
any "conflicting interest" within the meaning of Section
310(b) of the Trust Indenture Act, the Guarantee Trustee
and Guarantor shall in all respects comply with the
provisions of Section 310(b) of the Trust Indenture Act.
SECTION 4.2. Compensation and Reimbursement.
The Guarantor agrees:
(a) to pay the Guarantee Trustee from time to
time such reasonable compensation as the Guarantor and the
Guarantee Trustee shall from time to time agree in writing
for all services rendered by it hereunder (which
compensation shall not be limited by any provision of law
in regard to the compensation of a trustee of an express
trust);
(b) except as otherwise expressly provided
herein, to reimburse the Guarantee Trustee upon its
request for all reasonable expenses, disbursements and
advances incurred or made by the Guarantee Trustee in
accordance with the provisions of this Guarantee
(including the reasonable compensation and expenses of its
agents and counsel), except any such expense, disbursement
or advance as may be attributable to its negligence or bad
faith; and
(c) to indemnify each of the Guarantee Trustee
and any predecessor Guarantee Trustee for, and to hold it
harmless from and against, any and all loss, damage,
claim, liability or expense, including taxes (other than
taxes based upon the income of the Guarantee Trustee)
incurred without negligence or bad faith on its part,
arising out of or in connection with the acceptance of the
trust created by, or the administration of, this Guarantee
Agreement, including the costs and expenses of defending
itself against any claim or liability in connection with
the exercise or performance of any of its powers or duties
hereunder.
As security for the performance of the obligations
of the Guarantor under this Section, the Guarantee Trustee shall
have a lien prior to the Preferred Securities upon all the
property and funds held or collected by the Guarantee Trustee as
such, except funds held in trust for the payment of principal of,
and premium (if any) or interest on, particular obligations of
the Guarantor under this Guarantee Agreement.
The provisions of this Section shall survive the
termination of this Guarantee Agreement.
SECTION 4.3. Appointment, Removal and Resignation of the
Guarantee Trustee.
(a) Subject to Section 4.3(b), unless an Event of
Default shall have occurred and be continuing, the
Guarantee Trustee may be appointed or removed without
cause at any time by the Guarantor.
(b) The Guarantee Trustee shall not be removed
until a Successor Guarantee Trustee has been appointed and
has accepted such appointment by written instrument
executed by such Successor Guarantee Trustee and delivered
to the Guarantor.
(c) The Guarantee Trustee appointed hereunder
shall hold office until a Successor Guarantee Trustee
shall have been appointed or until its removal or
resignation. The Guarantee Trustee may resign from office
(without need for prior or subsequent accounting) by an
instrument in writing executed by the Guarantee Trustee
and delivered to the Guarantor, which resignation shall
not take effect until a Successor Guarantee Trustee has
been appointed and has accepted such appointment by
instrument in writing executed by such Successor Guarantee
Trustee and delivered to the Guarantor and the resigning
Guarantee Trustee.
(d) If no Successor Guarantee Trustee shall have
been appointed and accepted appointment as provided in
this Section 4.3 within 60 days after delivery to the
Guarantor of an instrument of resignation, the resigning
Guarantee Trustee may petition, at the expense of the
Guarantor, any court of competent jurisdiction for
appointment of a Successor Guarantee Trustee. Such court
may thereupon, after prescribing such notice, if any, as
it may deem proper, appoint a Successor Guarantee Trustee.
(e) The Guarantor shall give notice of each
resignation and each removal of the Guarantee Trustee and
each appointment of a successor Guarantee Trustee to all
Holders in the manner provided in Section 8.3 hereof.
Each notice shall include the name of the successor
Guarantee Trustee and the address of its Corporate Trust
Office.
ARTICLE V
GUARANTEE
SECTION 5.1. Guarantee.
The Guarantor irrevocably and unconditionally
agrees to pay in full to the Holders the Guarantee Payments
(without duplication of amounts theretofore paid by or on behalf
of the Issuer), as and when due, regardless of any defense, right
of set-off or counterclaim which the Issuer may have or assert.
The Guarantor's obligation to make a Guarantee Payment may be
satisfied by direct payment of the required amounts by the
Guarantor to the Holders or by causing the Issuer to pay such
amounts to the Holders.
SECTION 5.2. Waiver of Notice and Demand.
The Guarantor hereby waives notice of acceptance
of the Guarantee Agreement and of any liability to which it
applies or may apply, presentment, demand for payment, any right
to require a proceeding first against the Guarantee Trustee,
Issuer or any other Person before proceeding against the
Guarantor, protest, notice of nonpayment, notice of dishonor,
notice of redemption and all other notices and demands.
SECTION 5.3. Obligations Not Affected.
The obligations, covenants, agreements and duties
of the Guarantor under this Guarantee Agreement shall in no way
be affected or impaired by reason of the happening from time to
time of any of the following:
(a) the release or waiver, by operation of law or
otherwise, of the performance or observance by the Issuer
of any express or implied agreement, covenant, term or
condition relating to the Preferred Securities to be
performed or observed by the Issuer;
(b) the extension of time for the payment by the
Issuer of all or any portion of the Distributions (other
than an extension of time for payment of Distributions
that results from the extension of any interest payment
period on the Debentures as so provided in the Indenture),
Redemption Price, Liquidation Distribution or any other
sums payable under the terms of the Preferred Securities
or the extension of time for the performance of any other
obligation under, arising out of, or in connection with,
the Preferred Securities;
(c) any failure, omission, delay or lack of
diligence on the part of the Holders to enforce, assert or
exercise any right, privilege, power or remedy conferred
on the Holders pursuant to the terms of the Preferred
Securities, or any action on the part of the Issuer
granting indulgence or extension of any kind;
(d) the voluntary or involuntary liquidation,
dissolution, sale of any collateral, receivership,
insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization, arrangement, composition or
readjustment of debt of, or other similar proceedings
affecting, the Issuer or any of the assets of the Issuer;
(e) any invalidity of, or defect or deficiency
in, the Preferred Securities;
(f) the settlement or compromise of any
obligation guaranteed hereby or hereby incurred; or
(g) any other circumstance whatsoever that might
otherwise constitute a legal or equitable discharge or
defense of a guarantor, it being the intent of this
Section 5.3 that the obligations of the Guarantor
hereunder shall be absolute and unconditional under any
and all circumstances.
There shall be no obligation of the Holders to give notice to, or
obtain the consent of, the Guarantor with respect to the
happening of any of the foregoing.
SECTION 5.4. Rights of Holders.
The Guarantor expressly acknowledges that: (i)
this Guarantee Agreement will be deposited with the Guarantee
Trustee to be held for the benefit of the Holders; (ii) if an
Event of Default has occurred and is continuing, the Guarantee
Trustee has the right to enforce this Guarantee Agreement on
behalf of the Holders; (iii) the Holders of a Majority in
liquidation preference of the Preferred Securities have the right
to direct the time, method and place of conducting any proceeding
for any remedy available to the Guarantee Trustee in respect of
this Guarantee Agreement or exercising any trust or power
conferred upon the Guarantee Trustee under this Guarantee
Agreement; and (iv) any Holder may institute a legal proceeding
directly against the Guarantor to enforce its rights under this
Guarantee Agreement, without first instituting a legal proceeding
against the Guarantee Trustee, the Issuer or any other Person.
SECTION 5.5. Guarantee of Payment.
This Guarantee Agreement creates a guarantee of
payment and not of collection. This Guarantee Agreement will not
be discharged except by payment of the Guarantee Payments in full
(without duplication of amounts theretofore paid by the Issuer)
or upon distribution of Debentures to Holders as provided in the
Trust Agreement.
SECTION 5.6. Subrogation.
The Guarantor shall be subrogated to all (if any)
rights of the Holders against the Issuer in respect of any
amounts paid to the Holders by the Guarantor under this Guarantee
Agreement and shall have the right to waive payment by the Issuer
pursuant to Section 5.1; provided, however, that the Guarantor
shall not (except to the extent required by mandatory provisions
of law) be entitled to enforce or exercise any rights which it
may acquire by way of subrogation or any indemnity, reimbursement
or other agreement, in all cases as a result of payment under
this Guarantee Agreement, if, at the time of any such payment,
any amounts are due and unpaid under this Guarantee Agreement.
If any amount shall be paid to the Guarantor in violation of the
preceding sentence, the Guarantor agrees to hold such amount in
trust for the Holders and to pay over such amount to the Holders.
SECTION 5.7. Independent Obligations.
The Guarantor acknowledges that its obligations
hereunder are independent of the obligations of the Issuer with
respect to the Preferred Securities and that the Guarantor shall
be liable as principal and as debtor hereunder to make Guarantee
Payments pursuant to the terms of this Guarantee Agreement
notwithstanding the occurrence of any event referred to in
subsections (a) through (g), inclusive, of Section 5.3 hereof.
ARTICLE VI
COVENANTS AND SUBORDINATION
SECTION 6.1. Subordination.
This Guarantee Agreement will constitute an
unsecured obligation of the Guarantor and will rank subordinate
and junior in right of payment to all general liabilities of the
Guarantor. Nothing in this Section 6.1 shall apply to claims of,
or payments to, the Guarantee Trustee under or pursuant to
Section 4.2 hereof.
ARTICLE VII
TERMINATION
SECTION 7.1. Termination.
This Guarantee Agreement shall terminate and be
of no further force and effect upon (i) full payment of the
Redemption Price of all Preferred Securities, (ii) the
distribution of Debentures to the Holders in exchange for all of
the Preferred Securities or (iii) full payment of the amounts
payable in accordance with the Trust Agreement upon liquidation
of the Issuer. Notwithstanding the foregoing, this Guarantee
Agreement will continue to be effective or will be reinstated, as
the case may be, if at any time any Holder must restore payment
of any sums paid with respect to Preferred Securities or under
this Guarantee Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. Successors and Assigns.
This Guarantee Agreement may be amended only by an
instrument in writing entered into by the Guarantor and the
Guarantee Trustee. All guarantees and agreements contained in
this Guarantee Agreement shall bind the successors, assigns,
receivers, trustees and representatives of the Guarantor and
shall inure to the benefit of the Holders of the Preferred
Securities then outstanding. Except in connection with a
consolidation, merger or sale involving the Guarantor that is
permitted under Article Eight of the Indenture and pursuant to
which the assignee agrees in writing to perform the Guarantor's
obligations hereunder, the Guarantor shall not assign its
obligations hereunder. Nothing herein contained shall be deemed
to require the Guarantee Trustee to enter into any amendment of
this Guarantee Agreement.
SECTION 8.2. Amendments.
Except with respect to any changes which do not
adversely affect the rights of the Holders in any material
respect (in which case no consent of the Holders will be
required), this Guarantee Agreement may only be amended with the
prior approval of the Holders of not less than a Majority in
liquidation preference of all the outstanding Preferred
Securities. The provisions of Article VI of the Trust Agreement
concerning meetings of the Holders shall apply to the giving of
such approval.
SECTION 8.3. Notices.
Any notice, request or other communication
required or permitted to be given hereunder shall be in writing,
duly signed by the party giving such notice, and delivered,
telecopied or mailed by first class mail as follows:
(a) if given to the Guarantor, to the address set
forth below or such other address, facsimile number or to
the attention of such other Person as the Guarantor may
give notice of to the Holders:
Atlantic City Electric Company
6801 Black Horse Pike
Egg Harbor Township, New Jersey 08234-4130
Facsimile No.: (609) 645-4132
Attention: Treasurer
with a copy to:
Atlantic City Electric Company
6801 Black Horse Pike
Egg Harbor Township, New Jersey 08324-4130
Facsimile No.: (609) 645-4132
Attention: General Counsel
(b) if given to the Issuer, in care of the Guarantee
Trustee, at the Issuer's (and the Guarantee Trustee's)
address set forth below or such other address, facsimile
number or to the attention of such other Person as the
Guarantee Trustee on behalf of the Issuer may give notice to
the Holders:
Atlantic Capital I
c/o Atlantic City Electric Company
6801 Black Horse Pike
Egg Harbor Township, New Jersey 08234-4130
Facsimile No: (609) 645-4132
Attention: Treasurer
with a copy to:
The Bank of New York
101 Barclay Street
New York, New York 10286
Facsimile No.: (212) 815-5999
Attention: Corporate Trust Department
(c) if given to any Holder, at the address set forth
on the books and records of the Issuer. All notices
hereunder shall be deemed to have been given when received
in person, telecopied with receipt confirmed, or mailed by
first class mail, postage prepaid, except that if a notice
or other document is refused delivery or cannot be delivered
because of a changed address of which no notice was given,
such notice or other document shall be deemed to have been
delivered on the date of such refusal or inability to
deliver.
SECTION 8.4. Benefit.
This Guarantee Agreement is solely for the benefit of
the Holders and, subject to Section 3.1(a), is not separately
transferable from the Preferred Securities.
SECTION 8.5. Interpretation.
In this Guarantee Agreement, unless the context
otherwise requires:
(a) capitalized terms used in this Guarantee Agreement
but not defined in the preamble hereto have the respective
meanings assigned to them in Section 1.1;
(b) a term defined anywhere in this Guarantee
Agreement has the same meaning throughout;
(c) all references to "the Guarantee Agreement" or
"this Guarantee Agreement" are to this Guarantee Agreement
as modified, supplemented or amended from time to time;
(d) all references in this Guarantee Agreement to
Articles and Sections are to Articles and Sections of this
Guarantee Agreement unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the
same meaning when used in this Guarantee Agreement unless
otherwise defined in this Guarantee Agreement or unless the
context otherwise requires;
(f) a reference to the singular includes the plural
and vice versa; and
(g) the masculine, feminine or neuter genders used
herein shall include the masculine, feminine and neuter
genders.
SECTION 8.6. GOVERNING LAW.
THIS GUARANTEE AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAW PRINCIPLES.
This instrument may be executed in any number of
counterparts, each of which so executed shall be deemed to be an
original, but all such counterparts shall together constitute but
one and the same instrument.<PAGE>
THIS GUARANTEE AGREEMENT is executed as of the day and
year first above written.
ATLANTIC CITY ELECTRIC COMPANY
By: /s/ L.M. Walters
L.M. Walters
Vice President, Treasurer and
Assistant Secretary
THE BANK OF NEW YORK, as
Guarantee Trustee
By: /s/ Lucille Firrincieli
Lucille Firrincieli
Assistant Vice President
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into this 10th day of August,
1995 by and between Atlantic Energy, Inc., a New Jersey
corporation (the "Company"), and James E. Franklin, II (the
"Executive").
In consideration of the premises and mutual covenants
herein contained, it is hereby agreed by and between the Company
and the Executive as follows:
1. Term of Agreement. The term of this Agreement
shall commence on the date hereof (the "Effective Date") and
shall continue until the second anniversary of the Effective Date
(the "Employment Period"); provided, however, that the Employment
Period shall be automatically renewed for two years unless either
party shall send the other written notice of its intention to
terminate the agreement at the end of such Employment Period one
year prior to the end of such Employment Period; and, provided,
further, that upon the occurrence of a Change of Control, the
Employment Period shall become three years and shall commence on
the date of the Change of Control, and shall thereafter be
automatically renewed for two years unless either party shall
send the other written notice of its intention to terminate the
agreement one year prior to the end of the then current
Employment Period.
2. Place of Employment. The Executive's services
during the term of this Agreement shall be performed primarily at
the principal offices of the Company in Egg Harbor Township, New
Jersey. The Executive shall be furnished with a suitable office
and such other facilities and services as he may reasonably
require in performing his obligations under this Agreement.
3. Employment Obligations.
(a) Position and Duties. The Company hereby agrees
to employ the Executive as its Vice President, Secretary and
General Counsel, as the Senior Vice President, Secretary and
General Counsel of Atlantic City Electric Company ("Electric"),
and as the Secretary of Atlantic Energy Enterprises, Inc. for the
Employment Period. The Executive shall exercise his reasonable
best efforts in furtherance of, and shall devote substantially
all of his working time and attention to the affairs of the
Company and its affiliates, and shall perform such duties and
services as may reasonably be assigned to him by, and shall
report directly to the Chief Executive Officer and the Board of
Directors of the Company (the "Board").
(b) Business Time. From and after the Effective Date,
the Executive agrees to devote his full business time during
normal business hours to the business and affairs of the Company
and to use his best efforts to perform faithfully and efficiently
the responsibilities assigned to him hereunder, to the extent
necessary to discharge such responsibilities, except for (i) time
spent in managing his personal, financial and legal affairs and
serving on corporate, civic or charitable boards or committees on
which he served prior to the Effective Date, in each case only if
and to the extent not substantially interfering with the
performance of such responsibilities, and (ii) periods of
vacation and sick leave to which he is entitled. It is expressly
understood and agreed that the Executive's continuing to serve on
any boards and committees on which he is serving or with which he
is otherwise associated immediately preceding the Effective Date
which is not in violation of any Company policy shall not be
deemed to interfere with the performance of the Executive's
services to the Company. In addition, the Executive may commence
service as a director of other corporations or organizations
after the Effective Date upon approval by the Board which, in the
judgment of the Board, will not present any conflict of interest
with the Company or any subsidiary or affiliate thereof, and
which would not affect the performance of Executive's duties
pursuant to this Agreement, which approval shall not be
unreasonably withheld; provided, however, that the Executive
shall neither (a) become an officer or director of (i) another
entity which has or will have the status of a public utility
under the Federal Power Act, or any successor act, (ii) any bank,
trust company, banking association or firm that is authorized by
law to underwrite or participate in the marketing of securities
of a public utility, or (iii) any company supplying electrical
equipment to the Company, nor (b) accept any such position and
commence the performance of any duties or services in such
capacity (an "Interlock"), unless the Executive shall have first
(x) furnished the Board with at least thirty (30) days prior
written notice of his intention to create such Interlock and (y)
secured, if the Board shall request that such action be taken,
any necessary authorization for such Interlock, in form and
substance satisfactory to the Board, from the Federal Energy
Regulatory Commission, or successor regulatory agency, pursuant
to Section 305(b) of the Federal Power Act, or any supplement or
amendment thereto.
4. Compensation. (a) Base Salary. During the Employment
Period, the Executive shall receive a base salary ("Base Salary")
at an annual rate at least equal to the annual salary paid to the
Executive by the Company and any of its affiliated companies
immediately prior to the Effective Date. The Base Salary shall
be reviewed at least once each year after the Effective Date, and
may be increased (but not decreased) at any time and from time to
time by action of the Board or any committee thereof or any
individual having authority to take such action in accordance
with the Company's regular practices. Once increased, any
reference to Base Salary herein shall be a reference to such
increased amount. Neither the Base Salary nor any increase in
Base Salary after the Effective Date shall serve to limit or
reduce any other obligation of the Company hereunder.
(b) Annual Bonus. During the Employment Period, in
addition to the Base Salary, for each fiscal year of the Company
ending during the Employment Period, the Executive shall have the
opportunity to receive an annual bonus ("Annual Bonus
Opportunity"), based on the achievement of target levels of
performance. Without limiting the generality of the foregoing,
following any Change of Control (as defined hereinafter), the
amount actually payable to the Executive as an annual bonus shall
not be less than an amount equal to the higher of the bonus paid
to the Executive for the most recently completed fiscal year of
the Company or the target bonus for the then current fiscal year
(the "Minimum Bonus Amount"). Any amount payable in respect of
the Annual Bonus Opportunity or the Minimum Bonus Amount shall be
paid no later than sixty (60) days after the close of the fiscal
year for which the amount (or prorated portion) is earned or
awarded, unless electively deferred by the Executive pursuant to
any deferral programs or arrangements that the Company may make
available to the Executive.
(c) Long-term Incentive Compensation Programs and
Equity Programs. During the Employment Period, the Executive
shall participate in all long-term incentive compensation
programs and equity programs for key executives at a level that
is commensurate with the Executive's participation in such plans
immediately prior to the Effective Date, or, if more favorable to
the Executive, at the level made available to the Executive or
other similarly situated executive officers of the Company and
its affiliated companies at any time thereafter.
(d) Benefit Plans. During the Employment Period, the
Executive (and, to the extent applicable, his dependents) shall
be entitled to participate in or be covered under all pension,
supplemental retirement or excess benefit (collectively, the
"Supplemental Retirement Benefits"), deferred compensation,
savings, medical, dental, health, disability, group life,
accidental death and travel accident insurance plans and programs
of the Company and its affiliated companies at a level that is
commensurate with and provides the same level and quality of
coverage as the Executive's participation in such plans
immediately prior to the Effective Date (except for the Medical
Executive Reimbursement Plan (the "MERP"), it being understood
that the MERP shall be terminated as of September 30, 1995), or,
if more favorable to the Executive, at the level made available
to the Executive or other similarly situated executive officers
of the Company and its affiliated companies at any time
thereafter.
(e) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by the Executive in accordance
with the policies and procedures of the Company as in effect from
time to time; provided; however, that in no event shall such
policies and procedures after the occurrence of a Change of
Control be less favorable to the Executive than immediately prior
to a Change of Control. Notwithstanding the foregoing, the
Company may apply the policies and procedures in effect after the
Change of Control date to the Executive, if such policies and
procedures are more favorable to the Executive than those in
effect immediately prior to the Change of Control date.
(f) Vacation and Fringe Benefits. During the
Employment Period, the Executive shall be entitled to paid
vacation and fringe benefits at a level that is commensurate with
the paid vacation and fringe benefits available to the Executive
immediately prior to the Effective Date, or, if more favorable to
the Executive, at the level made available from time to time to
the Executive or other similarly situated executive officers at
any time thereafter.
(g) Indemnification. During and after the Employment
Period, the Company shall indemnify the Executive and hold the
Executive harmless from and against any claim, loss or cause of
action arising from or out of the Executive's performance as an
officer, director or employee of the Company or any of its
subsidiaries or in any other capacity, including any fiduciary
capacity, in which the Executive serves at the request of the
Company to the maximum extent permitted by applicable law and the
Company's Certificate of Incorporation and By-Laws (the
"Governing Documents"); provided, however, that in no event shall
the protection afforded to the Executive hereunder be less than
that afforded under the Governing Documents as in effect im-
mediately prior to the Effective Date, or if later, the Change of
Control.
5. Termination. (a) Death, Permanent Disability or
Retirement. Subject to the provisions of Section 1 hereof, this
Agreement shall terminate automatically upon the Executive's
death, Permanent Disability (as defined in Section 22(e)(3) of
the Internal Revenue Code of 1986, as amended (the "Code"),
except that a six month period shall be substituted for the
twelve month period provided for therein) or voluntary retirement
under any of the Company's retirement plans as in effect from
time to time.
(b) Voluntary Termination. Notwithstanding anything
in this Agreement to the contrary, the Executive may, upon not
less than 60 days' written notice to the Company, voluntarily
terminate employment for any reason (including early retirement
under the terms of any of the Company's retirement plans as in
effect from time to time); provided, however, any termination by
the Executive pursuant to Section 5(d) on account of Good Reason
(as defined therein) shall not be treated as a voluntary
termination under this Section 5(b).
(c) Cause. The Company may terminate the Executive's
employment for Cause. For purposes of this Agreement, "Cause"
means (i) willful and continuous failure by Executive to perform
his duties under this Agreement (other than resulting from
incapacity due to physical or mental illness),(ii) the
Executive's conviction or plea of nolo contendere to a felony;
(iii) the Executive's willful engagement in misconduct in
connection with employment which results in material damage to
the Company's business or reputation; or (iv) material breach of
Executive's duties hereunder which result in material damage to
the Company's business or reputation, in each of (ii) through
(iv) above, upon 30 days written notice to the Executive, the
opportunity for the Executive to be heard by the Board and the
good faith determination by at least two-thirds of the Company's
non-employee directors that Cause exists; provided, however, that
after the occurrence of a Change of Control (as hereinafter
defined), "Cause" shall be limited to (ii) through (iv) above.
(d) Good Reason. During the Employment Period,
Executive may terminate his employment for Good Reason. For
purposes of this Agreement, "Good Reason" means the occurrence of
any of the following, without the express written consent of the
Executive:
(i (A) the assignment to the Executive of any
duties inconsistent with the Executive's position, authority
or responsibilities as contemplated by Section 3 of this
Agreement, or (B) any other adverse change in such position,
including titles, authority or responsibilities;
(ii reduction of Executives's base salary or bonus
opportunities, or any other material breach by the Company
of this Agreement;
(iii the Company's requiring the Executive to be
based at any office or location more than 25 miles from that
location at which he performed his services specified under
the provisions of Section 2 immediately prior to the Change
of Control, except for travel reasonably required in the
performance of the Executive's responsibilities; or
(iv any failure by the Company to obtain the
assumption and agreement to perform this Agreement by a
successor as contemplated by Section 12(b) upon the
occurrence of a Change of Control; provided, however, the
successor has had actual written notice of the existence of
this Agreement and its terms and an opportunity to assume
the Company's responsibilities under this Agreement during a
period of 10 business days after receipt of such notice.
(e) Notice of Termination. Any termination by the
Company for Cause or by the Executive for Good Reason shall be
communicated by Notice of Termination to the other party hereto
given in accordance with Section 13(f). For purposes of this
Agreement, a "Notice of Termination" means a written notice
given, in the case of a termination for Cause, within 10 business
days of the Company's having actual knowledge of the events
giving rise to such termination, and in the case of a termination
for Good Reason, within 180 days of the Executive's having actual
knowledge of the events giving rise to such termination, and
which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so
indicated, and (iii) if the termination date is other than the
date of receipt of such notice, specifies the termination date of
this Agreement (which date shall be not more than 15 days after
the giving of such notice). The failure by the Executive to set
forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason shall not waive any right
of the Executive hereunder or preclude the Executive from
asserting such fact or circumstance in enforcing his rights
hereunder.
(f) Date of Termination. For purposes of this
Agreement, the term "Date of Termination" means (i) in the case
of a termination for which a Notice of Termination is required,
the date of receipt of such Notice of Termination or, if later,
the date specified therein, as the case may be, and (ii) in all
other cases, the actual date on which the Executive's employment
terminates during the Employment Period. On or as soon
practicable following the Date of Termination, the Executive
shall return to the Company all property of the Company and all
copies thereof in the Executive's possession or under his
control.
6. Obligations of the Company upon Termination.
(a) Death, Permanent Disability or Retirement. If the
Executive's employment is terminated during the Employment Period
by reason of the Executive's death, Permanent Disability or
voluntary retirement this Agreement shall terminate without
further obligations to the Executive or the Executive's legal
representatives under this Agreement other than those obligations
accrued hereunder at the Date of Termination, and the Company
shall pay or provide to the Executive or the Executive's legal
representative under this Agreement the following amounts either
in a lump sum or in such other form of payment as is provided or
elected by the Executive under the operative plan:
(i the Executive's full Base Salary through the
Date of Termination (the "Earned Salary");
(ii the Supplemental Retirement Benefits and the
amount otherwise payable to or in respect of the Executive
under the Company's otherwise applicable long-term incentive
compensation and equity plans and programs (the "Incentive
and Equity Amounts") it being understood that, in the event
of death or disability, any applicable performance targets
thereunder (to the extent not already determined as of the
Termination Date) shall be deemed to have been met for the
applicable performance period and that payments thereunder
shall be pro-rated as of the Date of Termination; and in the
event of a termination by reason of retirement, then the
Supplemental Retirement Benefits and the Incentive and
Equity Amounts, the Incentive and Equity Amounts being
calculated and payable in accordance with the terms of the
underlying plans and payable to the Executive when awards
are payable to all other participants in such plans in
accordance with the terms thereof, but prorated through the
date of such retirement; and
(iii an amount (the "Pro-Rated Bonus") equal to the
product of (x) times (y), minus (z):
(x) the Minimum Bonus Amount;
(y) a fraction, the numerator of which is the
number of days in the then current calendar
year which have elapsed as of the Date of
Termination, and the denominator of which is
365;
(z) if Executive's termination occurs in the
same calendar year as the Change of Control,
an amount equal to the amount paid to the
Executive under the Company's applicable
bonus plan (the "Actual Bonus Payment")
(iv) all vested amounts or benefits owing to the
Executive under the Company's otherwise applicable employee
benefit plans and programs, including any compensation
previously deferred by the Executive (together with any
accrued earnings thereon) and not yet paid by the Company
and any accrued vacation pay not yet paid by the Company
(the "Accrued Obligations").
Any Earned Salary, Accrued Obligations and Pro-Rated Bonus shall
be paid in cash in a single lump sum as soon as practicable ( but
in no event more than 20 days) following the Date of Termination.
Any Incentive and Equity Amounts and Supplemental Retirement
Benefits accrued by the Executive shall be payable in accordance
with the terms of the underlying plans.
(b) Cause and Voluntary Termination. If, during the
Employment Period, the Executive's employment shall be terminated
for Cause or voluntarily terminated by the Executive (other than
on account of Good Reason), the Company shall pay the Executive
the Earned Salary and the Accrued Obligations (including, but not
limited to, the Incentive and Equity Amounts and Supplemental
Retirement Benefits, each in accordance with the terms of the
underlying plan) in cash in a single lump sum as soon as
practicable (but in no event more than 20 days following) the
Date of Termination, or in accordance with the terms of the
underlying plan.
(c) Termination by the Company other than for Cause
and Termination by the Executive for Good Reason.
(A) Prior to the Occurrence of a Change of Control.
(i Payments. If, prior to a Change of Control, the
Company terminates the Executive's employment other than for
Cause, or the Executive terminates his employment for Good
Reason, the Company shall pay to the Executive the following
amounts, either in a lump sum or in such other form of
payment as is provided or elected by the Executive under the
operative plan:
(A) the Executive's Earned Salary;
(B) a cash amount (the "Pre-Change Severance Amount")
equal to two multiplied by the sum of
(1) the Executive's annual Base Salary; plus
(2) the Minimum Bonus Amount.
(C) the Pro-Rated Bonus;
(D) the Incentive and Equity Amounts;
(E) the Supplemental Retirement Benefits, it being
understood that upon the occurrence of a
termination under this Section 6(c)(A),
Executive's vested interest in such benefits shall
accelerate; and
(F) the Accrued Obligations.
Any Earned Salary, Pre-Change Severance Amount, Accrued
Obligations and Pro-Rated Bonus shall be paid in cash in a
single lump sum as soon as practicable (but in no event more
than 20 days) following the Date of Termination. The
Supplemental Retirement Benefits and Incentive and Equity
Amounts shall be payable in accordance with the terms of the
underlying plans.
(ii Continuation of Benefits. If, during the
Employment Period, the Company terminates the Executive's
employment other than for Cause, or the Executive terminates
employment for Good Reason prior to the occurrence of a
Change of Control:
(A) the Executive (and, to the extent applicable, his
dependents) shall be entitled, after the Date of
Termination until the earlier of (i) the second
anniversary of the Date of Termination or, (ii)
the date on which the Executive is covered under
any comparable plans of a subsequent employer (the
"End Date"), to continue participation (including,
but not limited to, vesting and accruals) in all
of the Company's employee and executive pension,
welfare and fringe benefit plans, it being
understood that for purposes of the calculation of
Supplemental Retirement Benefits, Final Annual
Compensation (as defined in the underlying plans)
shall be equal to Final Annual Compensation as of
the Date of Termination (the "Benefit Plans"). To
the extent any such benefits cannot be provided
under the terms of the applicable plan, policy or
program, the Company shall provide a comparable
benefit under another plan or from the Company's
general assets. The Executive's participation in
the Benefit Plans will be on the same terms and
conditions that would have applied had the
Executive continued to be employed by the Company
through the End Date;
(B) the Executive (or, in the event of the Executive's
death during such period, the Executive's
beneficiary or estate) shall have the right to
exercise any outstanding options to purchase
shares of Common Stock of the Company then
exercisable by the Executive or which would become
exercisable in accordance with the applicable
option agreement and the applicable equity
incentive plan of the Company (such agreements and
plans referred to collectively as the "Equity
Documents") for the period of time permitted in
accordance with the generally applicable terms of
the governing Equity Documents) after the Date of
Termination; and
(C) for purposes of the Benefit Plans and the Equity
Documents, the Executive will be deemed to have
terminated employment under mutually satisfactory
conditions.
(B) After the Occurrence of a Change of Control.
(i Payments. If, following a Change of Control,
the Company terminates the Executive's employment other than
for Cause, or the Executive terminates his employment for
Good Reason, the Company shall pay to the Executive the
following amounts, either in a lump sum or in such other
form of payment as is provided or elected by the Executive
under the operative plan:
(A) the Executive's Earned Salary;
(B) a cash amount (the "Severance Amount") equal to
three times the sum of
(1) the Executive's annual Base Salary; and
(2) the Minimum Bonus Amount;
(C) the Pro-Rated Bonus;
(D) the Incentive and Equity Amounts, all of which
shall be fully accelerated and deemed earned, and
all applicable performance targets thereunder
shall be deemed to have been met upon the
occurrence of a Change of Control;
(E) the Supplemental Retirement Benefits, which shall
be determined based on the granting of service
credit for a period of three years and, after such
credit has been granted, shall be computed based
upon the deemed age of the Executive at the end of
such three year period, it being understood that
upon the occurrence of a Change of Control,
Executive's vested interest in such benefits shall
accelerate and that for purposes of the
calculation of Supplemental Retirement Benefits,
Final Annual Compensation (as defined in the
underlying plans) shall be equal to Final Annual
Compensation as of the Date of Termination; and
(F) the Accrued Obligations.
Any Earned Salary, Severance Amount, Accrued Obligations,
and Pro-Rated Bonus shall be paid in cash, or in the case of
the Incentive and Equity Amounts, in kind if so provided
under the relevant plan, in a single lump sum as soon as
practicable (but in no event more than 20 days) following
the Date of Termination. The Supplemental Retirement
Benefits shall be payable in accordance with the terms of
the underlying plans (after giving effect to the
acceleration and granting of service credit provided for
herein) and the elections of the Executive thereunder.
(ii) Continuation of Benefits. If, during the
Employment Period and after the occurrence of a Change of
Control, the Company terminates the Executive's employment
other than for Cause or the Executive terminates his
employment for Good Reason:
(A) the Executive (and, to the extent applicable, his
dependents) shall be entitled, after the Date of
Termination until the earlier of (i) the third
anniversary of the Date of Termination, or (ii)
the date on which the Executive is covered under
any comparable plans of a subsequent employer,
(the "End Date"), to continue participation
(including, but not limited to, vesting and
accruals) in all of the Company's employee and
executive pension, welfare and fringe benefit
plans, excluding the Supplemental Retirement
Benefits (the "Benefit Plans"). To the extent any
such benefits cannot be provided under the terms
of the applicable plan, policy or program, the
Company shall provide a comparable benefit under
another plan or from the Company's general assets.
The Executive's participation in the Benefit Plans
will be on the same terms and conditions that
would have applied had the Executive continued to
be employed by the Company through the End Date;
(B) the Executive (or, in the event of the Executive's
death during such period, the Executive's
beneficiary or estate) shall have the right to
exercise any outstanding options to purchase
shares of Common Stock of the Company then
exercisable by the Executive or which would become
exercisable in accordance with the applicable
Equity Documents for the period of time permitted
in accordance with the generally applicable terms
of the governing Equity Documents, after the Date
of Termination; and
(C) for purposes of the Benefit Plans and the Equity
Documents, the Executive will be deemed to have
terminated employment under mutually satisfactory
conditions.
(d) Discharge of the Company's Obligations.
Except as expressly provided in the last sentence of this Section
6(d), the amounts payable to the Executive pursuant to this
Section 6 following termination of his employment shall be in
full and complete satisfaction of the Executive's rights under
this Agreement and any other claims he may have in respect of his
employment by the Company or any of its Subsidiaries. Such
amounts shall constitute liquidated damages with respect to any
and all such rights and claims and, upon the Executive's receipt
of such amounts, the Company shall be released and discharged
from any and all liability to the Executive in connection with
this Agreement or otherwise in connection with the Executive's
employment with the Company and its Subsidiaries. Nothing in
this Section 6(d) shall be construed to release the Company from
its commitment to indemnify the Executive and hold the Executive
harmless from and against any claim, loss or cause of action
arising from or out of the Executive's performance as an officer,
director or employee of the Company or any of its Subsidiaries or
in any other capacity, including any fiduciary capacity, in which
the Executive served at the request of the Company to the maximum
extent permitted by applicable law and the Governing Documents.
(e) Certain Further Payments by the Company.
(i In the event that any amount or benefit paid
or distributed to the Executive pursuant to this Agreement,
taken together with any amounts or benefits otherwise paid
or distributed to the Executive by the Company or any
affiliated company (collectively, the "Covered Payments"),
are or become subject to the tax (the "Excise Tax") imposed
under Section 4999 of the Code or any similar tax that may
hereafter be imposed, the Company shall pay to the Executive
at the time specified in Section 6(e)(v) below an additional
amount (the "Tax Reimbursement Payment") such that the net
amount retained by the Executive with respect to such
Covered Payments, after deduction of any Excise Tax on the
Covered Payments and any Federal, state and local income,
employment or other tax and Excise Tax on the Tax
Reimbursement Payment provided for by this Section 6(e), but
before deduction for any Federal, state or local income or
employment tax withholding on such Covered Payments, shall
be equal to the amount of the Covered Payments.
(ii For purposes of determining whether any of the
Covered Payments will be subject to the Excise Tax and the
amount of such Excise Tax,
(A) such Covered Payments will be treated as
"parachute payments" within the meaning of Section
28OG of the Code, and all "parachute payments" in
excess of the "base amount" (as defined under
Section 28OG(b)(3) of the Code) shall be treated
as subject to the Excise Tax, unless, and except
to the extent that, in the good faith judgment of
the Company's independent certified public
accountants appointed prior to the Effective Date
or tax counsel selected by such Accountants (the
"Accountants"), the Company has a reasonable basis
to conclude that such Covered Payments (in whole
or in part) either do not constitute "parachute
payments" or represent reasonable compensation for
personal services actually rendered (within the
meaning of Section 28OG(b)(4)(B) of the Code) in
excess of the "base amount," or such "parachute
payments" are otherwise not subject to such Excise
Tax, and
(B) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the
Accountants in accordance with the principles of
Section 28OG of the Code.
(iii For purposes of determining the amount of the
Tax Reimbursement Payment, the Executive shall be deemed to
pay:
(A) Federal income taxes at the highest applicable
marginal rate of Federal income taxation for the
calendar year in which the Tax Reimbursement
Payment is to be made, and
(B) any applicable state and local income taxes at the
highest applicable marginal rate of taxation for
the calendar year in which the Tax Reimbursement
Payment is to be made, net of the maximum
reduction in Federal incomes taxes which could be
obtained from the deduction of such state or local
taxes if paid in such year.
(iv In the event that the Excise Tax is subsequently
determined by the Accountants or pursuant to any proceeding
or negotiations with the Internal Revenue Service to be less
than the amount taken into account hereunder in calculating
the Tax Reimbursement Payment made, the Executive shall
repay to the Company, at the time that the amount of such
reduction in the Excise Tax is finally determined, the
portion of such prior Tax Reimbursement Payment that would
not have been paid if such Excise Tax had been applied in
initially calculating such Tax Reimbursement Payment, plus
interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code.
Notwithstanding the foregoing, in the event any portion of
the Tax Reimbursement Payment to be refunded to the Company
has been paid to any Federal, state or local tax authority,
repayment thereof shall not be required until actual refund
or credit of such portion has been made to the Executive,
and interest payable to the Company shall not exceed
interest received or credited to the Executive by such tax
authority for the period it held such portion. The
Executive and the Company shall mutually agree upon the
course of action to be pursued (and the method of allocating
the expenses thereof) if the Executive's good faith claim
for refund or credit is denied.
In the event that the Excise Tax is later determined by
the Accountants or pursuant to any proceeding or
negotiations with the Internal Revenue Service (the
"Service") to exceed the amount taken into account hereunder
at the time the Tax Reimbursement Payment is made
(including, but not limited to, by reason of any payment the
existence or amount of which cannot be determined at the
time of the Tax Reimbursement Payment), the Company shall
make an additional Tax Reimbursement Payment in respect of
such excess (plus any interest or penalty payable with
respect to such excess) at the time that the amount of such
excess is finally determined, such that the net amount
retained by the Executive with respect to the Covered
Payments, after deduction of any Excise Tax on the Covered
Payments and any Federal, state and local income, employment
or other tax and Excise Tax on the Tax Reimbursement Payment
provided for by this Section, but before deduction for any
Federal, state or local income or employment tax withholding
on such Covered Payments, shall be equal to the amount of
the Covered Payments.
The Company agrees to reimburse the Executive for reasonable
fees and expenses in connection with any audit or assessment
by the Service if a claim ("Claim") by the Service arises
out of, or results from the treatment by the Service of any
payments made by the Company as parachute payments and for
the cost of preparing the Executive's income tax returns for
the year in which any payment by the Company may be
characterized as a parachute payment. The Executive shall
notify the Company in writing of any such Claim as soon as
practicable but in no event later than ten (10) business
days after the Executive is informed of such Claim and shall
cooperate with the Company in good faith to effectively
contest the Claim. The Company shall control all
proceedings taken in connection with such contest and, at
its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such
Claim and the Executive agrees to prosecute such contest as
the Company shall determine. Notwithstanding the foregoing,
if the Company forgoes further prosecution of such contest,
the Executive may elect to continue such prosecution;
provided, however, that in no event shall the Company be
liable for the fees and expenses in connection with such
further prosecution.
(v The Tax Reimbursement Payment (or portion
thereof) provided for in Section 6(e)(i) above shall be paid
to the Executive not later than 10 business days following
the payment of the Covered Payments; provided, however, that
if the amount of such Tax Reimbursement Payment (or portion
thereof) cannot be finally determined on or before the date
on which payment is due, the Company shall pay to the
Executive by such date an amount estimated in good faith by
the Accountants to be the minimum amount of such Tax Re-
imbursement Payment and shall pay the remainder of such Tax
Reimbursement Payment (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) as soon as
the amount thereof can be determined, but in no event later
than 45 calendar days after payment of the related Covered
Payment. In the event that the amount of the estimated Tax
Reimbursement Payment exceeds the amount subsequently
determined to have been due, such excess shall constitute a
loan by the Company to the Executive, payable on the fifth
business day after written demand by the Company for payment
(together with interest at the rate provided in Section 1274
(b)(2)(B) of the Code).
7. Definitions. (a) Change of Control. For purposes of
this Agreement, a "Change of Control" shall be deemed to have
occurred:
(i when any "person" as defined in Section 3(a)(9)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and as used in Section 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) of
the Exchange Act but excluding the Company and any
subsidiary and any employee benefit plan sponsored or
maintained by the Company or any subsidiary (including any
trustee of such plan acting as trustee), directly or
indirectly, becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), of securities of the
Company representing 20 percent or more of the combined
voting power of the Company's then outstanding securities;
or
(ii when, during any period of 24 consecutive months
during the Employment Period, the individuals who, at the
beginning of such period, constitute the Board (the
"Incumbent Directors") cease for any reason other than death
to constitute at least a majority thereof; provided,
however, that a director who is not a director at the
beginning of such 24-month period shall be deemed to have
satisfied such 24-month requirement (and be an Incumbent
Director) if such director was elected by, or on the
recommendation of or with the approval of, at least two-
thirds of the directors who then qualified as Incumbent
Directors either actually (because they were directors at
the beginning of such 24-month period) or by prior operation
of this Section; or
(iii) upon the occurrence of a transaction requiring
stockholder approval for the acquisition of the Company by
an entity other than the Company or a subsidiary through
purchase of assets, or by merger, or otherwise.
For purposes of this Section 7, if any of the above occur with
respect to Electric while the Executive is employed by Electric,
"Company" shall include Electric.
8. Non-exclusivity of Rights. Except as expressly
provided herein, nothing in this Agreement shall prevent or limit
the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by
the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or
otherwise prejudice such rights as the Executive may have under
any other agreements with the Company or any of its affiliated
companies, including employment agreements or stock option
agreements. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan or
program of the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in
accordance with such plan or program.
9. Full Settlement. The Company's obligation to make
the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any
circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the
Company may have against the Executive or others whether by
reason of the subsequent employment of the Executive or otherwise
In the event that the Executive shall in good faith give a Notice
of Termination for Good Reason and it shall thereafter be
determined that Good Reason did not exist, the employment of the
Executive shall, unless the Company and the Executive shall
otherwise mutually agree, be deemed to have terminated, at the
date of giving such purported Notice of Termination, by mutual
consent of the Company and the Executive and, except as provided
in the last preceding sentence, the Executive shall be entitled
to receive only his Earned Salary and the Accrued Obligations.
10. Legal Fees and Expenses. If the Executive asserts
any claim in any contest (whether initiated by the Executive or
by the Company) as to the validity, enforceability or
interpretation of any provision of this Agreement, the Company
shall pay the Executive's legal expenses (or cause such expenses
to be paid) including, without limitation, his reasonable
attorney's fees, on a quarterly basis, upon presentation of proof
of such expenses in a form reasonably acceptable to the Company.
11. Confidential Information; Company Property. By
and in consideration of the salary and benefits to be provided by
the Company hereunder, including the severance arrangements set
forth herein, the Executive agrees that:
(a) Confidential Information. The Executive shall
hold in a fiduciary capacity for the benefit of the Company all
secret or confidential information, knowledge or data relating to
the Company or any of its affiliated companies, and their
respective businesses, (i) obtained by the Executive during his
employment by the Company or any of its affiliated companies and
(ii) not otherwise public knowledge (other than by reason of an
unauthorized act by the Executive). After termination of the
Executive's employment with the Company, the Executive shall not,
without the prior written consent of the Company, unless
compelled pursuant to an order of a court or other body having
jurisdiction over such matter, communicate or divulge any such
information, knowledge or data to anyone other than the Company
and those designated by it.
(b) Injunctive Relief and Other Remedies with Respect
to Covenants. The Executive acknowledges and agrees that the
covenants and obligations of the Executive with respect to
confidentiality and Company property relate to special, unique
and extraordinary matters and that a violation of any of the
terms of such covenants and obligations will cause the Company
irreparable injury for which adequate remedies are not available
at law. Therefore, the Executive agrees that the Company shall
(i) be entitled to an injunction, restraining order or such other
equitable relief (without the requirement to post bond)
restraining Executive from committing any violation of the
covenants and obligations contained in this Section 11 and (ii)
have no further obligation to make any payments to the Executive
hereunder following any material violation of the covenants and
obligations contained in this Section 11. These remedies are
cumulative and are in addition to any other rights and remedies
the Company may have at law or in equity. In connection with the
foregoing provisions of this Section 11, the Executive represents
that his economic means and circumstances are such that such
provisions will not prevent him from providing for himself and
his family on a basis satisfactory to him. In no event shall an
asserted violation of the provisions of this Section 11
constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
12. Successors. (a) This Agreement is personal to the
Executive and, without the prior written consent of the Company,
shall not be assignable by the Executive otherwise than by will
or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and
be binding upon the Company and its successors. The Company
shall require any successor to all or substantially all of the
business and/or assets of the Company, whether direct or
indirect, by purchase, merger, consolidation, acquisition of
stock, or otherwise, by an agreement in form and substance
satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent
as the Company would be required to perform if no such succession
had taken place.
13. Miscellaneous. (a) Effect of this Agreement on
Existing Employment Agreements. Any other agreements between the
Executive and the Company or any of its Subsidiaries relating to
Executive's employment by any such entity shall be automatically
superseded upon the occurrence of the Effective Date, including,
but not limited to, that certain Employment Agreement between the
parties dated as of October 1, 1994.
(b) Applicable Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New
Jersey, applied without reference to principles of conflict of
laws.
(c) Arbitration. Any dispute or controversy arising
under or in connection with this Agreement shall be resolved by
binding arbitration. The arbitration shall be held in the City
of Atlantic City, New Jersey or in the City of Philadelphia,
Pennsylvania and except to the extent inconsistent with this
Agreement, shall be conducted in accordance with the Voluntary
Labor Arbitration Rules of the American Arbitration Association
then in effect at the time of the arbitration, and otherwise in
accordance with principles which would be applied by a court of
law or equity. The arbitrator shall be acceptable to both the
Company and the Executive. If the parties cannot agree on an
acceptable arbitrator, the dispute shall be heard by a panel of
three arbitrators, one appointed by each of the parties and the
third appointed by the other two arbitrators.
(d) Amendments. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal
representatives.
(e) Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto with respect to the
matters referred to herein. No other agreement relating to the
terms of the Executive's employment by the Company, oral or
otherwise, shall be binding between the parties unless it is in
writing and signed by the party against whom enforcement is
sought. There are no promises, representations, inducements or
statements between the parties other than those that are
expressly contained herein. The Executive acknowledges that he
is entering into this Agreement of his own free will and accord,
and with no duress, that he has read this Agreement and that he
understands it and its legal consequences.
(f) Notices. All notices and other communications
hereunder shall be in writing and shall be given by hand-delivery
to the other party or by registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: at the home address of the
Executive noted on the records of
the Company
If to the Company: Atlantic Energy, Inc.
6801 Black Horse Pike
Pleasantville, New Jersey 08232
Attention: Secretary
with a copy to: Simpson Thacher & Bartlett
425 Lexington Avenue
New York, York, NY 10019
Attention: Alvin H. Brown, Esq.
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(g) Tax Withholding. The Company may withhold from
any amounts payable under this Agreement such Federal, state or
local taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
(h) Severability; Reformation. In the event that one
or more of the provisions of this Agreement shall become invalid,
illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein
shall not be affected thereby. In the event that any of the
provisions of any of Section 11(a) are not enforceable in
accordance with its terms, the Executive and the Company agree
that such Section shall be reformed to make such Section
enforceable in a manner which provides the Company the maximum
rights permitted at law.
(i) Waiver. Waiver by any party hereto of any breach
or default by the other party of any of the terms of this
Agreement shall not operate as a waiver of any other breach or
default, whether similar to or different from the breach or
default waived. No waiver of any provision of this Agreement
shall be implied from any course of dealing between the parties
hereto or from any failure by either party hereto to assert its
or his rights hereunder on any occasion or series of occasions.
(j) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument.
(k) Captions. The captions of this Agreement are not
part of the provisions hereof and shall have no force or effect.
IN WITNESS WHEREOF, the Executive has hereunto set his
hand and the Company has caused this Agreement to be executed in
its name on its behalf, and its corporate seal to be hereunto
affixed and attested by its Secretary, all as of the day and year
first above written.
ATTEST: Atlantic Energy, Inc.
By:/s/ J. Micahel Galvin, Jr.
Secretary J. Michael Galvin, Jr.
(Seal) Title: Chairman, Personnel &
Benefits Committee
By:/s/ J. L. Jacobs
J. L. Jacobs
Title: President & Chief
Executive Officer
EXECUTIVE:
/s/ James E. Franklin II
James E. Franklin II
<PAGE>
SUPPLEMENT TO EMPLOYMENT AGREEMENT
BETWEEN
ATLANTIC ENERGY, INC. and JAMES E. FRANKLIN II
Dated August 10, 1995
THIS AGREEMENT SUPPLEMENT is entered into this 10th day of
August, 1995 by and between ATLANTIC ENERGY, INC., a New Jersey
corporation (the "Company") and JAMES E. FRANKLIN II (the
"Executive") and is a supplement to that Employment Agreement
dated
the same date hereof (the "Employment Agreement").
In consideration of the mutual promises and covenants herein
contained and as contained in the Employment Agreement, the
adequacy
and sufficiency of which is deemed by the parties to be fair and
reasonable and to constitute due consideration, the Company and
the
Executive hereby agree as follows:
1. Capitalized Terms. Capitalized terms, when used
herein,
shall have the same meaning as in the Employment Agreement.
2. Agreement Not To Compete. The Executive hereby
represents,
covenants and warrants to the Company that, for a period of one
(1)
year following the Date of Termination Executive shall not
undertake
any activity, employment, task or assignment, whether through
ownership, employment, consulting arrangement or otherwise, with
any
person or entity engaged in any business activity in competition
with
the Company or any of its subsidiaries or affiliates. This
covenant
not to compete is limited to the geographic area which, as of the
date of this Agreement Supplement, comprises the Pennsylvania-New
Jersey-Maryland Interconnection area and is also intended to
include
the southeastern portion of the State of New York which lies
south of
the northern most boundary line of the Commonwealth of
Pennsylvania.
It is the intent of this covenant not to compete that
the
Executive will not, during the one year period following Date of
Termination and within the geographical limits hereinabove
described,
directly or indirectly engage, participate or make any financial
investments in, or become employed by or render (whether or not
for
compensation) any consulting, advisory or other services to or
for
the benefit of any person, firm or corporation, or otherwise
engage
in any business activity which directly or indirectly competes
with
any of the business operations or activities in which the Company
or
any of its subsidiaries or affiliates is engaged as of the Date
of
Termination, nor any business in which the Company or any of its
subsidiaries or affiliates is actively engaged in pursuing or
developing as of the Date of Termination.
Nothing contained herein is intended to restrict the
Executive from making any investments in any corporation,
partnership
or other business enterprise whose outstanding capital stock or
other
equity interests are listed or admitted to unlisted trading
privileges on a national securities exchange or included for
quotation through an inter-dealer quotation system of a
registered
national securities association, provided that such investment
(i)
represents less than five percent (5%) of the aggregate
outstanding
capital stock or other equity interests of such corporation,
partnership or business enterprise and (ii) does not otherwise
provide Executive or any affiliate of Executive with the right or
power (whether or not exercised) to influence, direct or cause
the
direction of the management policies and/or affairs of any such
business or enterprise which is or might directly or indirectly
compete with any business, operations or activities of the
Company or
any of its subsidiaries and affiliates.
IN WITNESS WHEREOF, intending to be legally bound the
Executive
has hereunto set his hand and the Company has caused this
Agreement
to be executed in its name on its behalf, and its corporate seal
to
be hereunto affixed and attested by its Secretary, all as of the
day
and year first above written.
ATTEST: ATLANTIC ENERGY, INC.
(Seal)
_____________________ BY:/s/ J. Michael Galvin, Jr.
J. Michael Galvin, Jr.
Chairman, Personnel & Benefits
Committee
BY:/s/ J. L. Jacobs
J. L. Jacobs
President & Chief Executive Officer
EXECUTIVE:
/s/ James E. Franklin II
James E. Franklin II
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into this 15th day of
September, 1995 by and between Atlantic Energy, Inc., a New
Jersey corporation (the "Company"), and Michael J. Barron (the
"Executive").
In consideration of the premises and mutual covenants
herein contained, it is hereby agreed by and between the Company
and the Executive as follows:
1. Term of Agreement. The term of this Agreement
shall commence on the date hereof (the "Effective Date") and
shall continue until the second anniversary of the Effective Date
(the "Employment Period"); provided, however, that the Employment
Period shall be automatically renewed for two years unless either
party shall send the other written notice of its intention to
terminate the agreement at the end of such Employment Period one
year prior to the end of such Employment Period; and, provided,
further, that upon the occurrence of a Change of Control, the
Employment Period shall become three years and shall commence on
the date of the Change of Control, and shall thereafter be
automatically renewed for two years unless either party shall
send the other written notice of its intention to terminate the
agreement one year prior to the end of the then current
Employment Period.
2. Place of Employment. The Executive's services
during the term of this Agreement shall be performed primarily at
the principal offices of the Company in Egg Harbor Township, New
Jersey. The Executive shall be furnished with a suitable office
and such other facilities and services as he may reasonably
require in performing his obligations under this Agreement.
3. Employment Obligations.
(a) Position and Duties. The Company hereby agrees
to employ the Executive as Vice President and Chief Financial
Officer and as Senior Vice President and Chief Financial Officer
of Atlantic City Electric Company ("Electric") for the Employment
Period. The Executive shall exercise his reasonable best efforts
in furtherance of, and shall devote substantially all of his
working time and attention to the affairs of the Company and its
affiliates, and shall perform such duties and services as may
reasonably be assigned to him by, and shall report directly to
the Chief Executive Officer and the Board of Directors of the
Company (the "Board").
(b) Business Time. From and after the Effective Date,
the Executive agrees to devote his full business time during
normal business hours to the business and affairs of the Company
and to use his best efforts to perform faithfully and efficiently
the responsibilities assigned to him hereunder, to the extent
necessary to discharge such responsibilities, except for (i) time
spent in managing his personal, financial and legal affairs and
serving on corporate, civic or charitable boards or committees on
which he served prior to the Effective Date, in each case only if
and to the extent not substantially interfering with the
performance of such responsibilities, and (ii) periods of
vacation and sick leave to which he is entitled. It is expressly
understood and agreed that the Executive's continuing to serve on
any boards and committees on which he is serving or with which he
is otherwise associated immediately preceding the Effective Date
which is not in violation of any Company policy shall not be
deemed to interfere with the performance of the Executive's
services to the Company. In addition, the Executive may commence
service as a director of other corporations or organizations
after the Effective Date upon approval by the Board which, in the
judgment of the Board, will not present any conflict of interest
with the Company or any subsidiary or affiliate thereof, and
which would not affect the performance of Executive's duties
pursuant to this Agreement, which approval shall not be
unreasonably withheld; provided, however, that the Executive
shall neither (a) become an officer or director of (i) another
entity which has or will have the status of a public utility
under the Federal Power Act, or any successor act, (ii) any bank,
trust company, banking association or firm that is authorized by
law to underwrite or participate in the marketing of securities
of a public utility, or (iii) any company supplying electrical
equipment to the Company, nor (b) accept any such position and
commence the performance of any duties or services in such
capacity (an "Interlock"), unless the Executive shall have first
(x) furnished the Board with at least thirty (30) days prior
written notice of his intention to create such Interlock and (y)
secured, if the Board shall request that such action be taken,
any necessary authorization for such Interlock, in form and
substance satisfactory to the Board, from the Federal Energy
Regulatory Commission, or successor regulatory agency, pursuant
to Section 305(b) of the Federal Power Act, or any supplement or
amendment thereto.
4. Compensation. (a) Base Salary. During the Employment
Period, the Executive shall receive a base salary ("Base Salary")
at an annual rate at least equal to the annual salary paid to the
Executive by the Company and any of its affiliated companies on
the Effective Date. The Base Salary shall be reviewed at least
once each year after the Effective Date, and may be increased
(but not decreased) at any time and from time to time by action
of the Board or any committee thereof or any individual having
authority to take such action in accordance with the Company's
regular practices. Once increased, any reference to Base Salary
herein shall be a reference to such increased amount. Neither
the Base Salary nor any increase in Base Salary after the Ef-
fective Date shall serve to limit or reduce any other obligation
of the Company hereunder.
(b) Annual Bonus. Commencing January 1, 1996, in
addition to the Base Salary, for each fiscal year of the Company
ending during the Employment Period, the Executive shall have the
opportunity to receive an annual bonus ("Annual Bonus
Opportunity"), based on the achievement of target levels of
performance. Without limiting the generality of the foregoing,
following any Change of Control (as defined hereinafter), the
amount actually payable to the Executive as an annual bonus shall
not be less than an amount equal to the higher of the bonus paid
to the Executive for the most recently completed fiscal year of
the Company or the target bonus for the then current fiscal year
(the "Minimum Bonus Amount"). Any amount payable in respect of
the Annual Bonus Opportunity or the Minimum Bonus Amount shall be
paid no later than sixty (60) days after the close of the fiscal
year for which the amount (or prorated portion) is earned or
awarded, unless electively deferred by the Executive pursuant to
any deferral programs or arrangements that the Company may make
available to the Executive.
(c) Long-term Incentive Compensation Programs and
Equity Programs. During the Employment Period, the Executive
shall participate in all long-term incentive compensation
programs and equity programs for key executives at a level that
is commensurate with the Executive's participation in such plans
immediately prior to the Effective Date, or, if more favorable to
the Executive, at the level made available to the Executive or
other similarly situated executive officers of the Company and
its affiliated companies at any time thereafter.
(d) Benefit Plans. During the Employment Period, the
Executive (and, to the extent applicable, his dependents) shall
be entitled to participate in or be covered under all pension,
supplemental retirement or excess benefit (it being understood
that Executive's participation in the Supplemental Retirement or
Excess Benefit Plans shall be limited to participation in the
Supplemental Excess Retirement Plan II) (collectively, the
"Supplemental Retirement Benefits"), deferred compensation,
savings, medical, dental, health, disability, group life,
accidental death and travel accident insurance plans and programs
of the Company and its affiliated companies at a level that is
commensurate with and provides the same level and quality of
coverage as the Executive's participation in such plans
immediately prior to the Effective Date (except for the Medical
Executive Reimbursement Plan (the "MERP"), it being understood
that Executive shall not participate in the MERP), or, if more
favorable to the Executive, at the level made available to the
Executive or other similarly situated executive officers of the
Company and its affiliated companies at any time thereafter.
(e) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred by the Executive in accordance
with the policies and procedures of the Company as in effect from
time to time; provided; however, that in no event shall such
policies and procedures after the occurrence of a Change of
Control be less favorable to the Executive than immediately prior
to a Change of Control. Notwithstanding the foregoing, the
Company may apply the policies and procedures in effect after the
Change of Control date to the Executive, if such policies and
procedures are more favorable to the Executive than those in
effect immediately prior to the Change of Control date.
(f) Vacation and Fringe Benefits. During the
Employment Period, the Executive shall be entitled to paid
vacation and fringe benefits at a level that is commensurate with
the paid vacation and fringe benefits available to the Executive
immediately prior to the Effective Date, or, if more favorable to
the Executive, at the level made available from time to time to
the Executive or other similarly situated executive officers at
any time thereafter.
(g) Indemnification. During and after the Employment
Period, the Company shall indemnify the Executive and hold the
Executive harmless from and against any claim, loss or cause of
action arising from or out of the Executive's performance as an
officer, director or employee of the Company or any of its
subsidiaries or in any other capacity, including any fiduciary
capacity, in which the Executive serves at the request of the
Company to the maximum extent permitted by applicable law and the
Company's Certificate of Incorporation and By-Laws (the
"Governing Documents"); provided, however, that in no event shall
the protection afforded to the Executive hereunder be less than
that afforded under the Governing Documents as in effect im-
mediately prior to the Effective Date, or if later, the Change of
Control.
5. Termination. (a) Death, Permanent Disability or
Retirement. Subject to the provisions of Section 1 hereof, this
Agreement shall terminate automatically upon the Executive's
death, Permanent Disability (as defined in Section 22(e)(3) of
the Internal Revenue Code of 1986, as amended (the "Code"),
except that a six month period shall be substituted for the
twelve month period provided for therein) or voluntary retirement
under any of the Company's retirement plans as in effect from
time to time.
(b) Voluntary Termination. Notwithstanding anything
in this Agreement to the contrary, the Executive may, upon not
less than 60 days' written notice to the Company, voluntarily
terminate employment for any reason (including early retirement
under the terms of any of the Company's retirement plans as in
effect from time to time); provided, however, any termination by
the Executive pursuant to Section 5(d) on account of Good Reason
(as defined therein) shall not be treated as a voluntary
termination under this Section 5(b).
(c) Cause. The Company may terminate the Executive's
employment for Cause. For purposes of this Agreement, "Cause"
means (i) willful and continuous failure by Executive to perform
his duties under this Agreement (other than resulting from
incapacity due to physical or mental illness),(ii) the
Executive's conviction or plea of nolo contendere to a felony;
(iii) the Executive's willful engagement in misconduct in
connection with employment which results in material damage to
the Company's business or reputation; or (iv) material breach of
Executive's duties hereunder which result in material damage to
the Company's business or reputation, in each of (ii) through
(iv) above, upon 30 days written notice to the Executive, the
opportunity for the Executive to be heard by the Board and the
good faith determination by at least two-thirds of the Company's
non-employee directors that Cause exists; provided, however, that
after the occurrence of a Change of Control (as hereinafter
defined), "Cause" shall be limited to (ii) through (iv) above.
(d) Good Reason. During the Employment Period,
Executive may terminate his employment for Good Reason. For
purposes of this Agreement, "Good Reason" means the occurrence of
any of the following, without the express written consent of the
Executive:
(i (A) the assignment to the Executive of any
duties inconsistent with the Executive's position, authority
or responsibilities as contemplated by Section 3 of this
Agreement, or (B) any other adverse change in such position,
including titles, authority or responsibilities;
(ii reduction of Executives's base salary or bonus
opportunities, or any other material breach by the Company
of this Agreement;
(iii the Company's requiring the Executive to be
based at any office or location more than 25 miles from that
location at which he performed his services specified under
the provisions of Section 2 immediately prior to the Change
of Control, except for travel reasonably required in the
performance of the Executive's responsibilities; or
(iv any failure by the Company to obtain the
assumption and agreement to perform this Agreement by a
successor as contemplated by Section 12(b) upon the
occurrence of a Change of Control; provided, however, the
successor has had actual written notice of the existence of
this Agreement and its terms and an opportunity to assume
the Company's responsibilities under this Agreement during a
period of 10 business days after receipt of such notice.
(e) Notice of Termination. Any termination by the
Company for Cause or by the Executive for Good Reason shall be
communicated by Notice of Termination to the other party hereto
given in accordance with Section 13(f). For purposes of this
Agreement, a "Notice of Termination" means a written notice
given, in the case of a termination for Cause, within 10 business
days of the Company's having actual knowledge of the events
giving rise to such termination, and in the case of a termination
for Good Reason, within 180 days of the Executive's having actual
knowledge of the events giving rise to such termination, and
which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so
indicated, and (iii) if the termination date is other than the
date of receipt of such notice, specifies the termination date of
this Agreement (which date shall be not more than 15 days after
the giving of such notice). The failure by the Executive to set
forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason shall not waive any right
of the Executive hereunder or preclude the Executive from
asserting such fact or circumstance in enforcing his rights
hereunder.
(f) Date of Termination. For purposes of this
Agreement, the term "Date of Termination" means (i) in the case
of a termination for which a Notice of Termination is required,
the date of receipt of such Notice of Termination or, if later,
the date specified therein, as the case may be, and (ii) in all
other cases, the actual date on which the Executive's employment
terminates during the Employment Period. On or as soon
practicable following the Date of Termination, the Executive
shall return to the Company all property of the Company and all
copies thereof in the Executive's possession or under his
control.
6. Obligations of the Company upon Termination.
(a) Death, Permanent Disability or Retirement. If the
Executive's employment is terminated during the Employment Period
by reason of the Executive's death, Permanent Disability or
voluntary retirement this Agreement shall terminate without
further obligations to the Executive or the Executive's legal
representatives under this Agreement other than those obligations
accrued hereunder at the Date of Termination, and the Company
shall pay or provide to the Executive or the Executive's legal
representative under this Agreement the following amounts either
in a lump sum or in such other form of payment as is provided or
elected by the Executive under the operative plan:
(i the Executive's full Base Salary through the
Date of Termination (the "Earned Salary");
(ii the Supplemental Retirement Benefits and the
amount otherwise payable to or in respect of the Executive
under the Company's otherwise applicable long-term incentive
compensation and equity plans and programs (the "Incentive
and Equity Amounts") it being understood that, in the event
of death or disability, any applicable performance targets
thereunder (to the extent not already determined as of the
Termination Date) shall be deemed to have been met for the
applicable performance period and that payments thereunder
shall be pro-rated as of the Date of Termination; and in the
event of a termination by reason of retirement, then the
Supplemental Retirement Benefits and the Incentive and
Equity Amounts, the Incentive and Equity Amounts being
calculated and payable in accordance with the terms of the
underlying plans and payable to the Executive when awards
are payable to all other participants in such plans in
accordance with the terms thereof, but prorated through the
date of such retirement; and
(iii an amount (the "Pro-Rated Bonus") equal to the
product of (x) times (y), minus (z):
(x) the Minimum Bonus Amount;
(y) a fraction, the numerator of which is the
number of days in the then current calendar
year which have elapsed as of the Date of
Termination, and the denominator of which is
365;
(z) if Executive's termination occurs in the
same calendar year as the Change of Control,
an amount equal to the amount paid to the
Executive under the Company's applicable
bonus plan (the "Actual Bonus Payment")
(iv) all vested amounts or benefits owing to the
Executive under the Company's otherwise applicable employee
benefit plans and programs, including any compensation
previously deferred by the Executive (together with any
accrued earnings thereon) and not yet paid by the Company
and any accrued vacation pay not yet paid by the Company
(the "Accrued Obligations").
Any Earned Salary, Accrued Obligations and Pro-Rated Bonus shall
be paid in cash in a single lump sum as soon as practicable ( but
in no event more than 20 days) following the Date of Termination.
Any Incentive and Equity Amounts and Supplemental Retirement
Benefits accrued by the Executive shall be payable in accordance
with the terms of the underlying plans.
(b) Cause and Voluntary Termination. If, during the
Employment Period, the Executive's employment shall be terminated
for Cause or voluntarily terminated by the Executive (other than
on account of Good Reason), the Company shall pay the Executive
the Earned Salary and the Accrued Obligations (including, but not
limited to, the Incentive and Equity Amounts and Supplemental
Retirement Benefits, each in accordance with the terms of the
underlying plan) in cash in a single lump sum as soon as
practicable (but in no event more than 20 days following) the
Date of Termination, or in accordance with the terms of the
underlying plan.
(c) Termination by the Company other than for Cause
and Termination by the Executive for Good Reason.
(A) Prior to the Occurrence of a Change of Control.
(i Payments. If, prior to a Change of Control, the
Company terminates the Executive's employment other than for
Cause, or the Executive terminates his employment for Good
Reason, the Company shall pay to the Executive the following
amounts, either in a lump sum or in such other form of
payment as is provided or elected by the Executive under the
operative plan:
(A) the Executive's Earned Salary;
(B) a cash amount (the "Pre-Change Severance Amount")
equal to two multiplied by the sum of
(1) the Executive's annual Base Salary; plus
(2) the Minimum Bonus Amount.
(C) the Pro-Rated Bonus;
(D) the Incentive and Equity Amounts;
(E) the Supplemental Retirement Benefits, it being
understood that upon the occurrence of a
termination under this Section 6(c)(A),
Executive's interest in such benefits shall
accelerate to the five year vesting level if
Executive has not reached the fifth year of
service. Otherwise, there shall be no
acceleration; and
(F) the Accrued Obligations.
Any Earned Salary, Pre-Change Severance Amount, Accrued
Obligations and Pro-Rated Bonus shall be paid in cash in a
single lump sum as soon as practicable (but in no event more
than 20 days) following the Date of Termination. The
Supplemental Retirement Benefits and Incentive and Equity
Amounts shall be payable in accordance with the terms of the
underlying plans.
(ii Continuation of Benefits. If, during the
Employment Period, the Company terminates the Executive's
employment other than for Cause, or the Executive terminates
employment for Good Reason prior to the occurrence of a
Change of Control:
(A) the Executive (and, to the extent applicable, his
dependents) shall be entitled, after the Date of
Termination until the earlier of (i) the second
anniversary of the Date of Termination or, (ii)
the date on which the Executive is covered under
any comparable plans of a subsequent employer (the
"End Date"), to continue participation (including,
but not limited to, vesting and accruals) in all
of the Company's employee and executive pension,
welfare and fringe benefit plans, it being
understood that for purposes of the calculation of
Supplemental Retirement Benefits, Final Annual
Compensation (as defined in the underlying plans)
shall be equal to Final Annual Compensation as of
the Date of Termination, and Final Average
Compensation shall be determined in accordance
with the underlying plan definition (the "Benefit
Plans"). To the extent any such benefits cannot
be provided under the terms of the applicable
plan, policy or program, the Company shall provide
a comparable benefit under another plan or from
the Company's general assets. The Executive's
participation in the Benefit Plans will be on the
same terms and conditions that would have applied
had the Executive continued to be employed by the
Company through the End Date;
(B) the Executive (or, in the event of the Executive's
death during such period, the Executive's
beneficiary or estate) shall have the right to
exercise any outstanding options to purchase
shares of Common Stock of the Company then
exercisable by the Executive or which would become
exercisable in accordance with the applicable
option agreement and the applicable equity
incentive plan of the Company (such agreements and
plans referred to collectively as the "Equity
Documents") for the period of time permitted in
accordance with the generally applicable terms of
the governing Equity Documents) after the Date of
Termination; and
(C) for purposes of the Benefit Plans and the Equity
Documents, the Executive will be deemed to have
terminated employment under mutually satisfactory
conditions.
(B) After the Occurrence of a Change of Control.
(i Payments. If, following a Change of Control,
the Company terminates the Executive's employment other than
for Cause, or the Executive terminates his employment for
Good Reason, the Company shall pay to the Executive the
following amounts, either in a lump sum or in such other
form of payment as is provided or elected by the Executive
under the operative plan:
(A) the Executive's Earned Salary;
(B) a cash amount (the "Severance Amount") equal to
three times the sum of
(1) the Executive's annual Base Salary; and
(2) the Minimum Bonus Amount;
(C) the Pro-Rated Bonus;
(D) the Incentive and Equity Amounts, all of which
shall be fully accelerated and deemed earned, and
all applicable performance targets thereunder
shall be deemed to have been met upon the
occurrence of a Change of Control;
(E) the Supplemental Retirement Benefits, which shall
be determined based on the granting of service
credit for a period of three years and, after such
credit has been granted, shall be computed based
upon the deemed age of the Executive at the end of
such three year period, it being understood that
upon the occurrence of a Change of Control,
Executive's interest in such benefits shall
accelerate to the five year vesting level if,
after giving credit for the three years of
service, the five year vesting level has not been
achieved; and that for purposes of the calculation
of Supplemental Retirement Benefits, Final Annual
Compensation (as defined in the underlying plans)
shall be equal to Final Annual Compensation as of
the Date of Termination and Final Average
Compensation shall be computed in the manner
defined in the underlying plans; and
(F) the Accrued Obligations.
Any Earned Salary, Severance Amount, Accrued Obligations,
and Pro-Rated Bonus shall be paid in cash, or in the case of
the Incentive and Equity Amounts, in kind if so provided
under the relevant plan, in a single lump sum as soon as
practicable (but in no event more than 20 days) following
the Date of Termination. The Supplemental Retirement
Benefits shall be payable in accordance with the terms of
the underlying plans (after giving effect to the
acceleration and granting of service credit provided for
herein) and the elections of the Executive thereunder.
(ii) Continuation of Benefits. If, during the
Employment Period and after the occurrence of a Change of
Control, the Company terminates the Executive's employment
other than for Cause or the Executive terminates his
employment for Good Reason:
(A) the Executive (and, to the extent applicable, his
dependents) shall be entitled, after the Date of
Termination until the earlier of (i) the third
anniversary of the Date of Termination, or (ii)
the date on which the Executive is covered under
any comparable plans of a subsequent employer,
(the "End Date"), to continue participation
(including, but not limited to, vesting and
accruals) in all of the Company's employee and
executive pension, welfare and fringe benefit
plans, excluding the Supplemental Retirement
Benefits (the "Benefit Plans"). To the extent any
such benefits cannot be provided under the terms
of the applicable plan, policy or program, the
Company shall provide a comparable benefit under
another plan or from the Company's general assets.
The Executive's participation in the Benefit Plans
will be on the same terms and conditions that
would have applied had the Executive continued to
be employed by the Company through the End Date;
(B) the Executive (or, in the event of the Executive's
death during such period, the Executive's
beneficiary or estate) shall have the right to
exercise any outstanding options to purchase
shares of Common Stock of the Company then
exercisable by the Executive or which would become
exercisable in accordance with the applicable
Equity Documents for the period of time permitted
in accordance with the generally applicable terms
of the governing Equity Documents, after the Date
of Termination; and
(C) for purposes of the Benefit Plans and the Equity
Documents, the Executive will be deemed to have
terminated employment under mutually satisfactory
conditions.
(d) Discharge of the Company's Obligations.
Except as expressly provided in the last sentence of this Section
6(d), the amounts payable to the Executive pursuant to this
Section 6 following termination of his employment shall be in
full and complete satisfaction of the Executive's rights under
this Agreement and any other claims he may have in respect of his
employment by the Company or any of its Subsidiaries. Such
amounts shall constitute liquidated damages with respect to any
and all such rights and claims and, upon the Executive's receipt
of such amounts, the Company shall be released and discharged
from any and all liability to the Executive in connection with
this Agreement or otherwise in connection with the Executive's
employment with the Company and its Subsidiaries. Nothing in
this Section 6(d) shall be construed to release the Company from
its commitment to indemnify the Executive and hold the Executive
harmless from and against any claim, loss or cause of action
arising from or out of the Executive's performance as an officer,
director or employee of the Company or any of its Subsidiaries or
in any other capacity, including any fiduciary capacity, in which
the Executive served at the request of the Company to the maximum
extent permitted by applicable law and the Governing Documents.
(e) Certain Further Payments by the Company.
(i In the event that any amount or benefit paid
or distributed to the Executive pursuant to this Agreement,
taken together with any amounts or benefits otherwise paid
or distributed to the Executive by the Company or any
affiliated company (collectively, the "Covered Payments"),
are or become subject to the tax (the "Excise Tax") imposed
under Section 4999 of the Code or any similar tax that may
hereafter be imposed, the Company shall pay to the Executive
at the time specified in Section 6(e)(v) below an additional
amount (the "Tax Reimbursement Payment") such that the net
amount retained by the Executive with respect to such
Covered Payments, after deduction of any Excise Tax on the
Covered Payments and any Federal, state and local income,
employment or other tax and Excise Tax on the Tax
Reimbursement Payment provided for by this Section 6(e), but
before deduction for any Federal, state or local income or
employment tax withholding on such Covered Payments, shall
be equal to the amount of the Covered Payments.
(ii For purposes of determining whether any of the
Covered Payments will be subject to the Excise Tax and the
amount of such Excise Tax,
(A) such Covered Payments will be treated as
"parachute payments" within the meaning of Section
28OG of the Code, and all "parachute payments" in
excess of the "base amount" (as defined under
Section 28OG(b)(3) of the Code) shall be treated
as subject to the Excise Tax, unless, and except
to the extent that, in the good faith judgment of
the Company's independent certified public
accountants appointed prior to the Effective Date
or tax counsel selected by such Accountants (the
"Accountants"), the Company has a reasonable basis
to conclude that such Covered Payments (in whole
or in part) either do not constitute "parachute
payments" or represent reasonable compensation for
personal services actually rendered (within the
meaning of Section 28OG(b)(4)(B) of the Code) in
excess of the "base amount," or such "parachute
payments" are otherwise not subject to such Excise
Tax, and
(B) the value of any non-cash benefits or any deferred
payment or benefit shall be determined by the
Accountants in accordance with the principles of
Section 28OG of the Code.
(iii For purposes of determining the amount of the
Tax Reimbursement Payment, the Executive shall be deemed to
pay:
(A) Federal income taxes at the highest applicable
marginal rate of Federal income taxation for the
calendar year in which the Tax Reimbursement
Payment is to be made, and
(B) any applicable state and local income taxes at the
highest applicable marginal rate of taxation for
the calendar year in which the Tax Reimbursement
Payment is to be made, net of the maximum
reduction in Federal incomes taxes which could be
obtained from the deduction of such state or local
taxes if paid in such year.
(iv In the event that the Excise Tax is subsequently
determined by the Accountants or pursuant to any proceeding
or negotiations with the Internal Revenue Service to be less
than the amount taken into account hereunder in calculating
the Tax Reimbursement Payment made, the Executive shall
repay to the Company, at the time that the amount of such
reduction in the Excise Tax is finally determined, the
portion of such prior Tax Reimbursement Payment that would
not have been paid if such Excise Tax had been applied in
initially calculating such Tax Reimbursement Payment, plus
interest on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code.
Notwithstanding the foregoing, in the event any portion of
the Tax Reimbursement Payment to be refunded to the Company
has been paid to any Federal, state or local tax authority,
repayment thereof shall not be required until actual refund
or credit of such portion has been made to the Executive,
and interest payable to the Company shall not exceed
interest received or credited to the Executive by such tax
authority for the period it held such portion. The
Executive and the Company shall mutually agree upon the
course of action to be pursued (and the method of allocating
the expenses thereof) if the Executive's good faith claim
for refund or credit is denied.
In the event that the Excise Tax is later determined by
the Accountants or pursuant to any proceeding or
negotiations with the Internal Revenue Service (the
"Service") to exceed the amount taken into account hereunder
at the time the Tax Reimbursement Payment is made
(including, but not limited to, by reason of any payment the
existence or amount of which cannot be determined at the
time of the Tax Reimbursement Payment), the Company shall
make an additional Tax Reimbursement Payment in respect of
such excess (plus any interest or penalty payable with
respect to such excess) at the time that the amount of such
excess is finally determined, such that the net amount
retained by the Executive with respect to the Covered
Payments, after deduction of any Excise Tax on the Covered
Payments and any Federal, state and local income, employment
or other tax and Excise Tax on the Tax Reimbursement Payment
provided for by this Section, but before deduction for any
Federal, state or local income or employment tax withholding
on such Covered Payments, shall be equal to the amount of
the Covered Payments.
The Company agrees to reimburse the Executive for reasonable
fees and expenses in connection with any audit or assessment
by the Service if a claim ("Claim") by the Service arises
out of, or results from the treatment by the Service of any
payments made by the Company as parachute payments and for
the cost of preparing the Executive's income tax returns for
the year in which any payment by the Company may be
characterized as a parachute payment. The Executive shall
notify the Company in writing of any such Claim as soon as
practicable but in no event later than ten (10) business
days after the Executive is informed of such Claim and shall
cooperate with the Company in good faith to effectively
contest the Claim. The Company shall control all
proceedings taken in connection with such contest and, at
its sole option, may pursue or forego any and all
administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such
Claim and the Executive agrees to prosecute such contest as
the Company shall determine. Notwithstanding the foregoing,
if the Company forgoes further prosecution of such contest,
the Executive may elect to continue such prosecution;
provided, however, that in no event shall the Company be
liable for the fees and expenses in connection with such
further prosecution.
(v The Tax Reimbursement Payment (or portion
thereof) provided for in Section 6(e)(i) above shall be paid
to the Executive not later than 10 business days following
the payment of the Covered Payments; provided, however, that
if the amount of such Tax Reimbursement Payment (or portion
thereof) cannot be finally determined on or before the date
on which payment is due, the Company shall pay to the
Executive by such date an amount estimated in good faith by
the Accountants to be the minimum amount of such Tax Re-
imbursement Payment and shall pay the remainder of such Tax
Reimbursement Payment (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) as soon as
the amount thereof can be determined, but in no event later
than 45 calendar days after payment of the related Covered
Payment. In the event that the amount of the estimated Tax
Reimbursement Payment exceeds the amount subsequently
determined to have been due, such excess shall constitute a
loan by the Company to the Executive, payable on the fifth
business day after written demand by the Company for payment
(together with interest at the rate provided in Section 1274
(b)(2)(B) of the Code).
7. Definitions. (a) Change of Control. For purposes of
this Agreement, a "Change of Control" shall be deemed to have
occurred:
(i when any "person" as defined in Section 3(a)(9)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and as used in Section 13(d) and 14(d)
thereof, including a "group" as defined in Section 13(d) of
the Exchange Act but excluding the Company and any
subsidiary and any employee benefit plan sponsored or
maintained by the Company or any subsidiary (including any
trustee of such plan acting as trustee), directly or
indirectly, becomes the "beneficial owner" (as defined in
Rule 13d-3 under the Exchange Act), of securities of the
Company representing 20 percent or more of the combined
voting power of the Company's then outstanding securities;
or
(ii when, during any period of 24 consecutive months
during the Employment Period, the individuals who, at the
beginning of such period, constitute the Board (the
"Incumbent Directors") cease for any reason other than death
to constitute at least a majority thereof; provided,
however, that a director who is not a director at the
beginning of such 24-month period shall be deemed to have
satisfied such 24-month requirement (and be an Incumbent
Director) if such director was elected by, or on the
recommendation of or with the approval of, at least two-
thirds of the directors who then qualified as Incumbent
Directors either actually (because they were directors at
the beginning of such 24-month period) or by prior operation
of this Section; or
(iii) upon the occurrence of a transaction requiring
stockholder approval for the acquisition of the Company by
an entity other than the Company or a subsidiary through
purchase of assets, or by merger, or otherwise.
For purposes of this Section 7, if any of the above occur with
respect to Electric while the Executive is employed by Electric,
"Company" shall include Electric.
8. Non-exclusivity of Rights. Except as expressly
provided herein, nothing in this Agreement shall prevent or limit
the Executive's continuing or future participation in any
benefit, bonus, incentive or other plan or program provided by
the Company or any of its affiliated companies and for which the
Executive may qualify, nor shall anything herein limit or
otherwise prejudice such rights as the Executive may have under
any other agreements with the Company or any of its affiliated
companies, including employment agreements or stock option
agreements. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan or
program of the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in
accordance with such plan or program.
9. Full Settlement. The Company's obligation to make
the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any
circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the
Company may have against the Executive or others whether by
reason of the subsequent employment of the Executive or otherwise
In the event that the Executive shall in good faith give a Notice
of Termination for Good Reason and it shall thereafter be
determined that Good Reason did not exist, the employment of the
Executive shall, unless the Company and the Executive shall
otherwise mutually agree, be deemed to have terminated, at the
date of giving such purported Notice of Termination, by mutual
consent of the Company and the Executive and, except as provided
in the last preceding sentence, the Executive shall be entitled
to receive only his Earned Salary and the Accrued Obligations.
10. Legal Fees and Expenses. If the Executive asserts
any claim in any contest (whether initiated by the Executive or
by the Company) as to the validity, enforceability or
interpretation of any provision of this Agreement, the Company
shall pay the Executive's legal expenses (or cause such expenses
to be paid) including, without limitation, his reasonable
attorney's fees, on a quarterly basis, upon presentation of proof
of such expenses in a form reasonably acceptable to the Company.
11. Confidential Information; Company Property. By
and in consideration of the salary and benefits to be provided by
the Company hereunder, including the severance arrangements set
forth herein, the Executive agrees that:
(a) Confidential Information. The Executive shall
hold in a fiduciary capacity for the benefit of the Company all
secret or confidential information, knowledge or data relating to
the Company or any of its affiliated companies, and their
respective businesses, (i) obtained by the Executive during his
employment by the Company or any of its affiliated companies and
(ii) not otherwise public knowledge (other than by reason of an
unauthorized act by the Executive). After termination of the
Executive's employment with the Company, the Executive shall not,
without the prior written consent of the Company, unless
compelled pursuant to an order of a court or other body having
jurisdiction over such matter, communicate or divulge any such
information, knowledge or data to anyone other than the Company
and those designated by it.
(b) Injunctive Relief and Other Remedies with Respect
to Covenants. The Executive acknowledges and agrees that the
covenants and obligations of the Executive with respect to
confidentiality and Company property relate to special, unique
and extraordinary matters and that a violation of any of the
terms of such covenants and obligations will cause the Company
irreparable injury for which adequate remedies are not available
at law. Therefore, the Executive agrees that the Company shall
(i) be entitled to an injunction, restraining order or such other
equitable relief (without the requirement to post bond)
restraining Executive from committing any violation of the
covenants and obligations contained in this Section 11 and (ii)
have no further obligation to make any payments to the Executive
hereunder following any material violation of the covenants and
obligations contained in this Section 11. These remedies are
cumulative and are in addition to any other rights and remedies
the Company may have at law or in equity. In connection with the
foregoing provisions of this Section 11, the Executive represents
that his economic means and circumstances are such that such
provisions will not prevent him from providing for himself and
his family on a basis satisfactory to him. In no event shall an
asserted violation of the provisions of this Section 11
constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
12. Successors. (a) This Agreement is personal to the
Executive and, without the prior written consent of the Company,
shall not be assignable by the Executive otherwise than by will
or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and
be binding upon the Company and its successors. The Company
shall require any successor to all or substantially all of the
business and/or assets of the Company, whether direct or
indirect, by purchase, merger, consolidation, acquisition of
stock, or otherwise, by an agreement in form and substance
satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent
as the Company would be required to perform if no such succession
had taken place.
13. Miscellaneous. (a) Effect of this Agreement on
Existing Employment Agreements. Any other agreements between the
Executive and the Company or any of its Subsidiaries relating to
Executive's employment by any such entity shall be automatically
superseded upon the occurrence of the Effective Date.
(b) Applicable Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New
Jersey, applied without reference to principles of conflict of
laws.
(c) Arbitration. Any dispute or controversy arising
under or in connection with this Agreement shall be resolved by
binding arbitration. The arbitration shall be held in the City
of Atlantic City, New Jersey or in the City of Philadelphia,
Pennsylvania and except to the extent inconsistent with this
Agreement, shall be conducted in accordance with the Voluntary
Labor Arbitration Rules of the American Arbitration Association
then in effect at the time of the arbitration, and otherwise in
accordance with principles which would be applied by a court of
law or equity. The arbitrator shall be acceptable to both the
Company and the Executive. If the parties cannot agree on an
acceptable arbitrator, the dispute shall be heard by a panel of
three arbitrators, one appointed by each of the parties and the
third appointed by the other two arbitrators.
(d) Amendments. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal
representatives.
(e) Entire Agreement. This Agreement constitutes the
entire agreement between the parties hereto with respect to the
matters referred to herein. No other agreement relating to the
terms of the Executive's employment by the Company, oral or
otherwise, shall be binding between the parties unless it is in
writing and signed by the party against whom enforcement is
sought. There are no promises, representations, inducements or
statements between the parties other than those that are
expressly contained herein. The Executive acknowledges that he
is entering into this Agreement of his own free will and accord,
and with no duress, that he has read this Agreement and that he
understands it and its legal consequences.
(f) Notices. All notices and other communications
hereunder shall be in writing and shall be given by hand-delivery
to the other party or by registered or certified mail, return
receipt requested, postage prepaid, addressed as follows:
If to the Executive: at the home address of the
Executive noted on the records of
the Company
If to the Company: Atlantic Energy, Inc.
6801 Black Horse Pike
Pleasantville, New Jersey 08232
Attention: Secretary
with a copy to: Simpson Thacher & Bartlett
425 Lexington Avenue
New York, York, NY 10019
Attention: Alvin H. Brown, Esq.
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(g) Tax Withholding. The Company may withhold from
any amounts payable under this Agreement such Federal, state or
local taxes as shall be required to be withheld pursuant to any
applicable law or regulation.
(h) Severability; Reformation. In the event that one
or more of the provisions of this Agreement shall become invalid,
illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions contained herein
shall not be affected thereby. In the event that any of the
provisions of any of Section 11(a) are not enforceable in
accordance with its terms, the Executive and the Company agree
that such Section shall be reformed to make such Section
enforceable in a manner which provides the Company the maximum
rights permitted at law.
(i) Waiver. Waiver by any party hereto of any breach
or default by the other party of any of the terms of this
Agreement shall not operate as a waiver of any other breach or
default, whether similar to or different from the breach or
default waived. No waiver of any provision of this Agreement
shall be implied from any course of dealing between the parties
hereto or from any failure by either party hereto to assert its
or his rights hereunder on any occasion or series of occasions.
(j) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument.
(k) Captions. The captions of this Agreement are not
part of the provisions hereof and shall have no force or effect.
IN WITNESS WHEREOF, the Executive has hereunto set his
hand and the Company has caused this Agreement to be executed in
its name on its behalf, and its corporate seal to be hereunto
affixed and attested by its Secretary, all as of the day and year
first above written.
ATTEST: Atlantic Energy, Inc.
By: /s/ J. Micahel Galvin, Jr.
Secretary J. Michael Galvin, Jr.
(Seal) Title: Chairman, Personnel &
Benefits Committee
By: /s/ J. L. Jacobs
J. L. Jacobs
Title: President & Chief
Executive Officer
EXECUTIVE:
/s/ Michael J. Barron
Michael J. Barron<PAGE>
SUPPLEMENT TO EMPLOYMENT AGREEMENT
BETWEEN
ATLANTIC ENERGY, INC. and MICHAEL J. BARRON
Dated September 15, 1995
THIS AGREEMENT SUPPLEMENT is entered into this 15th day of
September, 1995 by and between ATLANTIC ENERGY, INC., a New
Jersey
corporation (the "Company") and MICHAEL J. BARRON (the
"Executive")
and is a supplement to that Employment Agreement dated the same
date
hereof (the "Employment Agreement").
In consideration of the mutual promises and covenants herein
contained and as contained in the Employment Agreement, the
adequacy
and sufficiency of which is deemed by the parties to be fair and
reasonable and to constitute due consideration, the Company and
the
Executive hereby agree as follows:
1. Capitalized Terms. Capitalized terms, when used
herein,
shall have the same meaning as in the Employment Agreement.
2. Agreement Not To Compete. The Executive hereby
represents,
covenants and warrants to the Company that, for a period of one
(1)
year following the Date of Termination Executive shall not
undertake
any activity, employment, task or assignment, whether through
ownership, employment, consulting arrangement or otherwise, with
any
person or entity engaged in any business activity in competition
with
the Company or any of its subsidiaries or affiliates. This
covenant
not to compete is limited to the geographic area which, as of the
date of this Agreement Supplement, comprises the Pennsylvania-New
Jersey-Maryland Interconnection area and is also intended to
include
the southeastern portion of the State of New York which lies
south of
the northern most boundary line of the Commonwealth of
Pennsylvania.
It is the intent of this covenant not to compete that
the
Executive will not, during the one year period following Date of
Termination and within the geographical limits hereinabove
described,
directly or indirectly engage, participate or make any financial
investments in, or become employed by or render (whether or not
for
compensation) any consulting, advisory or other services to or
for
the benefit of any person, firm or corporation, or otherwise
engage
in any business activity which directly or indirectly competes
with
any of the business operations or activities in which the Company
or
any of its subsidiaries or affiliates is engaged as of the Date
of
Termination, nor any business in which the Company or any of its
subsidiaries or affiliates is actively engaged in pursuing or
developing as of the Date of Termination.
Nothing contained herein is intended to restrict the
Executive from making any investments in any corporation,
partnership
or other business enterprise whose outstanding capital stock or
other
equity interests are listed or admitted to unlisted trading
privileges on a national securities exchange or included for
quotation through an inter-dealer quotation system of a
registered
national securities association, provided that such investment
(i)
represents less than five percent (5%) of the aggregate
outstanding
capital stock or other equity interests of such corporation,
partnership or business enterprise and (ii) does not otherwise
provide Executive or any affiliate of Executive with the right or
power (whether or not exercised) to influence, direct or cause
the
direction of the management policies and/or affairs of any such
business or enterprise which is or might directly or indirectly
compete with any business, operations or activities of the
Company or
any of its subsidiaries and affiliates.
IN WITNESS WHEREOF, intending to be legally bound the
Executive
has hereunto set his hand and the Company has caused this
Agreement
to be executed in its name on its behalf, and its corporate seal
to
be hereunto affixed and attested by its Secretary, all as of the
day
and year first above written.
ATTEST: ATLANTIC ENERGY, INC.
(Seal)
____________________________ BY:/s/ J. Michael Galvin, Jr.
J. Michael Galvin, Jr.
Chairman, Personnel & Benefits
Committee
BY: /s/ J. L. Jacobs
J. L. Jacobs
President & Chief Executive Officer
EXECUTIVE:
/s/ Michael J. Barron
Michael J. Barron
