<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-3559
----------------
ATLANTIC CITY ELECTRIC COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
New Jersey 21-0398280
<S> <C>
(State of Incorporation) (I.R.S. Employer Identification No.)
</TABLE>
800 King Street, P.O. Box 231
Wilmington, Delaware 19899
(Address of principal executive offices)
Registrant's telephone number (302) 429-3114
----------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
8.25% Cumulative Quarterly Income New York Stock Exchange
Preferred
Securities, liquidation
preference $25 per preferred
security issued by Atlantic
Capital I
7 3/8% Cumulative Trust Preferred New York Stock Exchange
Capital Securities, liquidation
preference $25 per preferred
security issued by Atlantic
Capital II
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
----------------
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 10-K. [X]
All 18,320,937 issued and outstanding shares of Atlantic City Electric
Company common stock, $3 per share par value, are owned by Conectiv.
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
------
<C> <S> <C>
Glossary............................................................................. ii
PART I
Item 1. Business
General............................................................................. I-1
Competition and Electric Utility Industry Restructuring............................. I-1
Installed Capacity.................................................................. I-2
Electricity Supply.................................................................. I-2
Pennsylvania-New Jersey-Maryland Interconnection Association........................ I-3
Purchased Power..................................................................... I-3
Nuclear Power Plants................................................................ I-4
Fuel Supply for Electric Generation................................................. I-5
Coal.............................................................................. I-5
Oil............................................................................... I-5
Gas............................................................................... I-6
Nuclear........................................................................... I-6
Regulatory Matters.................................................................. I-6
Electric Retail Rates............................................................. I-6
Off-Tariff Rates.................................................................. I-7
Levelized Energy Adjustment Clause................................................ I-7
Electric Distribution Service Reliability and Quality Standards................... I-7
Other Regulatory Matters.......................................................... I-8
Capital Spending and Financing Program.............................................. I-8
Environmental Matters............................................................... I-9
Air Quality Regulations........................................................... I-9
Water Quality Regulations......................................................... I-9
Hazardous Substances.............................................................. I-10
Executive Officers................................................................ I-11
Item 2. Properties................................................................. I-12
Item 3. Legal Proceedings.......................................................... I-13
Item 4. Submission of Matters to a Vote of Security Holders........................ I-13
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters...... II-1
Item 6. Selected Financial Data.................................................... II-2
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ II-3
Item 8. Financial Statements and Supplementary Data................................ II-11
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure................................................................ II-37
PART III
Item 10. Directors and Executive Officers of the Registrant......................... III-1
Item 11. Executive Compensation..................................................... III-2
Item 12. Security Ownership of Certain Beneficial Owners and Management............. III-11
Item 13. Certain Relationships and Related Transactions............................. III-11
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K........... IV-1
Signatures........................................................................... IV-5
</TABLE>
i
<PAGE>
GLOSSARY
The following glossary lists the abbreviations used in this report.
<TABLE>
<CAPTION>
Term Definition
---- ----------
<C> <S>
7 3/8% Debentures..................... 7 3/8% Junior Subordinated Debentures
8.25% Debentures...................... 8.25% Junior Subordinated Deferrable
Interest Debentures
1992 Energy Act....................... National Energy Policy Act of 1992
ACE................................... Atlantic City Electric Company
the Act............................... The Electric Discount and Energy
Competition Act
AFUDC................................. Allowance For Funds Used During
Construction
Atlantic.............................. Atlantic Energy, Inc.
ALJ................................... Administrative Law Judge
BGS................................... Basic Generation Service
Clean Water Act....................... Federal Water Pollution Control Act
CRP................................... Conectiv Resource Partners, Inc.
D&D Fund.............................. Decontamination & Decommissioning Fund
DOE................................... United States Department of Energy
DPL................................... Delmarva Power & Light Company
DSM................................... Demand Side Management Plan
FASB.................................. Financial Accounting Standards Board
FERC.................................. Federal Energy Regulatory Commission
GAAP.................................. Generally Accepted Accounting
Principles
Hope Creek............................ Hope Creek Nuclear Generating Station
IPP................................... Independent Power Producer
kWh................................... Kilowatt-hour
LEC................................... Levelized Energy Clause
Litigation Reform Act................. The Private Securities Litigation
Reform Act of 1995
LLRW.................................. Low Level Radioactive Waste
LMP................................... Locational Marginal Pricing
MD&A.................................. Management's Discussion and Analysis
of Financial Condition and Results of
Operations
Merger................................ A series of merger transactions by
which DPL and ACE became subsidiaries
of Conectiv
Mortgage.............................. Mortgage and Deed of Trust
MW.................................... Megawatt
NERC.................................. North American Electric Reliability
Council
NJBPU................................. New Jersey Board of Public Utilities
NJDEP................................. New Jersey Department of Environmental
Protection
NJPDES................................ New Jersey Pollution Discharge
Elimination System
NOTR.................................. Northeast Ozone Transport Region
NOx................................... Oxides of Nitrogen
NPDES................................. National Pollution Discharge
Elimination System
NRC................................... Nuclear Regulatory Commission
NWPA.................................. Nuclear Waste Policy Act of 1982
Peach Bottom.......................... Peach Bottom Atomic Power Station
PECO.................................. PECO Energy Company
PJM Interconnection................... Pennsylvania-New Jersey-Maryland
Interconnection Association
Public Service Electric and Gas
PSE&G................................. Company
PUHCA................................. Public Utility Holding Company Act of
1935
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Term Definition
---- ----------
<C> <S>
PURPA................................. Public Utility Regulatory Policy Act
of 1978
RACT.................................. Reasonably Available Control
Technology
RISC.................................. Rate Intervention Steering Committee
RTP................................... Real Time Pricing
Salem................................. Salem Nuclear Generating Station
SALP.................................. Systematic Assessment of Licensee
Performance
SEC................................... Securities and Exchange Commission
SFAS.................................. Statement of Financial Accounting
Standards
SFAS No. 71........................... SFAS No. 71, "Accounting For the
Effects of Certain Types of
Regulation"
SFAS No. 88........................... SFAS No. 88, "Employers' Accounting
For Settlements and Curtailments of
Defined Benefit Pension Plans and for
Termination Benefits"
SFAS No. 128.......................... SFAS No. 128, "Earnings Per Share"
SFAS No. 131.......................... SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related
Information"
SFAS No. 133.......................... SFAS No. 133, "Accounting for
Derivative Instruments and Hedging
Activities"
SO/2/ ................................ Sulfur Dioxide
TEFA.................................. Transitional Energy Facility
Assessment Tax
USEPA................................. United States Environmental Protection
Agency
VRDB.................................. Variable Rate Demand Bonds
Westinghouse.......................... Westinghouse Electric Corporation
</TABLE>
iii
<PAGE>
PART I
Item 1. Business
General
Atlantic City Electric Company (ACE) is a regulated public electric utility
and a subsidiary of Conectiv, which is a Delaware corporation and a registered
holding company under the Public Utility Holding Company Act of 1935 (PUHCA).
ACE was organized under the laws of New Jersey on April 28, 1924 by merger and
consolidation of several utility companies. ACE holds the franchises necessary
to provide regulated electric service in its service territory.
ACE is primarily engaged in generating, purchasing, delivering, and selling
electricity. ACE serves approximately 488,800 customers in its service
territory which covers an area of about 2,700 square miles in the southern
one-third of New Jersey and has a population of approximately 850,000. ACE's
customer base is comprised primarily of residential and commercial customers.
In 1998, the percentages of retail electric revenues contributed by customer
class were as follows: residential--47.3%; commercial--41.1%; and industrial /
other--11.6%.
ACE's utility business is subject to regulation with respect to its retail
electric sales by the New Jersey Board of Public Utilities (NJBPU). The
Federal Energy Regulatory Commission (FERC) also has regulatory authority over
certain aspects of ACE's electric utility business, including the transmission
of electricity, the sale of electricity to municipalities and electric
cooperatives, and interchange and other purchases and sales of electricity
involving other utilities. ACE is also subject to regulation by the
Pennsylvania Public Utility Commission in limited respects concerning property
and operations in Pennsylvania.
On March 1, 1998, ACE and Delmarva Power & Light Company (DPL) became
wholly-owned subsidiaries of Conectiv (the Merger). Before the Merger, ACE was
owned by Atlantic Energy, Inc. (Atlantic). As a result of the Merger, Atlantic
no longer exists and Conectiv owns, directly or indirectly, ACE, DPL and the
nonutility subsidiaries formerly held separately by Atlantic and DPL. Conectiv
is a registered holding company under PUHCA, which imposes certain
restrictions on the operations of registered holding companies and their
subsidiaries.
As of December 31, 1998, ACE had 857 employees, of which 524 were
represented by a collective bargaining labor organization. During 1998, ACE
reduced its workforce by 573 employees, including 354 employees separated
through Merger-related employee separation programs and 219 employees
transferred to Conectiv Resource Partners, Inc. (CRP), a Conectiv subsidiary
and service company established pursuant to PUHCA. CRP provides a variety of
support services to Conectiv subsidiaries, and its employees are primarily
former DPL and ACE employees. The costs of CRP are directly assigned,
distributed and allocated to the Conectiv subsidiaries using CRP's services,
including ACE.
For additional information about the Merger, refer to Note 4 to ACE's 1998
Consolidated Financial Statements included in Item 8 of Part II.
For information concerning ACE's business segments, refer to Note 18 to
ACE's 1998 Consolidated Financial Statements included in Item 8 of Part II.
Competition and Electric Utility Industry Restructuring
For information concerning restructuring the electric utility industry in
New Jersey and the Electric Discount and Competition Act (the Act), see Note 5
to ACE's 1998 Consolidated Financial Statements included in Item 8 of Part II.
Under the Act, New Jersey electric customers may choose an electricity
supplier beginning August 1, 1999. Customers will continue to pay the local
utility a regulated price for delivery of electricity over the transmission
and distribution system. As electric utility industry restructuring is
implemented in ACE's and other utilities' service territories, gross margins
earned from supplying electricity are expected to decrease as
I-1
<PAGE>
competition to supply customers with electricity increases. As a greater
percentage of ACE's revenues become subject to competition, financial risks
and rewards, and the volatility of earnings are expected to increase. ACE's
ability to continue reducing costs by streamlining operations, regulatory
decisions pursuant to restructuring under the Act, retention of existing
customers and the ability to gain new customers are significant determinants
of ACE's future success.
Installed Capacity
The megawatts (MW) of net installed summer electric generating capacity
available to ACE to serve its peak load as of December 31, 1998, are presented
below. See Item 2, Properties, for additional information.
<TABLE>
<CAPTION>
% of
Source of Capacity MW Total
------------------ ----- -----
<S> <C> <C>
Coal-fired generating units.................................... 471 19
Oil-fired generating units..................................... 295 12
Combustion turbines/combined cycle generating units............ 524 21
Nuclear generating units....................................... 380 15
Diesel units................................................... 9 --
Long-term purchased capacity................................... 828 33
----- ---
Subtotal....................................................... 2,507 100
Short-term purchased capacity.................................. 9 --
----- ---
Total.......................................................... 2,516 100
===== ===
</TABLE>
The net generating capacity available for operations at any time may be less
than the total net installed generating capacity due to generating units being
out of service for inspection, maintenance, repairs, or unforeseen
circumstances.
As restructuring of the electric utility industry is implemented, ACE
expects to sell some of its generating units. ACE has identified certain
generating assets that may be sold, but has not determined when such sale, or
sales, would occur.
Electricity Supply
As a member of the Pennsylvania-New Jersey-Maryland Interconnection
Association (PJM Interconnection), ACE is obligated to maintain capacity
levels based on its allocated share of estimated aggregate PJM Interconnection
capacity requirements. (The PJM Interconnection is discussed on page I-3.) ACE
periodically updates its forecast of peak demand and PJM Interconnection
reserve requirements, and re-evaluates resources available to supply projected
growth. Any short-term capacity deficiencies related to obligations to the PJM
Interconnection are expected to be satisfied through short-term capacity-only
purchases. Incremental energy supply needs are expected to be filled through
purchased power.
ACE experienced it highest historical peak demand of 2,162 MW on July 22,
1998, which was 1.6% above the previous peak demand of 2,127 MW recorded on
August 16, 1997. ACE's capacity obligation to the PJM Interconnection, which
includes a reserve margin, is based on normal weather conditions and full
implementation of its demand-side management programs. Under these conditions,
ACE's 1998 peak demand would have been approximately 2,115 MW. ACE's installed
capacity of 2,501 MW at the time of the peak resulted in a reserve margin of
18%, computed under PJM Interconnection guidelines. ACE's reserve obligation
to the PJM Interconnection is approximately 20%.
I-2
<PAGE>
The sources of the electricity supplied to ACE's customers during 1998, 1997,
and 1996 are shown below:
<TABLE>
<CAPTION>
Source of Electricity 1998 1997 1996
--------------------- ---- ---- ----
<S> <C> <C> <C>
Generation fuel type
Coal...................................................... 26% 26% 28%
Nuclear................................................... 29 18 15
Oil/Natural Gas........................................... 4 3 2
Interchange and Purchased Power............................ 12 30 35
Nonutility Purchased Power................................. 29 23 20
--- --- ---
Total..................................................... 100% 100% 100%
=== === ===
</TABLE>
Pennsylvania-New Jersey-Maryland Interconnection Association
As a member of the PJM Interconnection, ACE's generation and transmission
facilities are operated on an integrated basis with other electricity
suppliers in Pennsylvania, New Jersey, Maryland, and the District of Columbia,
and are interconnected with other major utilities in the United States. This
power pool improves the reliability and operating economies of the systems in
the group and provides capital economies by permitting shared reserve
requirements. The PJM Interconnection's installed capacity as of December 31,
1998, was 57,551 MW. The PJM Interconnection peak's demand during 1998 was
48,663 MW on August 15, which resulted in a summer reserve margin of 18.2%
(based on installed capacity of 57,511 MW on that date).
On October 15, 1998, the PJM Interconnection began operating a centralized
capacity credit market, providing a new option to participants for procuring
and selling surplus capacity to meet reliability obligations within the PJM
Interconnection region. Capacity is the capability to produce electric power,
typically from owned generation or third-party purchase contracts and differs
from the electric energy markets, which trade the actual energy being
generated. This market facilitates the selling and buying of capacity for
participants by providing a single point of contact for market participants
and a published capacity market clearing price.
Effective April 1, 1998, the PJM Interconnection implemented locational
marginal pricing (LMP) to establish the market clearing prices for electric
energy and to price electric transmission usage based upon costs associated
with transmission system congestion. When there is no congestion on the power
system and energy is flowing on the grid in an unconstrained manner, energy
prices are cleared at the highest bid accepted by the PJM Interconnection for
the entire PJM Interconnection region. When a limit is reached on the
transmission grid, the PJM Interconnection will operate generators to preserve
system reliability. LMP allows the PJM Interconnection to send price signals
to raise and lower generator output when the power flows are constrained.
Different energy market clearing prices are paid by wholesale power buyers and
sellers on the power grid that reflect the value relative to a system
constraint. LMP provides for an efficient allocation of congestion costs to
transmission users within the PJM Interconnection region. The FERC has
approved the use of the LMP congestion management system to allow electric
energy market participants with power contracts on neighboring electric
systems to compensate the PJM Interconnection for any unintended flows on the
PJM Interconnection system, rather than forcing those participants to curtail
their contracts.
Currently, the PJM Interconnection Operating Agreement requires bids to sell
electricity received from generation located within the PJM Interconnection
control area not to exceed the variable cost of producing such electricity.
Transactions that are bid into the PJM pool from generation located outside
the PJM Interconnection control area are capped at $1,000 per megawatt hour.
All power providers are paid the LMP set through power providers' bids.
Certain PJM Interconnection members have requested that FERC revise the PJM
Interconnection Operating Agreement to allow the submission of market based
bids to the PJM Interconnection energy market.
Purchased Power
The Public Utility Regulatory Policy Act of 1978 (PURPA) established a class
of nonutility power suppliers, known as independent power producers (IPPs),
and required electric utilities to purchase the excess power from IPPs. As a
result of PURPA, ACE has long-term contracts with four IPPs for the purchase
of 659 MW of capacity and energy. In view of electric utility industry
restructuring, various parties continue to seek the repeal of PURPA; however,
federal action with regard to PURPA is not likely to affect ACE's IPP
contracts.
I-3
<PAGE>
ACE's NJBPU-approved IPP contracts are shown below.
<TABLE>
<CAPTION>
MW Date of
Project Location Fuel Type Provided Commercial Operation
---------------- --------- -------- --------------------
<S> <C> <C> <C>
Chester, Pennsylvania............. solid waste 75 September 1991
Pedricktown, New Jersey........... gas 116 March 1992
Carney's Point, New Jersey........ coal 249 March 1994
Logan Township, New Jersey........ coal 219 September 1994
---
Total......................... 659
===
</TABLE>
ACE is also currently purchasing 125 MW of capacity and energy from PECO
Energy Company (PECO) under a contract which ends May 31, 2000. This agreement
replaced a terminated agreement with Pennsylvania Power & Light Company,
effective March 1998. ACE also contracts with other electric suppliers on an
as-needed basis for the purchase of short-term generating capacity, energy and
transmission capacity.
Nuclear Power Plants
ACE owns 5% of the 1,031 MW, Hope Creek Nuclear Generating Station (Hope
Creek) and 7.41% of the 2,212 MW, Salem Nuclear Generating Station (Salem).
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 Public Service Electric & Gas
(PSE&G). ACE also owns 7.51% of the 2,186 MW, Peach Bottom Atomic Power
Station (Peach Bottom), which has Units 2 and 3, is located in York County,
Pennsylvania, and is operated by PECO.
ACE's ownership share in nuclear power plants provided approximately 15% of
its installed capacity as of December 31, 1998. In 1998, ACE's share of output
from the jointly-owned nuclear power plants provided 29% of the electricity
used by ACE's customers. See Note 7 to ACE's 1998 Consolidated Financial
Statements included in Item 8 of Part II for information about ACE's
investment in jointly-owned generating stations.
The operation of nuclear generating units is regulated by the Nuclear
Regulatory Commission (NRC). Such regulation requires that all aspects of
plant operation be conducted in accordance with NRC safety and environmental
requirements and that continuous demonstrations be made to the NRC that plant
operations meet applicable requirements. The NRC has the ultimate authority to
determine whether any nuclear generating unit may operate.
As a by-product of nuclear operations, nuclear generating units produce low-
level radioactive waste (LLRW). LLRW is accumulated on-site until shipped to a
federally licensed permanent disposal facility. Salem, Hope Creek, and Peach
Bottom have on-site interim storage facilities with five-year storage
capacities.
For a discussion of the cycle of production, use and disposal of nuclear
fuel, see "Nuclear" on page I-6.
For a discussion of ACE's funding of its share of the estimated future cost
of decommissioning the Hope Creek, Peach Bottom, and Salem nuclear reactors,
see Note 15 to ACE's 1998 Consolidated Financial Statements included in Part
II, Item 8.
The NRC is requiring nuclear plant operators to report by July 1, 1999, that
their nuclear power plants are Year 2000 ready, or will be Year 2000 ready, by
January 1, 2000. PSE&G and PECO have informed ACE that they are on schedule to
meet the July 1, 1999 response date and that their nuclear operations' Year
2000 programs will make Salem, Hope Creek, and Peach Bottom Year 2000 ready by
January 1, 2000.
Salem Units 1 and 2 were removed from operation by PSE&G in the second
quarter of 1995 due to operational problems, and maintenance and safety
concerns. Due to degradation of a significant number of tubes in the Unit 1
steam generators, PSE&G replaced the Unit 1 steam generators. After receiving
NRC authorization, PSE&G returned Unit 2 to service on August 30, 1997, and
Unit 1 to service on April 17, 1998. On July 29, 1998, the NRC removed Salem
from its "watch list" of troubled nuclear plants. The Salem Unit 2 steam
generators will be inspected for tube degradation in upcoming outages.
I-4
<PAGE>
See Note 13 to ACE's 1998 Consolidated Financial Statements included in Part
II, Item 8, for information concerning ACE's lawsuit against Westinghouse
Electric Corporation, the designer and manufacturer of the Salem steam
generators, and the financial impact of the outages.
Systematic Assessment of Licensee Performance (SALP) reports issued by the
NRC rate licensee performance in four assessment areas: Operations,
Maintenance, Engineering and Plant Support. Ratings range from a high of "1"
to a low of "3." In September 1998, the NRC issued a SALP Report on the
performance of activities at Salem for the period March 1, 1997, to August 1,
1998. Salem received a rating of 1 in Operations, a 2 in Maintenance, a 2 in
Engineering, and a 1 in Plant Support. The NRC noted that the overall
performance at Salem improved, as demonstrated by a nearly event-free return
of both units to operation following the extended outage.
On June 8, 1998, the NRC issued a SALP report on Hope Creek for the period
November 10, 1996, to May 16, 1998. Hope Creek received a rating of 2 in the
areas of Operations, Maintenance, and Engineering, and a rating of 1 in the
area of plant support. The NRC noted improved performance in all functional
areas during the period.
On July 17, 1997, the NRC issued a SALP report on Peach Bottom for the
period October 15, 1995, to June 7, 1997. Peach Bottom received a rating of 1
in the areas of Operations, Maintenance, and Plant Support, and 2 in
Engineering.
On September 16, 1998, the NRC announced that it was suspending the SALP
report process until it completes a review of its nuclear power plant
performance assessment process. The SALP process has not yet been resumed or
replaced.
Fuel Supply for Electric Generation
ACE's electric generating capacity by fuel type is shown under "Installed
Capacity" on page I-2. To facilitate the purchase of adequate amounts of fuel
at reasonable prices, ACE contracts with various suppliers of coal, oil, and
natural gas on both a long- and short-term basis. Prices under oil and natural
gas contracts are generally determined by market-based indices.
Coal
B.L. England Units 1 and 2, Deepwater Unit 6, and the Keystone and Conemaugh
Generating Stations are coal-fired. During 1998, 92% of ACE's coal supply for
these units was purchased under two long-term contracts, which expire in April
1999 and June 2001, and the balance was purchased on the spot market.
Approximately 56% of ACE's projected coal requirements are expected to be
provided under supply contracts. ACE does not anticipate any difficulty in
obtaining adequate amounts of coal at reasonable prices.
Oil
Currently, 100% of the residual oil used in B.L. England Unit 3 and
Deepwater Unit 1 is supplied under a three-year contract that expires October
31, 2000. Another three-year contract which expires October 31, 2000, provides
all of the distillate oil supply for ACE's combustion turbines.
I-5
<PAGE>
Gas
Natural gas is the primary fuel for six of ACE's combustion turbines and a
secondary fuel at Deepwater Units 1 and 6. Natural gas for ACE's gas-fired
generating units is purchased primarily from the local gas distribution
company on a firm basis and is also purchased from other suppliers, such as
marketers, producers, and utilities. The gas is delivered under contract
through the interstate pipeline system.
Nuclear
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 hexaflouride, enrichment of the uranium hexaflouride
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. The federal government has an obligation for the transportation and
ultimate disposal of the spent fuel, as discussed below.
PSE&G has informed ACE it has several long-term contracts with uranium ore
operators, converters, enrichers and fabricators to process uranium ore to
uranium concentrate to meet the currently projected requirements for Salem and
Hope Creek. ACE has also been advised by PECO that it has similar contracts to
satisfy the fuel requirements of Peach Bottom. Currently, there is an adequate
supply of nuclear fuel for Salem, Hope Creek, and Peach Bottom.
In conformity with the Nuclear Waste Policy Act of 1982 (NWPA), PSE&G and
PECO have entered into contracts with the United States Department of Energy
(DOE) on behalf of the joint owners providing that the federal government
shall for a fee take title to, transport, and dispose of spent nuclear fuel
and high level radioactive waste from the Salem, Hope Creek, and Peach Bottom
reactors. In accordance with the NWPA, ACE pays the DOE one-tenth of one cent
per kilowatt-hour (kWh) of nuclear generation (net of station use) for the
future cost of spent nuclear fuel disposal. Under the NWPA, the DOE was to
begin accepting spent fuel for permanent off-site storage no later than
January 1998. However, no such repositories are in service or under
construction. The DOE has stated that it would not be able to open a
permanent, high level nuclear waste storage facility until 2010, at the
earliest.
Pursuant to NRC rules, spent nuclear fuel generated in any reactor can be
stored in reactor facility storage pools or in independent spent nuclear fuel
storage installations located at or away from reactor sites for at least 30
years beyond the licensed life for operation (which may include the term of a
revised or renewed license).
PSE&G has advised ACE that, as a result of reracking the two spent fuel
storage pools at Salem, the availability of spent fuel storage capacity is
estimated to be adequate through 2012 for Unit 1 and 2016 for Unit 2. PSE&G
has also advised ACE that the Hope Creek pool is also fully racked and it is
expected to provide adequate storage capacity until 2006. PECO has advised ACE
that spent fuel racks at Peach Bottom have storage capacity until 2000 for
Unit 2 and until 2001 for Unit 3. PECO has also advised ACE that it is
constructing an on-site dry storage facility, which is expected to be
operational in 2000, to provide additional storage capacity.
Regulatory Matters
For information concerning restructuring the electric utility industry in
New Jersey, see Note 5 to ACE's 1998 Consolidated Financial Statements
included in Item 8 of Part II.
Electric Retail Rates
ACE's base rates for retail electric service are subject to the approval of
the NJBPU. However, the utility ratemaking process is changing in New Jersey,
as discussed in Note 5 to ACE's 1998 Consolidated Financial Statements
included in Item 8 of Part II.
I-6
<PAGE>
For information concerning base rate increases and decreases affecting the
1996-1998 results of operations, including the Merger-related base rate
decrease and base rate decreases expected in connection with the electric
utility industry restructuring, see Notes 3, 5 and 13 to ACE's 1998
Consolidated Financial Statements included in Item 8 of Part II.
Off-Tariff Rates
Legislation enacted in New Jersey in July 1995 allows the NJBPU, 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 NJBPU for the
right to offer customers, who meet certain conditions, off-tariff, discounted
rates. Off-tariff pricing arrangements with certain ACE customers have been
arranged. Refer to "Electric Revenues" in ACE's Management's Discussion and
Analysis of Financial Condition and Results of Operations (MD&A) herein for
further information regarding off-tariff rates (OTRAs).
Levelized Energy Adjustment Clause
Information concerning the Levelized Energy Adjustment Clause (LEC) is
included in the Notes to ACE's 1998 Consolidated Financial Statements (Part
II, Item 8) as follows: (i) the operation of the LEC and deferred energy
accounting are discussed under "Deferred Energy Costs" in Note 1, (ii) the
nuclear performance standard is discussed under "Other Rate Matters" in Note
5, and (iii) the financial impact of extended outages at Salem is discussed in
Note 13.
In January 1999, ACE filed with the NJBPU a petition requesting that the
estimated cost of oxides of nitrogen (NOx) allowances in 1999 of $4.8 million
be included in LEC rates. A ruling on this matter is expected during 1999. For
information concerning NOx emission regulations, see "Air Quality Regulations"
on page I-9.
On April 11, 1997, the Rate Intervention Steering Committee (RISC) submitted
its brief on its appeal to the Superior Court of New Jersey in response to the
NJBPU's decision which provided for ACE's recovery (through LEC rates) of the
cost of power purchased from IPPs. In May 1998, the Superior Court of New
Jersey rejected RISC's appeal and upheld the NJBPU's decision providing for
LEC recovery of IPP purchased power costs. In May 1998, RISC appealed the
Superior Court's decision to the Supreme Court of New Jersey, which denied
RISC's appeal in July 1998.
The LEC is expected to be superceded by provisions contained in the Act
which permit Basic Generation Service (BGS) suppliers full and timely recovery
of their costs. The Act also authorizes the NJBPU to allow the deferral and
subsequent recovery of BGS costs if necessary for attainment of the rate
reductions required by the Act. Regulations governing BGS are expected to be
promulgated by the NJBPU prior to beginning retail choice of electricity
suppliers in New Jersey.
Electric Distribution Service Reliability and Quality Standards
On December 30, 1997, the NJBPU directed its Staff to initiate an inquiry
into establishing measurable performance and reliability standards for New
Jersey electric and gas utilities. The Staff's most recent draft proposal does
not propose monetary penalties, but does require establishment of utility
specific standards and contains potentially costly and burdensome reporting
requirements. The NJBPU is expected to review this matter in 1999.
I-7
<PAGE>
Other Regulatory Matters
The 1992 Energy Act provided for creation of a Decontamination &
Decommissioning (D&D) Fund to pay for the future clean-up of DOE gaseous
diffusion enrichment facilities. Domestic utilities and the federal government
are required to make payments to the D&D Fund until 2008 or $2.25 billion,
adjusted annually for inflation, is collected. The liability accrued for ACE's
share of the D&D Fund was $5.7 million as of December 31, 1998. ACE is
recovering this cost through LEC revenues.
ACE has cost allocation and direct charging mechanisms in place to ensure
that there is no cross-subsidization of its competitive activities by
regulated utility activities. In accordance with the NJBPU's order which
approved the Merger, ACE filed Conectiv's Cost Accounting Manual and the
Service Agreement between ACE and CRP with the NJBPU on October 28, 1998.
Certain types of transactions between ACE and its affiliates may require
prior approval of the NJBPU.
The New Jersey Public Utility Fault Determination Act requires the NJBPU to
make a determination of fault with regard to any past or future accident at
any electric generating or transmission facility, prior to granting a
utility's request for a rate increase to cover accident-related costs in
excess of $10 million. However, the law allows a 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 NJBPU to authorize the recovery of certain
fault-related repair, cleanup, replacement power or damage costs, if
appropriate.
Capital Spending and Financing Program
For financial information concerning ACE's capital spending and financing
program, refer to "Liquidity and Capital Resources" in the MD&A included in
Item 7 of Part II and Notes 8 and 9 to ACE's 1998 Consolidated Financial
Statements, included in Item 8 of Part II.
ACE's ratios of earnings to fixed charges and earnings to fixed charges and
preferred stock dividends under the Securities and Exchange Commission (SEC)
Methods for 1994-1998 are shown below.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of Earnings to Fixed Charges (SEC Method)... 1.66 2.84 2.59 3.19 3.07
Ratio of Earnings to Fixed Charges and Preferred
Stock Dividends (SEC Method)..................... 1.55 2.58 2.16 2.43 2.26
</TABLE>
Under the SEC Method, earnings, including Allowance For Funds Used During
Construction (AFUDC), have been computed by adding income taxes and fixed
charges to net income. Fixed charges include gross interest expense, the
estimated interest component of rentals, and dividends on preferred securities
of subsidiary trusts. For the ratio of earnings to fixed charges and preferred
stock dividends, preferred stock dividends represent annualized preferred
stock dividend requirements multiplied by the ratio that pre-tax income bears
to net income. Excluding Merger-related pre-tax charges of $79.1 million in
1998 and $22.2 million in 1997, the Ratio of Earnings to Fixed Charges was
2.74 in 1998 and 3.15 in 1997, and the Ratio of Earnings to Fixed Charges and
Preferred Stock Dividends was 2.55 in 1998 and 2.86 in 1997.
I-8
<PAGE>
Environmental Matters
ACE is subject to various federal, regional, state, and local environmental
regulations, including air and water quality control, oil pollution control,
solid and hazardous waste disposal, and limitation on land use. Permits are
required for ACE's construction projects and the operation of existing
facilities. ACE has incurred, and expects to continue to incur, capital
expenditures and operating costs because of environmental considerations and
requirements. ACE has a continuing program to assure compliance with the
environmental standards adopted by various regulatory authorities.
Included in ACE's forecasted capital requirements are construction
expenditures for compliance with environmental regulations, which are
estimated to be $2 million in 1999.
Air Quality Regulations
The federal Clean Air Act requires utilities and other industries to
significantly reduce emissions of air pollutants such as sulfur dioxide
(SO/2/) and oxides of nitrogen (NOx). Title IV of the Clean Air Act, the acid
rain provisions, established a two-phase program which mandated reductions of
SO/2/ and NOx emissions from certain utility units by 1995 (Phase I) and
required other utility units to begin reducing SO/2/ and NOx emissions in the
year 2000 (Phase II). Phase I emission reduction requirements have been
achieved by the jointly-owned Conemaugh generating station and B.L. England
Units 1 and 2. The remainder of ACE's wholly- and jointly-owned fossil-fuel
units are required to comply with Phase II emission limits.
ACE's facilities must also comply with Title I of the Clean Air Act, the
ozone nonattainment provisions, which require states to promulgate Reasonably
Available Control Technology (RACT) regulations for existing sources located
within ozone nonattainment areas or within the Northeast Ozone Transport
Region (NOTR). In accordance with New Jersey Department of Environmental
Protection (NJDEP) regulatory requirements, ACE has submitted and received
NJDEP's approval of ACE's RACT compliance plan.
Additional "post RACT" NOx emission regulations are being pursued by states
in the NOTR. In New Jersey, post-RACT NOx control regulations require
attainment of summer seasonal emission reductions of up to 65% below 1990
levels by May 1999 and 90% by 2003 through reduced emissions or the
procurement of NOx emission allowances. ACE anticipates spending approximately
$5 to $8 million over the next five years to achieve compliance with post-RACT
NOx regulations.
In addition to the above requirements, the United States Environmental
Protection Agency (USEPA) has proposed summer seasonal NOx controls
commensurate with reductions of up to 85% below baseline years by the year
2003 for a 22 state region; including Delaware and New Jersey. Since New
Jersey will require a greater percent reduction than EPA, the ACE facilities
will most likely achieve compliance with the EPA requirement by 2003.
In July 1997, the USEPA adopted new federal air quality standards for
particulate matter and ozone. The new particulate matter standard addressed
fine particulate matter. Attainment of the fine particulate matter standard
may require reductions in NOx and SO/2/. However, under the time schedule
announced by the USEPA, particulate matter non-attainment areas will not be
designated until 2002 and control measures to meet this standard will not be
identified until 2005.
Water Quality Regulations
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. National
Pollution Discharge Elimination System (NPDES) permits issued by state
environmental regulatory agencies specify effluent limitations, monitoring
requirements, and special conditions with which facilities discharging
wastewaters must comply. To ensure that water quality is maintained, permits
are issued for a term of five years and are modified as necessary to reflect
requirements of new or revised regulations or changes in facility operations.
I-9
<PAGE>
ACE holds New Jersey Pollution Discharge Elimination System (NJPDES) permits
issued by the NJDEP for the Deepwater and B.L. England power stations. The
NJDEP has issued a draft revised NJPDES permit for the Deepwater station which
is currently under review. The NJPDES permit for the B.L. England station will
expire in December 1999. Application for renewal will be submitted, as
required, in June 1999.
The Clean Water Act also requires that cooling water intake structures be
designed to minimize adverse environmental impact. The USEPA is required by a
consent order to propose regulations in 1999 for determining whether cooling
water intake structures represent the best technology available for minimizing
adverse environmental impacts. Final action on the proposed regulations is
required in 2001.
PSE&G is implementing the 1994 NJPDES permit issued for the jointly-owned
Salem facility which requires, among other things, water intake screen
modifications and wetlands restoration. Under the 1994 permit, PSE&G is
continuing to restore wetlands and conduct the requisite management and
monitoring associated with the special conditions of the 1994 permit. In 1999,
PSE&G must apply to renew Salem's NJPDES permit.
Hazardous Substances
The nature of the electric utility business results in the production, or
handling, of various by-products and substances which may contain substances
defined as hazardous under federal or state statutes. The disposal of
hazardous substances can result in costs to clean up facilities found to be
contaminated due to past disposal practices. Federal and state statutes
authorize governmental agencies to compel responsible parties to clean up
certain abandoned or uncontrolled hazardous waste sites. ACE's exposure is
minimized by adherence to environmental standards for ACE-owned facilities and
through a waste disposal contractor screening and audit process. ACE has
accrued a $1.0 million liability for potential future remediation costs
associated with certain hazardous waste sites.
In 1991, the NJDEP identified ACE as one of a number of parties allegedly
responsible for the placement of certain hazardous substances in a sanitary
landfill in Atlantic County, New Jersey. Pursuant to an action in 1992 by the
USEPA, ACE was named as one of several defendants in connection with the
alleged release of hazardous substances at a site located in Gloucester
County, New Jersey. ACE's cumulative contributions to the remediation and
clean-up of these sites have been approximately $0.4 million.
I-10
<PAGE>
Executive Officers
The names, ages, and positions of all of the executive officers of ACE as of
December 31, 1998, are listed below, along with their business experiences
during the past five years. Officers are elected annually by Conectiv's Board
of Directors. There are no family relationships among these officers, nor any
arrangement or understanding between any officer and any other person pursuant
to which the officer was selected.
Executive Officers of ACE
(As of December 31, 1998)
<TABLE>
<CAPTION>
Name, Age and Position Business Experience During Past 5 Years
---------------------- ---------------------------------------
<S> <C>
Howard E. Cosgrove, 55, ....... Elected 1998 as Chairman of the Board and Chief
Chairman of the Board and Executive Officer of Conectiv, Delmarva Power &
Chief Executive Officer Light Company, and Atlantic City Electric
Company. Elected 1992 as Chairman of the Board,
President and Chief Executive Officer and
Director of Delmarva Power & Light Company.
Meredith I. Harlacher, Jr., 56, Elected 1998 as President and Chief Operating
President Officer of Conectiv, and President and Chief
Operating Officer and Director of Delmarva Power
& Light Company and Atlantic City Electric
Company. Elected 1993 as Senior Vice President
of Atlantic Energy, Inc.
Barry R. Elson, 57, ........... Elected 1998 as Executive Vice President of
Executive Vice President Conectiv, and Executive Vice President and
Director of Delmarva Power & Light Company and
Atlantic City Electric Company. Elected 1997 as
Executive Vice President, Delmarva Power & Light
Company. Executive Vice President, Cox
Communications, Inc., Atlanta, Georgia, from
1995 to 1996. Senior Vice President, Cox
Enterprises/Cox Communications, Inc., Atlanta,
Georgia, from 1984 to 1995.
Thomas S. Shaw, 51, ........... Elected 1998 as Executive Vice President of
Executive Vice President Conectiv, and Executive Vice President and
Director of Delmarva Power & Light Company and
Atlantic City Electric Company. Elected 1992 as
Senior Vice President, Delmarva Power & Light
Company.
Barbara S. Graham, 50, ........ Elected 1998 as Senior Vice President and Chief
Senior Vice President and Financial Officer of Conectiv, and Senior Vice
Chief Financial Officer President and Chief Financial Officer and
Director of Delmarva Power & Light Company and
Atlantic City Electric Company. Elected 1994 as
Senior Vice President, Treasurer and Chief
Financial Officer, Delmarva Power & Light
Company. Vice President and Chief Financial
Officer of Delmarva Power & Light Company from
1992 to 1994.
James P. Lavin, 51............. Elected 1998 as Controller of Conectiv, Delmarva
Controller and Chief Power & Light Company, and Atlantic City
Accounting Officer Electric Company. Elected 1993 as Comptroller,
Delmarva Power & Light Company.
John C. van Roden, 49.......... Elected 1998 as Senior Vice President and Chief
Senior Vice President and Financial Officer, effective January 1999, of
Chief Financial Officer* Conectiv, Delmarva Power & Light Company, and
Atlantic City Electric Company. Principal, Cook
and Belier, Inc. in 1998. Senior Vice
President/Chief Financial Officer and Vice
President/Treasurer, Lukens, Inc. from 1987 to
1998.
</TABLE>
- --------
*Effective January 1999
I-11
<PAGE>
Item 2. Properties
Substantially all utility plants and properties of ACE are subject to the
lien of the Mortgage under which First Mortgage Bonds are issued.
The following table sets forth the net installed summer electric capacity
available to ACE to serve its peak load as of December 31, 1998.
<TABLE>
<CAPTION>
Net
Installed
Capacity
Station Location (kilowatts)
------- -------- -----------
<S> <C> <C>
Coal-Fired
B L England........... Beesley's Pt., NJ................... 284,000
Conemaugh............. New Florence, PA.................... 65,000 (A)
Keystone.............. Shelocta, PA........................ 42,000 (A)
Deepwater............. Pennsville, NJ...................... 80,000
---------
471,000
---------
Oil-Fired
B L England........... Beesley's Pt., NJ................... 155,000
Deepwater............. Pennsville, NJ...................... 140,000
---------
295,000
---------
Combustion
Turbines/Combined Cycle
Cumberland............ Millville, NJ....................... 84,000
Sherman Avenue........ Vineland, NJ........................ 81,000
Middle................ Rio Grande, NJ...................... 77,000
Carll's Corner........ Upper Deerfield Twp, NJ............. 73,000
Cedar................. Cedar Run, NJ....................... 68,000
Missouri Avenue....... Atlantic City, NJ................... 60,000
Mickleton............. Mickleton, NJ....................... 59,000
Deepwater............. Pennsville, NJ...................... 19,000
Salem................. Lower Alloways Creek Twp., NJ....... 3,000 (A)
---------
524,000
---------
Nuclear
Peach Bottom.......... Peach Bottom Twp., PA............... 164,000 (A)
Salem................. Lower Alloways Creek Twp., NJ....... 164,000 (A)
Hope Creek............ Lower Alloways Creek Twp., NJ....... 52,000 (A)
---------
380,000
---------
Diesel Units
B L England........... Beesley's Pt., NJ................... 8,000
Keystone.............. Shelocta, PA........................ 300 (A)
Conemaugh............. New Florence, PA.................... 400 (A)
---------
8,700
---------
Long-term Capacity Purchases................................. 828,000
---------
Subtotal................................................... 2,506,700
---------
Short-term Capacity Purchases................................ 9,500
---------
Total...................................................... 2,516,200
=========
</TABLE>
(A)ACE's portion of jointly-owned plants.
I-12
<PAGE>
ACE's electric transmission and distribution system includes 1,231
transmission poleline miles of overhead lines, 9,419 distribution poleline
miles of overhead lines, and 1,198 distribution cable miles of underground
cables.
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 ACE. ACE believes it has
good title to such properties and will 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 ACE, 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 ACE on
the western (Delaware River) side of New Jersey were published within one year
period mandated by the constitutional amendment. Nevertheless, ACE believes it
has obtained all necessary grants from the State for its improved properties
along the Delaware River.
Item 3. Legal Proceedings
See Note 13 to ACE's 1998 Consolidated Financial Statements included in Part
II, Item 8, for information concerning ACE's lawsuit against Westinghouse
Electric Corporation, the designer and manufacturer of the Salem steam
generators.
Item 4. Submission of Matters to a Vote of Security Holders
A special meeting of ACE shareholders was held on October 14, 1998 to
approve an amendment to ACE's Charter. Shareholders voted to eliminate
paragraph (7)(B)(c) of Article III of the Charter, removing a restriction on
the amount of securities representing unsecured indebtedness issuable by ACE.
Votes cast on the proposal were as follows:
<TABLE>
<CAPTION>
Number of Shares
--------------------------------------
Outstanding For Against Abstain
----------- ---------- ------- -------
<S> <C> <C> <C> <C>
Common Securities: 18,320,937 18,320,937 -- --
Preferred Securities:
Cumulative Preferred Stock ($100 Par
Value)
4% Series............................. 77,000 59,223 232 150
4.10% Series.......................... 72,000 71,496 -- --
4.35% Series.......................... 15,000 12,183 -- --
4.35% 2nd Series...................... 36,000 35,672 -- --
4.75% Series.......................... 50,000 45,550 -- --
5.00% Series.......................... 50,000 46,455 100 --
No Par Preferred Stock
$7.80 Series.......................... 239,500 239,500 -- --
</TABLE>
I-13
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
All shares of ACE's common stock are owned by Conectiv, its parent company.
ACE is subject to certain limitations on the payment of dividends to
Conectiv. Whenever full dividends on preferred stock have been paid for all
past 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. In addition,
as long as any preferred stock is outstanding, ACE may not pay dividends to
Conectiv 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.
II-1
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1998(1) 1997(2) 1996 1995 1994(3)
------- ------- ---- ---- -------
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Operating Results and
Data
Operating Revenues...... $1,037,613 $1,084,890 $ 989,647 $ 954,783 $ 913,226
Operating Income........ $ 108,868 $ 190,052 $ 165,120 $ 194,687 $ 135,660
Net Income.............. $ 30,276 $ 85,747 $ 75,017 $ 98,752 $ 93,174
Earnings Applicable to
Common Stock........... $ 29,385 $ 80,926 $ 65,113 $ 84,125 $ 76,458
Capitalization
Variable Rate Demand
Bonds (VRDB)(4)........ $ 22,600 $ 22,600 -- -- --
Long-term Debt.......... 791,127 811,144 802,245 802,356 763,289
Preferred Stock of
Subsidiaries
Subject to Mandatory
Redemption............. 118,950 103,950 113,950 114,750 149,250
Not Subject to
Mandatory Redemption.. 6,231 30,000 30,000 40,000 40,000
Common Stockholder's
Equity................. 730,093 783,033 778,425 796,042 796,260
---------- ---------- ---------- ---------- ----------
Total Capitalization
with VRDB.............. $1,669,001 $1,750,727 $1,724,620 $1,753,148 $1,748,799
========== ========== ========== ========== ==========
Other Information
Total Assets............ $2,367,222 $2,436,755 $2,460,741 $2,459,104 $2,418,784
Long-term Capital Lease
Obligations............ $ 19,523 $ 24,077 $ 24,212 $ 25,277 $ 26,102
Capital Expenditures.... $ 71,342 $ 80,896 $ 88,914 $ 100,904 $ 119,961
Common Dividends
Declared(5)............ $ 81,450 $ 80,857 $ 82,163 $ 81,239 $ 83,482
</TABLE>
- --------
(1) As discussed in Note 4 to ACE's 1998 Consolidated Financial Statements, in
1998, employee separation and other Merger-related charges reduced
operating income $79.1 million and net income $47.2 million.
(2) In 1997, employee separation and other Merger-related charges reduced
operating income $22.6 million and net income $15.6 million.
(3) In 1994, employee separation programs reduced operating income $26.6
million and net income $17.3 million.
(4) Although Variable Rate Demand Bonds are classified as current liabilities,
ACE intends to use the bonds as a source of long-term financing as
discussed in Note 9 to ACE's 1998 Consolidated Financial Statements.
(5) Amounts shown as total, rather than on a per-share basis, since ACE is a
wholly-owned subsidiary of Conectiv.
II-2
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Merger
On March 1, 1998, Atlantic City Electric Company (ACE) and Delmarva Power &
Light Company (DPL) became wholly-owned subsidiaries of Conectiv (the Merger).
Before the Merger, Atlantic Energy, Inc. (Atlantic) owned ACE and nonutility
subsidiaries. As a result of the Merger, Atlantic no longer exists and
Conectiv owns (directly or indirectly) ACE, DPL and the nonutility
subsidiaries formerly held separately by Atlantic and DPL. Conectiv is a
registered holding company under the Public Utility Holding Company Act of
1935 (PUHCA).
In 1998, enhanced retirement offers and other employee separation programs
were utilized to reduce the workforce by 354 positions. The employee
separation programs and other Merger-related costs resulted in a $61.1 million
pre-tax charge to expense (or $36.6 million after taxes) in 1998 and a $22.2
million pre-tax charge to expenses (or $15.6 million after taxes) in 1997.
Certain of ACE's operational and administrative facilities are being sold
due to consolidation of ACE's and DPL's facilities pursuant to the Merger. The
estimated fair market value of the assets held for sale is $18.0 million less
than their aggregate carrying value of $32.7 million at December 31, 1998. In
accordance with Statement of Financial Accounting Standards (SFAS) No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of," ACE has recorded an estimated impairment loss of $18.0
million ($10.6 million net of taxes).
Earnings Results Summary
ACE's earnings applicable to common stock were $29.4 million for 1998,
compared to $80.9 million for 1997, a $51.5 million decrease. Excluding the
Merger-related charges discussed above, ACE earned $76.6 million in 1998
compared to $96.5 million in 1997. This $19.9 million earnings decrease was
primarily attributed to higher operations and maintenance expenses.
Excluding the Merger-related charge of $15.6 million in 1997, earnings
increased to $96.5 million in 1997 from $65.1 million in 1996. The $31.4
million earnings increase was due to lower operations and maintenance expenses
and higher electric revenues, net of fuel, energy and capacity costs. In 1997,
ACE's share of operations and maintenance expenses associated with an extended
outage at Salem Nuclear Generating Station (Salem) was limited by an agreement
which settled ACE's related suit against the Salem operator, Public Service
Electric & Gas (PSE&G).
Electric Utility Industry Restructuring
As discussed below, the electric utility industry is being deregulated in
New Jersey. Generally, the restructuring will deregulate the supply component
of the price charged to a customer for electricity, and electricity suppliers
will compete to supply electricity to customers. Customers will continue to
pay the local utility a regulated price for the delivery of the electricity
over the transmission and distribution system.
Stranded costs are costs which may not be recoverable in a competitive
energy supply market due to lower prices or customers choosing a different
supplier. Stranded costs generally include above-market costs associated with
generation facilities or long-term purchased power agreements, and regulatory
assets. ACE has quantified stranded costs in a New Jersey regulatory filing
and has proposed a plan seeking approval for recovery of those costs from
customers during the transition to a competitive market.
When the New Jersey Board of Public Utilities (NJBPU) issues an order
specifically addressing deregulation in ACE's service territory, ACE will
cease applying SFAS No. 71, "Accounting for the Effects of Certain Types of
Regulation," to its electricity supply business. To the extent that the
NJBPU's order provides for recovery of
II-3
<PAGE>
stranded costs through cash flows from the regulated transmission and
distribution business, the stranded costs would continue to be recognized as
assets under SFAS No. 71. Any stranded costs (including regulatory assets) for
which cost recovery is not provided would be expensed.
The amount of stranded costs ultimately recovered from utility customers, if
any, and the full impact of New Jersey legislation deregulating the electric
utility industry, as discussed below, cannot be predicted. Also, the
quantification of stranded costs under existing generally accepted accounting
principles (GAAP) differs from methods used in regulatory filings. Among other
differences, GAAP precludes recognition of the gains on plants (or purchased
power contracts) not impaired, but requires write down of the plants that are
impaired. Due to these considerations, market conditions, timing and other
factors, ACE's management currently cannot predict the ultimate effects that
electric utility industry deregulation may have on the financial statements of
ACE, although deregulation may have a material adverse effect on ACE's results
of operations.
New Jersey Legislation
The "Electric Discount and Energy Competition Act" (the Act) was signed into
law by the Governor of New Jersey on February 9, 1999. The Act provides for
retail choice of electricity suppliers; deregulation of electric rates and
other competitive services, such as metering and billing; separation of
competitive and regulated services; unbundling of rates for electric service;
and licensing of electric and gas suppliers. August 1, 1999 is the effective
starting date for each utility to provide retail choice of electricity
suppliers to all of its customers.
The Act requires each electric utility to reduce its rates by at least 5% at
the start of retail choice and by 10% within 36 months of the start of choice.
If the NJBPU determines that a rate decrease of more than 10% is warranted, a
"just and reasonable" financial test is applied. The mandated rate reductions
must be sustained through the end of the 48th month after choice begins. The
Act requires that the rate reductions be measured against the rates in effect
on April 30, 1997. The rate reductions mandated by the Act could have a
material adverse effect upon the results of operations of ACE.
In connection with the deregulation of electric rates, the Act authorizes
the NJBPU to permit electric public utilities to recover the full amount of
their stranded costs through a non-bypassable market transition charge, as
long as the mandated rate reductions are achieved. The NJBPU will determine
the utility's stranded cost amount. The NJBPU-determined stranded cost amount
will be subject to periodic recalculation and true-up over the recovery
period. The Act establishes an 8-year recovery period for stranded costs
associated with owned generation. The recovery period can be extended by the
NJBPU so as to allow for the full recovery of the stranded costs and the
meeting of mandated rate reductions. The recovery period for stranded costs
associated with purchased power contracts is to be the remainder of the
contract term. In addition, the Act would allow for the issuance of transition
bonds to finance portions of a given utility's stranded costs, as determined
to be appropriate by the NJBPU. All savings generated through the use of such
transition bonds are to be provided to the customers through rate reductions.
The Act establishes the current incumbent utility as the provider of
"default service" or Basic Generation Service (BGS) for a period of 3 years.
Future proceedings will be held to determine if the provision of BGS should be
made competitive. The Act contains numerous provisions regarding the providing
of competitive services by each utility. The primary focus is to ensure that
there is no cross subsidization from the utility to competitive entities. The
NJBPU also is required to develop fair competition standards and conduct an
audit to determine that the utilities are in compliance with those standards.
The Act gives the NJBPU the authority to order a utility to divest its
generating assets if it is determined through a hearing that competition or
customers are being adversely affected by plant location, market power or non-
competitive rates. The NJBPU may require that the generation function be
separated from a utility's non-competitive functions.
The NJBPU is authorized to establish standards for the licensing of energy
suppliers, standards for switching customers from one supplier to another, and
standards for issues such as credit and collections. The Act also contains
provisions for protecting workers displaced by the impacts of the
restructuring of the utility industry.
II-4
<PAGE>
Stranded Cost Filing
Electric utilities in New Jersey, including ACE, previously filed stranded
cost estimates and unbundled rates, as required by the NJBPU. On August 19,
1998, an Administrative Law Judge (ALJ) from the New Jersey Office of
Administrative Law issued an initial decision on ACE's stranded costs and
unbundled rate filing. The ALJ, in reviewing ACE's filing, recognized that
ACE's stranded costs were $812 million for nonutility generation contracts and
$397 million for owned generation. The ALJ made no specific recommendations on
rate issues. A final NJBPU decision on this filing is expected by mid-1999.
Price Regulation of Energy Revenues
Through 1998, customer rates for non-energy costs have been established in
past base rate proceedings before the NJBPU. Changes in non-energy (or base
rate) revenues due to volume, or rate changes, generally affect the earnings
of ACE. Energy costs, including fuel and purchased energy, are currently
billed to ACE's rate-regulated customers under ACE's Levelized Energy Clause
(LEC) rates. These energy rates are adjusted annually for cost changes and are
subject to review by the NJBPU. "Energy revenues," or energy costs billed to
customers, do not generally affect net income, because the amount of under- or
over-recovered energy costs is generally deferred until it is subsequently
recovered from or returned to ACE's rate-regulated customers.
The LEC is expected to be superceded by provisions contained in the Act
which permit BGS suppliers full and timely recovery of their costs. The Act
also authorizes the NJBPU to permit deferral and subsequent recovery of BGS
costs if necessary for attainment of the rate reductions required by the Act.
Regulations governing BGS are expected to be promulgated by the NJBPU prior to
beginning retail choice of electricity suppliers in New Jersey.
Electric revenues also include interchange delivery revenues, which result
primarily from the sale of electricity to other electricity suppliers in the
Pennsylvania-New Jersey-Maryland Interconnection, which is an electric power
pool. Interchange delivery revenues are currently reflected in the calculation
of rates charged to customers under the LEC and, thus, do not affect net
income.
Revenues are also earned from sales not subject to price regulation. These
sales include off-system bulk commodity sales and retail energy sales.
Electric Revenues
In 1998, the percentage of electric retail revenues contributed by the
various retail customer classes were as follows: residential 47.3%; commercial
41.1%; industrial 11.0%; and other 0.6%.
Details of the changes in the various components of electric revenues, from
prior years, are shown below.
<TABLE>
<CAPTION>
1998 1997
Variance Variance
(dollars in millions) -------- --------
<S> <C> <C>
Non-energy (base rate) revenues:
Change in New Jersey tax law............................ $(54.1) $ --
Merger-related base rate decrease....................... (13.3) --
Other postretirement benefits (OPEB) costs base rate
increase............................................... 5.0 --
All other variances..................................... 1.3 4.9
------ -----
Subtotal............................................... (61.1) 4.9
Energy revenues.......................................... 22.4 13.0
Interchange revenues..................................... 45.5 (3.9)
Revenues not subject to price regulation................. (40.4) 70.2
------ -----
Total.................................................. $(33.6) $84.2
====== =====
</TABLE>
II-5
<PAGE>
The $54.1 million decrease in electric revenues which was due to changes in
the New Jersey tax law related to sales of electricity did not affect earnings
due to corresponding reductions in taxes other than income taxes. Sales and
use taxes billed to customers in 1998 are recorded as a current liability,
whereas in prior years, certain other state taxes (which were replaced, in
part, by the sales and use taxes) were recorded as revenues. The $13.3 million
Merger-related base rate decrease shown above resulted from sharing with
utility customers the expected Merger-related cost savings, as discussed under
"Other Rate Matters" in Note 5 to the Consolidated Financial Statements. The
$5.0 million base rate increase for OPEB is for recovery of the non-cash
portion of OPEB costs deferred during 1993-1997.
"All other variances" in electric non-energy revenues primarily reflect
growth in retail kilowatt-hour (kWh) sales and the number of customers. Total
retail kWh sales increased 3.4% in 1998. Sales growth in 1998 was particularly
strong in the commercial and industrial sectors, with increases of 5.3% and
4.4%, respectively. Lower "other electric revenues" in 1998 partly offset the
additional revenues from sales growth. Other electric revenues are primarily
from non-regulated energy-related activities, such as, indoor and outdoor
lighting programs, appliance warranty programs and other energy services,
which are now being conducted through other Conectiv subsidiaries.
The 1997 increase for "All other variances" primarily reflects a 1996 $13.0
million refund to customers, which resulted from a stipulation agreement
related to Salem (as discussed in Note 13 to the Consolidated Financial
Statements), which was substantially offset by ACE's NJBPU-approved Off-Tariff
Rate Adjustments (OTRAs). OTRAs are special reduced rates offered by ACE to
large customers, which aggregated $10.5 million for 1997.
As discussed under "Price Regulation of Energy Revenues," energy and
interchange delivery revenues generally do not affect net income.
Revenues not subject to price regulation decreased $40.4 million in 1998
because non-price regulated bulk power sales have been conducted solely
through DPL subsequent to the Merger in order to achieve synergies. In 1997,
revenues from non-price regulated sales increased $70.2 million because ACE
entered the bulk power market in late-1996 and expanded sales during 1997. The
margin provided by the wholesale market revenues in excess of the related
energy costs is relatively small due to the competitive nature of bulk power
sales.
Other Services Revenues
Other services revenues represent non-regulated energy related services,
including energy management services. Effective with the Merger, most of these
services are being provided by other Conectiv subsidiaries.
Operation and Maintenance Expenses
Operation and maintenance expenses increased $29.1 million for 1998. An
actuarial valuation of ACE's pension plan liability based on updated
assumptions and data resulted in a $5.9 million pension expense increase; the
remaining increase in operation and maintenance expenses was due primarily to
lower capitalized expenses and increased contracted services.
In 1997, operation and maintenance expenses decreased $27.7 million
primarily due to reduced Salem outage expenses. An agreement which settled
ACE's lawsuit against PSE&G limited ACE's 1997 share of Salem's operation and
maintenance expenses.
Depreciation Expense
In 1998, ACE began amortizing OPEB costs deferred during 1993-1997 and
depreciating new assets, including business, financial, and human resource
management systems. Primarily due to these factors, depreciation expense
increased $12.3 million in 1998.
Taxes Other Than Income Taxes
Taxes other than income taxes decreased $65.2 million for 1998 due primarily
to the changes in the New Jersey tax laws which eliminated the state gross
receipts and franchise tax. Earnings generally were not affected
II-6
<PAGE>
by this decrease due to related reductions in electric revenues resulting from
the tax law change. See Note 3 to the Consolidated Financial Statements for
further details on the tax law change.
Gain on Preferred Stock Redemption
In October 1998, ACE purchased and retired 237,232 shares, or $23.7 million
of various series of mandatorily redeemable preferred stock, which had an
average dividend rate of 4.4%. ACE purchased these shares at a discount, which
resulted in a gain of $2.5 million that is included in ACE's 1998 results of
operations.
Year 2000
The Year 2000 issue is the result of computer programs and embedded systems
using a two-digit format, as opposed to four digits, to indicate the year.
Computer and embedded systems with this characteristic may be unable to
interpret dates during and beyond the year 1999, which could cause a system
failure or other computer errors, leading to disruption of operations. A
Conectiv project team, originally started in 1996 by ACE, is assisting line
management in addressing the issue of computer programs and embedded systems
not properly recognizing the Year 2000. A Conectiv corporate officer,
reporting directly to the Chief Executive Officer, is coordinating all Year
2000 activities. There are substantial challenges in identifying and
correcting the many computer and embedded systems critical to generating and
delivering power and providing other services to customers.
The project team is using a phased approach to managing its activities. The
first phase is inventory and assessment of all systems, equipment, and
processes. Each identified item is given a criticality rating of high, medium
or low. Those items rated as high or medium are then subject to the second
phase of the project. The second phase is determining and implementing
corrective action for the systems, equipment and processes, and concludes with
a test of the unit being remediated. The third phase is system testing and
compliance certification. Additionally, the project team will be updating
existing outage contingency plans to address Year 2000 issues.
Overall, Conectiv's Year 2000 Project covers approximately 140 different
systems (some with numerous components) that had been originally identified as
high or medium in criticality. However, only 21 of those 140 systems are
essential for Conectiv to provide electric and gas service to its customers.
The Year 2000 Project team will be focusing on these 21 systems, with
additional work on other systems continuing based on their relative importance
to Conectiv's business.
The following chart sets forth the current estimated completion percentage
of the 140 different systems in the Year 2000 Project by major business group,
and for the information technology systems used in managing Conectiv's
businesses. Conectiv expects significant progress in remediation and testing
over the next quarter based on work that is in process and material that is
being ordered.
<TABLE>
<CAPTION>
Corrective
Inventory and Action/Unit System Testing/
Business Group Assessment Testing Compliance
-------------- ------------- ----------- ---------------
<S> <C> <C> <C>
Business systems................. 95% 85% 65%
Power production................. 95% 30% 30%
Electricity distribution......... 95% 10% 5%
Gas delivery..................... 95% 60% 60%
Competitive services............. 90%-95% 30%-80% 30%-80%
</TABLE>
ACE is also contacting vendors and service providers to review remediation
of their Year 2000 issues. Many aspects of ACE's businesses are dependent on
third parties. For example, fuel suppliers must be able to provide coal or gas
to allow ACE to generate electricity.
Distribution of electricity is dependent on the overall reliability of the
electric grid. ACE is cooperating with the North American Electric Reliability
Council (NERC) and the PJM Interconnection in Year 2000 remediation and
remediation planning efforts, and has accelerated its Year 2000 Project
timeline to be generally in-line with the recommendations of those groups. At
this time, a few generating units are scheduled for remediation and
II-7
<PAGE>
testing in September to coincide with previously scheduled outages. Recent
reports issued by the NERC indicate a diminished risk of disruption to the
electric grid caused by Year 2000 issues.
Conectiv has incurred approximately $3 million in costs for the Year 2000
Project. Current estimates of the costs for the Year 2000 Project range from
$10 million to $15 million. These estimates could change significantly as the
Year 2000 Project progresses. The costs set forth above do not include several
significant expenditures covering new systems, such as ACE's SAP business,
financial and human resources management system and an Energy Control System.
While the introduction of these new systems effectively remediated Year 2000
problems in the systems they replaced, ACE has not previously reported the
expenditures on these systems in its costs for the Year 2000 Project.
Since the project team is still in the process of assessing and correcting
impacted systems, equipment and processes, ACE cannot currently determine
whether the Year 2000 issue might cause disruptions to its operations and have
impacts on related costs and revenues. ACE assesses the status of the Year
2000 Project on at least a monthly basis to determine the likelihood of
business disruptions. Based on its own Year 2000 Project, as well as, reports
from NERC and other utilities, ACE's management believes that it is unlikely
that significant Year 2000 related disruptions will occur. However, any
substantial disruption to ACE's operations could negatively impact ACE's
revenues, significantly impact its customers and could generate legal claims
against ACE. ACE's results of operations and financial position would likely
suffer an adverse impact if other entities, such as suppliers, customers and
service providers do not effectively address their Year 2000 issues.
Liquidity and Capital Resources
ACE's principal sources of capital are internally generated funds (net cash
provided by operating activities, less common and preferred dividends) and
external funds. The principal capital requirements of ACE are construction
expenditures, the repayment of debt and capital lease obligations.
Internally generated funds were $157.7 million for 1998, $87.0 million for
1997 and $127.4 million for 1996. The yearly fluctuations in internally
generated funds were primarily due to changes in working capital and in fuel
revenues, net of energy and capacity costs. Internally generated funds
provided 221%, 108%, and 143%, respectively, of the cash required for
construction expenditures for 1998, 1997 and 1996. Cash construction
expenditures were $71.3 million for 1998, $80.9 million for 1997 and $88.9
million for 1996.
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, 1998, ACE had authority to issue $150 million in
short-term debt, all of which was available. ACE also has two separate
uncommitted lines of credit in the amount of $25 million and $20 million,
respectively. The facilities are renewable annually and bear interest at
variable rates.
Common dividends paid to Conectiv in 1998 were $81.5 million. Common
dividends paid to Atlantic in 1997 and 1996 were $80.9 million and $82.2
million, respectively.
Presented below are sources and uses of capital from ACE's debt and equity
securities.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Debt/Equity Issued Redeemed Issued Redeemed Issued Redeemed
----------- ------ -------- ------ -------- ------ --------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Short term debt......... $ -- $ (72.1) $ 7.2 $ -- $ 34.4 $ --
Long term debt.......... 85.0 (58.6) 87.6 (74.1) -- (12.3)
Preferred stock &
securities............. 25.0 (33.8) -- (20.0) 70.0 (98.9)
------ ------- ----- ------ ------ -------
$110.0 $(164.5) $94.8 $(94.1) $104.4 $(111.2)
====== ======= ===== ====== ====== =======
</TABLE>
II-8
<PAGE>
In January 1998, ACE issued $85 million of medium-term notes and used $50
million of the proceeds to redeem medium-term notes, which matured in January
1998.
In May 1998, ACE repaid at maturity $6.0 million of 5.5% Medium-Term Notes
and $2.5 million of 7.25% Debentures.
In August 1998, ACE redeemed 100,000 shares of its $8.20 No Par Preferred
Stock at $100 per share, or $10.0 million in total (the book value of the
preferred stock).
In October 1998, ACE redeemed $23.7 million of preferred stock not subject
to mandatory redemption, which had an average dividend rate of 4.4%. In
November 1998, a subsidiary trust of ACE issued $25 million of 7 3/8%
preferred securities subject to mandatory redemption. On a consolidated basis,
Conectiv receives a tax benefit, which is equivalent to the tax effect of a
deduction for the trust's distributions on the preferred securities.
The scheduled maturities and sinking fund requirements of debt and preferred
securities for the next five years are presented below.
<TABLE>
<CAPTION>
Preferred
Year Debt Securities Total
---- ---- ---------- -----
(Dollars in Thousands)
<S> <C> <C> <C>
1999............................................ $30,075 -- $30,075
2000............................................ $46,075 -- $46,075
2001............................................ $40,075 $11,500 $51,575
2002............................................ $50,075 $11,500 $61,575
2003............................................ $70,075 $ 950 $71,025
</TABLE>
ACE's capital structure as of December 31, 1998 and 1997, expressed as a
percentage of total capitalization is shown below.
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Long-term debt and variable rate demand bonds................. 48.8% 47.6%
Preferred securities.......................................... 7.5% 7.7%
Common stockholder's equity................................... 43.7% 44.7%
</TABLE>
ACE's estimated requirements during 1999 for capital expenditures are $85
million. The uncertainty of the impact of electric utility industry
restructuring, and the extent to which ACE retains or divest certain of its
assets, including generating plants, will affect the ultimate amount of
capital expenditures and the amount of external funds required in excess of
internally generated funds. ACE's management expects that external funds will
be derived from the sale of long-term debt, as required.
Quantitative and Qualitative Disclosures About Market Risks
The following discussion contains "forward looking statements." These
projected results have been prepared based upon certain assumptions considered
reasonable given the information currently available to ACE. Nevertheless,
because of the inherent unpredictability of interest rates and equity market
prices as well as other factors, actual results could differ materially from
those projected in such forward-looking information.
Interest Rate Risk
ACE is subject to the risk of fluctuating interest rates in the normal
course of business. ACE manages interest rates through the use of fixed and,
to a lesser extent, variable rate debt. As of December 31, 1998, a
hypothetical 10% change in interest rates would not have a material impact on
the results of operations of ACE.
II-9
<PAGE>
Equity Price Risk
ACE maintains trust funds, as required by the Nuclear Regulatory Commission,
to fund certain costs of nuclear decommissioning. (See Note 15 to the
Consolidated Financial Statements.) These funds are invested primarily in
domestic and international equity securities, fixed-rate, fixed income
securities, and cash and cash equivalents. By maintaining a portfolio that
includes long-term equity investments, ACE is maximizing the returns to be
utilized to fund nuclear decommissioning costs. However, the equity securities
included in ACE's portfolio are exposed to price fluctuations in equity
markets, and the fixed-rate, fixed income securities are exposed to changes in
interest rates. ACE actively monitors its portfolio by benchmarking the
performance of its investments against certain indexes and by maintaining, and
periodically reviewing, established target asset allocation percentages of the
assets in the trusts. Because the accounting for nuclear decommissioning
recognizes that costs are recovered through electric rates, fluctuations in
equity prices and interest rates, while affecting the carrying value of the
investments, are offset by the effects of regulation and therefore do not
affect earnings.
Commodity Price Risk
Due to the LEC, as discussed under "Price Regulation of Energy Revenues" and
in Note 1 to the Consolidated Financial Statements, ACE's exposure to
commodity price risk is immaterial to ACE's results of operations.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 (Litigation Reform Act)
provides a "safe harbor" for forward looking statements to encourage such
disclosure without the threat of litigation, provided 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 made in this report. Such statements are based on
management's beliefs, as well as, assumptions made by and information
currently available to management. When used herein, the words "will,"
"anticipate," "estimate," "expect," "objective," and similar expressions are
intended to identify 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; federal and state regulatory actions; costs of
construction; operating restrictions; increased cost and construction delays
attributable to environmental regulations; nuclear decommissioning and the
availability of reprocessing and storage facilities for spent nuclear fuel;
and credit market concerns. ACE undertakes 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
Litigation Reform Act should not be construed as exhaustive or as any
admission regarding the adequacy of disclosures made by ACE prior to the
effective date of the Litigation Reform Act.
II-10
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF MANAGEMENT
Management is responsible for the information and representations contained
in the consolidated financial statements of Atlantic City Electric Company
(ACE). Our consolidated financial statements have been prepared in conformity
with generally accepted accounting principles, based upon currently available
facts and circumstances and management's best estimates and judgments of the
expected effects of events and transactions.
ACE and its subsidiary companies maintain a system of internal controls
designed to provide reasonable, but not absolute, assurance of the reliability
of the financial records and the protection of assets. The internal control
system is supported by written administrative policies, a program of internal
audits, and procedures to assure the selection and training of qualified
personnel.
PricewaterhouseCoopers LLP, independent accountants, are engaged to audit
the financial statements and express their opinion thereon. Their audits are
conducted in accordance with generally accepted auditing standards which
include a review of selected internal controls to determine the nature,
timing, and extent of audit tests to be applied.
Conectiv's Audit Committee of the Board of Directors, composed of outside
directors only, meets with management, internal auditors, and independent
accountants to review accounting, auditing, and financial reporting matters.
The independent accountants are appointed by the Board on recommendation of
the Audit Committee, subject to stockholder approval.
/s/ Howard E. Cosgrove /s/ John C. van Roden
- -------------------------- --------------------------
Howard E. Cosgrove John C. van Roden
Chairman of the Board Senior Vice President and
and Chief Executive Officer Chief Financial Officer
February 5, 1999
II-11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Atlantic City Electric Company
Wilmington, Delaware
In our opinion, the consolidated financial statements listed in the
accompanying index appearing under Item 14(a)(1) on page IV-1 present fairly,
in all material respects, the financial position of Atlantic City Electric
Company and subsidiary companies as of December 31, 1998, and the results of
their operations and their cash flows for the year ended December 31, 1998, in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedule listed in the accompanying index
appearing under Item 14(a)(2) on page IV-1 presents fairly, in all material
respects, the information set forth therein when read in conjunction with the
related consolidated financial statements. These financial statements and
financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audit. We conducted
our audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audit provides a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
- --------------------------
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
February 5, 1999
II-12
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Atlantic City Electric Company
Wilmington, Delaware
We have audited the accompanying consolidated balance sheet of Atlantic City
Electric Company and subsidiary as of December 31, 1997 and the related
consolidated statements of income, changes in common stockholder's equity, and
cash flows for each of the two years in the period ended December 31, 1997.
Our audits also included the financial statement schedule for years ended
December 31, 1997 and 1996 listed in the Index as Item 14. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule 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, 1997 and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1997, in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule for the
years ended December 31, 1997 and 1996, when considered in relation to the
basic consolidated financial statements taken as a whole, present fairly in
all material respects the information set forth therein.
/s/ Deloitte & Touche LLP
- -----------------------
Deloitte & Touche LLP
February 2, 1998 (March 1, 1998, as to Note 4)
Parsippany, New Jersey
II-13
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Operating Revenues
Electric................................. $ 1,034,894 $ 1,068,534 $ 984,360
Other Services........................... 2,719 16,356 5,287
----------- ----------- ---------
1,037,613 1,084,890 989,647
----------- ----------- ---------
Operating Expenses
Electric Fuel and Purchased Power........ 308,943 293,457 225,185
Cost of Sales--Other Services............ 5,465 13,566 6,742
Purchased Electric Capacity.............. 173,741 180,250 179,282
Employee Separation and Other Merger-
Related Costs........................... 61,091 22,246 --
Merger-Related Impairment Loss on Assets
Held for Sale........................... 18,000 -- --
Operation and Maintenance................ 206,951 177,875 205,615
Depreciation............................. 112,711 100,412 97,262
Taxes Other Than Income Taxes............ 41,843 107,032 110,441
----------- ----------- ---------
928,745 894,838 824,527
----------- ----------- ---------
Operating Income......................... 108,868 190,052 165,120
----------- ----------- ---------
Other Income
Allowance for Equity Funds Used During
Construction............................ 593 815 879
Other Income............................. 8,028 14,595 11,275
----------- ----------- ---------
8,621 15,410 12,154
----------- ----------- ---------
Interest Expense
Interest Charges......................... 63,940 64,501 64,847
Allowance for Borrowed Funds Used During
Construction and Capitalized Interest... (957) (1,003) (976)
----------- ----------- ---------
62,983 63,498 63,871
----------- ----------- ---------
Dividends on Preferred Securities of
Subsidiary Trusts....................... 6,052 5,775 1,428
----------- ----------- ---------
Income Before Income Taxes............... 48,454 136,189 111,975
----------- ----------- ---------
Income Taxes............................. 18,178 50,442 36,958
----------- ----------- ---------
Net Income............................... 30,276 85,747 75,017
----------- ----------- ---------
Dividends on Preferred Stock............. 3,436 4,821 9,904
Gain on Preferred Stock Redemption....... 2,545 -- --
----------- ----------- ---------
Earnings Applicable to Common Stock...... $ 29,385 $ 80,926 $ 65,113
=========== =========== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
II-14
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash Flows from Operating Actvities
Net Income................................. $ 30,276 $ 85,747 $ 75,017
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and Amortization............. 117,285 109,000 104,408
Investment Tax Credit Adjustments, Net.... (1,690) (2,534) (2,534)
Deferred Income Taxes, Net................ (37,915) 3,330 3,982
Deferred Energy Costs..................... 43,001 6,105 (2,095)
Prepaid State Sales Taxes................. (19,522) -- --
Prepaid State Excise Taxes................ 3,248 3,321 3,628
Unrecovered State Excise Taxes............ 9,560 9,560 9,560
Employee Separation and Merger-Related
Costs.................................... 16,147 -- --
Net Change in:
Accounts Receivable....................... (500) (5,536) 5,795
Inventories............................... 5,077 3,365 (2,523)
Accounts Payable.......................... 18,765 (14,370) 2,814
Other Current Assets and Liabilities (1).. 19,198 (10,245) (2,525)
Impairment Loss on Assets Held for Sale.... 18,000 -- --
Other, Net................................. 21,687 (15,052) 23,960
---------- --------- ----------
Net Cash Provided by Operating Activities.. 242,617 172,691 219,487
---------- --------- ----------
Cash Flows from Investing Activities
Capital Expenditures....................... (71,342) (80,896) (88,914)
Nuclear Decommissioning Trust Fund
Deposits.................................. (6,424) (6,424) (6,424)
Other, Net................................. (1,040) 2,916 (9,283)
---------- --------- ----------
Net Cash Used by Investing Activities...... (78,806) (84,404) (104,621)
---------- --------- ----------
Cash Flows from Financing Activities
Dividends:
Common Stock.............................. (81,450) (80,857) (82,163)
Preferred Stock........................... (3,436) (4,821) (9,904)
Issuances:
Long-term Debt............................ 85,000 87,600 --
Preferred Securities...................... 25,000 -- 70,000
Redemptions:
Long-term Debt............................ (58,575) (74,066) (12,266)
Preferred Stock........................... (33,769) (20,000) (98,876)
Principal Portion of Capital Lease
Payments.................................. (12,295) (8,588) (7,146)
Net Change in Short-term Debt.............. (72,100) 7,150 34,405
Other, Net................................. (4,184) 2,616 (3,879)
---------- --------- ----------
Net Cash Used by Financing Activities...... (155,809) (90,966) (109,829)
---------- --------- ----------
Net Change in Cash and Cash Equivalents.... 8,002 (2,679) 5,037
Cash and Cash Equivalents at Beginning of
the Year.................................. 20,765 23,444 18,407
---------- --------- ----------
Cash and Cash Equivalents at End of the
Year...................................... $ 28,767 $ 20,765 $ 23,444
========== ========= ==========
</TABLE>
- --------
(1) Other than debt and deferred income taxes classified as current.
See accompanying Notes to Consolidated Financial Statements.
II-15
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
ASSETS
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
<S> <C> <C>
Current Assets
Cash and Cash Equivalents................................ $ 28,767 $ 20,765
Accounts Receivable ..................................... 130,148 129,648
Allowance for Doubtful Accounts.......................... (3,500) (3,500)
Inventories, at Average Cost:
Fuel (Coal and Oil)..................................... 27,233 29,159
Materials and Supplies.................................. 21,296 20,893
Deferred Energy Costs.................................... -- 27,424
Prepaid New Jersey Sales and Excise Tax.................. 20,078 3,804
Deferred Income Taxes, Net............................... 7,735 --
Other Prepayments........................................ 4,420 3,949
---------- ----------
236,177 232,142
---------- ----------
Investments
Funds Held by Trustee.................................... 102,765 88,743
Other Investments........................................ 112 9
---------- ----------
102,877 88,752
---------- ----------
Property, Plant, and Equipment
Electric Utility Plant................................... 2,600,699 2,591,825
Less: Accumulated Depreciation........................... 1,007,106 945,921
---------- ----------
Net Utility Plant in Service............................. 1,593,593 1,645,904
Utility Construction Work-in-Progress.................... 97,955 106,806
Leased Nuclear Fuel, at Amortized Cost................... 35,003 38,795
Nonutility Property, Net................................. 8,207 8,517
---------- ----------
1,734,758 1,800,022
---------- ----------
Deferred Charges and Other Assets
Unrecovered Purchased Power Costs........................ 48,274 66,264
Deferred Recoverable Income Taxes........................ 102,223 85,858
Unrecovered State Excise Taxes........................... 35,594 45,154
Deferred Debt Refinancing Costs.......................... 28,043 30,002
Deferred Other Postretirement Benefit Costs.............. 34,978 37,476
Unamortized Debt Costs................................... 14,141 13,416
Prepaid Pension Benefit.................................. -- 8,390
Other.................................................... 30,157 29,279
---------- ----------
293,410 315,839
---------- ----------
Total Assets............................................. $2,367,222 $2,436,755
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
II-16
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
CAPITALIZATION AND LIABILITIES
<TABLE>
<CAPTION>
December 31,
------------
1998 1997
---- ----
<S> <C> <C>
Current Liabilites
Short-term Debt.......................................... $ -- $ 55,675
Long-term Debt Due Within One Year....................... 30,075 --
Variable Rate Demand Bonds............................... 22,600 22,600
Accounts Payable......................................... 54,315 37,779
Interest Accrued......................................... 14,774 19,562
Dividends Payable........................................ 22,236 21,215
Taxes Accrued............................................ 22,916 5,922
Current Capital Lease Obligation......................... 15,728 15,653
Accrued Employee Separation & Other Merger-related
Costs................................................... 9,554 --
Deferred Energy Costs.................................... 15,577 --
Deferred Income Taxes, Net............................... -- 9,974
Other.................................................... 28,771 37,226
---------- ----------
236,546 225,606
---------- ----------
Deferred Credits and Other Liabilities
Deferred Income Taxes, Net............................... 343,429 354,127
Deferred Investment Tax Credits.......................... 42,142 44,043
Long-term Capital Lease Obligation....................... 19,523 24,077
Pension Benefit Obligation............................... 10,477 --
Other Postretirement Benefit Obligation.................. 44,607 37,476
Other.................................................... 24,097 23,299
---------- ----------
484,275 483,022
---------- ----------
Capitalization
Common Stock, $3 Par Value; 25,000,000 Shares Authorized;
Shares Outstanding; 1998 and 1997 18,320,937............ 54,963 54,963
Additional Paid-in Capital............................... 493,007 493,161
Retained Earnings........................................ 182,123 234,909
---------- ----------
Total Common Stockholder's Equity........................ 730,093 783,033
Preferred Stock Subject to Mandatory Redemption.......... 23,950 33,950
Preferred Stock Not Subject to Mandatory Redemption...... 6,231 30,000
ACE Obligated Mandatorily Redeemable Preferred Securities
of Subsidiary Trusts Holding Solely ACE Debentures...... 95,000 70,000
Long-term Debt 791,127 811,144
---------- ----------
1,646,401 1,728,127
---------- ----------
Commitments and Contingencies (Notes 11 & 12)
Total Capitalization and Liabilities..................... $2,367,222 $2,436,755
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
II-17
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
CONSOLIDATED STATEMENTS OF CHANGES
IN COMMON STOCKHOLDER'S EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Additional Paid-in Capital
--------------------------
Premium Contri- Capital
Common Capital buted Stock Retained
Stock Stock Capital Expense Earnings
------ ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995..... $54,963 $231,081 $259,645 $(2,131) $252,484
------- -------- -------- ------- --------
Net Income..................... 75,017
Capital Stock Expense.......... 486 (486)
Capital Contributed from
Parent, Net................... (567)
Less Dividends:
Preferred Stock............... (9,904)
Common Stock.................. (82,163)
------- -------- -------- ------- --------
Balance, December 31, 1996..... 54,963 231,081 259,078 (1,645) 234,948
------- -------- -------- ------- --------
Net Income..................... 85,747
Capital Stock Expense.......... 108 (108)
Capital Contributed from
Parent, Net................... 4,539
Less Dividends:
Preferred Stock............... (4,821)
Common Stock.................. (80,857)
------- -------- -------- ------- --------
Balance, December 31, 1997..... 54,963 231,081 263,617 (1,537) 234,909
------- -------- -------- ------- --------
Net Income..................... 30,276
Preferred Stock Redemption..... (64) 199 1,824
Capital Contributed from
Parent, Net................... (289)
Less Dividends:
Preferred Stock............... (3,436)
Common Stock.................. (81,450)
------- -------- -------- ------- --------
Balance, December 31, 1998..... $54,963 $231,017 $263,328 $(1,338) $182,123
======= ======== ======== ======= ========
</TABLE>
- --------
As of December 31, 1998, ACE had 25 million authorized shares of common stock
at $3 par value. Shares outstanding at December 31, 1998, 1997 and 1996 were
18,320,937.
See accompanying Notes to Consolidated Financial Statements.
II-18
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
As discussed in Note 4 to the Consolidated Financial Statements, effective
March 1, 1998, Atlantic Energy, Inc. (Atlantic), and Delmarva Power & Light
(DPL) consummated a series of merger transactions (the Merger) by which
Atlantic City Electric Company (ACE) and DPL became wholly-owned subsidiaries
of Conectiv.
ACE is a public utility primarily engaged in the generation, purchase,
transmission, distribution and sale of electricity. Sales of electricity
include sales at regulated retail and unregulated wholesale levels. Subsequent
to the Merger, unregulated wholesale or bulk power sales have been transacted
through DPL, in order to achieve Merger synergies. ACE serves approximately
488,800 customers within its service territory, which covers an area of
approximately 2,700 square miles within the southern one-third of New Jersey
and has a population of approximately 850,000. The majority of customers are
residential and commercial.
Principles of Consolidation
The consolidated financial statements include the accounts of ACE and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates
and assumptions.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year reporting of these items.
Regulation of Utility Operations
ACE is subject to regulation with respect to retail electric sales by the
New Jersey Board of Public Utilities (NJBPU). The Federal Energy Regulatory
Commission (FERC) also has regulatory authority over certain aspects of ACE's
business, including the transmission of electricity, the sale of electricity
to municipalities and electric cooperatives, and interchange and other
purchases and sales of electricity involving other utilities.
ACE is subject to the requirements of Statement of Financial Accounting
Standards (SFAS) No. 71, "Accounting for the Effects of Certain Types of
Regulation." The NJBPU occasionally provides for future recovery from
customers of current period expenses. When this happens, the expenses are
deferred as regulatory assets and subsequently recognized in the Consolidated
Statement of Income during the period the utility expenses are recovered from
customers. Similarly, regulatory liabilities may also be created due to the
economic impact of an action taken by the NJBPU. See Notes 3, 5 and 14 to the
Consolidated Financial Statements for additional information.
Revenue Recognition
At the end of each month, there is an amount of electric service rendered
from the last meter reading to the month-end, which has not yet been billed to
customers. The revenues associated with such unbilled services are
II-19
<PAGE>
accrued by ACE and the accrued amounts receivable for unbilled electric
service were $29.7 million as of December 31, 1998 and $36.9 million as of
December 31, 1997. When interim rates are placed in effect subject to refund,
ACE recognizes revenues based on expected final rates.
Revenues from "Other services" are recognized when services are performed or
products are delivered.
Nuclear Fuel
ACE's share of nuclear fuel at the Peach Bottom Atomic Power Station (Peach
Bottom), the Salem Nuclear Generating Station (Salem), and the Hope Creek
Nuclear Generating Station (Hope Creek) is financed through contracts
accounted for as capital leases. Nuclear fuel costs, including a provision for
the future disposal of spent nuclear fuel, are charged to fuel expense on a
unit-of-production basis.
Electric Utility Plant and Allowance for Funds Used During Construction
Electric utility plant is stated at original cost, including property
additions. Generally, utility plant is subject to a First Mortgage lien.
Allowance for Funds Used During Construction (AFUDC) is included in the cost
of utility plant and represents the cost of borrowed and equity funds used to
finance construction of new utility facilities. In the Consolidated Statements
of Income, the borrowed funds component of AFUDC is reported as a reduction of
interest expense and the equity funds component of AFUDC is reported as other
income. AFUDC has been calculated using a semi-annually compounded rate of
8.25% for all periods.
Depreciation
ACE provides for straight-line depreciation based on the following:
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. Depreciation expense includes a provision for ACE's
share of the estimated cost of decommissioning nuclear power plant reactors
based on site-specific studies. Refer to Note 15 to the Consolidated Financial
Statements for additional information on nuclear decommissioning. ACE's
overall composite rate of depreciation was 3.9% for 1998 and 3.3% for 1997 and
1996. Accumulated depreciation is charged with the cost of depreciable
property retired including removal costs less salvage and other recoveries.
Funds Held by Trustee
Funds held by trustee are stated at fair market value and primarily include
deposits for nuclear decommissioning costs.
Deferred Energy Costs
As approved by the NJBPU, 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. Electric Fuel and Purchased Power expenses are 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 during
the period in which they are subsequently included in the LEC rates.
Income Taxes
The consolidated financial statements include two categories of income
taxes--current and deferred. Current income taxes represent the amounts of tax
expected to be reported on ACE's federal and state income tax returns.
Deferred income taxes are discussed below.
II-20
<PAGE>
Deferred income tax assets and liabilities represent the tax effects of
temporary differences between the financial statement and tax bases of
existing assets and liabilities and are measured using presently enacted tax
rates. The portion of ACE's deferred tax liability applicable to utility
operations that has not been recovered from utility customers represents
income taxes recoverable in the future and is shown on the Consolidated
Balance Sheets as "Deferred recoverable income taxes." Deferred recoverable
income taxes were $102.2 million and $85.9 million as of December 31, 1998,
and 1997, respectively.
Deferred income tax expense represents the net change during the reporting
period in the net deferred tax liability and deferred recoverable income
taxes.
Investment tax credits from utility plant purchased in prior years are
reported on the Consolidated Balance Sheets as "Deferred investment tax
credits." These investment tax credits are being amortized to income over the
useful lives of the related utility plant.
Energy Trading and Risk Management Activities
Since the Merger, ACE has not used derivative financial instruments because
ACE ceased its unregulated electricity trading activities. In 1997, to
minimize the risk of market fluctuations associated with unregulated
electricity trading, ACE entered into various transactions involving
derivative financial instruments for hedging purposes. Gains or losses
associated with the derivative transactions were recognized in operations in
the period the derivative instrument was terminated or extinguished or ceased
to be qualified as a hedge.
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, " Accounting for Derivative Instruments and Hedging Activities,"
which becomes effective in the first quarter of fiscal years beginning after
June 15, 1999, unless early adoption is elected. SFAS No. 133 establishes
accounting and reporting standards for derivative instruments and for hedging
activities. It requires that all derivatives be recognized as assets or
liabilities in the balance sheet and be measured at fair value. Under
specified conditions, a derivative may be designated as a hedge. The change in
the fair value of derivatives which are not designated as hedges is recognized
in earnings. For derivatives designated as hedges of changes in the fair value
of an asset or liability, or as a hedge of exposure to variable cash flows of
a forecasted transaction, earnings are affected to the extent the hedge does
not match offsetting changes in the hedged item. ACE currently cannot
determine the effect that SFAS No. 133 will have on its financial statements.
Cash Equivalents
ACE considers all highly liquid investments and debt securities purchased
with a maturity of three months or less to be cash equivalents.
Debt Costs
Debt premium, discount and expense are amortized over the life of the
related debt. Costs associated with refinancing debt are deferred and
amortized over the life of the new debt.
2. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year
<TABLE>
<CAPTION>
1998 1997 1996
(Dollars in Thousands) ---- ---- ----
<S> <C> <C> <C>
Interest........................................... $68,278 $64,966 $65,269
Taxes, net of refunds.............................. $48,215 $48,400 $36,937
</TABLE>
II-21
<PAGE>
3. INCOME TAXES
ACE, as a subsidiary of Conectiv, is included in the consolidated federal
income tax return of Conectiv. Income taxes are allocated to ACE based upon
its taxable income or loss, determined on a separate return basis.
The components of income tax expense for the years ended December 31, 1998,
1997, and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
(Dollars in Thousands) ---- ---- ----
<S> <C> <C> <C>
Federal:
Current........................................ $43,133 $49,646 $35,510
Deferred....................................... (27,694) 3,330 3,982
State:
Current........................................ 14,650 -- --
Deferred....................................... (10,221) -- --
Investment tax credit adjustments............... (1,690) (2,534) (2,534)
------- ------- -------
$18,178 $50,442 $36,958
======= ======= =======
</TABLE>
The amount computed by multiplying income before tax by the federal
statutory rate is reconciled below to the total income tax expense.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
Amount Rate Amount Rate Amount Rate
(Dollars in Thousands) ------ ---- ------ ---- ------ ----
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax
expense....................... $16,959 35% $47,666 35% $39,191 35%
State income taxes, net of
federal tax benefit........... 2,878 6 -- -- -- --
Plant basis differences........ 3,767 8 4,952 4 3,096 3
Amortization of investment tax
credits....................... (1,690) (3) (2,534) (2) (2,534) (2)
Other, net..................... (3,736) (8) 358 -- (2,795) (3)
------- --- ------- --- ------- ---
Total income tax expense....... $18,178 38% $50,442 37% $36,958 33%
======= === ======= === ======= ===
</TABLE>
Effective January 1, 1998, New Jersey eliminated the Gross Receipts and
Franchise Tax paid by electric, natural gas and telecommunication public
utilities. In its place, utilities are now subject to the state's corporate
business tax. In addition, the state's existing sales and use tax was expanded
to include retail sales of electric power and natural gas. A Transitional
Energy Facility Assessment Tax (TEFA) on electric and natural gas utilities
will be phased-out over a five-year period. On January 1, 1999, and each of
the four years thereafter, the TEFA will be reduced by 20%. When fully
implemented, the tax law changes will reduce ACE's effective state tax rate
from 13% to approximately 7%. Savings from these changes in New Jersey tax law
will be passed through to ACE's customers.
II-22
<PAGE>
Items comprising deferred tax balances as of December 31, 1998 and 1997 are
as follows:
<TABLE>
<CAPTION>
1998 1997
(Dollars in Thousands) ---- ----
<S> <C> <C>
Deferred tax liabilities:
Utility plant basis differences......................... $274,773 $302,238
Deferred recoverable income taxes....................... 35,944 30,050
Unrecovered purchase power costs........................ 12,239 16,813
State excise taxes...................................... 12,822 16,326
Other................................................... 31,852 34,190
-------- --------
Total deferred tax liabilities........................ 367,630 399,617
-------- --------
Deferred tax assets:
Deferred investment tax credits......................... 22,749 23,775
Other................................................... 9,187 11,741
-------- --------
Total deferred tax assets............................. 31,936 35,516
-------- --------
Total deferred taxes, net............................... $335,694 $364,101
======== ========
</TABLE>
4. MERGER
On March 1, 1998, ACE and DPL became wholly-owned subsidiaries of Conectiv
(the Merger). Before the Merger, Atlantic owned ACE and nonutility
subsidiaries. As a result of the Merger, Atlantic no longer exists and
Conectiv owns (directly or indirectly) ACE, DPL and the nonutility
subsidiaries formerly held separately by Atlantic and DPL. Conectiv is a
registered holding company under the Public Utility Holding Company Act of
1935 (PUHCA).
The Merger was accounted for under the purchase method, with DPL as the
acquirer. ACE's financial statements do not reflect "push-down" accounting--
the adjustment of the values of assets and liabilities as of the Merger date
and recording of goodwill. Push-down accounting was not used because ACE had
preferred stock and public debt outstanding as of the Merger date.
Under the terms of the agreement, Atlantic stockholders received 0.75 shares
of Conectiv's common stock and 0.125 shares of Conectiv's Class A common stock
for each share of Atlantic stock held. DPL stockholders received one share of
Conectiv's common stock for each share of DPL common stock held.
ACE has recorded the financial effects of enhanced retirement offers and
other employee separation programs utilized to reduce the workforce by 354
positions. The employee separation programs and other Merger-related costs
resulted in a $61.1 million pre-tax charge to expense (or $36.6 million after
taxes) for the year ended December 31, 1998 and a $22.2 million pre-tax charge
to expenses (or $15.6 million after taxes) for the year ended December 31,
1997. The pre-tax expenses are shown on the Statement of Income as "Employee
separation and other merger-related costs." As of December 31, 1998, $35.4
million of the $61.1 million expense for the year ended December 31, 1998 had
been paid, $16.1 million will not require the use of operating funds, and $9.6
million remains to be paid from operating funds.
As part of the Merger, ACE has consolidated its operational and
administrative facilities throughout its regulated service territory, causing
certain assets to be held for sale. The estimated fair market value of these
assets is $18.0 million less than their aggregate carrying value of $32.7
million as of December 31, 1998. In accordance with, SFAS No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," ACE recorded in the fourth quarter of 1998 an estimated
impairment loss of $18.0 million ($10.6 million net of taxes).
NOTE 5. RATE MATTERS
Electric Utility Industry Restructuring
As discussed below, the electric utility industry is being deregulated in
New Jersey. Generally, the restructuring will deregulate the supply component
of the price charged to a customer for electricity, and
II-23
<PAGE>
electricity suppliers will compete to supply electricity to customers.
Customers will continue to pay the local utility a regulated price for the
delivery of the electricity over the transmission and distribution system.
Stranded costs are costs which may not be recoverable in a competitive
energy supply market due to lower prices or customers choosing a different
supplier. Stranded costs generally include above-market costs associated with
generation facilities or long-term purchased power agreements, and regulatory
assets. ACE has quantified stranded costs in a New Jersey regulatory filing
and has proposed a plan seeking approval for recovery of those costs from
customers during the transition to a competitive market.
When the NJBPU issues an order specifically addressing deregulation in ACE's
service territory, ACE will cease applying SFAS No. 71 to its electricity
supply business. To the extent that the NJBPU's order provides for recovery of
stranded costs through cash flows from the regulated transmission and
distribution business, the stranded costs would continue to be recognized as
assets under SFAS No. 71. Any stranded costs (including regulatory assets) for
which cost recovery is not provided would be expensed.
The amount of stranded costs ultimately recovered from utility customers, if
any, and the full impact of New Jersey legislation deregulating the electric
utility industry, as discussed below, cannot be predicted. Also, the
quantification of stranded costs under existing GAAP differs from methods used
in regulatory filings. Among other differences, GAAP precludes recognition of
the gains on plants (or purchased power contracts) not impaired, but requires
write down of the plants that are impaired. Due to these considerations,
market conditions, timing and other factors, ACE's management currently cannot
predict the ultimate effects that electric utility industry deregulation may
have on the financial statements of ACE, although deregulation may have a
material adverse effect on ACE's results of operations.
New Jersey Legislation
The "Electric Discount and Energy Competition Act" (the Act) was signed into
law by the Governor of New Jersey on February 9, 1999. The Act provides for
retail choice of electricity suppliers; deregulation of electric rates and
other competitive services, such as metering and billing; separation of
competitive and regulated services; unbundling of rates for electric service;
and licensing of electric and gas suppliers. August 1, 1999 is the effective
starting date for each utility to provide retail choice of electricity
suppliers to all of its customers.
The Act requires each electric utility to reduce its rates by at least 5% at
the start of retail choice and by 10% within 36 months of the start of choice.
If the NJBPU determines that a rate decrease of more than 10% is warranted, a
"just and reasonable" financial test is applied. The mandated rate reductions
must be sustained through the end of the 48th month after choice begins. The
Act requires that the rate reductions be measured against the rates in effect
on April 30, 1997. The rate reductions mandated by the Act could have a
material adverse effect upon the results of operations of ACE.
In connection with the deregulation of electric rates, the Act authorizes
the NJBPU to permit electric public utilities to recover the full amount of
their stranded costs through a non-bypassable market transition charge, as
long as the mandated rate reductions are achieved. The NJBPU will determine
the utility's stranded cost amount. The NJBPU-determined stranded cost amount
will be subject to periodic recalculation and true-up over the recovery
period. The Act establishes an 8-year recovery period for stranded costs
associated with owned generation. The recovery period can be extended by the
NJBPU so as to allow for the full recovery of the stranded costs and the
meeting of mandated rate reductions. The recovery period for stranded costs
associated with purchased power contracts is to be the remainder of the
contract term. In addition, the Act would allow for the issuance of transition
bonds to finance portions of a given utility's stranded costs, as determined
to be appropriate by the NJBPU. All savings generated through the use of such
transition bonds are to be provided to the customers through rate reductions.
The Act establishes the current incumbent utility as the provider of
"default service" or Basic Generation Service (BGS) for a period of 3 years.
Future proceedings will be held to determine if the provision of BGS
II-24
<PAGE>
should be made competitive. The Act contains numerous provisions regarding the
providing of competitive services by each utility. The primary focus is to
ensure that there is no cross subsidization from the utility to competitive
entities. The NJBPU also is required to develop fair competition standards and
conduct an audit to determine that the utilities are in compliance with those
standards. The Act gives the NJBPU the authority to order a utility to divest
its generating assets if it is determined through a hearing that competition
or customers are being adversely affected by plant location, market power or
non-competitive rates. The NJBPU may require that the generation function be
separated from a utility's non-competitive functions.
The NJBPU is authorized to establish standards for the licensing of energy
suppliers, standards for switching customers from one supplier to another, and
standards for issues such as credit and collections. The Act also contains
provisions for protecting workers displaced by the impacts of the
restructuring of the utility industry.
Stranded Cost Filing
Electric utilities in New Jersey, including ACE, previously filed stranded
cost estimates and unbundled rates, as required by the NJBPU. On August 19,
1998, an Administrative Law Judge (ALJ) from the New Jersey Office of
Administrative Law issued an initial decision on ACE's stranded costs and
unbundled rate filing. The ALJ, in reviewing ACE's filing, recognized that
ACE's stranded costs were $812 million for nonutility generation contracts and
$397 million for owned generation. The ALJ made no specific recommendations on
rate issues. A final NJBPU decision on this filing is expected by mid-1999.
Other Rate Matters
ACE is sharing a portion of the net cost savings expected to result from the
Merger (see Note 4 to the Consolidated Financial Statements) with its
customers through reduced electric retail customer base rates. ACE's total
Merger-related electric base rate decrease of $15.7 million was phased-in as
follows: (1) $5.0 million effective January 1, 1998 coincident with a $5.0
million increase for recovery of deferred other postretirement benefit costs
(OPEB); (2) $9.9 million effective March 1, 1998, and (3) $0.8 million
effective January 1, 1999.
ACE is subject to a performance standard for its five jointly-owned nuclear
units. 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.
LEC rates are adjusted annually to include any penalty or reward resulting
from the nuclear unit performance standard. Pursuant to a December 1996
stipulation agreement, the performance of Salem Units 1 and 2, during
prolonged outages which began in the second quarter of 1995, is not included
in the calculation of a nuclear performance penalty. ACE was not subject to a
nuclear performance penalty in 1996, 1997 or 1998.
Refer to Note 3 to the Consolidated Financial Statements for information
concerning rate changes related to changes in the New Jersey tax laws.
ACE submitted its second Demand Side Management (DSM) Plan for the period
from September 1997 through August 1998 in April 1997. The DSM Plan includes
programs that address energy conservation needs of the residential, commercial
and industrial markets. During the course of DSM Plan proceedings, New
Jersey's Division of the Ratepayer Advocate (Ratepayer Advocate) alleged that
ACE has been recovering more in rates for DSM programs than it is spending on
such programs. ACE's position is that the level of DSM expenditures cannot be
viewed in isolation, but must be considered in light of both the overall
history of DSM expenditures under current rates, as well as ACE's overall
revenue requirement needs in a rate proceeding. The Ratepayer Advocate
contends that any over-recovery and treatment of such over-recovery should be
addressed outside the context of a base rate proceeding. The NJBPU has not yet
taken any action on this matter. ACE cannot predict the outcome of this
matter.
II-25
<PAGE>
NOTE 6. PENSION AND OTHER POSTRETIREMENT BENEFITS
<TABLE>
<CAPTION>
1998 1997 1996
Assumptions ---- ---- ----
<S> <C> <C> <C>
Discount rates used to determine projected benefit
obligation as of December 31........................ 6.75% 7.00% 7.50%
Rates of increase in compensation levels............. 4.50% 3.50% 3.50%
Expected long-term rates of return on pension
assets.............................................. 9.00% 9.00% 8.50%
Expected long-term rates of return on other
postretirement benefit assets....................... 9.00% 7.00% 7.00%
Health care cost trend rate on covered charges....... 7.00% 7.50% 8.00%
</TABLE>
The health-care cost trend rate, or the expected rate of increase in health-
care costs, is assumed to continue to gradually decrease to 5.0% by 2002.
Increasing the health-care cost trend rates of future years by one percentage
point would increase the accumulated postretirement benefit obligation by
$11.8 million and would increase annual aggregate service and interest costs
by $1.5 million. Decreasing the health-care cost trend rates of future years
by one percentage point would decrease the accumulated postretirement benefit
obligation by $10.4 million and would decrease annual aggregate service and
interest costs by $1.3 million.
The following schedules reconcile the beginning and ending balances of the
pension and other postretirement benefit obligations and related plan assets.
Other postretirement benefits include medical benefits for retirees and their
spouses and retiree life insurance.
Change in Benefit Obligation
<TABLE>
<CAPTION>
Other
Postretirement
Pension Benefits Benefits
---------------- --------------
1998 1997 1998 1997
(Dollar in Thousands) ---- ---- ---- ----
<S> <C> <C> <C> <C>
Benefit obligation at beginning
of year......................... $239,000 $207,340 $103,824 $107,105
Service cost..................... 7,558 6,763 3,643 2,531
Interest cost.................... 20,583 15,840 8,816 6,843
Plan amendments.................. (10,622) -- -- --
Actuarial (gain) loss............ 90,862 25,122 15,460 (7,955)
Special termination benefits..... 11,846 -- 1,270 --
Curtailment (gain) loss.......... (3,883) -- 6,597 --
Settlement (gain) loss........... 318 4,475 -- --
Benefits paid.................... (54,722) (20,540) (4,275) (4,700)
-------- -------- -------- --------
Benefit obligation at end of
year............................ $300,940 $239,000 $135,335 $103,824
======== ======== ======== ========
Change in Plan Assets
<CAPTION>
Other
Postretirement
Pension Benefits Benefits
---------------- --------------
1998 1997 1998 1997
(Dollars in Thousands) ---- ---- ---- ----
<S> <C> <C> <C> <C>
Fair value of assets at beginning
of year......................... $259,500 $236,000 $ 20,100 $ 18,000
Actual return on plan assets..... 10,062 35,414 1,119 800
Employer contributions........... -- 8,626 13,261 6,000
Benefits paid.................... (54,722) (20,540) (4,275) (4,700)
-------- -------- -------- --------
Fair value of assets at end of
year............................ $214,840 $259,500 $ 30,205 $ 20,100
======== ======== ======== ========
</TABLE>
II-26
<PAGE>
Reconciliation of Funded Status of the Plans
<TABLE>
<CAPTION>
Other
Postretirement
Pension Benefits Benefits
---------------- --------------
1998 1997 1998 1997
(Dollars in Thousands) ---- ---- ---- ----
<S> <C> <C> <C> <C>
Funded status at end of year..... $(86,100) $20,500 $(105,130) $(83,724)
Unrecognized net actuarial (gain)
loss............................ 86,070 (10,810) 27,886 4,727
Unrecognized prior service cost.. (10,447) 232 -- --
Unrecognized net transition
(asset) obligation.............. -- (1,532) 32,637 41,521
-------- ------- --------- --------
Net amount recognized at end of
year............................ $(10,477) $ 8,390 $ (44,607) $(37,476)
======== ======= ========= ========
</TABLE>
Based on fair values as of December 31, 1998, the pension plan assets were
comprised of publicly traded equity securities ($143.9 million or 67%) and
fixed income obligations ($70.9 million or 33%). As of December 31, 1998, the
other postretirement benefit plan assets were comprised entirely of fixed
income securities.
Components of Net Periodic Benefit Cost
<TABLE>
<CAPTION>
Other Postretirement
Pension Benefits Benefits
---------------- --------------------
1998 1997 1996 1998 1997 1996
(Dollars in Thousands) ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Service cost............. $ 7,558 $ 6,763 $ 6,870 $ 3,643 $ 2,531 $ 2,688
Interest cost............ 20,583 15,840 14,569 8,816 6,843 7,482
Expected return on
assets.................. (20,414) (20,160) (17,376) (1,015) (1,275) (1,122)
Amortization of:
Transition obligation
(asset)................ (41) 24 24 2,404 2,768 2,768
Prior service cost...... 20 (172) (172) 50 -- --
Actuarial loss.......... 2,131 263 204 710 -- 566
------- ------- ------- ------- ------- -------
Cost before items
below................. 9,837 2,558 4,119 14,608 10,867 12,382
Special termination
benefits................ 11,846 -- -- 1,270 -- --
Curtailment (gain) loss.. (3,883) 5,932 -- 6,597 -- --
Settlement loss.......... 318 330 -- -- -- --
------- ------- ------- ------- ------- -------
Total net periodic
benefit cost........... $18,118 $ 8,820 $ 4,119 $22,475 $10,867 $12,382
======= ======= ======= ======= ======= =======
Portion of net periodic
benefit cost included in
results of operations... $15,514 $ 8,162 $ 3,040 $19,553 $ 3,640 $ 3,104
======= ======= ======= ======= ======= =======
</TABLE>
The components of 1998 and 1997 pension and other postretirement periodic
benefit costs attributed to special benefits, curtailment (gain) loss, and
settlement loss resulted from the enhanced retirement offer and other employee
separation programs associated with the Merger.
Other postretirement benefit costs in excess of the amount recovered in
customer rates were deferred from 1993 to 1997, including $4.9 million in 1997
and $6.4 million in 1996. ACE began to recover these costs, through customer
rates, over a 15 year period beginning in 1998. See Note 5 and Note 14 to the
Consolidated Financial Statements for additional information.
Effective January 1, 1999, ACE's covered employees began participating in a
"cash balance" pension plan adopted by Conectiv. Contributions, which vary
based on the covered employee's age and years of service, will
II-27
<PAGE>
be made to individual employee accounts provided for under the plan. The "cash
balance" of each employee's account increases based on employer contributions
and interest income credited to the account. The aggregate of the employee's
accounts will be ACE's pension obligation.
During 1998, ACE's covered employees began participating in the Conectiv
401(k) plans. Conectiv contributes to the plans, in the form of Conectiv
stock, at varying levels up to $0.50 for each dollar contributed by covered
employees, for up to 6% of employee base pay. Prior to the Merger, ACE had
401(k) plans for its employees, under which ACE contributed up to $0.50 for
each dollar contributed by covered employees, for up to 6% of employee base
pay. The cost of the plans for 1998, 1997, and 1996 was $1.9 million, $2.0
million and $1.9 million, respectively.
7. JOINTLY-OWNED GENERATING STATIONS
ACE owns jointly with other utilities several electric generating
facilities. ACE is responsible for its pro-rata share of the costs of
construction, operation and maintenance of each facility. 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 Statements of Income.
The amounts shown below represent ACE's share of each facility at, or for
the year ended, December 31, 1998, including AFUDC as appropriate.
<TABLE>
<CAPTION>
Cone- Peach Hope
Keystone maugh Bottom Salem Creek
(Dollars in Thousands) -------- ----- ------ ----- -----
<S> <C> <C> <C> <C> <C>
Energy Source................ Coal Coal Nuclear Nuclear Nuclear
Ownership Share.............. 2.47% 3.83% 7.51% 7.41% 5.00%
MW Capability Owned.......... 42 65 164 164 52
Electric Plant in Service.... $13,640 $33,956 $135,775 $245,628 $241,062
Accumulated Depreciation*.... $ 3,815 $ 8,310 $ 62,688 $ 90,120 $ 82,854
Construction Work in
Progress.................... $ 104 $ 456 $ 13,037 $ 7,260 $ 1,251
</TABLE>
- --------
* Excludes Nuclear Decommissioning Reserve.
8. CUMULATIVE PREFERRED SECURITIES
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. 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.
Preferred Stock Subject to Mandatory Redemption
<TABLE>
<CAPTION>
1998 1997
---- ----
Series Shares (000) Shares (000)
- ------ ------ ---- ------ ----
<S> <C> <C> <C> <C>
$8.20, no par value............................. -- $ -- 100,000 $10,000
$7.80, no par value............................. 239,500 23,950 239,500 23,950
------- ------- ------- -------
Total........................................... 239,500 $23,950 339,500 $33,950
======= ======= ======= =======
</TABLE>
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.
ACE redeemed its $8.20 No Par Preferred Stock ($100 per share stated value)
as follows: 100,000 shares in August 1998; 200,000 shares in August 1997, and
200,000 shares in August 1996. In September 1996, ACE
II-28
<PAGE>
redeemed the remaining 50,000 shares of its $8.25 Preferred Stock ($100 per
share stated value). In August 1996, ACE repurchased 460,500 shares of its
$7.80 No Par Preferred Stock ($100 per share stated value). In February 1996,
ACE redeemed the remaining 120,000 shares of its $8.53 No Par Preferred Stock
($100 per share stated value).
Preferred Stock Not Subject to Mandatory Redemption
<TABLE>
<CAPTION>
1998 1997 Current
------------- --------------- Redemption
Shares (000) Shares (000) Price
Series ------ ------ ------- ------- ----------
<S> <C> <C> <C> <C> <C>
4%, $100 par value..................... 24,268 $2,427 77,000 $ 7,700 $105.50
4.1%, $100 par value................... 20,504 2,051 72,000 7,200 101.00
4.35%, $100 par value.................. 3,102 310 15,000 1,500 101.00
4.35%, $100 par value.................. 1,680 168 36,000 3,600 101.00
4.75%, $100 par value.................. 8,631 863 50,000 5,000 101.00
5%, $100 par value..................... 4,120 412 50,000 5,000 100.00
------ ------ ------- -------
Total................................ 62,305 $6,231 300,000 $30,000
====== ====== ======= =======
</TABLE>
Cumulative Preferred Stock Not Subject to Mandatory Redemption is redeemable
solely at the option of ACE. In October 1998, ACE purchased and retired
237,695 shares, or $23.77 million of various series of mandatorily redeemable
preferred stock, which had an average dividend rate of 4.4%. ACE realized a
$2.5 million gain on this preferred stock redemption which is presented as
Gain on Preferred Stock Redemption within the 1998 Consolidated Statement of
Income. In September 1996, ACE redeemed 100,000 shares of its 7.52% Preferred
Stock $100 Par Value.
ACE Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trusts Holding Solely Junior Subordinated Debentures of ACE
In November 1998, Atlantic Capital II, a wholly-owned subsidiary financing
trust, issued $25 million in aggregate liquidation amount of 7 3/8% Cumulative
Trust Preferred Capital Securities (representing 1,000,000 preferred
securities at $25 per security). At the same time, $25.8 million in aggregate
principal amount of 7 3/8% Junior Subordinated Debentures, Series I, due 2028
(7 3/8% Debentures) were issued to Atlantic Capital II. For consolidated
financial reporting purposes, the 7 3/8% Debentures are eliminated in
consolidation against the trust's investment in the 7 3/8% Debentures. The
preferred trust securities are subject to mandatory redemption upon payment of
the 7 3/8% Debentures at maturity or upon redemption. The 7 3/8% Debentures
are subject to redemption, in whole or in part at the option of ACE, at 100%
of their principal amount plus accrued interest, after an initial period
during which they may not be redeemed and at any time upon the occurrence of
certain events.
The combination, of the obligations of ACE, pursuant to the 7 3/8%
Debentures and ACE's guarantee of distributions with respect to trust
securities, to the extent the trust has funds available therefor, constitute a
full and unconditional guarantee by ACE of the obligations of the trust under
the trust securities that the trust has issued. ACE is the owner of all of the
common securities of the trust, which constitute approximately 3% of the
liquidation amount of all of the trust securities issued by the trust.
Atlantic Capital I is a wholly-owned subsidiary financing trust which is
structured similarly to Atlantic Capital II (discussed above). In October
1996, Atlantic Capital I, issued $70 million (2,800,000 shares) of 8.25%
Cumulative Quarterly Income ACE Obligated Mandatorily Redeemable Preferred
Securities with a stated liquidation preference of $25 each. Atlantic Capital
I's sole investment is in ACE's 8.25% Junior Subordinated Deferrable Interest
Debentures (8.25% Debentures). The 8.25% Debentures and Preferred Securities
mature in 2026.
II-29
<PAGE>
9. DEBT
<TABLE>
<CAPTION>
December 31,
Maturity ------------------
Secured debt Date 1998 1997
- ------------ -------- ---- ----
(Dollars in
Thousands)
<S> <C> <C> <C>
Medium Term Notes Series B (6.28%).............. 2/1/1998 $ -- $ 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
Medium Term Notes Series C (7.02%).............. 2002 30,000 30,000
Medium Term Notes Series B (7.18%).............. 2003 20,000 20,000
Medium Term Notes Series D (6.00%).............. 2003 20,000 --
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
Medium Term Notes Series D (6.19%).............. 2006 65,000 --
6 3/8% Pollution Control Series................. 12/1/2006 2,350 2,425
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
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
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
-------- --------
758,865 729,940
-------- --------
Unsecured debt
- --------------
6.46% Medium Term Notes Series A................ 4/1/2002 20,000 20,000
6.63% Medium Term Notes Series A................ 6/2/2003 30,000 30,000
7.52% Medium Term Notes Series A................ 4/2/2007 5,000 5,000
7.50% Medium Term Notes Series A................ 4/2/2007 10,000 10,000
-------- --------
65,000 65,000
-------- --------
7 1/4% Debentures............................... 5/1/1998 -- 2,500
-------- --------
Unamortized Premium and Discount-Net............ (2,663) (2,721)
-------- --------
Total Long Term Debt............................ 821,202 794,719
Add: Short Term Debt to be Refinanced........... -- 16,425
Less: Current Portion of Long-Term Debt......... (30,075) --
-------- --------
Total Long Term Debt............................ 791,127 811,144
-------- --------
Variable Rate Demand Bonds, Pollution Control
Series A....................................... 2014 18,200 18,200
Variable Rate Demand Bonds, Pollution Control
Series B....................................... 2017 4,400 4,400
-------- --------
Total Long Term Debt & Variable Rate Demand
Bonds.......................................... $813,727 $833,744
======== ========
</TABLE>
II-30
<PAGE>
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 and Secured Medium
Term Notes.
Variable Rate Demand Bonds (VRDB) are classified as current liabilities
because the VRDB are due on demand by the bondholder. However, bonds submitted
to ACE for purchase are remarketed by a remarketing agent on a best efforts
basis. ACE expects that bonds submitted for purchase will continue to be
remarketed successfully due to ACE's credit worthiness and the bonds' interest
rates being set at market. ACE also may utilize one of the fixed rate/fixed
term conversion options of the bonds. Thus, ACE considers the VRDB to be a
source of long-term financing. Average interest rates on the VRDB were 3.2%
for 1998 and 3.6% for 1997.
ACE funds its interim financing requirements by issuing commercial paper and
borrowing against bank credit lines. At December 31, 1998, ACE had no
outstanding short-term debt and had total bank credit lines of $195 million,
all of which was available for borrowing. ACE's weighted daily average
interest rate on short-term debt outstanding at December 31, 1997 was 5.8%.
On January 12, 1998, ACE issued $85 million of Secured Medium Term Notes,
Series D maturing in January 2003 and January 2006 (6.1% average interest
rate). The net proceeds received by ACE from the issuance of the Medium Term
Notes was used to repay short-term debt and long-term debt (see schedule
below) and $10 million of $8.20 No Par Preferred Stock in 1998.
The following schedule shows debt redemptions made, at maturity in 1998.
<TABLE>
<CAPTION>
Series Maturity Date Principal
------ ------------- ---------
(Dollars in Thousands)
<S> <C> <C>
6.35% Medium-Term Notes........................... 1/26/98 $ 4,000
6.37% Medium-Term Notes........................... 1/27/98 46,000
7.25% Debentures.................................. 5/01/98 2,500
5.50% Medium-Term Notes........................... 5/14/98 6,000
6.375% Pollution Control Bonds*................... 12/01/09 75
-------
$58,575
=======
</TABLE>
- --------
* Annual sinking fund requirement on bonds due December 1, 2006.
Maturities and Sinking Fund Requirements for Long-Term Debt
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C>
1999........................ $30,075
2000........................ 46,075
2001........................ 40,075
2002........................ 50,075
2003........................ 70,075
</TABLE>
10. COMMON STOCKHOLDER'S EQUITY
For information concerning changes to the common equity accounts of ACE, see
the Consolidated Statements of Changes in Common Stockholder's Equity.
Effective March 1, 1998, all of the outstanding shares of ACE were acquired
by Conectiv, pursuant to the Merger, as discussed in Note 4 to the
Consolidated Financial Statements.
Under ACE's certificate of incorporation, ACE is subject to certain
limitations on the payment of dividends to Conectiv, 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 dividend periods, dividends may be
declared and paid by ACE on
II-31
<PAGE>
its common stock, as determined by the Board of Directors of ACE, out of funds
legally available for the payment of dividends.
11. COMMITMENTS
Construction Program
Capital expenditures for 1999 are estimated to be approximately $85.4
million.
Purchased Capacity and Energy Arrangements
ACE arranges with various providers of bulk energy to obtain sufficient
supplies of capacity and energy. Terms of the arrangements vary in length to
enable ACE to optimally manage its supply portfolio in response to changing
market conditions. At December 31, 1998, ACE has contracted for 828 megawatts
(MWs) of purchased capacity with terms remaining of 1 to 26 years. Information
regarding these arrangements relative to ACE was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Percentage of MW capacity................................ 33% 29% 30%
Percentage of energy output.............................. 41% 54% 55%
Capacity charges (millions).............................. $173 $180 $179
Energy charges (millions)................................ $126 $137 $145
</TABLE>
Electric capacity purchased from certain nonutility suppliers is recoverable
through the LEC, which amounted to $166.9 million, $166.8 million and $165.3
million in 1998, 1997 and 1996, respectively. Based on existing contracts as
of December 31, 1998, ACE's future commitments for capacity and energy under
long-term purchased power contracts are estimated to be $269 million in 1999;
$275 million in 2000; $266 million in 2001; $266 million in 2002; $268 million
in 2003. Due to uncertainties surrounding restructuring of the electric
utility industry, ACE has not forecasted its long-term purchased power
commitments beyond 2003.
Leases
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. ACE's obligation under the contract is generally the
net book value of the nuclear fuel financed, which was $35.0 million as of
December 31, 1998. Operating expenses for 1998, 1997 and 1996 include leased
nuclear fuel costs of $11.7 million, $9.8 million and $8.7 million,
respectively.
ACE also leases other types of property and equipment for use in its
operations. Amounts charged to operating expenses for these leases were $4.6
million in 1998, $2.4 million in 1997 and $2.6 million in 1996. Future minimum
rental payments for all non-cancellable lease agreements, excluding nuclear
fuel, are less than $3.0 million per year for each of the next five years.
12. CONTINGENCIES
Environmental Matters
ACE is subject to regulation with respect to the environmental effects of
its operations, including air and water quality control, solid and hazardous
waste disposal, and limitation on land use by various federal, regional,
state, and local authorities. Costs may be incurred to clean up facilities
found to be contaminated due to past disposal practices. Federal and state
statutes authorize governmental agencies to compel responsible parties to
clean up certain abandoned or uncontrolled hazardous waste sites. ACE is a
potentially responsible party at a state superfund site and has agreed, along
with other responsible parties, to remediate the site pursuant to an
Administrative Consent Order with the New Jersey Department of Environmental
Protection. ACE is also a
II-32
<PAGE>
defendant in an action to recover costs at a federal superfund site in
Gloucester, New Jersey. There is $1.0 million included in ACE's current
liabilities as of December 31, 1998, for remediation activities at these
sites. ACE does not expect such future costs to have a material effect on its
financial position or results of operations.
Nuclear Insurance
In conjunction with ACE's ownership interests in Peach Bottom, Salem, and
Hope Creek, ACE could be assessed for a portion of any third-party claims
associated with an incident at any commercial nuclear power plant in the
United States. Under the provisions of the Price Anderson Act, if third party
claims relating to such an incident exceed $200 million (the amount of primary
insurance), ACE could be assessed up to $30.7 million on an aggregate basis
for such third-party claims. In addition, Congress could impose a revenue-
raising measure on the nuclear industry to pay such claims
The co-owners of Peach Bottom, Salem, and Hope Creek maintain property
insurance coverage of approximately $2.8 billion for each unit for loss or
damage to the units, including coverage for decontamination expense and
premature decommissioning. In addition, ACE is a member of an industry mutual
insurance company, which provides replacement power cost coverage in the event
of a major accidental outage at a nuclear power plant. Under these coverages,
ACE is subject to potential retrospective loss experience assessments of up to
$5.4 million.
13. SALEM NUCLEAR GENERATING STATION
In December 1996, the NJBPU issued an Order approving a stipulation of
settlement reached among the parties settling the issues primarily regarding
replacement power costs related to an extended Salem outage, which began in
the second quarter of 1995. The stipulations provided for recovery through LEC
rates of ACE's replacement power costs for the Salem outage, up to each Salem
Unit's agreed-upon return-to-service date (June 30, 1997 for Unit 1 and
December 31, 1996 for Unit 2). The Salem Units returned to service in August
1997 (Unit 2) and April 1998 (Unit 1). As a result, unrecovered purchased
power costs of $2.1 million in 1998 and $10.2 million in 1997 were expensed.
The stipulation of settlement approved by the NJBPU in December 1996 also
provided customers with a $13 million base rate credit, primarily for
resolution of issues associated with the extended Salem outage. ACE accrued
the $13 million base rate credit in 1996 as a reduction of electric revenues.
As previously reported, on February 27, 1996, the co-owners of Salem,
including ACE and DPL, filed a complaint in the United States District Court
for New Jersey against Westinghouse Electric Corporation (Westinghouse), the
designer and manufacturer of the Salem steam generators. The complaint, which
sought to recover from Westinghouse the costs associated with and resulting
from the cracks discovered in Salem's steam generators and with replacing such
steam generators, alleged violations of federal and New Jersey Racketeer
Influenced and Corrupt Organizations Acts, fraud, negligent misrepresentation
and breach of contract. On November 4, 1998, the Court granted Westinghouse's
motion for summary judgment with regard to the federal Racketeer Influenced
and Corrupt Organizations Act claim, and dismissed the remaining state law
claims without prejudice. On November 18, 1998, the co-owners re-filed their
state law claims against Westinghouse in the Superior Court of New Jersey. The
co-owners also filed an appeal of the District Court's dismissal with the
United States Court of Appeals for the Third Circuit.
14. REGULATORY ASSETS
In conformity with generally accepted accounting principles, ACE's
accounting policies reflect the financial effects of rate regulation and
decisions issued by the NJBPU and the FERC. In accordance with the provisions
II-33
<PAGE>
of SFAS No. 71, ACE defers expense recognition of certain costs and records an
asset, as a result of the effects of rate regulation. Except for deferred
energy costs, which are classified as a current asset or liability, these
"regulatory assets" are included on ACE's Consolidated Balance Sheets under
"Deferred Charges and Other Assets." The costs of these assets are either
being recovered or are probable of being recovered through customer rates.
Generally, the costs of these assets are recognized in operating expenses over
the period the cost is recovered from customers. For information about the
impact of electric utility industry restructuring on accounting for regulatory
assets, see Note 5 to the Consolidated Financial Statements.
The table shown below details total regulatory assets as of December 31,
1998 and 1997.
<TABLE>
<CAPTION>
Remaining
Amortization/
Recovery
1998 1997 Period*
(Dollars in Thousands) ---- ---- -------------
<S> <C> <C> <C>
Deferred recoverable income taxes............ $102,223 $ 85,858 (A)
Unrecovered purchased power costs:
Capacity costs.............................. 30,608 48,038 2 years
Contract renegotiation costs................ 17,666 18,226 16 years
Unrecovered state excise taxes............... 35,594 45,154 4 years
Deferred debt refinancing costs.............. 28,043 30,002 1-28 years
Under (Over) recovered deferred energy
costs....................................... (15,577) 27,424 (B)
Deferred other postretirement benefit costs.. 34,978 37,476 14 years
Asbestos removal costs....................... 8,546 8,816 31 years
Nuclear decontamination and decommissioning
of federally-owned nuclear units............ 6,217 5,032 10 years
Other........................................ 10,253 10,789 1-5 years
-------- --------
$258,551 $316,815
======== ========
</TABLE>
- --------
*From December 31, 1998
(A) Amortized as temporary differences between the financial statement and tax
bases of assets and liabilities reverse.
(B) Recovered from or credited to customers over annual LEC Period.
Deferred recoverable income taxes represent the portion of ACE's deferred
tax liability applicable to utility operations that has not been recovered
from customers and is recoverable in the future.
Unrecovered purchased power capacity costs represent prior deferrals of
capacity costs which had exceeded the related cost recovery from customers.
Unrecovered purchased power 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.
Deferred debt refinancing costs represent costs incurred to refinance debt
and are amortized over the life of the related new debt.
Deferred other postretirement benefit costs represent the non-cash portion
of OPEB costs deferred during 1993-1997.
Asbestos removal costs were incurred to remove asbestos insulation from a
wholly-owned generating station.
II-34
<PAGE>
Nuclear decontamination and decommissioning costs represent costs associated
with decommissioning and decontaminating United States Department of Energy
gaseous diffusion enrichment facilities.
Other includes certain amounts being recovered over periods of one to five
years.
15. NUCLEAR PLANT DECOMMISSIONING
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 NJBPU, 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 the return expected
to be earned by the assets of the fund. The present value of ACE's nuclear
decommissioning obligation is estimated to be $185 million based on site
specific studies filed with and approved by the NJBPU. Decommissioning
activities as approved by the NJBPU are expected to begin in 2006 and continue
through 2032.
ACE's accrued nuclear decommissioning liability, which is reflected in the
accumulated reserve for depreciation, was $98.2 million as of December 31,
1998. The provision reflected in depreciation expense for nuclear
decommissioning was $6.4 million annually for 1998, 1997 and 1996. External
trust funds established by ACE for the purpose of funding nuclear
decommissioning costs had an aggregate book balance (stated at fair market
value) of $98.2 million as of December 31, 1998. Earnings on the trust funds
are recorded as an increase to the accrued nuclear decommissioning liability,
which, in effect, reduces the expense recorded for nuclear decommissioning.
The staff of the Securities and Exchange Commission has questioned certain
of the current accounting practices of the electric utility industry,
including ACE, regarding the recognition, measurement and classification of
decommissioning costs for nuclear generating stations in the financial
statements of electric utilities. In February 1996, the FASB issued the
Exposure Draft, "Accounting for Certain Liabilities Related to Closure or
Removal of Long-Lived Assets," which proposed changes in the accounting for
closure and removal costs of long-lived assets, including the recognition,
measurement, and classification of decommissioning costs for nuclear
generating stations. If the proposed changes were adopted: (1) annual
provisions for decommissioning would increase, (2) the estimated cost for
decommissioning would be recorded as a liability rather than as accumulated
depreciation, and (3) trust fund income from the external decommissioning
trusts would be reported as investment income rather than as a reduction of
decommissioning expense. The FASB expects to issue a revised Exposure Draft in
the second quarter of 1999.
16. FAIR VALUE OF 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.
II-35
<PAGE>
The year-end fair value of certain financial instruments are listed below.
The fair values were based on quoted market prices of ACE's securities or
securities with similar characteristics.
<TABLE>
<CAPTION>
1998 1997
---- ----
Carrying Fair Carrying Fair
Value Value Value Value
-------- ----- -------- -----
(Dollars in Millions)
<S> <C> <C> <C> <C>
Funds Held By Trustee..................... $102.8 $102.8 $88.7 $88.7
Long Term Debt............................ 791.1 832.6 811.1 836.9
Preferred Stock Subject to Mandatory
Redemption............................... 24.0 24.1 34.0 37.0
Preferred Securities*..................... 95.0 98.3 70.0 72.3
</TABLE>
- --------
* ACE Obligated Mandatorily Redeemable Preferred Securities of Subsidiary
Trust Holding Solely Junior Subordinated Debentures of ACE
17. QUARTERLY FINANCIAL RESULTS (UNAUDITED)
Quarterly financial data, reflecting all adjustments necessary in the
opinion of management for a fair presentation of such amounts, are presented
below. Certain prior year amounts have been reclassified, not affecting net
income, to conform to the current year reporting of these items. Third quarter
results generally exceed those of other quarters due to increased sales and
higher residential rates.
<TABLE>
<CAPTION>
Earnings(Loss)
Quarter Operating Operating Net Applicable to
Ended Revenues Income/(Loss) Income/(Loss) Common Stock
------- --------- ------------- ------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
1998
March 31.............. $ 237,949 $(17,823) $(20,737) $(21,737)
June 30............... 241,883 46,028 19,314 18,314
September 30.......... 331,403 87,761 41,550 40,687
December 31........... 226,378 (7,098) (9,851) (7,879)
---------- -------- -------- --------
$1,037,613 $108,868 $ 30,276 $ 29,385
========== ======== ======== ========
1997
March 31.............. $ 243,422 $ 47,378 $ 20,371 $ 18,961
June 30............... 242,475 45,011 18,676 17,266
September 30.......... 338,162 89,580 47,541 46,541
December 31........... 260,831 8,083 (841) (1,842)
---------- -------- -------- --------
$1,084,890 $190,052 $ 85,747 $ 80,926
========== ======== ======== ========
</TABLE>
As discussed in Note 4 to the Consolidated Financial Statements, ACE
recorded an impairment loss on assets held for sale in the fourth quarter of
1998 which reduced operating income $18.0 million and net income $10.6
million.
II-36
<PAGE>
Employee separation programs and other Merger-related costs recorded in 1998
(as discussed in Note 4 to Consolidated Financial Statements) had the effects
shown below on 1998 quarterly operating results.
<TABLE>
<CAPTION>
Earnings(Loss)
Quarter Operating Net Applicable to
Ended Incomne/(Loss) Income/(Loss) Common Stock
------- -------------- ------------- --------------
(Dollars in Thousands)
<S> <C> <C> <C>
March 31......................... $(51,479) $(30,946) $(30,946)
June 30.......................... 3,361 1,987 1,987
September 30..................... (1,014) (600) (600)
December 31...................... (11,959) (7,074) (7,074)
-------- -------- --------
$(61,091) $(36,633) $(36,633)
======== ======== ========
</TABLE>
Due to the Merger, various pension and compensation plans were terminated in
the fourth quarter of 1997, resulting in a $22.2 million decrease in operating
income and a $15.6 million decrease in net income.
18. BUSINESS SEGMENTS
Conectiv's organizational structure and management reporting information is
aligned with Conectiv's business segments, irrespective of which subsidiary,
or subsidiaries, a business is conducted through. Businesses are managed based
on lines of business, not based on legal entity. Business segment information
is not produced, or reported, on a subsidiary by subsidiary basis. Thus, as a
Conectiv subsidiary, no business segment information (as defined by SFAS No.
131, "Disclosures about Segments of an Enterprise and Related Information") is
available for ACE on a stand-alone basis.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Reference is made to Item 4 of Report on Form 8-K filed March 5, 1998.
II-37
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors Business Experience During Past 5 Years
As of December 31, 1998
Howard E. Cosgrove, 55,.......... Elected 1998 as Chairman of the Board
Chairman of the Board and Chief Executive Officer of Conectiv,
Delmarva Power & Light Company, and
Atlantic City Electric Company. Elected
1992 as Chairman of the Board, President
and Chief Executive Officer and Director
of Delmarva Power & Light Company.
Meredith I. Harlacher, Jr., 56,.. Elected 1998 as President and Chief
Director Operating Officer of Conectiv, and
President and Chief Operating Officer
and Director of Delmarva Power & Light
Company and Atlantic City Electric
Company. Elected 1993 as Senior Vice
President of Atlantic Energy, Inc.
Barry R. Elson, 57,.............. Elected 1998 as Executive Vice President
Director of Conectiv, and Executive Vice
President and Director of Delmarva Power
& Light Company and Atlantic City
Electric Company. Elected 1997 as
Executive Vice President, Delmarva Power
& Light Company. Executive Vice
President, Cox Communications, Inc.,
Atlanta, Georgia, from 1995 to 1996.
Senior Vice President, Cox
Enterprises/Cox Communications, Inc.,
Atlanta, Georgia, from 1984 to 1995.
Thomas S. Shaw, 51,.............. Elected 1998 as Executive Vice President
Director of Conectiv, and Executive Vice
President and Director of Delmarva Power
& Light Company and Atlantic City
Electric Company. Elected 1992 as Senior
Vice President, Delmarva Power & Light
Company.
Barbara S. Graham, 50,........... Elected 1998 as Senior Vice President
Director and Chief Financial Officer of Conectiv,
and Senior Vice President and Chief
Financial Officer and Director of
Delmarva Power & Light Company and
Atlantic City Electric Company. Elected
1994 as Senior Vice President, Treasurer
and Chief Financial Officer, Delmarva
Power & Light Company. Vice President
and Chief Financial Officer of Delmarva
Power & Light Company from 1992 to 1994.
Executives
Information about ACE's executive officers is included under Item 1.
III-1
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
As previously noted, ACE is a wholly owned electric utility subsidiary of
Conectiv. The Chief Executive Officer and the four most highly compensated
executive officers of Conectiv maintain the same position at both ACE and DPL.
In 1998, the salaries and other compensation awarded to the Chief Executive
Officer and the four most highly compensated executive officers of ACE were
paid by Conectiv for their service as executive officers of Conectiv, ACE and
DPL. The Board Personnel & Compensation Committee Report was provided
initially in the Conectiv Proxy Statement and is enclosed herein for the
purpose of providing additional informational. The following tables show
information concerning the total compensation paid or awarded to ACE's Chief
Executive Officer and each of the four most highly compensated executive
officers for the fiscal year ended December 31, 1998.
Board Personnel & Compensation Committee Report
Principles of Executive Compensation Program
The Personnel & Compensation Committee of the Board of Directors is
comprised of four non-employee Directors. The Committee provides an
independent review of the Company's performance objectives and executive
compensation.
Overall Objectives
The Company's philosophy is to link compensation to business strategies and
results, to align total compensation of executives with the long-term
interests of stockholders, to motivate its senior executives to meet the
challenging objectives established for the Company and to create an urgency
for success in the newly-formed Company. The Company's executive compensation
program is designed to:
. provide total compensation that emphasizes long-term performance which
creates stockholder value;
. facilitate the rapid transition to a competitive business environment;
. reflect the market conditions for attracting and retaining high-quality
executives and ensure that such executives have a continuing stake in
the long-term success of the Company; and
. create significant levels of stock ownership.
The elements of the executive compensation program are:
. total compensation levels that are competitive with those provided by
the competitive market, defined as a blend of companies in the utility
and industrial markets;
. base compensation levels related to responsibility level and individual
performance;
. annual variable compensation that varies based on corporate, unit and
individual performance; and,
. long-term variable compensation based on long-term increases in
stockholder value.
Total Compensation
Total compensation opportunities are developed for Company executives by
Watson Wyatt, the firm that provides executive compensation consulting
services to the Company. This is done using several published compensation
survey sources and public proxy data to define the competitive market.
Overall, the total compensation structure for executives is targeted at the
median for similar positions at companies of similar size, including both
utilities and industrial companies (Compensation Comparison Group)/1/.
Individual reward levels vary based on individual contributions and
performance. Total compensation includes three components: base compensation,
annual variable compensation and long-term variable compensation. The targets
for each component of the executive compensation program are reviewed on an
annual basis to ensure alignment with the Company's compensation philosophy
and a proper balance between short-and long-term objectives.
- --------
1. The Compensation Comparison Group does not include all of the same
companies as the published industry indices in the Comparison of 10 Month
Cumulative Total Return chart included in this Proxy Statement. However, 34
of the 85 companies included in the EEI Executive Compensation Report,
which is one element of the Compensation Comparison Group, are also part of
either the Dow Jones Electric Utilities Index or the S&P 500 Index.
III-2
<PAGE>
Base Compensation
Base compensation for executive officers is determined by evaluating the
responsibilities of the positions held and the experience of the individuals,
coupled with a review of compensation for comparable positions at other
companies. Base compensation is reviewed on an annual basis and adjustments
are based on the performance of the Company and each executive officer. Annual
base compensation increases reflect the individual's performance and
contribution over several years in addition to the results for a single year.
Following the 1998 increases, the overall base compensation level for the five
named executive officers was slightly below the median of the base
compensation targeted levels defined by the surveys and proxies.
Annual Variable Compensation
The Company's annual variable compensation is designed to motivate
participants to accomplish stretch financial and individual goals and to
increase the sense of urgency to deliver significant results on an annual
basis. Annual variable compensation target opportunities are designed to be at
or above the median of the blended utility and industrial market and for the
named executive officers vary from 40% to 50% of base compensation, with
maximum awards of 60% to 75% of base compensation.
Annual variable compensation is paid in a combination of cash (80%) and
restricted stock units (20%) and is based on the achievement of predetermined
corporate and individual goals. The plan for 1998 provides that payouts will
occur only after a specified earnings target is achieved.
For 1998, each individual covered by the plan was eligible to earn a
variable compensation award between 0% and 150% of target. The portion of each
individual award attributable to corporate, line of business, and group
performance were determined and specific measures were developed at the
beginning of the year. These measures were primarily financial for 1998 to
accelerate the transition of the Company to a more competitive environment and
included corporate measures of earnings, cash flow return on capital employed
and cash flow. Each business group and line of business also developed
specific financial measures to support their business plans.
The Management Stock Purchase Program (MSPP) was designed as a means to
promote significant executive stock ownership in the new company and to help
meet stock ownership guidelines. The program requires that 20% of the
individual's earned annual variable compensation must be used to acquire
restricted stock units (RSUs). Individuals may also voluntarily use up to an
additional 30% (for a total of 50%) of their earned annual variable
compensation to acquire RSUs. All RSUs are acquired at a 20% discount from
Fair Market Value on the date paid. Each RSU is a proxy for one share of
Common Stock, has a value equal to one share and earns at the rate of the
Common Stock dividend. RSUs are restricted from sale or use for a 3-year
period and are distributed in shares of Common Stock.
Long-Term Variable Compensation
The Company's long-term variable compensation reinforces the importance of
providing stockholders with a competitive return on their investment. Long-
term variable compensation awards also strengthen the ability of the Company
to attract, motivate and retain executives of superior capability and more
closely align the interests of management with those of stockholders.
Long-term grants for Conectiv executives are determined by setting a target
percentage of base compensation based on median data in the Compensation
Comparison Group and converting the target amounts to actual grants using the
"Black-Scholes Model" for options and time and forfeiture discount methods for
the other elements of the long-term grants.
Long-term awards granted in 1998 consisted of non-qualified stock options,
dividend equivalent units and performance accelerated restricted stock. Non-
qualified stock options and dividend equivalent units were awarded to provide
approximately two-thirds of the targeted value of the grant while the other
one-third of the
III-3
<PAGE>
targeted value was provided through performance accelerated restricted stock.
This stock vests as unrestricted Common Stock seven years from the award date.
However, vesting may be accelerated if the price of Common Stock reaches
certain predetermined levels prior to the seven years. All stock options were
granted with exercise prices equal to the fair market value of Common Stock at
the time of the grant.
Performance accelerated restricted stock granted to the CEO and three other
named executive officers is also subject to an additional condition tied to
Total Shareholder Return over the seven year period. Failure to meet a
predetermined Total Shareholder Return level over the restriction period will
result in total forfeiture of their shares granted.
The CEO and three other named executive officers also were given a special
grant of performance accelerated stock options to increase emphasis on
creating long-term shareholder value. All performance accelerated stock
options were granted with exercise prices equal to the fair market value of
Common Stock at the time of grant. These options do not vest and cannot be
exercised for 9-1/2 years from the date of their grant unless the stock price
increases to predetermined levels. Absent accelerated vesting at these
predetermined stock prices, the shares will become exercisable in 9-1/2 years
with expiration occurring at 10 years. This special grant resulted in the
long-term variable compensation component and total compensation exceeding the
targeted median values for these four executives for 1998 using the Black-
Scholes valuation methodology.
Stock Ownership Guidelines
To further reinforce the interests of stockholders, stock ownership
guidelines have been established for the Board of Directors, Company officers,
and other Company management. These guidelines require the individuals covered
by the guidelines to have beneficial ownership of Common Stock, or securities
convertible into Common Stock, with an aggregate value equal to certain
multiples of each individual's salary (or annual retainers in the case of
outside directors). Multiples range from five times to one times salary. The
Chief Executive Officer's multiple is set at five times salary and outside
Directors' multiples are set at three times the annual retainer.
Internal Revenue Code Section 162(m)
The Committee considers the tax deductibility of compensation paid to
executive officers and the impact of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code"), on the Company. This provision limits
the amount of compensation that the Company may deduct from its taxable income
for any year to $1 million for any of its five most highly compensated
executive officers, unless certain requirements are met.
The Committee has taken actions to limit the impact of the Code in the event
that compensation paid to a named executive officer might otherwise not be
deductible. The Committee will continue to seek ways to limit the impact of
the Code; however, the Committee believes that the tax deduction limitation
should not compromise the Company's ability to create incentive programs that
support the business strategy and also attract and retain the executive talent
required to compete successfully. Accordingly, achieving the desired
flexibility in the design and delivery of compensation may periodically result
in some compensation that is not deductible for federal income tax purposes.
Summary of Actions Taken by the Personnel & Compensation Committee
The Personnel & Compensation Committee, consisting entirely of outside
directors, provides direction and oversight to the Company's executive
compensation plans, establishes the Company's compensation philosophy and
assesses the effectiveness of the program as a whole. This includes activities
such as reviewing the design of various plans and assessing the reasonableness
of the total program consistent with the total compensation philosophy.
III-4
<PAGE>
The Committee also assists in administering key aspects of the Company's
annual compensation program and variable compensation plan, such as reviewing
annual compensation budgets and setting targets and corporate performance
measures for the annual and long-term variable compensation plans.
Finally, the Committee specifically implements the Company's executive
compensation program as it directly pertains to the Chief Executive Officer
and the Company's four other most highly compensated executives, i.e., the
five "named executive officers."
The Committee has determined that in an environment where competition is
increasing, it is essential that the Company have the ability to attract,
motivate and retain high quality executives from within and outside the
utility industry.
Because of the extremely competitive market for executive talent, the
Personnel & Compensation Committee has adopted a compensation structure based
on a blend of utility and general competitive industry markets. The structure
is also flexible to allow setting salaries at pure general industry levels
where that may be necessary to attract certain specific skills and experience.
Consistent with this approach, the total compensation program relies on
competitive base compensation generally at or below the median of the market
with annual and long-term variable compensation opportunities generally above
the median of the market. This places a much greater emphasis on variable
compensation that aligns executive and stockholder interests.
This total compensation philosophy is important to the success of the
Company because the Company is facing increasing competition and related
risks. The Company is not simply a utility anymore, but is rapidly becoming
part of the general competitive industry market and, therefore, just as
strategies for success must change, the compensation to drive success must
also change. Prior to the merger involving Atlantic Energy and Delmarva and
during 1998, this compensation philosophy enabled the Company to attract
several key executives with experience and skills critical to the emerging
competitive environment. These executives would not have been available under
a traditional utility compensation philosophy.
Significant actions by the Committee for fiscal year 1998 included adoption
of the new Conectiv executive plans (Conectiv Variable Compensation Plan,
Deferred Compensation Plan, Supplemental Executive Retirement Plan [SERP], and
Change In Control Agreements) and other compensation and benefit plans for
Conectiv employees. The Committee also sets base compensation, annual variable
targets and performance measures and long-term grants under the various
executive programs, including special awards of performance accelerated stock
options to the CEO and the three other named executive officers described
above.
Chief Executive Officer Compensation
Mr. Cosgrove's compensation reflects Conectiv's compensation philosophy. His
base compensation, annual and regular long-term variable compensation place
him at total compensation levels consistent with the median level of other
CEO's at similarly-sized utility and manufacturing companies represented in
the Compensation Comparison Group. Additional emphasis on achieving increased
stockholder value has been created with a special grant of performance
accelerated stock options. This special grant will cause his long term
compensation and total compensation to exceed the median targets for 1998.
Base Compensation Action
Conectiv was formed by a merger involving Delmarva and Atlantic Energy in
early 1998. Mr. Cosgrove's base compensation was set during the merger process
to reflect the size of Conectiv and the increasing competitive environment in
which Conectiv does business. His 1998 base compensation is at the median
target level developed through a comparison of other Chief Executive Officers
of similarly-sized corporations using a blend of utilities and general
industry. His salary for 1999 will remain the same as in 1998.
III-5
<PAGE>
Annual Variable Compensation
To provide clear focus on increasing stockholder value through the
successful completion of the merger and growing the new Conectiv businesses,
Mr. Cosgrove received additional levels of long-term awards in place of an
annual variable opportunity for 1997. Therefore, there is no annual variable
pay for 1997 reflected in 1998 compensation.
Mr. Cosgrove's annual variable compensation target opportunity for 1998 was
set at 50% of base compensation, with a minimum payout of 0% and a maximum
payout of 75% of base compensation. Payment of any award requires achieving a
predetermined level of 1998 earnings established by this Committee.
Performance measures for 1998, predetermined by this Committee, included
earnings available for common stock, cash flow return on capital employed and
cash flow. Awards for 1998 for Mr. Cosgrove and the four other named executive
officers have not been determined.
Long-Term Variable Compensation
Long-term incentive grants are a critical component of the Conectiv
executive compensation philosophy, since they align executive interests very
clearly with increased stockholder value. For 1998, Mr. Cosgrove received
grants of non-qualified stock options, dividend equivalent units, performance
accelerated restricted stock, and performance accelerated stock options
(reflected in the Compensation Tables). The regular grants of non-qualified
stock options, dividend equivalent units and performance accelerated
restricted stock provided a long-term variable compensation opportunity
approximately at the median of the defined competitive market.
The special, non-recurring grant of performance accelerated stock options
was awarded to create additional emphasis on achieving higher levels of
stockholder value. In order for Mr. Cosgrove to receive any value from this
grant prior to vesting at nine and one-half years, there must be a significant
increase in stockholder value. Such increases prior to nine and one-half years
will result in accelerated vesting of this grant in increments of one-third.
The first third would vest when stockholder value increases by $400,000,000,
at which time Mr. Cosgrove's options would vest at a value of $1,200,000, or
.3% of the increase in stockholder value. The entire grant would vest if
stockholder value increases by $800,000,000, at which time Mr. Cosgrove's
options would vest at a value of $2,400,000 or .3% of the increase in
stockholder value. Only under results that yield increases in stockholder
value and trigger accelerated vesting of this grant would Mr. Cosgrove's 1998
compensation exceed the median target compensation level.
Personnel & Compensation Committee
S.I. Gore, Chairperson R.B. McGlynn
M.B. Emery B.J. Morgan
Personnel & Compensation Committee Interlocks and Insider Participation
The Personnel & Compensation Committee is comprised solely of non-officer
directors. Logical Business Solutions, which is owned by Mr. Emery's son-in-
law, Paul Kleiman, had contracts with Conectiv Resource Partners, Inc., a
subsidiary of the Company, with a gross value of $227,000 during 1998 for
information technology consulting services. Except as described in the
preceding sentence, there are no Personnel & Compensation Committee
interlocks.
III-6
<PAGE>
Summary Compensation Table
Table 1--SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
----------------------
Annual Compensation Awards Payouts
------------------- ------ -------
Variable Securities LTIP All Other
Annualized Compensation Other Annual Restricted Underlying Payouts Compensation
Salary (Bonus)(2) Compensation Stock(5) Options (3) (4,6)
---------- ------------ ------------ ---------- ---------- ------- ------------
Name and
Principal Position Year(1)
------------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
H.E. Cosgrove,.......... 1998 $600,000 -- -- -- 360,000 572,134 $ 12,329
Chairman of the Board
and Chief Executive
Officer
M.I. Harlacher,......... 1998 $340,000 -- -- -- -- -- $ 3,742
President 1997 $224,525 $96,800 $814,696 -- -- -- $3,208,196
1996 $215,317 $27,500 $ 8,527 $305,138 15,800 10,429 $ 7,413
B.R. Elson,............. 1998 $325,000 -- -- -- 170,000 21,560 $ 4,074
Executive Vice
President
T.S. Shaw,.............. 1998 $325,000 -- -- -- 170,000 155,267 $ 9,478
Executive Vice
President
B.S. Graham,............ 1998 $250,000 -- -- -- 170,000 155,267 $ 5,308
Senior Vice President
</TABLE>
- --------
(1) Base salary is shown as an annualized amount. Other items of compensation
reflect the full calendar 1998 compensation received from Conectiv and
either Delmarva or Atlantic City Electric Company.
(2) The 1998 bonus, which is an annual variable award, has not yet been
determined. The target award is 50% of annualized salary for Mr. Cosgrove
and 40% for Messrs. Harlacher, Elson and Shaw and Mrs. Graham.
(3) During 1998 all restrictions lapsed on the performance-based restricted
stock granted in 1995 and 1996 under the Delmarva LTIP due to the merger
involving Delmarva and Atlantic Energy. Under the "change in control"
provisions, the awards fully vested resulting in a payout to Mr. Cosgrove
of 21,160 shares (11,570 for 1995 and 9,590 for 1996) valued at $454,940;
to Mr. Shaw of 5,450 shares (2,870 for 1995 and 2,580 for 1996) valued at
$117,175; and to Mrs. Graham of 5,450 shares (2,870 for 1995 and 2,580 for
1996) valued at $117,175. Shares were valued at $21.50 at the time of
payout. Dividends on shares of restricted stock and dividend equivalents
are accrued at the same rate as that paid to all holders of Common Stock.
As of December 31, 1998; Mr. Cosgrove held 45,520 shares of restricted
stock (35,520 for 1997 and 10,000 for 1998) and 30,000 Dividend Equivalent
Units ("DEU's"); Mr. Elson held 4,000 shares of restricted stock for 1998
and 10,000 DEU's; Mr. Shaw held 12,010 shares of restricted stock (8,010
for 1997 and 4,000 for 1998) and 10,000 DEU's; Mrs. Graham held 12,010
shares of restricted stock (8,010 for 1997 and 4,000 for 1998) and 10,000
DEU's. Holders of restricted stock are entitled to receive dividends as
declared.
(4) The amount of All Other Compensation for each of the named executive
officers for fiscal year 1998 include the following: Mr. Cosgrove, $2,125
in Company matching contributions to the Company's Savings and Investment
Plan, $10,000 in Company matching contributions to the Company's Deferred
Compensation Plan and $204 in term life insurance premiums paid by the
Company; for Mr. Shaw, $2,630 in Company matching contributions to the
Company's Savings and Investment Plan, $6,644 in Company matching
contributions to the Company's Deferred Compensation Plan and $204 in term
life insurance premiums paid by the Company; for Mrs. Graham, $2,604 in
Company matching contributions to the Company's Savings and Investment
Plan, $2,500 in Company matching contributions to the Company's Deferred
Compensation Plan and $204 in term life insurance premiums paid by the
Company; for Mr. Elson, $2,969 in Company matching contributions to the
Company's Savings and Investment Plan and $1,105 in term life insurance
premiums paid by the Company; and for Mr. Harlacher, $3,300 in Company
matching contributions to the Company's Savings and Investment Plan and
$442 in term life insurance premiums paid by the Company.
(5) Pursuant to the change-of-control provisions of Atlantic Energy's equity
based long term incentive plan for executives ("EIP"), Mr. Harlacher
elected to receive the cash equivalent of the restricted stock which had
been awarded under the plan.
(6) The amount of All Other Compensation for Mr. Harlacher for the fiscal year
ended 1997 include the following: $4,750 in Company matching contributions
to the Atlantic City Electric Company 401(k) Savings and Investment Plan;
$1,986 in Company matching contributions to the Atlantic City Electric
Company Deferred Compensation Plan; $1,065 in term life insurance premiums
paid by Atlantic City Electric Company; $996,238 in payouts under the
Atlantic City Electric Company supplemental executive retirement plan;
$674,340 cash payout for restricted stock awarded under the Atlantic
Energy EIP which vested due to change-in-control; $1,358,817 in excess
retirement benefits from the Atlantic City Electric Company Retirement
Plan; $171,000 adjustment to compensate Mr. Harlacher for certain economic
disadvantages associated with the payout of benefits in 1997 rather than
in 1998.
III-7
<PAGE>
Table 2 -- Option Grants in Last Fiscal Year (1)
<TABLE>
<CAPTION>
Number % of
of Securities Total Options
Underlying Granted Grant Date
Options to Employees Exercise Price Expiration Present
Name Granted (#) in Fiscal Year ($/Sh) Date Value(4)
---- ------------- -------------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
H.E. Cosgrove........... 300,000(2) 29% $22.84375 1/2/08 $385,831
60,000(3) 6% $22.84375 1/2/08 $137,063
M.I. Harlacher.......... -- 0% -- -- --
-- 0% -- -- --
B.R. Elson.............. 150,000(2) 14% $22.84375 1/2/08 $192,915
20,000(3) 2% $22.84375 1/2/08 $ 45,688
T.S. Shaw............... 150,000(2) 14% $22.84375 1/2/08 $192,915
20,000(3) 2% $22.84375 1/2/08 $ 45,688
B.S. Graham............. 150,000(2) 14% $22.84375 1/2/08 $192,915
20,000(3) 2% $22.84375 1/2/08 $ 45,688
</TABLE>
- --------
(1) Currently, Delmarva does not grant stock appreciation rights. The options
reflected in this table are for payouts in shares of Conectiv Common
Stock.
(2) Denotes Performance Accelerated Stock Options ("PASO's") which were
granted on a one-time basis. PASO's have a ten-year term and vest and are
first exercisable 9 and 1/2 years from date of grant without regard to
stock price performance. Exercise date will accelerate for favorable stock
price performance (i.e., first 1/3, second 1/3 and third 1/3 of PASO's
vest after stock trades at $26, $28 or $30 per share, respectively, for
ten consecutive trading days). There is a minimum holding period of three
years from date of grant during which these options are not exercisable.
(3) Denotes Nonqualified Stock Options. One-half of such Options vest and are
exercisable at end of second year from date of grant. Second one-half vest
and are exercisable at end of third year from date of grant.
(4) Determined using the Black-Scholes model, incorporating the following
material assumptions and adjustments: (a) exercise price of $22.84375,
equal to the Fair Market Value ("FMV") as of date of grant; (b) an option
term of ten years; (c) risk-free rate of return of 6.00%; (d) volatility
of 20.00%; and (e) dividend yield of 7.00%. For valuation purposes, PASO's
are valued as a premium-priced stock option as of the date of grant with
an exercise price of $30 on a FMV of $22.84375.
Table 3 -- Aggregated Option Exercises in Last Fiscal Yearand FY-End Option
Values
<TABLE>
<CAPTION>
Number of
Securities Underlying Value of Unexercised In-
Unexercised Options at the-MoneyOptions at FY-
Shares Acquired Value Realized FY-End(2) End(1)
Name on Exercise ($)(1) Exercisable/Unexercisable Exercisable/Unexercisable
---- --------------- -------------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
H. E. Cosgrove.......... 0 0 14,400/360,000 $51,225/$596,250
M. I. Harlacher......... 0 0 -- $ --
B. R. Elson............. 0 0 0/170,000 $ 0/$281,563
T. S. Shaw.............. 0 0 0/170,000 $ 0/$281,563
B. S. Graham............ 0 0 0/170,000 $ 0/$281,563
</TABLE>
- --------
(1) The closing price for Conectiv's common stock as reported by the New York
Stock Exchange on December 31, 1998 was $24.50. Any value in the options
would be based on the difference between the exercise price of the options
and the value at the time of the exercise (e.g., $24.50 as of close of
business on 12/31/98), which difference would be multiplied by the number
of options exercised.
(2) Only 14,400 stock options of Mr. Cosgrove are currently exercisable. None
of the remaining options may be exercised earlier than two years from date
of grant for regular, non-performance based options and nine and one half
years from date of grant for performance based options (subject to
accelerated vesting for favorable stock price performance).
III-8
<PAGE>
Table 4 -- Long-Term Incentive Plans--Awards in Last Fiscal Year Name
<TABLE>
<CAPTION>
Performance
Number of Period Until
Restricted Shares/Dividend Equivalent Maturation
Units (#)(1) or Payout(2)
------------------------------------- ------------
<S> <C> <C>
H. E. Cosgrove............... 10,000 shs/30,000 units 3/2/05
M. I. Harlacher.............. -- --
B. R. Elson.................. 4,000 shs/10,000 units 3/2/05
T. S. Shaw................... 4,000 shs/10,000 units 3/2/05
B. S. Graham................. 4,000 shs/10,000 units 3/2/05
</TABLE>
- --------
(1) In addition, Mr. Cosgrove held 35,520 performance shares (valued at
$870,240) and Mr. Shaw and Mrs. Graham held 8,010 performance shares
(valued at $196,245) from a 1997 award with a four year performance cycle
under the Delmarva Power Long Term Incentive Plan.
(2) Awards of Restricted Shares (Performance Accelerated Restricted Stock or
"PARS") and Dividend Equivalent Units ("DEU's") were made to four of the
named executive officers. The payout of shares of PARS may potentially be
"performance accelerated." Restrictions may lapse any time after 3 years
(i.e., after March 1, 2001) upon on achievement of favorable stock price
performance goals. In the absence of such favorable performance,
restrictions lapse after 7 years (i.e., March 2, 2005) provided that at
least a defined level of average, total return to shareholders is
achieved. As of December 31, 1998, Mr. Cosgrove's 10,000 Restricted Shares
were valued at $245,000 and Messrs. Elson and Shaw and Mrs. Graham's 4,000
PARS were valued at $98,000. These values for both Restricted Shares and
performance shares are based on the December 31, 1998 closing stock price
of $24.50. For Dividend Equivalent Units, one DEU is equal in value to the
regular quarterly dividend paid on one share of Conectiv common stock. The
Dividend Equivalent Units shown are payable in cash for twelve quarters
over a three year period ending with the quarterly dividend equivalent
payable January 31, 2001. At that point, the 1998 DEU award lapses.
Pension Plan
The Conectiv Retirement Plan includes the Cash Balance Pension Plan and
grandfathered provisions relating to the Delmarva Retirement Plan and the
Atlantic Retirement Plan that apply to employees who had either 20 years of
service or were age 50 on the effective date of the Cash Balance Pension Plan
(January 1, 1999). Certain executives whose benefits from the Conectiv
Retirement Plan are limited by the application of Federal tax laws also
receive benefits from the Supplemental Executive Retirement Plan.
Cash Balance Pension Plan
The named executive officers participate in the Conectiv Retirement Plan and
earn benefits that generally become vested after five years of service. On an
annual basis, a recordkeeping account in a participant's name is credited with
an amount equal to a percentage of the participant's total pay, including base
salary, overtime and bonuses, depending on the employee's age at the end of
the plan year, as follows:
<TABLE>
<CAPTION>
% of
Age at end of Plan Year Pay
----------------------- ----
<S> <C>
Under 30............................................................... 5
30 to 34............................................................... 6
35 to 39............................................................... 7
40 to 44............................................................... 8
45 to 49............................................................... 9
50 and over............................................................ 10
</TABLE>
These accounts also receive interest credits based on average U.S. Treasury
Bill rates for the year. In addition, certain annuity benefits earned by
participants under the former Delmarva and Atlantic Retirement Plans are fully
protected as of December 31, 1998, and will be converted to an equivalent cash
amount and included in each employee's initial cash balance account. When an
employee terminates employment, the amount credited to his or her account is
converted into an annuity or paid in a lump sum.
III-9
<PAGE>
Supplemental Retirement Benefits
Supplemental retirement benefits are provided to certain employees,
including each executive officer, whose benefits under the Conectiv Retirement
Plan are limited by type of compensation or amount under applicable Federal
tax laws and regulations. Designated employees may also receive an annual
benefit at retirement equal to a percentage of final average compensation
multiplied by years of service reduced by the amount of all benefits received
under the Conectiv Retirement Plan and other nonqualified arrangements.
Estimated Retirement Benefits Payable to Named Executive Officers
The following table shows the estimated retirement benefits, including
supplemental retirement benefits under the plans applicable to the named
executive officers, which would be payable if he or she were to retire at
normal retirement age, which is age 65, at 1998 compensation, expressed in the
form of a lump sum payment. Years of service credited to each named executive
officer as of his or her normal retirement date are as follows: Mr. Cosgove,
42; Ms. Graham, 30; Mr. Shaw, 40; Mr. Elson, 16 (8 of which are additional
years of service for purposes of the supplemental retirement benefits), and
Mr. Harlacher, 43.
Estimated Retirement Benefits
<TABLE>
<CAPTION>
Name Year of 65th Birthday Lump Sum Value
---- --------------------- --------------
<S> <C> <C>
H. E. Cosgrove......................... 2008 $2,993,000(2)
B. S. Graham........................... 2013 1,540,000(1)
T. S. Shaw............................. 2012 1,789,000(2)
B. R. Elson............................ 2006 1,213,000(2)
M. I. Harlacher........................ 2007 2,323,000(2)
</TABLE>
- --------
(1) Amounts include (i) interest credits for cash balances projected to be
5.01% per annum on annual salary credits and prior service balances, if
any, and (ii) accrued benefits as of December 31, 1998 under retirement
plans then applicable to the named executive officer. Benefits are not
subject to any offset for Social Security payments or other offset amounts
and assume no future increases in base salary or total pay.
(2) Under the Conectiv Retirement Plan's grandfather provisions, employees who
participated in the Delmarva or Atlantic Retirement Plans and who met
certain age and service requirements as of December 31, 1998, will have
retirement benefits for all years of service up to retirement calculated
according to their original final pay formula benefit. This benefit will
be compared to the cash balance account and the employee will receive
whichever is greater. Estimated benefits are based on the Delmarva
Retirement Plan for Messrs. Cosgrove, Shaw and Elson, the Cash Balance
Pension Plan for Mrs. Graham and the Atlantic Retirement Plan for Mr.
Harlacher. The amount of benefit under such grandfathering is illustrated
in the following tables applicable to the Delmarva and Atlantic Retirement
Plans, respectively:
Delmarva Retirement Plan
PENSION PLAN TABLE
Annual Retirement Benefits in Specified Remuneration and Years of Service
Classifications
<TABLE>
<CAPTION>
Average Annual Earnings for the 5
Consecutive Years of Earnings that
Result in the Highest Average 15 Yrs. 20 Yrs. 25 Yrs. 30 Yrs. 35 Yrs.
---------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$125,000................ 28,599 38,132 47,665 57,198 66,732
200,000(1).............. 46,599 62,132 77,665 93,198 108,732
300,000(1).............. 70,599 94,132 117,665 141,198(2) 164,732(2)
400,000(1).............. 94,599 126,132 157,665(2) 189,198(2) 220,732(2)
500,000(1).............. 118,599 158,132(2) 197,665(2) 237,198(2) 276,732(2)
</TABLE>
- --------
(1) Effective January 1, 1998, annual compensation recognized may not exceed
$160,000.
(2) For 1998, the limit on annual benefits is $130,000.
Benefits are payable in the form of a 50% joint and surviving spouse annuity
or lump sum and earnings include base salary, overtime and bonus.
III-10
<PAGE>
Atlantic Retirement Plan PENSION PLAN TABLE
Annual Retirement Benefits in Specified Remuneration and Years of Service
Classifications
<TABLE>
<CAPTION>
Average Annual Earnings for the 5
Consecutive Years of Earnings that
result in the Highest Average 15 Yrs. 20 Yrs. 25 Yrs. 30 Yrs. 35 Yrs.
---------------------------------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$125,000................ 30,000 40,000 50,000 60,000 70,000
200,000(1).............. 48,000 64,000 80,000 96,000 112,000
300,000(1).............. 72,000 96,000 120,000 144,000(2) 168,000(2)
400,000(1).............. 96,000 128,000 160,000(2) 192,000(2) 224,000(2)
500,000(1).............. 120,000 160,000(2) 200,000(2) 240,000(2) 280,000(2)
</TABLE>
- --------
(1) Effective January 1, 1998, annual compensation recognized may not exceed
$160,000.
(2) For 1998, the limit on annual benefits is $130,000.
Benefits are paid in the form of a life annuity or lump sum and earnings
include base salary and bonus.
Change in Control Severance Agreements And Other Provisions Relating to
Possible Change in Control
Conectiv has entered into change in control severance agreements with
Messrs. Cosgrove, Elson and Shaw and Mrs. Graham and two other senior
executives. The agreements are intended to encourage the continued dedication
of members of Conectiv's senior management team. These agreements provide
potential benefits for such executives upon actual or constructive termination
of employment (other than for cause) following a change in control of
Conectiv, as defined in such agreements. Each affected executive would receive
a severance payment equal to three times Base Salary and Bonus and Conectiv-
paid medical, dental, vision, group life and disability benefits during the
three years after termination of employment, and a cash payment equal to the
actuarial equivalent of accrued retirement pension credits equal to 36 months
of additional service.
In the event of a change in control, the Variable Compensation Plan provides
that outstanding options become exercisable in full immediately, all
conditions to the vesting of PARS are deemed satisfied and shares will be
fully vested and nonforfeitable, DEU's will become fully vested and be
immediately payable, variable compensation deferred under the Management Stock
Purchase Program will be immediately distributed, and payment of variable
compensation, if any, for the current year will be decided by the Board's
Personnel & Compensation Committee. For the Deferred Compensation Plan, the
Committee may decide to distribute all deferrals in cash immediately or
continue the deferral elections of participants in which event Conectiv will
fully fund a "springing rabbi trust" to satisfy the obligations. An
independent institutional trustee will maintain any such trust established by
reason of this provision.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
All shares of ACE's common stock are owned by Conectiv, ACE's parent
company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None
III-11
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements--The following financial statements are contained in
Item 8 of Part II.
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Report of Independent Accountants.................................... II-12, 13
Consolidated Statements of Income for the years ended December 31,
1998, 1997, and 1996................................................ II-14
Consolidated Statements of Cash Flows for the years ended December
31, 1998, 1997, and 1996............................................ II-15
Consolidated Balance Sheets as of December 31, 1998 and 1997......... II-16,17
Consolidated Statements of Changes in Common Stockholder's Equity for
the years ended December 31, 1998, 1997, and 1996................... II-18
Notes to Consolidated Financial Statements........................... II-19
</TABLE>
2. Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts for each of the three years
in the period ended December 31, 1998, is presented below. No other financial
statement schedules have been filed since the required information is not
present in amounts sufficient to require submission of the schedule or because
the information required is included in the respective financial statements or
the notes thereto.
Schedule II--Valuation and Qualifying Accounts
Years Ended December 31, 1998, 1997, 1996
(Dollars in thousands)
<TABLE>
<CAPTION>
Column B Column C Column D Column E
-------- ------------------------- -------- --------
Additions
-------------------------
Balance at Charged to Balance at
beginning cost and Charged to end of
Description of period expenses other accounts Deductions period
- ----------- ---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1998
Allowance for doubtful
accounts............... $3,500 $ 5,003 -- $5,003(A) $ 3,500
Merger-related
impairment loss on
assets held for sale... -- $18,000 -- -- $18,000
1997
Allowance for doubtful
accounts............... $3,500 $ 3,935 -- $3,935(A) $ 3,500
1996
Allowance for doubtful
accounts............... $3,300 $ 5,359 -- $5,159(A) $ 3,500
</TABLE>
(A) Accounts receivable written off.
3. Schedule of Operating Statistics for the three years ended December 31,
1997 can be found on page IV-4 of this report.
IV-1
<PAGE>
4. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
2 Amended and Restated Agreement and Plan of Merger, dated as of
December 26, 1996, between DPL, Atlantic Energy, Inc., Conectiv, Inc.
and DS Sub, Inc. (Filed with Registration Statement No. 333-18843)
3-A A 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).
3-B 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).
3-C 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).
3-D Certificate of Merger of Atlantic Energy, Inc. with and into Conectiv,
Inc. filed with Delaware Secretary of State, effective as of March 1,
1998, filed herewith.
3-E Certificate of Merger of Atlantic Energy, Inc. with and into Conectiv,
Inc. filed with New Jersey Department of State, effective as of March
1, 1998, filed herewith.
3-F Certificate to change name from Conectiv, Inc., to Conectiv filed with
the Delaware Secretary of State pursuant to Section 102(a) of the
Delaware General Corporation Law, filed herewith.
3-G 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).
4-A 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).
4-B Indenture dated as of March 1, 1997 between Atlantic City Electric
Company and The Bank of New York filed on Form 8-K, dated March 24,
1997, File No. 1-3559--Exhibit 4(e).
4-C Indenture Supplemental dated as of March 1, 1997 to Mortgage and Deed
of Trust dated January 15, 1937 between Atlantic City Electric Company
and The Bank of New York filed on Form 8-K dated March 24, 1997, File
No 1-3559, Exhibit 4(b).
</TABLE>
IV-2
<PAGE>
<TABLE>
<C> <S>
4-D 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, (File No. 1-9760, Form 10-
K for year ended December 31, 1996--Exhibit No. 4f(7)).
4-E Junior Subordinated Indenture, dated as of October 1, 1996, by and
between Atlantic City Electric Company and The Bank of New York, as
Trustee, (File No. 1-9760, Form 10-K for year ended December 31, 1996--
Exhibit No. 4f(8)).
4-F 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, (File No. 1-9760, Form 10-K for year ended December 31, 1996--
Exhibit No. 4f(9)).
4-G Amended and Restated Trust Agreement, dated as of October 1, 1998, 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.
4-H Junior Subordinated Indenture, dated as of October 1, 1998, by and
between Atlantic City Electric Company and The Bank of New York, as
Trustee, filed herewith.
4-I Guarantee Agreement, dated as of October 1, 1998, by and between Atlantic
City Electric Company as Guarantor, and The Bank of New York as Guarantee
Trustee, filed herewith.
10-A Termination Agreement dated August 14, 1997 between Atlantic Energy, Inc.
and Michael J. Chesser. (Filed with Form 10-K for the year ended December
31, 1997, File No. 1-3559).
10-B 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)).
10-C 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)).
10-D 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)).
10-E Amendment to Owners Agreement for Hope Creek Nuclear 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)).
12-A Computation of ratio of earnings to fixed charges.
12-B Computation of ratio of earnings to fixed charges and preferred
dividends.
23 Consent Independent Accountants.
27 Financial Data Schedules.
</TABLE>
(b) Reports on Form 8-K:
On December 7, 1998, ACE filed a report on Form 8-K under Item 5, Other
Events, regarding proposed legislation for restructuring the electric utility
industry in New Jersey.
On February 17, 1999, ACE filed a report on Form 8-K under Item 5, Other
Events, regarding the New Jersey Electric Discount and Energy Competition Act.
IV-3
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
SCHEDULE OF OPERATING STATISTICS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
The table below sets forth selected financial and operating statistics for
ACE's electric business for the years ended December 31, 1998, 1997, and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Electricity generated and purchased (MWH):
Generated................................. 5,499,473 4,664,548 4,775,306
Purchased................................. 3,881,906 5,409,378 5,905,566
Interchange deliveries.................... (86,432) (793,102) (1,006,516)
---------- ---------- ----------
Total system output for load............. 9,294,947 9,280,824 9,674,356
========== ========== ==========
Electric sales (MWH):
Residential............................... 3,544,048 3,454,705 3,587,352
Commercial................................ 3,724,853 3,538,414 3,493,694
Industrial................................ 1,308,826 1,253,347 1,214,005
Resale.................................... 404,883 317,824 811,467
Other sales, losses and miscellaneous
system uses (1).......................... 312,337 716,534 567,838
---------- ---------- ----------
Total disposition of energy.............. 9,294,947 9,280,824 9,674,356
========== ========== ==========
Electric operating revenue (thousands):
Residential............................... $ 435,710 $ 446,917 $ 448,738
Commercial................................ 378,777 382,812 369,364
Industrial................................ 108,042 110,469 105,734
Resale.................................... 4,513 7,949 19,052
Miscellaneous revenues (2)................ 7,053 24,685 12,065
---------- ---------- ----------
Total service territory.................. 934,095 972,832 954,953
Interchange deliveries.................... 69,161 23,657 27,539
Merchant revenues (3)..................... 31,638 72,045 1,868
---------- ---------- ----------
Total electric revenues.................. $1,034,894 $1,068,534 $ 984,360
========== ========== ==========
Number of customers (end of period):
Residential............................... 429,720 425,036 420,499
Commercial................................ 57,499 56,816 55,580
Industrial................................ 1,003 1,023 1,013
Resale.................................... -- -- --
Other..................................... 522 523 519
---------- ---------- ----------
Total customers (4)...................... 488,744 483,398 477,611
========== ========== ==========
</TABLE>
- --------
(1) Includes unbilled sales.
(2) Includes unbilled revenues and other miscellaneous revenues.
(3) Offsystem and competitive sales.
(4) Service territory only.
IV-4
<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, on March 26,
1999.
Atlantic City Electric Company
(Registrant)
/s/ John C. van Roden
By: _________________________________
(John C. van Roden, Senior Vice
President and Chief Financial
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, on March 26, 1999.
Signature Title
/s/ Howard E. Cosgrove Chairman of the Board and
_____________________________________ Chief Executive Officer
(Howard E. Cosgrove)
/s/ John C. van Roden Senior Vice President and
_____________________________________ Chief Financial Officer
(John C. van Roden)
/s/ James P. Lavin Controller and Chief
_____________________________________ Accounting Officer
(James P. Lavin)
/s/ Meredith I. Harlacher, Jr. Director
_____________________________________
(Meredith I. Harlacher, Jr.)
/s/ Thomas S. Shaw Director
_____________________________________
(Thomas S. Shaw)
/s/ Barry R. Elson Director
_____________________________________
(Barry R. Elson)
/s/ Barbara S. Graham Director
_____________________________________
(Barbara S. Graham)
IV-5
<PAGE>
EXHIBIT 3-D
-----------
Certificate of Merger of Atlantic Energy, Inc. with and into Conectiv, Inc.
filed with Delaware Secretary of State, effective as of March 1, 1998
<PAGE>
CERTIFICATE OF MERGER
OF
ATLANTIC ENERGY, INC.
A NEW JERSEY CORPORATION,
with and into
CONECTIV, INC.,
- --------------------------------------------------------------------------------
A DELAWARE CORPORATION
CONECTIV, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That the name and state of incorporation of each of the
constituent corporations of the merger are as follows:
NAME STATE OF INCORPORATION
---- ----------------------
Atlantic Energy, Inc. New Jersey
Conectiv, Inc. Delaware
SECOND: That an agreement of merger among the parties to the
merger has been approved, adopted, certified, executed and acknowledged by each
of the constituent corporations and their respective stockholders in accordance
with the requirements of subsection (c) of Section 252 of the General
Corporation Law of the State of Delaware.
THIRD: That the surviving corporation shall be Conectiv, Inc., a
Delaware corporation (the "Surviving Corporation"), and the name of the
Surviving Corporation shall be changed to "Conectiv" pursuant hereto.
FOURTH: That the certificate of incorporation and bylaws of
1
<PAGE>
Conectiv, Inc., a Delaware corporation, in effect immediately prior to the
effective time of the merger shall be the certificate of incorporation and
bylaws of the Surviving Corporation, except that, pursuant to this Certificate
of Merger, ARTICLE I of the certificate of incorporation of the Surviving
Corporation shall be amended to read as follows:
ARTICLE I
The name of the Corporation shall be Conectiv.
FIFTH: That the executed agreement of merger is on file at an
office of the Surviving Corporation. The office of the Surviving Corporation at
which the executed agreement of merger will be on file is 800 King Street,
Wilmington, Delaware, 19899.
SIXTH: That a copy of the agreement of merger will be furnished
by the Surviving Corporation, on request and without cost, to any stockholder of
any constituent corporation.
SEVENTH: That the authorized capital stock and par value of
Atlantic Energy, Inc., a New Jersey corporation, is 75,000,000 shares of Common
Stock without par value.
EIGHTH: That the effective date and time of the merger shall be
12:01 a.m. on March 1, 1998.
2
<PAGE>
Dated: February 27, 1998 CONECTIV, INC.
By: /s/ B. S. Graham
--------------------------
Barbara S. Graham
President
3
<PAGE>
EXHIBIT 3-E
CERTIFICATE OF MERGER OF ATLANTIC ENERGY, INC. WITH AND INTO CONECTIV, INC.
FILED WITH NEW JERSEY DEPARTMENT OF STATE, EFFECTIVE MARCH 1, 1998
<PAGE>
CERTIFICATE OF MERGER OF
ATLANTIC ENERGY, INC.,
A NEW JERSEY CORPORATION,
with and into
CONECTIV, INC.,
A DELAWARE CORPORATION
- --------------------------------------------------------------------------------
TO: Secretary of State
State of New Jersey
Pursuant to the pertinent provisions of Chapter 10 of the New Jersey
Business Corporation Act (hereinafter referred to as the "Act"), the undersigned
corporations hereby execute the following Certificate of Merger.
ARTICLE I
---------
Atlantic Energy, Inc. ("Atlantic"), a corporation organized and
--------
existing under the laws of the State of New Jersey, shall be merged with and
into Conectiv, Inc., a corporation organized and existing under the laws of the
State of Delaware and qualified to do business in the State of New Jersey, which
is designated as the surviving corporation (hereinafter referred to as the
"Surviving Corporation"). The name of the Surviving Corporation shall be
changed to "Conectiv" in Delaware pursuant to Sections 102(a) and 252 of the
Delaware General Corporation Law (the "Delaware GCL"), and shall continue to use
the name "Conectiv, Inc." in New Jersey pursuant to the requirements of the Act,
in particular, Section 14A:2-2 of the Act.
1
<PAGE>
ARTICLE II
- ----------
The Agreement and Plan of Merger set forth in Exhibit A hereto (the
"Plan") was approved by the Board of Directors of Atlantic on August 9, 1996.
- -----
The Plan was amended and restated and such amendment and restatement was
approved by the Board of Directors of Atlantic on December 8, 1996 in accordance
with the requirements of Sections 14A:10-1 and 14A:10-7 of the Act. The Plan
was approved by the Shareholders of Atlantic on January 30, 1997. The Plan was
approved by the Board of Directors of Conectiv, Inc. on August 9, 1996. The
Plan was amended and restated and such amendment and restatement was approved by
the Board of Directors of Conectiv, Inc. on December 8, 1996. The Plan was
unanimously approved by the stockholders of Conectiv, Inc. on December 8, 1996.
The Plan was amended by the Boards of Directors of Atlantic and Conectiv, Inc.
by amendment dated August 12, 1997.
ARTICLE III
-----------
As to Atlantic, the number of shares entitled to vote was as follows:
<TABLE>
<CAPTION>
=====================================================================================
Total Number Total Number
Name of Corporation Total Number of Shares of Shares of Shares
- - Class of Stock Entitled to Vote Voting in Favor Voting Against
- ---------------------- ---------------------- --------------- --------------
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Atlantic Energy, Inc. 52,704,052 37,843,067 1,539,886
- Common Stock
- -------------------------------------------------------------------------------------
Conectiv, Inc. 500 500 0
- Common Stock
=====================================================================================
</TABLE>
2
<PAGE>
ARTICLE IV
----------
The merger shall take effect at 12:01 a.m. on March 1, 1998.
ARTICLE V
---------
Such Merger shall be in compliance with all of the applicable
provisions of the Delaware GCL with respect to such Merger as well as the
applicable filing and recording requirements under the Delaware GCL.
ARTICLE VI
----------
The Surviving Corporation does hereby agree that it may be served with
process in the State of New Jersey in any proceeding for enforcement of any
obligation of Atlantic in New Jersey, as well as for enforcement of any
obligation of the Surviving Corporation arising from the Merger provided for
herein. The Surviving Corporation does hereby irrevocably appoint the Secretary
of State of the State of New Jersey as its agent to accept service of process in
any such proceeding and does hereby specify the following address without the
State of New Jersey to which a copy of such process shall be mailed by the
Secretary of State of the State of New Jersey:
Conectiv
800 King Street
Wilmington, Delaware 19801
ARTICLE VII
-----------
The Surviving Corporation does hereby agree that it will promptly pay
to the dissenting shareholders of Atlantic, if any, the amount, if any, to
3
<PAGE>
which they shall be entitled under the provisions of the Act with respect to the
rights of dissenting shareholders.
4
<PAGE>
IN WITNESS WHEREOF, each of the undersigned corporations has caused
this Certificate of Merger to be executed in its name by its duly authorized
officer, as of the 27th day of February, 1998.
CONECTIV, INC.
By:/s/ Barbara S. Graham
---------------------
Barbara S. Graham
President
ATLANTIC ENERGY, INC.
By: /s/ Jerrold L. Jacobs
---------------------
Jerrold L. Jacobs
Chairman and Chief Executive
Officer
5
<PAGE>
EXHIBIT 3-F
Certificate to change name from Conectiv, Inc. to Conectiv filed with the
Delaware Secretary of State pursuant to Section 102(a) of the Delaware General
Corporation Law
<PAGE>
CONECTIV, INC.
ACKNOWLEDGMENT AND REQUEST
PURSUANT TO SECTION 102(A)
OF THE
DELAWARE GENERAL CORPORATION LAW
CONECTIV, INC. (the "Corporation"), a corporation duly organized under
-----------
the laws of the State of Delaware, DOES HEREBY CERTIFY AND ACKNOWLEDGE that:
(1) The Certificate of Merger of Atlantic Energy, Inc., a New Jersey
corporation, with and into the Corporation (the "Certificate of Merger") is
being filed contemporaneously herewith. The Corporation will be the surviving
corporation of the merger to be effected pursuant to the Certificate of Merger.
Pursuant to the Certificate of Merger, the certificate of incorporation of the
Corporation will be amended to change the name of the Corporation to "Conectiv".
(2) As of the effective time set forth in the Certificate of Merger,
the total assets (as that term is defined in subsection (i) of Section 503 of
the Delaware General Corporation Law) of the Corporation will be not less than
$10,000,000.
Pursuant to Section 102(a)(1) of the Delaware General Corporation Law,
the Corporation hereby requests a waiver from the Division of Corporations of
the Secretary of State of the State of Delaware of the requirement set forth in
Section 102(a) of the Delaware General Corporation Law that the name of a
corporation shall contain one of the following
<PAGE>
words "association," "company," "corporation," "club," "foundation," "fund,"
"incorporated," "institute," "society," "union," "syndicate," or "limited," or
such other appropriate abbreviation, and that the name of the Corporation be
permitted to be changed to "Conectiv".
Dated: February 27, 1998 CONECTIV, INC.
By: /s/ B. S. Graham
----------------
Barbara S. Graham
President
<PAGE>
EXHIBIT 4-G
-----------
AMENDED AND RESTATED TRUST AGREEMENT, DATED AS OF OCTOBER 1, 1998, 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
<PAGE>
AMENDED AND RESTATED
TRUST AGREEMENT
among
ATLANTIC CITY ELECTRIC COMPANY, as Depositor
and
THE BANK OF NEW YORK,
as Property Trustee,
and THE BANK OF NEW YORK (DELAWARE),
as Delaware Trustee
Louis M. Walters
and
Stephanie M. Scola, as Trustees
and the several Holders
Dated as of October 1, 1998
ATLANTIC CAPITAL II
<PAGE>
Atlantic Capital II
Certain Sections of this Trust Agreement relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
Trust Indenture Trust Agreement
Act Section Section
- ------------------- ------------------
Section 310(a)(1).................................... 8.07
(a)(2)....................................... 8.07
(a)(3)....................................... 8.09
(a)(4)....................................... Not Applicable
(b).......................................... 8.08
Section 311(a)....................................... 8.13
(b).......................................... 8.13
Section 312(a)....................................... 5.07
(b).......................................... 5.07
(c).......................................... 5.07
Section 313(a)....................................... 8.14(a)
(a)(4)....................................... 8.14(b)
(b).......................................... 8.14(b)
(c).......................................... 8.14(a)
(d).......................................... 8.14(a), 8.14(b)
Section 314(a)....................................... 8.15
(a)(4)....................................... Not Applicable
(c).......................................... 8.16
(d).......................................... Not Applicable
(e).......................................... 1.01
Section 315(a)....................................... 8.01
(b).......................................... 8.02
(c).......................................... 8.01(a)
(d).......................................... 8.01, 8.03
(e).......................................... Not Applicable
Section 316(a)....................................... Not Applicable
(a)(1)(A).................................... Not Applicable
(a)(1)(B).................................... Not Applicable
(a)(2)....................................... Not Applicable
(b).......................................... Not Applicable
(c).......................................... Not Applicable
Section 317(a)(1).................................... Not Applicable
(a)(2)....................................... Not Applicable
(b).......................................... 5.09
Section 318(a)....................................... 10.09
- --------------------------
Note: This reconciliation and tie shall not, for any purpose, be deemed to be
a part of the Trust Agreement.
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I. Defined Terms
Section 1.01. Definitions............................... 2
ARTICLE II. Establishment of the Trust; Issuance of Trust Securities; Rights of
Securityholders
Section 2.01. Name...................................... 11
Section 2.02. Office of the Delaware Trustee; Principal
Place of Business........................ 11
Section 2.03. Initial Contribution of Trust Property;
Initial Ownership; Organizational
Expenses................................ 11
Section 2.04. Issuance of the Preferred Securities...... 11
Section 2.05. Subscription and Purchase of Debentures;
Issuance of the Common Securities........ 12
Section 2.06. Declaration of Trust; Appointment of
Additional Administrative Trustees....... 12
Section 2.07. Authorization to Enter into Certain
Transactions............................. 12
Section 2.08. Assets of Trust........................... 16
Section 2.09. Title to Trust Property................... 16
Section 2.10. Rights of Securityholders................. 16
ARTICLE III. Payment Account
Section 3.01. Payment Account........................... 16
ARTICLE IV. Distributions; Redemption
Section 4.01. Distributions............................. 18
Section 4.02. Redemption................................ 18
Section 4.03. Subordination of Common Securities........ 20
Section 4.04. Payment Procedures........................ 21
Section 4.05. Tax Returns and Reports................... 21
Section 4.06. Payments under Subordinated Indenture..... 21
ARTICLE V. Trust Securities Certificates
Section 5.01. The Trust Securities Certificates......... 22
Section 5.02. Ownership of Common Securities by
Depositor................................ 22
Section 5.03. Registration of Transfer and Exchange of
Preferred Securities Certificates........ 22
Section 5.04. Mutilated, Destroyed, Lost or Stolen
Trust Securities Certificates............ 24
Section 5.05. Cancellation by Registrar................. 24
<PAGE>
Section 5.06. Persons Deemed Securityholders............ 24
Section 5.07. Lists of Holders.......................... 24
Section 5.08. Maintenance of Office or Agency........... 25
Section 5.09. Appointment of Paying Agent............... 25
Section 5.10. Book-Entry System......................... 25
ARTICLE VI. Acts of Securityholders; Meetings; Voting
Section 6.01. Limitations on Voting Rights.............. 26
Section 6.02. Notice of Meetings........................ 27
Section 6.03. Meetings of Holders of Preferred
Securities............................... 27
Section 6.04. Voting Rights............................. 27
Section 6.05. Proxies, etc.............................. 28
Section 6.06. Securityholder Action by Written Consent.. 28
Section 6.07. Record Date for Voting.................... 28
Section 6.08. Acts of Securityholders................... 28
Section 6.09. Inspection of Records..................... 29
ARTICLE VII. Representations and Warranties of the Property Trustee and
the Delaware Trustee
Section 7.01. Property Trustee.......................... 30
Section 7.02. Delaware Trustee.......................... 30
ARTICLE VIII. The Trustees
Section 8.01. Certain Duties and Responsibilities....... 31
Section 8.02. Certain Notices........................... 33
Section 8.03. Certain Rights of Property Trustee........ 34
Section 8.04. Not Responsible for Recitals or Issuance
of Securities............................ 36
Section 8.05. May Hold Securities....................... 36
Section 8.06. Compensation; Fees; Indemnity............. 36
Section 8.07. Certain Trustees Required; Eligibility.... 38
Section 8.08. Conflicting Interests..................... 38
Section 8.09. Co-Trustees and Separate Trustee.......... 39
Section 8.10. Resignation and Removal; Appointment of
Successor................................ 40
Section 8.11. Acceptance of Appointment by Successor.... 42
Section 8.12. Merger, Conversion, Consolidation or
Succession to Business................... 42
Section 8.13. Preferential Collection of Claims Against
Depositor or Trust....................... 42
Section 8.14. Reports by Property Trustee............... 43
Section 8.15. Reports to the Property Trustee........... 43
Section 8.16. Evidence of Compliance With Conditions
Precedent................................ 43
Section 8.17. Number of Trustees........................ 43
Section 8.18. Delegation of Power....................... 44
Section 8.19. Fiduciary Duty............................ 44
<PAGE>
ARTICLE IX. Termination and Liquidation
Section 9.01. Termination Upon Expiration Date.......... 46
Section 9.02. Early Termination......................... 46
Section 9.03. Termination............................... 46
Section 9.04. Liquidation............................... 46
Section 9.05. Mergers, Consolidations, Amalgamations or
Replacements of the Trust................ 49
ARTICLE X. Miscellaneous Provisions
Section 10.01. Limitation of Rights of Securityholders.. 50
Section 10.02. Amendment................................ 50
Section 10.03. Separability............................. 52
Section 10.04. Governing Law............................ 52
Section 10.05. Successors............................... 52
Section 10.06. Headings................................. 52
Section 10.07. Notice and Demand........................ 52
Section 10.08. Agreement Not to Petition................ 53
Section 10.09. Conflict with Trust Indenture Act........ 53
<PAGE>
AMENDED AND RESTATED TRUST AGREEMENT, dated as of October 1, 1998,
among (i) Atlantic City Electric Company, a New Jersey corporation (the
"Depositor"), (ii) The Bank of New York, a New York banking corporation duly
organized and existing under the laws of New York, as trustee (the "Property
Trustee"), (iii) The Bank of New York (Delaware), a Delaware banking corporation
duly organized and existing under the laws of Delaware, as Delaware trustee (the
"Delaware Trustee"), and (iv) Louis M. Walters and Stephanie M. Scola, each an
individual, as trustee, and each of whose address is c/o Atlantic City Electric
Company, 800 King Street, Wilmington, Delaware 19899 (each, an "Administrative
Trustee" and, collectively, the "Administrative Trustees") (the Property
Trustee, the Delaware Trustee and the Administrative Trustees being hereinafter
referred to collectively as the "Trustees") and the several Holders, as
hereinafter defined.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Depositor, the Property Trustee, the Delaware Trustee and
Louis M. Walters, as Administrative 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 September 10, 1998
(the "Original Trust Agreement"), and by the execution by the Delaware Trustee,
the Property Trustee and Louis M. Walters, as Administrative Trustee and filing
with the Secretary of State of the State of Delaware of the Certificate of
Trust, dated September 10, 1998 (the "Certificate of Trust"), a copy of which is
attached as Exhibit A; and
WHEREAS, the Depositor, the Property Trustee, the Delaware Trustee and
Louis M. Walters, as Administrative 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 acquisition by the Trust from the Depositor of all
of the right, title and interest in the Debentures, (ii) the issuance of the
Common Securities by the Trust to the Depositor, (iii) the issuance of the
Preferred Securities by the Trust and (iv) the appointment of an additional
Administrative Trustee of the Trust;
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:
1
<PAGE>
ARTICLE I.
Defined Terms
SECTION I.01. 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 6.08.
"Administrative Trustee" means each of the individuals identified as
an "Administrative Trustee" in the preamble to this Trust Agreement, solely in
their capacities as Administrative Trustees of the Trust created hereunder and
not in their individual capacities, 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.
2
<PAGE>
"Bankruptcy Event" means, with respect to any Person:
(i) 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 Federal
bankruptcy law or any other applicable Federal or State 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
(ii) the institution by such Person of proceedings to be
adjudicated a bankrupt or insolvent, or of 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 Federal bankruptcy law or any other applicable Federal or
State law, or the consent by it to the filing of 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.
"Bankruptcy Laws" has the meaning specified in Section 10.08.
"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 a duly authorized committee thereof and
to be in full force and effect on the date of such certification, and delivered
to the appropriate Trustee.
"Business Day" means a day other than (a) a Saturday or a Sunday, (b)
a day on which banks in New York, New York are authorized or obligated by law or
executive order to remain closed and (c) a day on which either the Corporate
Trust Office or the Debenture Trustee's principal corporate trust office is
closed for business.
"Certificate of Trust" has the meaning specified in the preamble to
this Trust Agreement.
"Clearing Agency" means an organization registered as a "clearing
agency" pursuant to Section 17A of the Exchange Act.
"Closing Date" means the date of delivery of this Trust Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
3
<PAGE>
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, 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 ownership 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 B.
"Corporate Trust Office" means the principal corporate trust office of
the Property Trustee located in New York, New York, which at the date hereof is
101 Barclay Street - 21 West, New York, New York 10286.
"Covered Person" means: (a) any officer, director, shareholder,
partner, beneficial owner, member, representative, employee or agent of the
Trust or the Trust's Affiliates; and (b) any Securityholder.
"Debenture Event of Default" means an "Event of Default" as defined in
the Subordinated Indenture.
"Debenture Issuer" means Atlantic City Electric Company, a New Jersey
corporation, in its capacity as issuer of the Debentures.
"Debenture Redemption Date" means "Redemption Date" as defined in the
Subordinated Indenture.
"Debenture Trustee" means Wilmington Trust Company, as trustee under
the Subordinated Indenture.
"Debentures" means the $25,773,200 aggregate principal amount of the
Debenture Issuer's 7% Junior Subordinated Debentures, Series I, Due 2028,
issued pursuant to the Subordinated Indenture.
"Delaware Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Code Section 3801 et seq., as it may be amended from time
-- ---
to time.
"Delaware Trustee" means the banking corporation identified as the
"Delaware Trustee" in the preamble to this Trust Agreement solely in its
capacity as Delaware Trustee of the Trust and not in its individual capacity, or
its successor in interest in such capacity, or any successor trustee appointed
as herein provided.
4
<PAGE>
"Depositor" has the meaning specified in the preamble to this Trust
Agreement.
"Distribution Date" has the meaning specified in Section 4.01(a).
"Distributions" means amounts payable in respect of the Trust
Securities as provided in Section 4.01.
"Early Termination Event" has the meaning specified in Section 9.02.
"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):
(i) the occurrence of a Debenture Event of Default; or
(ii) default by the Trust or the Property Trustee in the
payment of any Distribution when it becomes due and payable, and
continuation of such default for a period of 30 days; or
(iii) default by the Trust or the Property Trustee in the
payment of any Redemption Price when it becomes due and payable; or
(iv) 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 whose performance
or breach is specifically dealt with in clause (ii) or (iii), 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 Property Trustee by
the Holders of at least 25% in Liquidation Amount 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
(v) the occurrence of a Bankruptcy Event with respect to the
Trust or the Property Trustee if a successor Property Trustee has not been
appointed within 90 days thereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expiration Date" means December 31, 2043.
"Guarantee" means the Guarantee Agreement executed and delivered by
the Depositor and The Bank of New York, a New York banking corporation, 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.
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"Holder" has the meaning specified in the definition of
"Securityholder."
"Indemnified Person" means any Trustee, any Affiliate of any Trustee,
any officer, director, shareholder, member, partner, employee, representative or
agent of any Trustee, or any employee or agent of the Trust or its Affiliates.
"Investment Company Act" means the Investment Company Act of 1940, as
amended.
"Investment Company Event" means 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 to the
effect that the Trust is or will be considered an "investment company" that is
required to be registered under the Investment Company Act, which change in law
becomes effective on or after the date of original issuance of the Preferred
Securities.
"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, as the context requires, (i) Trust Securities
having a Liquidation Amount equal to the principal amount of Debentures at any
time to be repaid, whether at stated maturity or upon maturity by earlier
acceleration, redemption or otherwise and (ii) Debentures having a principal
amount equal to the Liquidation Amount of the Trust Securities with respect to
which such Debentures are to be 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 Securityholders in connection with a termination and liquidation
of the Trust pursuant to Section 9.04(a).
"Liquidation Distribution" has the meaning specified in Section
9.04(e).
"No Recognition Opinion" means an opinion of nationally recognized
independent tax counsel experienced in such matters, which opinion may rely on
any then applicable published revenue rulings of the Internal Revenue Service,
to the effect that the Holders of the Preferred Securities will not recognize
any gain or loss for United States federal income tax purposes as a result of
the termination of the Trust and distribution of the Debentures.
"Officer's Certificate" means a certificate signed by the Chairman of
the Board, the President, a Vice President, the Treasurer or an Assistant
Treasurer of the Depositor, and delivered to the appropriate Trustee. Any
Officer's Certificate delivered with respect to compliance with a condition or
covenant provided for in this Trust Agreement shall include:
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(a) a statement that the officer signing the Officer's 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 such officer in rendering the Officer's
Certificate;
(c) a statement that 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 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, but not an
employee of the Trust, the Property Trustee or the Depositor, and who shall be
reasonably acceptable to the Property Trustee. Any Opinion of Counsel delivered
with respect to compliance with a condition or covenant provided for in this
Trust Agreement shall include statements comparable to the statements referred
to in the definition of "Officers' Certificate" herein.
"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 delivered
under this Trust Agreement, except:
(i) Preferred Securities theretofore canceled by the
Administrative Trustees or delivered to the Administrative Trustees for
cancellation;
(ii) 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, however, that, if such Preferred Securities are to be redeemed,
notice of such redemption has been duly given pursuant to this Trust
Agreement; and
(iii) Preferred Securities in exchange for or in lieu of which
other Preferred Securities have been delivered pursuant to this Trust
Agreement, including pursuant to Sections 5.03 or 5.04;
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
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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 which 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.
"Paying Agent" means any paying agent or co-paying agent appointed
pursuant to Section 5.09 and initially shall be The Bank of New York.
"Payment Account" means a segregated non-interest-bearing corporate
trust account maintained by the Property Trustee at The Bank of New York, or
such other banking institution as the Depositor shall select, for the benefit of
the Securityholders in which all amounts paid in respect of the Debentures will
be held and from which the Paying Agent, pursuant to Section 5.09, shall make
payments to the Securityholders in accordance with Sections 4.01 and 4.02.
"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 ownership interest
in the assets of the Trust designated as a "7% Cumulative Trust Preferred
Capital Security" having a Liquidation Amount of $25 and having 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
C.
"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 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.
"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, however, that each Debenture Redemption Date and Maturity
(as defined in the Subordinated Indenture) of the Debentures shall be a
Redemption Date for a Like Amount of Trust Securities.
"Redemption Price" means, with respect to any Redemption Date of any
Trust Security, the Liquidation Amount of such Trust Security, plus accumulated
and unpaid Distributions thereon to the Redemption Date.
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"Registrar" shall mean the registrar for the Preferred Securities
appointed by the Trust and shall be initially The Bank of New York.
"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 Depository" shall be The Depository Trust Company, or a
successor thereto.
"Securities Register" shall mean the Securities Register described in
Section 5.03.
"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.
"Subordinated Indenture" means the Indenture, dated as of October 1,
1998, between the Depositor and the Debenture Trustee, as amended or
supplemented from time to time.
"Tax Event" means the receipt by the Trust of an Opinion of Counsel
experienced in such matters to the effect that, as a result of any amendment to,
or change (including any announced prospective 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 administrative
pronouncement or action or judicial decision interpreting or applying such laws
or regulations, which amendment or change is effective or which pronouncement,
action 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 at such time or within 90 days of the date thereof (i)
the Trust is, or will be, 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 will not be, fully deductible by
the Depositor for United States federal income tax purposes, or (iii) the Trust
is, or will be, subject to more than a de minimis amount of other taxes, duties
or other governmental charges.
"Transfer Agent" shall mean one or more transfer agents for the
Preferred Securities appointed by the Administrative Trustees on behalf of the
Trust and shall be initially The Bank of New York.
"Trust" means the Delaware business trust created by the Original
Trust Agreement and continued hereby and identified on the cover page to this
Trust Agreement.
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"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 and the provisions
of the Trust Indenture Act that are deemed to be a part of and govern this
Amended and Restated 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 (i) the Debentures, (ii) any cash on deposit
in, or owing to, the Payment Account and (iii) all proceeds and rights in
respect of the foregoing and any other property and assets for the time being
held by the Property Trustee pursuant to the trusts 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.
"Underwriting Agreement" means the Underwriting Agreement, dated as of
October 28, 1998, among the Trust, the Depositor and the underwriters named
therein.
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ARTICLE II.
Establishment of the Trust; Issuance of
TRUST SECURITIES; RIGHTS OF SECURITYHOLDERS
SECTION II.01. NAME. The Trust created hereby shall be known as
"Atlantic Capital II" in which name the Trustees may conduct the business of the
Trust, make and execute contracts and other instruments on behalf of the Trust
and sue and be sued.
SECTION II.02. OFFICE OF THE DELAWARE TRUSTEE; PRINCIPAL PLACE OF
BUSINESS. The office 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 at such other address in Delaware as the Delaware Trustee may
designate by written notice to the Securityholders and the Depositor. The
principal place of business of the Trust is c/o Atlantic City Electric Company,
800 King Street, Wilmington, Delaware 19899.
SECTION II.03. INITIAL CONTRIBUTION OF TRUST PROPERTY; INITIAL
OWNERSHIP; 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. Upon the creation
of the Trust by such contribution 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. Pursuant to the
Subordinated Indenture, the Debenture Issuer, as borrower, 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 II.04. ISSUANCE OF THE PREFERRED SECURITIES. The Depositor
and an Administrative Trustee, on behalf of the Trust, executed and delivered
the Underwriting Agreement. Contemporaneously with the execution and delivery
of this Trust Agreement, one of the Administrative Trustees, on behalf of the
Trust in accordance with Section 5.01, executed manually and delivered a
Preferred Securities Certificate, registered in the name of the nominee of the
Securities Depository, evidencing 1,000,000 Preferred Securities having an
aggregate Liquidation Amount of $25,000,000, against receipt of the purchase
price of such Preferred Securities of $25,000,000, which amount such
Administrative Trustee shall promptly deliver to the Property Trustee.
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SECTION II.05. SUBSCRIPTION AND PURCHASE OF DEBENTURES; ISSUANCE OF THE COMMON
SECURITIES. Contemporaneously with the execution and delivery of this Trust
Agreement, one of the Administrative Trustees, on behalf of the Trust, shall
execute and deliver to the Depositor a Common Securities Certificate, registered
in the name of the Depositor, evidencing 30,928 Common Securities having an
aggregate Liquidation Amount of $773,200, against receipt of the purchase price
of such Common Securities of $773,200. The Administrative Trustees, on behalf
of the Trust, shall subscribe to and purchase from the Depositor Debentures,
registered in the name of the Property Trustee, in an aggregate principal amount
of $25,773,200, and, in satisfaction of the purchase price for such Debentures,
the Property Trustee, on behalf of the Trust, shall deliver to the Depositor the
sum of $25,773,200, representing the proceeds from the sale of the Trust
Securities.
SECTION II.06. DECLARATION OF TRUST; APPOINTMENT OF ADDITIONAL
ADMINISTRATIVE TRUSTEES. The exclusive purposes and functions of the Trust are
(i) to issue Trust Securities and invest the proceeds thereof in Debentures, and
(ii) to receive payments to be made with respect to the Debentures and disburse
such payments in accordance with the terms hereof, and (iii) to engage in those
activities necessary 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. 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 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.
SECTION II.07. 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 2.07 and Article VIII and in accordance with the following
provisions (i) and (ii), the 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, the Administrative Trustees, acting
singly or jointly, shall have the power, duty 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) without the consent of any Person, the causing of the Trust
to enter into and to execute, deliver and perform on behalf of the
Trust such agreements or other documents as may be necessary or
desirable in connection with the consummation of the Underwriting
Agreement;
(C) the collection of interest, principal and any other payments
made in respect of the Debentures in the Payment Account;
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(D) 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;
(E) the listing of the Preferred Securities upon such securities
exchange or exchanges 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;
(F) the appointment of a Paying Agent, a Transfer Agent and a
Registrar in accordance with this Trust Agreement;
(G) the registration of transfers of the Trust Securities in
accordance with this Trust Agreement; and
(H) the taking of any action incidental to the foregoing as the
Administrative Trustees may from time to time determine is necessary
or advisable to 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).
(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) the sending of notices of default and other information
regarding the Trust Securities and the Debentures to the
Securityholders in accordance with the terms of this Trust Agreement;
(F) the distribution of the Trust Property in accordance with the
terms of this Trust Agreement;
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(G) 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; and
(H) the taking of any ministerial action incidental to the
foregoing as the Property Trustee may from time to time determine is
necessary or advisable to 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).
Subject to this Section 2.07(a)(ii), the Property Trustee shall have none of the
duties, liabilities, powers or authority of the Administrative Trustees set
forth in Section 2.07(a)(i) or the Depositor set forth in Section 2.07(c). The
Property Trustee shall have the power and authority to exercise all of the
rights, powers and privileges of a holder of Debentures under the Subordinated
Indenture and, if an Event of Default occurs and is continuing, the Property
Trustee may, for the benefit of Holders of the Trust Securities, in its
discretion proceed to protect and enforce its rights as holder of the Debentures
subject to the rights of the Holders pursuant to the terms of this Trust
Agreement.
(b) 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, pledge, set-off or
otherwise dispose of any of the Trust Property or interests therein, including
to Securityholders, except as expressly provided herein, (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 (v) take or consent to any action that would result in the
placement of a Lien on any of the Trust Property. The 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 issuance 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) to prepare for filing by the Trust with the Commission and
to execute a registration statement on Form S-3 in relation to the
Preferred Securities, including any amendments thereto;
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(ii) to determine the states in which to take appropriate
action to qualify or register for sale all or part of the Preferred
Securities and to do any and all such acts, other than actions which must
be taken by or on behalf of the Trust, and advise the Trustees of actions
they must take on behalf of the Trust, and prepare for execution and filing
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) to prepare for filing by the Trust an application to the
New York Stock Exchange, any other national stock exchange or the Nasdaq
National Market for listing upon notice of issuance of any Preferred
Securities and to 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) to prepare for filing by the Trust with the Commission and
to execute a registration statement on Form 8-A relating to the
registration of the Preferred Securities under Section 12(b) of the
Exchange Act, including any amendments thereto;
(v) to execute and deliver on behalf of the Trust the
Underwriting Agreement and such other agreements as may be necessary or
desirable in connection with the consummation thereof;
(vi) to select the investment banker or bankers to act as
underwriters with respect to the offer and sale by the Trust of Preferred
Securities and negotiate the terms of an Underwriting Agreement and pricing
agreement providing for such offer; and
(vii) to take 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 Investment Company Act
of 1940, as amended, or classified other than as 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 10.03, the Depositor and
the Administrative Trustees are authorized to take any action, not inconsistent
with applicable law or this Trust Agreement, that each of the Depositor and the
Administrative Trustees determines in its discretion to be necessary or
desirable for such purposes, as long as such action does not materially and
adversely affect the interests of the Holders of the Preferred Securities.
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(e) 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, liabilities or 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 that the Trust have at least one trustee that has its principal place
of business in the State of Delaware. The duties of the Delaware Trustee shall
be limited to (a) accepting legal process served on the Trust in the State of
Delaware and (b) the execution of any certificates required to be filed with the
Delaware Secretary of State which the Delaware Trustee is required to execute
under Section 3811 of the Delaware Business Trust Act.
SECTION II.08. ASSETS OF TRUST. The assets of the Trust shall
consist of the Trust Property.
SECTION II.09. 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.
SECTION 2.10. RIGHTS OF SECURITYHOLDERS . The legal title to the
Trust Property is vested exclusively in the Property Trustee (in its capacity as
such) in accordance with Section 2.09, and the Securityholders shall not have
any right or title therein other than an undivided beneficial ownership 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. By acceptance of a beneficial interest in the Trust
Securities, Securityholders agree to treat the Debentures as indebtedness for
all United States tax purposes. The Preferred 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 interests in the Trust.
ARTICLE III.
Payment Account
SECTION III.01. PAYMENT ACCOUNT. (a) On or prior to the Closing
Date, the Property Trustee shall establish the Payment Account. The Property
Trustee and the Paying Agent appointed by the Administrative Trustees shall have
exclusive control 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 Holders of Trust Securities and for
distribution as herein provided.
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(b) The Property Trustee shall deposit in the Payment Account,
promptly upon receipt, all payments of principal 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.
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ARTICLE IV.
Distributions; Redemption
SECTION IV.01. 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 accumulate from the Closing Date, and, except in the event that the
Depositor exercises its right to extend the interest payment period for the
Debentures pursuant to Section 311 of the Subordinated Indenture, shall be
payable quarterly in arrears on March 31, June 30, September 30 and December 31
of each year, commencing on December 31, 1998. If any date on which
Distributions are 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 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 4.01(a) a "Distribution Date").
(b) Distributions payable on the Trust Securities shall be fixed at a
rate of 7-3/8% per annum of the Liquidation Amount of the Trust Securities. The
amount of Distributions payable on December 31, 1998 will be computed on the
basis of 57 days in a 360-day year. The amount of Distributions payable for any
full quarterly period shall be computed on the basis of twelve 30-day months and
a 360-day year and for any period shorter than a full month, on the basis of the
actual number of days elapsed. If the interest payment period for the
Debentures is extended pursuant to Section 311 of the Subordinated Indenture,
then Distributions on the Preferred Securities will be deferred for the period
equal to the extension of the interest payment period for the Debentures and
additional Distributions on the Trust Securities shall accumulate by the
aggregate amount of interest (including, to the extent permitted by law,
interest payable on unpaid interest at the percentage rate per annum set forth
above, compounded quarterly) that accrues during any such extended interest
payment period on the Debentures.
(c) Distributions on the Trust Securities shall be made and shall be
deemed payable on each Distribution Date only to the extent that the Trust has
funds immediately available in the Payment Account for the payment of such
Distributions.
(d) Distributions on the Trust Securities with respect to a
Distribution 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 15 days prior to such Distribution Date.
SECTION IV.02. REDEMPTION. (a) On each Debenture Redemption Date and
at Maturity for the Debentures, the Property Trustee will be required to redeem
a Like Amount of Trust Securities at the Redemption Price.
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(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;
(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;
(vi) the place or places where such Trust Securities are to be
surrendered for payment of the Redemption Price; and
(vii) such other matters as the Property Trustee shall deem
desirable or appropriate.
(c) The Trust Securities redeemed on each Redemption Date shall be
redeemed at the Redemption Price with the proceeds from the contemporaneous
redemption of Debentures. Redemptions of the Trust Securities shall be made and
the Redemption Price shall be deemed payable on each Redemption Date only if the
Trust has funds immediately available in the Payment Account for such payment.
(d) If the Property Trustee gives a notice of redemption in respect
of any Preferred Securities, then, by 12:00 noon, New York time, on the
Redemption Date, subject to Section 4.02(c), the Property Trustee shall
irrevocably deposit with the Paying Agent funds sufficient to pay the applicable
Redemption Price and will give the Paying Agent irrevocable instructions to pay
the Redemption Price to the Holders thereof upon surrender of their Trust
Securities Certificates. Notwithstanding the foregoing, Distributions payable
on or 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 on the 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 such Trust Securities will cease to be outstanding. In the event that any
Redemption Date is not a Business Day, then payment of the
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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). In the event that payment of the Redemption Price in respect of
any Trust Securities called for redemption is 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 to the date on which such Redemption Price shall actually
be paid.
(e) 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 pro rata to the Common Securities
and the Preferred Securities. The particular Preferred Securities to be
redeemed shall be selected pro rata not more than 60 days prior to the
Redemption Date by the Property Trustee from the Outstanding Preferred
Securities not previously called for redemption which may provide for the
selection for redemption of portions (equal to $25 or integral multiples
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 which has been or is to be redeemed.
SECTION IV.03. SUBORDINATION OF COMMON SECURITIES. (a) 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 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 on all Outstanding Preferred Securities for all
distribution periods terminating on or prior thereto, or in the case of payment
of the Redemption Price, payment in full of such Redemption Price on all
Outstanding Preferred Securities, shall have been made or provided for.
(b) In the case of the occurrence of an Event of Default resulting
from a Debenture Event of Default, the Holder of Common Securities will be
deemed to have waived such Event of Default until the effect of all such Events
of Default with respect to the Preferred Securities shall have been cured,
waived or otherwise eliminated. Until all Events of Default with respect to the
Preferred Securities shall have been so cured, waived or otherwise eliminated,
the Property Trustee shall act solely on behalf of the Holders of the Preferred
Securities, and only the Holders of the Preferred Securities will have the right
to direct the Property Trustee to act.
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SECTION IV.04. PAYMENT PROCEDURES. Payments 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.
Payments in respect of the Common Securities shall be made in such manner as
shall be mutually agreed between the Administrative Trustees and the Holder of
the Common Securities.
SECTION IV.05. TAX RETURNS AND REPORTS. The Administrative Trustees
shall prepare (or cause to be prepared), at the Depositor's expense and
direction, 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 Internal Revenue Service Form 1041 (or
any successor 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 related Internal Revenue Service Form
1099, or any successor form 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, reports and schedules 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 IV.06. PAYMENTS UNDER SUBORDINATED INDENTURE. Any amount
payable hereunder to any Holder of Preferred Securities shall be reduced by the
amount of any corresponding payment such Holder has directly received pursuant
to Section 808 of the Subordinated Indenture. Notwithstanding the provisions
hereunder to the contrary, Securityholders acknowledge that any Holder of
Preferred Securities that receives payment under Section 808 of the Subordinated
Indenture may receive amounts greater than the amount such Holder may be
entitled to receive pursuant to the other provisions of this Trust Agreement.
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ARTICLE V.
Trust Securities Certificates
SECTION V.01. THE TRUST SECURITIES CERTIFICATES. The Trust
Securities Certificates shall be issued in denominations of $25 Liquidation
Amount and integral multiples thereof. Subject to Section 2.04 relating to the
original issuance of the Preferred Securities Certificate registered in the name
of the nominee of the Securities Depository, the Trust Securities Certificates
shall be executed on behalf of the Trust by 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 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 and
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. Trust Securities
Certificates may be typewritten, 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 V.02. OWNERSHIP OF COMMON SECURITIES BY DEPOSITOR. On the
Closing Date, the Depositor shall acquire, and thereafter retain, beneficial and
record ownership of the Common Securities. Any attempted transfer of the Common
Securities (other than a transfer in connection with a merger or consolidation
of the Depositor with or into another corporation pursuant to Section 1101 of
the Subordinated Indenture) 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." A single Common
Securities Certificate representing the Common Securities shall be issued to the
Depositor in the form of a typewritten or definitive Common Securities
Certificate.
SECTION V.03. REGISTRATION OF TRANSFER AND EXCHANGE OF PREFERRED
SECURITIES CERTIFICATES. (a) The Registrar shall keep or cause to be kept, at
its principal corporate office, a Securities Register in which, subject to such
reasonable regulations as it may prescribe, the Registrar shall provide for the
registration of Preferred Securities Certificates and the registration of
transfers and exchanges of Preferred Securities Certificates as herein provided.
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(b) Upon surrender for registration of transfer of any Preferred
Securities Certificate at the office or agency maintained pursuant to Section
5.08, the Administrative Trustees, or any one of them, shall execute on behalf
of the Trust by manual or facsimile signature and, if executed 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. 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 5.08.
(c) 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 Administrative Trustees and a
Transfer Agent duly executed by the Holder or such Holder's attorney duly
authorized in writing. The Trust shall not be required to (i) issue, register
the transfer of, or exchange any Preferred Securities during a period beginning
at the opening of business 15 calendar days before the day of mailing of a
notice of redemption of any Preferred Securities called for redemption and
ending at the close of business on the day of such mailing or (ii) register the
transfer of or exchange any Preferred Securities so selected for redemption, in
whole or in part, except the unredeemed portion of any such Preferred Securities
being redeemed in part.
(d) 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.
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SECTION V.04. MUTILATED, DESTROYED, LOST OR STOLEN TRUST SECURITIES
CERTIFICATES. If (i) 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 (ii) there shall be delivered to the Transfer Agent and the
Administrative Trustees such security or indemnity as may be required by them to
save each of them and the Depositor 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 such Trust Securities
Certificate and, if execution on behalf of the Trust is by facsimile signature,
such Certificate shall be countersigned by a Transfer Agent; and the
Administrative Trustees, or any one of them, 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 5.04, 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 5.04
shall constitute conclusive evidence of an ownership interest in the Trust, as
if originally issued, whether or not the lost, stolen or destroyed Trust
Securities Certificate shall be found at any time.
SECTION V.05. CANCELLATION BY REGISTRAR. All Trust Securities
Certificates surrendered for payment, redemption, registration of transfer or
exchange shall, if surrendered to any Person other than the Registrar, be
delivered to the Registrar and, if not theretofore canceled, shall promptly be
canceled by the Registrar. No Trust Securities Certificates shall be issued in
lieu of or in exchange for any Trust Securities Certificates canceled as
provided in this Section, except as expressly permitted by this Trust Agreement.
All canceled Trust Securities Certificates held by the Registrar shall be
disposed of in accordance with customary practices.
SECTION V.06. PERSONS DEEMED SECURITYHOLDERS. Prior to due
presentation of a Preferred Securities Certificate for registration of transfer,
the Trustees and the Registrar shall be entitled to treat the Person in whose
name any Preferred Securities Certificate shall be registered in the Securities
Register as the Holder of such Preferred Securities Certificate for the purpose
of receiving Distributions and for all other purposes whatsoever, and neither
the Trustees nor the Registrar shall be bound by any notice to the contrary.
SECTION V.07. LISTS OF HOLDERS. Semiannually, not later than January
15 and July 15 in each year, commencing January 15, 1999, and at such other
times as the Property Trustee may request in writing, the Administrative
Trustees shall furnish or cause to be furnished to the Property Trustee
information as to the names and addresses of the Holders, and the Property
Trustee shall preserve such information and similar information received by it
in any other capacity and afford to the Holders access to information so
preserved by it, all to such extent, if any, and in such manner as shall be
required by the Trust Indenture Act; provided, however, that no such list need
be furnished so long as the Property Trustee shall be the Registrar.
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SECTION V.08. MAINTENANCE OF OFFICE OR AGENCY. The Administrative
Trustees shall or shall cause the Transfer Agent to maintain, in the Borough of
Manhattan, the City of New York, 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 or
the Transfer Agent in respect of the Trust Securities Certificates may be
served. The Administrative Trustees shall or shall cause the Transfer Agent to
give prompt written notice to the Property Trustee and to the Securityholders of
any change in any such office or agency.
SECTION V.09. 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 Administrative Trustees and the
Property Trustee. Any Paying Agent shall have the revocable power to withdraw
funds from the Payment Account for the purpose of making the Distributions. 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 5.09.
The Administrative Trustees or any one of them may revoke such power and remove
the Paying Agent if the Administrative Trustees or any one of them determines in
its sole discretion that the Paying Agent shall have failed to perform its
obligations under this Trust Agreement in any material respect. The Paying
Agent may choose any co-paying agent that is acceptable to the Administrative
Trustees and the Depositor. The Paying Agent shall be permitted to resign upon
30 days' written notice to the Administrative Trustees and the Depositor. In
the event of the removal or resignation of the Paying Agent, the Administrative
Trustees shall appoint a successor that is reasonably acceptable to the Property
Trustee and the Depositor to act as Paying Agent (which shall be a bank, trust
company or an Affiliate of the Depositor). 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 also shall return all other funds in
its possession to the Property Trustee. The provisions of Sections 8.01 through
8.06 shall apply to the Paying Agent appointed hereunder, and the 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 Trust
Agreement to the Paying Agent shall include any co-paying agent unless the
context requires otherwise.
SECTION V.10. BOOK-ENTRY SYSTEM . (a) The Administrative Trustees,
at the direction and expense of the Debenture Issuer, as borrower, may from time
to time appoint a Securities Depository or a successor thereto and enter into a
letter of representations or other agreement with such Securities Depository to
establish procedures with respect to the Preferred Securities. Any Securities
Depository shall be a Clearing Agency.
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(b) The Depositor and the Trustees covenant and agree to meet the
requirements of a Securities Depository for the Preferred Securities with
respect to required notices and other provisions of the letter of
representations or agreement executed with respect to such Preferred Securities.
(c) Whenever the beneficial ownership of any Preferred Securities is
determined through the books of a Securities Depository, the requirements in
this Trust Agreement of holding, delivering or transferring, and making payments
in respect of, such Preferred Securities shall be deemed modified with respect
to such Preferred Securities to meet the requirements of the Securities
Depository with respect to actions of the Trustees, the Depositor and the Paying
Agent. Any provisions hereof permitting or requiring delivery of such Preferred
Securities shall, while such Preferred Securities are in a book-entry system, be
satisfied by the notation on the books of the Securities Depository in
accordance with applicable state law.
ARTICLE VI.
Acts of Securityholders; Meetings; Voting
SECTION VI.01. LIMITATIONS ON VOTING RIGHTS . (a) Except as
provided in this Section 6.01, in Section 10.02 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. If the Property Trustee fails to enforce its
rights under the Debentures or this Trust Agreement, a Holder of Preferred
Securities may institute a legal proceeding directly against the Depositor to
enforce the Property Trustee's rights under the Debentures or this Trust
Agreement, to the fullest extent permitted by law, without first instituting any
legal proceeding against the Property Trustee or any other person.
Notwithstanding the foregoing, a Holder of Preferred Securities may directly
institute a proceeding for enforcement of payment to such Holder directly of
principal of or interest on the Debentures having a principal amount equal to
the aggregate Liquidation Amount of the Preferred Securities of such Holder on
or after the due dates specified in the Debentures. In connection with any such
proceeding, the Depositor will be subrogated to the rights of any Holder of
Preferred Securities to the extent of any payment made by the Depositor to such
Holder.
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(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 waivable under Section 813 of
the Subordinated 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 Subordinated
Indenture or the Debentures, where such consent shall be required, without, in
each case, obtaining the prior approval of the Holders of at least 66 2/3% of
the aggregate Liquidation Amount of the Outstanding Preferred Securities;
provided, however, that where a consent under the Subordinated Indenture would
require the consent of each holder of Debentures affected thereby, no such
consent shall be given by any 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 Preferred Securities, except
pursuant to a subsequent vote of the Preferred Securities.
SECTION VI.02. NOTICE OF MEETINGS . Notice of all meetings of the
Holders of a Preferred Securities, stating the time, place and purpose of the
meeting, shall be given by the Administrative Trustees pursuant to Section 10.07
to each Holder of a Preferred Security, 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 VI.03. MEETINGS OF HOLDERS OF PREFERRED SECURITIES . (a) 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 Holders of at least 25% of the aggregate
Liquidation Amount of the Outstanding Preferred Securities and may, at any time
in their discretion, call a meeting of Holders of Preferred Securities to vote
on any matters as to which the Holders of Preferred Securities are entitled to
vote.
(b) Holders of at least 50% of the aggregate Liquidation Amount of the
Outstanding Preferred Securities, present in person or by proxy, shall
constitute a quorum at any meeting of Securityholders.
(c) If a quorum is present at a meeting, an affirmative vote by the
Holders of a majority of the aggregate Liquidation Amount of the Outstanding
Preferred Securities shall constitute the action of the Securityholders, unless
this Trust Agreement shall require a greater affirmative vote.
SECTION VI.04. 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.
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SECTION VI.05. 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. 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, and the burden of proving invalidity shall rest on the challenger.
SECTION VI.06. SECURITYHOLDER ACTION BY WRITTEN CONSENT . Any
action which may be taken by Securityholders at a meeting may be taken without a
meeting if Holders of at least a majority of the aggregate Liquidation Amount of
the Outstanding Trust Securities 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 VI.07. RECORD DATE FOR VOTING . For the purposes of
determining the Securityholders who are entitled to notice of and to vote at any
meeting or by written consent, 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 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 VI.08. ACTS OF SECURITYHOLDERS . (a) 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
may be embodied in and evidenced by one or more instruments of substantially
similar tenor signed by such Securityholders 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 the Administrative Trustees. Such instrument or instruments (and the action
embodied therein and evidenced thereby) are herein sometimes referred to as the
"Act" of the Securityholders 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
8.01) conclusive in favor of the Trustees, if made in the manner provided in
this Section 6.08.
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(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. 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 deems sufficient.
(c) The ownership of Preferred Securities shall be proved by the
Securities Register.
(d) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Trust Security shall bind every future
Holder of the same Trust Security and the Holder 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.
(e) 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.
(f) If any dispute shall arise between or among the Securityholders
and the Administrative 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.
SECTION VI.09. INSPECTION OF RECORDS . Subject to Section 5.07
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.
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ARTICLE VII.
Representations and Warranties
OF THE PROPERTY TRUSTEE AND THE DELAWARE TRUSTEE
SECTION VII.01. PROPERTY TRUSTEE . The Property Trustee hereby
represents and warrants for the benefit of the Depositor and the Securityholders
that:
(i) 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;
(ii) 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;
(iii) 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;
(iv) 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
(v) 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 with respect to any governmental authority
or agency under any existing Federal or New York law governing the banking
or trust powers of the Property Trustee.
SECTION VII.02. DELAWARE TRUSTEE . The Delaware Trustee hereby
represents and warrants for the benefit of the Depositor and the Securityholders
that:
(i) 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;
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(ii) 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;
(iii) 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;
(iv) the execution, delivery and performance by the Delaware
Trustee of this Trust Agreement will not violate, conflict with or
constitute a breach of the Delaware Trustee's charter or by-laws; and
(v) 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 with respect to any governmental authority
or agency under any existing Federal or Delaware law governing the banking
or trust powers of the Delaware Trustee.
ARTICLE VIII.
The Trustees
SECTION VIII.01. CERTAIN DUTIES AND RESPONSIBILITIES . (a) The
Property 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
Trust Agreement and no implied covenants or obligations shall be read into this
Trust Agreement against the Property Trustee. In case an Event of Default has
occurred (that has not been cured or waived), the Property Trustee shall
exercise such of the rights and powers vesting in it by this Trust Agreement,
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 or her own
affairs.
(b) No provision of this Trust Agreement shall be construed to
relieve the Property 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 an Event of Default and after
the curing or waiving of all such Events of Default that may have occurred:
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(A) the duties and obligations of the Property Trustee shall be
determined solely by the express provisions of this Trust Agreement
and the Property Trustee shall not be liable except for the
performance of such duties and obligations as are specifically set
forth in this Trust Agreement, and no implied covenants or obligations
shall be read into this Trust Agreement against the Property Trustee;
and
(B) in the absence of bad faith on the part of the Property
Trustee, the Property 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 Property
Trustee and conforming to the requirements of this Trust Agreement;
provided, however, that in the case of any such certificates or
opinions that by any provision hereof are specifically required to be
furnished to the Property Trustee, the Property Trustee shall be under
a duty to examine the same to determine whether or not they conform to
the requirements of this Trust Agreement.
(ii) the Property Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the Property
Trustee, unless it shall be proved that the Property Trustee was negligent
in ascertaining the pertinent facts;
(iii) the Property 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 at least a majority of the aggregate
Liquidation Amount of the Outstanding Preferred Securities relating to the
time, method and place of conducting any proceeding for any remedy
available to the Property Trustee, or exercising any trust or power
conferred upon the Property Trustee under this Trust Agreement;
(iv) 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.
(v) the Property Trustee's sole duty with respect to the
custody, safe keeping and physical preservation of the Trust Property 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, exculpations 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 of 1940, as amended;
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(vi) 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;
(vii) 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. Money held by the Property Trustee need not be segregated
from other funds held by it except in relation to the Payment Account
established by the Property Trustee pursuant to this Trust Agreement and
except to the extent otherwise required by law; and
(viii) 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.
(C) all payments made by the Property Trustee or a Paying Agent
in respect of the Trust Securities shall be made only from the income
and proceeds from the Trust Property and only to the extent that there
shall be sufficient income or proceeds from the Trust Property to
enable the Property Trustee or 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
income and proceeds from the Trust Property to the extent 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 8.01(c) 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.
(D) Neither the Delaware Trustee nor any Administrative Trustee
shall be liable for any act or omission to act hereunder, except for
its own gross negligence or wilful misconduct.
SECTION VIII.02. CERTAIN NOTICES . (a) 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 10.08, notice of any Event of Default known to the Property
Trustee to the Securityholders, the Administrative Trustees and the Depositor,
unless such Event of Default shall have been cured or waived.
(b) Within five Business Days after receipt of notice of the
Depositor's exercise of its right to defer the payment of interest on the
Debentures pursuant to the Subordinated Indenture, an Administrative Trustee
shall transmit, in the manner and to the extent provided in Section 10.08,
notice of such exercise to the Securityholders and the Property Trustee.
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SECTION VIII.03. CERTAIN RIGHTS OF PROPERTY TRUSTEE . Subject to
the provisions of Section 8.01 and except as provided by law:
(i) 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 reasonably believed by it to be genuine and to have been signed or
presented by the proper party or parties;
(ii) if (A) in performing its duties under this Trust Agreement
the Property Trustee is required to decide between alternative courses of
action or (B) in construing any of the provisions in this Trust Agreement
the Property Trustee finds the same ambiguous or inconsistent with any
other provisions contained herein or (C) 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. 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 wilful 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;
(iii) whenever in the administration of this Trust Agreement
the Property Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action hereunder,
the Property Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, request and rely
upon an Officer's Certificate which, upon receipt of any such requests,
shall be promptly delivered by the Depositor or the Administrative
Trustees;
(iv the Property Trustee may consult with counsel of its
selection 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;
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(v 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 reasonable attorneys' fees and expenses) and
liabilities which might be incurred by it in complying with such request or
direction;
(vi 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 reasonably believed by
it to be genuine, but the Property Trustee, in its discretion, may make
such further inquiry or investigation into such facts or matters as it may
see fit;
(vii 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;
(viii 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
powers conferred upon it by this Trust Agreement;
(ix the Property Trustee shall not be charged with knowledge
of any default or Event of Default with respect to the Trust Securities
unless either (A) a Responsible Officer of the Property Trustee shall have
actual knowledge of the default or Event of Default or (B) written notice
of such default or Event of Default shall have been given to the Property
Trustee by the Depositor, the Administrative Trustees or by any
Securityholder;
(x 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; and no permissive or discretionary power
or authority available to the Property Trustee shall be construed to be a
duty;
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(xi no provision of this Trust Agreement shall require the
Property Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its duties or in
the exercise of any of its rights or powers, if the Property 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 Trust
Agreement or adequate indemnity against such risk or liability is not
reasonably assured to it;
(xii 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 tax form or securities) (or any
rerecording, refiling or reregistration thereof);
(xiii 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; and
(xiv 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 (A) may request instructions from the
Securityholders, which instructions may only be given by the Holders of the
same Liquidation Amount of the Trust Securities as would be entitled to
direct the Property Trustee under the terms of this Trust Agreement in
respect of such remedies, rights or actions, (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.
SECTION VIII.04. 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 Depositor, and the Trustees
do not assume any responsibility for their correctness. The Trustees 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 or genuineness of any
securities at any time pledged and deposited with any Trustees hereunder, nor 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 Trust of
the proceeds of the sale of the Trust Securities in accordance with Section
2.05.
SECTION VIII.05. MAY HOLD SECURITIES . Except as provided in the
definition of the term "Outstanding" in Article I, any Trustee or any agent of
any Trustee or the Trust, in its individual or any other capacity, may become
the owner or pledgee of Trust Securities and may otherwise deal with the Trust
with the same rights it would have if it were not a Trustee or such agent.
SECTION VIII.06. COMPENSATION; FEES; INDEMNITY. (a) Pursuant to the
Indenture, the Debenture Issuer, as borrower, agrees:
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(i to pay to the Trustees from time to time reasonable
compensation for all services rendered by the Trustees hereunder (which
compensation shall not be limited by any provision of law in regard to the
compensation of a trustee of an express trust);
(ii except as otherwise expressly provided herein, to
reimburse the Trustees upon request for all reasonable expenses,
disbursements and advances reasonably 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 (gross negligence, in the case of any
Administrative Trustee), bad faith or willful misconduct; and
(iii to indemnify each Indemnified Person for, and to hold
each Indemnified Person harmless against, any and all loss, damage, claims,
liability or expense incurred without negligence (gross negligence, in the
case of the Delaware Trustee or any Administrative Trustee), bad faith or
willful misconduct on its part, arising out of or in connection with the
acceptance of the trusts created by, or the administration of, this Trust
Agreement, including the reasonable costs and expenses of defending itself
against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder.
(b As security for the performance of the obligations of the
Depositor Issuer 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.
(c In addition to the rights provided to each Trustee to the
provisions of the immediately preceding paragraph of this Section 8.06, when a
Trustee incurs expenses or renders services in connection with an Event of
Default resulting from a Bankruptcy Event with respect to the Trust, the
expenses (including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency or
other similar law.
(d The provisions of this Section 8.06 shall survive the termination
of this Trust Agreement.
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SECTION VIII.07. CERTAIN TRUSTEES REQUIRED; ELIGIBILITY . (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 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
8.07(a), 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 8.07(a), 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 such
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
that otherwise meets the requirements of applicable Delaware law and that shall
act through one or more persons authorized to bind such entity.
SECTION VIII.08. 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. The
Subordinated Indenture and the Guarantee Agreement shall be deemed to be
specifically described in this Trust Agreement for the purposes of clause (i) of
the first proviso contained in Section 310(b) of the Trust Indenture Act. For
purposes of Section 310(b)(1) of the Trust Indenture Act and to the extent
permitted thereby, the Property Trustee, shall not be deemed to have a
conflicting interest arising from its capacity as indenture trustee under the
Junior Subordinated Indenture dated October 1, 1996 relating to the Depositor's
8.25% Junior Subordinated Deferrable Interest Debentures, under the Amended and
Restated Trust Agreement dated October 1, 1996, under the Guarantee dated
October 1, 1996 and under the Guarantee.
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SECTION VIII.09. CO-TRUSTEES AND SEPARATE TRUSTEE . (a) 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 Property Trustee shall have power to appoint, and
upon the written request of the Property Trustee, the Depositor shall for such
purpose join with the Property Trustee 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 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 8.09. 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.
(b 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.
(c 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:
(i 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 designated for such
purpose hereunder, shall be exercised, solely by such Trustees.
(ii 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.
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(iii The 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 8.09, 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 8.09.
(iv No co-trustee or separate trustee hereunder shall be
personally liable by reason of any act or omission of the Trustee, or any
other such trustee hereunder.
(v The Property Trustee shall not be liable by reason of any
act of a co-trustee or separate trustee.
(vi 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 VIII.10. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR .
(a) No resignation or removal of any Trustee (as the case may be, the "Relevant
Trustee") and no appointment of a successor Relevant Trustee pursuant to this
Article shall become effective until the acceptance of appointment by the
successor Relevant Trustee in accordance with the requirements of Section 8.11.
(b The Relevant Trustee may resign at any time by giving written
notice thereof to the Depositor and the Securityholders. If the instrument of
acceptance by a successor Relevant Trustee required by Section 8.11 shall not
have been delivered to the resigning Relevant Trustee within 30 days after the
giving of such notice of resignation, the resigning Relevant Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Relevant Trustee.
(c 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 Securityholders of a majority of the
aggregate Liquidation Amount of the Outstanding Preferred Securities, delivered
to such Relevant Trustee (in its individual capacity and on behalf of the
Trust).
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(d If the Relevant Trustee shall resign, be removed or become
incapable of continuing to act as the Relevant Trustee 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
Relevant Trustee, shall promptly appoint a successor Relevant Trustee, and the
retiring Relevant Trustee so succeeded shall comply with the requirements of
Section 8.11. If the Relevant Trustee shall resign, be removed or become
incapable of continuing to act as the Relevant Trustee at a time when a
Debenture Event of Default shall have occurred and be continuing, the Preferred
Securityholders, by Act of the Holders of at least a majority of the aggregate
Liquidation Amount of the Outstanding Preferred Securities delivered to the
retiring Relevant Trustee, shall promptly appoint a successor Relevant Trustee
or Trustees, and the Relevant Trustee so succeeded shall comply with the
requirements of Section 8.11. If no successor Relevant Trustee shall have been
so appointed by the Common Securityholders or the Preferred Securityholders and
accepted appointment in the manner required by Section 8.11, any Securityholder
who has been a Securityholder 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.
(e A retiring Relevant Trustee shall give notice of each resignation
and each removal of such Relevant Trustee and of the appointment of its
successor Trustee to all Securityholders in the manner provided in Section 10.08
and shall give notice to the Depositor. Each notice shall include the name and
address of the successor Relevant Trustee and in the case of the Property
Trustee, the address of its Corporate Trust Office.
(f 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 incompetent or incapacitated, the
vacancy created by such death, incompetence or incapacity may be filled by (i)
the unanimous act of remaining Administrative Trustees if there are at least two
of them or (ii) otherwise by the Depositor (with the successor in each case
being an individual who satisfies the eligibility requirements for
Administrative Trustees or Delaware Trustee, as the case may be, set forth in
Section 8.07). Additionally, notwithstanding the foregoing or any other
provision of this Trust Agreement, in the event the Depositor reasonably
believes that any Administrative Trustee who is a natural person has become
incompetent or incapacitated, the Depositor, by notice to the remaining
Trustees, may terminate the status of such Person as an Administrative Trustee
(in which case the vacancy so created will be filled in accordance with the
preceding sentence).
(g No Property Trustee or Delaware Trustee shall be liable for the
acts or omissions to act of any successor Property Trustee or Delaware Trustee.
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SECTION VIII.11. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR . (a) In
case of the appointment hereunder of a successor Relevant Trustee, the retiring
Relevant Trustee and each successor Trustee shall execute and deliver an
amendment hereto wherein each successor Relevant Trustee shall accept such
appointment and which (i) 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 (ii) shall add to
or change any of the provisions of this Trust Agreements 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 Trustee 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; 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.
(b Upon request of any such successor Relevant Trustee, the retiring
Relevant Trustee 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 preceding paragraph.
No successor Relevant Trustee shall accept its appointment unless at
the time of such acceptance the successor Relevant Trustee shall be qualified
and eligible under this Article VIII.
SECTION VIII.12. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS . Any Person into which the Property Trustee or the Delaware Trustee
or any Trustee that is not a natural person may be merged or converted or with
which it may be consolidated, or any Person resulting from any merger,
conversion or consolidation to which such Relevant Trustee shall be a party, or
any Person 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 Person shall be otherwise qualified and eligible under
this Article VIII, without the execution or filing of any paper, the giving of
any notice or the taking of any further act on the part of any of the parties
hereto.
SECTION VIII.13. PREFERENTIAL COLLECTION OF CLAIMS AGAINST DEPOSITOR
OR TRUST . If and when the Property 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 shall be subject to the provisions of
the Trust Indenture Act regarding the collection of claims against the Depositor
or Trust (or any such other obligor).
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SECTION VIII.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 times 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,
1999.
(b A copy of each such report shall, at the time of such
transmission to Securityholders, be filed by the Property Trustee with each
stock exchange upon which the Preferred Securities are listed, with the
Commission and with the Depositor. The Depositor will notify the Property
Trustee when any Preferred Securities shall have been listed on any stock
exchange.
SECTION VIII.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, compliance certificates and
information as may be required by Section 314 of the Trust Indenture Act, in the
form, in the manner and at the times required thereby. Delivery of such
reports, information and documents by the Company to the Trustee is for
informational purposes only and the Trustee's receipt of such shall not
constitute constructive notice of any information contained therein or
determinable from information contained therein, including the Company's
compliance with any of its covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officer's Certificates).
SECTION VIII.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 (including
any covenants compliance with which constitutes a condition precedent) 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
Officer's Certificate. Any opinion of counsel required to be given pursuant to
Section 314(c)(2) of the Trust Indenture Act shall be given in the form of an
Opinion of Counsel.
SECTION VIII.17. NUMBER OF TRUSTEES. (a) The number of Trustees
shall be four, provided that the Depositor, by written instrument, may increase
or decrease the number of Administrative Trustees so long as there is at least
one.
(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), the vacancy created
thereby shall be filled with a Trustee appointed in accordance with Section
8.10.
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(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 VIII.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 2.07(a), including any
registration statement or amendment thereto filed with the Commission, or making
any other governmental filing; and
(b the Administrative Trustees shall have power to delegate from
time to time to such of their number 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.
SECTION VIII.19. FIDUCIARY DUTY . (a) To the extent that, at law
or in equity, an Indemnified Person has duties (including fiduciary duties) and
liabilities relating thereto to the Trust or to any other Covered Person, an
Indemnified Person acting under this Trust Agreement shall not be liable to the
Trust or to any other Covered Person for its good faith reliance on the
provisions of this Trust Agreement; provided, however, that an Indemnified
Person shall be liable for any loss, damage or claim incurred by reason of such
Indemnified Person's gross negligence or willful misconduct, (subject, with
respect to the Property Trustee, to Section 8.01). The provisions of this Trust
Agreement, to the extent that they restrict the duties and liabilities of an
Indemnified Person 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 parties hereto to replace such other duties and liabilities of such
Indemnified Person.
(b Unless otherwise expressly provided herein and subject to the
provisions of the Trust Indenture Act:
(i whenever a conflict of interest exists or arises between
an Indemnified Person and the Trust or any Covered Person; or
44
<PAGE>
(ii whenever this Trust Agreement or any other agreement
contemplated herein provides that an Indemnified Person shall act in a
manner that is, or provides terms that are, fair and reasonable to the
Trust or any Securityholder, the Indemnified Person shall resolve such
conflict of interest, take such action or provide such terms, considering
in each case the relative interest of each party (including its own
interest) to such conflict, agreement, transaction or situation and the
benefits and burdens relating to such interests, any customary or accepted
industry practices, and any applicable generally accepted accounting
practices or principles. In the absence of bad faith by the Indemnified
Person, the resolution, action or terms so made, taken or provided by the
Indemnified Person shall not constitute a breach of this Trust Agreement or
any other agreement contemplated herein or of any duty or obligation of the
Indemnified Person at law or in equity or otherwise; and
(c Unless otherwise expressly provided herein and subject to the
provisions of the Trust Indenture Act, whenever in this Trust Agreement an
Indemnified Person is permitted or required to make a decision
(i in its "discretion" or under a grant of similar authority,
the Indemnified Person shall be entitled to consider such interests and
factors as it reasonably desires, including its own interests, and shall
have no duty or obligation to give any consideration to any interest of or
factors affecting the Trust or any other Person; or
(ii in its "good faith" or under another express standard,
the Indemnified Person shall act under such express standard and, to the
extent permitted by applicable law, shall not be subject to any other or
different standard imposed by this Trust Agreement or by applicable law.
45
<PAGE>
ARTICLE IX.
Termination and Liquidation
SECTION IX.01. TERMINATION UPON EXPIRATION DATE . The Trust shall
automatically terminate on the Expiration Date and the Trust Property shall be
distributed in accordance with Section 9.04.
SECTION IX.02. EARLY TERMINATION . Upon the first to occur of (such
first occurrence, an "Early Termination Event"):
(i a Bankruptcy Event in respect of, or the dissolution or
liquidation of, the Depositor;
(ii the redemption of all of the Preferred Securities;
(iii the occurrence of a Special Event and the election by
the Depositor to terminate that Trust pursuant to Section 9.04(d);
(iv the entrance by a court of competent jurisdiction of an
order for judicial termination of the Trust;
the Trust shall terminate and the Trustees shall take such action as is required
by Section 9.04.
SECTION IX.03. TERMINATION . The respective obligations and
responsibilities of the Trust and the Trustees created hereby shall terminate
upon the latest to occur of the following: (i) the distribution by the Property
Trustee to Securityholders upon the liquidation of the Trust pursuant to Section
9.04, or upon the redemption of all of the Trust Securities pursuant to Section
4.02 or 9.04(d), of all amounts required to be distributed hereunder upon the
final payment of the Trust Securities; (ii) the payment of all amounts due to
creditors of the Trust; (iii) 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 and (iv) the filing
of a certificate of cancellation with the Delaware Secretary of State.
SECTION IX.04. LIQUIDATION . (a) On the Expiration Date or earlier
if an Early Termination Event specified in clause (i), (iii) or (iv) of Section
9.02 shall occur, subject to Section 9.04(e), after satisfaction of all amounts
due to creditors of the Trust, if any, as provided by applicable law, the Trust
shall be liquidated by the Property Trustee by distributing to each
Securityholder a Like Amount of Debentures. Notice of liquidation shall be
given by the Administrative Trustees by first-class mail, postage prepaid,
mailed not later than 30 nor more than 60 days prior to the Liquidation Date to
each Securityholder at such Holder's address appearing in the Securities
Register. All notices of liquidation shall:
46
<PAGE>
(i state the Liquidation Date, which, in the case of an Early
Termination Event specified in clause (iii) of Section 9.02 shall be no
later than the 90th day following the occurrence of the Special Event;
(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 in the case of a Section 9.04(e) liquidation, receive a Liquidation
Distribution, as the Administrative Trustees or the Property Trustee shall
deem appropriate.
(b In order to effect the 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 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 Trust Securities Certificates to the Property Trustee or its
agent for exchange, (iii) the Depositor shall use its best efforts to have the
Debentures listed on the New York Stock Exchange or on such other stock exchange
or other organization as the Preferred Securities are then listed or traded,
(iv) any Trust Securities Certificate 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 Certificate until such Trust
Securities Certificate shall be so surrendered (and until such Trust Securities
Certificates shall be so surrendered, no payments of interest or principal will
be made to Holders of such Trust Securities Certificates) and (v) all rights of
Securityholders will cease, except the right to receive Debentures and payments
of interest and principal received by the Trustee with respect to the Debentures
represented by Trust Security Certificates not surrendered for exchange upon
surrender of Trust Securities Certificates.
(d If at any time a Special Event shall occur and be continuing, the
Depositor may elect to (i) redeem the Debentures in whole but not in part and
therefore cause a mandatory redemption of all the Preferred Securities at the
Redemption Price within 90 days following the occurrence of such Special Event,
or (ii) cause the termination of the Trust; provided, however, that, in the case
of a Tax Event, any such termination shall be conditioned upon receipt by the
Administrative Trustees of a No Recognition Opinion.
47
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(e In the event that, notwithstanding the other provisions of this
Section 9.04, whether because of an order for termination 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 all amounts due to creditors of the
Trust, if any, 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 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 or if a Debenture
Event of Default has not occurred solely by reason of a requirement that time
lapse or notice be given, the Liquidation Distribution with respect to the
Preferred Securities shall be paid in full prior to the making of any
Liquidation Distribution with respect to the Common Securities.
48
<PAGE>
SECTION IX.05. 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 Person, except pursuant
to this Section 9.05. At the request of the Depositor, with the consent of the
Administrative Trustees and without the consent of the Property Trustee, the
Delaware Trustee or the Holders of the Preferred Securities, the Trust may merge
with or into, consolidate, amalgamate, 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, however, 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 substantially 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 or traded upon
notification of issuance, on any national securities exchange or other
organization on which the Preferred Securities are then listed, 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 Preferred Securities (including any Successor
Securities) in any material respect, (vi) such successor entity has a purpose
substantially 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 any successor
entity will be required to register as an investment company under the
Investment Company Act and (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. Notwithstanding the foregoing, the Trust shall not, except
with the consent of Holders of 100% of the aggregate Liquidation Amount of the
Outstanding Preferred Securities, consolidate, amalgamate, merge with or into,
or be replaced by or convey, transfer or lease its properties and assets
substantially as an entirety to any other Person or permit any other Person 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.
49
<PAGE>
ARTICLE X.
Miscellaneous Provisions
SECTION X.01. 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 X.02. 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 or therein which may be inconsistent with any other provision herein or
therein, 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; provided, however, that such action
shall not adversely affect in any material respect the interests of any
Securityholder, (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 not
be classified for United States federal income tax purposes other than as a
"grantor trust" at any time that any Trust Securities are Outstanding or to
ensure the Trust's exemption from the status of an "investment company" under
the Investment Company Act of 1940, as amended, or (iii) to effect the
acceptance of a successor Trustee's appointment. Any amendment of this Trust
Agreement pursuant to clause (i) above shall become effective only when notice
thereof shall have been given to the Securityholders.
50
<PAGE>
(b Except as provided in Sections 6.01(c) and 10.02(c), any
provision of this Trust Agreement may be amended by the Trustees and the
Depositor with (i) the approval of the Holders of at least a majority of the
aggregate Liquidation Amount of the Outstanding Trust Securities 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 Investment Company Act of 1940, as amended;
provided, however, that, subject to Section 10.02(c), if any proposed amendment
to the Trust Agreement provides for, or the Trustees otherwise propose to
effect, (A) any action that would materially adversely affect the powers,
preferences or special rights of the Preferred Securities, whether by way of
amendment to the Trust Agreement or otherwise, or (B) the dissolution, winding-
up or termination of the Trust, other than pursuant to the terms of this Trust
Agreement, then such amendment or proposal shall not be effective except with
the approval of the Holders of at least 66 2/3% of the aggregate Liquidation
Amount of the Outstanding Preferred Securities.
(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 6.03 or 6.06), 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, (ii) restrict the right of a Securityholder to institute suit
for the enforcement of any such payment on or after such date or (iii) change
the provisions of this Section 10.02(c).
(d Notwithstanding any other provisions of this Trust Agreement, no
Administrative 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 Investment Company
Act of 1940, as amended, afforded by Rule 3a-5 thereunder or which would cause
the Trust to be classified as other than 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 affected party, this Trust Agreement may not be
amended in a manner which imposes any additional obligation on the Depositor or
any Trustee.
(f In the event there shall be that any amendment to this Trust
Agreement, the Administrative Trustees shall promptly provide to the Depositor a
copy of such amendment.
(g The Trustees are entitled to receive an Opinion of Counsel as
conclusive evidence that any amendment to this Trust Agreement executed pursuant
to this Section 10.02 is authorized or permitted by, and conforms to, the terms
of this Section 10.02, has been duly authorized by and lawfully executed and
delivered on behalf of the other requisite parties, and that it is proper for
the Trustees under the provisions of this Section 10.02 to join in the execution
thereof.
51
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SECTION X.03. 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 X.04. 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 (without
regard to conflict of laws principles).
SECTION X.05. SUCCESSORS . This Trust Agreement shall be binding
upon and shall inure to the benefit of any successor to the Trust or the
Trustees, including any successor by operation of law.
SECTION X.06. HEADINGS . The Article and Section headings are for
convenience only and shall not affect the construction of this Trust Agreement.
SECTION X.07. NOTICE AND DEMAND . (a) 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 any Securityholder or the Depositor
may be given or served in writing by deposit thereof, postage prepaid, in the
United States mail, hand delivery or facsimile transmission, in each case,
addressed, (i) 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 (ii) in the case of the Common Securityholder or the
Depositor, to Atlantic City Electric Company, 800 King Street, Wilmington,
Delaware 19899, Attention: Treasurer, facsimile no. (302) 429-3356, with a copy
to the Secretary, facsimile no. (302) 429-3367. 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.
(b) 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, the Delaware Trustee or the Administrative
Trustees shall be given in writing addressed (until another address is published
by the Trust) as follows: (i) with respect to the Property Trustee, to The Bank
of New York, 101 Barclay Street - 21 West, New York, New York 10286 marked
"Attention: Corporate Trust Department" (ii) with respect to the Delaware
Trustee, to The Bank of New York (Delaware), White Clay Center, Route 273,
Newark, Delaware 19711 and (iii) with respect to the Trust or the Administrative
Trustees, at the address above for notice to the Depositor, marked "Attention:
Administrative Trustees for Atlantic Capital II". 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.
52
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SECTION X.08. AGREEMENT NOT TO PETITION . Each of the Trustees and
the Depositor agrees 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, it shall not file, or join in the filing of, a petition against the
Trust under any bankruptcy, reorganization, arrangement, insolvency, liquidation
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 10.08, the
Property Trustee agrees, for the benefit of Securityholders, that 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 Property Trustee or the Trust may assert.
The provisions of this Section 10.08 shall survive the termination of this Trust
Agreement.
SECTION X.09. CONFLICT WITH TRUST INDENTURE ACT. (a) 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, or is
otherwise governed by, any of the provisions of the Trust Indenture Act, such
other provisions shall control; and if any provision hereof otherwise conflicts
with the Trust Indenture Act, the Trust Indenture Act shall control.
(b) The Property Trustee shall be the only Trustee which is a trustee
for the purposes of the Trust Indenture Act.
(c) The application of the Trust Indenture Act to this Trust
Agreement shall not affect the nature of the Trust Securities as equity
securities representing interests in the Trust.
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.
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 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 THOSE TERMS AND PROVISIONS SHALL BE BINDING, OPERATIVE AND EFFECTIVE AS
BETWEEN THE TRUST AND SUCH SECURITYHOLDER AND SUCH OTHERS.
53
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Trust Agreement to be
duly executed, all as of the day and year first above written.
ATLANTIC CITY ELECTRIC COMPANY
By: __________________
Title: Senior Vice President and Chief Financial
Officer
THE BANK OF NEW YORK,
as Property Trustee
By: __________________
Title:
THE BANK OF NEW YORK (DELAWARE),
as Delaware Trustee
By: __________________
Title:
-----------------
Louis M. Walters, solely in his capacity
as Administrative Trustee
-----------------
Stephanie M. Scola, solely in her capacity
as Administrative Trustee
54
<PAGE>
EXHIBIT A
CERTIFICATE OF TRUST
OF
ATLANTIC CAPITAL II
THIS CERTIFICATE OF TRUST of Atlantic Capital II (the "Trust"), dated
as of September 10, 1998, is being duly executed and filed by the undersigned,
as trustees, to create a business trust under the Delaware Business Trust Act
(12 Del. C. (S) 3801, et seq.).
------- ------
1. Name. The name of the business trust being created hereby is
Atlantic Capital II.
2. Delaware Trustee. The name and business address of the trustee of
the Trust with a principal place of business in the State of Delaware are as
follows:
The Bank of New York (Delaware)
White Clay Center
Newark, Delaware 19711
3. Effective Date. This Certificate of Trust shall be effective as
of its filing.
IN WITNESS WHEREOF, the undersigned, being the only trustees of the
Trust, have executed this Certificate of Trust as of the date first above
written.
THE BANK OF NEW YORK (DELAWARE), Louis M. Walters
not in its individual capacity but not in his individual capacity
solely as Trustee but solely as Trustee
By: _________________
Name:
Title:
THE BANK OF NEW YORK,
not in its individual capacity but
solely as Trustee
By: ________________
Name:
Title:
1
<PAGE>
EXHIBIT B
THIS CERTIFICATE IS NOT TRANSFERABLE
Certificate Number Number of Common Securities
C-[ ]
Certificate Evidencing Common Securities
of
ATLANTIC CAPITAL II
Common Securities
(Liquidation Amount $25 per Common Security)
Atlantic Capital II, 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 the number set forth
above of common securities of the Trust representing undivided beneficial
ownership interests in the assets of the Trust and designated as Common
Securities (Liquidation Amount $25 per Common Security) (the "Common
Securities"). In accordance with Section 5.02 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, 1998, as the same may be amended from time to time (the "Trust
Agreement"). The Trust will furnish a copy of the Trust Agreement to the holder
of this certificate without charge upon written request to the Trust at its
principal place of business or registered office.
Upon receipt of this certificate, the holder of this certificate is
bound by the Trust Agreement and is entitled to the benefits thereunder.
B-1
<PAGE>
IN WITNESS WHEREOF, an Administrative Trustee of the Trust has
executed this certificate for and on behalf of the Trust on this day of
, 199 .
ATLANTIC CAPITAL II
By:________________________
not in his (her) individual capacity, but
solely as Administrative Trustee
B-2
<PAGE>
[Clearing Agency Legend]
EXHIBIT C
Certificate Number Number of Preferred Securities
P- CUSIP NO.
Certificate Evidencing Preferred Securities
of
ATLANTIC CAPITAL II
% Cumulative Trust Preferred Capital Securities
(Liquidation Amount $25 per Preferred Security)
Atlantic Capital II, 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 the number set forth above of preferred
securities of the Trust representing undivided beneficial ownership interests in
the assets of the Trust and designated as % Cumulative Trust Preferred Capital
Securities (Liquidation Amount $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
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, 1998, as the same may be amended from time to time (the "Trust
Agreement"). The holder of this certificate is entitled to the benefits and
agrees to the subordination provisions and other terms of the Guarantee
Agreement of Atlantic City Electric Company, a New Jersey corporation, and The
Bank of New York, as guarantee trustee, dated as of October 1, 1998 (the
"Guarantee"), to the extent provided therein. The Trust will furnish a copy of
the Trust Agreement and the Guarantee to the holder of this certificate without
charge upon written request to the Trust at its principal place of business or
registered office.
Upon receipt of this certificate, the holder of this certificate is
bound by the Trust Agreement and is entitled to the benefits thereunder.
C-1
<PAGE>
IN WITNESS WHEREOF, one of the Administrative Trustees of the Trust
has executed this certificate for and on behalf of the Trust.
Dated:
ATLANTIC CAPITAL II
By:____________________________________
[ ]
not in his (her) individual capacity,
but solely as Administrative Trustee
C-2
<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)
of the Preferred Securities represented by this Preferred Securities Certificate
and irrevocably appoints
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
attorney to transfer such Preferred Securities Certificate on the books of the
Trust. The attorney may substitute another to act for him or her.
Date:____________________
Signature:
(Sign exactly as your name appears on the other side of this Preferred
Securities Certificate)
Signature:
(Sign exactly as your name appears on the other side of this Preferred
Securities Certificate)
C-3
<PAGE>
EXHIBIT 4-H
-----------
Junior Subordinated Indenture, dated as of October 1, 1998, by and between
Atlantic City Electric Company and The Bank of New York, as Trustee
<PAGE>
__________________________________________
ATLANTIC CITY ELECTRIC COMPANY
TO
THE BANK OF NEW YORK
Trustee
_________
Indenture
(FOR UNSECURED SUBORDINATED DEBT SECURITIES
RELATING TO TRUST SECURITIES)
Dated as of October 1, 1998
__________________________________________
<PAGE>
ATLANTIC CITY ELECTRIC COMPANY
Reconciliation and tie between Trust Indenture Act of 1939
and indenture, dated as of October 1, 1998
<TABLE>
<CAPTION>
Trust Indenture Act Section Indenture Section
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(S)310 (a)(1).......................................................................... 909
(a)(2).......................................................................... 909
(a)(3).......................................................................... 914
(a)(4)...................................................................... Not Applicable
(b)............................................................................. 908
910
(S)311 (a)............................................................................. 913
(b)............................................................................. 913
(c)............................................................................. 913
(S)312 (a)............................................................................. 1001
(b)............................................................................. 1001
(c)............................................................................. 1001
(S)313 (a)............................................................................. 1002
(b)............................................................................. 1002
(c)............................................................................. 1002
(S)314 (a)............................................................................. 1003
(a)(4).......................................................................... 606
(b)......................................................................... Not Applicable
(c)(1).......................................................................... 102
(c)(2).......................................................................... 102
(c)(3)...................................................................... Not Applicable
(d)......................................................................... Not Applicable
(e)............................................................................. 102
(S)315 (a)............................................................................. 901
903
(b)............................................................................. 902
(c)............................................................................. 901
(d)............................................................................. 901
(e)............................................................................. 814
(S)316 (a)............................................................................. 812
813
(a)(1)(A)....................................................................... 802
812
(a)(1)(B)....................................................................... 813
(a)(2)...................................................................... Not Applicable
(b)............................................................................. 808
(S)317 (a)(1).......................................................................... 803
(a)(2).......................................................................... 804
(b)............................................................................. 603
(S)318 (a)............................................................................. 107
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TABLE OF CONTENTS
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RECITAL OF THE COMPANY........................................................... 1
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION....................... 1
SECTION 101. Definitions....................................................... 1
Act............................................................................ 2
Affiliate...................................................................... 2
Authenticating Agent........................................................... 2
Authorized Officer............................................................. 2
Board of Directors............................................................. 2
Board Resolution............................................................... 2
Business Day................................................................... 2
Commission..................................................................... 2
Company........................................................................ 3
Company Request or Company Order............................................... 3
Corporate Trust Office......................................................... 3
corporation.................................................................... 3
Creditor....................................................................... 3
Defaulted Interest............................................................. 3
Dollar or...................................................................... 3
Event of Default............................................................... 3
Governmental Authority......................................................... 3
Government Obligations......................................................... 3
Guarantee...................................................................... 3
Holder......................................................................... 3
Indenture...................................................................... 4
Interest Payment Date.......................................................... 4
Maturity....................................................................... 4
Officer's Certificate.......................................................... 4
Opinion of Counsel............................................................. 4
Outstanding.................................................................... 4
Paying Agent................................................................... 5
Person......................................................................... 5
Place of Payment............................................................... 5
Predecessor Security........................................................... 5
Preferred Securities........................................................... 5
Property Trustee............................................................... 5
Redemption Date................................................................ 5
Redemption Price............................................................... 5
Regular Record Date............................................................ 5
Responsible Officer............................................................ 5
Securities..................................................................... 5
Security Register and Security Registrar....................................... 5
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Senior Indebtedness............................................................ 5
Special Record Date............................................................ 6
Stated Maturity................................................................ 6
Trust.......................................................................... 6
Trust Agreement................................................................ 6
Trust Indenture Act............................................................ 6
Trustee........................................................................ 6
United States.................................................................. 6
SECTION 102. Compliance Certificates and Opinions.............................. 6
SECTION 103. Form of Documents Delivered to Trustee............................ 7
SECTION 104. Acts of Holders................................................... 8
SECTION 105. Notices, etc. to Trustee and Company.............................. 9
SECTION 106. Notice to Holders of Securities; Waiver........................... 10
SECTION 107. Conflict with Trust Indenture Act................................. 10
SECTION 108. Effect of Headings and Table of Contents.......................... 10
SECTION 109. Successors and Assigns............................................ 10
SECTION 110. Separability Clause............................................... 10
SECTION 111. Benefits of Indenture............................................. 11
SECTION 112. GOVERNING LAW..................................................... 11
SECTION 113. Legal Holidays.................................................... 11
ARTICLE TWO
SECURITY FORMS................................................................ 12
SECTION 201. Forms Generally................................................... 12
SECTION 202. Form of Trustee's Certificate of Authentication................... 12
ARTICLE THREE
THE SECURITIES................................................................ 12
SECTION 301. Amount Unlimited; Issuable in Series.............................. 12
SECTION 302. Denominations..................................................... 15
SECTION 303. Execution, Authentication, Delivery and Dating.................... 15
SECTION 304. Temporary Securities.............................................. 17
SECTION 305. Registration, Registration of Transfer and Exchange............... 17
SECTION 306. Mutilated, Destroyed, Lost and Stolen Securities.................. 18
SECTION 307. Payment of Interest; Interest Rights Preserved.................... 19
SECTION 308. Persons Deemed Owners............................................. 20
SECTION 309. Cancellation by Security Registrar................................ 20
SECTION 310. Computation of Interest........................................... 20
SECTION 311. Extension of Interest Payment..................................... 20
SECTION 312. Payment of Expenses............................................... 20
ARTICLE FOUR
Redemption of Securities...................................................... 21
SECTION 401. Applicability of Article.......................................... 21
SECTION 402. Election to Redeem; Notice to Trustee............................. 21
SECTION 403. Selection of Securities to Be Redeemed............................ 22
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SECTION 404. Notice of Redemption.............................................. 22
SECTION 405. Securities Payable on Redemption Date............................. 23
SECTION 406. Securities Redeemed in Part....................................... 23
ARTICLE FIVE
Sinking Funds................................................................. 24
SECTION 501. Applicability of Article.......................................... 24
SECTION 502. Satisfaction of Sinking Fund Payments with Securities............. 24
SECTION 503. Redemption of Securities for Sinking Fund......................... 24
ARTICLE SIX
Covenants..................................................................... 25
SECTION 601. Payment of Principal, Premium and Interest........................ 25
SECTION 602. Maintenance of Office or Agency................................... 25
SECTION 603. Money for Securities Payments to Be Held in Trust................. 26
SECTION 604. Corporate Existence............................................... 27
SECTION 605. Maintenance of Properties......................................... 27
SECTION 606. Annual Officer's Certificate as to Compliance..................... 27
SECTION 607. Waiver of Certain Covenants....................................... 28
SECTION 608. Restriction on Payment of Dividends............................... 28
SECTION 609. Maintenance of Trust Existence.................................... 28
ARTICLE SEVEN
Satisfaction and Discharge.................................................... 29
SECTION 701. Defeasance........................................................ 29
SECTION 702. Satisfaction and Discharge of Indenture........................... 31
SECTION 703. Application of Trust Money........................................ 31
ARTICLE EIGHT
Events of Default; Remedies................................................... 32
SECTION 801. Events of Default................................................. 32
SECTION 802. Acceleration of Maturity; Rescission and Annulment................ 33
SECTION 803. Collection of Indebtedness and Suits for Enforcement by Trustee... 34
SECTION 804. Trustee May File Proofs of Claim.................................. 34
SECTION 805. Trustee May Enforce Claims Without Possession of Securities....... 35
SECTION 806. Application of Money Collected.................................... 35
SECTION 807. Limitation on Suits............................................... 35
SECTION 808. Unconditional Right of Holders to Receive Principal,
Premium and Interest............................................................. 36
SECTION 809. Restoration of Rights and Remedies................................ 36
SECTION 810. Rights and Remedies Cumulative.................................... 37
SECTION 811. Delay or Omission Not Waiver...................................... 37
SECTION 812. Control by Holders of Securities.................................. 37
SECTION 813. Waiver of Past Defaults........................................... 37
SECTION 814. Undertaking for Costs............................................. 38
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SECTION 815. Waiver of Stay or Extension Laws.................................. 38
ARTICLE NINE
The Trustee................................................................... 38
SECTION 901. Certain Duties and Responsibilities............................... 39
SECTION 902. Notice of Defaults................................................ 39
SECTION 903. Certain Rights of Trustee......................................... 39
SECTION 904. Not Responsible for Recitals or Issuance of Securities............ 40
SECTION 905. May Hold Securities............................................... 41
SECTION 906. Money Held in Trust............................................... 41
SECTION 907. Compensation and Reimbursement.................................... 41
SECTION 908. Disqualification; Conflicting Interests........................... 42
SECTION 909. Corporate Trustee Required; Eligibility........................... 42
SECTION 910. Resignation and Removal; Appointment of Successor................. 42
SECTION 911. Acceptance of Appointment by Successor............................ 44
SECTION 912. Merger, Conversion, Consolidation or Succession to Business....... 45
SECTION 913. Preferential Collection of Claims Against Company................. 45
SECTION 914. Co-trustees and Separate Trustees................................. 46
SECTION 915. Appointment of Authenticating Agent............................... 46
ARTICLE TEN
Holders' Lists and Reports by Trustee and Company............................. 48
SECTION 1001. Lists of Holders................................................. 48
SECTION 1002. Reports by Trustee............................................... 48
SECTION 1003. Reports to the Trustee........................................... 49
ARTICLE ELEVEN
Consolidation, Merger, Conveyance or Other Transfer........................... 49
SECTION 1101. Company May Consolidate, etc., Only on Certain Terms............. 49
SECTION 1102. Successor Corporation Substituted................................ 50
ARTICLE TWELVE
Supplemental Indentures....................................................... 50
SECTION 1201. Supplemental Indentures Without Consent of Holders............... 50
SECTION 1202. Supplemental Indentures With Consent of Holders.................. 52
SECTION 1203. Execution of Supplemental Indentures............................. 53
SECTION 1204. Effect of Supplemental Indentures................................ 53
SECTION 1205. Conformity With Trust Indenture Act.............................. 53
SECTION 1206. Reference in Securities to Supplemental Indentures............... 53
SECTION 1207. Modification Without Supplemental Indenture...................... 54
ARTICLE THIRTEEN
Meetings of Holders; Action Without Meeting................................... 54
SECTION 1301. Purposes for Which Meetings May Be Called........................ 54
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SECTION 1302. Call, Notice and Place of Meetings............................... 54
SECTION 1303. Persons Entitled to Vote at Meetings............................. 55
SECTION 1304. Quorum; Action................................................... 55
SECTION 1305. Attendance at Meetings; Determination of Voting Rights;
Conduct and Adjournment of Meetings.............................................. 56
SECTION 1306. Counting Votes and Recording Action of Meetings.................. 57
SECTION 1307. Action Without Meeting........................................... 57
ARTICLE FOURTEEN
Immunity of Incorporators, Stockholders, Officers and Directors............... 57
SECTION 1401. Liability Solely Corporate....................................... 57
ARTICLE FIFTEEN
Subordination of Securities................................................... 58
SECTION 1501. Securities Subordinate to Senior Indebtedness.................... 58
SECTION 1502. Payment Over of Proceeds of Securities........................... 58
SECTION 1503. Disputes with Holders of Certain Senior Indebtedness............. 60
SECTION 1504. Subrogation...................................................... 60
SECTION 1505. Obligation of the Company Unconditional.......................... 61
SECTION 1506. Priority of Senior Indebtedness Upon Maturity.................... 61
SECTION 1507. Trustee as Holder of Senior Indebtedness......................... 61
SECTION 1508. Notice to Trustee to Effectuate Subordination.................... 62
SECTION 1509. Modification, Extension, etc. of Senior Indebtedness............. 62
SECTION 1510. Trustee Has No Fiduciary Duty to Holders of Senior Indebtedness.. 62
SECTION 1511. Paying Agents Other Than the Trustee............................. 63
SECTION 1512. Rights of Holders of Senior Indebtedness Not Impaired............ 63
SECTION 1513. Effect of Subordination Provisions; Termination.................. 63
Testimonium...................................................................... 64
Signatures and Seals............................................................. 64
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INDENTURE, dated as of October 1, 1998, between ATLANTIC CITY ELECTRIC
COMPANY, a corporation duly organized and existing under the laws of the State
of New Jersey (herein called the "Company"), having its principal office at 800
King Street, Wilmington, Delaware 19899, and THE BANK OF NEW YORK, a New York
banking corporation, having its principal corporate trust office at 101 Barclay
Street - 21 West, New York, New York 10286, as Trustee (herein called the
"Trustee").
RECITAL OF THE COMPANY
The Company has duly authorized the execution and delivery of this
Indenture to provide for the issuance from time to time of its unsecured
subordinated debentures, notes or other evidences of indebtedness (herein called
the "Securities"), in an unlimited aggregate principal amount to be issued in
one or more series as contemplated herein; and all acts necessary to make this
Indenture a valid agreement of the Company have been performed.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires, capitalized terms used herein
shall have the meanings assigned to them in Article One of this Indenture.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities or of any
series thereof, as follows:
ARTICLE ONE
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. DEFINITIONS.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;
(b) all terms used herein without definition which are defined in the
Trust Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein;
(c) all accounting terms not otherwise defined herein have the meanings
assigned to them in accordance with generally accepted accounting principles
in the United States, and, except as otherwise herein expressly provided, the
term "generally accepted accounting principles" with respect to any
computation required or permitted hereunder shall mean such accounting
principles as are generally accepted in the United States at the date of such
computation or, at the election of the Company from time to time, at the date
of the execution and delivery of this Indenture; provided, however, that in
determining generally
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accepted accounting principles applicable to the Company, the Company shall,
to the extent required, conform to any order, rule or regulation of any
administrative agency, regulatory authority or other governmental body having
jurisdiction over the Company; and
(d) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision.
Certain terms, used principally in Article Nine, are defined in that
Article.
"ACT", when used with respect to any Holder of a Security, has the
meaning specified in Section 104.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"CONTROL" when used with respect to any specified Person means the power to
direct the management and policies of such Person, directly or through one or
more intermediaries, whether through the ownership of voting securities, by
contract or otherwise; and the terms "CONTROLLING" and "CONTROLLED" have
meanings correlative to the foregoing.
"AUTHENTICATING AGENT" means any Person (other than the Company or an
Affiliate of the Company) authorized by the Trustee pursuant to Section 915 to
act on behalf of the Trustee to authenticate one or more series of Securities.
"AUTHORIZED OFFICER" means the Chairman of the Board, the President, any
Vice President, the Treasurer, any Assistant Treasurer, or any other officer or
agent of the Company duly authorized by the Board of Directors to act in respect
of matters relating to this Indenture.
"BOARD OF DIRECTORS" means either the board of directors of the Company
or any committee thereof duly authorized to act in respect of matters relating
to this Indenture.
"BOARD RESOLUTION" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company to have been duly adopted by
the Board of Directors and to be in full force and effect on the date of such
certification, and delivered to the Trustee.
"BUSINESS DAY", when used with respect to a Place of Payment or any
other particular location specified in the Securities or this Indenture, means
any day, other than a Saturday or Sunday, which is not a day on which banking
institutions or trust companies in such Place of Payment or other location are
generally authorized or required by law, regulation or executive order to remain
closed, except as may be otherwise specified as contemplated by Section 301.
"COMMISSION" means the Securities and Exchange Commission, as from time
to time constituted, created under the Securities Exchange Act of 1934, as
amended, or, if at any time after the date of execution and delivery of this
Indenture such Commission is not existing and performing the duties now assigned
to it under the Trust Indenture Act, then the body, if any, performing such
duties at such time.
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"COMPANY" means the Person named as the "Company" in the first paragraph
of this Indenture until a successor Person shall have become such pursuant to
the applicable provisions of this Indenture, and thereafter "Company" shall mean
such successor Person.
"COMPANY REQUEST" or "COMPANY ORDER" means a written request or order
signed in the name of the Company by an Authorized Officer and delivered to the
Trustee.
"CORPORATE TRUST OFFICE" means the office of the Trustee at which at any
particular time its corporate trust business shall be principally administered,
which office at the date of execution and delivery of this Indenture is located
at 101 Barclay Street - 21 West, New York, New York 10286.
"CORPORATION" means a corporation, association, company, joint stock
company or business trust.
"CREDITOR" has the meaning specified in Section 312.
"DEFAULTED INTEREST" has the meaning specified in Section 307.
"DOLLAR" or "$" means a dollar or other equivalent unit in such coin or
currency of the United States as at the time shall be legal tender for the
payment of public and private debts.
"EVENT OF DEFAULT" has the meaning specified in Section 801.
"GOVERNMENTAL AUTHORITY" means the government of the United States or of
any State or Territory thereof or of the District of Columbia or of any county,
municipality or other political subdivision of any of the foregoing, or any
department, agency, authority or other instrumentality of any of the foregoing.
"GOVERNMENT OBLIGATIONS" means:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States
and entitled to the benefit of the full faith and credit thereof; and
(b) certificates, depositary receipts or other instruments which
evidence a direct ownership interest in obligations described in clause
(a) above or in any specific interest or principal payments due in
respect thereof; provided, however, that the custodian of such
obligations or specific interest or principal payments shall be a bank
or trust company (which may include the Trustee or any Paying Agent)
subject to Federal or state supervision or examination with a combined
capital and surplus of at least $50,000,000; and provided, further, that
except as may be otherwise required by law, such custodian shall be
obligated to pay to the holders of such certificates, depositary
receipts or other instruments the full amount received by such custodian
in respect of such obligations or specific payments and shall not be
permitted to make any deduction therefrom.
"GUARANTEE" means the guarantee agreement delivered from the Company to
a Trust, for the benefit of the holders of Preferred Securities issued by such
Trust.
"HOLDER" means a Person in whose name a Security is registered in the
Security Register.
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"INDENTURE" means this instrument as originally executed and delivered
and as it may from time to time be supplemented or amended by one or more
indentures supplemental hereto entered into pursuant to the applicable
provisions hereof and shall include the terms of a particular series of
Securities established as contemplated by Section 301.
"INTEREST PAYMENT DATE", when used with respect to any Security, means
the Stated Maturity of an installment of interest on such Security.
"MATURITY", when used with respect to any Security, means the date on
which the principal of such Security or an installment of principal becomes due
and payable as provided in such Security or in this Indenture, whether at the
Stated Maturity, by declaration of acceleration, upon call for redemption or
otherwise.
"OFFICER'S CERTIFICATE" means a certificate signed by an Authorized
Officer and delivered to the Trustee.
"OPINION OF COUNSEL" means a written opinion of counsel, who may be
counsel for the Company, but not an employee of the Trust, the Trustee, or other
counsel reasonably acceptable to the Trustee.
"OUTSTANDING", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
(a) Securities theretofore canceled by the Security Registrar or
delivered to the Trustee for cancellation;
(b) Securities deemed to have been paid in accordance with Section 701;
and
(c) Securities which have been paid pursuant to Section 306 or in
exchange for or in lieu of which other Securities have been authenticated and
delivered pursuant to this Indenture, other than any such Securities in
respect of which there shall have been presented to the Trustee proof
satisfactory to it and the Company that such Securities are held by a bona
fide purchaser or purchasers in whose hands such Securities are valid
obligations of the Company;
provided, however, that in determining whether or not the Holders of the
requisite principal amount of the Securities Outstanding under this Indenture,
or the Outstanding Securities of any series, have given any request, demand,
authorization, direction, notice, consent or waiver hereunder or whether or not
a quorum is present at a meeting of Holders of Securities, Securities owned by
the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor (unless the Company, such Affiliate or such
obligor owns all Securities Outstanding under this Indenture, or all Outstanding
Securities of each such series, as the case may be, determined without regard to
this provision) shall be disregarded and deemed not to be Outstanding, except
that, in determining whether the Trustee shall be protected in relying upon any
such request, demand, authorization, direction, notice, consent or waiver or
upon any such determination as to the presence of a quorum, only Securities
which the Trustee knows to be so owned shall be so disregarded; provided,
however, that Securities so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obligor upon the Securities or any
Affiliate of the Company or of such other obligor; and provided, further, that,
in the case of any Security the principal of which is payable from time to time
without presentment or surrender, the principal amount of such Security that
shall be deemed to be
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Outstanding at any time for all purposes of this Indenture shall be the original
principal amount thereof less the aggregate amount of principal thereof
theretofore paid.
"PAYING AGENT" means any Person, including the Company, authorized by
the Company to pay the principal of, and premium, if any, or interest, if any,
on any Securities on behalf of the Company.
"PERSON" means any individual, corporation, partnership, joint venture,
trust or unincorporated organization or any Governmental Authority.
"PLACE OF PAYMENT", when used with respect to the Securities of any
series, means the place or places, specified as contemplated by Section 301, at
which, subject to Section 602, principal of and premium, if any, and interest,
if any, on the Securities of such series are payable.
"PREDECESSOR SECURITY" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 306 in exchange for or in lieu of a
mutilated, destroyed, lost or stolen Security shall be deemed (to the extent
lawful) to evidence the same debt as the mutilated, destroyed, lost or stolen
Security.
"PREFERRED SECURITIES" means any preferred securities issued by a Trust
or similar securities issued by permitted successors to such Trust in accordance
with the Trust Agreement pertaining to such Trust.
"PROPERTY TRUSTEE" means The Bank of New York, as Trustee under the
Trust Agreement.
"REDEMPTION DATE", when used with respect to any Security to be
redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"REDEMPTION PRICE", when used with respect to any Security to be
redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"REGULAR RECORD DATE" for the interest payable on any Interest Payment
Date on the Securities of any series means the date specified for that purpose
as contemplated by Section 301.
"RESPONSIBLE OFFICER", when used with respect to the Trustee, means any
officer of the Trustee assigned by the Trustee to administer its corporate trust
matters.
"SECURITIES" has the meaning stated in the first recital of this
Indenture and more particularly means any securities authenticated and delivered
under this Indenture.
"SECURITY REGISTER" and "SECURITY REGISTRAR" have the respective
meanings specified in Section 305.
"SENIOR INDEBTEDNESS" means all obligations (other than non-recourse
obligations and the indebtedness issued under this Indenture) of, or guaranteed
or assumed by, the Company for borrowed money, including both senior and
subordinated indebtedness for borrowed money (other than the Securities and
$72,164,950 principal amount of 8.25% Junior Subordinated Deferrable Interest
Debentures of the Company issued under its Junior Subordinated Indenture dated
as of October 1, 1996 with The Bank of New York,
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Trustee), or for the payment of money relating to any lease which is capitalized
on the consolidated balance sheet of the Company and its subsidiaries in
accordance with generally accepted accounting principles as in effect from time
to time, or evidenced by bonds, debentures, notes or other similar instruments
(other than trade accounts payable in the ordinary course of business), and in
each case, amendments, renewals, extensions, modifications and refundings of any
such indebtedness or obligations, whether existing as of the date of this
Indenture as originally executed and delivered or subsequently incurred by the
Company unless, in the case of any particular indebtedness, renewal, extension
or refunding, the instrument creating or evidencing the same or the assumption
or guarantee of the same expressly provides that such indebtedness, renewal,
extension or refunding is not superior in right of payment to or is pari passu
with the Securities; provided that the Company's obligations under the Guarantee
shall not be deemed to be Senior Indebtedness.
"SPECIAL RECORD DATE" for the payment of any Defaulted Interest on the
Securities of any series means a date fixed by the Trustee pursuant to Section
307.
"STATED MATURITY", when used with respect to any obligation or any
installment of principal thereof or interest thereon, means the date on which
the principal of such obligation or such installment of principal or interest is
stated in such Security to be due and payable (without regard to any provisions
for redemption, prepayment, acceleration, purchase or extension).
"TRUST" means Atlantic Capital II, a statutory business trust created
under the laws of the State of Delaware, or any other Trust designated pursuant
to Section 301 hereof or any permitted successor under the Trust Agreement
pertaining to such Trust.
"TRUST AGREEMENT" means the Amended and Restated Trust Agreement, dated
as of October 1, 1998, relating to Atlantic Capital II or an Amended and
Restated Trust Agreement relating to a Trust designated pursuant to Section 301
hereof, in each case, among the Company, as Depositor, the trustees named
therein and the several holders referred to therein as each such agreement may
be amended from time to time.
"TRUST INDENTURE ACT" means, as of any time, the Trust Indenture Act of
1939, or any successor statute, as in effect at such time.
"TRUSTEE" means the Person named as the "Trustee" in the first paragraph
of this Indenture until a successor Trustee shall have become such with respect
to one or more series of Securities pursuant to the applicable provisions of
this Indenture, and thereafter "Trustee" shall mean or include each Person who
is then a Trustee hereunder, and if at any time there is more than one such
Person, "Trustee" as used with respect to the Securities of any series shall
mean the Trustee with respect to Securities of that series.
"UNITED STATES" means the United States of America, its Territories, its
possessions and other areas subject to its political jurisdiction.
SECTION 102. COMPLIANCE CERTIFICATES AND OPINIONS.
Except as otherwise expressly provided in this Indenture, upon any
application or request by the Company to the Trustee to take any action under
any provision of this Indenture, the Company shall furnish to the Trustee an
Officer's Certificate stating that all conditions precedent, if any, provided
for in this Indenture relating to the proposed action (including any covenants
compliance with which constitutes a condition precedent) have been complied with
and an Opinion of Counsel stating that in the opinion of such counsel all such
conditions
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precedent, if any, have been complied with, except that in the case of any such
application or request as to which the furnishing of such documents is
specifically required by any provision of this Indenture relating to such
particular application or request, no additional certificate or opinion need be
furnished.
Every certificate or opinion with respect to compliance with a condition
or covenant provided for in this Indenture shall include:
(a) a statement that each Person signing such certificate or opinion
has read such covenant or condition and the definitions herein relating
thereto;
(b) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(c) a statement that, in the opinion of each such Person, such Person
has made such examination or investigation as is necessary to enable such
Person to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(d) a statement as to whether, in the opinion of each such Person, such
condition or covenant has been complied with.
SECTION 103. FORM OF DOCUMENTS DELIVERED TO TRUSTEE.
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 the matters upon which such Officer's Certificate or opinion are
based are erroneous. Any such certificate or Opinion of Counsel may be based,
insofar as it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
Whenever, subsequent to the receipt by the Trustee of any Board
Resolution, Officer's Certificate, Opinion of Counsel or other document or
instrument, a clerical, typographical or other inadvertent or unintentional
error or omission shall be discovered therein, a new document or instrument may
be substituted therefor in corrected form with the same force and effect as if
originally filed in the corrected form and, irrespective of the date or dates of
the actual execution and/or delivery thereof, such substitute document or
instrument shall be deemed to have been executed and/or delivered as of the date
or dates required with respect to the document or instrument for which it is
substituted. Anything in this Indenture to the contrary
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notwithstanding, if any such corrective document or instrument indicates that
action has been taken by or at the request of the Company which could not have
been taken had the original document or instrument not contained such error or
omission, the action so taken shall not be invalidated or otherwise rendered
ineffective but shall be and remain in full force and effect, except to the
extent that such action was a result of willful misconduct or bad faith. Without
limiting the generality of the foregoing, any Securities issued under the
authority of such defective document or instrument shall nevertheless be the
valid obligations of the Company entitled to the benefits of this Indenture
equally and ratably with all other Outstanding Securities, except as aforesaid.
SECTION 104. ACTS OF HOLDERS.
(a) Any request, demand, authorization, direction, notice, consent,
election, waiver or other action provided by this Indenture to be made, given
or taken by Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such Holders in person
or by an agent duly appointed in writing or, alternatively, may be embodied
in and evidenced by the record of Holders voting in favor thereof, either in
person or by proxies duly appointed in writing, at any meeting of Holders
duly called and held in accordance with the provisions of Article Thirteen,
or a combination of such instruments and any such record. Except as herein
otherwise expressly provided, such action shall become effective when such
instrument or instruments or record or both are delivered to the Trustee and,
where it is hereby expressly required, to the Company. Such instrument or
instruments and any such record (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the
Holders signing such instrument or instruments and so voting at any such
meeting. Proof of execution of any such instrument or of a writing
appointing any such agent, or of the holding by any Person of a Security,
shall be sufficient for any purpose of this Indenture and (subject to Section
901) conclusive in favor of the Trustee and the Company, if made in the
manner provided in this Section. The record of any meeting of Holders shall
be proved in the manner provided in Section 1306.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual
signing such instrument or writing acknowledged to him the execution thereof
or may be proved in any other manner which the Trustee and the Company deem
sufficient. Where such execution is by a signer acting in a capacity other
than his individual capacity, such certificate or affidavit shall also
constitute sufficient proof of his authority.
(c) The principal amount and serial numbers of Securities held by any
Person, and the date of holding the same, shall be proved by the Security
Register.
(d) Any request, demand, authorization, direction, notice, consent,
election, waiver or other Act of a Holder shall bind every future Holder of
the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee or
the Company in reliance thereon, whether or not notation of such action is
made upon such Security.
(e) Until such time as written instruments shall have been delivered to
the Trustee with respect to the requisite percentage of principal amount of
Securities for the action contemplated by such instruments, any such
instrument executed and delivered by or on behalf of a Holder may be revoked
with respect to any or all of such Securities by written notice by such
Holder or any subsequent Holder, proven in the manner in which such
instrument was proven.
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(f) Securities of any series authenticated and delivered after any Act
of Holders may, and shall if required by the Trustee, bear a notation in form
approved by the Trustee as to any action taken by such Act of Holders. If
the Company shall so determine, new Securities of any series so modified as
to conform, in the opinion of the Trustee and the Company, to such action may
be prepared and executed by the Company and authenticated and delivered by
the Trustee in exchange for Outstanding Securities of such series.
(g) If the Company shall solicit from Holders any request, demand,
authorization, direction, notice, consent, waiver or other Act, the Company
may, at its option, fix in advance a record date for the determination of
Holders entitled to give such request, demand, authorization, direction,
notice, consent, waiver or other Act, but the Company shall have no
obligation to do so. If such a record date is fixed, such request, demand,
authorization, direction, notice, consent, waiver or other Act may be given
before or after such record date, but only the Holders of record at the close
of business on the record date shall be deemed to be Holders for the purposes
of determining whether Holders of the requisite proportion of the Outstanding
Securities have authorized or agreed or consented to such request, demand,
authorization, direction, notice, consent, waiver or other Act, and for that
purpose the Outstanding Securities shall be computed as of the record date.
SECTION 105. NOTICES, ETC. TO TRUSTEE AND COMPANY.
Any request, demand, authorization, direction, notice, consent,
election, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with, the
Trustee by any Holder or by the Company, or the Company by the Trustee or by any
Holder, shall be sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and delivered personally to an officer or
other responsible employee of the addressee, or transmitted by facsimile
transmission or other direct written electronic means to such telephone number
or other electronic communications address as the parties hereto shall from time
to time designate, or transmitted by certified or registered mail, charges
prepaid, to the applicable address set opposite such party's name below or to
such other address as either party hereto may from time to time designate:
If to the Trustee, to:
The Bank of New York
101 Barclay Street - 21 West
New York, New York 10286
Attention: Corporate Trust Administration
Telecopy: (212) 815-5915
If to the Company, to:
Atlantic City Electric Company
800 King Street
Wilmington, Delaware 19899
Attention: Treasurer
Telephone: (302) 429-3011
Telecopy: (302) 429-3367
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Any communication contemplated herein shall be deemed to have been made,
given, furnished and filed if personally delivered, on the date of delivery, if
transmitted by facsimile transmission or other direct written electronic means,
on the date of transmission, and if transmitted by certified or registered mail,
on the date of receipt.
SECTION 106. NOTICE TO HOLDERS OF SECURITIES; WAIVER.
Except as otherwise expressly provided herein, where this Indenture
provides for notice to Holders of any event, such notice shall be sufficiently
given, and shall be deemed given, to Holders if in writing and mailed, first-
class postage prepaid, to each Holder affected by such event, at the address of
such Holder as it appears in the Security Register, not later than the latest
date, if any, and not earlier than the earliest date, if any, prescribed for the
giving of such notice.
In case by reason of the suspension of regular mail service or by reason
of any other cause it shall be impracticable to give such notice to Holders by
mail, then such notification as shall be made with the approval of the Trustee
shall constitute a sufficient notification for every purpose hereunder. In any
case where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders.
Any notice required by this Indenture may be waived in writing by the
Person entitled to receive such notice, either before or after the event
otherwise to be specified therein, and such waiver shall be the equivalent of
such notice. Waivers of notice by Holders shall be filed with the Trustee, but
such filing shall not be a condition precedent to the validity of any action
taken in reliance upon such waiver.
SECTION 107. CONFLICT WITH TRUST INDENTURE ACT.
If any provision of this Indenture limits, qualifies or conflicts with
another provision hereof which is required or deemed to be included in this
Indenture by, or is otherwise governed by, any of the provisions of the Trust
Indenture Act, such other provision shall control; and if any provision hereof
otherwise conflicts with the Trust Indenture Act, the Trust Indenture Act shall
control.
SECTION 108. EFFECT OF HEADINGS AND TABLE OF CONTENTS.
The Article and Section headings in this Indenture and the Table of
Contents are for convenience only and shall not affect the construction hereof.
SECTION 109. SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Indenture by the Company and
Trustee shall bind their respective successors and assigns, whether so expressed
or not.
SECTION 110. SEPARABILITY CLAUSE.
In case any provision in this Indenture or the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
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SECTION 111. BENEFITS OF INDENTURE.
Nothing in this Indenture or the Securities, express or implied, shall
give to any Person, other than the parties hereto, their successors hereunder,
any Creditors, the Holders and, so long as the notice described in Section 1513
hereof has not been given, the holders of Senior Indebtedness, any benefit or
any legal or equitable right, remedy or claim under this Indenture; provided,
however, that for so long as any Preferred Securities remain outstanding, the
holders of such Preferred Securities, subject to certain limitations set forth
in this Indenture, may enforce the Company's obligations hereunder directly
against the Company as third party beneficiaries of this Indenture without first
proceeding against the Trust issuing such Preferred Securities or the Property
Trustee of the Trust.
SECTION 112. GOVERNING LAW.
This Indenture and the Securities shall be governed by and construed in
accordance with the laws of the State of New York, without regard to conflict of
laws principles.
SECTION 113. LEGAL HOLIDAYS.
In any case where any Interest Payment Date, Redemption Date or Stated
Maturity of any Security shall not be a Business Day at any Place of Payment,
then (notwithstanding any other provision of this Indenture or of the Securities
other than a provision in Securities of any series, or in the indenture
supplemental hereto, Board Resolution or Officer's Certificate which establishes
the terms of the Securities of such series, which specifically states that such
provision shall apply in lieu of this Section) payment of interest or principal
and premium, if any, need not be made at such Place of Payment on such date, but
may be made on the next succeeding Business Day at such Place of Payment, 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, and in the same amount, as if made on the Interest
Payment Date or Redemption Date, or at the Stated Maturity, as the case may be,
and, if such payment is made or duly provided for on such Business Day, no
interest shall accrue on the amount so payable for the period from and after
such Interest Payment Date, Redemption Date or Stated Maturity, as the case may
be, to such Business Day.
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ARTICLE TWO
SECURITY FORMS
SECTION 201. FORMS GENERALLY.
The definitive Securities of each series shall be in substantially the
form or forms thereof established in the indenture supplemental hereto
establishing such series or in a Board Resolution establishing such series, or
in an Officer's Certificate pursuant to such supplemental indenture or Board
Resolution, in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture, and may have such letters, numbers or other marks of identification
and such legends or endorsements placed thereon as may be required to comply
with the rules of any securities exchange or as may, consistently herewith, be
determined by the officers executing such Securities, as evidenced by their
execution of the Securities. If the form or forms of Securities of any series
are established in a Board Resolution or in an Officer's Certificate pursuant to
a Board Resolution, such Board Resolution and Officer's Certificate, if any,
shall be delivered to the Trustee at or prior to the delivery of the Company
Order contemplated by Section 303 for the authentication and delivery of such
Securities.
Unless otherwise specified as contemplated by Section 301, the
Securities of each series shall be issuable in registered form without coupons.
The definitive Securities shall be produced in such manner as shall be
determined by the officers executing such Securities, as evidenced by their
execution thereof.
SECTION 202. FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION.
The Trustee's certificate of authentication shall be in substantially
the form set forth below:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
_________________________________
as Trustee
By: _____________________________
Authorized Signatory
ARTICLE THREE
The Securities
SECTION 301. AMOUNT UNLIMITED; ISSUABLE IN SERIES.
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The aggregate principal amount of Securities which may be authenticated
and delivered under this Indenture is unlimited; provided, however, that all
Securities shall be issued to a Trust in exchange for securities of such Trust
or to evidence loans by a Trust of the proceeds of the issuance of Preferred
Securities of such Trust plus the amount deposited by the Company with such
Trust from time to time.
The Securities may be issued in one or more series. Prior to the
authentication and delivery of Securities of any series there shall be
established by specification in an indenture supplemental hereto or in a Board
Resolution, or in an Officer's Certificate pursuant to an indenture supplemental
hereto or a Board Resolution:
(a) the title of the Securities of such series (which shall distinguish
the Securities of such series from Securities of all other series);
(b) any limit upon the aggregate principal amount of the Securities of
such series which may be authenticated and delivered under this Indenture
(except for Securities authenticated and delivered upon registration of
transfer of, or in exchange for, or in lieu of, other Securities of such
series pursuant to Section 304, 305, 306, 406 or 1206 and except for any
Securities which, pursuant to Section 303, are deemed never to have been
authenticated and delivered hereunder);
(c) the Person or Persons (without specific identification) to whom
interest on Securities of such series shall be payable on any Interest
Payment Date, if other than the Persons in whose names such Securities (or
one or more Predecessor Securities) are registered at the close of business
on the Regular Record Date for such interest;
(d) the date or dates on which the principal of the Securities of such
series is payable or any formulary or other method or other means by which
such date or dates shall be determined, by reference or otherwise (without
regard to any provisions for redemption, prepayment, acceleration, purchase
or extension);
(e) the rate or rates at which the Securities of such series shall bear
interest, if any (including the rate or rates at which overdue principal
shall bear interest, if different from the rate or rates at which such
Securities shall bear interest prior to Maturity, and, if applicable, the
rate or rates at which overdue premium or interest shall bear interest, if
any), or any formulary or other method or other means by which such rate or
rates shall be determined, by reference or otherwise; the date or dates from
which such interest shall accrue; the Interest Payment Dates on which such
interest shall be payable and the Regular Record Date, if any, for the
interest payable on such Securities on any Interest Payment Date; the right
of the Company, if any, to extend the interest payment periods and the
duration of any such extension as contemplated by Section 311; and the basis
of computation of interest, if other than as provided in Section 310;
(f) the place or places at which or methods by which (i) the principal
of and premium, if any, and interest, if any, on Securities of such series
shall be payable, (ii) registration of transfer of Securities of such series
may be effected, (iii) exchanges of Securities of such series may be effected
and (iv) notices and demands to or upon the Company in respect of the
Securities of such series and this Indenture may be served; the Security
Registrar for such series; and, if such is the case, that the principal of
such Securities shall be payable without presentment or surrender thereof;
(g) the period or periods within which, or the date or dates on which,
the price or prices at which and the terms and conditions upon which the
Securities of such series may be redeemed, in whole or in part,
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at the option of the Company and any restrictions on such redemptions,
including but not limited to a restriction on a partial redemption by the
Company of the Securities of any series, resulting in delisting of such
Securities from any national exchange;
(h) the obligation or obligations, if any, of the Company to redeem or
purchase the Securities of such series pursuant to any sinking fund or other
mandatory redemption provisions or at the option of a Holder thereof and the
period or periods within which or the date or dates on which, the price or
prices at which and the terms and conditions upon which such Securities shall
be redeemed or purchased, in whole or in part, pursuant to such obligation,
and applicable exceptions to the requirements of Section 404 in the case of
mandatory redemption or redemption at the option of the Holder;
(i) the denominations in which Securities of such series shall be
issuable if other than denominations of $25 and any integral multiple
thereof;
(j) the currency or currencies, including composite currencies, in
which payment of the principal of and premium, if any, and interest, if any,
on the Securities of such series shall be payable (if other than in Dollars);
(k) if the principal of or premium, if any, or interest, if any, on the
Securities of such series are to be payable, at the election of the Company
or a Holder thereof, in a coin or currency other than that in which the
Securities are stated to be payable, the period or periods within which and
the terms and conditions upon which, such election may be made;
(l) if the principal of or premium, if any, or interest, if any, on the
Securities of such series are to be payable, or are to be payable at the
election of the Company or a Holder thereof, in securities or other property,
the type and amount of such securities or other property, or the formulary or
other method or other means by which such amount shall be determined, and the
period or periods within which, and the terms and conditions upon which, any
such election may be made;
(m) if the amount payable in respect of principal of or premium, if
any, or interest, if any, on the Securities of such series may be determined
with reference to an index or other fact or event ascertainable outside this
Indenture, the manner in which such amounts shall be determined to the extent
not established pursuant to clause (e) of this paragraph;
(n) if other than the principal amount thereof, the portion of the
principal amount of Securities of such series which shall be payable upon
declaration of acceleration of the Maturity thereof pursuant to Section 802;
(o) any Events of Default, in addition to those specified in Section
801, with respect to the Securities of such series, and any covenants of the
Company for the benefit of the Holders of the Securities of such series, in
addition to those set forth in Article Six;
(p) the terms, if any, pursuant to which the Securities of such series
may be converted into or exchanged for shares of capital stock or other
securities of the Company or any other Person;
(q) the obligations or instruments, if any, which shall be considered
to be Government Obligations in respect of the Securities of such series
denominated in a currency other than Dollars or in a composite
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currency, and any additional or alternative provisions for the reinstatement
of the Company's indebtedness in respect of such Securities after the
satisfaction and discharge thereof as provided in Section 701;
(r) if the Securities of such series are to be issued in global form,
(i) any limitations on the rights of the Holder or Holders of such Securities
to transfer or exchange the same or to obtain the registration of transfer
thereof, (ii) any limitations on the rights of the Holder or Holders thereof
to obtain certificates therefor in definitive form in lieu of temporary form
and (iii) any and all other matters incidental to such Securities;
(s) if the Securities of such series are to be issuable as bearer
securities, any and all matters incidental thereto which are not specifically
addressed in a supplemental indenture as contemplated by clause (g) of
Section 1201;
(t) to the extent not established pursuant to clause (r) of this
paragraph, any limitations on the rights of the Holders of the Securities of
such Series to transfer or exchange such Securities or to obtain the
registration of transfer thereof; and if a service charge will be made for
the registration of transfer or exchange of Securities of such series the
amount or terms thereof;
(u) any exceptions to Section 113, or variation in the definition of
Business Day, with respect to the Securities of such series;
(v) the designation of the Trust to which Securities of such series are
to be issued; and
(w) any other terms of the Securities of such series not inconsistent
with the provisions of this Indenture.
All Securities of any one series shall be substantially identical,
except as to principal amount and date of issue and except as may be set forth
in the terms of such series as contemplated above. The Securities of each
series shall be subordinated in right of payment to Senior Indebtedness as
provided in Article Fifteen.
SECTION 302. DENOMINATIONS.
Unless otherwise provided as contemplated by Section 301 with respect to
any series of Securities, the Securities of each series shall be issuable in
denominations of $25 and any integral multiple thereof.
SECTION 303. EXECUTION, AUTHENTICATION, DELIVERY AND DATING.
Unless otherwise provided as contemplated by Section 301 with respect to
any series of Securities, the Securities shall be executed on behalf of the
Company by an Authorized Officer and may have the corporate seal of the Company
affixed thereto or reproduced thereon attested by any other Authorized Officer
or by the Secretary or an Assistant Secretary of the Company. The signature of
any or all of these officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of individuals who
were at the time of execution Authorized Officers or the Secretary or an
Assistant Secretary of the Company shall bind the Company, notwithstanding that
such individuals or any of them have ceased to hold such offices prior to the
authentication and delivery of such Securities or did not hold such offices at
the date of original issue of such Securities.
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The Trustee shall authenticate and deliver Securities of a series, for
original issue, at one time or from time to time in accordance with the Company
Order referred to below, upon receipt by the Trustee of:
(a) the instrument or instruments establishing the form or forms and
terms of such series, as provided in Sections 201 and 301;
(b) a Company Order requesting the authentication and delivery of such
Securities and, to the extent that the terms of such Securities shall not
have been established in an indenture supplemental hereto or in a Board
Resolution, or in an Officer's Certificate pursuant to a supplemental
indenture or Board Resolution, all as contemplated by Sections 201 and 301,
establishing such terms;
(c) the Securities of such series, executed on behalf of the Company by
an Authorized Officer;
(d) an Opinion of Counsel to the effect that:
(i) the form or forms of such Securities have been duly authorized
by the Company and have been established in conformity with the
provisions of this Indenture;
(ii) the terms of such Securities have been duly authorized by the
Company and have been established in conformity with the provisions of
this Indenture; and
(iii) such Securities, when authenticated and delivered by the
Trustee and issued and delivered by the Company in the manner and
subject to any conditions specified in such Opinion of Counsel, will
have been duly issued under this Indenture and will constitute valid and
legally binding obligations of the Company, entitled to the benefits
provided by this Indenture, and enforceable against the Company in
accordance with their terms, subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other
similar laws relating to or affecting creditors' rights generally,
general equitable principles (whether considered in a proceeding in
equity or at law) and an implied covenant of good faith and fair
dealing.
If the form or terms of the Securities of any series have been
established by or pursuant to a Board Resolution or an Officer's Certificate as
permitted by Sections 201 or 301, the Trustee shall not be required to
authenticate such Securities if the issuance of such Securities pursuant to this
Indenture will materially or adversely affect the Trustee's own rights, duties
or immunities under the Securities and this Indenture or otherwise in a manner
that is not reasonably acceptable to the Trustee.
Unless otherwise specified as contemplated by Section 301 with respect
to any series of Securities, each Security shall be dated the date of its
authentication.
Unless otherwise specified as contemplated by Section 301 with respect
to any series of Securities, no Security shall be entitled to any benefit under
this Indenture or be valid or obligatory for any purpose unless there appears on
such Security a certificate of authentication substantially in the form provided
for herein executed by the Trustee or an Authenticating Agent by manual
signature, and such certificate upon any Security shall be conclusive evidence,
and the only evidence, that such Security has been duly authenticated and
delivered hereunder and is entitled to the benefits of this Indenture.
Notwithstanding the foregoing, if any Security shall have been authenticated and
delivered hereunder to the Company, or any Person acting on its behalf, but
shall never have been issued and sold by the Company, and the Company shall
deliver such Security to the Trustee for cancellation as provided in Section 309
together with a written statement (which need not comply with Section
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102 and need not be accompanied by an Opinion of Counsel) stating that such
Security has never been issued and sold by the Company, for all purposes of this
Indenture such Security shall be deemed never to have been authenticated and
delivered hereunder and shall never be entitled to the benefits hereof.
SECTION 304. TEMPORARY SECURITIES.
Pending the preparation of definitive Securities of any series, the
Company may execute, and upon Company Order the Trustee shall authenticate and
deliver, temporary Securities which are printed, lithographed, typewritten,
mimeographed or otherwise produced, in any authorized denomination,
substantially of the tenor of the definitive Securities in lieu of which they
are issued, with such appropriate insertions, omissions, substitutions and other
variations as the officers executing such Securities may determine, as evidenced
by their execution of such Securities; provided, however, that temporary
Securities need not recite specific redemption, sinking fund, conversion or
exchange provisions.
Unless otherwise specified as contemplated by Section 301 with respect
to the Securities of any series, after the preparation of definitive Securities
of such series, the temporary Securities of such series shall be exchangeable,
without charge to the Holder thereof, for definitive Securities of such series
upon surrender of such temporary Securities at the office or agency of the
Company maintained pursuant to Section 602 in a Place of Payment for such
Securities. Upon such surrender of temporary Securities for such exchange, the
Company shall, except as aforesaid, execute and the Trustee shall authenticate
and deliver in exchange therefor definitive Securities of the same series, of
authorized denominations and of like tenor and aggregate principal amount.
Until exchanged in full as hereinabove provided, the temporary
Securities of any series shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities of the same series and of like
tenor authenticated and delivered hereunder.
SECTION 305. REGISTRATION, REGISTRATION OF TRANSFER AND EXCHANGE.
The Company shall cause to be kept in each office designated pursuant to
Section 602, with respect to the Securities of each series, a register (all
registers kept in accordance with this Section being collectively referred to as
the "Security Register") in which, subject to such reasonable regulations as it
may prescribe, the Company shall provide for the registration of Securities of
such series and the registration of transfer thereof. The Company shall
designate one Person to maintain the Security Register for the Securities of
each series on a consolidated basis, and such Person is referred to herein, with
respect to such series, as the "Security Registrar." Anything herein to the
contrary notwithstanding, the Company may designate one or more of its offices
as an office in which a register with respect to the Securities of one or more
series shall be maintained, and the Company may designate itself the Security
Registrar with respect to one or more of such series. The Security Register
shall be open for inspection by the Trustee and the Company at all reasonable
times.
Except as otherwise specified as contemplated by Section 301 with
respect to the Securities of any series, upon surrender for registration of
transfer of any Security of such series at the office or agency of the Company
maintained pursuant to Section 602 in a Place of Payment for such series, the
Company shall execute, and the Trustee shall authenticate and deliver, in the
name of the designated transferee or transferees, one or more new Securities of
the same series, of authorized denominations and of like tenor and aggregate
principal amount.
Except as otherwise specified as contemplated by Section 301 with
respect to the Securities of any series, any Security of such series may be
exchanged at the option of the Holder, for one or more new Securities of the
same series, of authorized denominations and of like tenor and aggregate
principal amount, upon surrender
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of the Securities to be exchanged at any such office or agency. Whenever any
Securities are so surrendered for exchange, the Company shall execute, and the
Trustee shall authenticate and deliver, the Securities which the Holder making
the exchange is entitled to receive.
All Securities delivered upon any registration of transfer or exchange
of Securities shall be valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company, the Trustee or the Security
Registrar) be duly endorsed or shall be accompanied by a written instrument of
transfer in form satisfactory to the Company, the Trustee or the Security
Registrar, as the case may be, duly executed by the Holder thereof or his
attorney duly authorized in writing.
Unless otherwise specified as contemplated by Section 301 with respect
to Securities of any series, no service charge shall be made for any
registration of transfer or exchange of Securities, but the Company may require
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in connection with any registration of transfer or exchange of
Securities, other than exchanges pursuant to Section 304, 406 or 1206 not
involving any transfer.
The Company shall not be required to execute or to provide for the
registration of transfer of or the exchange of (a) Securities of any series
during a period of 15 days immediately preceding the date of the mailing of any
notice of redemption of such Securities called for redemption or (b) any
Security so selected for redemption in whole or in part, except the unredeemed
portion of any Security being redeemed in part.
SECTION 306. MUTILATED, DESTROYED, LOST AND STOLEN SECURITIES.
If any mutilated Security is surrendered to the Trustee, the Company
shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of the same series, and of like tenor and principal
amount and bearing a number not contemporaneously outstanding.
If there shall be delivered to the Company and the Trustee (a) evidence
to their satisfaction of the ownership of and the destruction, loss or theft of
any Security and (b) such security or indemnity as may be reasonably required by
them to save each of them and any agent of either of them harmless, then, in the
absence of notice to the Company or the Trustee that such Security is held by a
Person purporting to be the owner of such Security, the Company shall execute
and the Trustee shall authenticate and deliver, in lieu of any such destroyed,
lost or stolen Security, a new Security of the same series, and of like tenor
and principal amount and bearing a number not contemporaneously outstanding.
Notwithstanding the foregoing, in case any such mutilated, destroyed,
lost or stolen Security has become or is about to become due and payable, the
Company in its discretion may, instead of issuing a new Security, pay such
Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
reasonable expenses (including the fees and expenses of the Trustee) connected
therewith.
Every new Security of any series issued pursuant to this Section in lieu
of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the
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destroyed, lost or stolen Security shall be at any time enforceable by anyone
other than the Holder of such new Security, and any such new Security shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities of such series duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 307. PAYMENT OF INTEREST; INTEREST RIGHTS PRESERVED.
Unless otherwise specified as contemplated by Section 301 with respect
to the Securities of any series, interest on any Security which is payable, and
is punctually paid or duly provided for, on any Interest Payment Date shall be
paid to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest.
Subject to Section 311, any interest on any Security of any series which
is payable, but is not punctually paid or duly provided for, on any Interest
Payment Date (herein called "Defaulted Interest") shall forthwith cease to be
payable to the Holder on the related Regular Record Date by virtue of having
been such Holder, and such Defaulted Interest may be paid by the Company, at its
election in each case, as provided in clause (a) or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest to
the Persons in whose names the Securities of such series (or their respective
Predecessor Securities) are registered at the close of business on a date
(herein called a "Special Record Date") for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company shall
notify the Trustee in writing of the amount of Defaulted Interest proposed to
be paid on each Security of such series and the date of the proposed payment,
and at the same time the Company shall deposit with the Trustee an amount of
money equal to the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the Trustee for
such deposit on or prior to the date of the proposed payment, such money when
deposited to be held in trust for the benefit of the Persons entitled to such
Defaulted Interest as in this clause provided. Thereupon the Trustee shall
fix a Special Record Date for the payment of such Defaulted Interest which
shall be not more than 15 days and not less than 10 days prior to the date of
the proposed payment and not less than 10 days after the receipt by the
Trustee of the notice of the proposed payment. The Trustee shall promptly
notify the Company of such Special Record Date and, in the name and at the
expense of the Company, shall promptly cause notice of the proposed payment
of such Defaulted Interest and the Special Record Date therefor to be mailed,
first-class postage prepaid, to each Holder of Securities of such series at
the address of such Holder as it appears in the Security Register, not less
than 10 days prior to such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor
having been so mailed, such Defaulted Interest shall be paid to the Persons
in whose names the Securities of such series (or their respective Predecessor
Securities) are registered at the close of business on such Special Record
Date.
(b) The Company may make payment of any Defaulted Interest on the
Securities of any series in any other lawful manner not inconsistent with the
requirements of any securities exchange on which such Securities may be
listed, and upon such notice as may be required by such exchange, if, after
notice given by the Company to the Trustee of the proposed payment pursuant
to this clause, such manner of payment shall be deemed practicable by the
Trustee.
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Subject to the foregoing provisions of this Section and Section 305,
each Security delivered under this Indenture upon registration of transfer of or
in exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.
SECTION 308. PERSONS DEEMED OWNERS.
Prior to due presentment of a Security for registration of transfer, the
Company, the Trustee and any agent of the Company or the Trustee may treat the
Person in whose name such Security is registered as the absolute owner of such
Security for the purpose of receiving payment of principal of and premium, if
any, and (subject to Sections 305 and 307) interest, if any, on such Security
and for all other purposes whatsoever, whether or not such Security be overdue,
and neither the Company, the Trustee nor any agent of the Company or the Trustee
shall be affected by notice to the contrary.
SECTION 309. CANCELLATION BY SECURITY REGISTRAR.
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, if surrendered to any Person other than the Security
Registrar, be delivered to the Security Registrar and, if not theretofore
canceled, shall be promptly canceled by the Security Registrar. The Company may
at any time deliver to the Security Registrar for cancellation any Securities
previously authenticated and delivered hereunder which the Company may have
acquired in any manner whatsoever or which the Company shall not have issued and
sold, and all Securities so delivered shall be promptly canceled by the Security
Registrar. No Securities shall be authenticated in lieu of or in exchange for
any Securities canceled as provided in this Section, except as expressly
permitted by this Indenture. All canceled Securities held by the Security
Registrar shall be disposed of in accordance with the customary procedures of
the Security Registrar as at the time of disposition shall be in effect (which
may or may not include destruction of the certificate or certificates evidencing
such Securities). The Security Registrar shall promptly deliver evidence of any
cancellation of a Security in accordance with this Section 309 to the Trustee
and the Company.
SECTION 310. COMPUTATION OF INTEREST.
Except as otherwise specified as contemplated by Section 301 for
Securities of any series, interest on the Securities of each series shall be
computed on the basis of a 360-day year consisting of twelve 30-day months and
for any period shorter than a full month, on the basis of the actual number of
days elapsed in such period.
SECTION 311. EXTENSION OF INTEREST PAYMENT.
The Company shall have the right at any time, so long as the Company is
not in default in the payment of interest on the Securities of any series
hereunder, to extend interest payment periods on all Securities of one or more
series, if so specified as contemplated by Section 301 with respect to such
Securities and upon such terms as may be specified as contemplated by Section
301 with respect to such Securities.
SECTION 312. PAYMENT OF EXPENSES.
The Company, as issuer of the Securities, shall pay all debts and
obligations (other than with respect to the securities of a Trust) and all
costs, liabilities and expenses of a Trust (including, but not limited to, all
costs, liabilities, expenses and indemnities under Section 8.06 of the Trust
Agreement dated as of October 1, 1998 and the comparable provisions of any other
Trust Agreement, all costs, liabilities and expenses relating
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to the organization of a Trust, the fees and expenses of the Property Trustee,
the Delaware Trustee and the Administrative Trustees and all costs, liabilities
and expenses relating to the operation of the Trust (other than with respect to
payments due to the holders of the securities of a Trust pursuant to the terms
of such securities)) and to pay any and all taxes, duties, assessments or other
governmental charges of whatever nature (other than United States withholding
taxes) imposed by the United States or any other taxing authority, so that the
net amounts received and retained by a Trust after paying such fees, costs,
expenses, liabilities, debts and obligations will be equal to the amounts a
Trust would have received and retained had no such fees, costs, expenses,
liabilities, debts and obligations been incurred by or imposed on a Trust. The
foregoing obligations of the Company are for the benefit of, and shall be
enforceable by, any person to whom such fees, costs, expenses, liabilities,
debts and obligations are owed (each a "Creditor") whether or not such Creditor
has received notice thereof. Any such Creditor may enforce such obligations of
the Company directly against the Company, and the Company irrevocably waives any
right or remedy to require that any such Creditor take any action against a
Trust or any other person before proceeding against the Company. The Company
shall execute such additional agreements as may be necessary to give full effect
to the foregoing. The provisions of this Section 312 shall survive the
termination for any reason of this Indenture.
ARTICLE FOUR
Redemption of Securities
SECTION 401. APPLICABILITY OF ARTICLE.
Securities of any series which are redeemable before their Stated
Maturity shall be redeemable in accordance with their terms and (except as
otherwise specified as contemplated by Section 301 for Securities of such
series) in accordance with this Article.
SECTION 402. ELECTION TO REDEEM; NOTICE TO TRUSTEE.
The election of the Company to redeem any Securities shall be evidenced
by a Board Resolution or an Officer's Certificate. The Company shall, at least
45 days prior to the Redemption Date fixed by the Company (unless a shorter
notice shall be satisfactory to the Trustee), notify the Trustee in writing of
such Redemption Date and of the principal amount of such Securities to be
redeemed. In the case of any redemption of Securities (a) prior to the
expiration of any restriction on such redemption provided in the terms of such
Securities or elsewhere in this Indenture or (b) pursuant to an election of the
Company which is subject to a condition specified in the terms of such
Securities, the Company shall furnish the Trustee with an Officer's Certificate
evidencing compliance with such restriction or condition.
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SECTION 403. SELECTION OF SECURITIES TO BE REDEEMED.
If less than all the Securities of any series are to be redeemed, the
particular Securities to be redeemed shall be selected by the Trustee from the
Outstanding Securities of such series not previously called for redemption, by
such method as shall be provided for any particular series, or, in the absence
of any such provision, by such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
(equal to the minimum authorized denomination for Securities of such series or
any integral multiple thereof) of the principal amount of Securities of such
series of a denomination larger than the minimum authorized denomination for
Securities of such series; provided, however, that if, as indicated in an
Officer's Certificate, the Company shall have offered to purchase all or any
principal amount of the Securities then Outstanding of any series, and less than
all of such Securities as to which such offer was made shall have been tendered
to the Company for such purchase, the Trustee, if so directed by Company Order,
shall select for redemption all or any principal amount of such Securities which
have not been so tendered.
The Trustee shall promptly notify the Company and the Security Registrar
in writing of the Securities selected for redemption and, in the case of any
Securities selected to be redeemed in part, the principal amount thereof to be
redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities shall relate,
in the case of any Securities redeemed or to be redeemed only in part, to the
portion of the principal amount of such Securities which has been or is to be
redeemed.
SECTION 404. NOTICE OF REDEMPTION.
Notice of redemption shall be given in the manner provided in Section
106 to the Holders of the Securities to be redeemed not less than 30 nor more
than 60 days prior to the Redemption Date.
All notices of redemption shall state:
(a) the Redemption Date,
(b) the Redemption Price,
(c) if less than all the Securities of any series are to be redeemed,
the identification of the particular Securities to be redeemed and the
portion of the principal amount of any Security to be redeemed in part,
(d) that on the Redemption Date the Redemption Price, together with
accrued interest, if any, to the Redemption Date, will become due and payable
upon each such Security to be redeemed and, if applicable, that interest
thereon will cease to accrue on and after said date,
(e) the place or places where such Securities are to be surrendered for
payment of the Redemption Price and accrued interest, if any, unless it shall
have been specified as contemplated by Section 301 with respect to such
Securities that such surrender shall not be required,
(f) that the redemption is for a sinking or other fund, if such is the
case, and
(g) such other matters as the Company shall deem desirable or
appropriate.
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Unless otherwise specified with respect to any Securities in accordance
with Section 301, with respect to any notice of redemption of Securities at the
election of the Company, unless, upon the giving of such notice, such Securities
shall be deemed to have been paid in accordance with Section 701, such notice
may state that such redemption shall be conditional upon the receipt by the
Paying Agent or Agents for such Securities, on or prior to the date fixed for
such redemption, of money sufficient to pay the principal of and premium, if
any, and interest, if any, on such Securities and that if such money shall not
have been so received such notice shall be of no force or effect and the Company
shall not be required to redeem such Securities. In the event that such notice
of redemption contains such a condition and such money is not so received, the
redemption shall not be made and within a reasonable time thereafter notice
shall be given, in the manner in which the notice of redemption was given, that
such money was not so received and such redemption was not required to be made,
and the Paying Agent or Agents for the Securities otherwise to have been
redeemed shall promptly return to the Holders thereof any of such Securities
which had been surrendered for payment upon such redemption.
Notice of redemption of Securities to be redeemed at the election of the
Company, and any notice of non-satisfaction of a condition for redemption as
aforesaid, shall be given by the Company or, at the Company's request, by the
Security Registrar in the name and at the expense of the Company. Notice of
mandatory redemption of Securities shall be given by the Security Registrar in
the name and at the expense of the Company.
SECTION 405. SECURITIES PAYABLE ON REDEMPTION DATE.
Notice of redemption having been given as aforesaid, and the conditions,
if any, set forth in such notice having been satisfied, the Securities or
portions thereof so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified, and from and after such date
(unless, in the case of an unconditional notice of redemption, the Company shall
default in the payment of the Redemption Price and accrued interest, if any)
such Securities or portions thereof, if interest-bearing, shall cease to bear
interest. Upon surrender of any such Security for redemption in accordance with
such notice, such Security or portion thereof shall be paid by the Company at
the Redemption Price, together with accrued interest, if any, to the Redemption
Date; provided, however, that no such surrender shall be a condition to such
payment if so specified as contemplated by Section 301 with respect to such
Security; and provided, further, that except as otherwise specified as
contemplated by Section 301 with respect to such Security, any installment of
interest on any Security the Stated Maturity of which installment is on or prior
to the Redemption Date shall be payable to the Holder of such Security, or one
or more Predecessor Securities, registered as such at the close of business on
the related Regular Record Date according to the terms of such Security and
subject to the provisions of Section 307.
SECTION 406. SECURITIES REDEEMED IN PART.
Upon the surrender of any Security which is to be redeemed only in part
at a Place of Payment therefor (with, if the Company or the Trustee so requires,
due endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder thereof or his attorney
duly authorized in writing), the Company shall execute, and the Trustee shall
authenticate and deliver to the Holder of such Security, without service charge,
a new Security or Securities of the same series, of any authorized denomination
requested by such Holder and of like tenor and in aggregate principal amount
equal to and in exchange for the unredeemed portion of the principal of the
Security so surrendered.
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ARTICLE FIVE
Sinking Funds
SECTION 501. APPLICABILITY OF ARTICLE.
The provisions of this Article shall be applicable to any sinking fund
for the retirement of the Securities of any series, except as otherwise
specified as contemplated by Section 301 for Securities of such series.
The minimum amount of any sinking fund payment provided for by the terms
of Securities of any series is herein referred to as a "mandatory sinking fund
payment," and any payment in excess of such minimum amount provided for by the
terms of Securities of any series is herein referred to as an "optional sinking
fund payment." If provided for by the terms of Securities of any series, the
cash amount of any sinking fund payment may be subject to reduction as provided
in Section 502. Each sinking fund payment shall be applied to the redemption of
Securities of the series in respect of which it was made as provided for by the
terms of such Securities.
SECTION 502. SATISFACTION OF SINKING FUND PAYMENTS WITH SECURITIES.
The Company (a) may deliver to the Trustee Outstanding Securities (other
than any previously called for redemption) of a series in respect of which a
mandatory sinking fund payment is to be made and (b) may apply as a credit
Securities of such series which have been redeemed either at the election of the
Company pursuant to the terms of such Securities or through the application of
permitted optional sinking fund payments pursuant to the terms of such
Securities or Outstanding Securities purchased by the Company, in each case in
satisfaction of all or any part of such mandatory sinking fund payment with
respect to the Securities of such series; provided, however, that no Securities
shall be applied in satisfaction of a mandatory sinking fund payment if such
Securities shall have been previously so applied. Securities so applied shall
be received and credited for such purpose by the Trustee at the Redemption Price
specified in such Securities for redemption through operation of the sinking
fund and the amount of such mandatory sinking fund payment shall be reduced
accordingly.
SECTION 503. REDEMPTION OF SECURITIES FOR SINKING FUND.
Not less than 45 days prior to each sinking fund payment date for the
Securities of any series, the Company shall deliver to the Trustee an Officer's
Certificate specifying:
(a) the amount of the next succeeding mandatory sinking fund payment
for such series;
(b) the amount, if any, of the optional sinking fund payment to be made
together with such mandatory sinking fund payment;
(c) the aggregate sinking fund payment;
(d) the portion, if any, of such aggregate sinking fund payment which
is to be satisfied by the payment of cash; and
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(e) the portion, if any, of such aggregate sinking fund payment which
is to be satisfied by delivering and crediting Securities of such series
pursuant to Section 502 and stating the basis for such credit and that such
Securities have not previously been so credited, and the Company shall also
deliver to the Trustee any Securities to be so delivered.
If the Company shall not have delivered such Officer's Certificate and, to the
extent applicable, all such Securities, on or prior to the 45th day prior to
such sinking fund payment date, the sinking fund payment for such series in
respect of such sinking fund payment date shall be made entirely in cash in the
amount of the mandatory sinking fund payment. Not less than 30 days before each
such sinking fund payment date the Trustee shall select the Securities to be
redeemed upon such sinking fund payment date in the manner specified in Section
403 and cause notice of the redemption thereof to be given in the name of and at
the expense of the Company in the manner provided in Section 404. Such notice
having been duly given, the redemption of such Securities shall be made upon the
terms and in the manner stated in Sections 405 and 406.
ARTICLE SIX
Covenants
SECTION 601. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST.
The Company shall pay the principal of and premium, if any, and
interest, if any, on the Securities of each series in accordance with the terms
of such Securities and this Indenture.
SECTION 602. MAINTENANCE OF OFFICE OR AGENCY.
The Company shall maintain in each Place of Payment for the Securities
of each series an office or agency where payment of such Securities shall be
made, where the registration of transfer or exchange of such Securities may be
effected and where notices and demands to or upon the Company in respect of such
Securities and this Indenture may be served. The Company shall give prompt
written notice to the Trustee of the location, and any change in the location,
of each such office or agency and prompt notice to the Holders of any such
change in the manner specified in Section 106. If at any time the Company shall
fail to maintain any such required office or agency in respect of Securities of
any series, or shall fail to furnish the Trustee with the address thereof,
payment of such Securities shall be made, registration of transfer or exchange
thereof may be effected and notices and demands in respect thereof may be served
at the Corporate Trust Office of the Trustee, and the Company hereby appoints
the Trustee as its agent for all such purposes in any such event.
The Company may also from time to time designate one or more other
offices or agencies with respect to the Securities of one or more series, for
any or all of the foregoing purposes and may from time to time rescind such
designations; provided, however, that, unless otherwise specified as
contemplated by Section 301 with respect to the Securities of such series, no
such designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency for such purposes in each Place of
Payment for such Securities in accordance with the requirements set forth above.
The Company shall give prompt written notice to the Trustee, and prompt notice
to the Holders in the manner specified in Section 106, of any such designation
or rescission and of any change in the location of any such other office or
agency.
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Anything herein to the contrary notwithstanding, any office or agency
required by this Section may be maintained at an office of the Company, in which
event the Company shall perform all functions to be performed at such office or
agency.
SECTION 603. MONEY FOR SECURITIES PAYMENTS TO BE HELD IN TRUST.
If the Company shall at any time act as its own Paying Agent with
respect to the Securities of any series, it shall, on or before each due date of
the principal of and premium, if any, and interest, if any, on any of such
Securities, segregate and hold in trust for the benefit of the Persons entitled
thereto a sum sufficient to pay the principal and premium or interest so
becoming due until such sums shall be paid to such Persons or otherwise disposed
of as herein provided. The Company shall promptly notify the Trustee of any
failure by the Company (or any other obligor on such Securities) to make any
payment of principal of or premium, if any, or interest, if any, on such
Securities.
Whenever the Company shall have one or more Paying Agents for the
Securities of any series, it shall, on or before each due date of the principal
of and premium, if any, and interest, if any, on such Securities, deposit with
such Paying Agents sums sufficient (without duplication) to pay the principal
and premium or interest so becoming due, such sum to be held in trust for the
benefit of the Persons entitled to such principal, premium or interest, and
(unless such Paying Agent is the Trustee) the Company shall promptly notify the
Trustee of any failure by it so to act.
The Company shall cause each Paying Agent for the Securities of any
series, other than the Company or the Trustee, to execute and deliver to the
Trustee an instrument in which such Paying Agent shall agree with the Trustee,
subject to the provisions of this Section, that such Paying Agent shall:
(a) hold all sums held by it for the payment of the principal of and
premium, if any, or interest, if any, on such Securities in trust for the
benefit of the Persons entitled thereto until such sums shall be paid to such
Persons or otherwise disposed of as herein provided;
(b) give the Trustee notice of any failure by the Company (or any other
obligor upon such Securities) to make any payment of principal of or premium,
if any, or interest, if any, on such Securities; and
(c) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so held
in trust by such Paying Agent and furnish to the Trustee such information as
it possesses regarding the names and addresses of the Persons entitled to
such sums.
The Company may at any time pay, or by Company Order direct any Paying
Agent to pay, to the Trustee all sums held in trust by the Company or such
Paying Agent, such sums to be held by the Trustee upon the same trusts as those
upon which such sums were held by the Company or such Paying Agent and, if so
stated in a Company Order delivered to the Trustee, in accordance with the
provisions of Article Seven; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of and premium, if
any, or interest, if any, on any Security and remaining unclaimed for two years
after such principal and premium, if any, or interest has become due and payable
shall be paid to the Company on Company Request, or, if then held by the
Company, shall be discharged from such
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trust; and, upon such payment or discharge, the Holder of such Security shall,
as an unsecured general creditor and not as a Holder of an Outstanding Security,
look only to the Company for payment of the amount so due and payable and
remaining unpaid, and all liability of the Trustee or such Paying Agent with
respect to such trust money, and all liability of the Company as trustee
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such payment to the Company, may
at the expense of the Company cause to be mailed, on one occasion only, notice
to such Holder that such money remains unclaimed and that, after a date
specified therein, which shall not be less than 30 days from the date of such
mailing, any unclaimed balance of such money then remaining will be paid to the
Company.
SECTION 604. CORPORATE EXISTENCE.
Subject to the rights of the Company under Article Eleven, the Company
shall do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence.
SECTION 605. MAINTENANCE OF PROPERTIES.
The Company shall cause (or, with respect to property owned in common
with others, make reasonable effort to cause) all its properties used or useful
in the conduct of its business to be maintained and kept in good condition,
repair and working order and shall cause (or, with respect to property owned in
common with others, make reasonable effort to cause) to be made all necessary
repairs, renewals, replacements, betterments and improvements thereof, all as,
in the judgment of the Company, may be necessary so that the business carried on
in connection therewith may be properly conducted; provided, however, that
nothing in this Section shall prevent the Company from discontinuing, or causing
the discontinuance of, the operation and maintenance of any of its properties if
such discontinuance is, in the judgment of the Company, desirable in the conduct
of its business.
SECTION 606. ANNUAL OFFICER'S CERTIFICATE AS TO COMPLIANCE.
Not later than September 15 in each year, commencing September 15, 1999,
the Company shall deliver to the Trustee an Officer's Certificate which need not
comply with Section 102, executed by the principal executive officer, the
principal financial officer or the principal accounting officer of the Company,
as to such officer's knowledge of the Company's compliance with all conditions
and covenants under this Indenture, such compliance to be determined without
regard to any period of grace or requirement of notice under this Indenture.
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SECTION 607. WAIVER OF CERTAIN COVENANTS.
The Company may omit in any particular instance to comply with any term,
provision or condition set forth in (a) Section 602 or any additional covenant
or restriction specified with respect to the Securities of any series, as
contemplated by Section 301, if before the time for such compliance the Holders
of at least a majority in aggregate principal amount of the Outstanding
Securities of all series with respect to which compliance with Section 602 or
such additional covenant or restriction is to be omitted, considered as one
class, shall, by Act of such Holders, either waive such compliance in such
instance or generally waive compliance with such term, provision or condition
and (b) Section 604, 605 or Article Eleven if before the time for such
compliance the Holders of at least a majority in principal amount of Securities
Outstanding under this Indenture shall, by Act of such Holders, either waive
such compliance in such instance or generally waive compliance with such term,
provision or condition; but, in the case of (a) or (b), no such waiver shall
extend to or affect such term, provision or condition except to the extent so
expressly waived, and, until such waiver shall become effective, the obligations
of the Company and the duties of the Trustee in respect of any such term,
provision or condition shall remain in full force and effect; provided, however,
that so long as a Trust holds Securities of any series, such Trust may not waive
compliance or waive any default in compliance by the Company with any covenant
or other term contained in this Indenture or the Securities of such series
without the approval of the holders of at least a majority in aggregate
liquidation preference of the outstanding Preferred Securities issued by such
Trust affected, obtained as provided in the Trust Agreement pertaining to such
Trust.
SECTION 608. RESTRICTION ON PAYMENT OF DIVIDENDS.
So long as any Preferred Securities of any series remain outstanding,
the Company shall not declare or pay any dividend on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Company's
capital stock, or make any guarantee payments with respect to the foregoing
(other than payments under the Guarantee relating to such Preferred Securities)
if at such time (a) the Company shall be in default with respect to its payment
or other obligations under the Guarantee relating to such Preferred Securities,
(b) there shall have occurred and be continuing a payment default (whether
before or after expiration of any period of grace) or an Event of Default
hereunder or (c) the Company shall have elected to extend any interest payment
period as provided in Section 311, and any such period, or any extension
thereof, shall be continuing.
SECTION 609. MAINTENANCE OF TRUST EXISTENCE.
So long as Preferred Securities of any series remain outstanding, the
Company shall (i) maintain direct or indirect ownership of all interests in the
Trust which issued such Preferred Securities, other than such Preferred
Securities, (ii) not voluntarily (to the extent permitted by law) dissolve,
liquidate or wind up such Trust, except in connection with a distribution of the
Securities to the holders of the Preferred Securities in liquidation of such
Trust, (iii) remain the sole Depositor under the Trust Agreement (the
"Depositor") of such Trust and timely perform in all material respects all of
its duties as Depositor of such Trust, and (iv) use reasonable efforts to cause
such Trust to remain a business trust and otherwise continue to be treated as a
grantor trust for Federal income tax purposes provided that any permitted
successor to the Company under this Indenture may succeed to the Company's
duties as Depositor of such Trust; and provided further that the Company may
permit such Trust to consolidate or merge with or into another business trust or
other permitted successor under the Trust Agreement pertaining to such Trust so
long as the Company agrees to comply with this Section 609 with respect to such
successor business trust or other permitted successor.
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ARTICLE SEVEN
Satisfaction and Discharge
SECTION 701. DEFEASANCE.
Any Security or Securities, or any portion of the principal amount
thereof, shall be deemed to have been paid for all purposes of this Indenture,
and the entire indebtedness of the Company in respect thereof shall be deemed to
have been satisfied and discharged, if there shall have been irrevocably
deposited with the Trustee or any Paying Agent (other than the Company), in
trust:
(a) money in an amount which shall be sufficient, or
(b) in the case of a deposit made prior to the Maturity of such
Securities or portions thereof, Government Obligations, which shall not
contain provisions permitting the redemption or other prepayment thereof at
the option of the issuer thereof, the principal of and the interest on which
when due, without any regard to reinvestment thereof, will provide moneys
which, together with the money, if any, deposited with or held by the Trustee
or such Paying Agent, shall be sufficient, or
(c) a combination of (a) or (b) which shall be sufficient,
to pay when due the principal of and premium, if any, and interest, if any, due
and to become due on such Securities or portions thereof on or prior to
Maturity; provided, however, that in the case of the provision for payment or
redemption of less than all the Securities of any series, such Securities or
portions thereof shall have been selected by the Trustee as provided herein and,
in the case of a redemption, the notice requisite to the validity of such
redemption shall have been given or irrevocable authority shall have been given
by the Company to the Trustee to give such notice, under arrangements
satisfactory to the Trustee; and provided, further, that the Company shall have
delivered to the Trustee and such Paying Agent:
(i) if such deposit shall have been made prior to the Maturity of
such Securities, a Company Order stating that the money and Government
Obligations deposited in accordance with this Section shall be held in
trust, as provided in Section 703; and
(ii) if Government Obligations shall have been deposited, an
Opinion of Counsel that the obligations so deposited constitute
Government Obligations and do not contain provisions permitting the
redemption or other prepayment at the option of the issuer thereof, and
an opinion of an independent public accountant of nationally recognized
standing, selected by the Company, to the effect that the requirements
set forth in clause (b) above have been satisfied; and
(iii) An Opinion of Counsel to the effect that the Holders of such
Securities will not recognize income, gain or loss for federal income
tax purposes as a result of the satisfaction and discharge of the
Company's indebtedness in respect of such Securities, 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 occurred.
Upon the deposit of money or Government Obligations, or both, in
accordance with this Section, together with the documents required by clauses
(i), (ii) and (iii) above, the Trustee shall, upon receipt of a Company Request,
acknowledge in writing that the Security or Securities or portions thereof with
respect to
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which such deposit was made are deemed to have been paid for all purposes of
this Indenture and that the entire indebtedness of the Company in respect
thereof has been satisfied and discharged as contemplated in this Section. In
the event that all of the conditions set forth in the preceding paragraph shall
have been satisfied in respect of any Securities or portions thereof except
that, for any reason, the Opinion of Counsel specified in clause (iii) shall not
have been delivered, such Securities or portions thereof shall nevertheless be
deemed to have been paid for all purposes of this Indenture, and the Holders of
such Securities or portions thereof shall nevertheless be no longer entitled to
the benefits of this Indenture or of any of the covenants of the Company under
Article Six (except the covenants contained in Sections 602 and 603) or any
other covenants made in respect of such Securities or portions thereof as
contemplated by Section 301, but the indebtedness of the Company in respect of
such Securities or portions thereof shall not be deemed to have been satisfied
and discharged prior to Maturity for any other purpose, and the Holders of such
Securities or portions thereof shall continue to be entitled to look to the
Company for payment of the indebtedness represented thereby; and, upon Company
Request, the Trustee shall acknowledge in writing that such Securities or
portions thereof are deemed to have been paid for all purposes of this
Indenture.
If payment at Stated Maturity of less than all of the Securities of any
series is to be provided for in the manner and with the effect provided in this
Section, the Security Registrar shall select such Securities, or portions of
principal amount thereof, in the manner specified by Section 403 for selection
for redemption of less than all the Securities of a series.
In the event that Securities which shall be deemed to have been paid for
purposes of this Indenture, and, if such is the case, in respect of which the
Company's indebtedness shall have been satisfied and discharged, all as provided
in this Section do not mature and are not to be redeemed within the 60-day
period commencing with the date of the deposit of moneys or Government
Obligations, as aforesaid, the Company shall, as promptly as practicable, give a
notice, in the same manner as a notice of redemption with respect to such
Securities, to the Holders of such Securities to the effect that such deposit
has been made and the effect thereof.
Notwithstanding that any Securities shall be deemed to have been paid
for purposes of this Indenture, as aforesaid, the obligations of the Company and
the Trustee in respect of such Securities under Sections 304, 305, 306, 312,
404, 503 (as to notice of redemption), 602, 603, 907 and 915 and this Article
Seven shall survive.
The Company shall pay, and shall indemnify the Trustee or any Paying
Agent with which Government Obligations shall have been deposited as provided in
this Section against, any tax, fee or other charge imposed on or assessed
against such Government Obligations or the principal or interest received in
respect of such Government Obligations, including, but not limited to, any such
tax payable by any entity deemed, for tax purposes, to have been created as a
result of such deposit.
Anything herein to the contrary notwithstanding, (a) if, at any time
after a Security would be deemed to have been paid for purposes of this
Indenture, and, if such is the case, the Company's indebtedness in respect
thereof would be deemed to have been satisfied or discharged, pursuant to this
Section (without regard to the provisions of this paragraph), the Trustee or any
Paying Agent, as the case may be, shall be required to return the money or
Government Obligations, or combination thereof, deposited with it as aforesaid
to the Company or its representative under any applicable Federal or State
bankruptcy, insolvency or other similar law, such Security shall thereupon be
deemed retroactively not to have been paid and any satisfaction and discharge of
the Company's indebtedness in respect thereof shall retroactively be deemed not
to have been effected, and such Security shall be deemed to remain Outstanding
and (b) any satisfaction and discharge of the Company's indebtedness in respect
of any Security shall be subject to the provisions of the last paragraph of
Section 603.
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SECTION 702. SATISFACTION AND DISCHARGE OF INDENTURE.
This Indenture shall upon Company Request cease to be of further effect
(except as hereinafter expressly provided), and the Trustee, at the expense of
the Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture, when
(a) no Securities remain Outstanding hereunder; and
(b) the Company has paid or caused to be paid all other sums payable
hereunder by the Company;
provided, however, that if, in accordance with the last paragraph of Section
701, any Security, previously deemed to have been paid for purposes of this
Indenture, shall be deemed retroactively not to have been so paid, this
Indenture shall thereupon be deemed retroactively not to have been satisfied and
discharged, as aforesaid, and to remain in full force and effect, and the
Company shall execute and deliver such instruments as the Trustee shall
reasonably request to evidence and acknowledge the same.
Notwithstanding the satisfaction and discharge of this Indenture as
aforesaid, the obligations of the Company and the Trustee under Sections 304,
305, 306, 312, 404, 503 (as to notice of redemption), 602, 603, 907 and 915 and
this Article Seven shall survive.
Upon satisfaction and discharge of this Indenture as provided in this
Section, the Trustee shall assign, transfer and turn over to the Company,
subject to the lien provided by Section 907, any and all money, securities and
other property then held by the Trustee for the benefit of the Holders of the
Securities other than money and Government Obligations held by the Trustee
pursuant to Section 703.
SECTION 703. APPLICATION OF TRUST MONEY.
Neither the Government Obligations nor the money deposited pursuant to
Section 701, nor the principal or interest payments on any such Government
Obligations, shall be withdrawn or used for any purpose other than, and shall be
held in trust for, the payment of the principal of and premium, if any, and
interest, if any, on the Securities or portions of principal amount thereof in
respect of which such deposit was made, all subject, however, to the provisions
of Section 603; provided, however, that, so long as there shall not have
occurred and be continuing an Event of Default any cash received from such
principal or interest payments on such Government Obligations, if not then
needed for such purpose, shall, to the extent practicable, be invested in
Government Obligations of the type described in clause (b) in the first
paragraph of Section 701 maturing at such times and in such amounts as shall be
sufficient to pay when due the principal of and premium, if any, and interest,
if any, due and to become due on such Securities or portions thereof on and
prior to the Maturity thereof, and interest earned from such reinvestment shall
be paid over to the Company as received, free and clear of any trust, lien or
pledge under this Indenture except the lien provided by Section 907; and
provided, further, that, so long as there shall not have occurred and be
continuing an Event of Default, any moneys held in accordance with this Section
on the Maturity of all such Securities in excess of the amount required to pay
the principal of and premium, if any, and interest, if any, then due on such
Securities shall be paid over to the Company free and clear of any trust, lien
or pledge under this Indenture except the lien provided by Section 907; and
provided, further, that if an Event of Default shall have occurred and be
continuing, moneys to be paid over to the Company pursuant to this Section shall
be held until such Event of Default shall have been waived or cured.
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ARTICLE EIGHT
Events of Default; Remedies
SECTION 801. EVENTS OF DEFAULT.
"Event of Default", wherever used herein with respect to Securities of
any series, means any one of the following events:
(a) failure to pay interest, if any, on any Security of such series
within 30 days after the same becomes due and payable (whether or not payment
is prohibited by the provisions of Article Fifteen hereof); provided,
however, that a valid extension of the interest payment period by the Company
as contemplated in Section 311 of this Indenture shall not constitute a
failure to pay interest for this purpose; or
(b) failure to pay the principal of or premium, if any, on any Security
of such series at its Maturity (whether or not payment is prohibited by the
provisions of Article Fifteen hereof); or
(c) failure to perform or breach of any covenant or warranty of the
Company in this Indenture (other than a covenant or warranty a default in the
performance of which or breach of which is elsewhere in this Section
specifically dealt with or which has expressly been included in this
Indenture solely for the benefit of one or more series of Securities other
than such series) for a period of 60 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 10% in principal amount of
the Outstanding Securities of such series, a written notice specifying such
default or breach and requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder, unless the Trustee, or the Trustee
and the Holders of a principal amount of Securities of such series not less
than the principal amount of Securities the Holders of which gave such
notice, as the case may be, shall agree in writing to an extension of such
period prior to its expiration; provided, however, that the Trustee, or the
Trustee and the Holders of such principal amount of Securities of such
series, as the case may be, shall be deemed to have agreed to an extension of
such period if corrective action is initiated by the Company within such
period and is being diligently pursued; or
(d) the entry by a court having jurisdiction in the premises of (1) a
decree or order for relief in respect of the Company in an involuntary case
or proceeding under any applicable Federal or State bankruptcy, insolvency,
reorganization or other similar law or (2) a decree or order adjudging the
Company a bankrupt or insolvent, or approving as properly filed a petition by
one or more Persons other than the Company seeking reorganization,
arrangement, adjustment or composition of or in respect of the Company under
any applicable Federal or State law, or appointing a custodian, receiver,
liquidator, assignee, trustee, sequestrator or other similar official for the
Company or for any substantial part of its property, or ordering the winding
up or liquidation of its affairs, and any such decree or order for relief or
any such other decree or order shall have remained unstayed and in effect for
a period of 90 consecutive days; or
(e) the commencement by the Company of a voluntary case or proceeding
under any applicable Federal or State bankruptcy, insolvency, reorganization
or other similar law or of any other case or proceeding to be adjudicated a
bankrupt or insolvent, or the consent by it to the entry of a decree or order
for relief in respect of the Company in a case or proceeding under any
applicable Federal or State bankruptcy, insolvency, reorganization or other
similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under any applicable Federal or State law,
or the consent by it to the filing of such petition
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or to the appointment of or taking possession by a custodian, receiver,
liquidator, assignee, trustee, sequestrator or similar official of the
Company or of any substantial part of its property, or the making by it of an
assignment for the benefit of creditors, or the admission by it in writing of
its inability to pay its debts generally as they become due, or the
authorization of such action by the Board of Directors; or
(f) any other Event of Default specified with respect to Securities of
such series.
SECTION 802. ACCELERATION OF MATURITY; RESCISSION AND ANNULMENT.
If an Event of Default due to the default in payment of principal of, or
interest on, any series of Securities or due to the default in the performance
or breach of any other covenant or warranty of the Company applicable to the
Securities of such series but not applicable to all outstanding Securities shall
have occurred and be continuing, either the Trustee or the Holders of not less
than 25% in principal amount of the Securities of such series may then declare
the principal of all Securities of such series and interest accrued thereon to
be due and payable immediately; provided, however, that, in the case of the
Securities of a series issued to a Trust, if, upon an Event of Default, the
Trustee or the Holders of not less than 25% in principal amount of the
Outstanding Securities of that series fail to declare the principal of all the
Securities of that series to be immediately due and payable, the holders of at
least 25% in aggregate liquidation amount of the corresponding series 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 on all the
Securities of such series shall become immediately due and payable (provided
that the payment of principal and interest on such Securities shall remain
subordinated to the extent provided in Article Fifteen hereof). If an Event of
Default due to default in the performance of any other of the covenants or
agreements herein applicable to all Outstanding Securities or an Event of
Default specified in Section 801(d) or (e) shall have occurred and be
continuing, either the Trustee or the Holders of not less than 25% in principal
amount of all Securities then Outstanding (considered as one class), and not the
Holders of the Securities of any one of such series, may declare the principal
of all Securities and interest accrued thereon to be due and payable immediately
and upon any such declaration such principal amount (or specified amount) of and
the accrued interest on all the Securities of such series shall become
immediately due and payable (provided that the payment of principal and interest
on such Securities shall remain subordinated to the extent provided in Article
Fifteen hereof).
At any time after such a declaration of acceleration with respect to
Securities of any series shall have been made and before a judgment or decree
for payment of the money due shall have been obtained by the Trustee as
hereinafter in this Article provided, the Event or Events of Default giving rise
to such declaration of acceleration shall, without further act, be deemed to
have been waived, and such declaration and its consequences shall, without
further act, be deemed to have been rescinded and annulled, if
(a) the Company shall have paid or deposited with the Trustee a sum
sufficient to pay
(i) all overdue interest on all Securities of such series;
(ii) the principal of and premium, if any, on any Securities of
such series which have become due otherwise than by such declaration of
acceleration and interest thereon at the rate or rates prescribed
therefor in such Securities;
(iii) to the extent that payment of such interest is lawful,
interest upon overdue interest, if any, at the rate or rates prescribed
therefor in such Securities;
(iv) all amounts due to the Trustee under Section 907;
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and
(b) any other Event or Events of Default with respect to Securities of
such series, other than the nonpayment of the principal of Securities of such
series which shall have become due solely by such declaration of
acceleration, shall have been cured or waived as provided in Section 813.
No such rescission shall affect any subsequent Event of Default or impair any
right consequent thereon.
SECTION 803. COLLECTION OF INDEBTEDNESS AND SUITS FOR ENFORCEMENT BY TRUSTEE.
If an Event of Default described in clause (a) or (b) of Section 801
shall have occurred and be continuing, the Company shall, upon demand of the
Trustee, pay to it, for the benefit of the Holders of the Securities of the
series with respect to which such Event of Default shall have occurred, the
whole amount then due and payable on such Securities for principal and premium,
if any, and interest, if any, and, to the extent permitted by law, interest on
premium, if any, and on any overdue principal and interest, at the rate or rates
prescribed therefor in such Securities, and, in addition thereto, such further
amount as shall be sufficient to cover any amounts due to the Trustee under
Section 907.
If the Company shall fail to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust, may
institute a judicial proceeding for the collection of the sums so due and
unpaid, may prosecute such proceeding to judgment or final decree and may
enforce the same against the Company or any other obligor upon such Securities
and collect the moneys adjudged or decreed to be payable in the manner provided
by law out of the property of the Company or any other obligor upon such
Securities, wherever situated.
If an Event of Default with respect to Securities of any series shall
have occurred and be continuing, the Trustee may in its discretion proceed to
protect and enforce its rights and the rights of the Holders of Securities of
such series by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 804. TRUSTEE MAY FILE PROOFS OF CLAIM.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities or the property of the Company or of such other obligor or their
creditors, the Trustee (irrespective of whether the principal of the Securities
shall then be due and payable as therein expressed or by declaration or
otherwise and irrespective of whether the Trustee shall have made any demand on
the Company for the payment of overdue principal or interest) shall be entitled
and empowered, by intervention in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of principal,
premium, if any, and interest, if any, owing and unpaid in respect of the
Securities and to file such other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee (including any claim for
amounts due to the Trustee under Section 907) and of the Holders allowed in
such judicial proceeding, and
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(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Trustee and, in the event that the
Trustee shall consent to the making of such payments directly to the Holders, to
pay to the Trustee any amounts due it under Section 907.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding.
SECTION 805. TRUSTEE MAY ENFORCE CLAIMS WITHOUT POSSESSION OF SECURITIES.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders in respect of which such judgment has been
recovered.
SECTION 806. APPLICATION OF MONEY COLLECTED.
Subject to the provisions of Article Fifteen, any money collected by the
Trustee pursuant to this Article shall be applied in the following order, at the
date or dates fixed by the Trustee and, in case of the distribution of such
money on account of principal or premium, if any, or interest, if any, upon
presentation of the Securities in respect of which or for the benefit of which
such money shall have been collected and the notation thereon of the payment if
only partially paid and upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under Section 907;
SECOND: To the payment of the amounts then due and unpaid upon the
Securities for principal of and premium, if any, and interest, if any, in
respect of which or for the benefit of which such money has been collected,
ratably, without preference or priority of any kind, according to the amounts
due and payable on such Securities for principal, premium, if any, and
interest, if any, respectively; and
THIRD: To the payment of the remainder, if any, to the Company or to
whomsoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct.
SECTION 807. LIMITATION ON SUITS.
No Holder shall have any right to institute any proceeding, judicial or
otherwise, with respect to this Indenture, or for the appointment of a receiver
or trustee, or for any other remedy hereunder, unless:
(a) such Holder shall have previously given written notice to the
Trustee of a continuing Event of Default with respect to the Securities of
such series;
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(b) the Holders of not less than a majority in aggregate principal
amount of the Outstanding Securities of all series in respect of which an
Event of Default shall have occurred and be continuing, considered as one
class, shall have made written request to the Trustee to institute
proceedings in respect of such Event of Default in its own name as Trustee
hereunder;
(c) such Holder or Holders shall have offered to the Trustee reasonable
indemnity against the costs, expenses and liabilities to be incurred in
compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice, request
and offer of indemnity shall have failed to institute any such proceeding;
and
(e) no direction inconsistent with such written request shall have been
given to the Trustee during such 60-day period by the Holders of a majority
in aggregate principal amount of the Outstanding Securities of all series in
respect of which an Event of Default shall have occurred and be continuing,
considered as one class;
it being understood and intended that no one or more of such Holders shall have
any right in any manner whatever by virtue of, or by availing of, any provision
of this Indenture to affect, disturb or prejudice the rights of any other of
such Holders or to obtain or to seek to obtain priority or preference over any
other of such Holders or to enforce any right under this Indenture, except in
the manner herein provided and for the equal and ratable benefit of all of such
Holders.
SECTION 808. UNCONDITIONAL RIGHT OF HOLDERS TO RECEIVE PRINCIPAL,
Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of any
Security shall have the right, which is absolute and unconditional, to receive
payment of the principal of and premium, if any, and (subject to Section 307 and
311) interest, if any, on such Security on the Stated Maturity or Maturities
expressed in such Security (or, in the case of redemption, on the Redemption
Date) and to institute suit for the enforcement of any such payment, and such
rights shall not be impaired without the consent of such Holder. Any holder of
related Preferred Securities shall have the right to institute suit for the
enforcement of any such payment to such holder with respect to Securities
relating to such Preferred Securities having a principal amount equal to the
aggregate liquidation preference amount of the related Preferred Securities held
by such holder.
SECTION 809. RESTORATION OF RIGHTS AND REMEDIES.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding shall have been
discontinued or abandoned for any reason, or shall have been determined
adversely to the Trustee or to such Holder, then and in every such case, subject
to any determination in such proceeding, the Company, and Trustee and such
Holder shall be restored severally and respectively to their former positions
hereunder and thereafter all rights and remedies of the Trustee and such Holder
shall continue as though no such proceeding had been instituted.
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SECTION 810. RIGHTS AND REMEDIES CUMULATIVE.
Except as otherwise provided in the last paragraph of Section 306, no
right or remedy herein conferred upon or reserved to the Trustee or to the
Holders is intended to be exclusive of any other right or remedy, and every
right and remedy shall, to the extent permitted by law, be cumulative and in
addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
SECTION 811. DELAY OR OMISSION NOT WAIVER.
No delay or omission of the Trustee or of any Holder to exercise any
right or remedy accruing upon any Event of Default shall impair any such right
or remedy or constitute a waiver of any such Event of Default or an acquiescence
therein. Every right and remedy given by this Article or by law to the Trustee
or to the Holders may be exercised from time to time, and as often as may be
deemed expedient, by the Trustee or by the Holders, as the case may be.
SECTION 812. CONTROL BY HOLDERS OF SECURITIES.
If an Event of Default shall have occurred and be continuing in respect
of a series of Securities, the Holders of a majority in principal amount of the
Outstanding Securities of such series shall have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred on the Trustee, with respect
to the Securities of such series; provided, however, that if an Event of Default
shall have occurred and be continuing with respect to more than one series of
Securities, the Holders of a majority in aggregate principal amount of the
Outstanding Securities of all such series, considered as one class, shall have
the right to make such direction, and not the Holders of the Securities of any
one of such series; and provided, further, that such direction shall not be in
conflict with any rule of law or with this Indenture. The Trustee may take any
other action deemed proper by the Trustee which is not inconsistent with such
direction. Before proceeding to exercise any right or power hereunder at the
direction of such Holders, the Trustee shall be entitled to receive from such
Holders reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred by it in compliance with any such direction.
SECTION 813. WAIVER OF PAST DEFAULTS.
The Holders of not less than a majority in principal amount of the
Outstanding Securities of any series may on behalf of the Holders of all the
Securities of such series waive any past default hereunder with respect to such
series and its consequences, except a default:
(a) in the payment of the principal of or premium, if any, or interest,
if any, on any Security of such series, or
(b) in respect of a covenant or provision hereof which under Section
1202 cannot be modified or amended without the consent of the Holder of each
Outstanding Security of such series affected;
provided, however, that so long as a Trust holds the Securities of any series,
such Trust may not waive any past default without the consent of at least a
majority in aggregate liquidation preference of the outstanding Preferred
Securities issued by such Trust affected, obtained as provided in the Trust
Agreement pertaining to such Trust.
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Upon any such waiver, such default shall cease to exist, and any and all
Events of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
SECTION 814. UNDERTAKING FOR COSTS.
The Company and the Trustee agree, and each Holder by his acceptance
thereof shall be deemed to have agreed, that any court may in its discretion
require, in any suit for the enforcement of any right or remedy under this
Indenture, or in any suit against the Trustee for any action taken, suffered or
omitted by it as Trustee, the filing by any party litigant in such suit of an
undertaking to pay the costs of such suit, and that such court may in its
discretion assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; provided,
however, that the provisions of this Section shall not apply to any suit
instituted by the Company, to any suit instituted by the Trustee, to any suit
instituted by any Holder, or group of Holders, holding in the aggregate more
than 10% in aggregate principal amount of the Outstanding Securities of all
series in respect of which such suit may be brought, considered as one class, or
to any suit instituted by any Holder for the enforcement of the payment of the
principal of or premium, if any, or interest, if any, on any Security on or
after the Stated Maturity or Maturities expressed in such Security (or, in the
case of redemption, on or after the Redemption Date).
SECTION 815. WAIVER OF STAY OR EXTENSION LAWS.
The Company covenants (to the extent that it may lawfully do so) that it
will not at any time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law wherever enacted,
now or at any time hereafter in force, which may affect the covenants or the
performance of this Indenture; and the Company (to the extent that it may
lawfully do so) hereby expressly waives all benefit or advantage of any such law
and covenants that it will not hinder, delay or impede the execution of any
power herein granted to the Trustee, but will suffer and permit the execution of
every such power as though no such law had been enacted.
ARTICLE NINE
The Trustee
SECTION 901. CERTAIN DUTIES AND RESPONSIBILITIES.
(a) Except during the continuance of an Event of Default,
(i) 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
(ii) 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; provided, however, that, in the case of any such certificates
or opinions which by any provisions hereof are specifically
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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
(i) this Subsection shall not be construed to limit the effect of
Subsection (a) of this Section;
(ii) the Trustee shall not be liable for any error or judgment
made in good faith by a Responsible Officer, unless it shall be proved
that the Trustee was negligent in ascertaining the pertinent facts; and
(iii) 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 Holders pursuant to Section 812 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 with respect to the Securities of such
series.
(d) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder, or in the exercise of any of its
rights or powers, if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
(e) Whether or not therein expressly so provided, every provision of
this Indenture relating to the conduct or affecting the liability of or
affording protection to the Trustee shall be subject to the provisions of
this Section.
SECTION 902. NOTICE OF DEFAULTS.
The Trustee shall give notice of any default hereunder with respect to
the Securities of any series to the Holders of Securities of such series in the
manner and to the extent required to do so by the Trust Indenture Act, unless
such default shall have been cured or waived; provided, however, that in the
case of any default of the character specified in Section 801(c), no such notice
to Holders shall be given until at least 45 days after the occurrence thereof.
For the purpose of this Section, the term "default" means any event which is, or
after notice or lapse of time, or both, would become, an Event of Default.
SECTION 903. CERTAIN RIGHTS OF TRUSTEE.
Subject to the provisions of Section 901 and to the applicable
provisions of the Trust Indenture Act:
(a) the Trustee may rely and shall be protected in acting or refraining
from acting in good faith upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
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order, bond, debenture, note, other evidence of indebtedness or other paper
or document reasonably believed by it to be genuine and to have been signed
or presented by the proper party or parties;
(b) any request or direction of the Company mentioned herein shall be
sufficiently evidenced by a Company Request or Company Order, or as otherwise
expressly provided herein, and any resolution of the Board of Directors may
be sufficiently evidenced by a Board Resolution;
(c) whenever in the administration of this Indenture the Trustee shall
deem it desirable that a matter be proved or established prior to taking,
suffering or omitting any action hereunder, the Trustee (unless other
evidence be herein specifically prescribed) may, in the absence of bad faith
on its part, rely upon an Officer's Certificate;
(d) the Trustee may consult with counsel and the advice of such counsel
or any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted by it
hereunder in good faith and in reliance thereon;
(e) the Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request or direction
of any Holder pursuant to this Indenture, unless such Holder shall have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with
such request or direction;
(f) the Trustee shall not be bound to make any investigation into the
facts or matters stated in any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent, order,
bond, debenture, note, other evidence of indebtedness or other paper or
document, but the Trustee, in its discretion, may make such further inquiry
or investigation into such facts or matters as it may see fit, and, if the
Trustee shall determine to make such further inquiry or investigation, it
shall (subject to applicable legal requirements) be entitled to examine,
during normal business hours, the books, records and premises of the Company,
personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys and the Trustee shall not be responsible for any misconduct or
negligence on the part of any agent or attorney appointed with due care by it
hereunder; and
(h) the Trustee shall not be charged with knowledge of any default or
Event of Default, as the case may be, with respect to the Securities of any
series for which it is acting as Trustee unless either (i) a Responsible
Officer of the Trustee shall have actual knowledge of the default or Event of
Default, as the case may be, or (ii) written notice of such default or Event
of Default, as the case may be, shall have been given to the Trustee by the
Company, any other obligor on such Securities or by any Holder of such
Securities.
SECTION 904. NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF SECURITIES.
The recitals contained herein and in the Securities (except the
Trustee's certificates of authentication) shall be taken as the statements of
the Company, and neither the Trustee nor any Authenticating Agent assumes
responsibility for their correctness. The Trustee makes no representations as
to the validity or sufficiency of this Indenture or of the Securities. Neither
the Trustee nor any Authenticating Agent shall be accountable for the use or
application by the Company of Securities or the proceeds thereof.
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SECTION 905. MAY HOLD SECURITIES.
Each of the Trustee, any Authenticating Agent, any Paying Agent, any
Security Registrar or any other agent of the Company, in its individual or any
other capacity, may become the owner or pledgee of Securities and (subject to
Sections 908 and 913) may otherwise deal with the Company with the same rights
it would have if it were not the Trustee, Authenticating Agent, Paying Agent,
Security Registrar or such other agent.
SECTION 906. MONEY HELD IN TRUST.
Money held by the Trustee in trust hereunder need not be segregated from
other funds, except to the extent required by law. The Trustee shall be under
no liability for interest on any money received by it hereunder except as
expressly provided herein or otherwise agreed with, and for the sole benefit of,
the Company.
SECTION 907. COMPENSATION AND REIMBURSEMENT.
The Company shall
(a) pay to the Trustee from time to time reasonable compensation for
all services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a trustee of
an express trust);
(b) except as otherwise expressly provided herein, reimburse the
Trustee upon its request for all reasonable expenses (including any costs of
collection), disbursements and advances reasonably incurred or made by the
Trustee in accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its agents and
counsel), except to the extent that any such expense, disbursement or advance
may be attributable to the Trustee's negligence, wilful misconduct or bad
faith; and
(c) indemnify the Trustee for, and hold it harmless from and against,
any and all losses, liabilities, demands, claims, causes of action or
expenses (including reasonable attorneys' fees and expenses) incurred by it
arising out of or in connection with the acceptance or administration of the
trust or trusts hereunder or the performance of its duties hereunder,
including the reasonable costs and expenses of defending itself against any
claim or liability in connection with the exercise or performance of any of
its powers or duties hereunder, except to the extent any such loss,
liability, demand, claim, cause of action or expense may be attributable to
its negligence, wilful misconduct or bad faith. At the option of the Trustee,
the Company shall assume the defense of the Trustee with counsel acceptable
to the Trustee.
As security for the performance of the obligations of the Company under
this Section, the Trustee shall have a lien prior to the Securities upon all
property and funds held or collected by the Trustee as such other than property
and funds held in trust under Section 703 (except as otherwise provided in
Section 703). "Trustee" for purposes of this Section shall include any
predecessor Trustee; provided, however, that the negligence, wilful misconduct
or bad faith of any Trustee hereunder shall not affect the rights of any other
Trustee hereunder.
In addition to the rights provided to the Trustee pursuant to the
provisions of the immediately preceding paragraph of this Section 907, when the
Trustee incurs expenses or renders services in connection with an Event of
Default specified in Section 801(d) or Section 801(e), the expenses (including
the reasonable charges and expenses of its counsel) and the compensation for the
services are intended to constitute expenses of administration under any
applicable Federal or State bankruptcy, insolvency or other similar law.
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The provisions of this Section 907 shall survive the termination for any
reason of this Indenture.
SECTION 908. DISQUALIFICATION; CONFLICTING INTERESTS.
If the Trustee shall have or acquire any conflicting interest within the
meaning of the Trust Indenture Act, it shall either eliminate such conflicting
interest or resign to the extent, in the manner and with the effect, and subject
to the conditions, provided in the Trust Indenture Act and this Indenture. For
purposes of Section 310(b)(1) of the Trust Indenture Act and to the extent
permitted thereby, the Trustee, in its capacity as trustee in respect of the
Securities of any series, shall not be deemed to have a conflicting interest
arising from its capacity as trustee in respect of the Securities of any other
series, under any Guarantee, or as trustee under the Junior Subordinated
Indenture dated as of October 1, 1996, the Amended and Restated Trust Agreement
dated as of October 1, 1996 and the Guarantee Agreement dated as of October 1,
1996, relating to the Company's 8.25% Junior Subordinated Deferrable Interest
Debentures. Each Trust Agreement and each Guarantee pertaining to each Trust
shall be deemed to be specifically described in this Indenture for the purposes
of clause (i) of the first proviso contained in Section 310(b) of the Trust
Indenture Act.
SECTION 909. CORPORATE TRUSTEE REQUIRED; ELIGIBILITY.
There shall at all times be a Trustee hereunder which shall be
(a) a corporation organized and doing business or other Person
permitted by the Commission authorized under the laws of the United States,
any State or Territory thereof or the District of Columbia, authorized under
such laws to exercise corporate trust powers, having a combined capital and
surplus of at least $50,000,000 and subject to supervision or examination by
Federal or State authority, or
(b) if and to the extent permitted by the Commission by rule,
regulation or order upon application, a corporation or other Person organized
and doing business under the laws of a foreign government, authorized under
such laws to exercise corporate trust powers, having a combined capital and
surplus of at least $50,000,000 or the Dollar equivalent of the applicable
foreign currency and subject to supervision or examination by authority of
such foreign government or a political subdivision thereof substantially
equivalent to supervision or examination applicable to United States
institutional trustees,
and, in either case, qualified and eligible under this Article and the Trust
Indenture Act. If such corporation publishes reports of condition at least
annually, pursuant to law or to the requirements of such supervising or
examining authority, then for the purposes of this Section, the combined capital
and surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. If at
any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, it shall resign immediately in the manner and with
the effect hereinafter specified in this Article.
SECTION 910. RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 911.
(b) The Trustee may resign at any time with respect to the Securities
of one or more series by giving written notice thereof to the Company. If
the instrument of acceptance by a successor Trustee
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required by Section 911 shall not have been delivered to the Trustee within
30 days after the giving of such notice of resignation, the resigning Trustee
may petition any court of competent jurisdiction for the appointment of a
successor Trustee with respect to the Securities of such series.
(c) The Trustee may be removed at any time with respect to the
Securities of any series by Act of the Holders of a majority in principal
amount of the Outstanding Securities of such series delivered to the Trustee
and to the Company; provided, however, that so long as any Preferred
Securities remain outstanding, the Trust which issued such Preferred
Securities shall not execute any Act to remove the Trustee without the
consent of the holders of a majority in aggregate liquidation preference of
Preferred Securities issued by such Trust outstanding, obtained as provided
in the Trust Agreement pertaining to such Trust.
(d) If at any time:
(i) the Trustee shall fail to comply with Section 908 after written
request therefor by the Company or by any Holder who has been a bona
fide Holder for at least six months, or
(ii) the Trustee shall cease to be eligible under Section 909 and
shall fail to resign after written request therefor by the Company or by
any such Holder, or
(iii) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (x) the Company by a Board Resolution may remove the
Trustee with respect to all Securities or (y) subject to Section 814, any Holder
who has been a bona fide Holder for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee with respect to all Securities and
the appointment of a successor Trustee or Trustees.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause
(other than as contemplated in clause (y) in subsection (d) of this Section),
with respect to the Securities of one or more series, the Company, by a Board
Resolution, shall promptly appoint a successor Trustee or Trustees with
respect to the Securities of that or those series (it being understood that
any such successor Trustee may be appointed with respect to the Securities of
one or more or all of such series and that at any time there shall be only
one Trustee with respect to the Securities of any particular series) and
shall comply with the applicable requirements of Section 911. If, within one
year after such resignation, removal or incapability, or the occurrence of
such vacancy, a successor Trustee with respect to the Securities of any
series shall be appointed by Act of the Holders of a majority in principal
amount of the Outstanding Securities of such series delivered to the Company
and the retiring Trustee, the successor Trustee so appointed shall, forthwith
upon its acceptance of such appointment in accordance with the applicable
requirements of Section 911, become the successor Trustee with respect to the
Securities of such series and to that extent supersede the successor Trustee
appointed by the Company. If no successor Trustee with respect to the
Securities of any series shall have been so appointed by the Company or the
Holders and accepted appointment in the manner required by Section 911, any
Holder who has been a bona fide Holder of a Security of such series for at
least six months may, on behalf of itself and all others similarly situated,
petition any court of competent jurisdiction for the appointment of a
successor Trustee with respect to the Securities of such series.
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(f) So long as no event which is, or after notice or lapse of time, or
both, would become, an Event of Default shall have occurred and be
continuing, and except with respect to a Trustee appointed by Act of the
Holders of a majority in principal amount of the Outstanding Securities
pursuant to subsection (e) of this Section, if the Company shall have
delivered to the Trustee (i) a Board Resolution appointing a successor
Trustee, effective as of a date specified therein, and (ii) an instrument of
acceptance of such appointment, effective as of such date, by such successor
Trustee in accordance with Section 911, the Trustee shall be deemed to have
resigned as contemplated in subsection (b) of this Section, the successor
Trustee shall be deemed to have been appointed by the Company pursuant to
subsection (e) of this Section and such appointment shall be deemed to have
been accepted as contemplated in Section 911, all as of such date, and all
other provisions of this Section and Section 911 shall be applicable to such
resignation, appointment and acceptance except to the extent inconsistent
with this subsection (f).
(g) The Company (or, should the Company fail so to act promptly, the
successor Trustee at the expense of the Company) shall give notice of each
resignation and each removal of the Trustee with respect to the Securities of
any series and each appointment of a successor Trustee with respect to the
Securities of any series by mailing written notice of such event by first-
class mail, postage prepaid, to all Holders of Securities of such series as
their names and addresses appear in the Security Register. Each notice shall
include the name of the successor Trustee with respect to the Securities of
such series and the address of its corporate trust office.
SECTION 911. ACCEPTANCE OF APPOINTMENT BY SUCCESSOR.
(a) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of all series, every such successor Trustee so
appointed shall execute, acknowledge and deliver to the Company and to the
retiring Trustee an instrument accepting such appointment, and thereupon the
resignation or removal of the retiring Trustee shall become effective and
such successor Trustee, without any further act, deed or conveyance, shall
become vested with all the rights, powers, trusts and duties of the retiring
Trustee; provided, however that on the request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of all sums owed
to it, execute and deliver an instrument transferring to such successor
Trustee all the rights, powers and trusts of the retiring Trustee and shall
duly assign, transfer and deliver to such successor Trustee all property and
money held by such retiring Trustee hereunder.
(b) In case of the appointment hereunder of a successor Trustee with
respect to the Securities of one or more (but not all) series, the Company,
the retiring Trustee and each successor Trustee with respect to the
Securities of one or more series shall execute and deliver an indenture
supplemental hereto wherein each successor Trustee shall accept such
appointment and which (i) shall contain such provisions as shall be necessary
or desirable to transfer and confirm to, and to vest in, each successor
Trustee all the rights, powers, trusts and duties of the retiring Trustee
with respect to the Securities of that or those series to which the
appointment of such successor Trustee relates, (ii) if the retiring Trustee
is not retiring with respect to all Securities, shall contain such provisions
as shall be deemed necessary or desirable to confirm that all the rights,
powers, trusts and duties of the retiring Trustee with respect to the
Securities of that or those series as to which the retiring Trustee is not
retiring shall continue to be vested in the retiring Trustee and (iii) shall
add to or change any of the provisions of this Indenture as shall be
necessary to provide for or facilitate the administration of the trusts
hereunder by more than one Trustee, it being understood that nothing herein
or in such supplemental indenture shall constitute such Trustees co-trustees
of the same trust and that each such Trustee shall be trustee of a trust or
trusts hereunder separate and apart from any trust or trusts hereunder
administered by any other such Trustee; and upon the execution and delivery
of such supplemental indenture the resignation or removal of the retiring
Trustee shall become effective to the extent provided therein and
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each such successor Trustee, without any further act, deed or conveyance,
shall become vested with all the rights, powers, trusts and duties of the
retiring Trustee with respect to the Securities of that or those series to
which the appointment of such successor Trustee relates; provided, however
that on request of the Company or any successor Trustee, such retiring
Trustee, upon payment of all sums owed to it, shall duly assign, transfer and
deliver to such successor Trustee all property and money held by such
retiring Trustee hereunder with respect to the Securities of that or those
series to which the appointment of such successor Trustee relates.
(c) Upon request of any such successor Trustee, the Company shall
execute any instruments which fully vest in and confirm to such successor
Trustee all such rights, powers and trusts referred to in subsection (a) or
(b) of this Section, as the case may be.
(d) No successor Trustee shall accept its appointment unless at the
time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 912. MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO BUSINESS.
Any corporation or other Person into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation or other
Person resulting from any merger, conversion or consolidation to which the
Trustee shall be a party, or any corporation or other Person succeeding to all
or substantially all the corporate trust business of the Trustee, shall be the
successor of the Trustee hereunder, provided such corporation or other Person
shall be otherwise qualified and eligible under this Article, without the
execution or filing of any paper or any further act on the part of any of the
parties hereto. In case any Securities shall have been authenticated, but not
delivered, by the Trustee then in office, any successor by merger, conversion or
consolidation to such authenticating Trustee may adopt such authentication and
deliver the Securities so authenticated with the same effect as if such
successor Trustee had itself authenticated such Securities.
SECTION 913. PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY.
If the Trustee shall be or become a creditor of the Company or any other
obligor upon the Securities (other than by reason of a relationship described in
Section 311(b) of the Trust Indenture Act), the Trustee shall be subject to any
and all applicable provisions of the Trust Indenture Act regarding the
collection of claims against the Company or such other obligor. For purposes of
Section 311(b) of the Trust Indenture Act:
(a) the term "cash transaction" means any transaction in which full
payment for goods or securities sold is made within seven days after delivery
of the goods or securities in currency or in checks or other orders drawn
upon banks or bankers and payable upon demand;
(b) the term "self-liquidating paper" means any draft, bill of exchange,
acceptance or obligation which is made, drawn, negotiated or incurred by the
Company for the purpose of financing the purchase, processing, manufacturing,
shipment, storage or sale of goods, wares or merchandise and which is secured
by documents evidencing title to, possession of, or a lien upon, the goods,
wares or merchandise or the receivables or proceeds arising from the sale of
the goods, wares or merchandise previously constituting the security,
provided the security is received by the Trustee simultaneously with the
creation of the creditor relationship with the Company arising from the
making, drawing, negotiating or incurring of the draft, bill of exchange,
acceptance or obligation.
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SECTION 914. CO-TRUSTEES AND SEPARATE TRUSTEES.
At any time or times, for the purpose of meeting the legal requirements
of any applicable jurisdiction, the Company and the Trustee shall have power to
appoint, and, upon the written request of the Trustee or of the Holders of at
least 25% in principal amount of the Securities then Outstanding, the Company
shall for such purpose join with the Trustee in the execution and delivery of
all instruments and agreements necessary or proper to appoint, one or more
Persons approved by the Trustee either to act as co-trustee, jointly with the
Trustee, or to act as separate trustee, in either case with such powers as may
be provided in the instrument of appointment, and to vest in such Person or
Persons, in the capacity aforesaid, any property, title, right or power deemed
necessary or desirable, subject to the other provisions of this Section. If the
Company does not join in such appointment within 15 days after the receipt by it
of a request so to do, or if an Event of Default shall have occurred and be
continuing, the Trustee alone shall have power to make such appointment.
Should any written instrument or instruments from the Company be
required by any co-trustee or separate trustee so appointed to more fully
confirm to such co-trustee or separate trustee such property, title, right or
power, any and all such instruments shall, on request, be executed, acknowledged
and delivered by the Company.
Every co-trustee or separate trustee shall, to the extent permitted by
law, but to such extent only, be appointed subject to the following conditions:
(a) the Securities shall be authenticated and delivered, and all
rights, powers, duties and obligations hereunder in respect of the custody of
securities, cash and other personal property held by, or required to be
deposited or pledged with, the Trustee hereunder, shall be exercised solely,
by the Trustee;
(b) the rights, powers, duties and obligations hereby conferred or
imposed upon the Trustee in respect of any property covered by such
appointment shall be conferred or imposed upon and exercised or performed
either by the Trustee or by the Trustee and such co-trustee or separate
trustee jointly, as shall be provided in the instrument appointing such co-
trustee or separate trustee, except to the extent that under any law of any
jurisdiction in which any particular act is to be performed, the Trustee
shall be incompetent or unqualified to perform such act, in which event such
rights, powers, duties and obligations shall be exercised and performed by
such co-trustee or separate trustee;
(c) the Trustee at any time, by an instrument in writing executed by
it, with the concurrence of the Company, may accept the resignation of or
remove any co-trustee or separate trustee appointed under this Section, and,
if an Event of Default shall have occurred and be continuing, the Trustee
shall have power to accept the resignation of, or remove, any such co-trustee
or separate trustee without the concurrence of the Company. Upon the written
request of the Trustee, the Company shall join with the Trustee in the
execution and delivery of all instruments and agreements necessary or proper
to effectuate such resignation or removal. A successor to any co-trustee or
separate trustee so resigned or removed may be appointed in the manner
provided in this Section;
(d) no co-trustee or separate trustee hereunder shall be personally
liable by reason of any act or omission of the Trustee, or any other such
trustee hereunder; and
(e) any Act of Holders delivered to the Trustee shall be deemed to have
been delivered to each such co-trustee and separate trustee.
SECTION 915. APPOINTMENT OF AUTHENTICATING AGENT.
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The Trustee may appoint an Authenticating Agent or Agents with respect
to the Securities of one or more series, which shall be authorized to act on
behalf of the Trustee to authenticate Securities of such series issued upon
original issuance and upon exchange, registration of transfer or partial
redemption thereof or pursuant to Section 306, and Securities so authenticated
shall be entitled to the benefits of this Indenture and shall be valid and
obligatory for all purposes as if authenticated by the Trustee hereunder.
Wherever reference is made in this Indenture to the authentication and delivery
of Securities by the Trustee or the Trustee's certificate of authentication,
such reference shall be deemed to include authentication and delivery on behalf
of the Trustee by an Authenticating Agent and a certificate of authentication
executed on behalf of the Trustee by an Authenticating Agent. Each
Authenticating Agent shall be acceptable to the Company and shall at all times
be a corporation organized and doing business under the laws of the United
States, any State or territory thereof or the District of Columbia, authorized
under such laws to act as Authenticating Agent, having a combined capital and
surplus of not less than $50,000,000 and subject to supervision or examination
by Federal or State authority. If such Authenticating Agent publishes reports
of condition at least annually, pursuant to law or to the requirements of said
supervising or examining authority, then for the purposes of this Section, the
combined capital and surplus of such Authenticating Agent shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time an Authenticating Agent shall cease to
be eligible in accordance with the provisions of this Section, such
Authenticating Agent shall resign immediately in the manner and with the effect
specified in this Section.
Any corporation into which an Authenticating Agent may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which such Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency or
corporate trust business of an Authenticating Agent, shall continue to be an
Authenticating Agent, provided such corporation shall be otherwise eligible
under this Section, without the execution or filing of any paper or any further
act on the part of the Trustee or the Authenticating Agent.
An Authenticating Agent may resign at any time by giving written
notice thereof to the Trustee and to the Company. The Trustee may at any time
terminate the agency of an Authenticating Agent by giving written notice thereof
to such Authenticating Agent and to the Company. Upon receiving such a notice
of resignation or upon such a termination, or in case at any time such
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section, the Trustee may appoint a successor Authenticating
Agent which shall be acceptable to the Company. Any successor Authenticating
Agent upon acceptance of its appointment hereunder shall become vested with all
the rights, powers and duties of its predecessor hereunder, with like effect as
if originally named as an Authenticating Agent. No successor Authenticating
Agent shall be appointed unless eligible under the provisions of this Section.
The Company agrees to pay to each Authenticating Agent from time to
time reasonable compensation for its services under this Section, and the
Trustee shall be entitled to be reimbursed for such payments, in accordance
with, and subject to the provisions of Section 907.
The provisions of Sections 308, 904 and 905 shall be applicable to
each Authenticating Agent.
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If an appointment with respect to the Securities of one or more series
shall be made pursuant to this Section, the Securities of such series may have
endorsed thereon, in addition to the Trustee's certificate of authentication, an
alternate certificate of authentication substantially in the following form:
This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.
-------------------------------
As Trustee
By
-----------------------------
As Authenticating Agent
By
-----------------------------
Authorized Signatory
If all of the Securities of a series may not be originally issued at
one time, and if the Trustee does not have an office capable of authenticating
Securities upon original issuance located in a Place of Payment where the
Company wishes to have Securities of such series authenticated upon original
issuance, the Trustee, if so requested by the Company in writing (which writing
need not comply with Section 102 and need not be accompanied by an Opinion of
Counsel), shall appoint, in accordance with this Section and in accordance with
such procedures as shall be acceptable to the Trustee, an Authenticating Agent
having an office in a Place of Payment designated by the Company with respect to
such series of Securities.
ARTICLE TEN
Holders' Lists and Reports by Trustee and Company
SECTION 1001. LISTS OF HOLDERS.
Semiannually, not later than January 15 and July 15 in each year,
commencing January 15, 1999, and at such other times as the Trustee may request
in writing, the Company shall furnish or cause to be furnished to the Trustee
information as to the names and addresses of the Holders, and the Trustee shall
preserve such information and similar information received by it in any other
capacity and afford to the Holders access to information so preserved by it, all
to such extent, if any, and in such manner as shall be required by the Trust
Indenture Act; provided, however, that no such list need be furnished so long as
the Trustee shall be the Security Registrar.
SECTION 1002. REPORTS BY TRUSTEE.
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(a) The Trustee shall transmit to the 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. Such of those reports as are required to be transmitted by the 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, 1999.
(b) A copy of each such report shall, at the time of such
transmission to the Holders, be filed by the Trustee with each stock exchange
upon which the Securities are listed, with the Commission and with the Company.
The Company shall notify the Trustee when any Securities shall have been listed
on any stock exchange.
SECTION 1003. REPORTS TO THE TRUSTEE. The Company shall provide to the Trustee
such documents, reports, compliance certificates and information as may be
required by Section 314 of the Trust Indenture Act in the form, in the manner
and at the times required thereby. The Company shall notify the Trustee of the
listing of any Securities on any securities exchange. Delivery of such reports,
information and documents by the Company to the Trustee is for informational
purposes only and the Trustee's receipt of such shall not constitute
constructive notice of any information contained therein or determinable from
information contained therein, including the Company's compliance with any of
its covenants hereunder (as to which the Trustee is entitled to rely exclusively
on certificates of officers.
ARTICLE ELEVEN
Consolidation, Merger, Conveyance or Other Transfer
SECTION 1101. COMPANY MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS.
The Company shall not consolidate with or merge into any other
corporation, or convey or otherwise transfer or lease its properties and assets
substantially as an entirety to any Person, unless
(a) the corporation formed by such consolidation or into which the
Company is merged or the Person which acquires by conveyance or transfer,
or which leases, the properties and assets of the Company substantially as
an entirety shall be a Person organized and validly existing under the laws
of the United States, any State thereof or the District of Columbia, and
shall expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, the due and
punctual payment of the principal of and premium, if any, and interest, if
any, on all Outstanding Securities and the performance of every covenant of
this Indenture on the part of the Company to be performed or observed;
(b) immediately after giving effect to such transaction no Event of
Default, and no event which, after notice or lapse of time or both, would
become an Event of Default, shall have occurred and be continuing; and
(c) the Company shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, conveyance, or other
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transfer or lease and such supplemental indenture comply with this Article
and that all conditions precedent herein provided for relating to such
transactions have been complied with.
SECTION 1102. SUCCESSOR CORPORATION SUBSTITUTED.
Upon any consolidation by the Company with or merger by the Company
into any other corporation or any conveyance, or other transfer or lease of the
properties and assets of the Company substantially as an entirety in accordance
with Section 1101, the successor corporation formed by such consolidation or
into which the Company is merged or the Person to which such conveyance,
transfer or lease is made shall succeed to, and be substituted for, and may
exercise every right and power of, the Company under this Indenture with the
same effect as if such successor Person had been named as the Company herein,
and thereafter, except in the case of a lease, the predecessor Person shall be
relieved of all obligations and covenants under this Indenture and the
Securities Outstanding hereunder.
ARTICLE TWELVE
Supplemental Indentures
SECTION 1201. SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF HOLDERS.
Without the consent of any Holders, the Company and the Trustee, at
any time and from time to time, may enter into one or more indentures
supplemental hereto, in form satisfactory to the Trustee, for any of the
following purposes:
(a) to evidence the succession of another Person to the Company and
the assumption by any such successor of the covenants of the Company herein
and in the Securities, all as provided in Article Eleven; or
(b) to add one or more covenants of the Company or other provisions
for the benefit of all Holders or for the benefit of the Holders of, or to
remain in effect only so long as there shall be Outstanding, Securities of
one or more specified series, or to surrender any right or power herein
conferred upon the Company; or
(c) to add any additional Events of Default with respect to all or
any series of Securities Outstanding hereunder; or
(d) to change or eliminate any provision of this Indenture or to add
any new provision to this Indenture; provided, however, that if such
change, elimination or addition shall adversely affect the interests of the
Holders of Securities of any series Outstanding on the date of such
indenture supplemental hereto in any material respect, such change,
elimination or addition shall become effective with respect to such series
only pursuant to the provisions of Section 1202 hereof or when no Security
of such series remains Outstanding; or
(e) to provide collateral security for all but not part of the
Securities; or
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(f) to establish the form or terms of Securities of any series as
contemplated by Sections 201 and 301; or
(g) to provide for the authentication and delivery of bearer
securities and coupons appertaining thereto representing interest, if any,
thereon and for the procedures for the registration, exchange and
replacement thereof and for the giving of notice to, and the solicitation
of the vote or consent of, the holders thereof, and for any and all other
matters incidental thereto; or
(h) to evidence and provide for the acceptance of appointment
hereunder by a separate or successor Trustee with respect to the Securities
of one or more series and to add to or change any of the provisions of this
Indenture as shall be necessary to provide for or facilitate the
administration of the trusts hereunder by more than one Trustee, pursuant
to the requirements of Section 911(b); or
(i) to provide for the procedures required to permit the Company to
utilize, at its option, a noncertificated system of registration for all,
or any series of, the Securities; or
(j) to change any place or places where (i) the principal of and
premium, if any, and interest, if any, on all or any series of Securities
shall be payable, (ii) all or any series of Securities may be surrendered
for registration of transfer, (iii) all or any series of Securities may be
surrendered for exchange and (iv) notices and demands to or upon the
Company in respect of all or any series of Securities and this Indenture
may be served; or
(k) to cure any ambiguity, to correct or supplement any provision
herein which may be defective or inconsistent with any other provision
herein, or to make any other changes to the provisions hereof or to add
other provisions with respect to matters or questions arising under this
Indenture, provided that such other changes or additions shall not
adversely affect the interests of the Holders of Securities of any series
in any material respect.
Without limiting the generality of the foregoing, if the Trust
Indenture Act as in effect at the date of the execution and delivery of this
Indenture or at any time thereafter shall be amended and
(x) if any such amendment shall require one or more changes to
any provisions hereof or the inclusion herein of any additional
provisions, or shall by operation of law be deemed to effect such
changes or incorporate such provisions by reference or otherwise, this
Indenture shall be deemed to have been amended so as to conform to
such amendment to the Trust Indenture Act, and the Company and the
Trustee may, without the consent of any Holders, enter into an
indenture supplemental hereto to effect or evidence such changes or
additional provisions; or
(y) if any such amendment shall permit one or more changes to,
or the elimination of, any provisions hereof which, at the date of the
execution and delivery hereof or at any time thereafter, are required
by the Trust Indenture Act to be contained herein, this Indenture
shall be deemed to have been amended to effect such changes or
elimination, and the Company and the Trustee may, without
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the consent of any Holders, enter into an indenture supplemental
hereto to evidence such amendment hereof.
SECTION 1202. SUPPLEMENTAL INDENTURES WITH CONSENT OF HOLDERS.
With the consent of the Holders of not less than a majority in
aggregate principal amount of the Securities of all series then Outstanding
under this Indenture, considered as one class, by Act of said Holders delivered
to the Company and the Trustee, the Company, when authorized by a Board
Resolution, and the Trustee may enter into an indenture or indentures
supplemental hereto for the purpose of adding any provisions to, or changing in
any manner or eliminating any of the provisions of, this Indenture or modifying
in any manner the rights of the Holders of Securities of such series under the
Indenture; provided, however, that if there shall be Securities of more than one
series Outstanding hereunder and if a proposed supplemental indenture shall
directly affect the rights of the Holders of Securities of one or more, but less
than all, of such series, then the consent only of the Holders of a majority in
aggregate principal amount of the Outstanding Securities of all series so
directly affected, considered as one class, shall be required; and provided,
further, that no such supplemental indenture shall:
(a) change the Stated Maturity of the principal of, or any
installment of principal of or interest on (except as provided in Section
311 hereof), any Security, or reduce the principal amount thereof or the
rate of interest thereon (or the amount of any installment of interest
thereon) or change the method of calculating such rate or reduce any
premium payable upon the redemption thereof, or change the coin or currency
(or other property), in which any Security or any premium or the interest
thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity of any
Security (or, in the case of redemption, on or after the Redemption Date),
without, in any such case, the consent of the Holder of such Security, or
(b) reduce the percentage in principal amount of the Outstanding
Securities of any series (or, if applicable, in liquidation preference of
any series of Preferred Securities), the consent of the Holders of which is
required for any such supplemental indenture, or the consent of the Holders
of which is required for any waiver of compliance with any provision of
this Indenture or of any default hereunder and its consequences, or reduce
the requirements of Section 1304 for quorum or voting, without, in any such
case, the consent of the Holders of each Outstanding Security of such
series, or
(c) modify any of the provisions of this Section, Section 607 or
Section 813 with respect to the Securities of any series, except to
increase the percentages in principal amount referred to in this Section or
such other Sections or to provide that other provisions of this Indenture
cannot be modified or waived without the consent of the Holder of each
Outstanding Security affected thereby; provided, however, that this clause
shall not be deemed to require the consent of any Holder with respect to
changes in the references to "the Trustee" and concomitant changes in this
Section, or the deletion of this proviso, in accordance with the
requirements of Sections 911(b) and 1201(h).
Notwithstanding the foregoing, so long as any of the Preferred Securities remain
outstanding, the Trustee may not consent to a supplemental indenture under this
Section 1202 without the prior consent, obtained as provided in a Trust
Agreement pertaining to a Trust which issued such Preferred
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Securities, of the holders of not less than a majority in aggregate liquidation
preference of all Preferred Securities issued by such Trust affected, considered
as one class, or, in the case of changes described in clauses (a), (b) and (c)
above, 100% in aggregate liquidation preference of all such Preferred Securities
then outstanding which would be affected thereby, considered as one class. A
supplemental indenture which changes or eliminates any covenant or other
provision of this Indenture which has expressly been included solely for the
benefit of one or more particular series of Securities, or which modifies the
rights of the Holders of Securities of such series with respect to such covenant
or other provision, shall be deemed not to affect the rights under this
Indenture of the Holders of Securities of any other series.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof. A waiver by a
Holder of such Holder's right to consent under this Section shall be deemed to
be a consent of such Holder.
SECTION 1203. EXECUTION OF SUPPLEMENTAL INDENTURES.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and (subject to Section 901) shall be fully protected in relying upon, an
Opinion of Counsel stating that the execution of such supplemental indenture is
authorized or permitted by this Indenture. The Trustee may, but shall not be
obligated to, enter into any such supplemental indenture which affects the
Trustee's own rights, duties, immunities or liabilities under this Indenture or
otherwise.
SECTION 1204. EFFECT OF SUPPLEMENTAL INDENTURES.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby. Any supplemental indenture permitted by this Article
may restate this Indenture in its entirety, and, upon the execution and delivery
thereof, any such restatement shall supersede this Indenture as theretofore in
effect for all purposes.
SECTION 1205. CONFORMITY WITH TRUST INDENTURE ACT.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 1206. REFERENCE IN SECURITIES TO SUPPLEMENTAL INDENTURES.
Securities of any series 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 of any series so modified as to conform, in the
opinion of the Trustee and the Company, to any such supplemental indenture may
be prepared and executed by the Company and authenticated and delivered by the
Trustee in exchange for Outstanding Securities of such series.
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SECTION 1207. MODIFICATION WITHOUT SUPPLEMENTAL INDENTURE.
If the terms of any particular series of Securities shall have been
established in a Board Resolution or an Officer's Certificate as contemplated by
Section 301, and not in an indenture supplemental hereto, additions to, changes
in or the elimination of any of such terms may be effected by means of a
supplemental Board Resolution or Officer's Certificate, as the case may be,
delivered to, and accepted in writing by, the Trustee; provided, however, that
such supplemental Board Resolution or Officer's Certificate shall not be
accepted by the Trustee or otherwise be effective unless all conditions set
forth in this Indenture which would be required to be satisfied if such
additions, changes or elimination were contained in a supplemental indenture
shall have been appropriately satisfied. Upon the acceptance thereof by the
Trustee, any such supplemental Board Resolution or Officer's Certificate shall
be deemed to be a "supplemental indenture" for purposes of Section 1204 and
1206.
ARTICLE THIRTEEN
Meetings of Holders; Action Without Meeting
SECTION 1301. PURPOSES FOR WHICH MEETINGS MAY BE CALLED.
A meeting of Holders of Securities of one or more, or all, series may
be called at any time and from time to time pursuant to this Article to make,
give or take any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be made, given or taken by
Holders of Securities of such series.
SECTION 1302. CALL, NOTICE AND PLACE OF MEETINGS.
(a) The Trustee may at any time call a meeting of Holders of
Securities of one or more, or all, series for any purpose specified in
Section 1301, to be held at such time and at such place in the Borough of
Manhattan, The City of New York, as the Trustee shall determine, or, with
the approval of the Company, at any other place. Notice of every such
meeting, setting forth the time and the place of such meeting and in
general terms the action proposed to be taken at such meeting, shall be
given, in the manner provided in Section 106, not less than 21 nor more
than 180 days prior to the date fixed for the meeting.
(b) If the Trustee shall have been requested to call a meeting of the
Holders of Securities of one or more, or all, series by the Company or by
the Holders of 33% in aggregate principal amount of all of such series,
considered as one class, for any purpose specified in Section 1301, by
written request setting forth in reasonable detail the action proposed to
be taken at the meeting, and the Trustee shall not have given the notice of
such meeting within 21 days after receipt of such request or shall not
thereafter proceed to cause the meeting to be held as provided herein, then
the Company or the Holders of Securities of such series in the amount above
specified, as the case may be, may determine the time and the place in the
Borough of Manhattan, The City of New York, or in such other place as shall
be determined or approved by the Company, for such meeting and may call
such meeting for such purposes by giving notice thereof as provided in
subsection (a) of this Section.
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(c) Any meeting of Holders of Securities of one or more, or all,
series shall be valid without notice if the Holders of all Outstanding
Securities of such series are present in person or by proxy and if
representatives of the Company and the Trustee are present, or if notice is
waived in writing before or after the meeting by the Holders of all
Outstanding Securities of such series, or by such of them as are not
present at the meeting in person or by proxy, and by the Company and the
Trustee.
SECTION 1303. PERSONS ENTITLED TO VOTE AT MEETINGS.
To be entitled to vote at any meeting of Holders of Securities of one
or more, or all, series a Person shall be (a) a Holder of one or more
Outstanding Securities of such series, or (b) a Person appointed by an
instrument in writing as proxy for a Holder or Holders of one or more
Outstanding Securities of such series by such Holder or Holders. The only
Persons who shall be entitled to attend any meeting of Holders of Securities of
any series shall be the Persons entitled to vote at such meeting and their
counsel, any representatives of the Trustee and its counsel and any
representatives of the Company and its counsel.
SECTION 1304. QUORUM; ACTION.
The Persons entitled to vote a majority in aggregate principal amount
of the Outstanding Securities of the series with respect to which a meeting
shall have been called as hereinbefore provided, considered as one class, shall
constitute a quorum for a meeting of Holders of Securities of such series;
provided, however, that if any action is to be taken at such meeting which this
Indenture expressly provides may be taken by the Holders of a specified
percentage, which is less than a majority, in principal amount of the
Outstanding Securities of such series, considered as one class, the Persons
entitled to vote such specified percentage in principal amount of the
Outstanding Securities of such series, considered as one class, shall constitute
a quorum. In the absence of a quorum within one hour of the time appointed for
any such meeting, the meeting shall, if convened at the request of Holders of
Securities of such series, be dissolved. In any other case the meeting may be
adjourned for such period as may be determined by the chairman of the meeting
prior to the adjournment of such meeting. In the absence of a quorum at any
such adjourned meeting, such adjourned meeting may be further adjourned for such
period as may be determined by the chairman of the meeting prior to the
adjournment of such adjourned meeting. Except as provided by Section 1305(e),
notice of the reconvening of any meeting adjourned for more than 30 days shall
be given as provided in Section 1302(a) not less than 10 days prior to the date
on which the meeting is scheduled to be reconvened. Notice of the reconvening
of an adjourned meeting shall state expressly the percentage, as provided above,
of the principal amount of the Outstanding Securities of such series which shall
constitute a quorum.
Except as limited by Section 1202, any resolution presented to a
meeting or adjourned meeting duly reconvened at which a quorum is present as
aforesaid may be adopted only by the affirmative vote of the Holders of a
majority in aggregate principal amount of the Outstanding Securities of the
series with respect to which such meeting shall have been called, considered as
one class; provided, however, that, except as so limited, any resolution with
respect to any action which this Indenture expressly provides may be taken by
the Holders of a specified percentage, which is less than a majority, in
principal amount of the Outstanding Securities of such series, considered as one
class, may be adopted at a meeting or an adjourned meeting duly reconvened and
at which a quorum
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is present as aforesaid by the affirmative vote of the Holders of such specified
percentage in principal amount of the Outstanding Securities of such series,
considered as one class.
Any resolution passed or decision taken at any meeting of Holders of
Securities duly held in accordance with this Section shall be binding on all the
Holders of Securities of the series with respect to which such meeting shall
have been held, whether or not present or represented at the meeting.
SECTION 1305. ATTENDANCE AT MEETINGS; DETERMINATION OF VOTING RIGHTS;
CONDUCT AND ADJOURNMENT OF MEETINGS.
(a) Attendance at meetings of Holders of Securities may be in person
or by proxy; and, to the extent permitted by law, any such proxy shall
remain in effect and be binding upon any future Holder of the Securities
with respect to which it was given unless and until specifically revoked by
the Holder or future Holder of such Securities before being voted.
(b) Notwithstanding any other provisions of this Indenture, the
Trustee may make such reasonable regulations as it may deem advisable for
any meeting of Holders of Securities in regard to proof of the holding of
such Securities and of the appointment of proxies and in regard to the
appointment and duties of inspectors of votes, the submission and
examination of proxies, certificates and other evidence of the right to
vote, and such other matters concerning the conduct of the meeting as it
shall deem appropriate. Except as otherwise permitted or required by any
such regulations, the holding of Securities shall be proved in the manner
specified in Section 104 and the appointment of any proxy shall be proved
in the manner specified in Section 104. Such regulations may provide that
written instruments appointing proxies, regular on their face, may be
presumed valid and genuine without the proof specified in Section 104 or
other proof.
(c) The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been
called by the Company or by Holders as provided in Section 1302(b), in
which case the Company or the Holders of Securities of the series calling
the meeting, as the case may be, shall in like manner appoint a temporary
chairman. A permanent chairman and a permanent secretary of the meeting
shall be elected by vote of the Persons entitled to vote a majority in
aggregate principal amount of the Outstanding Securities of all series
represented at the meeting, considered as one class.
(d) At any meeting each Holder or proxy shall be entitled to one vote
for each $1 principal amount of Securities held or represented by him;
provided, however, that no vote shall be cast or counted at any meeting in
respect of any Security challenged as not Outstanding and ruled by the
chairman of the meeting to be not Outstanding. The chairman of the meeting
shall have no right to vote, except as a Holder of a Security or proxy.
(e) Any meeting duly called pursuant to Section 1302 at which a
quorum is present may be adjourned from time to time by Persons entitled to
vote a majority in aggregate principal amount of the Outstanding Securities
of all series represented at the meeting, considered as one class; and the
meeting may be held as so adjourned without further notice.
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SECTION 1306. COUNTING VOTES AND RECORDING ACTION OF MEETINGS.
The vote upon any resolution submitted to any meeting of Holders shall
be by written ballots on which shall be subscribed the signatures of the Holders
or of their representatives by proxy and the principal amounts and serial
numbers of the Outstanding Securities, of the series with respect to which the
meeting shall have been called, held or represented by them. The permanent
chairman of the meeting shall appoint two inspectors of votes who shall count
all votes cast at the meeting for or against any resolution and who shall make
and file with the secretary of the meeting their verified written reports of all
votes cast at the meeting. A record of the proceedings of each meeting of
Holders shall be prepared by the secretary of the meeting and there shall be
attached to said record the original reports of the inspectors of votes on any
vote by ballot taken thereat and affidavits by one or more persons having
knowledge of the facts setting forth a copy of the notice of the meeting and
showing that said notice was given as provided in Section 1302 and, if
applicable, Section 1304. Each copy shall be signed and verified by the
affidavits of the permanent chairman and secretary of the meeting and one such
copy shall be delivered to the Company, and another to the Trustee to be
preserved by the Trustee, the latter to have attached thereto the ballots voted
at the meeting. Any record so signed and verified shall be conclusive evidence
of the matters therein stated.
SECTION 1307. ACTION WITHOUT MEETING.
In lieu of a vote of Holders at a meeting as hereinbefore contemplated
in this Article, any request, demand, authorization, direction, notice, consent,
waiver or other action may be made, given or taken by Holders by written
instruments as provided in Section 104.
ARTICLE FOURTEEN
Immunity of Incorporators, Stockholders, Officers and Directors
SECTION 1401. LIABILITY SOLELY CORPORATE.
No recourse shall be had for the payment of the principal of or
premium, if any, or interest, if any, on any Securities, or any part thereof, or
for any claim based thereon or otherwise in respect thereof, or of the
indebtedness represented thereby, or upon any obligation, covenant or agreement
under this Indenture, against any incorporator, stockholder, officer or
director, as such, past, present or future of the Company or of any predecessor
or successor corporation (either directly or through the Company or a
predecessor or successor corporation), whether by virtue of any constitutional
provision, statute or rule of law, or by the enforcement of any assessment or
penalty or otherwise; it being expressly agreed and understood that this
Indenture and all the Securities are solely corporate obligations, and that no
personal liability whatsoever shall attach to, or be incurred by, any
incorporator, stockholder, officer or director, past, present or future, of the
Company or of any predecessor or successor corporation, either directly or
indirectly through the Company or any predecessor or successor corporation,
because of the indebtedness hereby authorized or under or by reason of any of
the obligations, covenants or agreements contained in this Indenture or in any
of the Securities or to be implied herefrom or therefrom, and that any such
personal liability is hereby expressly waived and released as a condition of,
and as part of the consideration for, the execution of this Indenture and the
issuance of the Securities.
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ARTICLE FIFTEEN
Subordination of Securities
SECTION 1501. SECURITIES SUBORDINATE TO SENIOR INDEBTEDNESS.
The Company, for itself, its successors and assigns, covenants and
agrees, and each Holder of the Securities of each series, by its acceptance
thereof, likewise covenants and agrees, that the payment of the principal of and
premium, if any, and interest, if any, on each and all of the Securities is
hereby expressly subordinated and subject to the extent and in the manner set
forth in this Article, in right of payment to the prior payment in full of all
Senior Indebtedness.
Each Holder of the Securities of each series, by its acceptance
thereof, authorizes and directs the Trustee on its behalf to take such action as
may be necessary or appropriate to effectuate the subordination as provided in
this Article, and appoints the Trustee its attorney-in-fact for any and all such
purposes.
SECTION 1502. PAYMENT OVER OF PROCEEDS OF SECURITIES.
In the event (a) of any insolvency or bankruptcy proceedings or any
receivership, liquidation, reorganization or other similar proceedings in
respect of the Company or a substantial part of its property, or of any
proceedings for liquidation, dissolution or other winding up of the Company,
whether or not involving insolvency or bankruptcy, or (b) subject to the
provisions of Section 1503, that (i) a default shall have occurred with respect
to the payment of principal of or interest on or other monetary amounts due and
payable on any Senior Indebtedness, or (ii) there shall have occurred a default
(other than a default in the payment of principal or interest or other monetary
amounts due and payable) in respect of any Senior Indebtedness, as defined
therein or in the instrument under which the same is outstanding, permitting the
holder or holders thereof to accelerate the maturity thereof (with notice or
lapse of time, or both), and such default shall have continued beyond the period
of grace, if any, in respect thereof, and, in the cases of subclauses (i) and
(ii) of this clause (b), such default shall not have been cured or waived or
shall not have ceased to exist, or (c) that the principal of and accrued
interest on the Securities of any series shall have been declared due and
payable pursuant to Section 801 and such declaration shall not have been
rescinded and annulled as provided in Section 802, then:
(1) the holders of all Senior Indebtedness shall first be entitled
to receive payment of the full amount due thereon, or provision shall
be made for such payment in money or money's worth, before the Holders
of any of the Securities are entitled to receive a payment on account
of the principal of or interest on the indebtedness evidenced by the
Securities, including, without limitation, any payments made pursuant
to Articles Four and Five;
(2) any payment by, or distribution of assets of, the Company of
any kind or character, whether in cash, property or securities, to
which any Holder or the Trustee would be entitled except for the
provisions of this Article, shall be paid or delivered by the person
making such payment or distribution, whether a trustee in bankruptcy,
a receiver or liquidating
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<PAGE>
trustee or otherwise, directly to the holders of such Senior
Indebtedness or their representative or representatives or to the
trustee or trustees under any indenture under which any instruments
evidencing any of such Senior Indebtedness may have been issued,
ratably according to the aggregate amounts remaining unpaid on account
of such Senior Indebtedness held or represented by each, to the extent
necessary to make payment in full of all Senior Indebtedness remaining
unpaid after giving effect to any concurrent payment or distribution
(or provision therefor) to the holders of such Senior Indebtedness,
before any payment or distribution is made to the Holders of the
indebtedness evidenced by the Securities or to the Trustee under this
Indenture; and
(3) in the event that, notwithstanding the foregoing, any payment
by, or distribution of assets of, the Company of any kind or
character, whether in cash, property or securities, in respect of
principal of or interest on the Securities or in connection with any
repurchase by the Company of the Securities, shall be received by the
Trustee or any Holder before all Senior Indebtedness is paid in full,
or provision is made for such payment in money or money's worth, such
payment or distribution in respect of principal of or interest on the
Securities or in connection with any repurchase by the Company of the
Securities shall be paid over to the holders of such Senior
Indebtedness or their representative or representatives or to the
trustee or trustees under any indenture under which any instruments
evidencing any such Senior Indebtedness may have been issued, ratably
as aforesaid, for application to the payment of all Senior
Indebtedness remaining unpaid until all such Senior Indebtedness shall
have been paid in full, after giving effect to any concurrent payment
or distribution (or provision therefor) to the holders of such Senior
Indebtedness.
Notwithstanding the foregoing, at any time after the 123rd day
following the date of deposit of cash or Government Obligations pursuant to
Section 701 (provided all conditions set out in such Section shall have been
satisfied), the funds so deposited and any interest thereon will not be subject
to any rights of holders of Senior Indebtedness including, without limitation,
those arising under this Article Fifteen; provided that no event described in
clauses (d) and (e) of Section 801 with respect to the Company has occurred
during such 123-day period.
For purposes of this Article only, the words "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 or reorganization or readjustment which are subordinate
in right of payment to all Senior Indebtedness which may at the time be
outstanding to the same extent as, or to a greater extent than, the Securities
are so subordinated as provided in this Article. The consolidation of the
Company with, or the merger of the Company into, another corporation or the
liquidation or dissolution of the Company following the conveyance or transfer
of its property as an entirety, or substantially as an entirety, to another
corporation upon the terms and conditions provided for in Article Eleven hereof
shall not be deemed a dissolution, winding-up, liquidation or reorganization for
the purposes of this Section 1502 if such other corporation shall, as a part of
such consolidation, merger, conveyance or transfer, comply with the conditions
stated in
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Article Eleven hereof. Nothing in Section 1501 or in this Section 1502 shall
apply to claims of, or payments to, (i) the Trustee under or pursuant to Section
907 or (ii) any Creditor under or pursuant to Section 312.
SECTION 1503. DISPUTES WITH HOLDERS OF CERTAIN SENIOR INDEBTEDNESS.
Any failure by the Company to make any payment on or perform any other
obligation in respect of Senior Indebtedness, other than any indebtedness
incurred by the Company or assumed or guaranteed, directly or indirectly, by the
Company for money borrowed (or any deferral, renewal, extension or refunding
thereof) or any other obligation as to which the provisions of this Section
shall have been waived by the Company in the instrument or instruments by which
the Company incurred, assumed, guaranteed or otherwise created such indebtedness
or obligation, shall not be deemed a default under clause (b) of Section 1502 if
(i) the Company shall be disputing its obligation to make such payment or
perform such obligation and (ii) either (A) no final judgment relating to such
dispute shall have been issued against the Company which is in full force and
effect and is not subject to further review, including a judgment that has
become final by reason of the expiration of the time within which a party may
seek further appeal or review, or (B) in the event that a judgment that is
subject to further review or appeal has been issued, the Company shall in good
faith be prosecuting an appeal or other proceeding for review and a stay or
execution shall have been obtained pending such appeal or review.
SECTION 1504. SUBROGATION.
Senior Indebtedness shall not be deemed to have been paid in full
unless the holders thereof shall have received cash (or securities or other
property satisfactory to such holders) in full payment of such Senior
Indebtedness then outstanding. Subject to the prior payment in full of all
Senior Indebtedness, the rights of the Holders of the Securities shall be
subrogated to the rights of the holders of Senior Indebtedness to receive any
further payments or distributions of cash, property or securities of the Company
applicable to the holders of the Senior Indebtedness until all amounts owing on
the Securities shall be paid in full; and such payments or distributions of
cash, property or securities received by the Holders of the Securities, by
reason of such subrogation, which otherwise would be paid or distributed to the
holders of such Senior Indebtedness shall, as between the Company, its creditors
other than the holders of Senior Indebtedness, and the Holders, be deemed to be
a payment by the Company to or on account of Senior Indebtedness, it being
understood that the provisions of this Article are and are intended solely for
the purpose of defining the relative rights of the Holders, on the one hand, and
the holders of the Senior Indebtedness, on the other hand.
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<PAGE>
SECTION 1505. OBLIGATION OF THE COMPANY UNCONDITIONAL.
Nothing contained in this Article or elsewhere in this Indenture or in
the Securities is intended to or shall impair, as among the Company, its
creditors other than the holders of Senior Indebtedness and the Holders, the
obligation of the Company, which is absolute and unconditional, to pay to the
Holders the principal of and interest on the Securities as and when the same
shall become due and payable in accordance with their terms, or is intended to
or shall affect the relative rights of the Holders and creditors of the Company
other than the holders of Senior Indebtedness, nor shall anything herein or
therein prevent the Trustee or any Holder from exercising all remedies otherwise
permitted by applicable law upon default under this Indenture, subject to the
rights, if any, under this Article of the holders of Senior Indebtedness in
respect of cash, property or securities of the Company received upon the
exercise of any such remedy.
Upon any payment or distribution of assets or securities of the
Company referred to in this Article, the Trustee and the Holders shall be
entitled to rely upon any order or decree of a court of competent jurisdiction
in which such dissolution, winding up, liquidation or reorganization proceedings
are pending for the purpose of ascertaining the persons entitled to participate
in such distribution, the holders of the Senior Indebtedness 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 1506. PRIORITY OF SENIOR INDEBTEDNESS UPON MATURITY.
Upon the maturity of the principal of any Senior Indebtedness by lapse
of time, acceleration or otherwise, all matured principal of Senior Indebtedness
and interest and premium, if any, thereon shall first be paid in full before any
payment of principal or premium, if any, or interest, if any, is made upon the
Securities or before any Securities can be acquired by the Company or any
sinking fund payment is made with respect to the Securities (except that
required sinking fund payments may be reduced by Securities acquired before such
maturity of such Senior Indebtedness).
SECTION 1507. TRUSTEE AS HOLDER OF SENIOR INDEBTEDNESS.
The Trustee shall be entitled to all rights set forth in this Article
with respect to any Senior Indebtedness at any time held by it, to the same
extent as any other holder of Senior Indebtedness. Nothing in this Article shall
deprive the Trustee of any of its rights as such holder.
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<PAGE>
SECTION 1508. NOTICE TO TRUSTEE TO EFFECTUATE SUBORDINATION.
Notwithstanding the provisions of this Article or any other provision
of the Indenture, the Trustee shall not be charged with knowledge of the
existence of any facts which would prohibit the making of any payment of moneys
to or by the Trustee unless and until the Trustee shall have received written
notice thereof from the Company, from a Holder or from a holder of any Senior
Indebtedness or from any representative or representatives of such holder and,
prior to the receipt of any such written notice, the Trustee shall be entitled,
subject to Section 901, in all respects to assume that no such facts exist;
provided, however, that, if prior to the fifth Business Day preceding the date
upon which by the terms hereof any such moneys may become payable for any
purpose, or in the event of the execution of an instrument pursuant to Section
702 acknowledging satisfaction and discharge of this Indenture, then if prior to
the second Business Day preceding the date of such execution, the Trustee shall
not have received with respect to such moneys the notice provided for in this
Section, then, anything herein contained to the contrary notwithstanding, the
Trustee may, in its discretion, receive such moneys and/or 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 on or after such date; provided,
however, that no such application shall affect the obligations under this
Article of the persons receiving such moneys from the Trustee.
SECTION 1509. MODIFICATION, EXTENSION, ETC. OF SENIOR INDEBTEDNESS.
The holders of Senior Indebtedness may, without affecting in any
manner the subordination of the payment of the principal of and premium, if any,
and interest, if any, on the Securities, at any time or from time to time and in
their absolute discretion, agree with the Company to change the manner, place or
terms of payment, change or extend the time of payment of, or renew or alter,
any Senior Indebtedness, or amend or supplement any instrument pursuant to which
any Senior Indebtedness is issued, or exercise or refrain from exercising any
other of their rights under the Senior Indebtedness including, without
limitation, the waiver of default thereunder, all without notice to or assent
from the Holders or the Trustee.
SECTION 1510. TRUSTEE HAS NO FIDUCIARY DUTY TO HOLDERS OF SENIOR INDEBTEDNESS.
With respect to the holders of Senior Indebtedness, the Trustee
undertakes to perform or to observe only such of its covenants and objectives as
are specifically set forth in this Indenture, and no implied covenants or
obligations with respect to the holders of Senior Indebtedness shall be read
into this Indenture against the Trustee. The Trustee shall not be deemed to owe
any fiduciary duty to the holders of Senior Indebtedness, and shall not be
liable to any such holders if it shall mistakenly pay over or deliver to the
Holders or the Company or any other Person, money or assets to which any holders
of Senior Indebtedness shall be entitled by virtue of this Article or otherwise.
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<PAGE>
SECTION 1511. PAYING AGENTS OTHER THAN THE TRUSTEE.
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 shall otherwise
require) 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; provided, however,
that Sections 1507, 1508 and 1510 shall not apply to the Company if it acts as
Paying Agent.
SECTION 1512. RIGHTS OF HOLDERS OF SENIOR INDEBTEDNESS NOT IMPAIRED.
No right of any present or future holder of Senior Indebtedness to
enforce the subordination herein shall at any time or in any way be prejudiced
or impaired by any act or failure to act on the part of the Company or by any
noncompliance by the Company with the terms, provisions and covenants of this
Indenture, regardless of any knowledge thereof any such holder may have or be
otherwise charged with.
SECTION 1513. EFFECT OF SUBORDINATION PROVISIONS; TERMINATION.
Notwithstanding anything contained herein to the contrary, other than
as provided in the immediately succeeding sentence, all the provisions of this
Indenture shall be subject to the provisions of this Article, so far as the same
may be applicable thereto.
Notwithstanding anything contained herein to the contrary, the
provisions of this Article Fifteen shall be of no further effect, and the
Securities shall no longer be subordinated in right of payment to the prior
payment of Senior Indebtedness, if the Company shall have delivered to the
Trustee a notice to such effect. Any such notice delivered by the Company shall
not be deemed to be a supplemental indenture for purposes of Article Twelve.
_________________________
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.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed, all as of the day and year first above written.
ATLANTIC CITY ELECTRIC COMPANY
By:________________________________________
Senior Vice President and
Chief Financial Officer
THE BANK OF NEW YORK, Trustee
By:__________________________________________
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<PAGE>
EXHIBIT 4-I
-----------
GUARANTEE AGREEMENT, DATED AS OF OCTOBER 1, 1998, BY AND BETWEEN ATLANTIC CITY
ELECTRIC COMPANY AS GUARANTOR, AND THE BANK OF NEW YORK AS GUARANTEE TRUSTEE
<PAGE>
GUARANTEE AGREEMENT
Between
Atlantic City Electric Company
(as Guarantor)
and
The Bank of New York
(as Trustee)
dated as of
October 1, 1998
<PAGE>
CROSS-REFERENCE TABLE
---------------------
Section of Section of
Trust Indenture Act Guarantee
of 1939, as amended Agreement
- ------------------- ---------
<TABLE>
<CAPTION>
<S> <C>
- --------
310(a)............................................................ 4.01(a)
310(b)............................................................ 4.01(c), 2.08
310(c)............................................................ Inapplicable
311(a)............................................................ 2.02(b)
311(b)............................................................ 2.02(b)
311(c)............................................................ Inapplicable
312(a)............................................................ 2.02(a)
312(b)............................................................ 2.02(b)
313............................................................... 2.03
314(a)............................................................ 2.04
314(b)............................................................ Inapplicable
314(c)............................................................ 2.05
314(d)............................................................ Inapplicable
314(e)............................................................ 1.01, 2.05,
3.02
314(f)............................................................ 2.01, 3.02
315(a)............................................................ 3.01(c)
315(b)............................................................ 2.07
315(c)............................................................ 3.01
315(d)............................................................ 3.01(c)
316(a)............................................................ 5.04(a), 2.06
316(b)............................................................ 5.03
316(c)............................................................ 2.02
317(a)............................................................ Inapplicable
317(b)............................................................ Inapplicable
318(a)............................................................ 2.01(b)
318(b)............................................................ 2.01
318(c)............................................................ 2.01(a)
</TABLE>
_____________
* This Cross-Reference Table does not constitute part of the Guarantee
Agreement and shall not affect the interpretation of any of its terms or
provisions.
<PAGE>
TABLE OF CONTENTS
Page
----
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I...................DEFINITIONS 1
SECTION 1.01 Definitions............................................ 1
ARTICLE II..................TRUST INDENTURE ACT 3
SECTION 2.01 Conflict with Trust Indenture Act...................... 3
SECTION 2.02 Lists of Holders of Preferred Securities............... 3
SECTION 2.03 Reports by the Guarantee Trustee....................... 4
SECTION 2.04 Periodic Reports to Guarantee Trustee.................. 4
SECTION 2.05 Evidence of Compliance with Conditions Precedent....... 4
SECTION 2.06 Events of Default; Waiver.............................. 4
SECTION 2.07 Event of Default; Notice............................... 4
ARTICLE III.................POWERS, DUTIES AND
RIGHTS OF GUARANTEE TRUSTEE 5
SECTION 3.01 Powers and Duties of the Guarantee Trustee............. 5
SECTION 3.02 Certain Rights of Guarantee Trustee.................... 6
SECTION 3.03 Not Responsible for Recitals or Issuance of Guarantee.. 8
ARTICLE IV..................GUARANTEE TRUSTEE 9
SECTION 4.01 Guarantee Trustee; Eligibility......................... 9
SECTION 4.02 Compensation and Reimbursement......................... 9
SECTION 4.03 Appointment, Removal and Resignation of
Guarantee Trustee...................................... 10
ARTICLE V...................GUARANTEE 11
SECTION 5.01 Guarantee.............................................. 11
SECTION 5.02 Waiver of Notice and Demand............................ 11
SECTION 5.03 Obligations Not Affected............................... 12
SECTION 5.04 Rights of Holders...................................... 12
SECTION 5.05 Guarantee of Payment................................... 13
SECTION 5.06 Subrogation............................................ 13
SECTION 5.07 Independent Obligations................................ 13
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE VI..................SUBORDINATION 13
SECTION 6.01 Subordination.......................................... 13
ARTICLE VII.................TERMINATION 14
SECTION 7.01 Termination............................................ 14
ARTICLE VIII................MISCELLANEOUS 14
SECTION 8.01 Successors and Assigns................................. 14
SECTION 8.02 Amendments............................................. 14
SECTION 8.03 Notices................................................ 14
SECTION 8.04 Benefit................................................ 16
SECTION 8.05 Interpretation......................................... 16
SECTION 8.06 Governing Law.......................................... 16
</TABLE>
<PAGE>
GUARANTEE AGREEMENT
This GUARANTEE AGREEMENT ("Guarantee Agreement"), dated as of October
1, 1998, 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, 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 II, a Delaware statutory business trust
(the "Issuer").
WHEREAS, pursuant to an Amended and Restated Trust Agreement (the
"Trust Agreement"), dated as of October 1, 1998, between the Company, as
Depositor, the Trustees of the Issuer named therein and the several Holders, as
defined therein, the Issuer is issuing as of the date hereof $25,000,000
aggregate liquidation amount of its 7-3/8% Trust Preferred Capital Securities
(the "Preferred Securities") and $773,200 aggregate liquidation amount of its
Common Securities (the "Common Securities" and, together with the Preferred
Securities, the "Securities") representing undivided beneficial ownership
interests in the Issuer and having the terms set forth in the Trust Agreement;
WHEREAS, the Preferred Securities are to be issued for sale by the
Issuer and the proceeds, together with the proceeds from the sale of the Common
Securities of the Issuer, are to be invested in $25,773,200 principal amount of
Debentures (as defined in the Trust Agreement); and
WHEREAS, as incentive for the Holders to purchase the Securities, the
Guarantor desires irrevocably and unconditionally to agree, to the extent set
forth herein, to pay to the Holders 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
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.
ARTICLE I
DEFINITIONS
SECTION I.01 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.
1
<PAGE>
"Event of Default" means a default by the Guarantor on any of its
payment obligations under this Guarantee Agreement.
"Guarantee Payments" shall mean the following payments or
distributions, without duplication, with respect to the Securities, to the
extent not paid or made by or on behalf of the Issuer: (a) any accumulated and
unpaid Distributions that are required to be paid on such Securities but only if
and to the extent that the Property Trustee has available in the Payment Account
funds sufficient to make such payment, (b) the Redemption Price with respect to
the Securities called for redemption by the Issuer but only if and to the extent
that the Property Trustee has available in the Payment Account funds sufficient
to make such payment, (c) upon a voluntary or involuntary dissolution, winding-
up or termination of the Issuer (unless the Debentures are distributed to the
Holders of such Securities), the lesser of (i) the aggregate of the Liquidation
Amount and all accumulated and unpaid Distributions on the Securities to the
date of payment, and (ii) the amount of assets of the Issuer remaining available
for distribution to Holders in liquidation of the Issuer (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" shall mean any Person in whose name any Securities are
registered in the Securities Registrar; 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 or any Affiliate of the Guarantor.
"Indenture" means the Indenture dated as of October 1, 1998, between
the Guarantor (the "Debenture Issuer") and The Bank of New York, as trustee,
pursuant to which the Debentures are issued.
"Officer's Certificate" means a certificate signed by the Chairman of
the Board, the President, a Vice President, the Treasurer or an Assistant
Treasurer of the Guarantor, and delivered to the Guarantee Trustee. Any
Officer's Certificate or Opinion of Counsel delivered with respect to compliance
with a condition or covenant provided for in this Guarantee Agreement shall
include:
(a) a statement that the officer signing such Officer's Certificate
or the counsel rendering such Opinion of Counsel 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 such officer or such counsel in rendering the
Officer's Certificate or the Opinion of Counsel;
2
<PAGE>
(c) a statement that such officer or counsel has made such
examination or investigation as, in such officer's or such counsel's
opinion, is necessary to enable such officer or counsel 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 such officer or
counsel, such condition or covenant has been complied with.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Guarantor or an Affiliate of the Guarantor, or an employee
thereof, who shall be acceptable to the Guarantee Trustee.
"Responsible Officer" means, with respect to the Guarantee Trustee,
any officer of the Guarantee Trustee assigned by the Guarantee Trustee to
administer its corporate trust matters.
"Successor Guarantee Trustee" means a successor Guarantee Trustee
possessing the qualifications to act as Guarantee Trustee under Section 4.01.
ARTICLE II
TRUST INDENTURE ACT
SECTION II.01 CONFLICT WITH TRUST INDENTURE ACT.
If any provision of this Guarantee Agreement limits, qualifies or
conflicts with another provision hereof which is required or deemed to be
included in this Guarantee Agreement by, or is otherwise governed by, any of the
provisions of the Trust Indenture Act, such other provision shall control; and
if any provision hereof otherwise conflicts with the Trust Indenture Act, the
Trust Indenture Act shall control.
SECTION II.02 LISTS OF HOLDERS OF PREFERRED SECURITIES.
(a) Semiannually, not later than January 15 and July 15 in each year,
commencing January 15, 1999, and at such other times as the Guarantee Trustee
may request in writing, the Guarantor shall furnish or cause to be furnished to
the Guarantee Trustee information as to the names and addresses of the Holders,
and the Guarantee Trustee shall preserve such information and similar
information received by it in any other capacity and afford to the Holders
access to information received by it in any other capacity and afford to the
Holders access to information so preserved by it, all to such extent, if any,
and in such manner as shall be required by the Trust Indenture Act.
3
<PAGE>
(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 such Act) and Section 312(b) of the Trust Indenture Act.
SECTION II.03 REPORTS BY THE GUARANTEE TRUSTEE. Not later than 60
days after July 1 of each year, commencing July 1, 1999, the Guarantee Trustee
shall provide to 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 II.04 PERIODIC REPORTS TO GUARANTEE TRUSTEE. The Guarantor
shall provide to the Guarantee Trustee, the Commission and the Holders such
documents, reports, compliance certificates and information as may be required
by Section 314 of the Trust Indenture Act to be provided by the Guarantor
Trustee to such Persons in the form, in the manner and at the times required by
Section 314 of the Trust Indenture Act. Delivery of such reports, information
and documents by the Company to the Trustee is for informational purposes only
and the Trustee's receipt of such shall not constitute constructive notice of
any information contained therein or determinable from information contained
therein, including the Company's compliance with any of its covenants hereunder
(as to which the Trustee is entitled to rely exclusively on Officer's
Certificates). The Guarantor shall provide to the Guarantee Trustee the
compliance certificate required by Section 314(a)(4) of the Trust Indenture Act
in the form, in the manner and at the times required by Section 314(a)(4) of the
Trust Indenture Act.
SECTION II.05 EVIDENCE OF COMPLIANCE WITH CONDITIONS PRECEDENT. The
Guarantor shall provide to the Guarantee Trustee such evidence of compliance
with any conditions precedent provided for in this Guarantee Agreement as and to
the extent required by 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 may be given in the form of an Officer's
Certificate.
SECTION II.06 EVENTS OF DEFAULT; WAIVER. The Holders of a majority
in liquidation amount of Outstanding 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 thereon.
SECTION II.07 EVENT OF DEFAULT; NOTICE.
(a) The Guarantee Trustee shall give notice of any Event of Default
hereunder to the Holders in the manner and to the extent required to do so by
the Trust Indenture Act, unless such Event of Default shall have been cured or
waived.
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<PAGE>
(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 of such Event of Default.
ARTICLE III
POWERS, DUTIES AND RIGHTS OF GUARANTEE TRUSTEE
SECTION III.01 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 or any rights hereunder to any Person except a Holder
exercising his or her rights pursuant to Section 5.04 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 vest automatically in any Successor
Guarantee Trustee, and such vesting and cessation 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) The Guarantee Trustee, prior to the occurrence of any Event of
Default and after the curing or waiving 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 or
obligations 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 2.06), and is actually known to a Responsible Officer
of the Guarantee Trustee, 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.
(c) 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
5
<PAGE>
Agreement and no implied covenants or obligations shall be read
into this Guarantee Agreement against the Guarantee Trustee; 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; provided, however, that
in the case of any such certificates or opinions that by any
provision hereof 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 or such
Responsible Officer 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 a majority in
liquidation amount 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; and
(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
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.
(d) Whether or not therein expressly provided, every provision of
this Guarantee Agreement relating to the conduct or affecting the liability of
or affording protection to the Trustee shall be subject to the provisions of
Sections 3.01(b) and 3.01(c).
SECTION III.02 CERTAIN RIGHTS OF GUARANTEE TRUSTEE.
(a) Subject to the provisions of Section 3.01:
(i) the Guarantee Trustee may rely and shall be fully protected
in acting or refraining from acting upon any resolution, certificate,
statement, instrument,
6
<PAGE>
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 Officer's
Certificate;
(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 Officer's Certificate which, upon
receipt of such request from the Guarantee Trustee, shall be promptly
delivered by the Guarantor;
(iv) the Guarantee Trustee may consult with counsel of its
choice, and the advice of such counsel or any Opinion of Counsel of
such counsel with respect to legal matters 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 accordance with such
advice or opinion; such counsel may be counsel to the Guarantor or any
of its Affiliates and may include any 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;
(v) 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, however, that nothing contained in this Section 3.02(a)(v)
shall be taken to relieve the Guarantee Trustee, upon the occurrence
of an Event of Default, of its obligation under the last sentence of
Section 3.01(b) hereof to exercise the rights and powers vested in it
by this Guarantee Agreement;
(vi) 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 reasonably believed by
7
<PAGE>
it to be genuine, but the Guarantee Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit;
(vii) the Guarantee 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 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;
(viii) 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 of a majority in liquidation amount of
the Preferred Securities, (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;
(ix) the Guarantee Trustee shall have no duty to see to any
recording, filing or registration of any instrument (including any
financing or continuation statement or any tax or securities form) (or
any rerecording, refiling or reregistration thereof); and
(x) the Guarantee 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 powers conferred upon it by this Guarantee.
(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.
SECTION III.03 NOT RESPONSIBLE FOR RECITALS OR ISSUANCE OF GUARANTEE.
The recitals contained in this Guarantee Agreement shall be taken as
the statements of the Guarantor, and the Guarantee Trustee does not assume any
responsibility for their correctness. The Guarantee Trustee makes no
representation as to the validity or sufficiency of this Guarantee Agreement.
8
<PAGE>
ARTICLE IV
GUARANTEE TRUSTEE
SECTION IV.01 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 corporation organized and doing business under the
laws of the United States of America or any State or Territory thereof
or of the District of Columbia, or a corporation or Person permitted
by the Securities and Exchange Commission to act as an institutional
trustee under the Trust Indenture Act, authorized under such laws to
exercise corporate trust powers, having a combined capital and surplus
of at least 50 million U.S. dollars ($50,000,000), and subject to
supervision or examination by Federal, State, Territorial or District
of Columbia authority. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of
the supervising or examining authority referred to above, then, for
the purposes of this Section 4.01(a)(ii), 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 4.01(a), the Guarantee Trustee shall immediately resign
in the manner and with the effect set out in Section 4.03(c).
(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. For the purposes of Section
310(b)(1) of the Trust Indenture Act and to the extent permitted thereby, the
Guarantee Trustee, in its capacity as trustee in respect of the Securities of
any series shall not be deemed to have a conflicting interest arising from its
capacity as trustee in respect of Securities of any other series, or as trustee
under the Junior Subordinated Indenture dated as of October 1, 1996, the Amended
and Restated Trust Agreement dated as of October 1, 1996, the Guarantee
Agreement dated as of October 1, 1996 relating to the Company's 8.25% Junior
Subordinated Deferrable Interest Debentures, the Trust Agreement and the
Indenture.
SECTION IV.02 COMPENSATION AND REIMBURSEMENT.
The Guarantor agrees:
9
<PAGE>
(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 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 Agreement (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 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.
In addition to the rights provided to each Trustee to the provisions
of the immediately preceding paragraph of this Section 4.02, when a Trustee
incurs expenses or renders services in connection with an Event of Default
resulting from a Bankruptcy Event with respect to the Trust, the expenses
(including the reasonable charges and expenses of its counsel) and the
compensation for the services are intended to constitute expenses of
administration under any applicable Federal or State bankruptcy, insolvency or
other similar law.
The provisions of this Section shall survive the termination of this
Guarantee Agreement.
SECTION IV.03 APPOINTMENT, REMOVAL AND RESIGNATION OF GUARANTEE
TRUSTEE.
(a) Subject to Section 4.03(b), unless an Event of Default shall have
occurred and be continuing, the Guarantee Trustee may be removed without cause
at any time by the Guarantor.
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<PAGE>
(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 to office 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 4.03 within 60 days after
delivery to the Guarantor of an instrument of resignation, the resigning
Guarantee Trustee may petition 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 8.03 hereof. Each
notice shall include the name of the successor Guarantee Trustee and the address
of its Corporate Trust Office.
ARTICLE V
GUARANTEE
SECTION V.01 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 V.02 WAIVER OF NOTICE AND DEMAND. The Guarantor hereby
waives notice of acceptance of this 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 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.
11
<PAGE>
SECTION V.03 OBLIGATIONS NOT AFFECTED. The obligation of the
Guarantor to make the Guarantee Payments 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 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, Redemption Price, Liquidation Distribution or
any other sums payable under the terms of the Securities or the extension
of time for the performance of any other obligation under, arising out of,
or in connection with, the Securities (other than an extension of time for
payment of Distributions, Redemption Price, Liquidation Distribution or
other sum payable that results from the extension of any interest payment
period on the Debentures permitted by the Indenture);
(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 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 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 5.03 that the obligations of the Guarantor hereunder
shall be absolute and unconditional under any and all circumstances.
There shall be no obligation of the Guarantee Trustee or the Holders to give
notice to, or obtain consent of, the Guarantor with respect to the happening of
any of the foregoing.
SECTION V.04 RIGHTS OF HOLDERS. The Guarantor expressly
acknowledges that: (a) this Guarantee Agreement will be deposited with the
Guarantee Trustee to be held for the benefit of the Holders; (b) 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; (c)
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<PAGE>
the Holders of a majority in liquidation amount of the Outstanding 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 (d) 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
Issuer, the Guarantee Trustee, or any other person or entity.
SECTION V.05 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).
SECTION V.06 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; 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 of Guarantee Payments 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 V.07 INDEPENDENT OBLIGATIONS. The Guarantor acknowledges
that its obligations hereunder are independent of the obligations of the Issuer
with respect to the 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 5.03.
ARTICLE VI
SUBORDINATION
SECTION VI.01 SUBORDINATION. This Guarantee Agreement will
constitute an unsecured obligation of the Guarantor and will rank subordinate
and junior in right of payment to all Senior Indebtedness of the Guarantor.
Nothing in this Section 6.01 shall apply to claims of, or payments to, the
Guarantee Trustee under or pursuant to Section 4.02.
If an Event of Default has occurred and is continuing under the Trust
Agreement, the rights of the holders of the Common Securities to receive
Guarantee Payments hereunder shall be subordinated to the rights of the Holders
of the Preferred Securities to receive Guarantee Payments under this Guarantee.
13
<PAGE>
ARTICLE VII
TERMINATION
SECTION VII.01 TERMINATION. Subject to Section 4.02 hereof, this
Guarantee Agreement shall terminate and be of no further force and effect upon:
(a) full payment of the Redemption Price of all Securities, (b) the distribution
of Debentures to Holders in exchange for all of the Securities or (c) 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 the Securities or under this Guarantee Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION VIII.01 SUCCESSORS AND ASSIGNS. 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 Securities then outstanding. Except
in connection with a consolidation, merger or sale involving the Guarantor that
is permitted under Article Eleven of the Indenture, the Guarantor shall not
assign its obligations hereunder.
SECTION VIII.02 AMENDMENTS. This Guarantee Agreement may be amended
only by an instrument in writing entered into by the Guarantor and the Guarantee
Trustee. Except with respect to any changes which do not materially adversely
affect the rights of Holders (in which case no consent of Holders will be
required), this Guarantee Agreement may only be amended with the prior written
approval of the Holders of not less than 66 2/3% of the aggregate liquidation
amount of all of the outstanding Securities. The provisions of Article VI of the
Trust Agreement concerning meetings of Holders shall apply to the giving of such
approval. Nothing herein contained shall be deemed to require that the Guarantee
Trustee enter into any amendment of this Guarantee Agreement.
SECTION VIII.03 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:
14
<PAGE>
(a) if given to the Guarantor, to the address set forth below or such
other address as the Guarantor may give notice of to the Guarantee Trustee
and the Holders of the Preferred Securities:
Atlantic City Electric Company
800 King Street
Wilmington, DE 19899
Facsimile No: (302) 429-3367
Attention: Treasurer
(b) if given to the Issuer, in care of the Administrative Trustees,
at the Issuer's (and the Administrative Trustees') address set forth below
or such other address as the Administrative Trustees on behalf of the
Issuer may give notice of to the Guarantee Trustee and the Holders:
Atlantic Capital II
c/o Treasury Department,
Atlantic City Electric Company
800 King Street
Wilmington, DE 19899
Facsimile No: (302) 429-3367
Attention: Administrative Trustees
(c) if given to the Guarantee Trustee, to the address set forth below
or such other address as the Guarantee Trustee may give notice of to the
Guarantor and the Holders of the Preferred Securities:
The Bank of New York
101 Barclay Street - 21W
New York, New York 10286
Facsimile No: (212) 815-5915
Attention: Corporate Trust Administration
(d) if given to any Holder, at the address set forth on the
Securities Register.
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.
15
<PAGE>
SECTION VIII.04 BENEFIT. This Guarantee Agreement is solely for the
benefit of the Holders and, subject to Section 3.01(a), is not separately
transferable from the Preferred Securities.
SECTION VIII.05 INTERPRETATION. In this Guarantee Agreement, unless
the context otherwise requires:
(a) a term defined anywhere in this Guarantee Agreement has the same
meaning throughout;
(b) all references to "the Guarantee Agreement" or "this Guarantee
Agreement" are to this Guarantee Agreement as modified, supplemented or
amended from time to time;
(c) all references in this Guarantee Agreement to Articles and
Sections are to Articles and Sections of this Guarantee Agreement unless
otherwise specified;
(d) 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;
(e) a reference to the singular includes the plural and vice versa;
and
(f) the masculine, feminine or neuter genders used herein shall
include the masculine, feminine and neuter genders.
SECTION VIII.06 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 laws 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.
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<PAGE>
THIS GUARANTEE AGREEMENT is executed as of the day and year first
above written.
Atlantic City Electric Company
By: _________________
Name: Barbara S. Graham
Title: Senior Vice President
and Chief Financial Officer
The Bank of New York,
as Guarantee Trustee
By: _________________
Name:
Title:
17
<PAGE>
EXHIBIT 12-A
------------
Ratio of Earnings to Fixed Charges
<PAGE>
Exhibit 12-A
Atlantic City Electric Company
------------------------------
Ratio of Earnings to Fixed Charges
----------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
12 Months Ended December 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net income $ 30,276 $ 85,747 $ 75,017 $ 98,752 $ 93,174
-------- -------- -------- -------- --------
Income taxes 18,178 50,442 36,958 48,277 36,130
-------- -------- -------- -------- --------
Fixed charges:
Interest on long-term debt 63,940 64,501 64,847 62,879 58,460
Other interest 3,435 3,574 4,019 4,364 4,148
Preferred stock dividend
requirements of subsidiaries 6,052 5,775 1,428 - -
-------- -------- -------- -------- --------
Total fixed charges 73,427 73,850 70,294 67,243 62,608
-------- -------- -------- -------- --------
Earnings before income taxes
and fixed charges $121,881 $210,039 $182,269 $214,272 $191,912
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 1.66 2.84 2.59 3.19 3.07
---- ---- ---- ---- ----
</TABLE>
For purposes of computing the ratio, earnings are net income plus income taxes
and fixed charges. Fixed charges consist of interest on long- and short-term
debt, amortization of debt discount, premium, and expense, dividends on
preferred securities of a subsidiary trust, and the interest factor associated
with the Company's major leases.
<PAGE>
EXHIBIT 12-B
------------
Computation of ratio of earnings to fixed charges and preferred dividends
<PAGE>
Exhibit 12-B
Atlantic City Electric Company
------------------------------
Ratio of Earnings to Fixed Charges and Preferred Dividends
----------------------------------------------------------
(Dollars in Thousands)
<TABLE>
<CAPTION>
12 Months Ended December 31,
------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net income $ 30,276 $ 85,747 $ 75,017 $ 98,752 $ 93,174
-------- -------- -------- -------- --------
Income taxes 18,178 50,442 36,958 48,277 36,130
-------- -------- -------- -------- --------
Fixed charges:
Interest on long-term debt 63,940 64,501 64,847 62,879 58,460
Other interest 3,435 3,574 4,019 4,364 4,148
Preferred stock dividend
requirements of subsidiaries 6,052 5,775 1,428 - -
-------- -------- -------- -------- --------
Total fixed charges 73,427 73,850 70,294 67,243 62,608
-------- -------- -------- -------- --------
Earnings before income taxes
and fixed charges $121,881 $210,039 $182,269 $214,272 $191,912
======== ======== ======== ======== ========
Fixed charges 73,427 73,850 70,294 67,243 62,608
-------- -------- -------- -------- --------
Preferred dividend requirement 5,289 7,506 14,214 20,839 22,212
-------- -------- -------- -------- --------
$ 78,716 $ 81,356 $ 84,508 $ 88,082 $ 84,820
======== ======== ======== ======== ========
Ratio of earnings to fixed
charges & Preferred dividends 1.55 2.58 2.16 2.43 2.26
---- ---- ---- ---- ----
</TABLE>
For purposes of computing the ratio, earnings are net income plus income taxes
and fixed charges. Fixed charges consist of interest on long- and short-term
debt, amortization of debt discount, premium, and expense, dividends on
preferred securities of a subsidiary trust, and the interest factor associated
with the Company's major leases. Preferred dividend requirements represent
annualized preferred dividend requirements multiplied by the ratio that pre-tax
income bears to net income.
<PAGE>
EXHIBIT 23
----------
Consent of Independent Accountants
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Conectiv on Form S-3 (File Nos. 333-72251 and 333-44219) and Form S-8 (File No.
333-50063), of our report dated February 5, 1999, on our audit of the
consolidated financial statements and the financial statement schedule of
Atlantic City Electric Company as of December 31, 1998 and for the year ended
December 31, 1998, which report is included in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
- ------------------------------
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 26, 1999
-1-
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statements of
Conectiv on Form S-3 (File Nos. 333-72251 and 333-44219) and Form S-8 (File No.
333-50063), of our report dated February 2, 1998 (March 1, 1998 as to Note 4 to
the Financial Statements), appearing in this Annual Report on Form 10-K of
Atlantic City Electric Company for the year ended December 31, 1998.
/s/ Deloitte & Touche LLP
- -------------------------
Deloitte & Touche LLP
Parsippany, New Jersey
March 26, 1999
-2-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ATLANTIC
CITY ELECTRIC COMPANY'S 1998 REPORT ON FORM 10-K AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,593,593
<OTHER-PROPERTY-AND-INVEST> 111,084
<TOTAL-CURRENT-ASSETS> 236,177
<TOTAL-DEFERRED-CHARGES> 293,410
<OTHER-ASSETS> 132,958
<TOTAL-ASSETS> 2,367,222
<COMMON> 54,963
<CAPITAL-SURPLUS-PAID-IN> 493,007
<RETAINED-EARNINGS> 182,123
<TOTAL-COMMON-STOCKHOLDERS-EQ> 730,093
118,950
6,231
<LONG-TERM-DEBT-NET> 791,127
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 30,075
0
<CAPITAL-LEASE-OBLIGATIONS> 19,523
<LEASES-CURRENT> 15,728
<OTHER-ITEMS-CAPITAL-AND-LIAB> 655,495
<TOT-CAPITALIZATION-AND-LIAB> 2,367,222
<GROSS-OPERATING-REVENUE> 1,037,613
<INCOME-TAX-EXPENSE> 18,178
<OTHER-OPERATING-EXPENSES> 928,745
<TOTAL-OPERATING-EXPENSES> 946,923
<OPERATING-INCOME-LOSS> 90,690
<OTHER-INCOME-NET> 8,621
<INCOME-BEFORE-INTEREST-EXPEN> 99,311
<TOTAL-INTEREST-EXPENSE> 69,035
<NET-INCOME> 30,276
891<F1>
<EARNINGS-AVAILABLE-FOR-COMM> 29,385
<COMMON-STOCK-DIVIDENDS> 81,450
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 242,617
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Preferred Stock Dividends are shown net of $2,545 gain on redemption of
preferred stock.
</FN>
</TABLE>
