<PAGE>
United States
Securities and Exchange Commission
Washington, DC 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
-------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to _______________
Commission File Registrant; State of Incorporation; IRS Employer
Number Address; and Telephone No. Identification No.
------ -------------------------- ------------------
1-11459 PP&L Resources, Inc. 23-2758192
(Pennsylvania)
Two North Ninth Street
Allentown, PA 18101
(610) 774-5151
1-905 PP&L, Inc. 23-0959590
(Pennsylvania)
Two North Ninth Street
Allentown, PA 18101
(610) 774-5151
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.
PP&L Resources, Inc. Yes X No___________
-----------
PP&L, Inc. Yes X No___________
-----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
PP&L Resources, Inc. Common stock, $.01 par value, 157,694,305
shares outstanding at July 31, 1999,
excluding 16,995,957 shares held as
treasury stock
PP&L, Inc. Common stock, no par value, 157,300,382
shares outstanding and all held by PP&L
Resources, Inc. at July 31, 1999
<PAGE>
PP&L RESOURCES, INC.
AND
PP&L, INC.
----------
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
INDEX
-----
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C>
Item 1. Financial Statements
PP&L Resources, Inc.
Consolidated Statement of Income 2
Consolidated Statement of Cash Flows 3
Consolidated Balance Sheet 4
Consolidated Statement of Shareowners' Common Equity 6
PP&L, Inc.
Consolidated Statement of Income 8
Consolidated Statement of Cash Flows 9
Consolidated Balance Sheet 10
Consolidated Statement of Shareowner's Common Equity 12
Notes to Consolidated Financial Statements
PP&L Resources, Inc. and PP&L, Inc. 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
PP&L Resources, Inc. and PP&L, Inc. 31
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 49
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 50
Item 4. Submission of Matters to a Vote of Security Holders 50
Item 6. Exhibits and Reports on Form 8-K 51
GLOSSARY OF TERMS AND ABBREVIATIONS 53
SIGNATURES 55
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 56
</TABLE>
<PAGE>
PP&L RESOURCES, INC. AND SUBSIDIARIES
- -------------------------------------
Part 1. FINANCIAL INFORMATION
- -----------------------------
Item 1. Financial Statements
- ----------------------------
In the opinion of PP&L Resources, the unaudited financial statements
included herein reflect all adjustments necessary to present fairly the
Consolidated Balance Sheet as of June 30, 1999 and December 31, 1998, and the
Consolidated Statement of Income, Consolidated Statement of Cash Flows, and the
Consolidated Statement of Shareowners' Common Equity for the periods ended June
30, 1999 and 1998. PP&L Resources is the parent holding company of PP&L, PP&L
Global, PP&L Spectrum, PP&L Capital Funding, Penn Fuel Gas, McClure, McCarl's,
and H. T. Lyons. The financial condition and results of operations of PP&L and
PP&L Global are currently the principal factors affecting PP&L Resources'
financial condition and results of operations.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Millions of Dollars, except per share data)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------- ------------------------
1999 1998 1999 1998
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating Revenues
Electric......................................... $ 584 $ 558 $ 1,251 $ 1,175
Gas and propane.................................. 23 68
Wholesale energy marketing and trading........... 337 259 634 504
Energy related businesses........................ 60 21 118 40
---------- --------- --------- ---------
Total............................................ 1,004 838 2,071 1,719
---------- --------- --------- ---------
Operating Expenses
Operation
Electric fuel.................................. 97 120 220 235
Natural gas and propane........................ 10 33
Energy purchases............................... 351 218 606 432
Other.......................................... 136 138 302 250
Amortization of recoverable transition costs... 41 86
Maintenance...................................... 57 53 97 91
Depreciation and amortization.................... 61 97 121 195
Taxes, other than income......................... 43 49 95 102
Energy related businesses........................ 44 15 85 29
---------- --------- --------- ---------
Total............................................ 840 690 1,645 1,334
---------- --------- --------- ---------
Operating Income................................... 164 148 426 385
---------- --------- --------- ---------
Other Income....................................... 7 4 7 11
---------- --------- --------- ---------
Income Before Interest and Income Taxes............ 171 152 433 396
Interest Expense................................... 61 54 123 106
---------- --------- --------- ---------
Income Before Income Taxes and
Extraordinary Items.............................. 110 98 310 290
Income Taxes....................................... 40 38 114 122
---------- --------- --------- ---------
Income Before Extraordinary Items.................. 70 60 196 168
Extraordinary Items (net of $666 income taxes)
(Note 6)......................................... (948) (948)
---------- --------- --------- ---------
Income(Loss) Before Dividends on Preferred Stock... 70 (888) 196 (780)
Preferred Stock Dividend Requirements.............. 7 6 13 13
---------- --------- --------- ---------
Net Income(Loss)................................... $ 63 ($894) $ 183 ($793)
---------- --------- --------- ---------
Earnings Per Share of Common Stock
Basic and Diluted (Note 3)
Income Before Extraordinary Items.............. $ 0.40 $ 0.32 $ 1.16 $ 0.92
Extraordinary Items (net of tax)............... (5.66) (5.67)
---------- --------- --------- ---------
Net Income(Loss)................................... $ 0.40 ($5.34) $ 1.16 ($4.75)
---------- --------- --------- ---------
Dividends Declared per Share of Common Stock....... $ 0.25 $ 0.4175 $ 0.50 $ 0.835
========== ========= ========= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of the financial statements.
<PAGE>
PP&L RESOURCES, INC. AND SUBSIDIARIES
- -------------------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Millions of Dollars)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
------------------------
1999 1998
--------- ---------
<S> <C> <C>
Net Cash Provided by Operating Activities.................... $ 287 $ 281
--------- ---------
Cash Flows From Investing Activities
Expenditures for property, plant and equipment.............. (228) (149)
Proceeds from sale of nuclear fuel to trust................. 14 15
Purchases of available-for-sale securities.................. (12)
Sales and maturities of available-for-sale securities....... 14
Investment in unconsolidated affiliates..................... (276)
Purchases and sales of other financial investments - net.... 4
Other investing activities - net............................ (9) 2
--------- ---------
Net cash used in investing activities................. (223) (402)
--------- ---------
Cash Flows From Financing Activities
Issuance of long-term debt.................................. 260
Issuance of common stock.................................... 8 33
Retirement or reacquisition of long-term debt............... (32) (267)
Payments on capital lease obligations....................... (27) (26)
Payments of preferred and common dividends.................. (91) (152)
Net increase in short-term debt............................. 276 260
Other financing activities - net............................ (1)
--------- ---------
Net cash provided by financing activities............. 134 107
--------- ---------
Net Increase (Decrease) In Cash and Cash Equivalents......... 198 (14)
Cash and Cash Equivalents at Beginning of Period............. 195 50
--------- ---------
Cash and Cash Equivalents at End of Period................... $ 393 $ 36
========= =========
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest (net of amount capitalized)....................... $ 117 $ 111
Income taxes............................................... $ 111 $ 98
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of the financial statements.
<PAGE>
PP&L RESOURCES,INC. AND SUBSIDIARIES
- ------------------------------------
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
ASSETS (Unaudited) (Audited)
----------- -------------
<S> <C> <C>
PROPERTY, PLANT AND EQUIPMENT
Electric utility plant in service - net
Transmission and distribution........................... $ 2,184 $ 2,179
Generation.............................................. 1,684 1,601
General and intangible.................................. 239 223
------- ---------
4,107 4,003
Construction work in progress - at cost................... 113 117
Nuclear fuel owned and leased - net....................... 144 162
------- ---------
Electric utility plant - net............................ 4,364 4,282
Gas and oil utility plant - net........................... 172 175
Other property - net...................................... 31 23
------- ---------
4,567 4,480
------- ---------
Investments
Investment in unconsolidated affiliates - at equity....... 701 688
Nuclear plant decommissioning trust fund.................. 229 206
Other..................................................... 11 12
------- ---------
941 906
------- ---------
Current Assets
Cash and cash equivalents................................. 393 195
Accounts receivable (less reserve: 1999, $18; 1998, $14)
Utility customers..................................... 185 173
Other................................................. 111 125
Unbilled revenues
Utility customers..................................... 133 106
Other................................................. 162 64
Fuel, materials and supplies - at average cost............ 198 207
Prepayments............................................... 82 15
Unrealized mark-to-market energy trading gains............ 53 2
Other..................................................... 69 61
------- ---------
1,386 948
------- ---------
Regulatory Assets and Other Noncurrent Assets
Recoverable transition costs.............................. 2,733 2,819
Other..................................................... 477 454
------- ---------
3,210 3,273
------- ---------
$10,104 $ 9,607
======= =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of the financial statements.
<PAGE>
PP&L RESOURCES, INC. AND SUBSIDIARIES
- -------------------------------------
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(Unaudited) (Audited)
----------- ------------
LIABILITIES
<S> <C> <C>
Capitalization
Common equity
Common stock............................................ $ 2 $ 2
Capital in excess of par value.......................... 1,874 1,866
Treasury stock.......................................... (419) (419)
Earnings reinvested..................................... 477 372
Accumulated other comprehensive income.................. (20) (4)
Capital stock expense and other......................... (28) (27)
----------- -----------
1,886 1,790
Preferred stock
With sinking fund requirements.......................... 47 47
Without sinking fund requirements....................... 50 50
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely
company debentures...................................... 250 250
Long-term debt............................................ 2,831 2,983
----------- -----------
5,064 5,120
----------- -----------
Current Liabilities
Short-term debt........................................... 912 636
Long-term debt due within one year........................ 126 1
Capital lease obligations due within one year............. 60 59
Above market NUG purchases due within one year............ 101 105
Accounts payable.......................................... 341 197
Taxes and interest accrued ............................... 100 95
Dividends payable......................................... 46 46
Unrealized mark-to-market energy trading losses........... 41 9
Other..................................................... 136 128
----------- -----------
1,863 1,276
----------- -----------
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes and investment tax credits.......... 1,576 1,574
Above market NUG purchases................................ 724 775
Capital lease obligations................................. 97 109
Other..................................................... 780 753
----------- -----------
3,177 3,211
----------- -----------
Commitments and Contingent Liabilities (Note 11)............
----------- -----------
$10,104 $9,607
=========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of the financial statements.
<PAGE>
PP&L RESOURCES, INC. AND SUBSIDIARIES
- -------------------------------------
CONSOLIDATED STATEMENT OF SHAREOWNERS' COMMON EQUITY
(Unaudited)
(Millions of Dollars)
<TABLE>
<CAPTION>
Capital Accumulated Capital
in Other Stock
Common Excess Treasury Earnings Comprehensive Expense and
Stock of Par Stock Reinvested Income Other Total
------- -------- -------- ---------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
For the Three Months Ended June 30, 1999
- ----------------------------------------
Beginning Balance............................ $2 $1,874 ($419) $ 453 ($11) ($27) $1,872
Comprehensive income
Net income................................. 63
Other comprehensive income:
Foreign currency translation
adjustment, net of tax credits of $ 2.... (9)
Total comprehensive income................. 54
Common dividends declared.................... (39) (39)
Other........................................ (1) (1)
------- -------- -------- ---------- --------- ---------- -------
Ending Balance............................... $2 $1,874 ($419) $ 477 ($20) ($28) $1,886
1998 ======= ======== ======== ========== ========= ========== =======
Beginning Balance............................ $2 $1,685 $ 0 $1,195 $ 0 ( $26) $2,856
Comprehensive income
Net loss................................... (894)
Other comprehensive income:
Foreign currency translation
adjustment, net of tax credits
of less than $1.......................... (1)
Total comprehensive income................... (895)
Issuance of common stock..................... 17 17
Common dividends declared.................... (70) (70)
Other........................................ (1) (1)
------- -------- -------- ---------- --------- ---------- -------
Ending Balance............................... $2 $1,702 $ 0 $ 231 ($1) ($27) $1,907
======= ======== ======== ========== ========= ========== =======
For the Six Months Ended June 30, 1999
- --------------------------------------
Beginning Balance............................ $2 $1,866 ($419) $ 372 ($4) ($27) $1,790
Comprehensive income
Net income................................. 183
Other comprehensive income:
Foreign currency translation
adjustment, net of tax
credits of $3............................ (16)
Total comprehensive income................... 167
Issuance of common stock..................... 8 8
Common dividends declared.................... (78) (78)
Other........................................ (1) (1)
------- -------- -------- ---------- --------- ---------- -------
Ending Balance............................... $2 $1,874 ($419) $ 477 ($20) ($28) $1,886
1998 ======= ======== ======== ========== ========= ========== =======
Beginning Balance............................ $2 $1,669 $ 0 $1,164 $ 0 ($26) $2,809
Comprehensive income
Net loss................................... (793)
Other comprehensive income:
Foreign currency translation
adjustment, net of tax
credits of $1............................ (1)
Total comprehensive income................... (794)
Issuance of common stock..................... 33 33
Common dividends declared.................... (140) (140)
Other........................................ (1) (1)
------- -------- -------- ---------- --------- ---------- -------
Ending Balance............................... $2 $1,702 $ 0 $ 231 ($1) ($27) $1,907
======= ======== ======== ========== ========= ========== =======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of the financial statements.
<PAGE>
PP&L, INC. AND SUBSIDIARIES
- ---------------------------
In the opinion of PP&L, the unaudited financial statements included herein
reflect all adjustments necessary to present fairly the Consolidated Balance
Sheet as of June 30, 1999 and December 31, 1998, and the Consolidated Statement
of Income, Consolidated Statement of Cash Flows, and the Consolidated Statement
of Shareowner's Common Equity for the periods ended June 30, 1999 and 1998. All
nonutility operating transactions are included in "Other Income" in PP&L's
Consolidated Statement of Income.
CONSOLIDATED STATEMENT OF INCOME
(Unaudited)
(Millions of Dollars)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------- ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ---------
<S> <C> <C> <C> <C>
Operating Revenues
Electric........................................ $584 $558 $1,251 $1,175
Wholesale energy marketing and trading.......... 336 259 633 504
Energy related businesses....................... 3 1 7
-------- ---------- ---------- ----------
Total........................................... 923 818 1,891 1,679
-------- ---------- ---------- ----------
Operating Expenses
Operation
Electric fuel................................. 97 120 220 235
Energy purchases.............................. 350 218 605 432
Other......................................... 127 138 285 250
Amortization of recoverable transition costs.. 41 86
Maintenance..................................... 57 53 95 91
Depreciation and amortization................... 59 97 117 195
Taxes, other than income........................ 41 49 91 102
Energy related businesses....................... 3 7
-------- ---------- ---------- ----------
Total........................................... 775 675 1,506 1,305
-------- ---------- ---------- ----------
Operating Income.................................. 148 143 385 374
-------- ---------- ---------- ----------
Other Income...................................... 15 9 22 21
-------- ---------- ---------- ----------
Income Before Interest and Income Taxes........... 163 152 407 395
Interest Expense.................................. 48 49 96 98
-------- ---------- ---------- ----------
Income Before Income Taxes and
Extraordinary Items............................. 115 103 311 297
Income Taxes...................................... 42 40 118 124
-------- ---------- ---------- ----------
Income Before Extraordinary Items ................ 73 63 193 173
Extraordinary Items (net of $666 income taxes)
(Note 6)........................................ (948) (948)
-------- ---------- ---------- ----------
Net Income(Loss) Before Dividends on
Preferred Stock................................. 73 (885) 193 (775)
Dividends on Preferred Stock...................... 12 12 24 24
-------- ---------- ---------- ----------
Earnings Available to PP&L Resources, Inc......... $ 61 ($897) $ 169 ($799)
======== ========== ========== ==========
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of the financial statements.
<PAGE>
PP&L, INC. AND SUBSIDIARIES
- ---------------------------
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Millions of Dollars)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
-----------------
1999 1998
---- ----
<S> <C> <C>
Net Cash Provided by Operating Activities....................... $ 241 $ 307
------- ------
Cash Flows From Investing Activities
Expenditures for property, plant and equipment................ (142) (149)
Proceeds from sales of nuclear fuel to trust.................. 14 15
Purchases of available-for-sale securities ................... (12)
Sales and maturities of available-for-sale securities ........ 14
Purchases and sales of other financial investments - net...... 4
Loan to parent................................................ (12) (1)
Other investing activities - net.............................. 3 1
------- ------
Net cash used in investing activities................... (137) (128)
------- ------
Cash Flows From Financing Activities
Issuance of long-term debt.................................... 200
Retirement of long-term debt.................................. (266)
Payments on capital lease obligations......................... (26) (26)
Payments of preferred and common dividends.................... (141) (163)
Net increase in short-term debt............................... 164 82
Other financing activities - net.............................. (1)
------- ------
Net cash used in financing activities................... (3) (174)
------- ------
Net Increase in Cash and Cash Equivalents....................... 101 5
Cash and Cash Equivalents at Beginning of Period................ 31 15
------- ------
Cash and Cash Equivalents at End of Period...................... $ 132 $ 20
======= ======
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest (net of amount capitalized)........................ $ 103 $ 105
Income taxes................................................ $ 122 $ 102
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of the financial statements.
<PAGE>
PP&L INC. AND SUBSIDIARIES
- ------------------------------------
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(Unaudited) (Audited)
----------- ------------
<S> <C> <C>
ASSETS
PROPERTY, PLANT AND EQUIPMENT
Electric utility plant in service - net
Transmission and distribution........................... $ 2,184 $ 2,179
Generation.............................................. 1,630 1,601
General and intangible.................................. 217 223
----------- ------------
4,031 4,003
Construction work in progress - at cost................... 113 117
Nuclear fuel owned and leased - net....................... 144 162
----------- ------------
Electric utility plant - net............................ 4,288 4,282
Gas and oil utility plant - net........................... 27 28
Other property - net...................................... 21 21
----------- ------------
4,336 4,331
----------- ------------
INVESTMENTS
Loan to parent............................................ 441 429
Nuclear plant decommissioning trust fund.................. 229 206
Investment in unconsolidated affiliate at equity.......... 17 17
Other..................................................... 11 13
----------- ------------
698 665
----------- ------------
CURRENT ASSETS
Cash and cash equivalents................................. 132 31
Accounts receivable (less reserve: 1999, $17; 1998, $14)
Utility customers....................................... 174 163
Other................................................... 87 67
Unbilled revenues
Utility customers....................................... 131 104
Other................................................... 157 59
Fuel, material and supplies - at average cost............. 190 196
Prepayments .............................................. 81 14
Unrealized mark-to-market energy trading gains............ 53 2
Other..................................................... 62 58
----------- ------------
1,067 694
----------- ------------
REGULATORY ASSETS AND OTHER NONCURRENT ASSETS
Recoverable transition costs.............................. 2,733 2,819
Other..................................................... 330 329
----------- ------------
3,063 3,148
----------- ------------
$ 9,164 $ 8,838
=========== ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of the financial statements.
<PAGE>
PP&L, INC. AND SUBSIDIARIES
- ---------------------------
CONSOLIDATED BALANCE SHEET
(Millions of Dollars)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(Unaudited) (Audited)
------------ ------------
<S> <C> <C>
LIABILITIES
Capitalization
Common equity
Common stock.......................................................... $ $1,476 $ 1,476
Additional paid-in capital............................................ 70 70
Earnings reinvested................................................... 262 210
Accumulated other comprehensive income................................ (6) (6)
Capital stock expense and other....................................... (20) (20)
------------ ------------
1,782 1,730
Preferred stock
With sinking fund requirements........................................ 295 295
Without sinking fund requirements..................................... 171 171
Company-obligated mandatorily redeemable preferred
securities of subsidiary trusts holding solely
company debentures.................................................... 250 250
Long-term debt.......................................................... 2,445 2,569
------------ ------------
4,943 5,015
------------ ------------
Current Liabilities
Short-term debt......................................................... 244 80
Long-term debt due within one year...................................... 125
Capital lease obligations due within one year........................... 60 59
Above market NUG purchases due within one year.......................... 101 105
Accounts payable........................................................ 308 189
Taxes and interest accrued.............................................. 91 86
Dividends payable....................................................... 12 12
Unrealized mark-to-market energy trading losses......................... 41 9
Other................................................................... 105 114
------------ ------------
1,087 654
------------ ------------
Deferred Credits and Other Noncurrent Liabilities
Deferred income taxes and investment tax credits........................ 1,557 1,561
Above market NUG purchases.............................................. 724 775
Capital lease obligations............................................... 97 109
Other................................................................... 756 724
------------ ------------
3,134 3,169
------------ ------------
Commitments and Contingent Liabilities (Note 11)..........................
------------ ------------
$ 9,164 $ 8,838
============ ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of the financial statements.
<PAGE>
PP&L, INC. AND SUBSIDIARIES
- ---------------------------
CONSOLIDATED STATEMENT OF SHAREOWNER'S COMMON EQUITY
(Unaudited)
(Millions of Dollars)
<TABLE>
<CAPTION>
Accumulated
Additional Other Capital Stock
Common Paid-in Earnings Comprehensive Expense and
Stock Capital Reinvested Income Other Total
------ ---------- ---------- ------------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
For the Three Months Ended June 30,
- -----------------------------------
1999
Beginning Balance......................... $1,476 $ 70 $ 241 ($6) ($20) $1,761
Comprehensive income
Net income.............................. 61
Other comprehensive income:
Total comprehensive income.............. 61
Common dividends declared................. (40) (40)
------ ---------- ---------- ------------- ------------- ------
Ending Balance............................ $1,476 $ 70 $ 262 ($6) ($20) $1,782
====== ========== ========== ============= ============= ======
1998
Beginning Balance......................... $1,476 $ 64 $ 1,119 $0 ($20) $2,639
Comprehensive income
Net loss................................ (897)
Other comprehensive income:
Total comprehensive income.............. (897)
Common dividends declared................. (69) (69)
------ ---------- ---------- ------------- ------------- ------
Ending Balance............................ $1,476 $ 64 $ 153 $0 ($20) $1,673
====== ========== ========== ============= ============= ======
For the Six Months Ended June 30,
- ---------------------------------
1999
Beginning Balance......................... $1,476 $ 70 $ 210 ($6) ($20) $1,730
Comprehensive income
Net income.............................. 169
Other comprehensive income:
Total comprehensive income.............. 169
Common dividends declared................. (117) (117)
------ ---------- ---------- ------------- ------------- ------
Ending Balance............................ $1,476 $ 70 $ 262 ($6) ($20) $1,782
====== ========== ========== ============= ============= ======
1998
Beginning Balance......................... $1,476 $ 64 $ 1,092 $0 ($20) $2,612
Comprehensive income
Net loss................................ (799)
Other comprehensive income:
Total comprehensive income.............. (799)
Common dividends declared................. (140) (140)
------ ---------- ---------- ------------- ------------- ------
Ending Balance............................ $1,476 $ 64 $ 153 $0 ($20) $1,673
====== ========== ========== ============= ============= ======
</TABLE>
The accompanying Notes to Consolidated Financial Statements are an integral part
of the financial statements.
<PAGE>
PP&L Resources, Inc. and PP&L, Inc.
Notes to Consolidated Financial Statements
------------------------------------------
Terms and abbreviations appearing in Notes to Consolidated Financial
Statements are explained in the glossary.
1. Interim Financial Statements
Certain information in footnote disclosures, normally included in financial
statements prepared in accordance with generally accepted accounting principles,
has been condensed or omitted in this Form 10-Q pursuant to the rules and
regulations of the SEC. These financial statements should be read in
conjunction with the financial statements and notes included in PP&L Resources'
and PP&L's Annual Reports to the SEC on Form 10-K for the year ended December
31, 1998.
Certain amounts in the June 30, 1998 and December 31, 1998 financial
statements have been reclassified to conform to the presentation in the June 30,
1999 financial statements.
2. Summary of Significant Accounting Policies
Reference is made to the "Summary of Significant Accounting Policies" in
PP&L Resources' and PP&L's Form 10-K for the year ended December 31, 1998.
Following are updates to the accounting policies described therein.
Recoverable Transition Costs
Pursuant to the PUC Final Order, PP&L began amortizing its recoverable
transition (or stranded) costs over an eleven-year transition period on January
1, 1999. Reference is made to Note 3 to the Financial Statements in PP&L
Resources' and PP&L's Form 10-K for the year ended December 31, 1998 for the
"Annual Stranded Cost Amortization and Return Schedule." This schedule is
subject to revision for actual CTC collections. A portion of the recoverable
transition costs were converted to intangible transition costs when securitized
by the issuance of transition bonds. (See Note 4 for additional information.)
Liability for Above Market NUG Purchases
At June 30, 1998, PP&L recorded an estimated liability for above-market
purchases under existing NUG contracts. This liability was recorded as part of
the PUC restructuring adjustments. (See Note 6 for additional information.)
Effective January 1, 1999, PP&L began reducing this liability as an offset to
"Energy Purchases" on the Consolidated Statement of Income. This reduction is
based on the estimated timing of the purchases from the NUGs and projected
market prices for this
<PAGE>
generation. This accounting will continue through 2014, when the last of the
existing NUG contracts expire. This liability is subject to future revision if
the underlying estimates of energy prices change.
Accounting for Price Risk Management
PP&L Resources and PP&L entered into forward starting swaps and treasury
locks to hedge the interest rate risk associated with anticipated debt
financing. These interest rate swaps are accounted for under the accrual
method. Accordingly, the gains or losses on these swaps will be recognized over
the life of the debt. (See Note 9 for additional information.)
Comprehensive Income
SFAS 130, "Reporting Comprehensive Income," established standards for
reporting and disclosure of comprehensive income and its components in a full
set of financial statements. Comprehensive income consists of net income and
other comprehensive income which result in certain changes in common equity
from transactions not related to shareowners. For PP&L, other comprehensive
income consists of unrealized gains or losses on available-for-sale securities
and the excess of additional pension liability over unamortized prior service
costs. The other comprehensive income of PP&L Resources consists of the
foregoing as well as foreign currency translation adjustments recorded by PP&L
Global. In accordance with SFAS 130, comprehensive income is reflected on the
Consolidated Statement of Shareowners' Common Equity, and accumulated other
comprehensive income is presented in the capitalization section of the
Consolidated Balance Sheet.
3. Earnings Per Share
SFAS 128, "Earnings Per Share," requires the disclosure of basic and
diluted EPS. Basic EPS is calculated by dividing earnings available to common
shareowners ("Net Income" on the PP&L Resources' Consolidated Statement of
Income) by the weighted average number of common shares outstanding during the
period. In the calculation of diluted EPS, weighted average shares outstanding
are increased for additional shares that would be outstanding if potentially
dilutive securities were converted to common stock.
<PAGE>
In April 1999, PP&L Resources made its initial award of stock options under
the Incentive Compensation Plan. At present, stock options are the only
potentially dilutive securities outstanding. (See Note 14 for additional
information.)
Following are the calculations of basic and diluted EPS for PP&L Resources
during the three and six months ended June 30, 1999:
<TABLE>
<CAPTION>
(Millions of dollars, except per share data)
(Thousands of shares)
June 30, 1999
---------------------------------------------------------
Three months ended Six months ended
--------------------------- ---------------------------
Weighted Weighted
Avg Shares Avg Shares
Earnings Outstanding EPS Earnings Outstanding EPS
-------- ----------- ----- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Basic EPS $63 157,694 $0.40 $183 157,653 $1.16
Effect of Dilutive Shares 45 22
--- ------- ----- ---- ------- -----
Diluted EPS $63 157,739 $0.40 $183 157,675 $1.16
</TABLE>
There were no dilutive shares outstanding in 1998. The weighted average
shares outstanding (in thousands) for the three and six months ended June 30,
1998 were 167,436 and 167,106, respectively.
4. Securitization
As part of its approval of the settlement of PP&L's restructuring
proceeding in August 1998, the PUC issued a Qualified Rate Order permitting PP&L
to issue transition bonds to securitize up to $2.85 billion of its stranded
costs.
In August 1999, PP&L Transition Bond Company LLC, a wholly owned subsidiary
of PP&L, issued $2.42 billion of transition bonds in eight different classes,
carrying expected average lives ranging from 1 year up to 8.7 years. PP&L used a
portion of the proceeds to acquire equity held by PP&L Resources, including all
the preferred stock held by PP&L Resources, $380 million, and $481 million of
its common stock. In addition, PP&L used a portion of the proceeds to repurchase
$1.467 billion of its first mortgage bonds through tender offers and open market
purchases. In the third quarter of 1999, PP&L will record an extraordinary
charge of about $59 million, for the premiums and related expenses paid to
reacquire the first mortgage bonds. PP&L Resources used $417 million of the
proceeds it received from PP&L to purchase 14 million shares of its common
stock.
In the third quarter of 1999, PP&L anticipates releasing approximately $78
million of deferred income taxes associated with the CTC that are no longer
required after securitization.
<PAGE>
PP&L customers will benefit from the securitization through an expected
average rate reduction of approximately one percent for the period the
transition bonds are outstanding. Customer bills currently reflect the
impact of a CTC. With securitization, a substantial portion of the CTC will be
replaced with an ITC, which results in lower charges due to the flow through of
75% of the net financing savings from securitization. The actual reduction will
vary year by year, and also by customer class and level of use.
5. PUC Restructuring Decision
In August 1998, the PUC entered its Final Order approving the settlement of
PP&L's restructuring proceeding under Pennsylvania's Customer Choice Act. Among
other things, that Order:
. permitted PP&L to recover $2.97 billion (on a net present value basis)
in stranded costs over 11 years - i.e., from January 1, 1999 through
December 31, 2009. PP&L's stranded costs are those which would have
been recoverable under traditional rate regulation, but may not be
recoverable in the competitive marketplace. PP&L is permitted a return
of 10.86% on the unamortized balance of these stranded costs.
. authorized PP&L to issue transition bonds to securitize up to $2.85
billion of its stranded costs.
. required PP&L to reduce rates to all retail customers by four percent
effective January 1, 1999 through December 31, 1999.
. required PP&L to unbundle its retail electric rates beginning on
January 1, 1999, to reflect separate prices for the transmission and
distribution charges, the CTC (and if applicable, the ITC), and the
generation charge. The CTC is a charge to be paid by all customers who
receive delivery service from PP&L, to recover PP&L's stranded costs.
The ITC, which offsets the CTC on customer bills, is a charge to be
paid by delivery customers to reflect the securitization of stranded
costs.
. required PP&L to transfer its retail marketing function to a new
subsidiary, PP&L EnergyPlus. PP&L EnergyPlus has a PUC license to act
as a Pennsylvania EGS. This license permits PP&L EnergyPlus to offer
retail electric supply to participating customers in PP&L's service
territory and in the service territories of other Pennsylvania
utilities. In 1999, PP&L EnergyPlus is offering such supply to
industrial and commercial customers throughout the state and effective
August 1, 1999 PP&L EnergyPlus can market electricity in New Jersey.
<PAGE>
. permitted, but did not require, PP&L to transfer ownership and
operation of its generating facilities to a separate corporate entity
at book value.
6. Extraordinary Items
PP&L prepares its financial statements for its regulated operations in
accordance with SFAS 71, which requires rate-regulated companies to reflect the
effects of regulatory decisions in their financial statements. PP&L deferred
certain costs pursuant to rate actions of the PUC and the FERC and is
recovering, or expects to recover, such costs in electric rates charged to
customers.
The EITF addressed the appropriateness of the continued application of SFAS
71 by entities in states that have enacted restructuring legislation similar to
Pennsylvania's Customer Choice Act. The EITF came to a consensus on Issue No.
97-4, "Deregulation of the Pricing of Electricity - Issues Related to the
Application of FASB Statements 71 and 101," which concluded that an entity
should cease to apply SFAS 71 when a deregulation plan is in place and its terms
are known. For PP&L, with respect to the generation portion of its business,
this occurred effective June 30, 1998, based upon the outcome of the PUC
restructuring proceeding. (Refer to Note 5 for additional information related
to the PUC Restructuring Decision.) PP&L adopted SFAS 101 for the generation
side of its business. SFAS 101 required a determination of impairment of plant
assets performed in accordance with SFAS 121, and the elimination of all effects
of rate regulation that were recognized as assets and liabilities under SFAS 71.
PP&L performed impairment tests of its electric generation assets on a
plant specific basis and determined that $2.388 billion of its generation plant
was impaired at June 30, 1998. Impaired plant was the excess of the net plant
investment at June 30, 1998, over the present value of the net cash flows during
the remaining lives of the plants. Annual net cash flows were determined by
comparing estimated generation sustenance costs to estimated regulated revenues
for the remainder of 1998, market revenues for 1999 and beyond, and revenues
from bulk power contracts. The net cash flows were then discounted to present
value.
In addition to the impaired generation plant, PP&L estimated that there
were other stranded costs totaling $1.989 billion at June 30, 1998. These other
stranded costs included primarily generation-related regulatory assets and
liabilities and an estimated liability for above-market purchases under NUG
contracts. The total estimated impairment described above was $4.377 billion.
The PUC's Final Order in the restructuring proceeding, entered on August 27,
1998, permitted the recovery of $2.819 billion through the CTC on a present
value basis, excluding amounts for nuclear decommissioning and consumer
education, resulting in a net under-recovery of $1.558 billion. PP&L recorded
such amount as an extraordinary charge in June 1998.
<PAGE>
Under FERC Order 888, 16 small utilities which had power supply agreements
with PP&L signed before July 11, 1994, requested and were provided with PP&L's
current estimate of its stranded costs applicable to these customers if they
were to terminate their agreements in 1999. Subject to certain conditions,
FERC-approved settlement agreements executed with 15 of these customers provide
for continued power supply by PP&L through January 2004. As a result of these
settlements, PP&L recorded an extraordinary charge in the amount of $56 million
in the second quarter of 1998.
The extraordinary items related to the PUC restructuring proceeding and the
FERC settlement are reflected on the Statement of Income, net of income taxes.
Details of amounts written-off in June 1998 are as follows (millions of
dollars):
<TABLE>
<S> <C>
Impaired generation-related assets $ 2,388
Above-market NUG contracts 854
Generation-related regulatory assets and other 1,135
-------
Total 4,377
Recoverable transition costs (a) (2,819)
-------
Extraordinary item pre-tax - PUC 1,558
- FERC 56
-------
Extraordinary items pre-tax- Total 1,614
Tax effects (666)
-------
Extraordinary items $ 948
=======
</TABLE>
(a) Excluding recoveries for nuclear decommissioning and consumer education
expenditures.
7. Segment and Related Information
PP&L Resources' principal business segment is PP&L, which provides
electricity delivery service in eastern and central Pennsylvania, sells retail
electricity throughout Pennsylvania, and markets wholesale electricity in 30
states and Canada. PP&L Resources' other reported business segment, PP&L
Global, invests in and develops worldwide power projects, with the majority of
its investments located in the U.K., Chile, and El Salvador. PP&L Global also
owns and operates generating facilities. PP&L Global's revenue represents
equity earnings in investments and revenues from the sale of generation to
wholesale customers. Other operating revenues of PP&L Resources represent gas
distribution, mechanical contracting and engineering, and unregulated energy
services. Financial data for PP&L Resources' business segments are as follows
(millions of dollars):
<PAGE>
<TABLE>
<CAPTION>
Three months ended June 30, 1999
- --------------------------------
Other
PP&L and Elimin- PP&L
PP&L Global ations Resources
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Income statement data:
Operating revenues $ 923 $20 $ 61 $1,004
Interest expense 48 7 6 61
Depreciation and amortization 59 2 61
Income taxes 42 1 (3) 40
Net income 61 5 (3) 63
Six months ended June 30, 1999
- ------------------------------
Other
PP&L and Elimin- PP&L
PP&L Global ations Resources
----------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
Income statement data:
Operating revenues $1,891 $41 $139 $2,071
Interest expense 96 15 12 123
Depreciation and amortization 117 4 121
Income taxes 118 (4) 114
Net income 169 14 183
Cash flow data:
Property, plant and equipment
expenditures 142 80 6 228
Investments in unconsolidated
affiliates
Three months ended June 30, 1998
- --------------------------------
Other
PP&L and Elimin- PP&L
PP&L Global ations Resources
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Income statement data:
Operating revenues $ 818 $ 8 $ 12 $ 838
Extraordinary items, net of taxes (948) (948)
Interest expense 49 5 54
Depreciation and amortization 97 97
Income taxes 40 1 (3) 38
Net income (897) 1 2 (894)
</TABLE>
<PAGE>
Six months ended June 30, 1998
- -----------------------------
<TABLE>
<CAPTION>
Other
PP&L and Elimin- PP&L
PP&L Global ations Resources
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income statement data:
Operating revenues $1,679 $ 17 $ 23 $ 1,719
Extraordinary items, net of taxes (948) (948)
Interest expense 98 8 106
Depreciation and amortization 195 195
Income taxes 124 2 (4) 122
Net income (799) 2 4 (793)
Cash flow data:
Property, plant and equipment
expenditures 149 149
Investments in unconsolidated
affiliates 276 276
</TABLE>
<TABLE>
<CAPTION>
Other
PP&L and Elimin- PP&L
PP&L Global ations Resources
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
June 30, 1999
- -------------
Balance sheet data:
Cumulative net investment in
unconsolidated affiliates $ 17 $684 $ 701
Total assets 9,164 927 $ 13 10,104
December 31, 1998
- -----------------
Balance sheet data:
Cumulative net investment in
unconsolidated affiliates $ 17 $671 $ 688
Total assets 8,838 757 $ 12 9,607
</TABLE>
8. Sales to Other Electric Utilities
Under an existing power purchase contract, PP&L is providing JCP&L with
189,000 kilowatts of capacity and related energy from all of its generating
units during 1999. The agreement with JCP&L will terminate on December 31,
1999. PP&L expects to be able to resell the returning capacity and energy
through its Energy Marketing Center.
Under a separate agreement, PP&L is providing additional capacity and
energy to JCP&L. This capacity and energy sale increased from 150,000 kilowatts
to 200,000 kilowatts in June 1998, and increased to 300,000 kilowatts in June
1999 through the end of the agreement in May 2004. Prices for this capacity and
energy are market-based.
In February 1999, PP&L and UGI executed new interconnection and power
supply agreements, which were submitted to the FERC in July 1999 for review and
acceptance. Under the new power supply agreement beginning in 1999, UGI will
purchase capacity from PP&L equal to UGI's PJM capacity obligation less the
capacity reserve value of UGI's owned generation and
<PAGE>
an existing power purchase agreement. In 2000, UGI will purchase a firm block of
energy in addition to the capacity. The power supply agreement ends in February
2001.
9. Financial Instruments
During the first six months of 1999, PP&L Resources and PP&L entered into
forward starting interest rate swaps and treasury locks with various
counterparties to hedge the interest rate risk associated with anticipated debt
issuances, including the issuance of transition bonds in August 1999. At June
30, 1999, the notional amount of the financial instruments issued to hedge
interest rate risk associated with the transition bonds was $640 million for
PP&L Resources, plus an additional $555 million for PP&L. In July 1999, PP&L
entered into additional forward interest rate swaps with notional amounts
totaling $200 million. All financial instruments associated with hedging the
interest rate risk of the transition bonds were settled at the end of July. The
proceeds were received and recorded in August 1999. As a result of these
hedging activities, interest expense on the transition bonds, applied under the
effective interest method, will be reduced by $24.8 million. Seventy-five
percent of these savings will be passed back to customers. On the same day that
PP&L priced its transition bonds, PP&L entered into short dated treasury lock
transactions with a notional amount of $1.07 billion to lock in the treasury
rate related to PP&L's tender offer to purchase any or all of $1.66 billion of
selected series of its mortgage bonds. These contracts were settled one week
later for an immaterial amount, on the date that PP&L announced the purchase
prices associated with the tender offer to purchase. (See Note 4 for additional
information about transition bonds.)
At June 30, 1999, PP&L Resources had entered into forward starting interest
rate swaps with various counterparties to hedge the interest rate risk
associated with debt issuances expected in the fourth quarter of 1999. These
interest rate swap agreements involve the exchange of floating rate interest
rate payments for fixed rate interest payments over the life of the agreements.
PP&L Resources agreed to pay a fixed rate of 5.77% on a notional amount of $60
million with a maturity date of September 15, 2004 and fixed rates between 5.92%
and 6.08% on notional amounts of $260 million with a maturity date of September
15, 2009. PP&L Resources will receive a variable interest payment based on the
6-month LIBOR rate through the maturity dates of the agreements. The estimated
fair value of the forward interest rate swaps, which represents the estimated
amount PP&L Resources would receive if it had terminated these agreements on
June 30, 1999, was $17.7 million.
10. Credit Arrangements and Financing Activities
PP&L issues commercial paper and, from time to time, borrows from banks to
provide short-term funds for PP&L's general corporate purposes. Bank borrowings
generally bear interest at rates negotiated at the time of
<PAGE>
the borrowing. At June 30, 1999, PP&L had $44 million of commercial paper
outstanding.
PP&L Capital Funding, whose purpose is to provide debt funding for PP&L
Resources and its subsidiaries other than PP&L, also issues commercial paper.
As with all PP&L Capital Funding debt, this commercial paper is guaranteed by
PP&L Resources. As of June 30, 1999, PP&L Capital Funding had $666 million of
commercial paper outstanding.
On July 1, 1999, PP&L and PP&L Capital Funding entered into a new $750
million credit facility. This facility replaced a $350 million 364-day
revolving credit agreement shared by PP&L and PP&L Capital Funding and also five
separate $80 million 364-day credit facilities maintained by PP&L Capital
Funding. No borrowings are outstanding under this new facility.
PP&L Capital Funding registered $400 million of debt securities with the
SEC in early January 1999. It is expected that these debt securities will be
issued from time to time as medium-term notes to provide long-term debt
financing for PP&L Resources and its subsidiaries other than PP&L.
In June 1999, PP&L instituted a short-term bond program in order to meet
certain short-term working capital requirements and to increase financing
flexibility. Under this program, up to $600 million of short-term bonds could
be issued from time to time with no more than $200 million of such bonds
outstanding at any one time. As of June 30, 1999, $200 million of these bonds
were outstanding. This program was completed in August 1999 with a total of
$600 million issued and subsequently paid upon maturity.
In January and February 1999, PP&L Resources issued $8 million of new
common stock through the DRIP. Effective March 1, 1999, the DRIP was changed
from a new issue to an open market purchase program.
In anticipation of funds becoming available to PP&L Resources from the
securitization of PP&L's stranded costs, PP&L announced its intention to
purchase 14 million shares of common stock on the open market. In connection
with this program, PP&L Resources entered into forward purchase agreements with
a third party. As of June 30, 1999, the third party had purchased 11 million
shares of PP&L Resources' common stock. If the forward purchase agreements had
been settled on a net share basis on June 30, 1999, based on the closing price
of the PP&L Resources' common stock on that date, PP&L Resources would have
received approximately 606,000 shares of its common stock. In August 1999, the
forward purchase agreements were settled and PP&L Resources purchased 14 million
shares from the third party for $417 million.
In July 1999, PP&L commenced cash tender offers for any and all of
approximately $1.66 billion of 11 series of its first mortgage bonds. In August
1999, these tenders were completed. Through the tender offers and open market
repurchases $1.467 billion of first
<PAGE>
mortgage bonds were repurchased and subsequently retired. See Note 4 for
additional information on the issuance of $2.42 billion of transition bonds to
securitize stranded costs, the proceeds of which were partially used to fund the
purchase of tendered debt.
11. Commitments and Contingent Liabilities
There have been no material changes related to PP&L Resources' or PP&L's
commitments and contingent liabilities since the companies filed their joint
1998 Form 10-K, except as described below.
For discussion pertaining to PP&L Resources' and PP&L's credit arrangements
and financing activities, see Note 10.
Nuclear Insurance
PP&L is a member of certain insurance programs which provide coverage for
property damage to members' nuclear generating stations. Facilities at the
Susquehanna station are insured against property damage losses up to $2.75
billion under these programs. PP&L is also a member of an insurance program
which provides insurance coverage for the cost of replacement power during
prolonged outages of nuclear units caused by certain specified conditions.
Under the property and replacement power insurance programs, PP&L could be
assessed retroactive premiums in the event of the insurers' adverse loss
experience. At June 30, 1999, the maximum amount PP&L could be assessed under
these programs was about $25 million.
PP&L's public liability for claims resulting from a nuclear incident at the
Susquehanna station is limited to about $9.7 billion under provisions of The
Price Anderson Amendments Act of 1988. PP&L is protected against this liability
by a combination of commercial insurance and an industry assessment program. In
the event of a nuclear incident at any of the reactors covered by The Price
Anderson Amendments Act of 1988, PP&L could be assessed up to $168 million per
incident, payable at a rate of $20 million per year, plus an additional 5%
surcharge, if applicable.
Environmental Matters
Air
---
The Clean Air Act deals, in part, with acid rain, attainment of federal
ambient ozone standards and toxic air emissions. PP&L has complied with the
1995 Phase I acid rain provisions by installing continuous emission monitors on
all units, burning lower sulfur coal and installing low NOx burners on most
units. To comply with the year 2000 Phase II acid rain provisions, PP&L plans
to purchase lower sulfur coal and use banked or purchased emission allowances
instead of installing FGD on its wholly owned units.
<PAGE>
PP&L has met the 1995 ambient ozone requirements of the Clean Air Act by
reducing its rate of NOx emissions by nearly 50% through the use of low NOx
burners. Further seasonal (i.e., 5 month) NOx reductions to 55% and 75% of 1990
levels for 1999 and 2003, respectively, are specified under the Northeast Ozone
Transport Region's Memorandum of Understanding. The Pennsylvania DEP has
finalized regulations which require PP&L to reduce its ozone seasonal NOx by 57%
from 1999 levels beginning in May 1999. PP&L is complying with this reduction
with operational initiatives that rely, to a large extent, on the existing low
NOx burners.
In 1997, the EPA finalized new national standards for ambient levels of
ground-level ozone and fine particulates. Those standards were challenged by
industry groups and have been held invalid by the D. C. Circuit Court of
Appeals. Based in part on the new ozone standard, the EPA has called for 22
states (including PA) to revise their regulations capping their NOx emissions to
specified levels in 2003. PA's NOx emissions cap in effect requires
approximately an 80% reduction in NOx emissions from the 1990 level. The EPA
required states to make these revisions to their regulations by September 1999.
However, these EPA requirements have also been challenged in the D. C. Circuit
Court of Appeals and the Court has stayed the September 1999 deadline.
Pursuant to Section 126 of the Clean Air Act, several Northeast states have
petitioned the EPA to find that major sources of NOx emissions, including PP&L's
power plants, are significantly contributing to non-attainment in those states.
The EPA found significant contribution by most sources named in the petitions
and proposed to require emissions reductions at those sources if the states in
which these sources are located fail to develop plans by September 1999 to
implement the proposed 2003 limits. The EPA's finding of significant
contribution has been challenged in the D.C. Circuit Court of Appeals. The EPA
has recently issued an interim stay of its action on these 126 petitions in
light of the D. C. Circuit Court of Appeals' decisions. PP&L estimates that
compliance with the 2003 emissions reduction requirements could require
installation of NOx emissions removal systems on PP&L's three largest coal-fired
units, at a capital cost of approximately $35 million per unit. A new
particulates standard, if ultimately upheld, may require further reductions in
SO2 and may expand the planned seasonal NOx reductions to year round in the
2010-2012 timeframe.
Under the Clean Air Act, the EPA has been studying the health effects of
hazardous air emissions from power plants and other sources, in order to
determine whether those emissions should be regulated. The EPA released a
technical report of its findings to date and concluded that mercury is the power
plant air toxic of greatest concern, but that more evaluation is needed before
it can determine whether regulation of air toxics from fossil fuel plants is
necessary. The EPA is now seeking mercury and chlorine sampling and other data
from electric generating units, including PP&L's. In addition, the EPA has
announced an enforcement initiative against older coal-fired plants. Several of
PP&L's
<PAGE>
coal-fired plants could fall into this category. These EPA initiatives could
result in compliance costs for PP&L in amounts which are not now determinable
but which could be material.
Expenditures to meet the 2000 acid rain and 1999 NOx reduction requirements
are included in the table of projected construction expenditures in the section
entitled "Financial Condition - Capital Expenditure Requirements" in the Review
of the Financial Condition and Results of Operations in the 1998 Form 10-K.
PP&L currently estimates that additional capital expenditures and operating
costs for environmental compliance under the Clean Air Act will be incurred
beyond 2002 in amounts which are not now determinable but which could be
material.
Water and Residual Waste
------------------------
PP&L has installed dry fly ash handling systems at most of its power
stations, which reduces waste water discharge. In other cases, PP&L has
modified the existing facilities to allow continued operation of the ash basins
under a DEP residual waste permit. Any groundwater contamination caused by the
basins must also be addressed under DEP's residual waste regulations.
Groundwater degradation related to fuel oil leakage from underground
facilities and seepage from coal refuse disposal areas and coal storage piles
has been identified at several PP&L generating stations. Remedial work related
to oil leakage is substantially completed at two generating stations, and the
remedial work to abate a localized groundwater degradation problem associated
with a waste disposal impoundment at the Montour plant has been completed.
The final NPDES permit for the Montour plant contains stringent limits for
iron and chlorine discharges. Depending on the results of a toxic reduction
study, additional water treatment facilities or operational changes may be
needed at this plant.
Capital expenditures through the year 2003 to correct groundwater
degradation at fossil-fueled generating stations and to address waste water
control at PP&L facilities are included in the table of construction
expenditures in the section entitled "Financial Condition - Capital Expenditure
Requirements" in the Review of the Financial Condition and Results of Operations
in the 1998 Form 10-K. In this regard, PP&L currently estimates that $5.5
million of additional expenditures may be required in the next four years to
close some of the ash basins and address other ash basin issues at various
generating plants. Additional expenditures could be required beyond the year
2003 in amounts which are not now determinable but which could be material.
Actions taken to correct groundwater degradation, to comply with the DEP's
regulations and to address waste water control are also expected to result in
increased operating costs in amounts which are not now determinable but which
could be material.
<PAGE>
Remediation Under Multi-Site Consent Orders
-------------------------------------------
In 1995, PP&L entered into a consent order with the DEP to address a number
of sites where PP&L may be liable for remediation of contamination. This may
include potential PCB contamination at certain PP&L substations and pole sites;
potential contamination at a number of coal gas manufacturing facilities
formerly owned and operated by PP&L; and oil or other contamination which may
exist at some of PP&L's former generating facilities. As of June 30, 1999, PP&L
has completed work on slightly more than half of the sites included in the
consent order.
In 1996, Penn Fuel Gas entered into a similar consent order with the DEP to
address a number of its sites where Penn Fuel Gas may be liable for remediation
of contamination. The sites primarily include former coal gas manufacturing
facilities. Prior to PP&L Resources acquiring Penn Fuel Gas on August 21, 1998,
Penn Fuel Gas had obtained a "no further action" determination from the DEP for
two of the 20 sites covered by the order.
At June 30, 1999, PP&L had accrued approximately $6 million and Penn Fuel
Gas had accrued $15 million, representing the respective amounts PP&L and Penn
Fuel Gas can reasonably estimate they will have to spend to remediate sites
involving the removal of hazardous or toxic substances, including those covered
by each company's consent orders mentioned above. Future cleanup or remediation
work at sites currently under review, or at sites not currently identified, may
result in material additional operating costs for PP&L or Penn Fuel Gas, which
neither company can estimate at this time. In addition, certain federal and
state statutes, including Superfund and the Pennsylvania Hazardous Sites Cleanup
Act, empower certain governmental agencies, such as the EPA and the DEP, to seek
compensation from the responsible parties for the lost value of damaged natural
resources. The EPA and the DEP may file such compensation claims against the
parties, including PP&L or Penn Fuel Gas, held responsible for cleanup of such
sites. Such natural resource damage claims against PP&L or Penn Fuel Gas could
result in material additional liabilities.
General
-------
Due to the environmental issues discussed above or other environmental
matters, PP&L may be required to modify, replace or cease operating certain
facilities to comply with statutes, regulations and actions by regulatory bodies
or courts. In this regard, PP&L also may incur capital expenditures, operating
expenses and other costs in amounts which are not now determinable but which
could be material.
Loan and Other Guarantees of Affiliated Companies
PP&L Resources provides certain guarantees for its subsidiaries.
Specifically, PP&L Resources guarantees all of the debt of PP&L Capital
<PAGE>
Funding. As of June 30, 1999, PP&L Resources had guaranteed (as shown on its
Consolidated Balance Sheet) $397 million of medium-term notes and $666 million
of commercial paper issued by PP&L Capital Funding and $19 million of notes of a
subsidiary of Penn Fuel Gas. In addition, PP&L Resources provided $113 million
of guarantees to PP&L Global subsidiaries.
As of June 30, 1999, PP&L Resources also had guaranteed certain obligations
of PP&L EnergyPlus for up to $235 million under certain power purchase and sales
agreements.
As of June 30, 1999, PP&L had provided a guarantee in the amount of $12
million in support of one of its subsidiaries.
12. Acquisitions and Divestitures
In February 1999, PP&L Resources acquired McCarl's; and in April 1999, PP&L
Spectrum acquired Burns Mechanical. In July 1999, PP&L Resources announced an
agreement to acquire another mechanical contractor and engineering firm Western
Massachusetts Holdings, Inc. The purchase prices for these mechanical
contracting and engineering firms were not material.
In May 1999, PP&L signed a definitive agreement to sell its Sunbury plant
and the principal assets of its wholly owned coal processing subsidiary, Lady
Jane Collieries, to Sunbury Holdings, LLC. PP&L expects to receive total cash
proceeds of about $106 million for the assets, including coal inventory, which
would translate into a one-time contribution of about 25 cents per share to PP&L
Resources' 1999 earnings. The closing, which is subject to certain regulatory
approvals and other closing conditions, is expected later in 1999.
In May 1999, PP&L Global acquired most of Bangor Hydro-Electric Company's
generating assets and certain transmission rights, as well as its interest in an
oil-fired generation facility, for $79 million. In July 1999, PP&L Global
purchased Bangor Hydro-Electric Company's 50% interest in the 13 megawatt West
Enfield hydroelectric station for $10 million. While the economic interest in
this project has been transferred, the associated stock transfer requires the
approval of the Maine PUC. This approval is expected by the end of 1999.
In July 1999, PP&L Global completed the acquisition of an additional 29.2%
interest in Emel, one of Chile's largest electricity distribution companies.
Emel provides electricity distribution service to about 800,000 customers in
Chile, Bolivia and El Salvador. The $95 million acquisition brings PP&L
Global's ownership of Emel to 66.7%, thereby achieving full operational control
of the company.
PP&L Global also has signed definitive agreements with the Montana Power
Company, Portland General Electric Company and Puget Sound Energy, Inc. to
acquire 13 Montana power plants, with 2,614 Mw of generating capacity, for a
purchase price of $1.586 billion. The acquisition is subject to several
conditions, including the receipt of required state and
<PAGE>
federal regulatory approvals and third party consents. In this regard, FERC has
approved the sale of the power plants to PP&L Global. Upon completion of this
acquisition PP&L Global will have 100% ownership interest in these power plants
except for Colstrip Units 3 and 4. PP&L Global's ownership interest of these
units will be 75%, since both PacifiCorp and Avista Corporation will maintain
their existing ownership percentages. PP&L Global expects to complete this
acquisition by the end of 1999. About 65% of the acquisition cost is expected to
be financed on a project credit basis, non-recourse to PP&L Resources. The
balance of the acquisition cost is expected to be financed through a combination
of debt and equity issued by PP&L Resources. The agreements also provide for
PP&L Resources' acquisition of related transmission assets for an additional
$182 million, subject to certain conditions, including federal regulatory
approval.
PP&L Resources is in the process of acquiring the energy marketing
operation of the Montana Power Company for an amount that is not material. The
Montana marketing and trading operation will become part of PP&L EnergyPlus,
PP&L's marketing company, and will sell electricity in both the wholesale and
retail markets in Montana and the Northwest.
In June 1999, PP&L Global's U.K. subsidiary, SWEB, announced an agreement
to sell a portion of its operations, known as the electricity supply business,
to London Electricity for about $256 million. PP&L Global owns 51% of SWEB.
Southern Energy, based in Atlanta, owns 49% and has operational and management
control of SWEB. The supply business represents about 15% of SWEB's annual
earnings. SWEB will continue to own and operate an extensive power network in
southwest Britain, transporting and delivering electricity to 1.4 million
customers.
In August 1999, the U.K.'s Office of Gas and Electricity Markets, the
regulatory authority for electricity and natural gas distribution in the U.K.,
issued proposed base rate reductions for the country's 14 electricity
distribution businesses, including SWEB. The proposed rate reduction for SWEB
is between 21% and 26%. The affected companies have until September 17, 1999 to
respond to the proposed rate reductions. Under the proposal, the final rates
would be issued in November 1999 and would be in effect for five years beginning
in April 2000. SWEB has indicated that it intends to manage its business
operations in a manner that mitigates the financial impact of any rate
reductions. PP&L Resources at this time is unable to predict the ultimate
financial impact of this proposal.
In July 1999, PP&L Global reached an agreement with Duke Energy North
America to jointly complete the Griffith Energy Project, a gas-fired, combined-
cycle power plant near Kingman, Arizona. As part of the agreement, PP&L Global
will transfer a 50 percent interest in the project to Duke, and Duke will fund
50 percent of the capital cost of the project. The facility, expected to be in
service in 2001, would have a nominal base-load capacity of 500 megawatts and a
peak capacity of 600 megawatts. The project cost is anticipated at about $300
million.
13. Jointly Owned Facilities
In May 1999, a PP&L Global subsidiary acquired an 8.33% share of the Wyman
oil-fired generating station located in Yarmouth, Maine. At June 30, 1999, PP&L
Resources' balance sheet includes $15 million plant in service for this station.
Accumulated depreciation, recorded subsequent to the May acquisition, is not
material. There was no construction work in progress at June 30, 1999.
PP&L Resources will provide its own financing for this facility. The
operating costs of the Wyman facility are included in the Consolidated Statement
of Income of PP&L Resources.
<PAGE>
14. Stock Option Program
In April 1999, the shareowners of PP&L Resources approved the amendment of
the Incentive Compensation Plan to effectuate a new stock option program and to
enable PP&L Resources to make stock option awards and other stock-based awards
under that Plan that are deductible under Section 162(m) of the Internal Revenue
Code. Under the Plan, the Compensation & Corporate Governance Committee of the
Board of Directors is authorized to grant both incentive stock options and non-
qualified stock options to officers and other key employees of PP&L Resources or
its subsidiaries. These options are exercisable at a price per share not less
than the fair market value per share at the date of grant. The options are
exercisable beginning one year after the grant, assuming the individual is still
in the employ of PP&L Resources or a subsidiary, in installments as determined
by the Committee. The options may not be exercised after ten years from the
grant date.
In April 1999, the Committee, pursuant to the Incentive Compensation Plan,
granted non-qualified stock options to purchase 694,800 shares of PP&L
Resources' common stock. The exercise price of these options is $26.8438 per
share. Of the stock options initially awarded, 62,700 were forfeited and 632,100
were outstanding at June 30, 1999. The options have a remaining life of about
9.8 years, and will vest in equal installments on April 23 in the years 2000,
2001 and 2002.
As provided for in SFAS 123, "Accounting For Stock-Based Compensation,"
PP&L Resources continues to account for stock options based on the intrinsic
value method in accordance with Accounting Principles Board Opinion 25,
"Accounting For Stock Issued to Employees." The compensation expense under the
fair value method, another method permitted by SFAS 123, would not have been
materially different during the three and six months ended June 30, 1999. The
dilutive effect of the stock options is presented in Note 3.
15. New Accounting Standards
In June 1999, the FASB issued SFAS 137 which defers the effective date of
SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," to
fiscal years beginning after June 15, 2000. SFAS 137 also changed the look-back
period for bifurcating embedded derivatives in host contracts from December 31,
1997, to December 31, 1998. PP&L Resources and PP&L intend to adopt SFAS 133 as
of January 1, 2001. The impact of the adoption of this statement on the net
income and financial position of PP&L Resources and PP&L is not yet determinable
but may be material.
<PAGE>
PP&L Resources, Inc. and PP&L, Inc.
-----------------------------------
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
The financial condition and results of operations of PP&L and PP&L Global
are currently the principal factors affecting the financial condition and
results of operations of PP&L Resources. Unless specifically noted,
fluctuations are primarily due to activities of PP&L. This discussion should be
read in conjunction with the section entitled "Review of the Financial Condition
and Results of Operations of PP&L Resources, Inc. and PP&L, Inc." in PP&L
Resources' and PP&L's Annual Report to the SEC on Form 10-K for the year ended
December 31, 1998.
Terms and abbreviations appearing in Management's Discussion and Analysis
of Financial Condition and Results of Operations are explained in the glossary.
Forward-looking Information
---------------------------
Certain statements contained in this Form 10-Q concerning expectations,
beliefs, plans, objectives, goals, strategies, future events or performance and
underlying assumptions and other statements which are other than statements of
historical facts, including, but not limited to, statements with respect to
future earnings growth, are "forward-looking statements" within the meaning of
the federal securities laws. Although PP&L Resources and PP&L believe that the
expectations and assumptions reflected in these statements are reasonable, there
can be no assurance that these expectations will prove to have been correct.
These forward-looking statements involve a number of risks and uncertainties,
and actual results may differ materially from the results discussed in the
forward-looking statements. The following are among the important factors that
could cause actual results to differ materially from the forward-looking
statements: state and federal regulatory developments; new state or federal
legislation; national or regional economic conditions; market demand and prices
for energy, capacity and fuel; weather variations affecting customer energy
usage; competition in retail and wholesale power markets; the need for and
effect of any business or industry restructuring; PP&L Resources' and PP&L's
profitability and liquidity; new accounting requirements or new interpretations
or applications of existing requirements; operating performance of plants and
other facilities; environmental conditions and requirements; system conditions
(including actual results in achieving Year 2000 compliance by PP&L Resources,
its subsidiaries and others) and operating costs; performance of new ventures;
political, regulatory or economic conditions in foreign countries where PP&L
Global makes investments; foreign exchange rates; and PP&L Resources' and PP&L's
commitments and liabilities. Any such forward-looking statements should be
considered in light of such important factors and in conjunction with PP&L
Resources' and PP&L's other documents on file with the SEC.
<PAGE>
New factors that could cause actual results to differ materially from those
described in forward-looking statements emerge from time to time, and it is not
possible for PP&L Resources or PP&L to predict all of such factors, or the
extent to which any such factor or combination of factors may cause actual
results to differ from those contained in any forward-looking statement. Any
forward-looking statement speaks only as of the date on which such statement is
made, and neither PP&L Resources nor PP&L undertakes any obligation to update
the information contained in such statement to reflect subsequent developments
or information.
Results of Operations
---------------------
The following discussion explains material changes in principal items on
the Consolidated Statement of Income comparing the three months and six months
ended June 30, 1999, to the comparable periods ended June 30, 1998.
The Consolidated Statement of Income reflects the results of past
operations and is not intended as any indication of the results of future
operations. Future results of operations will necessarily be affected by
various and diverse factors and developments. Furthermore, because results for
interim periods can be disproportionately influenced by various factors and
developments and by seasonal variations, the results of operations for interim
periods are not necessarily indicative of results or trends for the year.
Earnings
<TABLE>
<CAPTION>
Comparison of Earnings - June 30
------------------------------------------
Three Months Ended Six Months Ended
-------------------- -------------------
1999 1998 1999 1998
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Earnings per share - excluding
weather variances and
one-time adjustments $ 0.41 $ 0.35 $ 1.20 $ 1.06
Weather variances on
billing adjusted sales (0.01) (0.03) (0.04) (0.14)
One-time adjustments
PUC Restructuring Charge (5.47) (5.48)
FERC Municipalities Settlement (0.19) (0.19)
------ ------- ------ -------
Earnings per share - reported $ 0.40 ($5.34) $ 1.16 ($4.75)
====== ======= ====== =======
</TABLE>
PP&L had two extraordinary items in June 1998 related to the PUC
restructuring proceeding and a settlement with municipalities under FERC
jurisdiction. Refer to Note 6 to the Financial Statements for further
information.
Earnings per share, excluding weather variances and extraordinary items,
were $.06 higher for the three months ended June 30, 1999, and $.14 higher for
the first six months of 1999, when compared with the same periods in 1998.
<PAGE>
The earnings improvements in both periods reflect higher sales of
electricity delivered to retail customers, higher margins on wholesale energy
marketing and trading activities and higher earnings of PP&L Global.
Depreciation and the effective income tax rate were lower than comparable
periods in 1998, a direct result of the restructuring adjustments recorded by
PP&L in June 1998. PP&L Resources' September 1998 common stock purchase program
also had a favorable impact on earnings per share.
These earnings gains were partially offset by a four percent rate reduction
for electricity delivery customers effective January 1, 1999, through December
31, 1999. PP&L revenues were further impacted by the loss of commercial and
industrial customers who chose alternate suppliers for their generation supply.
In addition, PP&L lost the benefit of certain regulatory treatments that
improved earnings during the first six months of 1998. In 1998, PP&L was able
to defer the loss of revenue experienced during the customer choice pilot
program. Moreover, PP&L was permitted to recoup a portion of its undercollected
energy costs as part of its restructuring filing.
Securitization
Refer to Note 4 to the Financial Statements for information regarding the
securitization of stranded costs.
<PAGE>
Electric Energy Sales
Electricity sales for 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
June 30, 1999 vs. June 30, 1998
--------------------------------------------
Three Months Ended Six Months Ended
------------------- --------------------
1999 1998 1999 1998
---- ---- ---- ----
(Millions of kWh)
<S> <C> <C> <C> <C>
Electricity delivered to
retail customers by PP&L (a) 7,704 7,378 16,884 15,834
Less: Electricity supplied
by others 2,345 483 4,068 974
----- ----- ------ ------
Electricity supplied to retail
customers by PP&L 5,359 6,895 12,816 14,860
Electricity supplied to retail
customers by PP&L EnergyPlus 2,595 439 4,067 670
----- ----- ------ ------
Total electricity supplied to
retail customers (a) 7,954 7,334 16,883 15,530
Wholesale Energy Sales 7,236 8,212 16,168 17,045
</TABLE>
(a) kWh for customers residing in PP&L's service territory who received energy
from PP&L or PP&L EnergyPlus are reflected in both of these categories.
Under Pennsylvania's Electric Choice program, beginning on January 1, 1999
customers are allowed to choose the supplier of their electricity. Customers
making this choice continue to have the utility that serves their territory
deliver electricity from the supplier of choice. "Electricity delivered to
retail customers by PP&L" is the amount of electricity delivered by PP&L to
customers in its service territory. "Electricity supplied to retail customers by
PP&L" represents the amount of electricity supplied to PP&L service territory
customers who are not participating in the Electric Choice program. "Electricity
supplied to retail customers by PP&L EnergyPlus" is electricity supplied to
customers within and outside PP&L's service territory who participate in the
Electric Choice program and chose PP&L EnergyPlus as their energy supplier.
Electricity delivered to retail customers in the three months ended June
30, 1999, increased by 326 million kWh, or 4.4%, from the comparable period in
1998. Weather did not have a significant impact during the second quarter of
either period.
Total electricity supplied to retail customers increased by 620 million
kWh, or 8.5%, when comparing three months ended June 30, 1999, to the same
period in 1998. Total electricity supplied increased more than electricity
delivered because PP&L EnergyPlus' gains in the competitive
<PAGE>
electricity supply market were greater than the losses to other utilities.
Overall, PP&L's supply of electricity in the second quarter to retail customers
inside and outside of its regulated service territory was 3% higher than its
delivery of electricity within its regulated service territory.
Electricity delivered to retail customers in the six months ended June 30,
1999, increased by 1,050 million kWh, or 6.6%, from the comparable period in
1998. If normal weather had been experienced in the first half of 1999 and
1998, deliveries would have increased by 3.6%.
Electricity supplied to retail customers increased by 1,353 million kWh, or
8.7%, when comparing six months ended June 30, 1999, to the same period in 1998.
This increase is due to the increased sales by PP&L EnergyPlus in the
competitive market, and the impact of mild weather on sales in the first quarter
of 1998.
Wholesale energy sales, which includes sales to other utilities and energy
marketers through contracts, spot market transactions or power pool
arrangements, decreased by 976 million kWh and 877 million kWh in the three and
six month periods ending June 30, 1999, when compared to the same periods in
1998. These decreases were primarily the result of decreased activity of the
Energy Marketing Center in the wholesale market because of retail market needs,
and the decrease or expiration of contracts.
Energy Marketing and Trading Activities
PP&L purchases and sells electric capacity and energy at the wholesale
level under its FERC market-based tariff. PP&L has entered into agreements to
sell firm capacity or energy under its market-based tariff to certain entities
located inside and outside of the PJM power pool. PP&L enters into these
agreements to market available energy and capacity from its generating assets
and to profit from market price fluctuations. PP&L is actively managing its
portfolio to attempt to capture the opportunities and limit its exposure to
volatile prices. In July 1999, PP&L entered into an insurance contract to
mitigate risk associated with a potential forced outage during periods of high
market prices.
PP&L has entered into an agreement to provide wholesale energy marketing,
trading and energy portfolio management services for an energy cooperative
organization that provides energy-related services to public power entities.
The market risk associated with this type of activity is not material. PP&L
expects to expand its activities by entering into similar agreements with other
counterparties.
Quantitative and Qualitative Disclosures About Market Risk
The effects of PP&L Resources' and PP&L's market risks associated with
commodity prices, foreign currency exchange rates, equity prices, and interest
rates for debt recorded on the Consolidated Balance Sheet have not changed
materially since December 31, 1998. However, during the first
<PAGE>
six months of 1999, PP&L Resources and PP&L entered into forward starting
interest rate swaps and treasury locks with various counterparties to hedge the
interest rate risk associated with anticipated debt issuances, including the
issuance of transition bonds in August 1999. (See Note 4 to the Financial
Statements.) At June 30, 1999, the notional amount of the financial instruments
issued to hedge interest rate risk associated with the transition bonds was $640
million for PP&L Resources, plus an additional $555 million for PP&L. In July
1999, PP&L entered into additional forward interest rate swaps with notional
amounts totaling $200 million. All financial instruments associated with hedging
the interest rate risk of the transition bonds were settled at the end of July.
The proceeds were received and recorded in August 1999. As a result of these
hedging activities, interest expense on the transition bonds, applied under the
effective interest method, will be reduced by $24.8 million. Seventy-five
percent of these savings will be passed back to customers. On the same day that
PP&L priced its transition bonds, PP&L entered into short dated treasury lock
transactions with a notional amount of $1.07 billion to lock in the treasury
rate related to PP&L's tender offer to purchase any or all of $1.66 billion of
selected series of its mortgage bonds. These contracts were settled one week
later for an immaterial amount, on the date that PP&L announced the purchase
prices associated with the tender offer.
In addition, at June 30, 1999, PP&L Resources had entered into forward
starting interest rate swaps with various counterparties to hedge the interest
rate risk associated with debt issuances expected in the fourth quarter of 1999.
These interest rates swap agreements involve the exchange of floating rate
interest rate payments for fixed rate interest payments over the life of the
agreements. PP&L Resources agreed to pay a fixed rate of 5.77% on a notional
amount of $60 million with a maturity date of September 15, 2004 and fixed rates
between 5.92% and 6.08% on notional amounts of $260 million with a maturity date
of September 15, 2009. PP&L Resources will receive a variable interest payment
based on the 6-month LIBOR rate through the maturity dates of the agreements.
The estimated fair value of the forward interest rate swaps, which represents
the estimated amount PP&L Resources would receive if it had terminated these
agreements on June 30, 1999, was $17.7 million.
PP&L Resources remains exposed to changes in the fair value of the forward
starting interest rate swaps described in the preceding paragraph. At June 30,
1999, PP&L Resources, based on historical trends, estimated its potential
maximum exposure to a change in the fair value of these instruments through a
downward movement in interest rates over a one-day period, based on a confidence
level of 97.5%, at $2.9 million.
<PAGE>
Operating Revenues
Electric
- --------
The increase (decrease) in revenues from electric operations was
attributable to the following:
<TABLE>
<CAPTION>
June 30, 1999 vs. June 30, 1998
--------------------------------------
Three Months Ended Six Months Ended
------------------- -----------------
(Millions of Dollars)
<S> <C> <C>
Retail Electric Revenue
PP&L:
Weather effect $ 2 $ 25
Sales volume and sales mix (82) (120)
Unbilled (5) (22)
PP&L EnergyPlus:
Sales volume and sales mix 101 151
Unbilled 1 28
Other 9 14
---- -----
$ 26 $ 76
==== =====
</TABLE>
Operating revenues for electric operations increased by $26 million, or
4.7%, and $76 million, or 6.5%, for the three and six months ended June 30,
1999, respectively, when compared to the same periods in 1998. Excluding the
effects of weather in both periods, revenue increased by $24 million and $51
million in 1999 over 1998 for the three and six months ended June 30,
respectively. Although weather unfavorably impacted sales for the first six
months in 1999, the same period in 1998 saw the largest unfavorable weather
impact on sales in the 27 years PP&L has tracked such weather effects.
Weather-normalized retail revenues of PP&L were $87 million and $142
million lower for the three and six months ended June 30, 1999, respectively,
when compared to the same periods in 1998. In connection with the PUC's Final
Order in PP&L's restructuring proceeding, retail rates were reduced by four
percent effective January 1, 1999 through December 31, 1999. Additionally, PP&L
revenues were impacted by the loss of commercial and industrial customers who
chose alternate suppliers for their generation supply. A portion of the revenue
collected from customers is applied to amortize the recoverable transition costs
established as part of the restructuring filing. This amortization is reflected
as a separate line on the Consolidated Statement of Income under "Operating
Expenses."
PP&L EnergyPlus, an unregulated subsidiary of PP&L marketing energy in
Pennsylvania, provided $102 million and $179 million of billed and unbilled
revenues in the three and six months ended June 30, 1999, respectively. These
revenues offset increased power purchases.
<PAGE>
Gas and Propane
- ---------------
PP&L Resources acquired Penn Fuel Gas in August 1998. The results of Penn
Fuel Gas, including revenues and the associated costs from gas and propane
operations, have been recorded subsequent to acquisition.
Wholesale Energy Marketing and Trading Activities
- -------------------------------------------------
The increase (decrease) in revenues from wholesale energy marketing and
trading activities was attributable to the following:
<TABLE>
<CAPTION>
June 30, 1999 vs. June 30, 1998
--------------------------------------
Three Months Ended Six Months Ended
------------------- -----------------
(Millions of Dollars)
<S> <C> <C>
Bilaterial Sales $ 48 $ 69
PJM (9) 4
Cost-based contracts (15) (31)
Oil & gas sales 54 88
---- ----
$ 78 $130
==== ====
</TABLE>
Revenues from wholesale energy marketing and trading activities increased
by $78 million and $130 million for the three and six months ended June 30,
1999, respectively, when compared to the same periods in 1998. Revenues in both
periods increased despite the phase-down of the capacity and energy agreement
with JCP&L and the end of the capacity and energy agreement with Atlantic.
These revenue decreases are reflected in cost-based contracts. The overall
revenue increase reflects PP&L's continued emphasis in competing in wholesale
markets. Energy purchases have also increased to meet these increased sales.
Refer to "Energy Purchases" for more information.
Energy-Related Businesses
Energy-related businesses contributed $16 million and $6 million to the
operating income of PP&L Resources for the three months ended June 30, 1999 and
1998, respectively. For the six months ended June 30, 1999 and 1998, these
businesses contributed a total of $33 million and $11 million to operating
income, respectively. These results primarily reflect higher equity earnings due
to PP&L Global's additional investment in SWEB. These earnings were partially
offset by higher interest and development expenses. Energy-related businesses,
including PP&L Global, PP&L Spectrum, H.T. Lyons, McClure, McCarl's and Burns
Mechanical, are expected to provide an increasing share of PP&L Resources'
future earnings.
Electric Fuel Costs
Electric fuel costs decreased $23 million and $15 million for the three and
six months ended June 30, 1999, respectively, from the comparable periods in
1998. These decreases were primarily due to unplanned outages and lower fuel
prices. The decrease for the three month period was partially offset by higher
generation at the Susquehanna
<PAGE>
generating station. The decrease for the six month period was partially offset
by a one-time charge of $5 million in 1999 to accrue for the increase in
estimated costs of dry cask canisters for on-site spent fuel storage at the
Susquehanna plant.
Energy Purchases
Energy purchases increased by $133 million and $174 million for the three
months and six months ended June 30, 1999, respectively, over the comparable
periods in 1998. These increases were primarily due to higher prices for energy
purchases along with additional purchases to support unplanned outages at PP&L
generating stations. An increase in gas purchases during 1999 to support the
Energy Marketing Center's marketing and trading activities also contributed to
the increase in energy purchases.
These increased purchase costs were offset by the mark-to-market accounting
related to energy trading activities as well as the amortization of the above
market NUG purchases. See Financial Note 15 of PP&L Resources' 1998 Form 10-K
for additional information.
Other Operation Expenses
Other operation expenses increased by $52 million for the six months ended
June 30, 1999, compared with the same period in 1998. About $31 million of the
increase was due to certain regulatory credits that were no longer effective in
1999. In 1998, PP&L was able to defer the loss of revenue experienced during the
customer choice pilot program. In 1998, PP&L also was permitted to defer
uncollected energy costs. These regulatory credits were recorded as offsets to
Other Operating Expense in the first half of 1998. The remaining increase was
due to increased selling expenses associated with supplying energy to customers
throughout Pennsylvania participating in the state's Electric Choice program, an
increase in wage and benefit costs, and the operating costs of Penn Fuel Gas,
which was acquired in August 1998.
There was no material change in other operating expenses for the three
months ended June 30, 1999 versus June 30, 1998.
Power Plant Operations
On April 29, 1999, PP&L's Holtwood coal-fired generating station was
closed. The adjacent hydroelectric plant continues to operate. The closing,
which was announced in August 1998, is part of an effort to reduce operating
costs and position PP&L for the competitive marketplace.
On May 24, 1999, PP&L signed a definitive agreement to sell its Sunbury
plant and the principal assets of its wholly owned coal processing subsidiary,
Lady Jane Collieries, to Sunbury Holdings, LLC. PP&L expects to receive total
cash proceeds of about $106 million for the assets, including coal inventory,
which would translate into a one-time contribution of about 25 cents per share
to PP&L Resources' 1999 earnings.
<PAGE>
The closing, which is subject to certain regulatory approvals and other closing
conditions, is expected to occur later in 1999.
The senior management of PP&L has commenced an analysis of the feasibility,
benefits and costs of transferring ownership and operation of its generating
facilities to an affiliated company. However, this analysis has not been
completed and no recommendation to PP&L's Board of Directors has been made with
respect to any such transaction. Consequently, at this time PP&L is unable to
predict the likelihood or timing of such a transfer.
Depreciation and Amortization Expenses
Depreciation and amortization expenses decreased by $36 million and $74
million, respectively, for the three and six months ended June 30, 1999,
compared with the same periods in 1998. These decreases were mainly due to the
write-down of generation-related assets in connection with the restructuring
adjustments recorded in June 1998. See Note 6 to the Financial Statements for
additional information.
Financial Condition
-------------------
Financing Activities
The following financing activities have occurred to date in 1999:
. In January and February 1999, PP&L Resources issued $8 million of new
common stock through the DRIP. Effective March 1, 1999, the DRIP was
changed from a new issue to an open market purchase program.
. In anticipation of funding becoming available to PP&L Resources from
the securitization of PP&L's stranded costs, PP&L Resources entered
into forward purchase agreements with a third party to acquire 14
million shares of its common stock. At June 30, 1999, the third party
had purchased 11 million shares of PP&L Resources stock. In August
1999, the forward purchase agreement was completed and PP&L Resources
purchased 14 million shares from the third party for $417 million.
. In June 1999, PP&L instituted a short-term bond program in order to
meet short-term working capital requirements and to increase financing
flexibility. Under this program, up to $600 million of short-term bonds
could be issued from time to time with no more than $200 million of
such bonds outstanding at any one time. As of June 30, 1999, $200
million of these bonds were outstanding. This program was completed in
August 1999 with a total of $600 million issued and subsequently paid
upon maturity.
. In July 1999, PP&L commenced cash tender offers for any and all of
approximately $1.66 billion of 11 series of its first mortgage bonds.
In August 1999, these tenders were completed. Through these tender
offers and open market repurchases, $1.467 billion of first mortgage
bonds were repurchased and subsequently retired.
. Refer to Note 4 to the Financial Statements for information on the
issuance of $2.42 billion of transition bonds to securitize stranded
costs.
<PAGE>
Refer to Note 10 to the Financial Statements for additional information on
credit arrangements and financing activities.
Financing and Liquidity
The change in cash and cash equivalents for PP&L Resources for the six
months ended June 30, 1999, increased $212 million from the comparable period in
1998. The reasons for this change were:
. A $6 million increase in cash provided by operating activities,
primarily due to the increase in net income when adjusted for the
impact of certain non-cash items. Earnings in 1999 benefited from a
net unrealized mark-to-market gain on trading activities, amortization
of the liability for above-market NUG purchases, equity in earnings of
unconsolidated affiliates and lower depreciation.
. A $179 million decrease in cash used in investing activities,
primarily due to a decrease in PP&L Global's investment in
unconsolidated affiliates. This was partially offset by an increase in
PP&L Global's investment in domestic power plants.
. A $27 million increase in cash from financing activities. This
increase was due to higher short-term debt and a decline in common
dividends paid. Lower issuance of common stock partially offset the
increase in cash from financing activities.
Financial Indicators
The results for the twelve months ended June 30, 1999 and 1998 were
impacted by extraordinary items, other one-time adjustments and weather. The
following financial indicators for PP&L Resources reflect the elimination of
these impacts from earnings, and provide an additional measure of the underlying
earnings performance of PP&L Resources and its subsidiaries.
<PAGE>
<TABLE>
<CAPTION>
12 Months Ended June 30,
--------------------------
1999 1998
------------ ------------
<S> <C> <C>
Earnings per share, as adjusted $ 2.23 $ 1.94
Return on average common equity 13.70% 11.19%
Ratio of pre-tax income to
interest charges 3.32 3.60
Dividends declared per share $ 1.00 $ 1.67
</TABLE>
Acquisitions and Divestitures
Refer to Note 12 to the Financial Statements for information regarding
Acquisitions and Divestitures.
As of June 30, 1999, PP&L Global had investments of $684 million in
distribution, transmission and generation facilities in the U.K., Bolivia, Peru,
Argentina, Brazil, Spain, Portugal, Chile and El Salvador. PP&L Global's major
investments to date are SWEB, Emel and DelSur.
PP&L Global continues to pursue opportunities to develop and acquire
electric generation, transmission and distribution facilities in the United
States and abroad.
Commitments and Contingent Liabilities
There have been no material changes related to PP&L Resources' or PP&L's
commitments and contingent liabilities since the companies filed their joint
1998 Form 10-K, except for loan guarantees discussed in Note 11 to the Financial
Statements.
Increasing Competition
Background
----------
The electric utility industry has experienced and will continue to
experience a significant increase in the level of competition in the energy
supply market. PP&L has publicly expressed its support for full customer choice
of electricity suppliers for all customer classes. PP&L is actively involved in
efforts at both the state and federal levels to encourage a smooth transition to
full competition.
State Activities
----------------
Reference is made to Note 3 to the Financial Statements in PP&L Resources'
and PP&L's Form 10-K for the year ended December 31, 1998 for a discussion of
PP&L's PUC restructuring proceeding under the Customer Choice Act.
Reference is also made to Note 3 to the Financial Statements in PP&L
Resources' and PP&L's Form 10-K for the year ended December 31, 1998 regarding
PP&L's transfer of its retail electric marketing function to
<PAGE>
PP&L EnergyPlus, a separate affiliated corporation. PP&L EnergyPlus has a PUC
license to act as a Pennsylvania EGS. This license permits PP&L EnergyPlus to
offer retail electric supply to participating customers in PP&L's service
territory and in the service territories of other Pennsylvania utilities. In
1999, PP&L EnergyPlus is offering such supply to industrial and commercial
customers throughout the state. In July 1999, PP&L EnergyPlus received an
interim license to market electricity in New Jersey effective August 1999.
Federal Activities
------------------
In June 1997, all of the PJM companies except PECO (the PJM Supporting
Companies) filed proposals with the FERC to amend the PJM tariff and restructure
the PJM pool. PECO filed a separate request with the FERC to amend the PJM
tariff. Furthermore, PECO and certain electric marketers submitted
significantly different proposals to restructure the PJM pool.
In November 1997, the FERC approved, with certain modifications, the PJM
Supporting Companies' proposals for transforming the PJM into an ISO. In
summary, the FERC order: (i) approved the PJM's open access transmission rates
based on geographic zones, but required PJM to file a single PJM system-wide
rate proposal by 2002; (ii) accepted the PJM Supporting Companies' methodology
to price transmission when the system is congested and to charge these
congestion costs to system users in addition to the open access transmission
rates, but ordered PJM to file an additional proposal to address concerns raised
over price certainty for buyers and sellers during periods of congestion; (iii)
determined that the ISO is to operate both the transmission system and the power
exchange which provides for the purchase and sale of spot energy within the PJM
market; and (iv) accepted the PJM Supporting Companies' proposal regarding
mandatory installed capacity obligations for all entities serving firm retail
and wholesale load within PJM, but rejected their proposal for allocating the
capacity benefits which result from PJM's ability to import power from other
regional power pools.
The PJM Supporting Companies and numerous other parties have filed requests
for amendment and/or rehearing of virtually every portion of the FERC's PJM ISO
order. PP&L also has filed its own request for amendment and/or rehearing. The
FERC has not yet taken action on these filings. PP&L's primary issue with the
FERC's order relates to a requirement that existing wholesale contracts for
sales service and transmission service be modified to have the new PJM
transmission tariff applied to service under these existing contracts and the
requirement that PP&L modify these contracts to ensure that customers are not
assessed multiple transmission charges.
In March 1999, the FERC approved the request of the PJM Supporting
Companies to permit generators to use market-based bids instead of cost-based
bids when selling into the PJM Interchange Market. The existing
<PAGE>
$1000 per MWH cap on bids was retained. Accordingly, beginning on April 1, 1999,
the hourly price of energy purchased on the PJM Interchange Market will be a
market-based rate not exceeding $1000 per MWH.
In September 1998, PP&L filed its EGS Coordination Tariff with the FERC.
The EGS Coordination Tariff applies to entities licensed to serve retail
electricity customers under the Commonwealth of Pennsylvania's retail access
program. The purpose of the EGS Coordination Tariff is to permit PP&L to
provide EGSs with certain FERC-jurisdictional services which will facilitate the
ability of EGSs to meet their obligations under the PJM Open Access Transmission
Tariff and related agreements of the PJM. The FERC accepted the EGS
Coordination Tariff for filing in October 1998 but in a later order stated that
it would issue a decision holding that the EGS Coordination Tariff did not need
to be filed with the FERC. That decision has not yet been issued.
In June 1999, PP&L filed with the FERC an application requesting authority
to sell specified ancillary services at market-based rates in the following
markets: the New England power pool, the New York power pool, the market
administered by the California ISO, and PJM. FERC granted the application in
July 1999.
PP&L EnergyPlus has authority from the FERC to sell electric energy and
capacity at market-based rates and to sell, assign or transfer transmission
rights and associated ancillary services. PP&L has a FERC-filed code of conduct
governing its relationship with such affiliates that engage in the sale and/or
transmission of electric energy.
In July 1999, PP&L EnergyPlus filed an application with the FERC requesting
authority to sell specified ancillary services at market-based rates in the
following markets: the New England power pool, the New York power pool, the
market administered by the California ISO, and PJM. FERC has not yet acted on
the application.
Year 2000
PP&L Resources is faced with the task of addressing the Year 2000 issue.
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year and other programming
techniques which limit date calculations or assign special meanings to some
dates. Any of PP&L's computer systems that have date-sensitive software or
microprocessors may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to measure usage, read meters, process transactions, send bills or operate
electric generation stations. In addition, the Year 2000 issue could affect the
ability of customers to receive bills sent by PP&L or to make payments on these
bills.
A Company-wide Year 2000 coordination committee was formed to raise the
awareness of the Year 2000 issue, share information and review progress towards
compliance. A seven-step approach was developed to
<PAGE>
achieve Year 2000 compliance by assessing and remediating the problem in
application software, hardware, plant control systems and devices containing
embedded microprocessors. The seven steps in the plan include awareness,
inventory, assessment, remediation, testing, implementation, and contingency
planning.
Delivery of electricity is dependent on the overall reliability of the
electric grid. PP&L is cooperating and coordinating with the North American
Electric Reliability Council and the PJM Interconnection regarding Year 2000
remediation efforts.
PP&L's power plant and electricity delivery systems are ready for the Year
2000, six months in advance of January 1, 2000. PP&L has completed testing all
electricity generation and delivery systems. This testing has determined that
the equipment necessary for the delivery of safe and reliable electricity to
customers is ready for the turnover to the Year 2000.
. The inventory and assessment steps have addressed computer system;
embedded systems at power plants; equipment involved in the
transmission and distribution of electricity on various grids,
including substations; security systems; environmental monitoring
equipment; elevators; and other areas. (Embedded systems are one or
more integral computer chips containing a calendar/clock function.)
. In addition, PP&L has a team of employees from departments throughout
the company that is reviewing the equipment and systems within their
departments to ensure that they are either "compliant" or "ready" for
the Year 2000.
. The company has also contacted appropriate vendors to ensure they are
aware of the Year 2000 issues, and that they are taking appropriate
steps to deal with those issues.
. PP&L also has tested appropriate systems to make sure they can
continue operating on January 1, 2000, and beyond. The testing on the
major systems, those involved in the production of power and its
delivery, has been completed.
It is anticipated that all systems will be Year 2000 ready by November 30,
1999. Year 2000 compliant means computer systems or equipment with date-
sensitive chips will accurately process date and time data. Year 2000 ready
means that the computer systems or equipment with date-sensitive chips can be
used on January 1, 2000 and beyond, but are not fully Year 2000 compliant.
For many years, PP&L has had basic contingency plans in place to address
issues such as blackouts on the electrical grid, cold starts of generating
facilities and disaster recovery procedures for the computing environment. PP&L
recognized that additional contingency plans were
<PAGE>
necessary and, as part of the seven-step remediation process, developed
additional contingency plans.
The additional plans that have been developed address loss of
telecommunications, loss of off-site power to various generating stations,
degradation of emergency planning capabilities, running out of consumables,
electrical system disturbance or failure, power plant control system failures,
fuel delivery problems, problems with various relays or programming logic
control, and staffing concerns. PP&L has completed the development of these
contingency plans.
In May 1998, the NRC issued a notification requirement under which nuclear
utilities are required to inform the NRC, in writing, that they are working to
solve the Year 2000 computer problem. In addition, nuclear utilities had until
July 1, 1999 to inform the NRC that their computers are Year 2000 compliant and
Year 2000 ready or to submit a status report summarizing the ongoing work. On
July 1, 1999, PP&L filed its written response with the NRC, stating that PP&L's
nuclear power plant is Year 2000 ready.
In February 1999, an independent assessment of the Year 2000 Program
Readiness Plan for PP&L's nuclear department was performed with no significant
adverse findings identified. The results of that assessment were incorporated
into the overall Year 2000 Program Readiness Plan for PP&L's nuclear department.
In May 1999, the NRC conducted an audit of PP&L's nuclear-related Year 2000
compliance activities. This audit was observed by the PUC. There were no adverse
findings identified as a result of the audit.
In July 1998, the PUC initiated a non-adversarial investigation to be
conducted by the Office of Administrative Law Judge to accurately assess any and
all steps taken and proposed to be taken to resolve the Year 2000 compliance
issue by all jurisdictional fixed utilities and mission-critical service
providers such as the PJM. The PUC required all jurisdictional utilities to file
a written response to a list of questions concerning Year 2000 compliance and,
if mission-critical systems cannot be made Year 2000 compliant on or before
March 31, 1999, to file a detailed contingency plan by that date. PP&L filed its
written response to the PUC questions in August 1998 and in November 1998
submitted testimony to the PUC that PP&L would have its mission-critical systems
Year 2000 ready by July 1, 1999, and all systems ready by November 30, 1999. On
March 31, 1999, PP&L filed its contingency plans with the PUC and will continue
to update these plans on an ongoing basis. On July 1, 1999, PP&L informed the
PUC that all of the systems that support the generation and delivery of
electricity are Year 2000 ready. PP&L also filed its updated Year 2000
contingency plans with the PUC.
In early March 1999, the PUC conducted an audit of PP&L's Year 2000
compliance activities. In conjunction with this audit, PP&L submitted to the PUC
an update to its November 1998 testimony. On March 26, 1999, PP&L filed its Year
2000 testing schedule with the PUC; meanwhile, the PUC staff has been on-site
observing some of the testing being performed.
<PAGE>
PP&L, along with utilities throughout the country, participated in an
emergency exercise that simulated the loss of normal communications on the power
grid as a result of Year 2000 computer problems. The results of this exercise
demonstrated that all backup communication systems operated properly.
An internal audit performed during the first quarter of 1999 evaluated the
approaches used by each business entity within PP&L to address Year 2000 issues.
This review indicated that some improvements were required by certain business
entities to improve their Year 2000 efforts to ensure that all mission-critical
systems are either Year 2000 compliant or Year 2000 ready by July 1, 1999. The
audit recommendations were incorporated into the respective business entities'
Year 2000 remediation efforts.
As of July 1, 1999, PP&L has achieved the following completion percentages
on the seven steps referenced above for Year 2000 compliance: awareness, 97%;
inventory, 100%; assessment, 99%; remediation, 96%; testing, 96%;
implementation, 92%; and additional contingency plans, beyond the basic plans
referenced above, 74%. The preceding percentages are for all of PP&L's computer
systems, including components of the computer systems that are mission-critical.
Third-party relationships are very important to the continued operations of
PP&L. These third-party relationships are the means to acquire equipment,
services, consumables and fuel that are needed to keep the generating and
transmission and distribution facilities running smoothly. PP&L began addressing
third-party relationships with respect to the Year 2000 issue during the fourth
quarter of 1998 by identifying the suppliers that are important to PP&L's
day-to-day operations. PP&L identified approximately 400 of these suppliers. An
introductory letter, as well as two follow-up letters, were mailed to the
suppliers asking for their Year 2000 compliance status. Approximately 96% of all
vendors have responded to date, with 99% of their responses being favorable. All
of the mission-critical vendors have provided favorable responses. PP&L is
responding to those suppliers whose Year 2000 compliance status does not meet
PP&L's expectations.
PP&L has participated in three Year 2000 tests with the PJM and plans to
participate in a fourth. The first test with the PJM focused on basic data
communications. The second test with the PJM was done in conjunction with NERC
on April 9, 1999, and focused on redundant communications. The third test
focused on system interfaces. PP&L is planning on participating with the PJM on
the next NERC-sponsored Year 2000 test on September 8, 1999, which will be a
full simulation of generation, transmission and distribution operational plans.
PP&L also will participate with all PJM member companies on September 23, 1999
in conducting similar testing.
Based upon present assessments, PP&L Resources estimates that it will incur
approximately $14 million in Year 2000 remediation costs. Through June 30, 1999,
PP&L Resources had spent approximately $12 million in
<PAGE>
remediation costs, which included assistance from outside consultants. These
costs are being expensed as incurred.
<PAGE>
PP&L Resources, Inc. and PP&L, Inc.
-----------------------------------
Item 3. Quantitative and Qualitative Disclosures About Market Risk
- -------------------------------------------------------------------
Reference is made to "Quantitative and Qualitative Disclosures About Market
Risk," in Management's Discussion and Analysis of Financial Condition and
Results of Operations.
<PAGE>
PP&L RESOURCES, INC. AND
------------------------
PP&L, INC. AND SUBSIDIARIES
---------------------------
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Reference is made to "Increasing Competition" for information regarding
pending FERC proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
At PP&L Resources' Annual Meeting of Shareowners held on April 23, 1999,
the shareowners:
(1) Elected all three nominees for the office of director. The vote for
all nominees was 117,391,080. The votes for individual nominees were
as follows:
<TABLE>
<CAPTION>
Number of Votes
-----------------------------------
For Withhold Authority
--------------- ------------------
<S> <C> <C>
Frederick M. Bernthal 117,574,630 2,520,407
William J. Flood 117,491,549 2,603,488
Frank A. Long 117,391,080 2,703,957
</TABLE>
The vote to withhold authority for all nominees was 2,520,407.
(2) Ratified the appointment of PricewaterhouseCoopers LLP as independent
auditors for the year ended December 31, 1999. The vote was
117,674,799 in favor and 1,200,242 against, with 1,219,996 abstaining.
(3) Approved the Amended and Restated Incentive Compensation Plan. The
vote was 74,855,488 in favor and 39,961,227 against, with 5,278,322
abstaining.
(4) Approved the Short-Term Incentive Plan. The vote was 104,117,511 in
favor and 12,505,692 against, with 3,471,834 abstaining.
At PP&L's Annual Meeting of Shareowners held on April 23, 1999, the
shareowners:
(1) Elected all three nominees for the office of director. The vote for
all nominees was 161,135,942. The votes for individual nominees were
as follows:
<PAGE>
<TABLE>
<CAPTION>
Number of Votes
-----------------------------------
For Withhold Authority
--------------- ------------------
<S> <C> <C>
Frederick M. Bernthal 161,135,942 4,369
William J. Flood 161,135,942 4,369
Frank A. Long 161,135,942 4,369
</TABLE>
The vote to withhold authority for all nominees was 4,369.
(2) Approved the Amendment to the Articles of Incorporation. The vote was
161,130,418 in favor and 3,680 against, with 6,213 abstaining.
Item 6. Exhibits and Reports on Form 8-K
- -------------------------------------------
(a) Exhibits
4 - 67th Supplemental Indenture dated as of June 1, 1999, to
PP&L, Inc.'s Mortgage and Deed of Trust.
10 - $750 Million Revolving Credit Facility among PP&L, Inc., PP&L
Capital Funding, Inc., PP&L Resources, Inc. and a Group of Banks, dated as
of July 1, 1999.
12 - Computation of Ratio of Earnings to Fixed Charges
27 - Financial Data Schedule
(b) Reports on Form 8-K
Report dated April 23, 1999
---------------------------
Item 5. Other Events
Information regarding PP&L Resources' annual meeting on April 23,
1999.
Report dated May 24, 1999
-------------------------
Item 5. Other Events
Information regarding PP&L's agreement to sell its Sunbury plant and
the principal assets of Lady Jane Collieries.
Report dated June 10, 1999
--------------------------
Item 5. Other Events
<PAGE>
Information regarding PP&L Global's acquisition of a majority ownership of
the Chilean electricity distribution company Empresas Emel S.A. and SWEB's
agreement to sell its U. K. electricity supply business.
<PAGE>
GLOSSARY OF TERMS AND ABBREVIATIONS
Atlantic - Atlantic City Electric Company
Bangor Hydro - Bangor Hydro-Electric Company
Burns Mechanical - Burns Mechanical, Inc., a PP&L Spectrum unregulated
subsidiary specializing in mechanical contracting and engineering.
Clean Air Act (Federal Clean Air Act Amendments of 1990) - legislation enacted
to address environmental issues including acid rain, ozone and toxic air
emissions.
CTC - competitive transition charge on customer bills to recover allowable
transition costs under the Customer Choice Act.
Customer Choice Act - (Pennsylvania Electricity Generation Customer Choice and
Competition Act) - legislation enacted to restructure the state's electric
utility industry to create retail access to a competitive market for generation
of electricity
DelSur - Distributidora Electricidad del Sur S.A., an electric distribution
company in El Salvador
DEP - Pennsylvania Department of Environmental Protection
District Court - United States District Court for the Eastern District of
Pennsylvania.
DRIP (Dividend Reinvestment Plan) - program available to shareowners of PP&L
Resources' common stock and PP&L preferred stock to reinvest dividends in PP&L
Resources' common stock instead of receiving dividend checks.
EGS - electric generation supplier
EITF - (Emerging Issues Task Force) - an organization that aids the FASB in
identifying emerging issues that may require FASB action.
Emel - Empresas Emel, S.A., a Chilean electric distribution holding company
Energy Marketing Center - organization within PP&L responsible for marketing and
trading wholesale energy
EPA - Environmental Protection Agency
EPS - Earnings per share
FASB - (Financial Accounting Standards Board) - a rulemaking organization that
establishes financial accounting and reporting standards.
FGD - flue gas desulfurization equipment installed at coal-fired power plants to
reduce sulfur dioxide emissions.
FERC (Federal Energy Regulatory Commission) - federal agency that regulates
interstate transmission and sale of electricity and related matters.
H.T. Lyons - H.T. Lyons, Inc., a PP&L Resources unregulated subsidiary
specializing in mechanical contracting and engineering.
ISO - Independent System Operator
ITC - intangible transition charge on customer bills to recover costs associated
with securitizing stranded costs under the Customer Choice Act.
JCP&L - Jersey Central Power & Light Company
LIBOR - London Interbank Offering Rate
McCarl's - McCarl's Inc., a PP&L Resources unregulated subsidiary specializing
in mechanical contracting.
McClure - McClure Company, a PP&L Resources unregulated subsidiary specializing
in mechanical contracting and engineering.
NOx - nitrogen oxide
NPDES - National Pollutant Discharge Elimination System
<PAGE>
NRC (Nuclear Regulatory Commission) - federal agency that regulates operation of
nuclear power facilities
NUG (Non-Utility Generator) - generating plants not owned by regulated
utilities. If the NUG meets certain criteria, its electrical output must be
purchased by public utilities as required by PURPA.
PCB (Polychlorinated Biphenyl) - additive to oil used in certain electrical
equipment up to the late-1970s. Now classified as a hazardous chemical.
PECO - PECO Energy Company
Penn Fuel Gas - Penn Fuel Gas, Inc., a PP&L Resources regulated subsidiary
specializing in natural gas distribution, transmission and storage services, and
the sale of propane.
PJM (PJM Interconnection, LLC) - operates the electric transmission network and
electric energy market in the mid-Atlantic region of the U.S.
PP&L - PP&L, Inc.
PP&L Capital Funding - PP&L Capital Funding, Inc., PP&L Resources' financing
subsidiary.
PP&L EnergyPlus - Refers to PP&L, Inc. d/b/a PP&L EnergyPlus, and PP&L
EnergyPlus Co., LLC, a PP&L, Inc. unregulated subsidiary which is involved in
retail electric generating supply. During 1998, PP&L, Inc. d/b/a PP&L
EnergyPlus provided retail electric generating supply in the Pennsylvania retail
pilot program. As a result of the PUC restructuring settlement, PP&L EnergyPlus
became a separate subsidiary of PP&L, Inc. in September 1998. As of January
1999, PP&L EnergyPlus Co. is providing retail electric generating supply to
customers throughout Pennsylvania.
PP&L Global - PP&L Global, Inc., a PP&L Resources unregulated subsidiary which
invests in and develops world-wide power projects.
PP&L Resources - PP&L Resources, Inc., the parent holding company of PP&L, PP&L
Global and other subsidiaries.
PP&L Spectrum - PP&L Spectrum, Inc., a PP&L Resources unregulated subsidiary
which offers energy-related products and services.
PUC (Pennsylvania Public Utility Commission) - state agency that regulates
certain ratemaking, services, accounting, and operations of Pennsylvania
utilities.
PUC Final Order - Final order issued by the PUC on August 27, 1998, approving
the settlement of PP&L, Inc.'s restructuring proceeding.
PURPA - (Public Utility Regulatory Policies Act of 1978) - legislation passed by
Congress to encourage energy conservation, efficient use of resources, and
equitable rates.
SEC - Securities and Exchange Commission
SO2 - Sulfur dioxide
SFAS - (Statement of Financial Accounting Standards) - accounting and financial
reporting rules issued by the FASB.
Superfund - federal and state legislation that addresses remediation of
contaminated sites.
SWEB - South Western Electricity plc, a British regional electric utility
company.
UGI - UGI Corporation
U.K. - United Kingdom
Year 2000 - a set of date-related problems that may be experienced by software
systems or applications.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized. The signature for each undersigned
company shall be deemed to relate only to matters having reference to such
company or its subsidiary.
PP&L Resources, Inc.
--------------------
(Registrant)
PP&L, Inc.
----------
(Registrant)
Date: August 16, 1999 /s/ John R. Biggar
--------------------------------------
John R. Biggar
Senior Vice President and
Chief Financial Officer
(PP&L Resources, Inc. and PP&L, Inc.)
/s/ Joseph J. McCabe
--------------------------------------
Joseph J. McCabe
Vice President & Controller
(PP&L Resources, Inc. and PP&L, Inc.)
<PAGE>
================================================================================
PP&L CAPITAL FUNDING, INC.,
Issuer
and
PP&L RESOURCES, INC.,
Guarantor
TO
THE CHASE MANHATTAN BANK,
Trustee
_________
Supplemental Indenture No. 2
Dated as of March 1, 1999
Supplemental to the Indenture
dated as of November 1, 1997
Establishing a series of Securities designated
Medium Term Notes, Series B
limited in aggregate principal amount to $400,000,000
================================================================================
<PAGE>
SUPPLEMENTAL INDENTURE No. 2, dated as of March 1, 1999 among PP&L
CAPITAL FUNDING, INC., a corporation duly organized and existing under the laws
of the State of Delaware (herein called the "Company"), PP&L RESOURCES, INC., a
corporation duly organized and existing under the laws of the Commonwealth of
Pennsylvania (herein called the "Guarantor"), and THE CHASE MANHATTAN BANK, a
New York banking corporation, as Trustee (herein called the "Trustee), under the
Indenture dated as of November 1, 1997 (hereinafter called the "Original
Indenture"), this Supplemental Indenture No. 2 being supplemental thereto. The
Original Indenture and any and all indentures and instruments supplemental
thereto are hereinafter sometimes collectively called the "Indenture."
Recitals of the Company and the Guarantor
The Original Indenture was authorized, executed and delivered by the
Company and the Guarantor to provide for the issuance by the Company from time
to time of its Securities (such term and all other capitalized terms used herein
without definition having the meanings assigned to them in the Original
Indenture), to be issued in one or more series as contemplated therein, and for
the Guarantee by the Guarantor of the payment of the principal, premium, if any,
and interest, if any, on such Securities.
As contemplated by Sections 301 and 1201(f) of the Original Indenture,
the Company wishes to establish a series of Securities to be designated "Medium-
Term Notes, Series B" to be limited in aggregate principal amount (except as
contemplated in Section 301(b) of the Original Indenture) to $400,000,000, such
series of Securities to be hereinafter sometimes called "Series No. 2."
As contemplated by Section 201 and 1402 of the Original Indenture, the
Guarantor wishes to establish the form and terms of the Guarantees to be
endorsed on the Securities of Series No. 2.
The Company has duly authorized the execution and delivery of this
Supplemental Indenture No. 2 to establish the Securities of Series No. 2 and has
duly authorized the issuance of such Securities; the Guarantor has duly
authorized the execution and delivery of this Supplemental Indenture No. 2 and
has duly authorized its Guarantees of the Securities of Series No. 2; and all
acts necessary to make this Supplemental Indenture No. 2 a valid agreement of
the Company and the Guarantor, to make the Securities of Series No. 2 valid
obligations of the Company, and to make the Guarantees valid obligations of the
Guarantor, have been performed.
NOW, THEREFORE, THIS SUPPLEMENTAL INDENTURE No. 2 WITNESSETH:
For and in consideration of the premises and of 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 of Series No.
2, as follows:
<PAGE>
ARTICLE ONE
Second Series of Securities
Section 1. There is hereby created a series of Securities designated
"Medium-Term Notes, Series B" and limited in aggregate principal amount (except
as contemplated in Section 301(b) of the Original Indenture) to $400,000,000.
The forms and terms of the Securities of Series No. 2 shall be established in an
Officer's Certificate of the Company, as contemplated by Section 301 of the
Original Indenture.
Section 2. The Company hereby agrees that, if the Company shall make
any deposit of money and/or Eligible Obligations with respect to any Securities
of Series No. 2, or any portion of the principal amount thereof, as contemplated
by Section 701 of the Indenture, the Company shall not deliver an Officer's
Certificate described in clause (z) in the first paragraph of said Section 701
unless the Company shall also deliver to the Trustee, together with such
Officer's Certificate, either:
(A) an instrument wherein the Company, notwithstanding the
satisfaction and discharge of its indebtedness in respect of such
Securities, shall assume the obligation (which shall be absolute and
unconditional) to irrevocably deposit with the Trustee or Paying Agent such
additional sums of money, if any, or additional Eligible Obligations
(meeting the requirements of Section 701), if any, or any combination
thereof, at such time or times, as shall be necessary, together with the
money and/or Eligible Obligations theretofore so deposited, to pay when due
the principal of and premium, if any, and interest due and to become due on
such Securities or portions thereof, all in accordance with and subject to
the provisions of said Section 701; provided, however, that such instrument
may state that the obligation of the Company to make additional deposits as
aforesaid shall be subject to the delivery to the Company by the Trustee of
a notice asserting the deficiency accompanied by an opinion of an
independent public accountant of nationally recognized standing, selected
by the Trustee, showing the calculation thereof (which opinion shall be
obtained at the expense of the Company); or
(B) an Opinion of Counsel to the effect that the Holders of such
Securities, or portions of the principal amount thereof, will not recognize
income, gain or loss for United States federal income tax purposes as a
result of the satisfaction and discharge of the Company's indebtedness in
respect thereof and will be subject to United States federal income tax on
the same amounts, at the same times and in the same manner as if such
satisfaction and discharge had not been effected.
2
<PAGE>
ARTICLE TWO
Form of Guarantee
Guarantees to be endorsed on the Securities of Series No. 2 shall be
in substantially the form set forth below:
[FORM OF GUARANTEE]
PP&L Resources, Inc., a corporation organized under the laws of
the Commonwealth of Pennsylvania (the "Guarantor", which term includes any
successor under the Indenture (the "Indenture") referred to in the Security
upon which this Guarantee is endorsed), for value received, hereby
unconditionally guarantees to the Holder of the Security upon which this
Guarantee is endorsed, the due and punctual payment of the principal of,
and premium, if any, and interest, if any, on such Security when and as the
same shall become due and payable, whether at the Stated Maturity, by
declaration of acceleration, call for redemption, or otherwise, in
accordance with the terms of such Security and of the Indenture. In case of
the failure of PP&L Capital Funding, Inc., a corporation organized under
the laws of the State of Delaware (the "Company", which term includes any
successor under the Indenture), punctually to make any such payment, the
Guarantor hereby agrees to cause such payment to be made punctually when
and as the same shall become due and payable, whether at the Stated
Maturity or by declaration of acceleration, call for redemption or
otherwise, and as if such payment were made by the Company.
The Guarantor hereby agrees that its obligations hereunder shall
be absolute and unconditional irrespective of, and shall be unaffected by,
any invalidity, irregularity or unenforceability of such Security or the
Indenture, any failure to enforce the provisions of such Security or the
Indenture, or any waiver, modification or indulgence granted to the Company
with respect thereto, by the Holder of such Security or the Trustee or any
other circumstance which may otherwise constitute a legal or equitable
discharge or defense of a surety or guarantor; provided, however, that
notwithstanding the foregoing, no such waiver, modification or indulgence
shall, without the consent of the Guarantor, increase the principal amount
of such Security, or increase the interest rate thereon, or change any
redemption provisions thereof (including any change to increase any premium
payable upon redemption thereof) or change the Stated Maturity thereof.
The Guarantor hereby waives the benefits of diligence,
presentment, demand for payment, any requirement that the Trustee or the
Holder of such Security exhaust any right or take any action against the
Company or any
3
<PAGE>
other Person, filing of claims with a court in the event of insolvency or
bankruptcy of the Company, any right to require a proceeding first against
the Company, protest or notice with respect to such Security or the
indebtedness evidenced thereby and all demands whatsoever, and covenants
that this Guarantee will not be discharged in respect of such Security
except by complete performance of the obligations contained in such
Security and in this Guarantee. This Guarantee shall constitute a guaranty
of payment and not of collection. The Guarantor hereby agrees that, in the
event of a default in payment of principal, or premium, if any, or
interest, if any, on such Security, whether at its Stated Maturity, by
declaration of acceleration, call for redemption, or otherwise, legal
proceedings may be instituted by the Trustee on behalf of, or by, the
Holder of such Security, subject to the terms and conditions set forth in
the Indenture, directly against the Guarantor to enforce this Guarantee
without first proceeding against the Company.
The obligations of the Guarantor hereunder with respect to such
Security shall be continuing and irrevocable until the date upon which the
entire principal of, premium, if any, and interest, if any, on such
Security has been, or has been deemed pursuant to the provisions of Article
Seven of the Indenture to have been, paid in full or otherwise discharged.
The Guarantor shall be subrogated to all rights of the Holder of
such Security upon which this Guarantee is endorsed against the Company in
respect of any amounts paid by the Guarantor on account of such Security
pursuant to the provisions of this Guarantee or the Indenture; provided,
however, that the Guarantor shall not be entitled to enforce or to receive
any payments arising out of, or based upon, such right of subrogation until
the principal of, and premium, if any, and interest, if any, on all
Securities issued under the Indenture shall have been paid in full.
This Guarantee shall remain in full force and effect and continue
notwithstanding any petition filed by or against the Company for
liquidation or reorganization, the Company becoming insolvent or making an
assignment for the benefit of creditors or a receiver or trustee being
appointed for all or any significant part of the Company's assets, and
shall, to the fullest extent permitted by law, continue to be effective or
reinstated, as the case may be, if at any time payment of the Security upon
which this Guarantee is endorsed, is, pursuant to applicable law, rescinded
or reduced in amount, or must otherwise be restored or returned by the
Holder of such Security, whether as a "voidable preference," "fraudulent
transfer," or otherwise, all as though such payment or performance had not
been made. In the event that any payment, or any part thereof, is
rescinded, reduced, restored or returned on such Security, such Security
shall, to the fullest extent permitted by law, be reinstated and deemed
paid only by such amount paid and not so rescinded, reduced, restored or
returned.
4
<PAGE>
This Guarantee shall not be valid or obligatory for any purpose
until the certificate of authentication of the Security upon which this
Guarantee is endorsed shall have been manually executed by or on behalf of
the Trustee under the Indenture.
All terms used in this Guarantee which are defined in the
Indenture shall have the meanings assigned to them in such Indenture.
This Guarantee shall be deemed to be a contract made under the
laws of the State of New York, and for all purposes shall be governed by
and construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Guarantor has caused this Guarantee to be
executed as of the date first written above.
PP&L RESOURCES, INC.
By:_________________________________
[END OF FORM]
ARTICLE THREE
Miscellaneous Provisions
Section 1. This Supplemental Indenture No. 2 is a supplement to the
Original Indenture. As supplemented by this Supplemental Indenture No. 2, the
Indenture is in all respects ratified, approved and confirmed, and the Original
Indenture and this Supplemental Indenture No. 2 shall together constitute one
and the same instrument.
Section 2. The recitals contained in this Supplemental Indenture No.
2 shall be taken as the statements of the Company and the Guarantor, and the
Trustee assumes no responsibility for their correctness and makes no
representations as to the validity or sufficiency of this Supplemental Indenture
No. 2.
Section 3. 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.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture No. 2 to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first written above.
PP&L CAPITAL FUNDING, INC.
By: /s/ James E. Abel
----------------------------
Name: James E. Abel
Title: Treasurer
[SEAL]
ATTEST:
/s/ Diane M. Koch
- -------------------
PP&L RESOURCES, INC.
By: /s/ John R. Biggar
----------------------------
Name: John R. Biggar
Title: Senior Vice President and
Chief Financial Officer
[SEAL]
ATTEST:
/s/ Diane M. Koch
- -------------------
THE CHASE MANHATTAN BANK,
as Trustee
By: /s/ Francine Springer
----------------------------
Name: Francine Springer
[SEAL] Title: Assistant Vice President
ATTEST:
/s/ Yvonne Robinson
- -------------------
6
<PAGE>
================================================================================
$750,000,000
364-DAY REVOLVING CREDIT AGREEMENT
Among
PP&L, INC.
PP&L CAPITAL FUNDING, INC.,
as Borrowers
PP&L RESOURCES, INC.,
as Guarantor of the obligations of
PP&L Capital Funding, Inc.
FIRST UNION NATIONAL BANK,
as Administrative Agent
THE CHASE MANHATTAN BANK,
as Syndication Agent
CITIBANK, N.A.,
as Documentation Agent
and
THE BANKS NAMED HEREIN,
Dated as of July 1, 1999
_____________________
FIRST UNION CAPITAL MARKETS CORP.,
as Lead Arranger and Book Manager
===============================================================================
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Amounts and Terms of Loans............................... 1
1.1 Commitments.............................................. 1
1.2 Notices of Borrowing..................................... 2
1.3 Disbursement of Funds.................................... 2
1.4 Repayment of Loans; Evidence of Debt...................
3
1.5 Special Payment Provisions............................... 4
1.6 Fees..................................................... 4
1.7 Reductions in Total Commitments.......................... 5
1.8 Compensation............................................. 6
SECTION 1A. Letters of Credit........................................ 6
SECTION 2. Interest................................................. 10
2.1 Rates of Interest........................................ 10
2.2 Determination of Rate of Borrowing....................... 11
2.3 Interest Payment Dates................................... 12
2.4 Conversions; Interest Periods............................ 12
2.5 Increased Costs, Illegality, Etc......................... 13
2.6 Extension of Expiry Date................................. 17
SECTION 3. Payments................................................. 18
3.1 Payments on Non-Business Days............................ 18
3.2 Voluntary Prepayments.................................... 18
3.3 Method and Place of Payment, Etc......................... 19
3.4 Net Payments............................................. 20
SECTION 4. Conditions Precedent..................................... 21
4.1 Conditions to Effectiveness.............................. 21
4.2A Conditions to Each Loan to PPL and Each Issuance of
Letter of Credit on behalf of PPL........................ 22
4.2B Conditions to Each Loan to Finance Co. and Each Issuance
of a Letter of Credit on behalf of Finance Co............ 23
SECTION 5.A Covenants of PPL......................................... 24
5.1A Financial Statements..................................... 24
5.2A Mergers.................................................. 25
5.3A Ratings.................................................. 25
5.4A Consolidated Indebtedness to Consolidated Capitalization. 25
SECTION 5.B Covenants of Finance Co. and Resources................... 25
5.1B Financial Statements..................................... 26
5.2B Mergers.................................................. 27
5.3B Ratings.................................................. 27
5.4B Liens.................................................... 27
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
5.5B Consolidated Indebtedness to
Consolidated Capitalization.............................. 28
SECTION 6.A Events of Default with Respect to PPL.................... 28
6.1A Representations, Etc..................................... 28
6.2A Principal and Interest................................... 28
6.3A Defaults by PPL Under Other Agreements................... 28
6.4A Judgments................................................ 28
6.5A Bankruptcy, Etc.......................................... 28
6.6A Other Covenants.......................................... 29
SECTION 6.B Events of Default with Respect to
Finance Co............................................... 29
6.1B Representations, Etc..................................... 29
6.2B Principal and Interest................................... 30
6.3B Defaults by Finance Co. or Resources
Under Other Agreements................................... 30
6.4B Judgments................................................ 30
6.5B Bankruptcy, Etc.......................................... 30
6.6B Other Covenants.......................................... 31
6.7B Events of Default With Respect
to PPL................................................... 31
SECTION 7.A Representations and Warranties of PPL.................... 32
7.1A Corporate Status......................................... 32
7.2A Authority; No Conflict................................... 33
7.3A Legality, Etc............................................ 33
7.4A Financial Statements..................................... 33
7.5A Litigation............................................... 33
7.6A No Violation............................................. 33
7.7A ERISA.................................................... 34
7.8A Consents................................................. 34
7.9A Subsidiaries............................................. 34
7.10A Investment Company Act................................... 34
7.11A Public Utility Holding Company Act....................... 34
7.12A Tax Returns.............................................. 34
7.13A Compliance with Laws..................................... 34
7.14A Year 2000................................................ 35
SECTION 7.B Representations and Warranties of Finance Co. and
Resources................................................ 35
7.1B Corporate Status......................................... 35
7.2B Authority; No Conflict................................... 35
7.3B Legality, Etc............................................ 36
7.4B Financial Statements..................................... 36
7.5B Litigation............................................... 36
7.6B No Violation............................................. 36
7.7B ERISA.................................................... 36
7.8B Consents................................................. 37
7.9B Investment Company Act................................... 37
7.10B Public Utility Holding Company Act....................... 37
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
7.11B Tax Returns.............................................. 37
7.12B Compliance with Laws..................................... 37
7.13B Year 2000................................................ 37
SECTION 8. Agent.................................................... 38
8.1 Appointment.............................................. 38
8.2 Nature of Duties......................................... 38
8.3 Rights, Exculpation, Etc................................. 39
8.4 Reliance................................................. 39
8.5 Indemnification.......................................... 40
8.6 The Agent, Individually.................................. 40
8.7 Resignation by the Agent................................. 40
SECTION 9. Resources' Guarantee..................................... 41
SECTION 10. Miscellaneous............................................ 43
10.1 Definitions.............................................. 43
10.2 Accounting Principles.................................... 55
10.3 Exercise of Rights....................................... 55
10.4 Amendment and Waiver..................................... 56
10.5 Expenses; Indemnification................................ 56
10.6 Successors and Assigns................................... 57
10.7 Notices, Requests, Demands............................... 60
10.8 Survival of Representations and Warranties............... 60
10.9 Governing Law............................................ 60
10.10 Counterparts............................................. 61
10.11 Effectiveness............................................ 61
10.12 Transfer of Office....................................... 61
10.13 Proration of Payments.................................... 61
10.14 Jurisdiction; Consent to Service of Process.............. 62
10.15 WAIVER OF JURY TRIAL..................................... 63
10.16 Headings Descriptive..................................... 63
10.17 Waiver of Notice......................................... 63
</TABLE>
Bank Address Schedule
SCHEDULE I - Commitments
SCHEDULE II- Bilateral Facilities
EXHIBIT A - Form of Opionion of Senior counsel of PPL,
Finance Co. and Resources
EXHIBIT B - Form of Opinion of Thelen Reid & Priest LLP
EXHIBIT C - Form of Extension Letter
EXHIBIT D1 - Form of PPL Compliance Certificate
EXHIBIT D2 - Form of Resources Compliance Certificate
<PAGE>
364-DAY REVOLVING CREDIT AGREEMENT, dated as July 1, 1999, among PP&L,
INC., a Pennsylvania corporation ("PPL"), and PP&L CAPITAL FUNDING, INC., a
Delaware corporation ("Finance Co."), as Borrowers; PP&L RESOURCES, INC., a
Pennsylvania corporation ("Resources"), as guarantor of the obligations of
Finance Co. hereunder; the banks listed on Schedule I hereto (each a "Bank" and
collectively the "Banks"); FIRST UNION NATIONAL BANK, as fronting bank (in such
capacity, the "Fronting Bank") and as administrative agent for the Banks to the
extent and in the manner provided in (S) 8 below (in such capacity, the
"Agent"); THE CHASE MANHATTAN BANK, as syndication agent (in such capacity, the
"Syndication Agent"); and CITIBANK, N.A., as documentation agent (in such
capacity, the "Documentation Agent") (all capitalized terms used herein shall
have the meanings specified therefor in (S) 10.1 unless otherwise defined
herein).
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, subject to and upon the terms and conditions set forth
herein, the Banks are willing to make available to PPL and Finance Co. the
credit facility herein provided for working capital and other general corporate
purposes of the Borrowers, including investments in, or loans to, affiliates of
the Borrowers;
NOW, THEREFORE, it is agreed:
SECTION 1. Amounts and Terms of Loans.
--------------------------
1.1 Commitments. Subject to and upon the terms and conditions herein
-----------
set forth, each Bank severally and not jointly agrees, at any time and from time
to time prior to the Expiry Date, as such date may be extended pursuant to (S)
2.6, to make a loan or loans (each a "Loan" and collectively for all Banks, the
"Loans") to PPL or Finance Co., as requested by such Borrower, which Loans (i)
shall at the option of PPL or Finance Co., as applicable, be initially
maintained as Base Rate Loans or Eurodollar Loans, provided that all the Loans
made by all the Banks at any one Borrowing to a Borrower hereunder must be
either all Base Rate Loans or all Eurodollar Loans, (ii) may be repaid and
<PAGE>
borrowed in accordance with the provisions hereof and (iii) shall not exceed in
aggregate principal amount at any time outstanding the difference between such
Bank's Commitment and the L/C Exposure of such Bank at such time.
1.2 Notices of Borrowing. Whenever a Borrower desires to make a
--------------------
Borrowing hereunder, it shall give the Agent at the Payment Office (i) no later
than 12:00 Noon (New York time) at least three Business Days' prior written
notice or telephonic notice (confirmed in writing) of each Eurodollar Loan to be
made hereunder and (ii) no later than 11:30 A.M. (New York time) on the date of
such Borrowing written notice or telephonic notice (confirmed in writing) of
each Base Rate Loan to be made hereunder. Each such notice (each a "Notice of
Borrowing") shall state that the Borrowing is being made hereunder and shall
specify the aggregate principal amount the applicable Borrower desires to borrow
hereunder, the date of Borrowing (which shall be a Business Day), the Type of
Loans to be made pursuant to such Borrowing and the Interest Period to be
applicable thereto. The Agent shall promptly give each Bank telephonic notice
(confirmed in writing) of the proposed Borrowing, of such Bank's proportionate
share thereof and of the other matters covered by the Notice of Borrowing. Each
Borrowing shall be in an integral multiple of $1,000,000 and not less than
$10,000,000 and shall be made from each Bank in the proportion which its
respective Commitment bears to the Total Commitment except as otherwise
specifically provided in (S) 2.5. The failure of any Bank to make any Loan
required hereby shall not release any other Bank from its obligation to make
Loans as provided herein.
1.3 Disbursement of Funds. (a) No later than 12:00 Noon (New York
---------------------
time) (or, in the case of Base Rate Loans, 2:00 P.M. (New York time)) on the
date specified in each Notice of Borrowing each Bank will make available the
amount of its pro rata portion of the Loans requested to be made on such date in
--- ----
U.S. dollars and in immediately available funds, to the Agent at the Payment
Office. The Agent will make available to the applicable Borrower not later than
1:00 P.M. (New York time) (or, in the case of Base Rate Loans, 3:00 P.M. (New
York time)) on such date at the Payment Office the aggregate of the amounts in
immediately available funds made available by the Banks against delivery to the
Agent at the Payment Office, or at such other office as the Agent may specify,
of the documents and papers provided for herein. The Agent shall deliver the
documents and papers received by it for the account of each Bank to such Bank or
upon its order.
(b) If the Fronting Bank shall not have received from a Borrower the
payment required to be made by such Borrower pursuant to (S) 1A(e) within the
time specified in such Section, the Fronting Bank will promptly notify the
<PAGE>
3
Agent of the L/C Disbursement and the Agent will promptly notify each Bank of
such L/C Disbursement and its Applicable Percentage thereof. Not later than 2:00
P.M. (New York time) on such date (or, if such Bank shall have received such
notice later than 12:00 Noon (New York time) on any day, no later than 10:00
A.M. (New York time) on the immediately following Business Day), each Bank will
make available the amount of its Applicable Percentage of such L/C Disbursement
(it being understood that such amount shall be deemed to constitute a Base Rate
Loan of such Bank and such payment shall be deemed to have reduced the L/C
Exposure) in immediately available funds, to the Agent at the Payment Office,
and the Agent will promptly pay to the Fronting Bank amounts so received by it
from the Banks. The Agent will promptly pay to the Fronting Bank any amounts
received by it from such Borrower pursuant to (S) 1A(e) prior to the time that
any Bank makes any payment pursuant to this paragraph (b), and any such amounts
received by the Agent thereafter will be promptly remitted by the Agent to the
Banks that shall have made such payments and to the Fronting Bank, as their
interests may appear. If any Bank shall not have made its Applicable Percentage
of such L/C Disbursement available to the Agent as provided above, such Bank
agrees to pay interest on such amount, for each day from and including the date
such amount is required to be paid in accordance with this paragraph to but
excluding the date such amount is paid, to the Agent for the account of the
Fronting Bank at, for the first such day, the Federal Funds Rate, and for each
day thereafter, the Base Rate.
1.4 Repayment of Loans; Evidence of Debt. (a) The outstanding
------------------------------------
principal balance of each Loan shall be due and payable by the Borrower to which
such Loan was made on the Expiry Date, subject to the provisions of (S) 2.6.
Each Loan shall bear interest from the date thereof on the outstanding principal
balance thereof as set forth in (S) 2.1. Each Bank shall maintain in accordance
with its usual practice an account or accounts evidencing the indebtedness to
such Bank resulting from each Loan made by such Bank from time to time to each
Borrower, including the amounts of principal and interest payable and paid to
such Bank from time to time under this Agreement. The Agent shall maintain the
Register pursuant to (S) 1.4(b), and a subaccount for each Bank and each
Borrower, in which Register and subaccounts (taken together) shall be recorded
(i) the amount of each Loan made hereunder, the Type of each Loan made and the
Interest Period applicable thereto, (ii) the amount of any
<PAGE>
4
principal or interest due and payable or to become due and payable from the
applicable Borrower to each Bank hereunder and (iii) the amount of any sum
received by the Agent hereunder from each Borrower and each Bank's share
thereof. The entries made in the Register and accounts maintained pursuant to
this (S) 1.4 shall be prima facie evidence of the existence and amounts of the
obligations therein recorded; provided, however, that the failure of any Bank or
-------- -------
the Agent to maintain such account, such Register or such subaccount, as
applicable, or any error therein shall not in any manner affect the obligations
of each Borrower to repay the Loans in accordance with their terms. The
obligations of the Borrowers with respect to their respective Loans shall be
several, not joint.
(b) The Agent shall maintain at the Payment Office a register for the
recordation of the names and addresses of the Banks, the Commitments of the
Banks from time to time, and the principal amount of the Loans owing to each
Bank from each Borrower from time to time (the "Register"). The entries in the
Register shall be conclusive and binding for all purposes, absent manifest
error. The Register shall be available for inspection by each Borrower, the
Agent or any Bank at any reasonable time and from time to time upon reasonable
prior notice.
1.5 Special Payment Provisions. Unless the Agent shall have been
--------------------------
notified by any Bank prior to any date of a Borrowing that such Bank does not
intend to make available to the Agent such Bank's portion of the Loans to be
made on such date, the Agent may assume that such Bank has made such amount
available to the Agent on such date of a Borrowing and the Agent may, in
reliance upon such assumption, make available to the applicable Borrower a
corresponding amount. If such amount is not in fact made available to the Agent
by such Bank, the Agent shall be entitled to recover such amount on demand from
such Bank. If such Bank does not pay such amount forthwith upon the Agent's
demand therefor, the Agent shall promptly notify the applicable Borrower and the
applicable Borrower shall pay such amount to the Agent. The Agent shall also be
entitled to recover from such Bank or the applicable Borrower, as the case may
be, interest on such amount in respect of each day from the date such amount was
made available by the Agent to the applicable Borrower to the date such amount
is recovered by the Agent, at a rate per annum equal to (i) in the case of such
Bank, the Federal Funds Rate and (ii) in the case of either Borrower, the
<PAGE>
5
applicable rate provided in (S) 2.1 for the applicable Type of Loan. Nothing
herein shall be deemed to relieve any Bank from its obligation to fulfill its
Commitment hereunder or to prejudice any rights which the applicable Borrower
may have against any Bank as a result of the failure of such Bank to perform its
obligations hereunder.
1.6 Fees. (a) The Borrowers agree to pay to the Agent for pro rata
---- --- ----
distribution to each Bank a Commitment Fee (the "Commitment Fee"), for the
period from the Closing Date until the Expiry Date (or such earlier date as the
Total Commitment shall be terminated as to both Borrowers), on the average daily
unused amount of the Commitments, computed at the Applicable Commitment Fee
Percentage per annum computed on the basis of the number of days actually
elapsed over a year of 365 or 366 days and payable quarterly in arrears on the
last day of each calendar quarter and on the Expiry Date (or such earlier date
as the Total Commitment shall be terminated as to both Borrowers).
(b) Each Borrower agrees to pay (i) to the Agent for pro rata
--- ----
distribution to each Bank a fee (an "L/C Participation Fee"), for the period
from the Closing Date until the Expiry Date (or such earlier date as all Letters
of Credit shall be canceled or expire and the Total Commitment shall be
terminated as to both Borrowers), on that portion of the average daily L/C
Exposure attributable to Letters of Credit issued for the account of such
Borrower (excluding the portion thereof attributable to unreimbursed L/C
Disbursements), at the rate per annum equal to the Applicable Eurodollar Margin
from time to time in effect for such Borrower and (ii) to the Fronting Bank a
fronting fee, which shall accrue at the rate of .125% per annum on the average
daily amount of the L/C Exposure attributable to Letters of Credit issued for
the account of such Borrower (excluding any portion thereof attributable to
unreimbursed L/C Disbursements) during the period from and including the Closing
Date to but excluding the later of the date of termination of the Revolving
Commitments and the date on which there ceases to be any L/C Exposure
attributable to Letters of Credit issued for the account of such Borrower, as
well as the Fronting Bank's standard fees with respect to the issuance,
amendment, renewal or extension of any Letter of Credit or processing of
drawings thereunder. L/C Participation fees and fronting fees accrued under
this paragraph are payable quarterly in arrears on the last day of each calendar
quarter and on the date on which the Total
<PAGE>
6
Commitment shall be terminated as provided herein. All L/C Participation Fees
and fronting fees payable under this paragraph shall be computed on the basis of
the number of days actually elapsed over a year of 365 or 366 days.
1.7 Reductions in Total Commitments. The Borrowers shall have the
-------------------------------
right, upon at least 3 Business Days' prior written notice to the Agent at the
Payment Office (which notice the Agent shall promptly transmit to each of the
Banks), to reduce permanently the Total Commitment, in an aggregate amount equal
to an integral multiple of $1,000,000 and not less than $10,000,000, or to
terminate the unutilized portion of the Total Commitment, provided that (i) any
--------
such reduction or termination shall apply proportionately to the Commitments of
the Banks and (ii) no such termination or reduction shall be made that would
reduce the Total Commitments to an amount less than the sum of the aggregate
outstanding principal amount of Loans and the aggregate L/C Exposure.
1.8 Compensation. The applicable Borrower shall compensate each
------------
Bank, upon such Bank's written request given promptly after learning of the
same, for all losses, expenses and liabilities (including, without limitation,
any interest paid by such Bank to lenders of funds borrowed by it to make or
carry its Eurodollar Loans and any loss sustained by such Bank in connection
with the re-employment of such funds), which the Bank sustains: (i) if for any
reason (other than a failure of such Bank to perform its obligations) a
Borrowing of any Eurodollar Loan does not occur on a date specified therefor in
a Notice of Borrowing or notice of conversion (whether or not withdrawn or
canceled pursuant to (S) 2.5 or otherwise), (ii) if any repayment or conversion
(pursuant to (S) 2.5 or otherwise) of any of its Eurodollar Loans occurs on a
date which is not the last day of the Interest Period applicable thereto, or
(iii) without duplication of any amounts paid pursuant to (S) 2 hereof, as a
consequence of any other default by such Borrower to repay its Eurodollar Loans
when required by the terms of this Agreement. A certificate as to any amounts
payable to any Bank under this (S) 1.8 submitted to the applicable Borrower by
such Bank shall show the amount payable and the calculations used to determine
such amount and shall, absent manifest error, be final, conclusive and binding
upon all parties hereto.
<PAGE>
7
SECTION 1A. Letters of Credit. (a) General. A Borrower may from
------------------ --------
time to time request the issuance of Letters of Credit for its own account (for
obligations of such Borrower or any of its Subsidiaries, or in the case of
Finance Co., for any of Resources' Subsidiaries (other than PPL and its
Subsidiaries)), denominated in dollars, in form reasonably acceptable to the
Agent and the Fronting Bank, at any time and from time to time while the
Commitments remain in effect. This Section shall not be construed to impose an
obligation upon the Fronting Bank to issue any Letter of Credit that is
inconsistent with the terms and conditions of this Agreement.
(b) Notice of Issuance, Amendment, Renewal, Extension; Certain
----------------------------------------------------------
Conditions. In order to request the issuance of a Letter of Credit (or to
- -----------
amend, renew or extend an existing Letter of Credit), the applicable Borrower
shall hand deliver or telecopy to the Fronting Bank and the Agent (reasonably in
advance of the requested date of issuance, amendment, renewal or extension) a
notice requesting the issuance of a Letter of Credit, or identifying the Letter
of Credit to be amended, renewed or extended, the date of issuance, amendment,
renewal or extension, the date on which such Letter of Credit is to expire
(which shall comply with paragraph (c) below), the amount of such Letter of
Credit, the name and address of the beneficiary thereof and such other
information as shall be necessary to prepare such Letter of Credit. A Letter of
Credit shall be issued, amended, renewed or extended only if, and upon issuance,
amendment, renewal or extension of each Letter of Credit the applicable Borrower
shall be deemed to represent and warrant that, after giving effect to such
issuance, amendment, renewal or extension (A) the L/C Exposure shall not exceed
$5,000,000 and (B) the Aggregate Credit Exposure shall not exceed the Total
Commitment.
(c) Expiration Date. Each Letter of Credit shall expire at the close
----------------
of business on the date that is five Business Days prior to the Expiry Date,
unless such Letter of Credit expires by its terms on an earlier date.
(d) Participations. By the issuance of a Letter of Credit and
---------------
without any further action on the part of the Fronting Bank or the Banks, the
Fronting Bank hereby grants to each Bank, and each such Bank hereby acquires
from the Fronting Bank, a participation in such Letter of Credit equal to such
Bank's Applicable Percentage from time to time
<PAGE>
8
of the aggregate amount available to be drawn under such Letter of Credit,
effective upon the issuance of such Letter of Credit. In consideration and in
furtherance of the foregoing, each Bank hereby absolutely and unconditionally
agrees to pay to the Agent, for the account of the Fronting Bank, such Bank's
proportionate share of each L/C Disbursement made by the Fronting Bank and not
reimbursed by the applicable Borrower forthwith on the date due as provided in
(S) 1.3(b). Each Bank acknowledges and agrees that its obligation to acquire
participations pursuant to this paragraph in respect of Letters of Credit is
absolute and unconditional and shall not be affected by any circumstance
whatsoever, including the occurrence and continuance of a Default or an Event of
Default or the termination of the Commitments, and that each such payment shall
be made without any offset, abatement, withholding or reduction whatsoever.
(e) Reimbursement. If the Fronting Bank shall make any L/C
--------------
Disbursement in respect of a Letter of Credit, the applicable Borrower shall pay
to the Agent an amount equal to such L/C Disbursement not later than two hours
after the applicable Borrower shall have received notice from the Fronting Bank
that payment of such draft will be made, or, if the applicable Borrower shall
have received such notice later than 10:00 A.M. (New York time) on any Business
Day, not later than 10:00 A.M. (New York time) on the immediately following
Business Day.
(f) Obligations Absolute. The applicable Borrower's obligations to
---------------------
reimburse L/C Disbursements as provided in paragraph (e) above shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement, under any and all circumstances
whatsoever, and irrespective of:
(i) any lack of validity or enforceability of any Letter of Credit or
any Loan Document, or any term or provision therein;
(ii) any amendment or waiver of or any consent to departure from all
or any of the provisions of any Letter of Credit or any Loan Document;
(iii) the existence of any claim, setoff, defense or other right that
the applicable Borrower, any other
<PAGE>
9
party guaranteeing, or otherwise obligated with, either Borrower or any
subsidiary or other affiliate thereof or any other person may at any time
have against the beneficiary under any Letter of Credit, the Fronting Bank,
the Agent or any Bank or any other person, whether in connection with this
Agreement, any other Loan Document or any other related or unrelated
agreement or transaction;
(iv) any draft or other document presented under a Letter of Credit
proving to be forged, fraudulent, invalid or insufficient in any respect or
any statement therein being untrue or inaccurate in any respect;
(v) payment by the Fronting Bank under a Letter of Credit against
presentation of a draft or other document that does not comply with the
terms of such Letter of Credit; and
(vi) any other act or omission to act or delay of any kind of the
Fronting Bank, the Banks, the Agent or any other person or any other event
or circumstance whatsoever, whether or not similar to any of the foregoing,
that might, but for the provisions of this Section, constitute a legal or
equitable discharge of the applicable Borrower's obligations hereunder.
Without limiting the generality of the foregoing, it is expressly
understood and agreed that the absolute and unconditional obligation of the
Borrowers hereunder to reimburse L/C Disbursements will not be excused by the
gross negligence or wilful misconduct of the Fronting Bank. However, the
foregoing shall not be construed to excuse the Fronting Bank from liability to
the applicable Borrower to the extent of any direct damages (as opposed to
consequential damages, claims in respect of which are hereby waived by the
applicable Borrower to the extent permitted by applicable law) suffered by the
applicable Borrower that are caused by the Fronting Bank's gross negligence or
wilful misconduct in determining whether drafts and other documents presented
under a Letter of Credit comply with the terms thereof; it is understood that
the Fronting Bank may accept documents that appear on their face to be in order,
without responsibility for further investigation, regardless of any notice or
information to the contrary and, in making any payment under any Letter of
Credit (i) the Fronting Bank's exclusive reliance on the documents presented to
it under
<PAGE>
10
such Letter of Credit as to any and all matters set forth therein, including
reliance on the amount of any draft presented under such Letter of Credit,
whether or not the amount due to the beneficiary thereunder equals the amount of
such draft and whether or not any document presented pursuant to such Letter of
Credit proves to be insufficient in any respect, if such document on its face
appears to be in order, and whether or not any other statement or any other
document presented pursuant to such Letter of Credit proves to be forged or
invalid or any statement therein proves to be inaccurate or untrue in any
respect whatsoever and (ii) any noncompliance in any immaterial respect of the
documents presented under such Letter of Credit with the terms thereof shall, in
each case, be deemed not to constitute wilful misconduct or gross negligence of
the Fronting Bank.
(g) Disbursement Procedures. The Fronting Bank shall, promptly
------------------------
following its receipt thereof, examine all documents purporting to represent a
demand for payment under a Letter of Credit. The Fronting Bank shall as
promptly as possible give telephonic notification, confirmed by telecopy, to the
Agent and the applicable Borrower (and, if the applicable Borrower is Finance
Co., Resources) of such demand for payment and whether the Fronting Bank has
made or will make an L/C Disbursement thereunder; provided that any failure to
--------
give or delay in giving such notice shall not relieve the applicable Borrower of
its obligation to reimburse the Fronting Bank and the Banks with respect to any
such L/C Disbursement. The Agent shall promptly give each Bank notice thereof.
(h) Interim Interest. If the Fronting Bank shall make any L/C
-----------------
Disbursement in respect of a Letter of Credit, then, unless the applicable
Borrower shall reimburse such L/C Disbursement in full on the date thereof, the
unpaid amount thereof shall bear interest for the account of the Fronting Bank,
for each day from and including the date of such L/C Disbursement, to but
excluding the earlier of the date of payment by the applicable Borrower or the
date on which interest shall commence to accrue on the Base Rate Loans resulting
from such L/C Disbursement as provided in (S) 1.3(b), at the rate per annum that
would apply to such amount if such amount were a Base Rate Loan.
(i) Cash Collateralization. If any Event of Default with respect to
-----------------------
a Borrower shall occur and be continuing, such Borrower shall, on the Business
Day it
<PAGE>
11
receives notice from the Agent or the Required Banks thereof and of the amount
to be deposited, deposit in an account with the Agent, for the benefit of the
Banks, an amount in cash equal to the portion of the L/C Exposure attributable
to Letters of Credit issued for the account of such Borrower and outstanding as
of such date. Such deposit shall be held by the Agent as collateral for the
payment and performance of the obligations under this Agreement. The Agent shall
have exclusive dominion and control, including the exclusive right of
withdrawal, over such account. Such deposits shall not bear interest. Moneys in
such account shall automatically be applied by the Agent to reimburse the
Fronting Bank for L/C Disbursements attributable to Letters of Credit issued for
the account of the Borrower depositing such moneys for which the Fronting Bank
has not been reimbursed, and any remaining amounts will either (i) be held for
the satisfaction of the reimbursement obligations of such Borrower for the L/C
Exposure at such time or (ii) if the maturity of the Loans of such Borrower has
been accelerated, be applied to satisfy the obligations of such Borrower under
this Agreement. If a Borrower is required to provide an amount of cash
collateral hereunder as a result of the occurrence of an Event of Default, such
amount (to the extent not applied as aforesaid) shall be returned to such
Borrower within three Business Days after all Events of Default have been cured
or waived.
SECTION 20 Interest.
--------
2.1 Rates of Interest. (a) Each Borrower agrees to pay interest in
-----------------
respect of the unpaid principal amount of each Base Rate Loan made to it from
the date the proceeds thereof are made available to it until prepayment pursuant
to (S) 3 or maturity (whether by acceleration or otherwise) at a rate per annum
which shall be the Base Rate in effect from time to time.
(b) Each Borrower agrees to pay interest in respect of the unpaid
principal amount of each Eurodollar Loan made to it from the date the proceeds
thereof are made available to it until prepayment pursuant to (S) 3 or maturity
(whether by acceleration or otherwise) at a rate per annum which shall be the
relevant Quoted Rate plus the Applicable Eurodollar Margin plus the Applicable
Utilization Fee, if any.
<PAGE>
12
(c) Each Borrower agrees to pay interest in respect of overdue
principal of, and (to the extent permitted by law) overdue interest in respect
of, each Loan made to it, on demand, at a rate per annum which shall be 2% in
excess of the Base Rate in effect from time to time.
(d) Interest shall be computed on the actual number of days elapsed
on the basis of a 360-day year; provided, however, that for any rate of interest
-------- -------
determined by reference to the Prime Rate, interest shall be computed on the
actual number of days elapsed on the basis of a year of 365 or 366 days.
(e) In computing interest on the Loans, the date of the making of a
Loan shall be included and the date of payment shall be excluded, provided,
--------
however, that if a Loan is repaid on the same day on which it is made, such day
- -------
shall nevertheless be included in computing interest thereon.
2.2 Determination of Rate of Borrowing. As soon as practicable after
----------------------------------
10:00 A.M. (New York time) on the second Business Day prior to the commencement
of any Interest Period with respect to a Eurodollar Loan, the Agent shall
determine (which determination, absent manifest error, shall be final,
conclusive and binding upon all parties) the rate of interest which shall be
applicable to such Eurodollar Loan for the Interest Period applicable thereto
and shall promptly give notice thereof (in writing or by telephone, confirmed in
writing) to the applicable Borrower and the Banks. In the event that there is
no applicable rate for such Eurodollar Loan: (i) the Agent shall promptly give
notice thereof (in writing or by telephone, confirmed in writing) to the
applicable Borrower and the Banks and (ii) such Loan shall be deemed to have
been requested to be made as a Base Rate Loan and (iii) the rate applicable to
such Loan shall be the Base Rate in effect from time to time.
2.3 Interest Payment Dates. Accrued interest shall be payable (i) in
----------------------
respect of each Eurodollar Loan, at the end of the Interest Period relating
thereto and in respect of each Loan with an Interest Period of longer than 3
months, on each 3-month anniversary of the first day of such Interest Period,
(ii) in respect of each Base Rate Loan, at the end of each Interest Period
relating thereto and (iii) in respect of each Loan, on any prepayment (on the
<PAGE>
13
amount prepaid), at maturity (whether by acceleration or otherwise) and, after
maturity, on demand.
2.4 Conversions; Interest Periods. (a) Each Borrower shall have the
-----------------------------
option to convert on any Business Day, all or a portion at least equal to
$10,000,000 of the outstanding principal amount of the Loans made to it pursuant
to one or more Borrowings of one Type of Loans into a Borrowing or Borrowings of
another Type of Loan, provided that (i) except as provided in (S)2.5(b),
--------
Eurodollar Loans may be converted into Base Rate Loans only on the last day of
an Interest Period applicable thereto and no partial conversion of a Borrowing
of Eurodollar Loans shall reduce the outstanding principal amount of the Loans
pursuant to such Borrowing to less than $10,000,000 and (ii) Loans may only be
converted into Eurodollar Loans if no Default or Event of Default with respect
to such Borrower is in existence on the date of the conversion. Each such
conversion shall be effected by such Borrower by giving the Agent at its Payment
Office, prior to 12:00 Noon (New York time), at least three Business Days (or by
12:00 Noon on the same Business Day in the case of a conversion into Base Rate
Loans) prior written notice (or telephonic notice promptly confirmed in writing)
(each a "Notice of Conversion") specifying the Loans to be so converted, the
Borrowing or Borrowings pursuant to which such Loans were made, the Type of
Loans to be converted into and, if to be converted into a Borrowing of
Eurodollar Loans, the Interest Period to be initially applicable thereto. The
Agent shall give each Bank prompt notice of any such proposed conversion
affecting any of its Loans.
<PAGE>
14
(b) At the time a Borrower gives a Notice of Borrowing or Notice of
Conversion in respect of the making of, or conversion into, a Borrowing of
Eurodollar Loans (in the case of the initial Interest Period applicable thereto)
or prior to 12:00 Noon (New York time) on the third Business Day prior to the
expiration of an Interest Period applicable to a Borrowing of Eurodollar Loans
(in the case of any subsequent Interest Period), such Borrower shall have the
right to elect, by giving the Agent written notice (or telephonic notice
promptly confirmed in writing), the Interest Period applicable to such
Borrowing, which Interest Period shall, at the option of such Borrower, be a
one, two, three or six month period or, subject to availability on the part of
each Bank, such shorter period as ends on the Expiry Date. Notwithstanding
anything to the contrary contained above:
(i) the initial Interest Period for any Borrowing of Eurodollar
Loans shall commence on the date of such Borrowing (including the date of
any conversion from a Borrowing of Base Rate Loans) and each Interest
Period occurring thereafter in respect of such Borrowing shall commence on
the day on which the next preceding Interest Period expires;
(ii) if any Interest Period applicable to a Borrowing of Eurodollar
Loans begins on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period, such Interest
Period shall end on the last Business Day of such calendar month;
(iii) no Interest Period in respect of any Borrowing of Loans shall
extend beyond the Expiry Date; and
(iv) all Eurodollar Loans comprising a Borrowing shall at all times
have the same Interest Period.
If upon the expiration of any Interest Period, a Borrower has failed to elect a
new Interest Period to be applicable to the respective Borrowing of Eurodollar
Loans as provided above or is unable to elect a new Interest Period as a result
of (S) 2.4(a)(ii) above, such Borrower shall be deemed to have elected to
convert such Borrowing into a Borrowing of Base Rate Loans effective as of the
expiration date of such current Interest Period.
<PAGE>
15
2.5 Increased Costs, Illegality, Etc. (a) In the event that any
---------------------------------
Bank (including the Agent and the Fronting Bank) shall have reasonably
determined (which determination shall be final and conclusive and binding upon
all parties but, with respect to the following clauses (i), (ii) and (iii),
shall be made only after consultation with the applicable Borrower and the Agent
on the date of such determination) that:
(i) on any date for determining the Quoted Rate for any Interest
Period, by reason of any change after the date hereof affecting the
interbank Eurodollar market, adequate and fair means do not exist for
ascertaining the applicable interest rate by reference to the Quoted Rate;
or
(ii) at any time, by reason of (y) any change after the date hereof
in any applicable law or governmental rule, regulation or order (or any
interpretation thereof by a governmental authority or otherwise (provided
--------
that, in the case of an interpretation not by a governmental authority,
such interpretation shall be made in good faith and shall have a reasonable
basis) and including the introduction of any new law or governmental rule,
regulation or order), to the extent not provided for in clause (iii) below,
or (z) in the case of Eurodollar Loans, other circumstances affecting such
Bank or the interbank Eurodollar market or the position of such Bank in
such market, the Quoted Rate shall not represent the effective pricing to
such Bank for funding or maintaining the affected Eurodollar Loan; or
(iii) at any time, by reason of the requirements of Regulation D or
other official reserve requirements, the Quoted Rate shall not represent
the effective pricing to such Bank for funding or maintaining the affected
Eurodollar Loan; or
(iv) at any time, that the making or continuance of any Eurodollar
Loan or the issuance of any Letter of Credit has become unlawful by
compliance by such Bank or by the Fronting Bank in good faith with any law,
governmental rule, regulation, guideline or order, or would cause severe
hardship to such Bank or to the Fronting Bank as a result of a contingency
occurring
<PAGE>
16
after the date hereof which materially and adversely affects the interbank
Eurodollar market;
then, and in any such event, the Bank so affected shall on such date of
determination give notice (by telephone confirmed in writing) to each applicable
Borrower and to the Agent (who shall give similar notice to each Bank) of such
determination. Thereafter, (x) in the case of clause (i), (ii) or (iii) above,
each applicable Borrower shall pay to such Bank, upon written demand therefor,
such additional amounts deemed in good faith by such Bank to be material (in the
form of an increased rate of, or a different method of calculating, interest or
otherwise as such Bank in its discretion shall determine) as shall be required
to cause such Bank to receive interest with respect to its affected Eurodollar
Loan at a rate per annum equal to the then Applicable Eurodollar Margin in
excess of the effective pricing to such Bank to make or maintain such Eurodollar
Loan and (y) in the case of clause (iv), each applicable Borrower shall take one
of the actions specified in (S) 2.5(b) as promptly as possible and, in any
event, within the time period required by law. A certificate as to additional
amounts owed any such Bank, showing in reasonable detail the basis for the
calculation thereof, submitted to each applicable Borrower and the Agent by such
Bank shall, absent manifest error, be final, conclusive and binding upon all of
the parties hereto.
(b) At any time that any of its Loans are affected by the
circumstances described in (S) 2.5(a) each applicable Borrower may (i) if the
affected Eurodollar Loan is then being made pursuant to a Borrowing, cancel said
Borrowing by giving the Agent notice thereof by telephone (confirmed in writing)
on the same date that such Borrower was notified by the affected Bank pursuant
to (S) 2.5(a) or (ii) if the affected Eurodollar Loan is then outstanding, upon
at least 3 Business Days' written notice to the Bank, require the Bank to
convert such Eurodollar Loan into a Base Rate Loan; provided that if more than
one Bank is affected at any time, then all affected Banks must be treated in the
same manner pursuant to this (S) 2.5(b).
(c) In the event that a Borrower shall be paying additional amounts
to a Bank pursuant to (S) 2.5(a)(i), (ii) or (iii) or (S) 2.5(d) (and, in the
case of (S) 2.5(d), such Bank has not eliminated the increased costs by
designating a new Applicable Lending Office) or is unable to incur a
<PAGE>
17
Eurodollar Loan from such Bank because of the existence of a condition described
in (S) 2.5(a)(iv) (any such Bank, an "Affected Bank") covering a period of 90
consecutive days, the Borrowers, the Agent and the Affected Bank shall consult
with a view towards (but being under no obligation to) amending this Agreement,
with the consent of the Banks other than the Affected Bank (the "Unaffected
Banks") which, at such time, have outstanding two-thirds of the aggregate
principal amount of the Loans outstanding hereunder (exclusive of the aggregate
principal amount of the Loans outstanding of the Affected Bank), to provide for
(i) the termination of the Affected Bank's Commitment, provided that such
--------
termination is accompanied by payment in full of the outstanding amount of all
Loans of the Affected Bank, interest accrued on such amount to the date of
payment and all other liabilities and obligations of the Borrowers hereunder
(including, without limitation, amounts payable pursuant to (S) 1.8, (S) 2.5(a)
or (S) 2.5(d)) with respect to the Affected Bank, and (ii) the substitution of
another bank for the Affected Bank and/or the increase, pro rata or otherwise,
--- ----
of the Commitments of the Unaffected Banks or otherwise, so that the Total
Commitment remains the amount which would be applicable in the absence of the
occurrence of clause (i) of this (S) 2.5(c); provided that no Commitment of any
Unaffected Bank may be changed without the consent of such Bank.
(d) If any Bank reasonably determines at any time that any applicable
law or governmental rule, regulation, order or request (whether or not having
the force of law) concerning capital adequacy, or any change in interpretation
or administration thereof by any governmental authority, central bank or
comparable agency, will have the effect of increasing the amount of capital
required or expected to be maintained by such Bank based on the existence of
such Bank's Commitment hereunder or its obligations hereunder or under any
Letter of Credit, then promptly upon receipt of a written demand from such Bank
meeting the requirements of this (S) 2.5(d), the applicable Borrowers agree to
pay such Bank such additional amounts as shall be required to compensate such
Bank for the increased cost to such Bank of making Loans to (or issuing Letters
of Credit for the account of) the Borrowers, as a result of such increase in
capital for the first Compensation Period (as defined below). After the initial
written demand for payment in respect of this (S) 2.5(d) is delivered to the
applicable Borrowers by such Bank, written demand for payment may be
<PAGE>
18
submitted for each Compensation Period thereafter that this Agreement remains in
effect as to such Bank. Each such written demand shall (i) specify (a) the event
pursuant to which such Bank is entitled to claim the additional amount, (b) the
date on which the event occurred and became applicable to the Bank and (c) the
Compensation Period for which the amount is due and (ii) set out in reasonable
detail the basis and computation of such additional amount. Each period for
which the additional amounts may be claimed by such Bank (a "Compensation
Period") shall be the lesser of (x) the number of days actually elapsed since
the date the event occurred and became applicable to such Bank or (y) 90 days.
Payments made by the applicable Borrowers to any Bank in respect of this (S)
2.5(d) shall be made on the last day of the Compensation Period specified in
each written demand with a final payment to be made on the date of termination
of this Agreement as to such Bank. Provided that each Bank acts reasonably and
in good faith and uses averaging and attribution methods which are reasonable in
determining any additional amounts due under this (S) 2.5(d), such Bank's
determination of compensation owing under this (S) 2.5(d) shall, absent manifest
error, be final and conclusive and binding on all the parties hereto. No Bank
shall be entitled to compensation under this (S) 2.5(d) for any costs incurred
with respect to any date unless it shall have notified the applicable Borrowers
that it will demand compensation for such costs not more than 60 days after the
later of (i) such date and (ii) the date on which it shall have become aware of
such costs.
(e) Each Bank agrees that, upon the occurrence of any event giving
rise to the operation of (S) 2.5(d) with respect to such Bank, such Bank shall,
if requested by the Borrowers, designate another Applicable Lending Office for
any Loans affected by such event with the objective of eliminating, avoiding or
mitigating the consequence of the event giving rise to the operation of such
section; provided that such Bank and its Applicable Lending Office shall not, in
the sole judgment of such Bank, suffer any economic, legal or regulatory
disadvantage. Nothing in this (S) 2.5(e) shall affect or postpone any of the
obligations of a Borrower or the right of any Bank provided in (S) 2.5(d).
2.6 Extension of Expiry Date. (i) The Borrowers may, by sending an
------------------------
Extension Letter to the Agent (in which case the Agent shall promptly deliver a
copy to each of the Banks), not less than 30 days and not more than 45 days
<PAGE>
19
prior to the Expiry Date then in effect (the "Current Expiry Date"), request
that the Banks extend the Expiry Date so that it will occur 364 days after the
Current Expiry Date. Each Bank, acting in its sole discretion, shall, by notice
to the Agent given not less than 20 days and not more than 30 days prior to the
Current Expiry Date, advise the Agent in writing whether or not such Bank agrees
to such extension (each Bank that so advises the Agent that it will not extend
the Expiry Date being referred to herein as a "Non-extending Bank"); provided
--------
that any Bank that does not advise the Agent by the 20th day prior to the
Current Expiry Date shall be deemed to be a Non-extending Bank. The election of
any Bank to agree to such extension shall not obligate any other Bank to agree.
(ii) (A) If Banks holding Commitments that aggregate at least 51% of
the Total Commitment on the 20th day prior to the Current Expiry Date shall not
have agreed to extend the Expiry Date, then the Current Expiry Date shall not be
so extended and the outstanding principal balance of all loans and other amounts
payable hereunder shall be payable on the Current Expiry Date. (B) If (and only
if) Banks holding Commitments that aggregate at least 51% of the Total
Commitment on the 20th day prior to the Current Expiry Date shall have agreed to
extend the Expiry Date, then the Expiry Date applicable to the Banks that are
not Non-extending Banks shall be the day that is 364 days after the Current
Expiry Date. In the event of such extension, the Commitment of each Non-
extending Bank shall terminate on the Current Expiry Date, all Loans and other
amounts payable hereunder to such Non-extending Banks shall become due and
payable on the Current Expiry Date and the Total Commitment of the Banks
hereunder shall be reduced by the Commitments of Non-extending Banks so
terminated on and after such Current Expiry Date.
(iii) In the event that the conditions of clause (B) of paragraph
(ii) above have been satisfied, the Borrowers shall have the right on or before
the Current Expiry Date, at their own expense, to require any Non-extending Bank
to transfer and assign without recourse or representation (except as to title
and the absence of Liens created by it) (in accordance with and subject to the
restrictions contained in (S) 10.6) all its interests, rights and obligations
under this Agreement (including with respect to any L/C Exposure) to one or more
other banks or other financial institutions (which may include any Bank) (each,
<PAGE>
20
an "Additional Commitment Bank"), provided that (x) such Additional Commitment
Bank, if not already a Bank hereunder, shall be subject to the approval of the
Agent (not to be unreasonably withheld), (y) such assignment shall become
effective as of the Current Expiry Date and (z) the Additional Commitment Bank
shall pay to such Non-extending Bank in immediately available funds on the
effective date of such assignment the principal of and interest accrued to the
date of payment on the Loans made by such Non-extending Bank hereunder and all
other amounts accrued for such Non-extending Bank's account or owed to it
hereunder. Notwithstanding the foregoing, no extension of the Expiry Date shall
become effective unless, on the Current Expiry Date, the conditions set forth in
paragraphs (a), (b) and (d) of (S)(S) 4.2A and 4.2B shall be satisfied (with all
references in such paragraphs to the making of a Loan or issuance of a Letter of
Credit being deemed to be references to the extension of the Commitments on the
Current Expiry Date) and the Agent shall have received a certificate to that
effect dated the Current Expiry Date and executed by a responsible officer of
each of the Borrowers and Resources.
SECTION 3. Payments.
--------
3.1 Payments on Non-Business Days. Whenever any payment to be made
-----------------------------
hereunder shall be stated to be due on a day which is not a Business Day, the
due date thereof shall be extended to the next succeeding Business Day and, if a
payment of principal has been so extended, interest shall be payable on such
principal at the applicable rate during such extension.
3.2 Voluntary Prepayments. Each Borrower shall have the right to
---------------------
prepay its Loans in whole or in part, without premium or penalty, from time to
time pursuant to this (S) 3.2 on the following terms and conditions: (i) the
applicable Borrower shall give the Agent at the Payment Office at least 3
Business Days' prior written notice or telephonic notice (confirmed in writing)
of its intent to prepay such Loans, which notice shall specify the amount of
such prepayment and the specific Borrowing to be prepaid, which notice the Agent
shall promptly transmit to each of the Banks; (ii) each prepayment shall be in
an integral multiple of $1,000,000 and not less than $10,000,000 (or, if less,
the amount then remaining outstanding in respect of the Borrowing being
prepaid); (iii) each prepayment in respect of Loans made pursuant to one
Borrowing shall be
<PAGE>
21
applied pro rata among the Banks on the basis of such Loans,
--- ----
except as otherwise provided in (S) 2.5; (iv) at the time of any prepayment, the
applicable Borrower shall pay all interest accrued on the principal amount of
said prepayment and, if the applicable Borrower prepays any Eurodollar Loan on
any day other than the last day of an Interest Period applicable thereto, the
applicable Borrower shall compensate the Banks for losses sustained as a result
of such prepayment to the extent and as provided in (S) 1.8.
3.3 Method and Place of Payment, Etc. Except as expressly provided
---------------------------------
herein, all payments under this Agreement shall be made to the Agent for the
ratable account of the Banks not later than Noon (New York time) on the date
when due and shall be made in freely transferable U.S. dollars and in
immediately available funds at the Payment Office (or, if such payment is made
in respect of principal of or interest on any Eurodollar Loan, for the account
of such non-U.S. office of the Agent as the Agent may from time to time direct).
Unless the Agent shall have been notified by the applicable Borrower prior to
the date on which any payment to be made by the applicable Borrower hereunder is
due that the applicable Borrower does not intend to remit such payment, the
Agent may, at its discretion, assume that the applicable Borrower has remitted
such payment when so due and the Agent may, at its discretion and in reliance
upon such assumption, make available to each Bank (for the account of its
applicable lending office) on such payment date an amount equal to such Bank's
share of such assumed payment. If the applicable Borrower has not in fact
remitted such payment to the Agent, each Bank shall forthwith on demand repay to
the Agent the amount of such assumed payment made available to such Bank
together with interest thereon in respect of each day from and including the
date such amount was made available by the Agent to such Bank to the date such
amount is repaid to the Agent at a rate per annum equal to the Federal Funds
Rate. On the commencement date of each Interest Period and on each date
occurring two Business Days prior to an Interest Payment Date, the Agent shall
notify the applicable Borrower of the amount of interest and/or fees due at the
end of such Interest Period or on such Interest Payment Date (assuming, in the
case of Base Rate Loans, that there is no change in the rate of interest
applicable to the applicable Base Rate Loan); provided, however, that failure to
so notify the applicable Borrower shall not affect such Borrower's obligation to
make any such payments.
<PAGE>
22
3.4 Net Payments. All payments under this Agreement shall be made
------------
without set-off or counterclaim and in such amounts as may be necessary in order
that all such payments of principal and interest in connection with Loans (after
deduction or withholding for or on account of (i) any present or future taxes,
levies, imposts, duties or other charges of whatsoever nature imposed by any
government or any political subdivision or taxing authority thereof, excluding
any tax on or measured by the net income of a Bank pursuant to the income tax
laws of the jurisdiction where such Bank's principal or lending office is
located or in which such Bank maintains a place of business (all such non-
excluded taxes, levies, imposts, duties or other charges, the "Taxes") and (ii)
any taxes on or measured by the net income payable by any such Bank with respect
to the amount by which the payments required to be made by this (S) 3.4 exceed
the amount otherwise specified to be paid under this Agreement) shall not be
less than the amounts otherwise specified to be paid under this Agreement; and
the Borrowers further agree to pay and to save the Agent, the Fronting Bank and
the Banks (and any participant, to the extent provided in Section 10.6(b)(B))
harmless, on an after-tax basis, from all liability for Taxes on or in
connection with Loans or any payments thereunder, and any interest, penalties or
additions with respect thereto, provided, however, that such interest, penalties
-----------------
and additions are not a result of any action, omission or failure to act on the
part of the Agent, the Fronting Bank or the Banks. A certificate as to any
additional amounts payable to any Bank under this (S) 3.4 submitted to the
applicable Borrower by such Bank shall show in reasonable detail the amount
payable and the calculations used to determine such amount and shall, absent
manifest error, be final, conclusive and binding upon all parties hereto. With
respect to each deduction or withholding for or on account of any Taxes, the
applicable Borrower shall promptly furnish to each Bank such certificates,
receipts and other documents as may be required (in the judgment of such Bank)
to establish any tax credit to which such Bank may be entitled.
<PAGE>
23
SECTION 4. Conditions Precedent.
--------------------
4.1 Conditions to Effectiveness. On the Closing Date:
---------------------------
(a) The Agent shall have received from the general counsel or senior
counsel of PPL a favorable opinion dated the Closing Date substantially in
the form of Exhibit A hereto.
(b) The Agent shall have received an opinion of Thelen Reid & Priest
LLP, counsel for PPL, Finance Co. and Resources, addressed to the Agent,
the Fronting Bank and the Banks, dated the Closing Date, with respect to
the enforceability of this Agreement against PPL and Finance Co., and with
respect to the enforceability of the guarantee hereunder by Resources of
the obligations of Finance Co. against Resources, substantially in the form
of Exhibit B hereto.
(c) All corporate and legal proceedings and all instruments in
connection with the transactions contemplated by this Agreement (including
resolutions of the Board of Directors of PPL, Finance Co. and Resources and
certificates as to the incumbency of the officers signing this Agreement or
any certificate delivered in connection herewith) shall be satisfactory in
form and substance to the Agent, and the Agent shall have received all
information and copies of all documents that it has requested, such
documents where appropriate to be certified by proper corporate or
governmental authorities.
(d) The Agent shall have received from each of the Banks, the
Fronting Bank, PPL, Finance Co. and Resources a duly executed and delivered
counterpart hereof.
(e) The conditions set forth in (S)(S) 4.2A and 4.2B (other than (S)
4.2A(c) and (S) 4.2B(c)) shall have been satisfied.
(f) The Agent shall have received a certificate signed by appropriate
officers of PPL stating that all regulatory approvals necessary to permit
PPL to enter into this Agreement and to perform its obligations hereunder
have been obtained and are in full force and
<PAGE>
24
effect and attaching evidence of all such regulatory approvals.
(g) The Borrowers shall have delivered a termination notice which
will effectively terminate, as of the Closing Date, the credit facility
established pursuant to the Existing Credit Agreement, and shall have
repaid or prepaid all principal, interest, fees and other amounts due or
outstanding thereunder.
(h) The Borrowers shall have delivered termination notices which will
effectively terminate, as of the Closing Date, the bilateral facilities set
forth on Schedule II to this Agreement.
4.2A Conditions to Each Loan to PPL and Each Issuance of a Letter of
---------------------------------------------------------------
Credit for the account of PPL. The obligation of each Bank to make each Loan to
- -----------------------------
PPL (excluding any conversions of one Type of Loan to another Type pursuant to
(S) 2.5(b)) and of the Fronting Bank to issue each Letter of Credit for the
account of PPL hereunder is subject, at the time of the making of each such Loan
and the issuance of each such Letter of Credit (except as hereinafter
indicated), to the satisfaction of the following conditions, with the making of
each such Loan and the issuance of each such Letter of Credit constituting a
representation and warranty by PPL that the conditions specified in (S)(S)
4.2A(a), (b), (d) and (e) below are then satisfied:
(a) No Default. At the time of the making each such Loan to PPL, and
----------
the issuance of each Letter of Credit for the account of PPL and after
giving effect thereto, there shall exist no Default or Event of Default
with respect to PPL.
(b) Representations and Warranties. At the time of the making of
------------------------------
each such Loan to PPL and the issuance of each such Letter of Credit for
the account of PPL and after giving effect thereto, all representations and
warranties contained in (S) 7A hereof shall be true and correct with the
same force and effect as though such representations and warranties had
been made as of such time.
(c) Notice of Borrowing. The Agent shall have received Notice of
-------------------
Borrowing from PPL as required by (S) 1.2 or, in the case of the issuance
of a Letter of
<PAGE>
25
Credit, the Fronting Bank and the Agent shall have received a notice f rom
PPL requesting the issuance of such Letter of Credit as required by (S)
1A(b).
(d) No Adverse Change. Since December 31, 1998, there shall have been
-----------------
no change in the business, assets, financial condition or operations of PPL
and its Subsidiaries taken as a whole which materially and adversely
affects the ability of PPL to perform any of its obligations hereunder.
(e) Regulatory Approval. The making of such Loan to PPL or the
-------------------
issuance of such Letter of Credit for the account of PPL shall not cause
the aggregate dollar amount of Loans and Letters of Credit outstanding for
the account of PPL to exceed the amount of such obligations for which PPL
has obtained the necessary regulatory approval.
4.2B Conditions to Each Loan to Finance Co. and Each Issuance of
-----------------------------------------------------------
a Letter of Credit for the account of Finance Co. The obligation of each
-------------------------------------------------
Bank to make each Loan to Finance Co. (excluding any conversions of one
Type of Loan to another Type pursuant to (S) 2.5(b)) and of the Fronting
Bank to issue each Letter of Credit for the account of Finance Co.
hereunder is subject, at the time of the making of each such Loan and the
issuance of each such Letter of Credit (except as hereinafter indicated),
to the satisfaction of the following conditions, with the making of each
such Loan and the issuance of each such Letter of Credit constituting a
representation and warranty by Finance Co. that the conditions specified in
(S)(S) 4.2B(a), (b) and (d) below are then satisfied:
(a) No Default. At the time of the making of each such Loan to
----------
Finance Co. and the issuance of each Letter of Credit for the account of
Finance Co. and after giving effect thereto, there shall exist no Default
or Event of Default with respect to Finance Co.
(b) Representations and Warranties. At the time of the making of
------------------------------
each such Loan to Finance Co. and the issuance of each such Letter of
Credit for the account of Finance Co. and after giving effect thereto, all
representations and warranties contained in (S) 7B hereof
<PAGE>
26
shall be true and correct with the same force and effect as though such
representations and warranties had been made as of such time.
(c) Notice of Borrowing. The Agent shall have received Notice of
-------------------
Borrowing from Finance Co. as required by (S) 1.2 or, in the case of the
issuance of a Letter of Credit, the Fronting Bank and the Agent shall have
received a notice from Finance Co. requesting the issuance of such Letter
of Credit as required by (S) 1A(b).
(d) No Adverse Change. Since December 31, 1998, there shall have been
-----------------
no change in the business, assets, financial condition or operations of
Resources and its Subsidiaries taken as a whole which materially and
adversely affects the ability of Resources to perform any of its
obligations hereunder.
SECTION 5.A Covenants of PPL.
----------------
While this Agreement is in effect and until the Total Commitment has
been terminated with respect to PPL, all obligations of PPL hereunder shall have
been paid in full and all Letters of Credit issued for the account of PPL shall
have been canceled or have expired and all amounts drawn thereunder shall have
been reimbursed in full, PPL agrees that:
5.1A Financial Statements. PPL will furnish to each Bank:
--------------------
(a) within 120 days after the end of each fiscal year an auditors'
report, including a balance sheet as at the close of such fiscal year and
statements of income, shareowners' common equity and cash flows for such
year for PPL and its consolidated Subsidiaries prepared in conformity with
GAAP, with an opinion expressed by PricewaterhouseCoopers LLP or other
independent auditors of recognized standing selected by it;
(b) within 60 days after the end of each of the first three quarters
in each fiscal year, a balance sheet as at the close of such quarterly
period and statements of income, shareowners' common equity and
<PAGE>
27
cash flows for such quarterly period for itself and its consolidated
Subsidiaries prepared in conformity with GAAP;
(c) within 120 days after the end of each fiscal year, a copy of its
Form 10-K Report to the Securities and Exchange Commission ("SEC") and
within 60 days after the end of each of the first three quarters in each
fiscal year, a copy of its Form 10-Q Report to the SEC;
(d) from time to time, with reasonable promptness, such further
information regarding its business, affairs and financial condition as any
Bank and the Fronting Bank may reasonably request; and
(e) upon acquiring knowledge of the existence of a Default or Event
of Default with respect to it a certificate of a financial officer
specifying: (i) the nature of such Default or Event of Default, (ii) the
period of the existence thereof, and (iii) the actions that PPL proposes to
take with respect thereto.
The financial statements required to be furnished pursuant to clauses
(a) and (b) above shall be accompanied by a certificate of a principal financial
officer of PPL to the effect that no Default or Event of Default with respect to
it has occurred and is continuing. The financial statements required to be
furnished pursuant to clause (a) above shall also be accompanied by a Compliance
Certificate in the form of Exhibit D-1 hereto ("PPL Compliance Certificate")
demonstrating compliance with (S) 5.4A.
5.2A Mergers. PPL will not merge or consolidate with any Person if
-------
PPL is not the survivor unless (a) the survivor assumes the obligations of PPL
hereunder, (b) the survivor is a utility whose business is not substantially
different in character or composition from that of PPL and (c) the senior
secured debt ratings of the survivor by Moody's and S&P as available (or if the
ratings of Moody's and S&P are not available, of such other rating agency as
shall be acceptable to the Agent), are at least equal to the ratings of PPL's
First Mortgage Bonds (or other senior secured debt) immediately prior to such
merger or consolidation.
<PAGE>
28
5.3A Ratings. PPL will use its best efforts to promptly notify the
-------
Banks upon obtaining knowledge of any change in, or cessation of, ratings of
PPL's First Mortgage Bonds (or other senior secured debt) by Moody's or S&P.
5.4A Consolidated Indebtedness to Consolidated Capitalization. The
--------------------------------------------------------
ratio of Consolidated Indebtedness of PPL to Consolidated Capitalization of PPL
shall not exceed 70% at any time.
SECTION 5.B Covenants of Finance Co. and Resources.
--------------------------------------
While this Agreement is in effect and until the Total Commitment has
been terminated with respect to Finance Co., all obligations of Finance Co. and
Resources hereunder shall have been paid in full and all Letters of Credit
issued for the account of Finance Co. shall have been canceled or have expired
and all amounts drawn thereunder shall have been reimbursed in full, each of
Finance Co. and Resources agrees that:
5.1B Financial Statements. Resources will furnish to each Bank:
--------------------
(a) within 120 days after the end of each fiscal year (i) an
auditors' report, including a balance sheet as at the close of such fiscal
year and statements of income, shareowners' common equity and cash flows
for such year for Resources and its consolidated Subsidiaries prepared in
conformity with GAAP, with an opinion expressed by PricewaterhouseCoopers
LLP or other independent auditors of recognized standing selected by it and
(ii) Resources' unconsolidated balance sheet as at the close of such fiscal
year and statements of income, shareholders common equity and cash flows
for such year;
(b) within 60 days after the end of each of the first three quarters
in each fiscal year, a balance sheet as at the close of such quarterly
period and statements of income, shareowners' common equity and cash flows
for such quarterly period for (i) Resources and its consolidated
Subsidiaries prepared in conformity with GAAP, and (ii) Resources'
unconsolidated balance sheet as at the close of such
<PAGE>
29
quarterly period and statements of income, shareowners' common equity and
cash flow for such quarterly period;
(c) within 120 days after the end of each fiscal year, a copy of
Resources' Form 10-K Report to the SEC and within 60 days after the end of
each of the first three quarters in each fiscal year, a copy of Resources'
Form 10-Q Report to the SEC;
(d) from time to time, with reasonable promptness, such further
information regarding Resources' business, affairs and financial condition
as any Bank and the Fronting Bank may reasonably request; and
(e) upon acquiring knowledge of the existence of a Default or Event
of Default with respect to Finance Co. a certificate of a financial officer
of Resources and an officer of Finance Co. specifying: (i) the nature of
such Default or Event of Default, (ii) the period of the existence thereof,
and (iii) the actions that Resources and Finance Co. propose to take with
respect thereto.
The financial statements required to be furnished pursuant to clauses
(a) and (b) above shall be accompanied by a certificate of a principal financial
officer of Resources to the effect that no Default or Event of Default with
respect to Finance Co. has occurred and is continuing. The financial statements
required to be furnished pursuant to clause (a) above shall also be accompanied
by a Compliance Certificate in the form of Exhibit D-2 hereto ("Resources
Compliance Certificate") demonstrating compliance with (S) 5.5B.
5.2B Mergers. (i) (1) Resources will not merge or consolidate with
-------
any Person if Resources is not the survivor unless (a) the survivor assumes
Resources' obligations hereunder, (b) substantially all of the consolidated
assets and consolidated revenues of the survivor are anticipated to come from a
utility business or utility businesses and (c) the senior unsecured debt ratings
of the survivor by Moody's or S&P, as available (or if the ratings of Moody's
and S&P are not available, of such other rating agency as shall be acceptable to
the Required Banks), are at least equal to the ratings of Resource's senior
<PAGE>
30
unsecured debt immediately prior to such merger or consolidation; (2) Resources
will not dispose of any common stock of either Borrower or any securities
convertible into common stock of either Borrower, except in connection with any
merger or consolidation permitted under this (S) 5.2B or under (S) 5.2A, and
except that Resources shall be allowed to sell, transfer or otherwise dispose of
PPL's common stock to PPL.
(ii) Finance Co. will not merge into or consolidate with any other
Person except (a) Resources or a successor of Resources permitted by this
Section or (b) any other Person which is a wholly owned subsidiary of Resources
or a successor of Resources permitted by this Section.
5.3B Ratings. Finance Co. and Resources will each use their best
-------
efforts to promptly notify the Banks upon obtaining knowledge of any change in,
or cessation of, ratings of Resources' senior unsecured debt by Moody's or S&P.
5.4B Liens. Resources will not create, incur, or suffer to exist
-----
any Lien in or on the common stock of PPL or Finance Co. or on securities
convertible into the common stock of PPL or Finance Co. (in either case, now or
hereafter acquired) other than Permitted Liens.
5.5B Consolidated Indebtedness to Consolidated Capitalization. The
--------------------------------------------------------
ratio of Consolidated Indebtedness of Resources to Consolidated Capitalization
of Resources shall not exceed 70% at any time.
SECTION 6.A Events of Default with Respect to PPL.
-------------------------------------
Each of the following events shall constitute an "Event of Default"
with respect to PPL:
6.1A Representations, Etc. Any certificate furnished by PPL to the
---------------------
Banks and the Fronting Bank pursuant hereto shall prove to have been incorrect
in any material respect or any of the representations and warranties made by PPL
herein or in connection herewith shall prove to have been incorrect in any
material respect when made; or
6.2A Principal and Interest. PPL shall fail to make any payment of
----------------------
principal on any of its Loans or any
<PAGE>
31
other payment payable by PPL hereunder (including the reimbursement of any L/C
Disbursement) when due or, in the case of interest or fees, within 10 days of
the due date thereof; or
6.3A Defaults by PPL Under Other Agreements. PPL shall (i) fail to
--------------------------------------
pay any principal or interest, regardless of amount, due in respect of any
Indebtedness in a principal amount in excess of $50,000,000 beyond any period of
grace provided with respect thereto, or (ii) fail to observe or perform any
other term, covenant, condition or agreement contained in any agreement or
instrument evidencing or governing any such Indebtedness in a principal amount
in excess of $50,000,000 beyond any period of grace provided with respect
thereto if the effect of any failure referred to in this clause (ii) is to
cause, or to permit the holder or holders of such Indebtedness or a trustee on
its or their behalf to cause, such Indebtedness to become due prior to its
stated maturity; or
6.4A Judgments. PPL shall fail within 60 days to pay, bond or
---------
otherwise discharge any judgment or order for the payment of money in excess of
$25,000,000 that is not stayed on appeal or otherwise being appropriately
contested in good faith; or
6.5A Bankruptcy, Etc. PPL shall commence a voluntary case
----------------
concerning itself under Title 11 of the United States Code entitled "Bankruptcy"
as now or hereafter in effect or any successor thereto (the "Bankruptcy Code");
or an involuntary case shall be commenced against PPL or such case shall be
controverted but shall not be dismissed within 60 days after the commencement of
the case; or PPL shall not generally be paying its debts as they become due; or
a custodian (as defined in the Bankruptcy Code) shall be appointed for, or shall
take charge of, all or substantially all of the property of PPL or PPL shall
commence any other proceeding under any reorganization, arrangement,
readjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or similar law of any jurisdiction whether now or hereafter in effect relating
to PPL or there shall be commenced against PPL any such proceeding which remains
undismissed for a period of 60 days or PPL shall be adjudicated insolvent or
bankrupt; or PPL shall fail to controvert in a timely manner any such case under
the Bankruptcy Code or any such proceeding, or any order of relief or other
order approving any such case or proceeding
<PAGE>
32
shall be entered; or PPL by any act or failure to act shall indicate its consent
to, approval of or acquiescence in any such case or proceeding or in the
appointment of any custodian or the like for it or any substantial part of its
property or shall suffer any such appointment to continue undischarged or
unstayed for a period of 60 days; or PPL shall make a general assignment for the
benefit of creditors; or any corporate action shall be taken by PPL for the
purpose of effecting any of the foregoing; or
6.6A Other Covenants. PPL shall fail to perform or observe any
---------------
other term, covenant or agreement contained in this Agreement on its part to be
performed or observed and any such failure shall remain unremedied for a period
of 30 days after written notice thereof shall have been received by PPL from the
Agent or the Required Banks.
SECTION 6.B Events of Default with Respect to Finance Co.
--------------------------------------------
Each of the following events shall constitute an "Event of Default"
with respect to Finance Co.:
6.1B Representations, Etc. Any certificate furnished by Finance Co.
---------------------
or Resources to the Banks and the Fronting Bank pursuant hereto shall prove to
have been incorrect in any material respect or any of the representations and
warranties made by Finance Co. or Resources herein or in connection herewith
shall prove to have been incorrect in any material respect when made; or
6.2B Principal and Interest. Either Finance Co. or Resources shall
----------------------
fail to make any payment of principal on any Loan to Finance Co. or any other
payment payable by Finance Co. or Resources hereunder (including the
reimbursement of any L/C Disbursement) when due or, in the case of interest or
fees, within 10 days of the due date thereof; or
6.3B Defaults by Finance Co. or Resources Under Other Agreements.
-----------------------------------------------------------
Finance Co. or Resources shall (i) fail to pay any principal or interest,
regardless of amount, due in respect of any Indebtedness in a principal amount
in excess of $40,000,000, in the case of Indebtedness of Resources or
Indebtedness of Finance Co. guaranteed by Resources or, in the case of
Indebtedness of Finance Co. not
<PAGE>
33
guaranteed by Resources, $10,000,000, if such failure shall continue beyond any
period of grace provided with respect thereto, or (ii) fail to observe or
perform any other term, covenant, condition or agreement contained in any
agreement or instrument (including any term, covenant, condition or agreement
herein) evidencing or governing any such Indebtedness in a principal amount in
excess of, in the case of Indebtedness of Resources or Indebtedness of Finance
Co. guaranteed by Resources, $40,000,000 or, in the case of Indebtedness of
Finance Co. not guaranteed by Resources, $10,000,000, if such failure shall
continue beyond any period of grace provided with respect thereto if the effect
of any failure referred to in this clause (ii) is to cause, or to permit the
holder or holders of such Indebtedness or a trustee on its or their behalf to
cause, such Indebtedness to become due prior to its stated maturity; or
6.4B Judgments. Finance Co. or Resources shall fail within 60 days
---------
to pay, bond or otherwise discharge any judgment or order for the payment of
money in excess of $25,000,000 that is not stayed on appeal or otherwise being
appropriately contested in good faith; or
6.5B Bankruptcy, Etc. Finance Co. or Resources shall commence a
----------------
voluntary case concerning itself under the Bankruptcy Code; or an involuntary
case shall be commenced against Finance Co. or Resources or such case shall be
controverted but shall not be dismissed within 60 days after the commencement of
the case; or Finance Co. or Resources shall not generally be paying its debts as
they become due; or a custodian (as defined in the Bankruptcy Code) shall be
appointed for, or shall take charge of, all or substantially all of the property
of Finance Co. or Resources or Finance Co. or Resources shall commence any other
proceeding under any reorganization, arrangement, readjustment of debt, relief
of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to Finance Co. or
Resources or there shall be commenced against Finance Co. or Resources any such
proceeding which remains undismissed for a period of 60 days or Finance Co. or
Resources shall be adjudicated insolvent or bankrupt; or Finance Co. or
Resources shall fail to controvert in a timely manner any such case under the
Bankruptcy Code or any such proceeding, or any order of relief or other order
approving any such case or proceeding shall be entered; or Finance Co. or
Resources by any act or failure to act shall indicate its consent to, approval
of or
<PAGE>
34
acquiescence in any such case or proceeding or in the appointment of any
custodian or the like for it or any substantial part of its property or shall
suffer any such appointment to continue undischarged or unstayed for a period of
60 days; Finance Co. or Resources shall make a general assignment for the
benefit of creditors; or any corporate action shall be taken by Finance Co. or
Resources for the purpose of effecting any of the foregoing; or
6.6B Other Covenants. Finance Co. or Resources shall fail to
---------------
perform or observe any other term, covenant or agreement contained in this
Agreement on its part to be performed or observed and any such failure shall
remain unremedied for a period of 30 days after written notice thereof shall
have been received by Finance Co. or Resources, as the case may be, from the
Agent or the Required Banks; or
6.7B Events of Default with Respect to PPL. An Event of Default
-------------------------------------
shall occur with respect to PPL.
If any Event of Default with respect to PPL as specified in Section 6A shall
then be continuing, then either or both of the following actions may be taken:
(i) the Agent, at the direction of the Required Banks, shall by written notice
to PPL, declare the principal of and accrued interest in respect of all of PPL's
outstanding Loans to be, whereupon the same and all other amounts due from PPL
hereunder shall become, forthwith due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived by
PPL, anything contained herein to the contrary notwithstanding, and (ii) the
Agent, at the direction of the Required Banks, shall by written notice to PPL,
declare the Total Commitment as to PPL terminated, whereupon the Commitment of
each Bank (insofar as it is available to PPL) and the obligation of each Bank to
make its Loans hereunder to PPL and the obligation of the Fronting Back to issue
Letters of Credit for the account of PPL hereunder shall terminate immediately
and any accrued Commitment Fee owed by PPL shall forthwith become due and
payable without any other notice of any kind; provided that if an Event of
Default described in (S) 6.5A shall occur with respect to PPL, the results which
would otherwise occur only upon the giving of written notice by the Agent to PPL
as specified in clauses (i) and (ii) above shall occur automatically without the
giving of any such notice and without any instruction by the Required Banks to
give such notice.
<PAGE>
35
If any Event of Default with respect to Finance Co. as specified in Section 6B
shall then be continuing, then either or both of the following actions may be
taken: (i) the Agent, at the direction of the Required Banks, shall by written
notice to Resources and Finance Co., declare the principal of and accrued
interest in respect of all of Finance Co.'s outstanding Loans to be, whereupon
the same and all other amounts due from Resources or Finance Co. hereunder shall
become, forthwith due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived by Resources and
Finance Co., anything contained herein to the contrary notwithstanding, and (ii)
the Agent, at the direction of the Required Banks, shall, by written notice to
Resources and Finance Co., declare the Total Commitment as to Finance Co.
terminated (insofar as it is available to Finance Co.), whereupon the Commitment
of each Bank and the obligation of each Bank to make its Loans to Finance Co.
hereunder and the obligations of the Fronting Bank to issue Letters of Credit
for the account of Finance Co. shall terminate immediately and any accrued
Commitment Fee owed by Finance Co. shall forthwith become due and payable
without any other notice of any kind; provided that if an Event of Default
described in (S) 6.5B shall occur with respect to Finance Co., the results which
would otherwise occur only upon the giving of written notice by the Agent to
Finance Co. as specified in clauses (i) and (ii) above shall occur automatically
without the giving of any such notice and without any instruction by the
Required Banks to give such notice.
SECTION 7.A Representations and Warranties of PPL.
-------------------------------------
In order to induce the Banks and the Fronting Bank to enter into this
Agreement and to make the Loans to PPL and issue the Letters of Credit for the
account of PPL, in each case, as provided for herein, PPL makes the following
representations and warranties to the Banks and the Fronting Bank:
7.1A Corporate Status. It is duly incorporated, validly existing and
----------------
in good standing under the laws of the Commonwealth of Pennsylvania, and has the
corporate power to make and perform this Agreement and to borrow hereunder.
<PAGE>
36
7.2A Authority; No Conflict. The making and performance by it of
----------------------
this Agreement have been duly authorized by all necessary corporate action and
do not and will not violate any provision of law or regulation, or any decree,
order, writ or judgment, or any provision of its charter or by-laws, or result
in the breach of or constitute a default under any indenture or other agreement
or instrument to which it is a party.
7.3A Legality, Etc. This Agreement constitutes the legal, valid and
--------------
binding obligation of PPL, enforceable in accordance with its terms except to
the extent limited by bankruptcy, insolvency or reorganization laws or by other
laws relating to or affecting the enforceability of creditors' rights generally
and by general equitable principles which may limit the right to obtain
equitable remedies.
7.4A Financial Statements. The consolidated financial statements of
--------------------
PPL and its consolidated Subsidiaries for the year ended as at December 31,
1998, furnished to the Banks, fairly present its consolidated financial position
at December 31, 1998 and the results of its consolidated operations for the year
then ended and were prepared in accordance with GAAP. Since that date there has
been no adverse change in the business, assets, financial condition or
operations of PPL that would materially and adversely affect the ability of PPL
to perform any of its obligations hereunder.
7.5A Litigation. Except as disclosed in or contemplated by PPL's
----------
Form 10-K Report to the SEC for the year ended December 31, 1998 or in any
subsequent Form 10-Q Report or otherwise furnished in writing to the Banks, no
litigation, arbitration or administrative proceeding is pending or, to its
knowledge, threatened, which, if determined adversely to PPL, would materially
and adversely affect its ability to perform any of its obligations under this
Agreement. There is no litigation, arbitration or administrative proceeding
pending or, to the knowledge of PPL, threatened which questions the validity of
this Agreement.
7.6A No Violation. No part of the proceeds of the borrowings by PPL
------------
under this Agreement or of any Letter of Credit issued for its account will be
used, directly or indirectly by PPL for the purpose of purchasing or carrying
any "margin stock" within the meaning of Regulation U of the
<PAGE>
37
Board of Governors of the Federal Reserve System, or for any other purpose which
violates, or which conflicts with, the provisions of Regulation U or X of said
Board of Governors. PPL is not engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of purchasing or
carrying any such "margin stock."
7.7A ERISA. There have not been any "reportable events," as that
-----
term is defined in Section 4043 of the Employee Retirement Income Security Act
of 1974, as amended, which would result in a material liability to PPL.
7.8A Consents. No authorization, consent or approval from
--------
governmental bodies or regulatory authorities is required for the making and
performance by PPL of this Agreement, except such authorizations, consents and
approvals as have been obtained prior to the making of any Loans or the issuance
of any Letters of Credit and are in full force and effect at the time of the
making of each Loan and the issuance of each Letter of Credit.
7.9A Subsidiaries. The assets of all Subsidiaries of PPL, excluding
------------
intangible transition property created under the Pennsylvania Electricity
Generation Customer Choice and Competition Act held by PP&L Transition Bond
Company LLC, a subsidiary of PPL, or any similar special purpose company
organized for the purpose of issuing bonds payable from revenues associated with
such transition property, do not comprise in the aggregate more than 35% of the
total consolidated assets of PPL.
7.10A Investment Company Act. PPL is not an "investment company"
----------------------
that is required to be registered under the Investment Company Act of 1940, as
amended, in order not to be subject to the prohibitions of Section 7 of such
Act.
7.11A Public Utility Holding Company Act. PPL is not a "holding
----------------------------------
company" within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
7.12A Tax Returns. PPL has filed or caused to be filed all Federal,
-----------
state, local and foreign tax returns or materials required to have been filed by
it and has paid or caused to be paid all taxes due and payable by it and all
assessments received by it, except taxes that are being contested in good faith
by appropriate proceedings and for
<PAGE>
38
which PPL shall have set aside on its books appropriate reserves with respect
thereto in accordance with GAAP.
7.13A Compliance with Laws. PPL is in compliance with all laws,
--------------------
regulations and orders of any governmental authority except to the extent (A)
such compliance is being contested in good faith by appropriate proceedings or
(B) non-compliance would not reasonably be expected to materially and adversely
affect its ability to perform any of its obligations hereunder.
7.14A Year 2000. PPL has planned and commenced reprogramming to
----------
permit the proper performance of date-sensitive functions in and following the
year 2000 by (i) PPL's computer systems and (ii) equipment containing embedded
microchips (including systems and equipment under PPL's control that are
supplied by others), and testing of all such systems and equipment, such that
PP&L expects that its computer and management information systems will be
sufficient to permit PPL to conduct its business without material adverse effect
on its ability to perform its obligations hereunder. The cost to PPL of such
reprogramming and testing is not expected to have a material adverse effect on
its ability to perform its obligations hereunder.
SECTION 7.B Representations and Warranties of Finance Co. and
-------------------------------------------------
Resources.
- ---------
In order to induce the Banks and the Fronting Bank to enter into this
Agreement and to make the Loans to Finance Co. and issue the Letters of Credit
for the account of Finance Co., in each case as provided for herein, each of
Finance Co. and Resources makes the following representations and warranties to
the Banks and the Fronting Bank:
7.1B Corporate Status. Resources is duly incorporated, validly
----------------
existing and in good standing under the laws of the Commonwealth of
Pennsylvania, and has the corporate power to make and perform this Agreement,
and Finance Co. is duly incorporated, validly existing and in good standing
under the laws of the State of Delaware, and has the corporate power to make and
perform this Agreement and to borrow hereunder.
<PAGE>
39
7.2B Authority; No Conflict. The making and performance by Resources
----------------------
and Finance Co. of this Agreement have been duly authorized by all necessary
corporate action and do not and will not violate any provision of law or
regulation, or any decree, order, writ or judgment, or any provision of its
charter or by-laws, or result in the breach of or constitute a default under any
indenture or other agreement or instrument to which Resources or Finance Co., as
the case may be, is a party.
7.3B Legality, Etc. This Agreement constitutes the legal, valid and
--------------
binding obligation of each of Resources and Finance Co., enforceable against
Resources or Finance Co., as the case may be, in accordance with its terms
except to the extent limited by bankruptcy, insolvency or reorganization laws or
by other laws relating to or affecting the enforceability of creditors' rights
generally and by general equitable principles which may limit the right to
obtain equitable remedies.
7.4B Financial Statements. The consolidated financial statements of
--------------------
Resources for the year ended as at December 31, 1998, furnished to the Banks,
fairly present Resources' consolidated financial position at December 31, 1998
and the results of its consolidated operations for the year then ended and were
prepared in accordance with GAAP. Since that date there has been no adverse
change in the business, assets, financial condition or operations of Resources
that would materially and adversely affect its ability to perform any of its
obligations hereunder.
7.5B Litigation. Except as disclosed in or contemplated by
----------
Resources's Form 10-K Report to the SEC for the year ended December 31, 1998, or
in any subsequent Form 10-Q Report or otherwise furnished in writing to the
Banks, no litigation, arbitration or administrative proceeding against Resources
or Finance Co. is pending or, to Resources' knowledge, threatened, which, if
determined adversely, would materially and adversely affect the ability of
Resources to perform any of its obligations under this Agreement. There is no
litigation, arbitration or administrative proceeding pending or, to the
knowledge of Resources, threatened which questions the validity of this
Agreement.
7.6B No Violation. No part of the proceeds of the borrowings by
------------
Finance Co. under this Agreement or of any Letter of Credit issued for its
account will be used,
<PAGE>
40
directly or indirectly by Finance Co. or any Subsidiary of Resources for the
purpose of purchasing or carrying any "margin stock" within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System, or for any
other purpose which violates, or which conflicts with, the provisions of
Regulation U or X of said Board of Governors. Neither Resources nor Finance Co.
is engaged principally, or as one of its important activities, in the business
of extending credit for the purpose of purchasing or carrying any such "margin
stock."
7.7B ERISA. There have not been any "reportable events," as that
-----
term is defined in Section 4043 of the Employee Retirement Income Security Act
of 1974, as amended, which would result in a material liability to Resources.
7.8B Consents. No authorization, consent or approval from
--------
governmental bodies or regulatory authorities is required for the making and
performance by Resource or Finance Co. of this Agreement, except such
authorizations, consents and approvals as have been obtained prior to the making
of any Loans or the issuance of any Letters of Credit and are in full force and
effect at the time of the making of each Loan and the issuance of each Letter of
Credit.
7.9B Investment Company Act. Neither Resources nor Finance Co. is an
----------------------
"investment company" that is required to be registered under the Investment
Company Act of 1940, as amended, in order not to be subject to the prohibitions
of Section 7 of such Act.
7.10B Public Utility Holding Company Act. Resources is a "holding
----------------------------------
company" within the meaning of the Public Utility Holding Company Act of 1935,
as amended, but is exempt from such Act (except for the provisions of Section
9(a)(2) thereof) by virtue of an order of the SEC pursuant to Section 3(a)(1)
thereof. Finance Co. is not a "holding company" within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
7.11B Tax Returns. Resources and Finance Co. have filed or caused to
-----------
be filed all Federal, state, local and foreign tax returns or materials required
to have been filed by it and has paid or caused to be paid all taxes due and
payable by it and all assessments received by it, except taxes that are being
contested in good faith by appropriate proceedings and for which Resources shall
have set aside on
<PAGE>
41
its books appropriate reserves with respect thereto in accordance with GAAP.
7.12B Compliance with Laws. Each of Resources and Finance Co. is in
--------------------
compliance with all laws, regulations and orders of any governmental authority
except to the extent (A) such compliance is being contested in good faith by
appropriate proceedings or (B) non-compliance would not reasonably be expected
to materially and adversely affect its ability to perform any of its obligations
hereunder.
7.13B Year 2000. Resources has planned and commenced reprogramming
---------
to permit the proper performance of date-sensitive functions in and following
the year 2000 by (i) Resources' computer systems and (ii) equipment containing
embedded microchips (including systems and equipment under Resources' control
that are supplied by others), and testing of all such systems and equipment,
such that Resources expects that its computer and management information systems
will be sufficient to permit Resources to conduct its business without material
adverse effect on its ability to perform its obligations hereunder. The cost to
Resources of such reprogramming and testing is not expected to have a material
adverse effect on its ability to perform its obligations hereunder.
SECTION 8. Agent.
-----
8.1 Appointment. The Banks hereby appoint First Union National Bank
-----------
as Agent (such term to include Agent acting as Agent) to act as herein
specified. Each Bank and the Fronting Bank hereby irrevocably authorizes, and
each assignee of any Bank or the Fronting Bank shall be deemed irrevocably to
authorize, the Agent to take such action on their behalf under the provisions of
this Agreement and any instruments, documents and agreements referred to herein
(such instruments, documents and agreements being herein referred to as the
"Loan Documents") and to exercise such powers hereunder and thereunder as are
specifically delegated to the Agent by the terms hereof and thereof and such
other powers as are reasonably incidental thereto. The Agent may perform any of
its duties hereunder, or under the Loan Documents, by or through its agents or
employees.
8.2 Nature of Duties. The duties of the Agent shall be mechanical
----------------
and administrative in nature. The Agent shall not have by reason of this
Agreement a fiduciary
<PAGE>
42
relationship in respect of any Bank or of the Fronting Bank. Nothing in this
Agreement or any of the Loan Documents, expressed or implied, is intended to or
shall be so construed as to impose upon the Agent any obligations in respect of
this Agreement or any of the Loan Documents except as expressly set forth
herein. Each Bank and the Fronting Bank shall make its own independent
investigation of the financial condition and affairs of PPL, Finance Co. and
Resources and each of their Subsidiaries in connection with the making and the
continuance of the Loans and the issuance of Letters of Credit hereunder and
shall make its own appraisal of the creditworthiness of PPL, Resources and
Finance Co.; and the Agent shall have no duty or responsibility, either
initially or on a continuing basis, to provide any Bank or the Fronting Bank
with any credit or other information with respect thereto, whether coming into
its possession before the making of the Loans or the issuance of Letters of
Credit or at any time or times thereafter. The Agent may execute any of its
duties under this Agreement or any other Loan Document by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible to any
Bank or the Fronting Bank for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care except to the extent
otherwise required by (S) 8.3.
8.3 Rights, Exculpation, Etc. Neither the Agent nor any of its
------------------------
officers, directors, employees, agents, attorneys-in-fact or affiliates shall be
liable to any Bank or to the Fronting Bank for any action taken or omitted by it
hereunder or under any of the Loan Documents, or in connection herewith or
therewith, unless caused by its or their gross negligence or willful misconduct.
The Agent shall not be responsible to any Bank or to the Fronting Bank for any
recitals, statements, representations or warranties herein or for the execution,
effectiveness, genuineness, validity, enforceability, collectibility, or
sufficiency of this Agreement or any of the Loan Documents or the financial
condition of PPL, Finance Co. or Resources. The Agent shall not be required to
make any inquiry concerning either the performance or observance of any of the
terms, provisions or conditions of this Agreement or any of the Loan Documents
or the financial condition of PPL, Finance Co. or Resources, or the existence or
possible existence of any Default or Event of Default. The Agent may at any time
request instructions from the Banks with respect to any actions or approvals
<PAGE>
43
which by the terms of this Agreement or any of the Loan Documents the Agent is
permitted or required to take or to grant, and if such instructions are
requested, the Agent shall be absolutely entitled to refrain from taking any
action or to withhold any approval and shall not be under any liability
whatsoever to any Person for refraining from any action or withholding any
approval under this Agreement or any of the Loan Documents until it shall have
received such instructions from the Required Banks or all Banks, as required.
Without limiting the foregoing, no Bank shall have any right of action
whatsoever against the Agent as a result of the Agent acting or refraining from
acting hereunder or under any of the Loan Documents in accordance with the
instructions of the Required Banks or all Banks, as required.
8.4 Reliance. The Agent shall be entitled to rely upon any written
--------
notice, statement, certificate, order or other document or any telephone message
believed by it to be genuine and correct and to have been signed, sent or made
by the proper Person, and, with respect to all legal matters pertaining to this
Agreement or any of the Loan Documents and its duties hereunder or thereunder,
upon advice of counsel selected by it.
8.5 Indemnification. To the extent that the Agent is not reimbursed
---------------
and indemnified by PPL, Resources or Finance Co., the Banks will reimburse and
indemnify the Agent for and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by, or asserted against the Agent, acting pursuant hereto, in any way relating
to or arising out of this Agreement or any of the Loan Documents or any action
taken or omitted by the Agent under this Agreement or any of the Loan Documents,
in proportion to their respective Commitments hereunder; provided, however, that
-------- -------
no Bank shall be liable for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the Agent's gross negligence or wilful misconduct.
The obligations of the Banks under this (S) 8.5 shall survive the payment in
full of outstanding Loans, the expiration of any Letter of Credit and the
termination of this Agreement.
<PAGE>
44
8.6 The Agent, Individually. With respect to its Commitment
-----------------------
hereunder and the Loans made by it, the Agent shall have and may exercise the
same rights and powers hereunder and is subject to the same obligations and
liabilities as and to the extent set forth herein for any other Bank. The terms
"Banks," "Required Banks" or any similar terms shall, unless the context clearly
otherwise indicates, include the Agent in its individual capacity as a Bank or
one of the Required Banks. The Agent may accept deposits from, lend money to,
and generally engage in any kind of banking, trust or other business with PPL,
Finance Co. or Resources as if it were not acting pursuant hereto.
8.7 Resignation by the Agent. The Agent may resign from the
------------------------
performance of all its functions and duties hereunder at any time by giving 30
Business Days' prior written notice to each Borrower, Resources and the Banks.
Such resignation shall take effect upon the expiration of such 30 Business Day
period or upon the earlier appointment of a successor. Upon any such
resignation, the Required Banks shall appoint a successor Agent who shall be
satisfactory to the Borrowers and Resources and shall be an incorporated bank or
trust company. In the event no such successor shall have been so appointed, then
any notification, demand or other communication required or permitted to be
given by the Agent on behalf of the Banks to the Borrowers hereunder shall be
sufficiently given if given by the Required Banks, and any notification, demand,
other communication, document, statement, other paper or payment required to be
made, given or furnished by PPL, Finance Co. or Resources to the Agent for
distribution to the Banks shall be sufficiently made, given or furnished if
made, given or furnished by PPL, Finance Co. or Resources, as applicable,
directly to each Bank entitled thereto and, in the case of payments, in the
amount to which each such Bank is entitled from the applicable Borrower. All
powers specifically delegated to the Agent by the terms hereof may be exercised
by the Required Banks.
SECTION 9. Resources Guarantee.
-------------------
In order to induce the Banks to extend credit hereunder to Finance
Co., Resources hereby irrevocably and unconditionally guarantees, as primary
obligor and not merely as a surety, the Finance Co. Obligations. Resources
further agrees that the due and punctual payment of the
<PAGE>
45
Finance Co. Obligations may be extended or renewed, in whole or in part, without
notice to or further assent from it, and that it will remain bound upon its
Guarantee hereunder notwithstanding any such extension or renewal of any Finance
Co. Obligation.
Resources waives presentment to, demand of payment from and protest to
Finance Co. of any of the Finance Co. Obligations, and also waives notice of
acceptance of its obligations and notice of protest for nonpayment. The
obligations of Resources hereunder shall not be affected by (a) the failure of
any Bank or the Agent to assert any claim or demand or to enforce any right or
remedy against Finance Co. under the provisions of this Agreement or otherwise,
(b) change or increase in the amount of any of the Finance Co. Obligations,
whether or not consented to by Resources, or (c) any rescission, waiver,
amendment or modification of any of the terms or provisions of this Agreement or
any other agreement.
Resources further agrees that its agreement hereunder constitutes a
promise of payment when due (whether or not any bankruptcy or similar proceeding
shall have stayed the accrual or collection of any of the Finance Co.
Obligations or operated as a discharge thereof) and not merely of collection,
and waives any right to require that any resort be had by any Bank to any
balance of any deposit account or credit on the books of any Bank in favor of
any other person.
The obligations of Resources hereunder shall not be subject to any
reduction, limitation, impairment or termination for any reason, and shall not
be subject to any defense or setoff, counterclaim, recoupment or termination
whatsoever, by reason of the invalidity, illegality or unenforceability of the
Finance Co. Obligations, any impossibility in the performance of the Finance Co.
Obligations or otherwise. Without limiting the generality of the foregoing, the
obligations of Resources hereunder shall not be discharged or impaired or
otherwise affected by the failure of the Agent or any Bank to assert any claim
or demand or to enforce any remedy under this Agreement or any other agreement,
by any waiver or modification in respect of any thereof, by any default, failure
or delay, willful or otherwise, in the performance of the Finance Co.
Obligations, or by any other act or omission which may or might in any manner or
to any extent vary the risk of
<PAGE>
46
Resources or otherwise operate as a discharge of Resources or Finance Co. as a
matter of law or equity.
Resources further agrees that its obligations hereunder shall continue
to be effective or be reinstated, as the case may be, if at any time payment, or
any part thereof, of any Finance Co. Obligation is rescinded or must otherwise
be restored by the Agent or any Bank upon the bankruptcy or reorganization of
Finance Co or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which the Agent or any Bank may have at law or in equity against Resources
by virtue hereof, upon the failure of Finance Co. to pay any Finance Co.
Obligation when and as the same shall become due, whether at maturity, by
acceleration, after notice of prepayment or otherwise, Resources hereby promises
to and will, upon receipt of written demand by the Agent, forthwith pay, or
cause to be paid, in cash the amount of such unpaid Finance Co. Obligation.
Upon payment by Resources of any Finance Co. Obligation, each Bank
shall, in a reasonable manner, assign the amount of such Finance Co. Obligation
owed to it and so paid to Resources, such assignment to be pro tanto to the
--- -----
extent to which the Finance Co. Obligation in question was discharged by
Resources, or make such disposition thereof as Resources shall direct (all
without recourse to any Bank and without any representation or warranty by any
Bank).
Upon payment by Resources of any sums as provided above, all rights of
Resources against Finance Co. arising as a result thereof by way of right of
subrogation or otherwise shall in all respects be subordinate and junior in
right of payment to the prior indefeasible payment in full of all the Finance
Co. Obligations owed by Finance Co. to the Banks.
SECTION 10. Miscellaneous.
-------------
10.1 Definitions. As used herein the following terms shall have the
-----------
meanings herein specified and shall include in the singular number the plural
and in the plural number the singular:
"Affected Bank" shall have the meaning assigned that term in (S)
-------------
2.5(c).
<PAGE>
47
"Agent" shall mean First Union National Bank and shall include (i) any
-----
successor corporation thereto by merger, consolidation or otherwise and (ii) any
successor to the Agent appointed pursuant to (S) 8.7.
"Aggregate Credit Exposure" shall mean the aggregate amount of the
-------------------------
Banks' Credit Exposures.
"Agreement" shall mean this Revolving Credit Agreement, as it may from
---------
time to time be amended, supplemented or otherwise modified.
"Applicable Commitment Fee Percentage" shall mean for the Borrowers,
------------------------------------
the percentage specified as such in the table in the definition of "Applicable
Rate" opposite the highest rating category in which PPL's First Mortgage Bonds
are assigned a rating by either of Moody's or S&P.
"Applicable Eurodollar Margin" shall mean (i) for PPL, the margin
----------------------------
specified as such in the table in the definition of "Applicable Rate" opposite
the highest rating category in which PPL's First Mortgage Bonds are assigned
ratings by either of Moody's or S&P or (ii) for Finance Co., the margin
specified as such in the table in the definition of "Applicable Rate" opposite
the highest rating category in which Resources' senior unsecured debt is
assigned ratings by either of Moody's or S&P.
"Applicable Lending Office" shall mean, with respect to each Bank, (i)
-------------------------
such Bank's Base Rate Lending Office in the case of a Base Rate Loan and (ii)
such Bank's Eurodollar Lending Office in the case of a Eurodollar Rate Loan.
"Applicable Percentage" of any Bank at any time shall mean the
---------------------
percentage of the Total Commitment represented by such Bank's Commitment. In the
event the Commitments shall have expired or been terminated, the Applicable
Percentages shall be determined on the basis of the Commitments most recently in
effect, but giving effect to assignments pursuant to (S) 10.6.
"Applicable Rate" shall mean and include the Applicable Commitment Fee
---------------
Percentage for undrawn Commitments or Applicable Eurodollar Margin for any Loans
or issued Letters of Credit and at any time will be determined based
<PAGE>
48
on the highest applicable Category set forth below (the highest category
being Category A).
<TABLE>
<CAPTION>
====================================================================
Criteria Ratings Applicable Applicable
(S&P/Moody's) Commitment Fee Eurodollar
Percentage Margin
====================================================================
<S> <C> <C> <C>
Category A: A- or better/ .080% .400%
A3 or better
====================================================================
Category B: BBB+/Baa1 .100% .450%
====================================================================
Category C: BBB/Baa2 .125% .500%
====================================================================
Category D: BBB-/Baa3 .150% .600%
====================================================================
Category E: BB+ or below/ .200% .750%
Ba1 or below
====================================================================
</TABLE>
"Applicable Utilization Fee" shall mean on any day (i) for PPL, the
--------------------------
applicable percentage specified as such in the table set forth below
corresponding to (a) the percentage of the Total Commitments represented by the
aggregate outstanding Loans and L/C exposures on such day and (b) the highest
rating category in which PPL's First Mortgage Bonds are assigned ratings by
either of Moody's or S&P or (ii) for Finance Co., the applicable percentage
specified as such in the table set forth below corresponding to (a) the
percentage of the Total Commitments represented by the aggregate outstanding
Loans and L/C Exposures on such day and (b) the highest rating category in which
Resources' senior unsecured debt is assigned ratings by either of Moody's or
S&P:
<PAGE>
49
<TABLE>
<CAPTION>
===========================================================================================
Ratings Usage > 25% and Usage > 75% of Total
(S&P/Moody's) 75% of Total Commitments Commitments
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Category A A- or better/ .100% .200%
A3 or better
- -------------------------------------------------------------------------------------------
Category B BBB+ / Baa1 .125% .250%
- -------------------------------------------------------------------------------------------
Category C BBB / Baa2 .150% .300%
- -------------------------------------------------------------------------------------------
Category D BBB- / Baa3 .250% .500%
- -------------------------------------------------------------------------------------------
Category E BB+ or below/ .250% .500%
Ba1 or below
===========================================================================================
</TABLE>
"Bank" shall mean each Person listed on Schedule I hereto and any
----
other Person that shall have become a party hereto as a result of an assignment
pursuant to Section 10.6(b)(A) hereto, other than any such Person that ceases to
be a party hereto as a result of an assignment pursuant to Section 10.6(b)(A)
hereto.
"Bankruptcy Code" shall have the meaning assigned that term in (S)
---------------
6.5A.
"Base Rate" shall mean, for any day, a rate per annum equal to the
---------
higher of (i) the Prime Rate and (ii) 1/2 of 1% plus the Federal Funds Rate,
each as in effect from time to time.
"Base Rate Lending Office" means, with respect to each Bank, the
------------------------
office of such Bank specified as its "Base Rate Lending Office" on the signature
pages to the Agreement or such other office of such Bank as such Bank may from
time to time specify as such to the Borrowers and the Agent.
<PAGE>
50
"Base Rate Loan" shall mean any Loan during any period during which
--------------
such Loan is bearing interest at the rates provided for in (S) 2.1(a).
"Borrower" shall mean either PPL or Finance Co. and "Borrowers" shall
-------- ---------
mean PPL and Finance Co.
"Borrowing" shall mean the incurrence of one Type of Loan to a
---------
Borrower from all the Banks on a given date, all of which Eurodollar Loans shall
have the same Interest Period, pursuant to (S) 1.2; provided, however, that
-------- -------
Loans to a Borrower of a different Type extended by one or more Banks pursuant
to (S) 2.5(b) shall be considered a part of the related Borrowing.
"Business Day" shall mean (i) for all purposes other than as covered
------------
by clause (ii) below, any day excluding Saturday, Sunday and any day on which
banks in New York City are authorized by law or other governmental actions to
close and (ii) with respect to all notices and determinations in connection
with, and payments of principal and interest on, Eurodollar Loans, any day which
is a Business Day described in clause (i) and which is also a day for trading by
and between banks in U.S. dollar deposits in the London interbank Eurodollar
market.
"Capital Lease Obligations" of any person shall mean obligations of
-------------------------
such person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such person under GAAP,
and the amount of such obligations shall be the capitalized amount thereof
determined in accordance with GAAP.
"Closing Date" shall mean the date of this Agreement.
------------
"Commitment", for each Bank, shall mean the amount specified opposite
----------
its name on Schedule I hereto or in the assignment pursuant to which such Bank
shall have assumed its Commitment, as applicable, such Commitment to be reduced
by the amount of any reduction thereto effected pursuant to (S) 1.7, (S) 6
and/or (S) 10.6(b)(A).
<PAGE>
51
"Commitment Fee" shall have the meaning assigned that term in (S)
--------------
1.6(a).
"Consolidated Capitalization of PPL" shall mean the sum of (A) the
----------------------------------
Consolidated Indebtedness of PPL and (B)(i) the consolidated shareowners' equity
(determined in accordance with GAAP) of the common, preference and preferred
stockholders of PPL and (ii) the aggregate amount of Hybrid Preferred Securities
of PPL, except that for purposes of calculating Consolidated Capitalization of
PPL, Consolidated Indebtedness of PPL shall exclude Non-Recourse Indebtedness of
PPL and Consolidated Capitalization of PPL shall exclude that portion of
shareholder equity attributable to assets securing Non-Recourse Indebtedness of
PPL.
"Consolidated Capitalization of Resources" shall mean the sum of (A)
----------------------------------------
the Consolidated Indebtedness of Resources and (B)(i) the consolidated
shareowners' equity (determined in accordance with GAAP) of the common,
preference and preferred stockholders of Resources and (ii) the aggregate amount
of Hybrid Preferred Securities of Resources, except that for purposes of
calculating Consolidated Capitalization of Resources, Consolidated Indebtedness
of Resources shall exclude Non-Recourse Indebtedness of Resources and
Consolidated Capitalization of Resources shall exclude that portion of
shareholder equity attributable to assets securing Non-Recourse Indebtedness of
Resources.
"Consolidated Indebtedness of PPL" shall mean the consolidated
--------------------------------
Indebtedness of PPL (determined in accordance with GAAP), except that for
purposes of this definition (1) Consolidated Indebtedness of PPL shall exclude
Non-Recourse Indebtedness of PPL and (2) Consolidated Indebtedness of PPL shall
exclude any Hybrid Preferred Securities of PPL.
"Consolidated Indebtedness of Resources" shall mean the consolidated
--------------------------------------
Indebtedness of Resources (determined in accordance with GAAP), except that for
purposes of this definition (1) Consolidated Indebtedness of Resources shall
exclude Non-Recourse Indebtedness of Resources and (2) Consolidated Indebtedness
of Resources shall exclude any Hybrid Preferred Securities of Resources.
"Credit Exposure", for each Bank at any time, shall mean the aggregate
---------------
principal amount at such time of
<PAGE>
52
all outstanding Loans of such Bank to the Borrowers plus the aggregate amount at
----
such time of such Bank's L/C Exposure.
"Default" with respect to a Borrower, shall mean any event, act or
-------
condition which with notice or lapse of time or both would constitute an Event
of Default with respect to that Borrower.
"Eligible Transferee" shall mean and include a commercial bank,
-------------------
financial institution or other "accredited investor" (as defined in SEC
Regulation D).
"Eurodollar Lending Office" shall mean, with respect to each Bank, the
-------------------------
office of such Bank specified as its "Eurodollar Lending Office" on the
signature pages to the Agreement or such other office of such Bank as such Bank
may from time to time specify as such to the Borrowers and the Agent.
"Eurodollar Loan" shall mean any loan during any period during which
---------------
such Loan is bearing interest at the rates provided for in (S) 2.1(b).
"Event of Default" shall mean with respect to PPL each of the Events
----------------
of Default specified in (S) 6A and with respect to Finance Co., each of the
Events of Default specified in (S) 6B.
"Existing Credit Agreement" shall mean the Amended and Restated 364-
-------------------------
Day Revolving Credit Agreement dated as of November 20, 1997, as amended and
restated as of November 19, 1998, among PP&L and Finance Co., as Borrowers;
Resources, as guarantor of the obligations of Finance Co. thereunder; the banks
party thereto; THE CHASE MANHATTAN BANK, as fronting bank and as administrative
agent for the banks party thereto to the extent and in the manner provided in
(S) 8 thereto; and CITIBANK, N.A., as documentation agent.
"Expiry Date" shall mean the date 364 days from the date hereof
-----------
subject to extension pursuant to Section 2.6.
"Extension Letter" shall mean a letter from the Borrowers requesting
----------------
an extension of the Expiry Date substantially in the form of Exhibit C hereto.
<PAGE>
53
"Federal Funds Rate" shall mean for any day, a fluctuating interest
------------------
rate equal for each day during such period to the weighted average of the rates
on overnight Federal Funds transactions with members of the Federal Reserve
System arranged by Federal Funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal Funds brokers of
recognized standing selected by the Agent.
"Finance Co." shall have the meaning assigned that term in the first
-----------
paragraph of this Agreement.
"Finance Co. Obligations" shall mean all obligations of Finance Co.
-----------------------
under this Agreement to pay (i) the principal of and interest on the Loans and
LC Disbursements when and as due, whether at maturity, by acceleration, upon one
or more dates set for prepayment or otherwise, and (ii) all other payment
obligations of Finance Co. hereunder.
"First Mortgagee Bonds" shall mean the first mortgage bonds issued by
---------------------
PPL pursuant to its Mortgage and Deed of Trust dated as of October 1, 1945, as
supplemented.
"GAAP" shall mean United States generally accepted accounting
----
principles applied on a consistent basis.
"Guarantee" of or by any person shall mean any obligation, contingent
---------
or otherwise, of such person guaranteeing or having the economic effect of
guaranteeing any Indebtedness of any other person (the "primary obligor") in any
---------------
manner, whether directly or indirectly, and including any obligation of such
person, direct or indirect, (a) to purchase or pay (or advance or supply funds
for the purchase or payment of) such Indebtedness or to purchase (or to advance
or supply funds for the purchase of) any security for payment of such
Indebtedness, (b) to purchase or lease property, securities or services for the
purpose of assuring the owner of such Indebtedness of the payment of such
Indebtedness or (c) to maintain working capital, equity capital or any other
financial statement condition or liquidity of the primary obligor so as to
enable the primary obligor to pay such Indebtedness; provided, however, that
-------- -------
<PAGE>
54
the term Guarantee shall not include endorsements for collection or deposit in
the ordinary course of business.
"Hybrid Preferred Securities of PPL" means (1) the preferred
----------------------------------
securities and subordinated debt described in the Prospectus dated as of April
3, 1997 of PP&L Capital Trust and PPL and the preferred securities and
subordinated debt described in the Prospectus dated as of June 9, 1997 of PP&L
Capital Trust II and PPL (collectively, the "Existing TOPrS") and (2) any
additional preferred securities and subordinated debt (with a maturity of at
least twenty years) similar to the Existing TOPrS and in an aggregate amount not
to exceed $100,000,000, issued by business trusts, limited liability companies,
limited partnerships (or similar entities) (i) all of the common equity, general
partner or similar interests of which are owned (either directly or indirectly
through one or more wholly-owned Subsidiaries) at all times by PPL, (ii) that
have been formed for the purpose of issuing hybrid preferred securities and
(iii) substantially all the assets of which consist of (A) subordinated debt of
PPL or a Subsidiary of PPL, as the case may be, and (B) payments made from time
to time on the subordinated debt.
"Hybrid Preferred Securities of Resources" means (1) the preferred
----------------------------------------
securities and subordinated debt described in the Prospectus dated as of April
3, 1997 of PP&L Capital Trust and PPL and the preferred securities and
subordinated debt described in the Prospectus dated as of June 9, 1997 of PP&L
Capital Trust II and PPL (collectively, the "Existing TOPrS") and (2) any
additional preferred securities and subordinated debt (with a maturity of at
least twenty years) similar to the Existing TOPrS and in an aggregate amount not
to exceed $100,000,000, issued by business trusts, limited liability companies,
limited partnerships (or similar entities) (i) all of the common equity, general
partner or similar interests of which are owned (either directly or indirectly
through one or more wholly-owned Subsidiaries) at all times by Resources or PPL,
(ii) that have been formed for the purpose of issuing hybrid preferred
securities and (iii) substantially all the assets of which consist of (A)
subordinated debt of Resources or a Subsidiary of Resources, as the case may be,
and (B) payments made from time to time on the subordinated debt.
"Indebtedness" of any person shall mean, without duplication, (a) all
------------
obligations of such person for borrowed
<PAGE>
55
money, (b) all obligations of such person with respect to deposits or advances
of any kind, (c) all obligations of such person evidenced by bonds, debentures,
notes or similar instruments, (d) all obligations of such person under
conditional sale or other title retention agreements relating to property or
assets purchased by such person, (e) all obligations of such person issued or
assumed as the deferred purchase price of property or services (excluding trade
accounts payable and accrued obligations incurred in the ordinary course of
business), (f) all Indebtedness of others secured by (or for which the holder of
such Indebtedness has an existing right, contingent or otherwise, to be secured
by) any Lien or property owned or acquired by such person, whether or not the
obligations secured thereby have been assumed but shall not include any
obligations that are without recourse to such person, (g) all Guarantees by such
person of Indebtedness of others, (h) all Capital Lease Obligations of such
person, (i) all obligations of such person in respect of Interest Rate
Protection Agreements, foreign currency exchange agreements or other interest or
exchange rate hedging arrangements (the amount of any such obligation to be the
net amount that would be payable upon the acceleration, termination or
liquidation thereof) and (j) all obligations of such person as an account party
in respect of letters of credit and bankers' acceptances.
"Interest Period" shall mean (a) as to any Eurodollar Loan, the
---------------
period commencing on the date of such Loan or on the last day of the most recent
Interest Period applicable thereto and ending on the numerically corresponding
day (or, if there is no numerically corresponding day, on the last day) in the
calendar month that is 1, 2, 3 or 6 months thereafter, as the applicable
Borrower may elect in a Notice of Borrowing or Notice of Conversion and (b) as
to any Base Rate Loan, the period commencing on the date of such Loan and ending
on the date 90 days thereafter or, if earlier, on the Expiry Date or the date of
prepayment of such Loan. If any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day, provided that if any Interest Period applicable to a
--------
Borrowing of Eurodollar Loans would otherwise expire on a day which is not a
Business Day but is a day of the month after which no further Business Day
occurs in such month, such Interest Period shall expire on the next preceding
Business Day.
<PAGE>
56
"Interest Rate Protection Agreement" shall mean any agreement
----------------------------------
providing for an interest rate swap, cap or collar, or for any other financial
arrangement designed to protect against fluctuations in interest rates.
"L/C Commitment" shall mean the commitment of the Fronting Bank to
--------------
issue Letters of Credit pursuant to (S) 1A.
"L/C Disbursement" shall mean a payment or disbursement made by the
----------------
Fronting Bank pursuant to a Letter of Credit.
"L/C Exposure" shall mean at any time the sum of (a) the aggregate
------------
undrawn amount of all outstanding Letters of Credit at such time plus (b) the
----
aggregate principal amount of all L/C Disbursements that have not yet been
reimbursed at such time. The L/C Exposure of any Bank at any time shall mean
its Applicable Percentage of the aggregate L/C Exposure at such time.
"L/C Participation Fee" shall have the meaning assigned to such term
---------------------
in (S) 1.6(b).
"Letter of Credit" shall mean any letter of credit issued pursuant to
----------------
(S) 1A.
"Lien" shall mean, with respect to any asset, (a) any mortgage, deed
----
of trust, lien, pledge, encumbrance, charge or security interest in or on such
asset, (b) the interest of a vender or a lessor under any conditional sale
agreement, capital lease or title retention agreement (or any financing lease
having substantially the same economic effect as any of the foregoing) relating
to such asset and (c) in the case of securities, any purchase option, call or
similar right of a third party with respect to such securities.
"Loan" shall have the meaning assigned that term in (S) 1.1.
----
"Loan Documents" shall have the meaning assigned that term in (S) 8.1.
--------------
"Moody's" shall mean Moody's Investors Service, Inc. or any successor
-------
thereto.
<PAGE>
57
"Non-Recourse Indebtedness of PPL" shall mean (a) indebtedness that is
--------------------------------
nonrecourse to PPL or any of its Subsidiaries and (b) any transition bonds
issued by PP&L Transition Bond Company LLC, a subsidiary of PPL, or any similar
special purpose company organized for the purpose of issuing bonds payable from
revenues associated with intangible transition property created under the
Pennsylvania Electricity Generation Customer Choice and Competition Act or other
assets of PP&L Transition Bond Company LLC or any such other special purpose
company, provided that (i) such bonds are nonrecourse to PPL or any of its
--------
subsidiaries (other than PP&L Transition Bond Company LLC or any such other
special purpose company) and (ii) the aggregate amount of such transition bonds
shall not exceed $2,850,000,000.
"Non-Recourse Indebtedness of Resources" shall mean (a) indebtedness
--------------------------------------
that is nonrecourse to Resources, either Borrower or any of PPL's Subsidiaries
and (b) any transition bonds issued by PP&L Transition Bond Company LLC, a
subsidiary of PPL, or any similar special purpose company organized for the
purpose of issuing bonds payable from revenues associated with intangible
transition property created under the Pennsylvania Electricity Generation
Customer Choice and Competition Act or other assets of PP&L Transition Bond
Company LLC or any such other special purpose company, provided that (i) such
--------
bonds are nonrecourse to PPL or any of its subsidiaries (other than PP&L
Transition Bond Company LLC or any such other special purpose company) and (ii)
the aggregate amount of such transition bonds shall not exceed $2,850,000,000.
"Notice of Borrowing" shall have the meaning assigned that term in (S)
-------------------
1.2.
"Notice of Conversion" shall have the meaning assigned that term in
--------------------
(S) 2.4(a).
"Payment Office" shall mean the office of the Agent located at 301
--------------
South College Street, Charlotte, North Carolina 28288-0735, or such other
office as the Agent may hereafter designate in writing as such to the other
parties hereto.
"Permitted Liens" shall mean (a) Liens for taxes, assessments or
---------------
governmental charges or levies to the extent not past due, or which are being
contested in good faith in appropriate proceedings for which Resources has
provided
<PAGE>
58
appropriate reserves for the payment thereof in accordance with GAAP; (b)
pledges or deposits in the ordinary course of business to secure obligations
under worker's compensation laws or similar legislation; (c) other pledges or
deposits in the ordinary course of business (other than for borrowed monies)
that, in the aggregate, are not material to Resources; (d) Liens imposed by law
such as materialmen's, mechanics', carriers', workers' and repairmen's Liens and
other similar Liens arising in the ordinary course of business for sums not yet
due or currently being contested in good faith by appropriate proceedings; (e)
attachment, judgment or other similar Liens arising in connection with court
proceedings, provided that such Liens, in the aggregate, shall not exceed
$50,000,000 at any one time outstanding, and (f) other Liens not otherwise
referred to in the foregoing clauses (a) through (e) above, provided that such
other Liens do not secure at any time obligations in an aggregate amount in
excess of $100,000,000 at any time outstanding.
"Persons" shall mean and include any individual, firm, corporation,
-------
association, trust or other enterprise or any governmental or political
subdivision or agency, department or instrument thereof.
"PPL" shall have the meaning assigned that term in the first paragraph
---
of this Agreement.
"Prime Rate" shall mean the rate which First Union National Bank
----------
announces from time to time as its prime lending rate, such Prime Rate to change
when and as such prime lending rate changes. The Prime Rate is a reference rate
and does not necessarily represent the lowest or best rate actually charged to
any customer. First Union National Bank may make commercial loans or other
loans at rates of interest at, above or below the Prime Rate.
"Quoted Rate" shall mean, with respect to any Eurodollar Loan for any
-----------
Interest Period, the rate appearing on Page 3750 of the Telerate Service (or on
any successor or substitute page of such Service, or any successor to or
substitute for such Service, providing rate quotations comparable to those
currently provided on such page of such Service, as determined by the Agent from
time to time for purposes of providing quotations of interest rates applicable
to dollar deposits in the London interbank market) at approximately 11:00 A.M.
(London time) 2 Business
<PAGE>
59
Days prior to the commencement of such Interest Period, as the rate for dollar
deposits with a maturity comparable to such Interest Period. In the event that
such rate is not available at such time for any reason, then the "Quoted Rate"
-----------
with respect to such Eurodollar Loan for such Interest Period shall be the rate
at which dollar deposits of $5,000,000 and for a maturity comparable to such
Interest Period are offered by the principal London office of the Agent in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of such
Interest Period.
"Register" shall have the meaning provided in 1.4(b).
--------
"Regulation D" shall mean Regulation D of the Board of Governors of
------------
the Federal Reserve System as from time to time in effect or any successor to
all or a portion thereof establishing reserve requirements.
"Required Banks" shall mean Banks having Loans the outstanding
--------------
principal amount of which aggregate (or, if no Loans are outstanding, Banks with
Commitments aggregating) at least the majority of the aggregate outstanding
principal amount of all Loans (or of the Total Commitment).
"Resources" shall have the meaning assigned that term in the first
---------
paragraph of this Agreement.
"SEC" shall have the meaning assigned that term in (S) 5.1A(c).
---
"SEC Regulation D" shall mean Regulation D as promulgated under the
----------------
Securities Act of 1933, as amended, as the same may be in effect from time to
time."
"S&P" shall mean Standard & Poor's Ratings Group or any successor
---
thereto.
"Subsidiary" shall mean any company, partnership, association or other
----------
business entity in which any Person and its Subsidiaries now have or may
hereafter acquire an aggregate of at least 50% of the voting stock or ownership
interests.
<PAGE>
60
"Taxes" shall have the meaning assigned that term in (S) 3.4.
-----
"Total Commitment" shall mean the aggregate of all the Commitments of
----------------
all the Banks.
"Type" shall mean any type of Loan, i.e., whether a Loan is a Base
---- ----
Rate Loan or a Eurodollar Loan.
"Unaffected Bank" shall have the meaning assigned that term in (S)
---------------
2.5(c).
"written" or "in writing" shall mean any form of written communication
------- ----------
or a communication by means of telex, telecopier device, telegraph or cable.
10.2 Accounting Principles. All statements to be prepared and
---------------------
determinations to be made under this Agreement, including (without limitation)
those pursuant to (S) 5, shall be prepared and made in accordance with generally
accepted accounting principles applied on a basis consistent with the accounting
principles reflected in the audited financial statements of PPL and Resources
for the fiscal year ended December 31, 1998, referred to in (S) 7.4, except for
changes in accounting principles consistent with GAAP.
10.3 Exercise of Rights. Neither the failure nor delay on the part
------------------
of any of the Banks or the Fronting Bank to exercise any right, power or
privilege under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege under this Agreement
preclude any other or further exercise thereof, or the exercise of any other
right, power or privilege. The rights and remedies herein expressly provided
are cumulative and not exclusive of any rights or remedies which the Banks would
otherwise have. No notice to or demand on PPL, Finance Co. or Resources in any
case shall entitle PPL, Finance Co. or Resources, as applicable, to any other or
further notice or demand in similar or other circumstances or constitute a
waiver of the right of the Banks or the Fronting Bank to any other or further
action in any circumstances without notice or demand.
10.4 Amendment and Waiver. Neither this Agreement nor any other Loan
--------------------
Document nor any terms hereof or thereof may be changed, waived, discharged or
terminated unless such change, waiver, discharge or termination is in writing
signed by PPL, Finance Co. and Resources, and the
<PAGE>
61
Required Banks, provided that no such change, waiver, discharge or termination
--------
shall, without the consent of each Bank directly affected thereby, (i) extend
the final scheduled maturity of any Loan (except as provided for in (S)2.6), or
reduce the rate or extend the time of payment of interest or Commitment Fees
thereon (except in connection with a waiver of the applicability of any post-
default increase in interest rates), or reduce the principal amount thereof
(except to the extent repaid in cash), (ii) amend, modify or waive any provision
of this (S) 10.4, (iii) reduce the percentage specified in the definition of
Required Banks or (iv) consent to the assignment or transfer by PPL, Finance Co.
or Resources of any of its rights and obligations under this Agreement or the
release of Resources from its guarantee hereunder; provided further, that no
----------------
such change, waiver, discharge or termination shall (x) increase the Commitments
of any Bank over the amount thereof then in effect without the consent of such
Bank (it being understood that waivers or modifications of conditions precedent,
covenants, Defaults or Events of Default shall not constitute an increase of the
Commitment of any Bank) or (y) without the consent of the Agent, amend, modify
or waive any provision of (S) 8 as such Section applies to such Agent or any
other provision as such Section relates to the rights or obligations of such
Agent.
10.5 Expenses; Indemnification. (a) The Borrowers agree to pay all
-------------------------
reasonable out-of-pocket expenses (i) of the Agent and the Fronting Bank
incurred in connection with the preparation, execution, delivery, enforcement
and administration (exclusive of any internal overhead expenses) of this
Agreement and any and all agreements supplementary hereto and the making and
repayment of the Loans, the issuance of the Letters of Credit and the payment of
interest, including, without limitation, the reasonable fees and expenses of
Cravath, Swaine & Moore, counsel for the Agent and (ii) of the Agent, the
Fronting Bank and each Bank incurred in connection with the enforcement of this
Agreement, including, without limitation, the reasonable fees and expenses of
any counsel for any of the Banks with respect to such enforcement; provided that
--------
none of the Borrowers or Resources shall be liable for any fees, charges or
disbursements of any counsel for the Banks or the Agent other than Cravath,
Swaine & Moore associated with the preparation, execution and delivery of this
Agreement and the closing documentation contemplated hereby.
<PAGE>
62
(b) The Borrowers further agree to pay, and to save the Agent, the
Fronting Bank and the Banks harmless from all liability for, any stamp or other
documentary taxes which may be payable in connection with the Borrowers'
execution or delivery of this Agreement, their borrowings hereunder or Letters
of Credit, or the issuance of any notes or of any other instruments or documents
provided for herein or delivered or to be delivered by each of them hereunder or
in connection herewith.
(c) The Borrowers agree to indemnify the Agent, the Fronting Bank
and each Bank and each of their respective affiliates, directors, officers and
employees (each such person being called an "Indemnitee") against all losses,
claims, damages, penalties, judgments, liabilities and expenses (including,
without limitation, all expenses of litigation or preparation therefor whether
or not the Agent, the Fronting Bank or any Bank is a party thereto) which any of
them may pay or incur arising out of or relating to this Agreement, the other
Loan Documents, the transactions contemplated hereby, the direct or indirect
application or proposed application of the proceeds of any Loan hereunder or the
issuance of Letters of Credit; provided that such indemnification shall not
--------
extend to disputes solely among the Agent, the Fronting Bank and the Banks; and
provided further that such indemnity shall not, as to any Indemnitee, be
- -------- -------
available to the extent that such losses, claims, damages, liabilities or
related expenses are determined by a court of competent jurisdiction by final
and nonappealable judgment to have resulted from the gross negligence or wilful
misconduct of such Indemnitee.
(d) All obligations provided for in this (S) 10.5 shall survive any
termination of this Agreement or the resignation, withdrawal or removal of any
Bank.
10.6 Successors and Assigns. (a) This Agreement shall be binding
----------------------
upon and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto, provided that none of PPL, Finance Co. or
--------
Resources may assign or transfer any of its interests hereunder, except to the
extent any such assignment results from the consummation of a transaction
permitted under (S) 5.2, without the prior written consent of the Banks and
provided further that the right of each Bank to transfer, assign or grant
- ----------------
participations in its rights and/or
<PAGE>
63
obligations hereunder shall be limited as set forth below in this (S) 10.6,
provided that nothing in this (S) 10.6 shall prevent or prohibit any Bank from
- --------
pledging its rights under this Agreement and/or its Loans hereunder to a Federal
Reserve Bank in support of borrowings made by such Bank from such Federal
Reserve Bank. In order to facilitate such an assignment to a Federal Reserve
Bank, the Borrowers shall, at the request of the assigning Bank, duly execute
and deliver to the assigning Bank a promissory note evidencing its Commitment or
Loans made by the assigning Bank hereunder.
(b) Each Bank shall have the right to transfer, assign or grant
participations in all or any part of its remaining rights and obligations
hereunder on the basis set forth below in this clause (b).
(A) Assignments. Each Bank may assign all or a portion of its
-----------
rights and obligations hereunder pursuant to this clause (b)(A) to (x)
one or more Banks or any affiliates of any Bank or (y) one or more
other Eligible Transferees, provided that (i) any such assignment
--------
pursuant to clause (y) above shall be in the aggregate amount of at
least $5,000,000, (ii) after giving effect to any such assignment
pursuant to clause (x) or (y) above, no Bank shall have a Commitment
of less than $5,000,000 unless such Bank's Commitment is reduced to
zero pursuant to such assignment, (iii) any assignment pursuant to
clause (y) shall require the consent of the Borrowers, which consent
shall not be unreasonably withheld, and provided further, that, so
----------------
long as no Loans or interest thereon shall be outstanding and no
Default or Event of Default shall have occurred with respect to PPL,
Finance Co. or Resources and then be continuing, the Borrowers may at
their option terminate the portion of such assigning Bank's Commitment
proposed to be assigned pursuant to clause (y) above in lieu of
consenting to such assignment, and the Total Commitment shall be
reduced in the amount of such termination. Assignments or terminations
of all or any portion of any Bank's Commitment pursuant to this clause
(b)(A) will only be effective if the Agent shall have received a
written notice from the assigning Bank and the assignee, or, in the
<PAGE>
64
case of a termination, the Borrowers, and, in the case of an
assignment, payment of a nonrefundable assignment fee of $2,500 to the
Agent by either the assigning Bank or the assignee. No later than five
Business Days after its receipt of any written notice of assignment or
termination, the Agent will record such assignment or termination, and
the resultant effects thereof on the Commitment of the assigning or
terminating Bank and, in the case of an assignment, the assignee, in
the Register, at which time such assignment or termination shall
become effective, provided that the Agent shall not be required to,
--------
and shall not, so record any assignment or termination in the Register
on or after the date on which any proposed amendment, modification or
supplement in respect of this Agreement has been circulated to the
Banks for approval until the earlier of (x) the effectiveness of such
amendment, modification or supplement in accordance with (S) 10.4 or
(y) 30 days following the date on which such proposed amendment,
modification or supplement was circulated to the Banks. Upon the
effectiveness of any assignment or termination pursuant to this clause
(b)(A), (x) the assignee, in the case of an assignment, will become a
"Bank" for all purposes of this Agreement and the other Loan Documents
with a Commitment as so recorded by the Agent in the Register, and to
the extent of such assignment or termination, the assigning or
terminating Bank shall be relieved of its obligations hereunder with
respect to the portion of its Commitment being assigned or terminated.
(B) Participations. Each Bank may transfer, grant or assign
--------------
participations in all or any part of such Bank's interests and
obligations hereunder pursuant to this clause (b)(B) to any Eligible
Transferee, provided that (i) such Bank shall remain a "Bank" for all
--------
purposes of this Agreement and the transferee of such participation
shall not constitute a Bank hereunder and (ii) no participant under
any such participation shall have any rights under the Agreement or
other Loan Document or any rights to approve any amendment to or
waiver of this Agreement or any other Loan Document except to the
extent such amendment or
<PAGE>
65
waiver would (x) extend the final scheduled maturity of any of the
Loans or the Commitment in which such participant is participating,
(y) reduce the interest rate (other than as a result of waiving the
applicability of any post-default increases in interest rates) or
Commitment Fee or other fees applicable to any of the Loans or
Commitments in which such participant is participating or postpone the
payment of any thereof or reduce the principal amount of any Loan
(except to the extent repaid in cash) or (z) release Resources from
its obligations as a guarantor hereunder. In the case of any such
participation, the participant shall not have any rights under this
Agreement or any of the other Loan Documents (the participant's rights
against the granting Bank in respect of such participation to be those
set forth in the agreement with such Bank creating such participation)
and all amounts payable by each of the Borrowers hereunder shall be
determined as if such Bank had not sold such participation, provided
--------
that such participant shall be entitled to receive additional amounts
under (SS) 1.8, 2.5 and 3.4 on the same basis as if it were a Bank but
in no case shall be entitled to any amount greater than would have
been payable had the Bank not sold such participations.
(c) Each Bank hereby represents, and each Person that becomes a Bank
pursuant to an assignment permitted by the preceding clause (b)(A) will upon its
becoming party to this Agreement represent, that it is an Eligible Transferee
which makes loans in the ordinary course of its business and that it will make
or acquire Loans for its own account in the ordinary course of such business,
provided that, subject to the preceding clauses (a) and (b), the disposition of
- --------
any promissory notes or other evidences of or interests in Loans held by such
Bank shall at all times be within its exclusive control.
10.7 Notices, Requests, Demands. All notices, requests, demands or
--------------------------
other communications to or upon the respective parties hereto shall be deemed to
have been given or made (i) in the case of notice by mail, when actually
received, and (ii) in the case of telecopier notice sent over a telecopier
machine owned or operated by a party hereto, when sent, in each case addressed
to the party or
<PAGE>
66
parties to which such notice is given at their respective addresses shown below
their signatures hereto or at such other address as such party may hereafter
specify in writing to the others. No other method of giving notice is hereby
precluded.
10.8 Survival of Representations and Warranties. All representations
------------------------------------------
and warranties contained herein or otherwise made in writing by PPL, Finance Co.
or Resources in connection herewith shall survive the execution and delivery of
this Agreement.
10.9 Governing Law. This Agreement and the rights and obligations of
-------------
the parties under this Agreement (other than as relates to Letters of Credit)
shall be governed by and construed and interpreted in accordance with the laws
of the State of New York. Each Letter of Credit shall be governed by, and
construed and interpreted in accordance with the laws or rules designated in
such Letter of Credit, or if no such laws or rules are designated, the Uniform
Customs and Practice for Documentary Credits (1993 revision), International
Chamber of Commerce, publication no. 500 (the "Uniform Customs") and, as to
matters not governed by the Uniform Customs, the laws of the State of New York.
10.10 Counterparts. This Agreement may be executed in any number of
------------
copies, and by the different parties hereto on the same or separate
counterparts, each of which shall be deemed to be an original instrument.
Complete counterparts of this Agreement shall be lodged with each Borrower,
Resources and the Agent.
10.11 Effectiveness. This Agreement shall become effective on the
-------------
Closing Date.
10.12 Transfer of Office. (a) Each Bank may transfer and carry its
------------------
Loans at, to or for the account of any branch office, subsidiary or affiliate of
such Bank; provided that such Bank shall continue to bear all of its obligations
--------
under this Agreement; and provided further that the Borrowers shall not be
-------- -------
responsible for costs arising under (S) 1.8, 2.5 or 3.4 resulting from any such
transfer to the extent not otherwise applicable to such Bank prior to such
transfer.
<PAGE>
67
(b) Upon a Bank becoming aware of any event which will entitle it to
any additional amount pursuant to (S) 2.5(a) or (S) 3.4, such Bank shall take
all reasonable steps (including but not limited to making, maintaining or
funding the affected Loan through another office of such Bank) to avoid or
reduce the additional amount payable by the applicable Borrower; provided that,
such steps will not result in any additional costs, liabilities or expenses (not
reimbursable by the applicable Borrower) to such Bank and are not otherwise
inconsistent with the interests of such Bank determined in good faith.
10.13 Proration of Payments. The Banks agree among themselves that,
---------------------
with respect to all amounts received by them which are applicable to the payment
of principal of or interest on the Loans, equitable adjustment will be made so
that, in effect, all such amounts will be shared ratably among the Banks on the
basis of the amounts then owed each of them in respect of such obligation,
whether received by voluntary payment, by realization upon security, by the
exercise of any right of set-off or bankers' lien, by counterclaim or cross
action, under or pursuant to this Agreement or otherwise. Each of the Banks
agrees that if it should receive any payment on its Loans of a sum or sums in
excess of its pro rata portion (other than as expressly contemplated by (S)
--- ----
2.6(ii)), then the Bank receiving such excess payment shall purchase for cash
from the other Banks an interest in the Loans of such Banks in such amount as
shall result in a ratable participation by each of the Banks in the aggregate
unpaid amount of all outstanding Loans then held by all of the Banks. If all or
any portion of such excess payment is thereafter recovered from such Bank, such
purchase shall be rescinded and the purchase price restored to the extent of
such recovery, but without interest. The Borrowers agree that any Bank so
purchasing a participation from another Bank pursuant to this (S) 10.13 may
exercise all its rights with respect to such participation as fully as if such
Bank were the direct creditor of the Borrowers in the amount of such
participation.
10.14 Jurisdiction; Consent to Service of Process. (a) Each of PPL,
--------------------------------------------
Finance Co. and Resources hereby irrevocably and unconditionally submits, for
itself and its property, to the nonexclusive jurisdiction of the Supreme Court
of the State of New York sitting in New York County and of the United States
District Court of the Southern
<PAGE>
68
District of New York, and any appellate court from any thereof, in any action or
proceeding arising out of or relating to this Agreement, or for recognition or
enforcement of any judgment, and each of the parties hereto hereby irrevocably
and unconditionally agrees that all claims in respect of any such action or
proceeding may be heard and determined in such New York State or, to the extent
permitted by law, in such Federal court. Each of the parties hereto agrees that
a final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing in this Agreement shall affect any right that the
Agent, the Fronting Bank or any Bank may otherwise have to bring any action or
proceeding relating to this Agreement against any of PPL, Finance Co., Resources
or its properties in the courts of any jurisdiction.
(b) Each of PPL, Finance Co. and Resources hereby irrevocably and
unconditionally waives, to the fullest extent it may legally and effectively do
so, any objection which it may now or hereafter have to the laying of venue of
any suit, action or proceeding arising out of or relating to this Agreement in
any court referred to in paragraph (a) of this Section. Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law, the
defense of an inconvenient forum to the maintenance of such action or proceeding
in any such court.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 10.7. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
10.15 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE
--------------------
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON
CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER
PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER
<PAGE>
69
THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
10.16 Headings Descriptive. The headings of the various provisions
--------------------
of this Agreement are inserted for convenience of reference only and shall not
be deemed to affect the meaning or construction of any of the provisions hereof.
10.17 Waiver of Notice. The Banks who are parties to the Existing
----------------
Credit Agreement hereby waive any prior notice of termination of their
commitments under such facility.
<PAGE>
70
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Agreement to be duly executed and delivered as of the date
first above written.
PP&L, INC.,
By /s/ John R. Biggar
-----------------------
Name: John R. Biggar
Title: Senior Vice President
and Chief Financial
Officer
PP&L CAPITAL FUNDING, INC.,
By /s/ James E. Abel
-----------------------
Name: James E. Abel
Title: Treasurer
PP&L RESOURCES, INC.,
By /s/ John R. Biggar
-----------------------
Name: John R. Biggar
Title: Senior Vice President
and Chief Financial
Officer
FIRST UNION NATIONAL BANK,
Individually and as Agent
and Fronting Bank
By /s/ Michael J. Kolosowsky
-------------------------
Name: Michael J. Kolosowsky
Title: Vice President
<PAGE>
THE CHASE MANHATTAN BANK,
Individually and as Syndication Agent
By /s/ Jaimin Patel
------------------------------
Name: Jaimin Patel
Title: Vice President
CITIBANK, N.A.,
Individually and as Documentation Agent
By /s/ Robert J. Harrity, Jr.
------------------------------
Name: Robert J. Harrity, Jr.
Title: Managing Director
THE BANK OF NEW YORK,
By /s/ John N. Watt
------------------------------
Name: John N. Watt
Title: Vice President
THE BANK OF NOVA SCOTIA,
By /s/ J. Alan Edwards
------------------------------
Name: J. Alan Edwards
Title: Authorized Signatory
CREDIT SUISSE FIRST BOSTON,
By /s/ Douglas E. Maher
------------------------------
Name: Douglas E. Maher
Title: Vice President
By /s/ James P. Moran
------------------------------
Name: James P. Moran
Title: Director
<PAGE>
DEUTSCHE BANK AG, NEW YORK
BRANCH and/or CAYMAN ISLANDS BRANCH,
BRANCH,
By /s/ Lydia Zaininger
----------------------------
Name: Lydia Zaininger
Title: Vice President
By /s/ Alec Montgomery
----------------------------
Name: Alec Montgomery
Title: Director
THE FIRST NATIONAL BANK OF
CHICAGO,
By /s/ Madeleine N. Pember
----------------------------
Name: Madeleine N. Pember
Title: Assistant Vice
President
MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
By /s/ Robert Bottamedi
----------------------------
Name: Robert Bottamedi
Title: Vice President
MELLON BANK, N.A.,
By /s/ Richard A. Matthews
----------------------------
Name: Richard A. Matthews
Title: Vice President
NATIONSBANK, N.A.,
<PAGE>
By /s/ Paula Z. Kramp
----------------------
Name: Paula Z. Kramp
Title: Principal
PNC BANK, NATIONAL ASSOCIATION,
By /s/ Andrew Mitrey
----------------------
Name: Andrew Mitrey
Title: Commercial Banking
Officer
TORONTO DOMINION (TEXAS),INC.,
By /s/ Alva J. Jones
----------------------
Name: Alva J. Jones
Title: Vice President
<PAGE>
Bank Address Schedule
---------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Name of Bank and Address Phone Number(s) Fax Number(s)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
First Union National Bank
Attn: Michael J. Kolosowsky (704) 383-8225 (704) 383-7611
301 South College Street
TW-10
Charlotte, NC 28288-0735
- --------------------------------------------------------------------------------------------------
The Chase Manhattan Bank
Attn: Jaimin Patel (212) 270-1354 (212) 270-2101
270 Park Avenue
New York, NY 10017
- --------------------------------------------------------------------------------------------------
The Bank of New York
Attn: John Watt (212) 635-7533 (212) 635-7552
One Wall Street
New York, NY 10286
- --------------------------------------------------------------------------------------------------
The Bank of Nova Scotia
Attn: Philip Adsetts (212) 225-5010 (212) 225-5090
Melanie Brensinger (212) 225-5048
One Liberty Plaza
26th Floor
New York, NY 10006
- --------------------------------------------------------------------------------------------------
Citibank, N.A.
Attn: Robert J. Harrity, Jr. (212) 559-6482 (212) 793-6130
Jean Chastain (212) 559-1271
399 Park Avenue
4th Floor/Zone 20
New York, NY 10043
- --------------------------------------------------------------------------------------------------
Credit Suisse First Boston
Attn: Douglas Maher (212) 325-3641 (212) 325-8615
11 Madison Avenue
20th Floor
New York, NY 10010
- --------------------------------------------------------------------------------------------------
Deutsche Bank AG
Attn: Lydia Zaininger (212) 469-8634 (212) 469-8256
Cathy Ruhland (212) 469-8661 (212) 469-4520
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Name of Bank and Address Phone Number(s) Fax Number(s)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
31 West 52nd Street
24th Floor
New York, NY 10019
- --------------------------------------------------------------------------------------------------
The First National Bank
of Chicago
Attn: Kenneth Bauer (312) 732-6282 (312) 732-3055
Madeleine Pember (312) 732-9727
One First National Plaza
Suite 0360
Chicago, IL 60670
- --------------------------------------------------------------------------------------------------
Morgan Guaranty Trust Company
Attn: Robert Bottamedi (212) 648-1349 (212) 648-5018
Morgan Guaranty Trust Company of New York
60 Wall Street
New York, NY 10260
- --------------------------------------------------------------------------------------------------
Mellon Bank, N.A.
Attn: Mark Rogers (412) 234-1888 (412) 236-1840
1 Mellon Bank Center
Suite 4425
Pittsburgh, PA 15258-0001
- --------------------------------------------------------------------------------------------------
NationsBank, N.A.
Attn: Paula Kramp (301) 571-0713 (301) 571-0719
Carim Khouzami (301) 571-0703
6610 Rockledge Drive, 6th Fl.
Bethesda, MD 20817
- --------------------------------------------------------------------------------------------------
PNC Bank, National Association
Christopher Moravec (412) 762-2540 (412) 762-2571
One PNC Plaza
249 Fifth Avenue
PI-POPP-21-1
Pittsburgh, PA 15222-2707
Robert Mills (570) 831-2833 (570) 821-3375
11 West Market Street, 3rd Fl.
Wilkes Barre, PA 38701
- --------------------------------------------------------------------------------------------------
Toronto Dominion (texas), Inc.
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Name of Bank and Address Phone Number(s) Fax Number(s)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Attn: Katherine Lucey (212) 468-0785 (212) 262-1929
31 West 52nd Street
New York, NY 10019-6101
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
BANK COMMITMENT
- ---- ----------
<S> <C>
FIRST UNION NATIONAL BANK.................. $ 90,000,000
THE CHASE MANHATTAN BANK................... $ 90,000,000
CITIBANK, N.A.............................. $ 90,000,000
NATIONSBANK, N.A........................... $ 70,000,000
MELLON BANK, N.A........................... $ 70,000,000
THE FIRST NATIONAL BANK OF CHICAGO......... $ 70,000,000
THE BANK OF NEW YORK....................... $ 50,000,000
THE BANK OF NOVA SCOTIA.................... $ 50,000,000
TORONTO DOMINION (TEXAS), INC.............. $ 50,000,000
MORGAN GUARANTY TRUST COMPANY OF NEW YORK.. $ 40,000,000
CREDIT SUISSE FIRST BOSTON................. $ 35,000,000
PNC BANK, NATIONAL ASSOCIATION............. $ 25,000,000
DEUTSCHE BANK AG........................... $ 20,000,000
TOTAL COMMITMENT.... $750,000,000
</TABLE>
<PAGE>
EXHIBIT C
[Form of Extension Letter]
[Date]/1/
First Union National Bank
301 South College Street
Charlotte, NC 28288-0735
Attention: First Union National Bank, as Agent and as Fronting Bank, and the
Banks party to the Credit Agreement
Re: Extension of Expiry Date
Ladies and Gentlemen:
Reference is hereby made to that certain 364-Day Revolving Credit
Agreement dated as of July 1, 1999, (as amended, supplemented or otherwise
modified from time to time, the "Credit Agreement"), among PP&L, Inc. ("PPL"),
PP&L Capital Funding, Inc. ("Finance Co.") and PP&L Resources, Inc.
("Resources"), the banks party thereto (the "Banks"), First Union National Bank,
as fronting bank and as administrative agent for the Banks, The Chase Manhattan
Bank, as syndication agent and Citibank, N.A., as documentation agent. Terms
used and not defined herein shall have the meaning assigned to such terms in the
Credit Agreement.
_________________________
/1/ This Letter shall be delivered to the Agent not less than 30 and not
more than 45 days prior to the Current Expiry Date.
<PAGE>
1. Prior to giving effect to the extension referred to below, the Expiry
Date is __________ (the "Current Expiry Date").
2. PPL and Finance Co. hereby request that the Expiry Date be extended to
_________./2/
3. Pursuant to Section 2.6 of the Credit Agreement, such extension of the
Current Expiry Date shall become effective on the 20th day prior to
the Current Expiry Date if (and only if) Banks holding Commitments
that aggregate at least 51% of the Total Commitment on such date shall
have agreed to such extension as evidenced by their signatures below.
This letter may be executed in two or more counterparts, each of which
shall constitute an original but all of which when taken together shall
constitute but one instrument. The delivery by telecopy of an executed
counterpart hereof shall be effective as delivery of an original manually
executed counterpart.
Very truly yours,
PP&L, Inc. PP&L Capital Funding, Inc.
By: By:
______________________ ______________________
______________________ ______________________
Name: Name:
Title: Title:
____________________
/2/ Such date shall be 364 days after the Current Expiry Date.
<PAGE>
EXHIBIT C
Page 3
PP&L Resources, Inc.
By:
______________________
______________________
Name:
Title:
Acknowledged and agreed to
as of the date noted above:
FIRST UNION NATIONAL BANK,
individually and as [BANK]
Agent, Collateral Agent
and Fronting Bank,
By: By:
______________________ ______________________
______________________ ______________________
Name: Name:
Title: Title:
<PAGE>
Exhibit 12
PP&L RESOURCES, INC. AND SUBSIDIARIES
- -------------------------------------
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Millions of Dollars)
<TABLE>
<CAPTION>
12 Months
Ended 12 Months Ended
June 30, December 31,
----------------------------------------------------------------------
1999 1998(a) 1997 1996 1995 1994
------------- ----------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Fixed charges, as defined:
Interest on long-term debt ..................... $ 210 $ 203 $ 196 $ 207 $ 213 $ 214
Interest on short-term debt
and other interest .......................... 40 33 26 17 18 18
Amortization of debt discount, expense
and premium - net............................. 3 2 2 2 2 2
Interest on capital lease obligations
Charged to expense ......................... 9 8 9 13 15 12
Capitalized ................................ 1 2 2 2 2 1
Estimated interest component of
operating rentals ............................ 18 18 15 8 8 6
Proportionate share of fixed charges
of 50-percent-or-less-owned
persons ...................................... 1 1 1 1 1 1
------------- ----------- ---------- ---------- ---------- -----------
Total fixed charges .................... $ 282 $ 267 $ 251 $ 250 $ 259 $ 254
============= =========== ========== ========== ========== ===========
Earnings, as defined:
Net income ..................................... $ 408 $ $379 $ $296 $ $329 $ $323 $ $216
Preferred and Preference Stock
Dividend Requirements......................... 25 25 24 28 28 28
Less undistributed income of less
than 50-percent-owned persons ................ - - - - - -
------------- ----------- ---------- ---------- ---------- -----------
433 404 320 357 351 244
Add (Deduct):
Income taxes.................................... 251 259 238 253 286 180
Amortization of capitalized interest
on capital leases............................... 1 2 2 4 5 9
Total fixed charges as above
(excluding capitalized interest
on capital lease obligations) ................ 281 265 248 248 257 253
------------- ----------- ---------- ---------- ---------- -----------
Total earnings ......................... $ 966 $ 930 $ 808 $ 862 $ 899 $ 686
============= =========== ========== ========== ========== ===========
Ratio of earnings to fixed
charges ........................................ 3.43 3.48 3.22 3.45 3.47 2.70
============= =========== ========== ========== ========== ===========
</TABLE>
(a) Excluding extraordinary items.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> UT
<CIK> 0000922224
<NAME> PP&L RESOURCES, INC.
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 4,536
<OTHER-PROPERTY-AND-INVEST> 982
<TOTAL-CURRENT-ASSETS> 1,386
<TOTAL-DEFERRED-CHARGES> 3,200
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 10,104
<COMMON> 2
<CAPITAL-SURPLUS-PAID-IN> 1407<F1>
<RETAINED-EARNINGS> 477
<TOTAL-COMMON-STOCKHOLDERS-EQ> 1,886
47
50
<LONG-TERM-DEBT-NET> 3,081
<SHORT-TERM-NOTES> 202
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 710
<LONG-TERM-DEBT-CURRENT-PORT> 126
0
<CAPITAL-LEASE-OBLIGATIONS> 97
<LEASES-CURRENT> 60
<OTHER-ITEMS-CAPITAL-AND-LIAB> 3,845
<TOT-CAPITALIZATION-AND-LIAB> 10,104
<GROSS-OPERATING-REVENUE> 2,071
<INCOME-TAX-EXPENSE> 114
<OTHER-OPERATING-EXPENSES> 1,645
<TOTAL-OPERATING-EXPENSES> 1,759
<OPERATING-INCOME-LOSS> 312
<OTHER-INCOME-NET> 7
<INCOME-BEFORE-INTEREST-EXPEN> 319
<TOTAL-INTEREST-EXPENSE> 123
<NET-INCOME> 196
13
<EARNINGS-AVAILABLE-FOR-COMM> 183
<COMMON-STOCK-DIVIDENDS> 79
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 287
<EPS-BASIC> 1.16
<EPS-DILUTED> 1.16
<FN>
<F1>NET OF $419 MILLION OF TREASURY STOCK
</FN>
</TABLE>
