-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JjK7GxuuQJ49fQo5K22XMaChwh4WwoiHJ4HX2Uat7ZUwu5WPjSiIAY+HYvCLurwD bsQwix7MJUGQv9PVrVwQxQ== /in/edgar/work/0000899243-00-002518/0000899243-00-002518.txt : 20001116 0000899243-00-002518.hdr.sgml : 20001116 ACCESSION NUMBER: 0000899243-00-002518 CONFORMED SUBMISSION TYPE: 10-12G PUBLIC DOCUMENT COUNT: 4 FILED AS OF DATE: 20001115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CLECO UTILITY GROUP INC CENTRAL INDEX KEY: 0000018672 STANDARD INDUSTRIAL CLASSIFICATION: [4911 ] IRS NUMBER: 720244480 STATE OF INCORPORATION: LA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-12G SEC ACT: SEC FILE NUMBER: 000-01272 FILM NUMBER: 771062 BUSINESS ADDRESS: STREET 1: PO BOX 5000 CITY: PINEVILLE STATE: LA ZIP: 71361-5002 BUSINESS PHONE: 3184847400 MAIL ADDRESS: STREET 1: P O BOX 5000 CITY: PINEVILLE STATE: LA ZIP: 71361-5002 FORMER COMPANY: FORMER CONFORMED NAME: CENTRAL LOUISIANA ELECTRIC CO INC DATE OF NAME CHANGE: 19920703 10-12G 1 0001.txt FORM 10 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________________ FORM 10 GENERAL FORM FOR REGISTRATION OF SECURITIES PURSUANT TO SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934 CLECO UTILITY GROUP INC. (Exact name of registrant as specified in its charter) LOUISIANA 72-0244480 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 2030 DONAHUE FERRY ROAD PINEVILLE, LOUISIANA 71360-5226 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (318) 484-7400 Securities to be registered pursuant to Section 12(b) of the Act: Name of each exchange on which Title of each class to be so registered each class is to be registered - --------------------------------------- ------------------------------ NONE. Not applicable. Securities to be registered pursuant to Section 12(g) of the Act: COMMON STOCK, $2.00 PAR VALUE (Title of class) ================================================================================ TABLE OF CONTENTS ITEM 1. BUSINESS............................................... 5 ITEM 2. FINANCIAL INFORMATION.................................. 18 ITEM 3. PROPERTIES............................................. 31 ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............................................. 31 ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS....................... 35 ITEM 6. EXECUTIVE COMPENSATION................................. 38 ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......... 49 ITEM 8. LEGAL PROCEEDINGS...................................... 50 ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.......... 51 ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES................ 52 ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED 52 ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.............. 53 ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA............ 55 ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.................... 55 ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS...................... 55 GLOSSARY OF TERMS References in this registration statement to "we," "us," "the Company" or other similar terms mean Cleco Utility Group Inc., and references to "Cleco" mean Cleco Corporation, unless the context clearly indicates otherwise. Additional abbreviations or acronyms used in this registration statement are defined below: Abbreviation or Acronym Definition 1935 Act Public Utility Holding Company Act of 1935 AFUDC Allowance for Funds Used During Construction AQD Air Quality Division of the LDEQ Code Internal Revenue Code of 1986, as amended CPS Coughlin Power Station DHMV Dolet Hills Mining Venture Dolet Hills Dolet Hills Power Station EITF No. 97-4 Deregulation of the Pricing of Electricity - Issues Related to the Application of FASB Statements No. 71 and 101 EITF No. 98-10 Accounting for Contracts Involved in Energy Trading and Risk Management Activities EITF Emerging Issues Task Force EMFs Electric and magnetic fields EPA Environmental Protection Agency EPS Earnings per share ERISA Employee Retirement Income Security Act of 1974 ESOP Employee Stock Ownership Plan Evangeline Cleco Evangeline LLC FAC Fuel adjustment clause FASB Financial Accounting Standards Board 2 Federal Court Suit Lawsuit filed by the Company and SWEPCO on April 15, 1997 against DHMV and its partners in the United States District Court for the Western District of Louisiana FERC Federal Energy Regulatory Commission Generation Cleco Generation Services LLC GIS Geographic information system Intrastate CLE Intrastate Pipeline Company, Inc. ISO Independent System Operator kV Kilovolt kW Kilowatt kWh Kilowatt-hour LBCL Business Corporation Law of the State of Louisiana LDEQ Louisiana Department of Environmental Quality LMA Lignite Mining Agreement LPDES Louisiana Pollution Discharge Elimination System LPSC Louisiana Public Service Commission Marketing & Trading Cleco Marketing & Trading LLC MMBtu Million British thermal units MW Megawatt NOx Nitrogen oxides NPDES National Pollutant Discharge Elimination System RTO Regional Transmission Organization Rodemacher Rodemacher Power Station SEC Securities and Exchange Commission SERP Cleco Supplemental Executive Retirement Plan SFAS Statement of Financial Accounting Standards SFAS No. 71 Accounting for the Effects of Certain Types of Regulation SFAS No. 80 Accounting for Futures Contracts SFAS No. 101 Regulated Enterprises - Accounting for the Discontinuation of Application of FASB Statement No. 71 SFAS No. 109 Accounting for Income Taxes SFAS No. 121 Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of SFAS No. 123 Accounting for Stock-Based Compensation SFAS No. 125 Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities SFAS No. 128 Earnings per Share SFAS No. 131 Disclosures about Segments of an Enterprise and Related Information SFAS No. 133 Accounting for Derivative Instruments and Hedging Activities SFAS No. 137 Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133 SFAS No. 138 Accounting for Certain Derivative Instruments and Certain Hedging Activities SO2 Sulfur dioxide SPP Southwest Power Pool State Court Suit Lawsuit filed by the Company and SWEPCO on August 13, 1997 against the parent companies of DHMV in the First Judicial District Court for Caddo Parish, Louisiana Support Group Cleco Support Group LLC SWD Solid Waste Division of the LDEQ SWEPCO Southwestern Electric Power Company Teche Teche Electric Cooperative, Inc. TMDL Total Maximum Daily Loading The Act Clean Air Act Amendments of 1990 TRI Toxics Release Inventory UtiliTech Utility Construction & Technology Solutions LLC Utility Group Cleco Utility Group Inc. VAR Value-at-risk Williams Energy Williams Energy Marketing and Trading Company 3 DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS This registration statement, including "Item 1. Business," "Item 2. Financial Information" and "Item 8. Legal Proceedings," contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to future events, our future financial performance, future legislative and regulatory changes affecting our business and other matters. These forward-looking statements are based on management's beliefs as well as assumptions made by and information currently available to management. Although we believe the expectations reflected in these forward- looking statements are reasonable, these forward-looking statements are based on numerous assumptions (some of which may prove to be incorrect) and are subject to risks and uncertainties that could cause the actual results to differ materially from our expectations. When used, the words "anticipate," "estimate," "expect," "objective," "projection," "forecast," "goal" and similar expressions are intended to identify forward-looking statements. In addition to any assumptions and other factors referred to specifically in connection with these forward-looking statements, the following list identifies some of the factors that could cause our actual results to differ materially from those contemplated in any of our forward-looking statements: . unusual weather conditions, catastrophic weather-related damage, unscheduled generation outages, unusual maintenance or repairs, unanticipated changes to fuel costs, gas supply costs or availability constraints due to higher demand, shortages, transportation problems or other developments, environmental incidents or electric transmission or gas pipeline system constraints; . increased competition in the electric industry, including effects of industry restructuring or deregulation, transmission system operation or administration, retail wheeling or cogeneration; . unanticipated changes in rate-setting policies or procedures, recovery of investments made under traditional regulation and the frequency and timing of rate increases; . financial or regulatory accounting principles or policies imposed by the Financial Accounting Standards Board (FASB), the Securities and Exchange Commission (SEC), the Federal Energy Regulatory Commission (FERC), the Louisiana Public Service Commission (LPSC) or similar entities with regulatory or accounting oversight; . economic conditions, including inflation rates and monetary fluctuations; . changing market conditions and a variety of other factors associated with physical energy and financial trading activities, including, but not limited to price, basis, credit, liquidity, volatility, capacity, transmission, interest rate and warranty risks; . employee work force factors, including changes in key executives; . cost and other effects of legal and administrative proceedings, settlements, investigations, claims and other matters; and 4 . changes in federal, state or local legislative requirements, such as changes in tax laws or rates, regulating policies or environmental laws and regulations. We undertake no obligation to update or revise any forward-looking statements, whether as a result of changes in actual results, changes in assumptions or other factors affecting such statements. ITEM 1. BUSINESS GENERAL Cleco Utility Group Inc., formerly Cleco Corporation, was incorporated under the laws of the State of Louisiana on January 2, 1935. We are an electric utility that contains LPSC jurisdictional generation, transmission and distribution electric utility operations. We provide electric utility services to approximately 249,000 retail and wholesale customers in 63 communities and rural areas in a 14,000-square-mile region in the State of Louisiana. Our principal executive offices are located at 2030 Donahue Ferry Road, Pineville, Louisiana 71360-5226. Effective July 1, 1999, we were reorganized into a holding company structure. This reorganization resulted in the creation of a new holding company, Cleco Corporation (Cleco), which became the owner of all of our outstanding common stock. In connection with the reorganization, we transferred the shares of capital stock of all our subsidiaries to Cleco. The reorganization had no impact on our financial statements because it was accounted for similarly to a pooling of interest. Cleco, subject to certain limited exceptions, is exempt from regulation as a public utility holding company pursuant to Section 3(a)(1) of the Public Utility Holding Company Act of 1935 (1935 Act) and Rule 2 thereunder. On September 21, 2000, we filed applications with the FERC and the LPSC requesting authorization to convert our form of business organization from a corporation to a limited liability company. The purpose of our proposed conversion is to lessen our Louisiana state tax obligations. We must obtain authorization from the FERC and the LPSC to engage in the conversion because of their jurisdiction over us as a utility. On November 2, 2000, the LPSC authorized our conversion to a limited liability company. We anticipate receiving the necessary authorization from the FERC by the end of 2000 and will proceed with the conversion if and when such authorization is given. OPERATIONS Power Generation We operate and either own or have an ownership interest in three steam electric generating stations, the Teche Power Station, the Rodemacher Power Station (Rodemacher) and the Dolet Hills Power Station (Dolet Hills) and a gas turbine, the Franklin Gas Turbine. We are the sole owner of Teche Power Station and Rodemacher Unit 1. We own a 50% interest in Dolet Hills Unit 1 and a 30% interest in Rodemacher Unit 2. At September 30, 2000, our aggregate 5 electric generating capacity was 1,366,900 kilowatts (kW) (excluding 20,000 kW of firm purchases from the Sabine River Authority). We are the sole owner of the Franklin Gas Turbine. The following table sets forth certain information with respect to our generating facilities.
CAPACITY AT YEAR OF SEPTEMBER 30, 2000 TYPE OF FUEL USED FOR GENERATING INITIAL GENERATING STATION (KW) GENERATION(1) UNIT # OPERATION ------------------ ------------------ ---------------------- ----------- --------- Franklin Gas Turbine 7,000 gas 1 1973 Teche Power Station 23,000 gas 1 1953 48,000 gas 2 1956 367,000 gas/oil (standby) 3 1971 Rodemacher Power Station 440,000 gas/oil 1 1975 156,900 (2) coal/gas 2 1982 Dolet Hills Power Station 325,000 (3) lignite 1 1986 ---------- Total Generating Power 1,366,900 ==========
- ------------ (1) When oil is used on a standby basis, capacity may be reduced. (2) Represents our 30% interest in the capacity of Rodemacher Unit 2, a 523,000-kW generating unit. (3) Represents our 50% interest in the capacity of Dolet Hills Unit 1, a 650,000-kW generating unit. Fuel We use various types of fuel for generation of electricity. The following table sets forth, for the periods indicated, the percentages of power generated from various fuels at our electric generating plants, the cost of fuel used per kilowatt hour (kWh) attributable to each such fuel and the weighted average fuel cost per kWh.
LIGNITE COAL GAS FUEL OIL --------------------- --------------------- --------------------- --------------------- WEIGHTED COST PERCENT COST PERCENT COST PERCENT COST PERCENT AVERAGE COST PER KWH OF PER KWH OF PER KWH OF PER KWH OF PER KWH PERIOD (MILLS) GENERATION (MILLS) GENERATION (MILLS) GENERATION (MILLS) GENERATION (MILLS) - --------- -------- ---------- -------- ---------- -------- ---------- -------- ---------- ------------- 2000 (1) 15.55 33.8 15.11 16.3 41.98 49.9 -- -- 28.66 1999 15.74 28.4 14.90 17.2 27.45 54.3 -- -- 21.96 1998 15.85 32.0 14.88 16.7 25.38 51.3 -- -- 20.57 1997 14.85 36.7 17.06 19.1 29.85 44.2 -- -- 21.90 1996 15.45 38.1 16.67 21.3 30.06 39.8 26.09 0.8 21.61 1995 14.86 35.9 18.88 14.3 19.48 49.8 24.77 0.0 17.74
- -------------- (1) Nine months ended September 30, 2000. Power Purchases If transmission capacity is available, we purchase electric energy from neighboring utilities when the price of the energy purchased is less than our cost of generating energy from our own facilities or when we need power to supplement our own electric generation. Additionally, we have a long-term contract under which we purchase a small percentage of our total annual energy requirements from a hydroelectric generating plant. 6 In 1999, the amount of power we purchased increased compared to 1998 as a result of the increased demand for electric energy and a scheduled major maintenance outage at Dolet Hills. In the first nine months of 2000, the amount of power we purchased increased compared to the corresponding period in 1999 due to increased load requirements and the transfer of the existing assets of Coughlin Power Station (CPS) from our LPSC-regulated rate base in 1999 into Cleco Evangeline LLC (Evangeline), an indirect wholly owned subsidiary of Cleco, which repowered the plant. The following table sets forth the amounts of power we purchased on the wholesale market for the periods indicated. % of Total Million Energy Period kWh Requirements ------ ------- ------------ 2000(1) 2,464 35% 1999 2,359 27% 1998 2,117 24% 1997 1,924 24% 1996 2,529 33% 1995 1,430 19% - --------- (1) Nine months ended September 30, 2000. For information regarding our ability to pass through changes in costs of fuel to our customers, see "Regulatory Matters, Industry Developments and Franchises- - -Rates" below. In future years, our generating facilities may not supply enough electric power to meet our customers' growing demand (native load demand) and we may need to purchase additional generating capacity and/or purchase power to satisfy these needs. In March 2000, following a competitive bid process, we entered into three contracts for firm electric capacity and energy with Williams Energy Marketing and Trading Company (Williams Energy) and Dynegy Power Marketing, Inc., for 605 megawatts (MW) of capacity in 2000, increasing to 760 MW of capacity in 2004. These contracts were approved by the LPSC in March 2000 and expire in 2004. Management expects the contracts, combined with our own generation resources or power purchase agreements, to meet substantially all of our native load demand through 2004. Because of our location on the transmission grid, we rely on one main supplier of electric transmission and are sometimes constrained as to the amount of purchased power we can bring into our system. These three contracts are not expected to be affected by such transmission constraints. Natural Gas Supply During the first nine months of 2000, we purchased a total of 28,876 million British thermal units (MMBtu) of natural gas for the generation of electricity. The 2000 nine month period and average per-day quantities of gas we purchased from each supplier are shown in the table below. 7
AVERAGE FIRST NINE MONTHS AMOUNT OF 2000 PURCHASED PERCENT PURCHASES PER DAY OF TOTAL NATURAL GAS SUPPLIER (MMBTU) (MMBTU) GAS USED - -------------------- ------------------- ---------- -------- Amoco Natural Gas 4,961 163 17.18 LIG Chemical Company 3,717 122 12.87 Reliant Energy Services, Inc. 2,989 98 10.35 KN Energy 2,855 94 9.89 Others 14,354 471 49.71 ------ --- ------ 28,876 948 100.00% ====== === ======
CLE Intrastate Pipeline Company, Inc. (Intrastate), a wholly owned subsidiary of one of our affiliates, owns a series of natural gas interconnections with Trunkline Gas Company, Columbia Gulf Transmission Co. and ANR Pipeline Company. For more information regarding the use of these interconnections, see "--Intercompany Transactions" in "Item 7. Certain Relationships and Related Transactions," below. The pipeline interconnections have allowed us to access various additional natural gas supply markets, which helps to maintain the competitiveness of our generating units. Natural gas was plentiful and available without interruption throughout 1999 and the first nine months of 2000. We currently meet, and expect to continue to meet, our natural gas requirements with purchases on the spot market through daily, monthly and seasonal contracts with various natural gas suppliers. However, future supplies of natural gas remain vulnerable to disruptions due to weather events and transportation disruptions. The potential for disruptions to us has been decreased by the addition of the Intrastate pipeline interconnections. Nevertheless, large boiler fuel users of natural gas, including electric utilities, generally have low priority among natural gas users in the event pipeline suppliers are forced to curtail deliveries due to inadequate supplies. As a result, supplies of natural gas may become unavailable from time to time or prices may increase rapidly in response to temporary supply disruptions. Such events, though rare, may require us to shift our gas-fired generation to alternative fuel sources, such as fuel oil, to the extent we have the capability to burn those alternative fuels. Currently, we anticipate that our alternative fuel capability combined with our solid-fuel generation resources are adequate to meet our fuel needs during any temporary disruption of natural gas supplies. Coal and Lignite Supply We use coal fuel for generation at Rodemacher Unit 2. The majority of the coal for Rodemacher Unit 2 is purchased from mines in Wyoming under a long- term contract with Jacobs Ranch Coal Company expiring in 2007. The contract has been modified under price reopener procedures initiated in early 1997. The pricing structure under the modified contract has been defined through mid-2002. After purchasing a given annual quantity of base coal (approximately 500,000 tons), we have the right to purchase coal from third parties on the spot market through competitive bidding. Provisions for pricing and terms can again be renegotiated under a contract reopener provision in early 2002. The coal for Rodemacher Unit 2 is transported under a long-term rail transportation contract with the Union Pacific Railroad. In 1997 and 1998, Union Pacific experienced operating problems that resulted in reduced volumes delivered to the unit with the coal inventory 8 of the unit fluctuating at or below our desired minimum level. However, in 1999 and the first nine months of 2000, the deliveries of coal by the railroad were back to the normal schedule. We use lignite fuel for generation at Dolet Hills Unit 1. Substantially all of the lignite used to fuel Dolet Hills Unit 1 is obtained under two long- term agreements. We and Southwestern Electric Power Company (SWEPCO), each a 50% owner of Dolet Hills Unit 1, have entered into agreements pursuant to which each acquired an undivided 50% interest in the other's leased and owned lignite reserves in northwestern Louisiana. We and SWEPCO also have entered into a long-term agreement expiring in 2011 with the Dolet Hills Mining Venture (DHMV) for the mining and delivery of such lignite reserves. These reserves are expected to provide a substantial portion of the fuel requirements for the projected operating life of Dolet Hills Unit 1. Our minimum annual purchase requirement under the agreement with DHMV is 1,750,000 tons. The price of lignite delivered pursuant to the agreement is a base price per ton, subject to escalation based on certain inflation indices, plus specified "pass-through" costs. Additional spot lignite may be obtained through competitive bidding. We are currently engaged in litigation involving our agreement with DHMV. For information regarding this litigation, see "Item 8. Legal Proceedings" below. Additionally, we and SWEPCO have entered into a long-term agreement expiring in 2011 with Red River Mining Co., a joint venture of the North American Coal Corporation and Phillips Coal Company, which provides for base contract purchases and spot purchases of lignite. Our minimum annual purchase requirement is 550,000 tons. The base lignite price under the agreement is a base price per MMBtu, subject to escalation, plus certain "pass-through" costs, while the spot lignite price is determined through competitive bidding. The continuous supply of coal and lignite from the mining sources described above may be subject to interruption due to adverse weather conditions or other factors that may disrupt mining operations or transportation. At September 30, 2000, our coal inventory at Rodemacher Unit 2 was approximately 128,088 tons (about a 62-day supply) and our lignite inventory at Dolet Hills Unit 1 was approximately 199,366 tons (about a 34-day supply). Oil Supply We store fuel oil as an alternative fuel source. Rodemacher has storage capacity for an approximate 75-day supply and our other generating stations have storage capacity totaling about a 20-day supply. However, in accordance with our current fuel oil inventory practices, at September 30, 2000, we had between 5 to 10 days' supply of fuel oil stored at our generating stations. During 1999 and the first nine months of 2000, no barrels of fuel oil were burned. Sales We are a public utility engaged principally in the generation, transmission, distribution and sale of electricity within the State of Louisiana. For further information regarding our generating stations and transmission and distribution facilities, see "--Power Generation" above and "Item 3. Properties" below. Our 1999 system peak demand occurred in August and was 1,767,000 kW. Our 2000 year-to-date system peak demand occurred in August and was 1,839,000 kW. Our sales and peak demand are affected and influenced by weather and are generally highest during the 9 summer air-conditioning and winter heating seasons. For information concerning the financial effects of seasonal demand on our quarterly operating results, see Note P to the audited financial statements included in Annex F to this registration statement. We expect the peak demand on our system to grow at a compound annual rate of approximately 2% to 3% over the next five years. Our capacity reserve margin for 1999 was 6.3% and for the first nine months of 2000 was 7.7%. To meet our capacity reserve margin for 2000, we purchased 605 MW of firm capacity and transmission service that began on June 1, 2000, and increases to 760 MW in 2004 pursuant to several agreements. See "--Power Purchases" above for a description of these power purchase agreements. We believe we can meet our anticipated growth in customer demand by purchasing the required capacity on the wholesale market. Future capacity requirements may be satisfied by continuing to purchase power on the wholesale market, adding capacity to existing power plants or building new power plants. Marketing Operations We began marketing electricity into the Entergy market in mid-1998. In 1999, we expanded that activity into the Cinergy market. In 1999, we also began marketing natural gas. We have seen a reduction in energy marketing revenues in 2000 when compared with prior years due to a reduced level of energy trading activity resulting from a refinement of trading practices to target selective market opportunities and due to the transfer of specific CPS generating assets to Evangeline. If we have excess electricity capacity or excess natural gas at our power plants, Cleco Marketing & Trading LLC (Marketing & Trading) markets the excess on our behalf. Marketing & Trading also develops a monthly gas procurement strategy for us, giving priority to achieving a reliable supply of gas to fuel our power plants, maintaining operational flexibility and cost of service in developing the strategy. ENERGY MARKETING OPERATIONS NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, --------------------------- ----------------------- 2000 1999 1998 ------- ------- ------- (IN THOUSANDS) Revenue $13,000 $237,731 $32,695 Purchases 9,487 230,084 27,322 ------- -------- ------- Gross Margin $ 3,513 $ 7,647 $ 5,373 10 REGULATORY MATTERS, INDUSTRY DEVELOPMENTS AND FRANCHISES Rates Our retail electric operations are subject to the jurisdiction of the LPSC with respect to rates, standards of service, accounting and other matters. We also are subject to the jurisdiction of the FERC with respect to certain aspects of our business, including rates for wholesale service, interconnections with other utilities and the transmission of power. Periodically, we have sought and received increases in base rates from both the LPSC and the FERC to cover increases in operating costs and costs associated with additions to generation, transmission and distribution facilities. Our electric rates include a fuel and purchased power cost adjustment clause that enables us to adjust rates for monthly fluctuations in the cost of fuel and short-term purchased power. Pretax income from certain off-system sales to other utilities is passed on to customers through a reduction in fuel cost adjustment billing factors. Fuel costs and fuel adjustment billing factors are approved by the LPSC and the FERC. These cost adjustments are based on costs from earlier periods that can result in over- or under-recovery for the period in which the adjustment is made. Any over- or under-recovery is corrected by an adjustment in later periods. At September 30, 2000, the net accumulated asset for under-recovery on sales subject to the LPSC's jurisdiction was approximately $10.6 million, which is reported as Accumulated deferred fuel on the unaudited Interim Balance Sheets included in Annex F to this registration statement. The LPSC elected in 1993 to review the earnings of all electric, gas, water and telecommunications utilities that it regulates to determine whether the returns on equity of these companies were higher than returns that might be awarded in the economic environment at that time. In 1996, the LPSC approved a settlement of our earnings review, which lowered our electricity rates. The terms of the settlement were to be effective for a five-year period. In February 1999, the period was extended three years until 2004. For information regarding this settlement, see "Management's Discussion and Analysis of Financial Condition and Results of Operations Financial Condition--Retail Rates" in "Item 2. Financial Information" below. Franchises We operate under nonexclusive franchise rights granted by governmental units, such as municipalities and parishes (counties), and enforced by state regulation. These franchises are for fixed terms, which vary from 10 years to 50 years. In the past, we have been substantially successful in the timely renewal of franchises as each reaches the end of its term and expires. We are currently negotiating with the City of Jeanerette for franchise rights applicable to its approximately 3,000 customers. Our franchise with the City of Opelousas, which has 10,873 customers, was scheduled to expire in August 2001. In November 2000, we successfully negotiated the renewal of that franchise for a term of ten years, beginning August 2001. Our franchises with the cities of Washington and Franklinton, and their 1,891 and 2,484 customers respectively, will be up for renewal in 2003. We were successful in an October 7, 2000, referendum to renew our franchise agreement with the City of New Iberia, where we currently serve 18,744 customers, for a term of 25 years. No other franchises expire until 2008. A number of parishes have attempted in recent years to impose franchise fees on retail revenues earned within the unincorporated areas we serve. If the parishes are ultimately successful, taxes other than income taxes could increase substantially in future years. 11 Industry Developments Technological improvements in recent years have somewhat lessened the historical barriers to entry in the electric utility industry and have set in motion statutory and regulatory changes aimed at increased competition in the industry. Federal and state legislation and new regulatory initiatives designed to restructure electricity markets will likely produce even greater competition at both wholesale and retail levels in the future. The LPSC is investigating whether retail choice is in the best interest of Louisiana electric utility customers. During 1999, the LPSC directed its staff to develop a transition-to- competition plan, which is scheduled to be released by the LPSC in January 2001. We and a number of parties, including the other Louisiana electric utilities, certain power marketing companies and various associations representing industry and consumers, have been participating in electric industry restructuring proceedings before the LPSC since 1997. Several neighboring states have taken steps to initiate retail choice by 2002. At the federal level, several bills, some with conflicting provisions, were introduced during 1999 and 2000 to promote a more competitive environment in the electric utility industry. Management expects the debate relating to retail choice and other related issues to continue in legislative and regulatory bodies through the remainder of 2000 and in 2001. At this time, we cannot predict whether any legislation or regulation will be enacted or adopted during the remainder of 2000 or in 2001 and, if enacted, what form such legislation or regulation would take. Wholesale Electric Competition The Energy Policy Act, enacted by Congress in 1992, significantly changed U.S. energy policy, including regulations governing the electric utility industry. The Energy Policy Act allows the FERC, on a case-by-case basis and with certain restrictions, to order wholesale transmission access and to order electric utilities to enlarge their transmission systems. The Energy Policy Act prohibits FERC-ordered retail wheeling (i.e., opening up electric utility transmission systems to allow customer choice of energy suppliers at the retail level), including "sham" wholesale transactions. Further, under the Energy Policy Act, a FERC transmission order requiring a transmitting utility to provide wholesale transmission services must include provisions generally permitting the utility to recover from the FERC applicant all of the costs incurred in connection with the transmission services, including any enlargement of the transmission system and any associated services. In addition, the Energy Policy Act revised the 1935 Act to permit utilities, including registered holding companies, and nonutilities to form "exempt wholesale generators" without the principal restrictions of the 1935 Act. Under prior law, independent power producers were generally required to adopt inefficient and complex ownership structures to avoid pervasive regulation under the 1935 Act. In 1996, the FERC issued Orders No. 888 and 889 requiring open access to utilities' transmission systems. The open access provisions require FERC- regulated electric utilities to offer third parties access to transmission under comparable terms and conditions as the utilities' use of their own systems. In addition, Order No. 888, as amended, provides for the full recovery from a utility's departing customers of wholesale stranded costs, to the extent such costs were prudently incurred to serve wholesale customers and would go unrecovered if those customers used open access transmission service and moved to another electricity supplier. Order No. 888, 12 as amended, also allows customers under existing wholesale sales contracts to seek FERC approval to modify their contracts on a case-by-case basis. Because of the "grandfather" provisions of Orders No. 888 and 889, most of our existing transmission contracts are not affected by Orders No. 888 and 889. To date, the orders have not had a material impact on our operations or financial condition. In 1999, the FERC issued Order No. 2000, which further defines the operation of utilities' transmission systems. Order No. 2000 establishes a general framework for all transmission-owning entities in the nation to place their transmission facilities under the control of appropriate Retail Transmission Organizations (RTO). Although participation is voluntary, the FERC has made it clear that any jurisdictional entity not participating in an RTO will be subject to further regulatory steps. Current objectives state that all electric utilities that own, operate or control interstate transmission facilities should participate in an RTO that will be operational no later than December 15, 2001. On October 16, 2000, we submitted a filing with the FERC stating that we will likely join the Southwest Power Pool's (SPP) RTO either as a member of the SPP Independent System Operator (ISO) or as part of Entergy's Transco by December 15, 2001. Our decision will be made once the details of the transmission companies are finalized. The transfer of control of our transmission facilities to an RTO has the potential to materially affect our results of operations and financial condition. Wholesale energy markets, including the market for wholesale electric power, have been competitive and are becoming even more so as the number of participants in these markets increases as a result of enactment of the Energy Policy Act and the regulatory activities of the FERC. Retail Electric Competition Currently, the LPSC does not provide exclusive service territories for electric utilities under its jurisdiction. Instead, retail service is obtained through the long-term, nonexclusive franchises described above under "-- Franchises." The LPSC uses a "300 foot rule" for determining the supplier for new customers. The application of this rule has led to competition with neighboring utilities for retail customers at the borders of our service areas. We also compete in our service area with suppliers of alternative forms of energy, some of which may be less costly than electricity for certain applications. We could experience some competition for electric sales to industrial customers in the form of cogeneration or from independent power producers. However, we believe that our rates and the quality and reliability of our service place us in a favorable competitive position in current retail markets, as we have ranked No. 1 in reliability among electric utility companies in our state for the past two years, based upon annual filings in the LPSC Reliability Order. Legislative and Regulatory Changes and Matters Various federal and state legislative and regulatory bodies are considering a number of issues in addition to those discussed above that will shape the future of the electric utility industry. Such issues include, among others: . the deregulation of retail electricity sales; 13 . the ability of electric utilities to recover stranded costs; . the repeal or modification of the 1935 Act; . the unbundling of vertically integrated electric utility companies into separate business segments or companies (i.e., generation, transmission, distribution and retail energy service); . the role of electric utilities, independent power producers and competitive bidding in the construction and operation of new generating capacity; and . the pricing of transmission service on an electric utility's transmission system. We are unable, at this time, to predict the outcome of these issues or their effect on our financial position, results of operations or cash flows. For information on certain regulatory matters and regulatory accounting affecting us, see "--Management's Discussion and Analysis of Financial Condition and Results of Operations--Financial Condition--Regulatory Matters" in "Item 2. Financial Information" below. ENVIRONMENTAL MATTERS Environmental Quality We are subject to numerous laws and regulations administered by federal, state and local authorities to protect the environment. These statutory and regulatory provisions impose various substantive requirements, the violation of which may result in substantial fines and penalties. Environmental requirements continue to increase as a result of new legislation, administrative actions and judicial interpretations. Therefore, the precise future effects of existing and potential requirements are difficult to determine. During 1999 and the first nine months of 2000, our capital expenditures related to environmental compliance totaled approximately $3.7 million and $0.5 million, respectively, due largely to the installation of peaking cooling towers at one of our generating stations in 1999. Expenditures related to environmental compliance for the remainder of 2000 and for 2001 are estimated to total approximately $0.6 million and $1.3 million, respectively. Air Quality The State of Louisiana regulates emissions from each of our generating units through regulations issued by the Air Quality Division (AQD) of the Louisiana Department of Environmental Quality (LDEQ). In addition, the AQD implements certain programs initially established by the federal Environmental Protection Agency (EPA). The AQD establishes standards of performance or requires permits for certain generating units in Louisiana. All of our generating units are subject to these requirements. The federal Clean Air Act Amendments of 1990 (the Act) established a regulatory program to address the effects of acid rain and imposed restrictions on sulfur dioxide (SO2) 14 emissions from certain generating units. The Act essentially requires that utilities, like us, must hold a regulatory "allowance" for each ton of SO2 emitted beginning in the year 2000. The EPA is required to allocate a set number of allowances to each affected unit based on its historic emission levels. After the initial allocation, we requested an adjustment to the allowance allocation for Rodemacher Unit 2 because of an extended outage of the unit during one of the years used in the EPA's calculation. Because the final allowance allocation did not reflect the requested adjustment, we filed a petition for judicial review of the EPA's action in May 1993 in the United States Court of Appeals for the District of Columbia Circuit. In October 1995, the EPA signed a settlement agreement in which it agreed to give Rodemacher Unit 2 the additional allowances requested. In December 1996, the EPA published proposed changes to the Acid Rain Program that would grant Rodemacher Unit 2 the additional allowances. In June 1998, the proposed changes were made final. The Act also requires the EPA to revise nitrogen oxides (NOx) emission limits for existing coal-fired boilers. In November 1996, the EPA finalized rules lowering the NOx emission rate for certain boilers, including Rodemacher Unit 2 and Dolet Hills Unit 1. Under this rule, Rodemacher Unit 2 and Dolet Hills Unit 1 would have had to meet this new emission rate by January 1, 2000. The rule also allows an option to "early elect," that is, achieve compliance with a less restrictive NOx limit beginning January 1, 1997. We exercised this option in December 1996. Early election protects us from any further reductions in the NOx permitted emission rate until 2008. Rodemacher Unit 2 and Dolet Hills Unit 1 were in compliance with the NOx early election limits in 1998, 1999 and the first nine months of 2000 and are expected to continue to be in compliance during the remainder of 2000 without undergoing significant capital improvements. Significant future reductions in NOx emission limits may require modification of burners or other capital improvements at either or both of these units. Water Quality We have received from the EPA all National Pollutant Discharge Elimination System (NPDES) permits required under the Clean Water Act for discharges from our four generating stations. NPDES permits have fixed dates of expiration and we have applied for renewal of these permits within the applicable time periods. The Office of Water Resources of the LDEQ requires facilities that discharge wastewater into Louisiana waters to obtain permits from the Louisiana Pollution Discharge Elimination System (LPDES). We have applied for and received LPDES permits for our four generating stations. The federal Clean Water Act, which was passed in 1972, contains provisions requiring the EPA to evaluate all bodies of water within its jurisdiction to determine if they meet water quality standards and to establish a program to bring noncompliant bodies of water into compliance with the standards. Given the enormous number of bodies of water required to be evaluated and the complexity of standards set forth in the Clean Water Act, the EPA has not completed the requirements. In the last few years, environmental groups have sued the EPA over the failure to address these requirements of the Clean Water Act. In October 1999, the EPA received a federal court order to develop and implement Total Maximum Daily Loadings (TMDLs) for all impacted streams in Louisiana. The TMDLs will restrict the amount of specific covered pollutants that may be discharged under revised permits that will incorporate the limitations of TMDL. We are evaluating the potential impact of TMDL limitations to our 15 facilities. Similar court proceedings against the EPA are occurring throughout the United States over enforcement of the federal Clean Water Act. Solid Waste Disposal The Solid Waste Division (SWD) of the LDEQ has adopted regulations and a permitting system for the management and disposal of solid waste generated by power stations. We have received all required permits from the SWD for the on- site disposal of solid waste generated at our four generating stations. Hazardous Waste Generation We produce certain wastes at our four generating stations and at other locations that are classified as hazardous. The Hazardous Waste Division of the LDEQ regulates these wastes and has issued identification numbers to the sites where such wastes are produced. We do not treat, store or dispose of these wastes on-site; therefore, no permits are required. All hazardous wastes we produce are disposed of at federally permitted hazardous waste disposal sites. Toxics Release Inventory The Toxics Release Inventory (TRI) is a part of the Emergency Planning and Community Right to Know Act and is administered by the EPA. The TRI is an annual reporting requirement for industrial facilities on about 650 substances they release into air, water and land. The TRI ranks companies based on how much of a particular substance they release on a state level and a parish (county) level. On May 1, 1997, the EPA added seven new industry groups to the TRI, including electric utility facilities. Before the 1997 additions, we were exempt from the reporting requirements of the TRI. We submitted TRI reports on our 1998 activities before July 1, 1999. The EPA and LDEQ reported TRI data in May and June 2000, respectively. The rankings do not result in any federal or state penalties, but may result in adverse public perceptions of us. Management is aware of the potential adverse effects and has taken steps to mitigate the situation. Electric and Magnetic Fields The possibility that exposure to electric and magnetic fields (EMF) emanating from electric power lines, household appliances and other electric devices may result in adverse health effects or damage to the environment has been a subject of current public attention. We fund research on EMFs through various organizations. The scientific research conducted to date concerning the effects of EMFs has not led to any definitive results, but research is continuing. Lawsuits alleging that the presence or use of electric power transmission and distribution lines has an adverse effect on health and/or property values have arisen in several states against electric utilities and others. CUSTOMERS No customer accounted for 10% or more of our electric operating revenues in 1999 or the first nine months of 2000. Additional information regarding our sales and revenues is set forth in "--Management's Discussion and Analysis of Financial Condition and Results of Operations--Results of Operations" in "Item 2. Financial Condition" below. 16 EMPLOYEES At September 30, 2000, we had 664 full-time employees. Employee relations are good and we have not had any material work stoppage due to labor disagreements. 17 ITEM 2. FINANCIAL INFORMATION. SELECTED FINANCIAL DATA The following tables present our selected financial data. The data set forth below should be read together with "--Management's Discussion and Analysis of Financial Condition and Results of Operations" below and our historical financial statements and the notes to those statements included in Annex F to this registration statement. Our selected income statement data for the years ended December 31, 1995, 1996, 1997, 1998 and 1999 and our selected balance sheet data as of December 31, 1998 and 1999 are derived from audited financial statements. Our selected income statement data for the nine months ended September 30, 1999 and 2000 and our selected balance sheet data at September 30, 2000 have been derived from our unaudited interim financial statements, and include, in the opinion of management, all adjustments (consisting only of normal recurring accruals) necessary to present fairly the data for such periods. Our financial information for periods prior to July 1, 1999 include the results of former subsidiaries that were transferred to Cleco in connection with the reorganization into a holding company structure.
AS AND FOR THE AS AND FOR THE NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, ----------------------- -------------------------------------------------------------- 2000 1999 1999 1998 1997 1996 1995 ---------- ---------- ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AND DIVIDEND AMOUNTS) Income Statement Data - --------------------- Operating Revenues $ 481,716 $ 618,855 $ 751,561 $ 515,175 $ 456,245 $ 437,121 $ 396,227 Net Income $ 49,290 $ 45,270 $ 55,636 $ 51,664 $ 50,402 $ 50,061 $ 46,651 Basic EPS $ 2.19 $ 2.01 $ 2.47 $ 2.30 $ 2.24 $ 2.23 $ 2.08 Diluted EPS $ 2.19 $ 2.01 $ 2.43 $ 2.24 $ 2.18 $ 2.16 $ 2.02 Cash dividends per $ 1.76 $ 2.63 $ 3.96 $ 1.61 $ 1.57 $ 1.53 $ 1.49 common share Balance Sheet Data - ------------------ Total Assets $1,310,646 $1,525,570 $1,418,145 $1,429,000 $1,361,044 $1,321,771 $1,266,034 Long-Term Debt, net $ 335,383 $ 360,322 $ 360,339 $ 343,042 $ 365,897 $ 340,859 $ 360,822 Redeemable Preferred Stock $ -0- $ -0- $ -0- $ 5,680 $ 6,120 $ 6,372 $ 6,610
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in combination with our audited and unaudited interim financial statements and the notes thereto contained in Annex F to this registration statement. We are an electric utility that contains LPSC jurisdictional generation, transmission and distribution electric utility operations. We provide electric utility services to approximately 249,000 retail and wholesale customers in 63 communities and rural areas in an approximately 14,000-square mile region in the State of Louisiana. Effective July 1, 1999, we 18 were reorganized into a holding company structure. This reorganization resulted in the formation of Cleco as a new holding company, which became the owner of all our outstanding common stock. In connection with the reorganization, we transferred the shares of capital stock and member's equity of all our subsidiaries to Cleco. Accordingly, financial statements and data in this registration statement that pertain to the periods prior to our holding company reorganization include amounts related to subsidiaries that are no longer our subsidiaries. RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31, ---------------------------- -------------------------------------------------- 2000 1999 1999 1998 1997 -------- -------- -------- -------- -------- Operating Revenues (IN THOUSANDS) Base $247,369 $237,360 $306,225 $296,893 $278,412 Fuel cost recovery 214,799 151,918 202,565 190,387 177,833 Energy marketing 13,000 230,418 237,731 32,695 - Affiliate revenues 7,781 4,259 7,816 - - Customer credits (1,233) (5,100) (2,776) (4,800) - -------- -------- -------- -------- -------- Total Operating Revenues $481,716 $618,855 $751,561 $515,175 $456,245 Operating Expenses Fuel $126,437 $104,480 $146,825 $142,737 $136,009 Purchased power 94,425 52,966 65,303 53,011 44,590 Energy marketing 9,487 223,225 230,084 27,322 - Other operations 58,192 54,217 75,856 71,066 64,618 Maintenance 24,372 23,321 29,369 30,285 23,286 Depreciation 37,162 37,345 49,285 48,369 45,890 Taxes other than income 27,786 27,425 35,870 35,420 33,422 Income taxes 25,974 24,794 27,272 26,666 27,729 Restructuring charges - - - - 1,891 Affiliate costs 6,420 3,880 6,397 - - -------- -------- -------- -------- -------- Total Operating Expenses $410,255 $551,653 $666,261 $434,876 $377,435 -------- -------- -------- -------- -------- Operating Income $ 71,461 $ 67,202 $ 85,300 $ 80,299 $ 78,810 -------- -------- -------- -------- -------- Other income (expense), net (425) (14) (203) 862 2,295 Interest charges including amortization of debt expense, premium and discount and AFUDC 21,746 20,899 28,414 27,360 28,586 Preferred dividend requirements, net - 1,047 1,047 2,137 2,117 -------- -------- -------- -------- -------- Net income applicable to common stock $ 49,290 $ 45,270 $ 55,636 $ 51,664 $ 50,402 ======== ======== ======== ======== ========
Weather influences the demand for electricity, especially among residential customers. Demand for electricity by commercial and industrial customers is primarily dependent upon the strength of the economy in the service territory and the nation and is less affected by weather. Sales to industrial customers are also affected by the worldwide demand for wood products, since our two largest customers are producers of such products. The following 19 charts compare the kilowatt-hour sales by customer class, for the years ended December 31, 1999, 1998 and 1997 and the nine months ended September 30, 2000 and 1999.
FOR THE YEAR ENDED DECEMBER 31, ------------------------------------------------------------------------------------- 1999 1998 1997 ------------------------------------------------------------------------------------- MILLION PERCENT MILLION PERCENT MILLION PERCENT KWH CHANGE KWH CHANGE KWH CHANGE ---------- ------------- ----------- ------------ ---------- ------------- Retail electric customers Residential........................ 3,208 (0.7%) 3,230 13.8% 2,838 4.2% Commercial......................... 1,597 4.4% 1,529 9.8% 1,393 4.1% Industrial......................... 2,720 8.0% 2,518 2.1% 2,467 4.1% Other retail....................... 574 3.4% 555 4.1% 533 1.3% Sales for resale................... 373 (7.2%) 402 29.3% 311 6.9% ------ ----- ----- ----- ----- ----- Total sales to regular customers..... 8,472 2.9% 8,234 9.2% 7,542 4.1% Short-term sales to other utilities.. 126 65.8% 76 (51.6%) 157 (52.4%) Sales from marketing activities...... 5,815 467.3% 1,025 - - - ------ ----- ----- ----- ----- ----- Total electric sales....... 14,413 54.4% 9,335 21.2% 7,699 1.6% ====== ===== ===== ===== ===== =====
FOR THE NINE MONTHS ENDED SEPTEMBER 30, -------------------------------------------------- 2000 1999 ----------------------------- ----------------- MILLION PERCENT MILLION KWH Change kWh --------------- ----------- ------------- Retail electric customers Residential......... 2,589 2.4% 2,529 Commercial.......... 1,290 2.9% 1,253 Industrial.......... 2,198 7.8% 2,039 Other retail........ 93 6.9% 87 Sales for resale.... 661 (4.7%) 694 ----- ----- ------ Total sales to regular customers.... 6,831 3.5% 6,602 Short-term sales to other utilities...... 36 (70.5%) 122 Sales from marketing activities........... 196 (96.7%) 5879 ----- ----- ------ Total electric sales...... 7,063 44.0% 12,603 ===== ===== ====== During the last five years, electric sales growth to retail electric customers averaged 5.6% and, based on current information, is expected to range from 2% to 3% per year during the next five years. The levels of future sales will depend upon factors such as weather conditions, customer conservation efforts, retail marketing and business development programs, and the overall economy of the service area. Some of the issues facing the electric utility industry that could affect sales include deregulation, retail wheeling, legislative and regulatory changes, retention of large industrial customers, franchises and access to transmission systems. Sales from energy marketing activities are primarily affected by transmission constraints, demand versus supply, market prices and our marketing strategies. Changes in fuel and purchased power expenses reflect fluctuations in generation mix, fuel costs, availability of economy power and deferral of expenses for recovery from customers through fuel adjustment clauses in subsequent months. The following tables show the amount and changes in fuel and purchased power expenses for the years ended December 31, 1999, 1998 and 1997 and for the nine months ended September 30, 2000 and 1999. 20
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------------------------------------------- 1999 1998 1997 -------------------------------------------------------------------------- IN PERCENT IN PERCENT IN PERCENT THOUSANDS CHANGE THOUSANDS CHANGE THOUSANDS CHANGE --------- -------- --------- -------- --------- --------- Fuel used for electric generation $146,825 2.9% $142,737 4.9% $136,009 17.6% Power purchased.................. 65,303 23.2% 53,011 18.9% 44,590 (19.8%) -------- ----- -------- ---- -------- ----- Total fuel expenses.... $212,128 8.4% $195,748 8.4% $180,599 5.4% ======== ===== ======== ==== ======== ===== Gas purchased for marketing...... $ 24,687 - - - - - Power purchased for marketing.... $205,397 651.8% $ 27,322 - - -
FOR THE NINE MONTHS ENDED SEPTEMBER 30, ------------------------------------------- 2000 1999 -------------------------- ------------ IN PERCENT IN THOUSANDS CHANGE THOUSANDS ------------- ---------- ------------- Fuel used for electric generation.... $126,437 21.0% $104,480 Power purchased...................... 94,425 78.3% 52,966 -------- ----- -------- Total fuel expenses........ $220,862 40.3% $157,446 ======== ===== ======== Gas purchased for marketing.......... $ 5,624 (71.3%) $ 19,619 Power purchased for marketing........ 2,107 (98.9%) 203,606 Option expense....................... $ 1,756 - - Total marketing expenses... $ 9,487 (95.7%) $223,225 ======== ===== ======== Nine Months Ended September 30, 2000 compared to Nine Months Ended September 30, 1999 Operating revenues for the nine months ended September 30, 2000, were $137.1 million, or 22.2% less than the same period in 1999. The decrease in operating revenues was due to a reduced level of trading activity, partially offset by higher base, fuel and transmission revenues, along with increased customer ancillary charges for disconnects and reconnects. Year-to-date base revenues were higher than the same period in 1999 due to customer growth, warmer weather, and higher large customer sales. KWh sales to residential customers increased 2.4% compared to the same period in 1999, increasing base revenues for the nine months ended September 30, 2000 by $2.4 million as compared to the same period in 1999. KWh sales to industrial customers were 7.8% higher than the same period in 1999 due to increased usage. Fuel cost recovery revenues for the nine months ended September 30, 2000, increased primarily from sales to residential customers, which increased $25.7 million, and sales to industrial customers, which increased $18.2 million in relation to the same period in 1999. The increase in fuel cost recovery revenues is related to higher kWh sales and increased natural gas prices for the nine months ended September 30, 2000, compared to the same period in 1999. Changes in fuel costs have historically had no effect on net income, as fuel costs are generally recovered through fuel costs adjustment clauses that enable us to pass on to customers substantially all changes in the cost of generating fuel and purchased power. These adjustments are audited monthly and are regulated by the LPSC (representing about 99% of the total fuel cost adjustment) and the FERC. Until approval is received, the adjustments are subject to refund. Energy marketing revenues for the nine months ended September 30, 2000, decreased $217.4 million as compared to the same period in 1999. We have seen a reduction in energy marketing revenues in 2000 when compared with prior years due to a reduced level of energy trading activity. The reduced trading activity resulted from a refinement of trading practices and from the transfer of specific CPS generating assets to Evangeline. 21 Affiliate revenues for the nine months ended September 30, 2000, increased by $3.5 million or 82.7% compared to the same period in 1999. The increase in affiliate revenues is primarily the result of leasing office space to Cleco Support Group LLC (Support Group) beginning January 2000, as well as providing supplemental line construction and line maintenance crews and selected distribution and transmission engineering projects for Utility Construction & Technology Solutions LLC (UtiliTech) and providing interconnection and generation imbalance services to Evangeline. For more information see "--Intercompany Transactions" in "Item 7. Certain Relationships and Related Transactions" below. Operating Revenues for the nine months ended September 30, 2000, were decreased by a $1.2 million accrual for estimated customer credits, which was a $3.9 million decrease from the $5.1 million accrual recognized for the same period in 1999. Accruals for estimated customer credits may be required under terms of an earnings review settlement reached with the LPSC in 1996. For more information regarding the earnings review settlement, see "--Financial Condition--Retail Rates" below. Operating expenses decreased $141.4 million or 25.6% during the nine months ended September 30, 2000, compared to the same period in 1999. The decrease in operating expenses is primarily the result of a decrease in energy marketing expenses, partially offset by increased capacity charges and higher fuel costs. Energy marketing expenses decreased $213.7 million compared to the same period in 1999 due to the same factors noted above for decreases in energy marketing revenues. Offsetting the decrease in energy marketing expenses was an increase of $63.4 million in fuel and purchased power for retail utility operations due to the increased kWh sales and increased energy prices primarily driven by increases in natural gas prices as compared to the first nine months of 1999. We purchase power from other power generators when the price of the energy purchased is less than the cost to us of generating such energy from our own facilities or when our generating units are unable to provide electricity to satisfy our load. Thirty-five percent of our energy requirements during the nine months ended September 30, 2000, were met with purchased power, compared to 30% for the corresponding period in 1999. The increase was caused by the replacement of the CPS output with a power contract with Williams Energy and to a lesser extent by outage for maintenance at Dolet Hills in 2000, both requiring us to purchase more power in the third quarter of 2000 than we did in the third quarter of 1999 to meet load requirements. The increase was also caused by increased kWh sales in the first nine months of 2000 compared to the same period of 1999. Affiliate costs for the nine months ended September 30, 2000, increased by $2.5 million or 65.5% compared to the same period in 1999. The increase in affiliate costs is primarily due to the lease of office space to Support Group beginning in January 2000, as well as providing supplemental line construction and maintenance crews for UtiliTech and interconnection services to Evangeline. For more information on these services, see "--Intercompany Transactions" in "Item 7. Certain Relationships and Related Transactions" below. Maintenance and depreciation expenses for the nine months ended September 30, 2000, remained relatively flat compared to the same period in 1999. Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Operating revenues for the year ended December 31, 1999, were 45.9% greater than the same period in 1998. The increase was primarily due to increased marketing activities. Electric marketing operation activities did not commence until late in the second quarter of 1998 22 and were still in start-up mode in the third quarter of 1998. Also contributing to the increase was a 4.2% increase in base revenues. The increased sales were attributable to above normal additions of commercial customers and continued overall health of the economy in our service territory. Approximately half of the $9.3 million increase in base revenues for the year 1999, as compared to the same period in 1998, was due to a 2.9% increase in sales to regular customers. The remainder of the increase was due to increased transmission and miscellaneous revenues. Fuel cost recovery revenues collected for the year 1999 increased $12.2 million, as increased demand for power necessitated the purchase of more power on the wholesale market at higher prices than in 1998. Energy marketing revenues increased $205.0 million in 1999 as compared to 1998 due to growth and expansion in our electric marketing operation. Our electric marketing operation commenced late in the second quarter of 1998 and was not fully operational until 1999. The operation expanded from trading only on the Into Entergy market in 1998 to also trading on the Cinergy market in 1999. Our electric marketing operation also started marketing natural gas in 1999. The increase in sales to commercial and industrial customers during 1999 as compared to 1998 resulted primarily from increased economic growth in the region served by us and in the United States generally. Affiliate revenues for the year ended December 31, 1999, were $7.8 million greater than the same period in 1998 due to the formation of a holding company on July 1, 1999. Prior to July 1999, all affiliates were subsidiaries of the Company and their operations were included with those of the Company and reflected in our income/ (expenses), net. For more information on affiliate transactions after July 1, 1999, see Note L to the audited financial statements included in Annex F to this registration statement. Revenues in 1999 were decreased by a $2.8 million accrual for estimated customer credits, a $2 million decrease from the $4.8 million accrued in 1998. For more information see Note J to the audited financial statements included in Annex F to this registration statement. Operating expenses increased $231.4 million in 1999 as compared to 1998. The increase in operating expenses was primarily the result of an increase in energy marketing expenses. Our electric marketing operations were not fully operational until 1999. Total fuel expense increased $16.4 million in 1999. Total fuel expense increased due primarily to increased demand from native load customers, which necessitated the purchase of more power on the wholesale market at higher prices than in 1998. During 1999, 27% of our energy requirements were met with purchased power, up from 24% in 1998. Power purchased for marketing increased due primarily to a full year of activity by our energy marketing operation in 1999. Natural gas marketing did not begin until 1999. Interest expense for 1999 increased $1.1 million as compared to 1998. The increase was due to higher interest rates on variable-rate, short-term debt during 1999, higher interest expense on pollution control bonds due to the refinancing of the bonds at a fixed rate, and the replacement of short-term debt with medium-term notes in order to pre-fund the refinancing of 23 medium-term notes. Other operations expense, maintenance and depreciation expenses for the year 1999 remained relatively flat compared to the year 1998. Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Operating revenues in 1998 were reduced, compared to 1997, by a $4.8 million provision for customer rate refunds based on the 1996 LPSC settlement. Approximately $18.4 million of the $58.9 million increase in 1998 operating revenues was due to an increase in base revenues from a 9.2% growth in kWh sales to regular customers. Approximately $32.7 million of the increase was due to sales from energy marketing operations, which began in 1998. Fuel cost recovery revenues collected in 1998 increased $12.5 million over 1997 due to the increased demand for power, higher market prices for purchased power and the increased use of natural gas as generating fuel instead of coal and lignite. The increase in sales to residential customers during 1998 as compared to 1997 resulted primarily from warmer-than-normal spring and summer seasons in 1998. Sales to residential customers were also boosted by the addition of 7,700 mostly residential customers on September 30, 1997, through the acquisition of the business of a rural electric cooperative utility, Teche Electric Cooperative, Inc. (Teche). Sales to commercial and industrial customers grew from 1997 as a result of customer growth and increased economic growth in the region served by us. Operating expenses increased $57.4 million for the year 1998 as compared to the same period in 1997. The increase in operating expenses was primarily the result of an increase in energy marketing expenses. Our electric marketing operations did not commence until late in the second quarter of 1998. Other operations expense increased due to increases in staffing. Maintenance expenses increased due to several unanticipated generating unit repairs due to mechanical problems and increased right-of-way reclearing. Depreciation expense increased primarily due to a full year of depreciation on property additions associated with the acquisition of the Teche assets and planned additions to generation, transmission and distribution facilities. Total fuel expense increased $15.1 million in 1998 over 1997. The increase was primarily a result of the increased demand for power, higher market prices for purchased power, and the increased use of natural gas as generating fuel instead of coal and lignite. Power marketing was in its first year of operation in 1998. During 1998, 24% of our energy requirements were met with purchased power, the same amount as in 1997. Allowance for Funds Used During Construction AFUDC represents the estimated cost of financing LPSC and FERC rate- regulated construction work-in-progress and is not a current source of cash. A return on and recovery of AFUDC is permitted by regulatory bodies in setting rates charged for utility services. AFUDC for the first nine months of 2000 increased 45.9% due to increased short-term borrowings over the same period in 1999. AFUDC for 1999 decreased as a result of lower LPSC and FERC rate- regulated construction expenditures. AFUDC for 1998 increased as a result of higher LPSC and FERC rate-regulated construction. AFUDC accounted for 0.9% of net income applicable to common stock in 1999, compared to 2.2% in 1998 and 0.9% in 1997. 24 Financial Condition Liquidity and Capital Resources Financing for construction requirements and operational needs is dependent upon the cost and availability of external funds through capital markets and from financial institutions. Access to funds is dependent upon factors such as general economic conditions, regulatory authorizations and policies and our credit rating. At December 31, 1999 and 1998, we had $5.9 million and $68.4 million, respectively, of short-term debt outstanding in the form of commercial paper and bank loans. Short-term debt decreased as a result of the 1999 issuance of $50 million of medium-term notes by us. We used the proceeds from these medium term notes to refinance $10 million in medium-term notes that matured in May 1999, redeem $20 million of putable medium term notes in November 1999, and to pay down short-term debt. At September 30, 2000, we had $61.8 million in short-term debt outstanding. The increase in short-term debt as compared to December 30, 1999 was a result of $25 million in medium-term notes maturing and a normal lag between higher-than-normal fuel costs and the recovery of those fuel costs from customers. A $100 million revolving credit facility expired on June 15, 2000, and a new $100 million, 364-day revolving credit facility was finalized concurrently with the expiration. The $100 million facility supports the issuance of commercial paper and other general corporate purposes. Cash Generation and Cash Requirements--Cash Flows During 1999, cash flows from operating activities generated $150.9 million, as shown in the audited Statements of Cash Flows included in Annex F to this registration statement. Net cash provided by operating activities resulted from net income, adjusted for noncash charges to income, and changes in working capital. Net cash used in investing activities related to additions to property, plant and equipment and changes in utility and nonutility investments. Net cash used in financing activities resulted principally from the redemption of $82.4 million in commercial paper and $59.2 million in dividends paid. The outflows were reduced by issuance of $50 million in long-term debt. During the first nine months of 2000, cash flows from operating activities generated $44.4 million as shown in the unaudited Interim Statement of Cash Flows included in Annex F to this registration statement. Net cash provided by operating activities resulted from net income, adjusted for noncash charges to income, and changes in working capital. Net cash used in investing activities related to additions to property, plant and equipment and changes in utility and nonutility investments. 25 Cash Generation and Cash Requirements--Construction Overview Our construction consists of assets that may be added to our rate base with the cost, if considered prudent by the LPSC, being passed on to our customers. Those assets earn a rate of return restricted by the LPSC and are subject to the rate agreement described under "Retail Rates" below. Construction consists of additions to our distribution system, improvements to our transmission system and improvements at our generation stations. In 1997, we acquired the assets of Teche for $22.4 million. The assets consisted primarily of electric distribution lines and substations. The purchase added approximately 7,700 mostly residential customers to our distribution system. In recent years, our construction program has consisted primarily of enhancements to our transmission and distribution system and improvements at our generating stations. Construction expenditures, excluding AFUDC, totaled $51.7 million in 1999, $53.9 million in 1998, excluding $40.1 million in repowering of CPS which was subsequently transferred to Evangeline, $55.1 million in 1997, excluding purchase of the Teche assets and $31.7 million for the first nine months of 2000. Construction expenditures, excluding AFUDC, for the fourth quarter of 2000 are estimated to be $22.3 million and for the five-year period ending 2004 are expected to total $225 million. About one-half of the planned construction in the five-year period will support line extensions and substation upgrades to accommodate new business and load growth. Some investment will be made to rehabilitate older transmission, distribution and generation assets. We will also continue to invest in technology to allow us to operate more efficiently. In 1999, 100% of our construction requirements were funded internally, as compared to 99.8% in 1998 and 100% in 1997. In the first nine months of 2000, 99% of our construction requirements were funded internally. For the five-year period ending 2004, 99% of our construction requirements are expected to be funded internally. Cash Generation and Cash Requirements--Other Cash Requirements Scheduled maturities of debt and preferred stock have totaled approximately $25.0 million for the first nine months of 2000 and will total approximately $154.6 million for the five-year period ending 2004. We are currently pursuing becoming a "reporting person" under the Securities Exchange Act of 1934 in order to file a debt securities shelf registration statement. We expect to establish a new unsecured medium-term note program as part of this shelf registration. The Company will use the notes to paydown commercial paper balances and finance construction. Retail Rates Retail rates regulated by the LPSC accounted for approximately 66% of our revenues in 1999 and 95.6% of our revenues in the first nine months of 2000. The increase in the proportion of revenues affected by the rate making authority of the LPSC is due to the decrease in energy marketing revenues, which prices are primarily set by the wholesale market. Fuel costs and monthly fuel adjustment billing factors are subject to audit by the LPSC. In the past, we have sought increases in base rates to reflect the cost of service related to plant facility 26 additions and increases in operating costs. If we request an increase in our rates, and adequate rate relief is not granted on a timely basis, our ability to attract capital at reasonable costs to finance operations and capital improvements might be impaired. The LPSC elected in 1993 to review the earnings of all electric, gas, water and telecommunications utilities it regulates to determine whether the returns on equity of these companies were higher than returns that might be awarded in the economic environment at the time. In 1996 the LPSC approved a settlement of our earnings review, which provides our customers with lower electricity rates. A base rate decrease of $3 million annually became effective November 1, 1996, with a second decrease of an additional $2 million annually effective January 1, 1998. The terms of this settlement were to be effective for a five-year period. In February 1999, the period was extended three years until 2004 under an agreement with the LPSC to transfer the existing assets of CPS from our LPSC-regulated rate base into Evangeline, which repowered the CPS generating plant. During the eight-year period ending September 30, 2004, an LPSC-approved rate stabilization plan is in place. This plan allows us to retain all earnings equating to a regulatory return on equity up to and including 12.25% on our regulated utility operations. Any earnings which result in a return on equity over 12.25% and up to and including 13% will be shared equally between us and our customers. Any earnings above 13% will be fully refunded to customers. This effectively allows us the opportunity to realize a regulatory rate of return of up to 12.625%. As part of the rate stabilization plan, the LPSC will annually review our revenues and return on equity. If we are found to be achieving a regulatory return on equity above the minimum 12.25%, a refund will be made in the form of billing credits during the month of September following the evaluation period. Refunds of $6.1 million and $1.0 million were given in September 1999 and September 2000 respectively, reflective of the earnings level achieved in the previous earnings period. In October 2000, we agreed to pay an additional $0.5 million in refund relating to the September 1999 period to be paid to customers in September 2001. This additional refund was due to information obtained by the LPSC while reviewing a complaint filed with the LPSC by several line construction companies located within Louisiana. A reserve has been established for this additional refund. For more information on this complaint, see Note C to the unaudited interim financial statements included in Annex F to this registration statement. In November 1997, the LPSC issued an order in a generic docket that promulgated new standards for the monthly Fuel Adjustment Clause (FAC) rate filings of electric utility companies under its jurisdiction. The order adopted new rules and procedures for the monthly FAC computation and changes in reporting of fuel and purchased power cost. Although the order narrowed the types of costs that can be included in the FAC, it offset this reduction with an increase in base rates. New rate schedules that incorporate the shifting of costs from FAC to base rates were calculated and subsequently approved by the LPSC for implementation on January 1, 2000. The changes have not had significant impacts to our financial position or results of operations. Regulatory Matters We have recorded regulatory assets and liabilities, primarily for the effects of income taxes, as a result of past rate actions of regulators, pursuant to SFAS No. 71, "Accounting for the Effects of Certain Types of Regulation" (SFAS No. 71). The effects of potential deregulation of 27 the industry or possible future changes in the method of rate regulation could require us to discontinue the application of SFAS No. 71, pursuant to SFAS No. 101, "Regulated Enterprises--Accounting for the Discontinuation of Application of FASB Statement No. 71" (SFAS No. 101). At December 31, 1999, and September 30, 2000, we have recorded $18.7 million and $32.0 million, respectively, of regulatory assets, net of regulatory liabilities, because of the regulatory requirement to flow through the tax benefits of accelerated deductions to current customers and an implied regulatory compact that future customers would pay for additional taxes when we paid additional taxes. These differences occur over the lives of relatively long-lived assets, up to 30 years or more. Under the current regulatory and competitive environment, we believe that these regulatory assets are fully recoverable. However, if in the future, as a result of regulatory changes or increased competition, our ability to recover these regulatory assets would not be probable, then to the extent that these regulatory assets were determined not to be recoverable, we would be required to write off or write down these assets. SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed of" (SFAS No. 121), establishes accounting standards for determining if long-lived assets are impaired, and when and how losses, if any, should be recognized. We believe that the net cash flows that will result from the operation of our assets are currently sufficient to cover the carrying value of the assets. The Emerging Issues Task Force (EITF) assists the FASB in identifying emerging issues affecting financial reporting. In 1997, the EITF reached a consensus in Issue No. 97-4, "Deregulation of the Pricing of Electricity--Issues Related to the Application of FASB Statements No. 71 and 101" (EITF No. 97-4). EITF No. 97-4 specified that SFAS No. 71 should be discontinued at a date no later than when the details of a transition plan toward the deregulation of electric rates for all or a portion of the entity subject to such plan are known. However, other factors could cause the discontinuation of SFAS No. 71 before that date. Additionally, EITF No. 97-4 establishes that regulatory assets to be recovered through cash flows derived from another portion of the entity which continues to apply SFAS No. 71 should not be written off, but rather should continue to be considered regulatory assets of the separable portion which will continue to apply SFAS No. 71. Recent Accounting Standards In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), effective for fiscal years beginning after June 15, 1999. This statement establishes accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133" (SFAS No. 137), which changed the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" (SFAS No. 138), which modified certain provisions of SFAS No. 133. We will implement the requirements of these accounting standards effective January 1, 2001. In early 2000, we organized a cross-functional project team for the implementation of SFAS No. 133, as amended. The team has completed an inventory of 28 our financial instruments, commodity contracts and other commitments for the purpose of identifying and assessing our derivative-related transactions. We have entered into certain forward and option contracts for the future purchase or sale of electricity and natural gas that meet the derivative criteria of SFAS No. 133, as amended. We currently record changes in the fair value (mark-to-market), due to changes in the underlying commodity prices, for certain of these contracts in current earnings. These changes are influenced by various market factors, including weather and the availability of regional electric generation and transmission capacity. The cross-functional project team has not yet determined the amount of other comprehensive income to be reflected on statements of income and other comprehensive income. The team believes that application of SFAS No. 133, as amended, will cause us to reflect certain transactions in other comprehensive income based on the effectiveness of the hedges. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The market risk inherent in our market risk sensitive instruments and positions is the potential change arising from increases or decreases in the short-, medium- and long-term interest rates and the commodity price of electricity traded on the Into Entergy and Cinergy exchanges and the commodity price of natural gas traded. Generally, our market risk sensitive instruments and positions, such as instruments used to provide fuel to our retail utility customers, are characterized as "other than trading" as defined by EITF No. 98-10, "Accounting for Contracts Involved in Energy Trading and Risk Management Activities" (EITF No. 98-10). However, we do have some positions that are considered "trading", as defined by EITF No. 98-10, such as our positions in energy marketing operations. Our exposure to market risk, as discussed below, represents an estimate of possible changes in the fair value or future earnings that would occur assuming possible future movements in the interest rates and the commodity prices of electricity and natural gas. Management's views on market risk are not necessarily indicative of actual results, nor do they represent the maximum possible gains or losses. The views do represent, within the parameters disclosed, what we estimate may happen. Interest We have entered into various fixed- and variable-rate debt obligations. Please read Note E to the notes to the audited financial statements included in Annex F to this registration statement for details regarding our debt obligations. Sensitivity to changes in interest rates for fixed-rate obligations is computed by calculating the current fair market value using a net present value model based upon a 1% change in the average interest rate applicable to such debt. Sensitivity to changes in interest rates for variable-rate obligations is computed by assuming a 1% change in the current interest rate applicable to such debt. 29 As of December 31, 1999, the carrying value of our long-term, fixed-rate debt was approximately $386.2 million, with a fair market value of approximately $380.1 million. Fair value was determined using quoted market prices. Each 1.0% change in the average interest rates applicable to such debt would result in a change of approximately $20.2 million in the fair values of these instruments. If these instruments are held to maturity, no change in fair value will be realized. As of September 30, 2000, the carrying value and fair value of our long-term, fixed-rate debt did not materially change from the values at December 31, 1999. As of December 31, 1999, the carrying value of our short-term, variable- rate debt was approximately $5.9 million, which approximates the fair market value. Each 1.0% change in the average interest rates applicable to such debt would result in a change of approximately $60,000 in our pre-tax earnings. As of September 30, 2000, the carrying value of our short-term, variable-rate debt was approximately $61.7 million, which approximates the fair market value. Each 1.0% change in the average interest rates applicable to such debt would result in a change of approximately $0.6 million in our pre-tax earnings. We monitor our mix of fixed- and variable-rate debt obligations in light of changing market conditions and from time to time may alter that mix by, for example, refinancing balances outstanding under variable-rate commercial paper program with fixed-rate debt. Market Risk Most of our positions are considered "other than trading" under EITF No. 98-10. However, we did have financial positions that were defined as "trading" under EITF No. 98-10. We have in place controls to help minimize the risks involved in marketing and trading. Such controls include a risk management committee comprised of senior management, a risk manager and internal audit personnel. The risk management committee receives a daily risk report containing mark-to-market and value-at-risk (VAR) analysis. The risk management committee has set parameters on the trading activities, such as a ceiling on the daily VAR. At December 31, 1999, the mark-to-market for those positions was a loss of $0.6 million. At September 30, 2000, the mark-to-market for those positions was a gain of $0.3 million. We utilize a VAR model to assess the market risk of our derivative financial instruments. VAR represents the potential loss for an instrument from adverse changes in market factors for a specified period of time and confidence level. The VAR was estimated using historical simulation calculated on a daily basis over a one-day period with a 99.7% confidence level and a holding period of one day. Based on these assumptions, the total VAR for the year ended December 31, 1999 is summarized below: HIGH LOW AVERAGE AT DECEMBER 31, 1999 ---- --- ------- -------------------- (In thousands) $7,700 $21 $1,908 $93 30 During the year 2000, we used a 95% confidence level for natural gas. The 99.7% confidence level remained for electricity positions. The difference in confidence levels between natural gas and electricity positions is attributable to the maturity, liquidity and greater depth of products in the natural gas markets as compared to the immaturity and volatility of the electricity markets. Reporting VAR using a 95% confidence level is also the industry standard for natural gas. Based on these assumptions, the total VAR for the nine months ended September 30, 2000 is summarized below: HIGH LOW AVERAGE AT SEPTEMBER 30, 2000 ---- --- ------- ---------------------- (In thousands) $2,168 $18 $310 $107 ITEM 3. PROPERTIES. All of our electric generating stations and all other electric operating properties are located in the State of Louisiana. We consider all of our properties to be well maintained, in good operating condition and suitable for their intended purposes. ELECTRIC GENERATING STATIONS As of September 30, 2000, we either owned or had an ownership interest in three steam electric generating stations and a gas turbine with a combined electric generating capacity of 1,366,900 kW. For additional information regarding our generating facilities, see "Operations--Power Generation" in "Item 1. Business" above. ELECTRIC SUBSTATIONS AND LINES As of September 30, 2000, we owned 86 transmission substations and 332 distribution substations. As of September 30, 2000, our transmission system consisted of approximately 67 circuit miles of 500 kilovolt (kV) lines, 461 circuit miles of 230 kV lines, 661 circuit miles of 138 kV lines, and 21 circuit miles of 69 kV lines. Our distribution system consisted of approximately 2,213 circuit miles of 34.5 kV lines and 12,196 circuit miles of other lines. GENERAL PROPERTIES We own various properties, which include a seven-story headquarters office building, regional offices, a central warehouse, service centers, telecommunications equipment and other facilities owned for general purposes. TITLE Our electric generating plants and certain other principal properties are owned in fee. Electric transmission and distribution lines are located either on private rights-of-way or along streets or highways by public consent. Substantially all of our property, plant and equipment is subject to a lien securing our obligations under an Indenture of Mortgage, which does not impair the use of such properties in the operation of our business. 31 ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. All of our outstanding common stock is owned by our parent, Cleco. No other class of our capital stock is issued and outstanding. SECURITY OWNERSHIP OF MANAGEMENT The table below shows the number of shares of Cleco common stock and Cleco preferred stock beneficially owned as of September 30, 2000 by each of our directors and named executive officers and all of our directors and named executive officers as a group. Shares are deemed to be "beneficially owned" by a person if such person directly or indirectly has or shares the power to vote or to dispose of the shares, regardless of whether such person has any economic interest in the shares. In addition, a person is deemed to "beneficially own" any shares of which such person has the right to acquire beneficial ownership within 60 days, as in the case of the stock options that are set forth under the "Options Exercisable Within 60 Days" column. Shares of Cleco common stock listed under the "Direct" column are those as to which each named individual has sole voting or dispositive power, including shares held under Cleco's Savings and Investment Plan and shares granted as restricted stock awards under Cleco's Long-Term Incentive Plan. Mr. Darrell J. Dubroc holds 628 shares under Cleco's Savings and Investment Plan. The other executive officers included in the amount shown for all directors and named executive officers as a group hold 2,200 shares under Cleco's Savings and Investment Plan. Shares listed under the "Other" column are those as to which the named individual shares voting and dispositive power with another person. The shares of Cleco preferred stock beneficially owned by the individuals indicated in the table are shares held for the respective accounts of executive officers under Cleco's Savings and Investment Plan. 32
AMOUNT AND NATURE OF BENEFICIAL AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP OF OWNERSHIP OF CLECO COMMON STOCK CLECO PREFERRED STOCK ----------------------------------------------- ------------------------ OPTIONS EXERCISABLE WITHIN 60 PERCENT NUMBER OF PERCENT DIRECT DAYS OTHER OF CLASS SHARES (1) OF CLASS --------- ----------- ----------- -------- ------------- -------- Directors Sherian G. Cadoria............. 1,000 2,500 0 * 0 * Richard B. Crowell............. 25,447 2,500 55,992 (2) * 0 * David M. Eppler (3)............ 21,837 0 2,880 (4) * 600 * J. Patrick Garrett............. 18,915 4,167 0 * 0 * F. Ben James, Jr............... 5,000 4,167 0 * 0 * Elton R. King.................. 1,288 2,778 0 * 0 * A. DeLoach Martin, Jr.......... 18,800 4,167 0 * 0 * Robert T. Ratcliff............. 1,495 3,334 0 * 0 * Edward M. Simmons.............. 5,847 3,334 1,400 (5) * 0 * William H. Walker, Jr.......... 51,718 3,334 1,400 (6) * 0 * Named Executive Officers Darrell J. Dubroc.............. 6,903 (7) 0 1,646 (4) * 343 * Thomas J. Howlin............... 6,491 0 562 (4) * 117 * Catherine C. Powell............ 7,928 0 1,781 (4) * 371 * Mark H. Segura................. 6,536 0 1,656 (4) * 345 * All directors and executive officers as a group (18 persons, including those listed above)........... 211,507 30,281 725,997 (8) 4.30 139,001(8) 49.48
___________________ * Less than 1% of class. (1) Represents the number of shares of preferred stock allocated under Cleco's Savings and Investment Plan that are convertible into Cleco common stock. (2) Includes 55,992 shares owned by members of Mr. Crowell's family and family trusts, for which beneficial ownership is disclaimed. (3) Mr. Eppler is also our president and chief executive officer. (4) Represents the number of shares of Cleco common stock into which Cleco preferred stock held in Cleco's Savings and Investment Plan is convertible. (5) Includes 1,400 shares owned by Mr. Simmons' spouse and a family trust, for which beneficial ownership is disclaimed. (6) Includes 1,400 shares owned by a family trust, for which beneficial ownership is disclaimed. (7) Includes common stock allocated to Mr. Dubroc's account in Cleco's Savings and Investment Plan over which he has voting power and investment discretion. (8) Cleco's Savings and Investment Plan holds Cleco preferred stock that is convertible, at any time, into shares of Cleco common stock. 135,775 shares of Cleco preferred stock, convertible into 651,720 shares of Cleco common stock (2.9% of such common stock), have not yet been allocated to accounts of participants in the plan. Executive officers of Cleco serve with other Cleco employees as the administrators of the plan and, effective as of January 1, 1999, make voting decisions with respect to 33 the unallocated shares. The unallocated shares have been included only once in calculating the beneficial ownership of all officers and directors as a group. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth as of the dates indicated, to our knowledge based on a review of the information indicated, certain information with respect to each person who is the beneficial owner of more than 5% of the outstanding shares of any class of Cleco's voting securities:
AMOUNT AND NATURE NAME AND ADDRESS OF OF BENEFICIAL TITLE OF CLASS BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS - -------------- -------------------- ------------------ ---------------- Preferred Stock UMB Bank, N.A. Trustee of Cleco's Savings and Investment Plan 1010 Grand Boulevard, Kansas City, MO 64106 270,609(1) 93.7 Common Stock T. Rowe Price Associates, Inc. 100 E. Pratt Street Baltimore, Maryland 21202 1,301,400(2) 5.8
- ----------------- (1) Based upon information contained in Cleco's records and those of Cleco's transfer agent as of September 30, 2000. Such 270,609 shares are held by UMB Bank, N.A., as Trustee of Cleco's Savings and Investment Plan. Such 270,609 shares are convertible under certain circumstances pursuant to Cleco's articles of incorporation, and the governing instruments of Cleco's Savings and Investment Plan, into 1,298,923 shares of Cleco common stock, subject to antidilution adjustment, or approximately 5.8% of the Cleco common stock outstanding as of September 30, 2000. Participants in Cleco's Savings and Investment Plan have voting rights with respect to shares of Cleco preferred stock allocated to their accounts. The Trustee is required to vote unallocated shares in accordance with instructions received from the administrator of Cleco's Savings and Investment Plan. The Trustee holds 515,242 shares of Cleco common stock. The Trustee may vote shares of Cleco common stock allocated to a participant's account only in accordance with instructions received from the participant. The combined holdings of the Trustee under Cleco's Savings and Investment Plan, on an as-converted basis with regard to the Cleco preferred stock, are 1,814,165 shares, or 8.1%, of the outstanding shares of Cleco common stock as of September 30, 2000. (2) As of December 31, 1999, based solely on a Schedule 13G filed with the Securities and Exchange Commission. These securities are owned by various individual and institutional investors for which T. Rowe Price Associates, Inc., serves as investment adviser with power to direct investments and/or sole power to vote the securities. For purposes of the reporting requirements of the Securities Exchange Act of 1934, T. Rowe Price is deemed to be a beneficial owner of such securities; however, T. Rowe Price expressly disclaims that it is, in fact, the beneficial owner of such securities. 34 ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS. The following table sets forth certain information with respect to our directors and executive officers as of September 30, 2000:
NAME AGE POSITION(S) ---- --- ----------- David M. Eppler 50 President, Chief Executive Officer and Director (Chief executive officer since May 2000, president since January 1999, director since April 1998. Chief operating officer from July 1997 to May 2000. Executive vice president from January 1997 until January 1999. Vice president of power supply and energy transmission from 1995 to 1997. Vice president of finance and chief financial officer from 1993 to 1995.) Mark H. Segura 41 Executive Vice President and Chief Operating Officer (Executive vice president and chief operating officer since January 2000. Senior vice president of utility operations from April 1999 to January 2000. Vice president of distribution services from July 1997 to April 1999. General manager of distribution services from July 1996 to July 1997. Manager of stores and transformer management from October 1993 to July 1996.) Thomas J. Howlin 52 Senior Vice President-Financial Services and Chief Financial Officer (Senior vice president of finance and chief financial officer since July 1997. Vice president and chief financial officer of TransAmerican Natural Gas Corporation from April 1995 to March 1997.) Catherine C. Powell 44 Senior Vice President-Employee and Corporate Services (Senior vice president of employee and corporate services since July 1997. Vice president of employee and corporate services from July 1995 to July 1997.) Darrell J. Dubroc 39 Vice President-Generation Services (Vice president of generation services since July 1997. General manager of wholesale merchant operations from July 1996 to July 1997. Manager of regulatory affairs and business development from March 1995 to July 1996.)
35
NAME AGE POSITION(S) ---- --- ----------- Sherian G. Cadoria 60 Director (President of Cadoria Speaker and Consultancy Service since 1992. Retired in 1990 as Brigadier General of the United States Army after a 29-year military career. Director since 1993. Member of the joint Compensation Committee for Cleco and the Company.) Richard B. Crowell 62 Director (Engaged in the practice of law for more than five years as a member of the law firm of Crowell & Owens. Director since 1997. Member of the joint Audit Committee for Cleco and the Company. Director of Whitney Holding Corporation and Whitney National Bank.) J. Patrick Garrett 57 Director (Retired. President and chief executive officer of Windsor Food Company Ltd., a privately held company engaged in the food processing business, from 1995 until 1999. Prior to 1995, engaged in the practice of law as a member of the law firm of Baker Botts L.L.P. Director since 1981. Member of the joint Compensation Committee for Cleco and the Company.) F. Ben James, Jr. 64 Director (President of James Investments, Inc., a company primarily engaged in real estate development and international marketing, for more than five years. Director since 1986. Chairman of the joint Audit Committee for Cleco and the Company. Member of the joint Executive Committee for Cleco and the Company.) Elton R. King 54 Director (Retired. Employed by BellSouth Telecommunications, Inc. from 1968 through 1999, most recently as the president of its network and carrier services group. Director since December 1999. Member of the joint Compensation Committee for Cleco and the Company. Director of Hibernia Corporation and Hibernia National Bank.) A. DeLoach Martin, Jr. 70 Director (Chairman of Central Engineering & Supply Company, a company engaged in the wholesale distribution of refrigeration and mill supplies, for more than five years. Director since 1978. Chairman of the joint Executive Committee for Cleco and the Company. Member of the joint Audit Committee for Cleco and the Company.)
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NAME AGE POSITION(S) ---- --- ----------- Robert T. Ratcliff 58 Director (Chairman, president and chief executive officer of Ratcliff Construction Company, Inc., a company primarily engaged in the design and construction of industrial, commercial and governmental facilities, since 1975. Director since 1993. Member of the joint Audit Committee for Cleco and the Company. Director of Hibernia Corporation and Hibernia National Bank.) Edward M. Simmons 72 Director (Since 1996, chairman of the board and chief executive officer of McIlhenny Company, which makes Tabasco brand products. Prior to 1996, president of McIlhenny Company for more than five years. Director since 1992. Previous director of the Company from 1971 - 1981. Chairman of the joint Compensation Committee for Cleco and the Company. Member of the joint Executive Committee for Cleco and the Company. Director of Pan American Life Insurance Company.) William H. Walker, Jr. 55 Director (President and a director of Howard, Weil, Labouisse, Friedrichs Inc., an investment banking firm, and has served in such positions for more than five years. Director since 1996. Member of the joint Compensation and Executive Committees for Cleco and the Company. Director of Howard Weil Financial Corporation.)
37 ITEM 6. EXECUTIVE COMPENSATION. The following table sets forth all compensation paid or accrued to our chief executive officer and our four other most highly compensated executive officers for services rendered in all capacities to us and Cleco for the fiscal years 1999, 1998 and 1997. Mr. Gregory L. Nesbitt, who served as our chief executive officer during those years, retired on May 1, 2000. Upon Mr. Nesbitt's retirement, Mr. Eppler was elected to serve as our chief executive officer. SUMMARY COMPENSATION TABLE
NAME AND OTHER ANNUAL LTIP ALL OTHER PRINCIPAL POSITION YEAR SALARY BONUS (1) COMPENSATION (2) PAYOUTS (3) COMPENSATION (4) - ------------------------ ---- --------- ---------- ---------------- ----------- ---------------- Gregory L. Nesbitt...... 1999 $348,081 $216,248 $27,200 $367,109 $6,400 Retired Chief 1998 334,623 176,090 21,645 184,859 6,400 Executive Officer 1997 296,770 126,000 16,840 141,488 6,334 David M. Eppler......... 1999 $236,923 $131,808 $12,198 $132,165 $6,776 President and Chief 1998 205,389 90,300 8,000 64,862 6,924 Executive Officer 1997 166,478 54,000 5,837 43,687 6,836 Thomas J. Howlin........ 1999 $174,007 $ 80,459 $ 5,818 $ 0 $7,111 Senior Vice President 1998 167,424 70,690 2,417 0 5,217 --Financial Services 1997 69,454 71,500 0 0 4,085 and Chief Financial Officer (Hired in July 1997) Catherine C. Powell..... 1999 $134,231 $ 66,074 $ 6,499 $ 86,223 $6,565 Senior Vice President-- 1998 128,334 48,380 5,047 44,453 6,624 Employee and Corporate 1997 111,023 33,660 4,044 29,515 6,188 Services Mark H. Segura.......... 1999 $138,352 $ 61,318 $ 4,457 $ 51,389 $6,565 Executive Vice 1998 114,236 50,480 2,533 0 9,621 President and Chief 1997 102,692 22,799 1,137 0 8,405 Operating Officer Darrell J. Dubroc....... 1999 $154,081 $ 65,616 $ 5,394 $ 53,921 $6,476 Vice President-- 1998 147,039 53,120 3,098 0 6,474 Generation Services 1997 118,656 36,910 1,287 0 9,964
- ------------- (1) The "Bonus" column includes cash awards that are payable or have been paid to executive officers pursuant to the following: . Cleco's annual incentive compensation program under which participants may receive incentive compensation determined by the performance of Cleco and the individual participants; . merit lump-sum payments received by certain named executive officers; and . payments received under Cleco's spot award incentive plan, which rewards individual performance. 38 (2) For 1999, 1998 and 1997, the "Other Annual Compensation" column includes dividends paid on Cleco restricted stock awards under the Long-Term Incentive Plan. Dividends on Cleco restricted stock are paid quarterly and at the same rate as dividends on the Cleco common stock. (3) Cleco restricted stock awards granted under its Long-Term Incentive Plan are reported under the "Long-Term Incentive Plan-Awards in 1999" table below. The number and value of the aggregate restricted stock holdings at December 31, 1999, a portion of which is included in the "LTIP Payouts" column, for each of the named executive officers were as follows: . Mr. Nesbitt - 16,485 shares with a value of $528,550; . Mr. Eppler - 7,393 shares with a value of $237,038; . Mr. Howlin - 3,526 shares with a value of $113,052; . Ms. Powell - 3,939 shares with a value of $126,294; . Mr. Segura - 2,701 shares with a value of $86,601; and . Mr. Dubroc - 3,269 shares with a value of $104,812. The "LTIP Payouts" column includes the value of Cleco restricted stock and opportunity shares under Cleco's Long-Term Incentive Plan that vested in the following years and the related tax gross-up amounts: . 1999 - relating to the performance period January 1, 1996 to December 31, 1998; . 1998 - relating to the performance period January 1, 1995 to December 31, 1997; and . 1997 - relating to the performance period January 1, 1994 to December 31, 1996. (4) The "All Other Compensation" column includes the following: Amounts contributed or accrued by Cleco under its Savings and Investment Plan on behalf of the named executive officers as follows: 1997 1998 1999 ------ ------- ------ Mr. Nesbitt................. $6,334 $6,400 $6,400 Mr. Eppler.................. $6,333 $6,400 $6,400 Mr. Howlin.................. $ 0 $4,237 $6,400 Ms. Powell.................. $5,973 $6,400 $6,400 Mr. Segura.................. $4,106 $6,018 $6,400 Mr. Dubroc.................. $4,881 $6,400 $6,400 39 Term life insurance premiums paid for the benefit of the named executive officers as follows: 1997 1998 1999 ------ ------ ------ Mr. Eppler................. $ 503 $ 524 $ 376 Mr. Howlin................. $ 210 $ 980 $ 711 Ms. Powell................. $ 215 $ 224 $ 165 Mr. Segura................. $ 68 $ 218 $ 165 Mr. Dubroc................. $ 71 $ 74 $ 76 Unused vacation purchased from the named executive officers as follows: 1997 1998 1999 ------ ------ ------ Mr. Howlin................. $3,875 $ 0 $ 0 Mr. Segura................. $4,231 $3,385 $ 0 Mr. Dubroc................. $5,012 $ 0 $ 0 DIRECTOR COMPENSATION Each of our directors is a director of Cleco and is not separately compensated by us or Cleco for services on our board of directors or any committee of our board of directors. BOARD COMMITTEES Our board of directors has an Executive Committee, an Audit Committee and a Compensation Committee. The members of those committees are identified in "Item 5. Directors and Executive Officers" above. Our board of directors has no standing nominating committee. SEVERANCE AGREEMENTS Cleco has severance agreements with Mr. Eppler, Mr. Howlin, Ms. Powell, Mr. Segura and Mr. Dubroc and other executive officers and general managers of Cleco. Each agreement provides generally for the payment of a minimum annual salary, participation in all Cleco benefit plans and programs applicable to Cleco's executive officers and reimbursement of employment-related expenses incurred during the term of employment. Under the severance agreements, the 2000 base salaries for the individuals named in the Summary Compensation Table are as follows: Mr. Eppler $300,000 Mr. Howlin $195,000 Ms. Powell $160,000 Mr. Segura $175,000 Mr. Dubroc $180,000 Mr. Eppler's base salary increased to $325,000 in connection with his assumption of the position of Cleco's chief executive officer upon Mr. Nesbitt's retirement in May 2000. 40 Each severance agreement provides for an initial three-year term that renews annually for one additional year, unless either Cleco or the executive officer gives notice prior to renewal that such officer's term of employment will not be extended. The agreements for Mr. Eppler, Mr. Howlin, Ms. Powell, Mr. Segura and Mr. Dubroc include provisions governing the payment of severance benefits in an amount equal to the executive's annual base salary if the executive's employment is terminated (a) by Cleco for any reason, other than a material breach by the executive, or (b) by the executive following a reduction in base salary, other than a reduction in pay uniformly applicable to all officers, or a significant reduction in the executive's authority, duties or responsibilities. The executive also is entitled to continued health plan coverage for up to 18 months after such termination, and the executive is entitled to require Cleco to (a) purchase his or her principal residence, if it is located within 60 miles of Cleco's Pineville office, for an amount equal to the greater of (i) the purchase price of the residence plus the cost of capital improvements or (ii) the fair market value of the residence, and (b) pay or reimburse the executive for relocation costs. Lesser severance benefits are payable to other executive officers and managers. If a change in control, as defined in the agreement, occurs and within three years after the change in control the executive's employment is terminated by Cleco for reasons other than a material breach or the executive terminates his or her employment for good reason, as defined in the agreement, then Cleco is obligated to pay the executive, in lieu of any severance obligation otherwise payable under the agreement, an amount equal to three times the executive's average compensation paid during the five calendar years preceding the change in control. In the event of a change in control, payments under the agreements for the named executive officers, using the average compensation for the years 1995 through 1999, will be approximately as follows: Mr. Eppler $855,400 Mr. Howlin $705,500 Ms. Powell $488,600 Mr. Segura $338,900 Mr. Dubroc $402,800 However, the severance agreements limit the amount payable upon a change in control to an amount that will not result in the disallowance of a deduction to Cleco under the "golden parachute" provisions of the Code or the imposition of an excise tax on the employee under Section 4999 of the Code. Lesser change in control benefits are provided to other executive officers and managers. The severance agreements also generally require the executives not to disclose confidential information relating to Cleco and, for a period of one year after termination, not to hire Cleco officers, employees or agents, or solicit or divert any customer or supplier of Cleco. BENEFIT PLANS We do not have separate benefit plans for our executive officers and directors. All of our executive officers and directors participate in the benefit plans of Cleco. The following discussion describes the benefit plans of Cleco in which our executive officers and directors participate. 41 Nonemployee Director Plans Our nonemployee directors may participate in Cleco's deferred compensation plan. Under the plan, a director may elect to defer all or part of his or her fees. Our nonemployee directors also may participate in Cleco's nonemployee director retirement plan under which directors with five years of service receive, at age 65 or upon later retirement, a maximum annual benefit of $12,000. Benefits are payable for life or a period equal to the number of years of service as a director, whichever is shorter. Additionally, Cleco provides our nonemployee directors with $200,000 of life insurance and permanent total disability coverage under its group accidental death and dismemberment plan, which covers all active, full-time employees. Stock Option Plans Cleco currently maintains two plans pursuant to which options to purchase shares of common stock are outstanding. The first is the 1990 Long-Term Incentive Plan, which was amended and restated effective April 24, 1998, pursuant to which certain of our officers and key employees may receive restricted stock, stock options or stock appreciation rights, among other awards. An aggregate of 800,000 shares of Cleco common stock has been reserved for issuance under this plan. It expired on January 1, 2000, and no additional grants can be made under the plan. As of September 30, 2000, grants or awards representing 537,700 shares of Cleco common stock had been made under the plan. In April 2000, Cleco's stockholders approved the 2000 Long-Term Incentive Compensation Plan, effective as of January 1, 2000. Under this plan, certain officers, employees and nonemployee directors may receive restricted stock, stock options or stock appreciation rights, among other awards. An aggregate of 800,000 shares of Cleco common stock has been reserved for issuance under this plan. As of September 30, 2000, grants or awards representing 85,900 shares of Cleco common stock had been made under the plan. The following table sets forth, for each of the persons listed in the Summary Compensation Table, the following information concerning nonqualified stock options granted during 1999: . the number of shares of Cleco common stock underlying options granted during 1999; . the percent such grants represent of the total number of options granted to Cleco employees in 1999; . the per share exercise price and expiration date of such options; and . the potential realizable value of each such grant of options, assuming that the market price of Cleco common stock appreciates from the date of grant to the end of the option term at a 5% and 10% compound annual rate. 42 OPTION GRANTS IN 1999
POTENTIAL REALIZABLE VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS FOR OPTION TERM ----------------------------------- ------------------------ NUMBER OF % OF TOTAL SECURITIES OPTIONS UNDERLYING GRANTED TO EXERCISE OPTION GRANTED EMPLOYEES PRICE EXPIRATION NAME (1) IN 1999 ($/SHARE) DATE 5% ($)(2) 10% ($)(2) - ----------------------- -------------- ---------- -------- ---------- ---------- ---------- Gregory L. Nesbitt..... 24,000 (3) 4.5 32.25 05/01/03 136,853.29 290,345.64 David M. Eppler........ 12,000 (4) 2.2 32.25 07/23/09 243,382.22 616,778.33 20,000 (5) 3.7 38.41 07/23/09 214,513.40 737,464.73 20,000 (6) 3.7 40.71 07/23/09 143,152.30 628,999.14 20,000 (7) 3.7 43.16 07/23/09 67,137.22 513,459.70 Thomas J. Howlin....... 6,800 (4) 1.3 32.25 07/23/09 137,916.59 349,507.72 13,333 (5) 2.5 38.41 07/23/09 143,005.36 491,630.86 13,333 (6) 2.5 40.71 07/23/09 95,432.48 419,322.27 13,334 (7) 2.5 43.16 07/23/09 44,760.38 342,323.58 Catherine C. Powell.... 4,100 (4) 0.8 32.25 07/23/09 83,155.59 210,732.60 10,000 (5) 1.9 38.41 07/23/09 107,256.70 368,732.37 10,000 (6) 1.9 40.71 07/23/09 71,576.15 314,499.57 10,000 (7) 1.9 43.16 07/23/09 33,568.61 256,729.85 Mark H. Segura......... 4,700 (4) 0.9 32.25 7/23/09 95,324.70 241,571.15 8,333 (5) 1.5 38.41 7/23/09 89,377.00 307,264.68 8,333 (6) 1.5 40.71 7/23/09 59,644.41 262,072.49 8,334 (7) 1.5 43.16 7/23/09 27,976.08 213,958.66 Darrell J. Dubroc...... 5,500 (4) 1.0 32.25 07/23/09 111,550.18 282,690.07 13,333 (5) 2.5 38.41 07/23/09 143,005.36 491,630.86 13,333 (6) 2.5 40.71 07/23/09 95,432.48 419,322.27 13,334 (7) 2.5 43.16 07/23/09 44,760.38 342,323.58
- --------------- (1) All options would immediately vest upon a change of control as defined in Cleco's Long-Term Incentive Plan. A "change of control" is generally deemed to have occurred if (a) any person or group becomes the direct or indirect beneficial owner of 20% or more of Cleco's outstanding voting securities; (b) the majority of Cleco's board changes, except in certain cases; (c) as a result of a merger or consolidation, less than 80% of the surviving corporation's outstanding voting securities are owned by former Cleco shareholders (excluding the affiliates of any party to the transaction); (d) Cleco transfers all or substantially all of its assets; (e) Cleco's 43 shareholders approve a plan of dissolution or liquidation; or (f) certain other significant events that Cleco would be required to report in a proxy statement. (2) These columns show the gains the named executive officers could realize if the market price of Cleco common stock appreciates at a 5% or 10% compound annual rate. These growth rates are arbitrary assumptions specified by the SEC, not our predictions. (3) Cleco's Long-Term Incentive Plan provides that if a person's employment with Cleco is terminated on account of early or late retirement under Cleco's pension plan, such person is entitled to exercise options granted under the Long-Term Incentive Plan, in whole or in part, during the three-year period following the date of retirement, provided such exercise occurs after the one-year anniversary of the grant. Based on Mr. Nesbitt's retirement on May 1, 2000, the options granted to him on July 23, 1999 will be exercisable after July 23, 2000 until May 1, 2003. (4) These option grants vest in one-third increments per year, beginning on the third anniversary of the date of grant, so long as the officer remains an employee. (5) These option grants vest on the third anniversary of the date of grant, so long as the officer remains an employee. (6) These option grants vest on the fourth anniversary of the date of grant, so long as the officer remains an employee. (7) These option grants vest on the fifth anniversary of the date of grant, so long as the officer remains an employee. The following table sets forth, for each of the persons listed in the Summary Compensation Table, the following information concerning stock options exercised during 1999: . the number of shares of Cleco common stock acquired upon the exercise of options during 1999; . the aggregate dollar value realized upon the exercise of such options; and . the total number of exercisable and unexercisable options held on December 31, 1999. None of these persons held any in-the-money options on December 31, 1999. 44 AGGREGATE OPTIONS EXERCISED IN 1999 AND YEAR-END OPTION VALUES
NUMBER OF SECURITIES SHARES UNDERLYING UNEXERCISED ACQUIRED OPTIONS AT DECEMBER 31, 1999 ON VALUE --------------------------------------- NAME EXERCISE REALIZED ($) EXERCISABLE UNEXERCISABLE - ---- -------- ------------ --------------- ------------------ Gregory L. Nesbitt............ 2,000 33,440 0 24,000 David M. Eppler............... 2,800 36,491 0 72,000 Thomas J. Howlin.............. 0 0 0 46,800 Catherine C. Powell........... 0 0 0 34,100 Mark H. Segura................ 0 0 0 29,700 Darrell J. Dubroc............. 0 0 0 45,500
Long-Term Incentive Plan The following table sets forth, for each of the persons listed in the Summary Compensation Table, information related to grants under Cleco's Long- Term Incentive Plan during 1999. The amounts listed in the "Number of Shares" column represent the performance-based restricted stock granted to the named executive officers in 1999. The recipient of a restricted stock grant is the record owner of the number of target shares awarded, which are issued in the name of the recipient but held in escrow by Cleco until delivery to, or forfeiture by, the recipient. The recipient may vote the shares covered by the award and receive dividends, but generally may not sell, pledge or otherwise transfer such shares until the restriction period imposed by Cleco's Compensation Committee ends and the performance goals established by the committee have been met. The recipient may, at the end of the restriction period, forfeit all or a portion of the restricted shares awarded, depending upon the performance level achieved. The restricted stock awards require a three-year holding period following vesting before any shares may be sold. The amounts listed in the "Number of Threshold Shares" and "Number of Target Shares" columns, respectively, represent performance-based restricted stock granted in 1999 that will vest under the threshold and target levels established by Cleco's Compensation Committee. In 1999, Cleco's Long-Term Incentive Plan was modified to incorporate strategic plan performance measures, in addition to a comparison of Cleco's total shareholder return to that of a peer group of utilities and energy services companies. New performance measures include growth in net income and return on investment. To trigger an award, comparative shareholder return (computed as the Cleco common stock price appreciation plus dividends paid during the performance cycle) must be at or above the preestablished performance level of the 40th percentile. The vesting or payout schedule for the restricted stock awards, once the minimum comparative shareholder return requirement is satisfied, is as follows: . no awards will vest if Cleco's performance on growth in net income and return on investment is less than 75% of plan; . threshold performance on both factors provides a 30% award payout; and 45 . target performance on both factors at 100% of plan provides 100% award payout. Performance awards above the threshold level and below the target level are prorated. The amounts under the "Number of Maximum Shares" column represent the number of performance-based restricted stock grants that vest at the target level set forth under the "Number of Target Shares" column plus the number of performance-based "opportunity shares" granted to the named executive officers in 1999 that will vest between the target and maximum levels established by Cleco's Compensation Committee. "Opportunity shares" awarded in connection with a restricted stock award will not be issued until the lapse of restrictions on the related restricted stock and do not entitle the recipient to the rights of a shareholder until the time of issuance of the Cleco common stock representing the "opportunity shares." "Opportunity share" awards require a three-year holding period following vesting before any of the shares may be sold. The "opportunity shares" vest based on performance above target levels for growth in net income and return on investment and will be issued when the restriction period on the related restricted stock lapses. The vesting or payout schedule for the "opportunity shares" included in this column, based on Cleco performance on growth in net income and return on investment, is as follows: . no awards of "opportunity shares" vest if Cleco's performance is at or below 100% of plan for growth in net income and return on investment; and . maximum performance provides 100% "opportunity shares" award payout, which is equal to 100% of the number of target shares of restricted stock, at 125% of plan for growth in net income and 130% of plan for return on investment. Performance awards of "opportunity shares" above the target level and below the maximum level are prorated. 46 LONG-TERM INCENTIVE PLAN--AWARDS IN 1999
ESTIMATED FUTURE PAYOUTS --------------------------------------------------------- PERFORMANCE OR OTHER PERIOD UNTIL NUMBER OF NUMBER OF NUMBER OF NUMBER OF MATURATION OR THRESHOLD TARGET MAXIMUM NAME SHARES PAYOUT SHARES SHARES SHARES - ---- ------------- ----------------------- ---------------- ---------------- ---------------- Gregory L. Nesbitt........ 6,077 1/1/99 - 12/31/01 1,824 6,077 12,154 David M. Eppler........... 3,472 1/1/99 - 12/31/01 1,042 3,472 6,944 Thomas J. Howlin.......... 2,025 1/1/99 - 12/31/01 608 2,025 4,051 Catherine C. Powell....... 1,563 1/1/99 - 12/31/01 469 1,563 3,125 Mark H. Segura............ 1,128 1/1/99 - 12/31/01 339 1,128 2,257 Darrell J. Dubroc......... 1,345 1/1/99 - 12/31/01 404 1,345 2,691
RETIREMENT PLANS Our executive officers are participants in Cleco's Savings and Investment Plan, Cleco's Pension Plan and Cleco's Supplemental Executive Retirement Plan (SERP), all of which are maintained by us. Pension Plan The Pension Plan generally covers employees of Cleco who have attained age 21 and completed one year of service. The monthly benefit payable under the Pension Plan at the normal retirement age of 65 is an amount determined with reference to a participant's "compensation base" and years of service at termination of employment. A participant's "compensation base" is calculated by averaging compensation paid during the highest successive five completed calendar years during the 10 years prior to termination of employment. Compensation is determined by taking into account the salaries and bonuses reflected in the "Salary" and "Bonus" columns of the Summary Compensation Table. Benefits under the Pension Plan are fully vested upon the completion of five years of service. The maximum annual benefit payable under the Pension Plan for employees who retire in 2000 is the lesser of $135,000, a limitation imposed by the Internal Revenue Code of 1986, as amended (Code), or 100% of "average compensation," as defined in the Code. Payments to retired employees under the Pension Plan are not reduced for Social Security benefits or other offsetting amounts. 47 As of December 31, 1999, the following individuals had the following years of service credited under the Pension Plan: Mr. Nesbitt 19 years Mr. Eppler 18 years Mr. Howlin 2 years Ms. Powell 8 years Mr. Segura 14 years Mr. Dubroc 14 years SERP Effective July 1, 1992, Cleco established a SERP for the benefit of certain participants designated by its Compensation Committee. As of September 30, 2000, the chief executive officer and the four other most highly compensated executive officers participated in the SERP. Under the SERP, eligible compensation is based upon the sum of the highest annual salary paid during the five years prior to termination of employment and the average of the three highest annual incentive compensation program awards paid to the participant during the preceding five years. These amounts are reflected in the "Salary" and "Bonus" columns of the Summary Compensation Table. Benefits are payable from Cleco's general assets. The following table illustrates the combined estimated annual benefit payable from both the Pension Plan and the SERP at age 65 to persons at specified compensation levels. Benefits are computed on a joint and 100% survivor annuity basis.
YEARS OF SERVICE AT RETIREMENT ------------------------------------------------------------------------- Final Total Compensation 15 20 25 30 35 ------------------------ -------- -------- -------- -------- -------- $125,000 $ 81,250 $ 81,250 $ 81,250 $ 81,250 $ 81,250 150,000 97,500 97,500 97,500 97,500 97,500 175,000 113,750 113,750 113,750 113,750 113,750 200,000 130,000 130,000 130,000 130,000 130,000 225,000 146,250 146,250 146,250 146,250 146,250 250,000 162,500 162,500 162,500 162,500 162,500 300,000 195,000 195,000 195,000 195,000 195,000 400,000 260,000 260,000 260,000 260,000 260,000 450,000 292,500 292,500 292,500 292,500 292,500 500,000 325,000 325,000 325,000 325,000 325,000
Compensation Committee Interlocks and Insider Participation Mr. Simmons, Ms. Cadoria, Mr. Garrett and Mr. Walker served on the joint Compensation Committee for Cleco and the Company during 1999. Mr. Simmons served as 48 chairman of the joint committee. There are no matters relating to interlocks or insider participation that we are required to report. ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS DIRECTOR TRANSACTIONS Mr. Crowell is a member of the law firm of Crowell & Owens. Crowell & Owens performed legal services for Cleco in 1999 and 2000. The amount paid to Crowell & Owens for legal services performed in each of these years for Cleco was less than $2,000. Mr. Ratcliff is the chairman, president and chief executive officer of Ratcliff Construction Company, Inc. In competitive bidding, Ratcliff Construction Company, Inc., was awarded a site preparation contract for the Coughlin Station Repowering Project of Cleco's wholly owned subsidiary, Cleco Evangeline LLC. The contract amount of $518,917.01 was paid in full on March 15, 1999. INTERCOMPANY TRANSACTIONS Several of our affiliated companies, including Intrastate, Cleco Generation Services LLC (Generation) and Marketing & Trading, provided services to us during 1999 and the nine months ended September 30, 2000. Intrastate owns natural gas pipelines and provides generating fuel transportation services for our power stations. Beginning in January 2000, Generation provided operation and maintenance services for our generating stations, as well as station maintenance planning. In July 1999, Marketing & Trading began managing the dispatch of all Cleco's generating stations, including those owned by us, the procurement of electric power and generating station fuel, and energy marketing services. Other affiliates provided additional services to us during 1999 and the nine months ended September 30, 2000. Support Group provides comprehensive administrative and corporate support services to us and other affiliates, including information technology, accounting, investor relations, and auditing services. We began using these services in January 2000. UtiliTech provided crews to perform a selected portion of our line construction and maintenance services from January 1999 through August 2000. UtiliTech also provided geographical facility mapping services to us from November 1998 through October 1999. UtiliTech transferred certain assets for providing these geographic facility mapping services to us at book value in the third quarter of 1999. For more information on this transfer, see Note K to the notes to the audited financial statements included in Annex F to this registration statement. We also provided selected services to affiliates during 1999 and in the nine months ended September 30, 2000. During this period, we provided employees to UtiliTech to supplement UtiliTech's line construction and line maintenance crews and to perform selected distribution and transmission engineering projects. In addition, from July 1999 through December 1999, we provided selected administrative and corporate services to UtiliTech, Marketing & Trading and Evangeline. Support Group began providing these services in January 2000. We have a power interconnection agreement with Evangeline, whereby we provide to the Evangeline generating station (i) interconnection services to our transmission system and (ii) 49 generation imbalance services. We have two current contracts to engineer, procure equipment and construct transmission related facilities at the Acadia and Perryville power stations, which are owned by subsidiaries of Cleco Midstream Resources, LLC. We also have Master Services Agreements in place with all affiliates for incidental services provided throughout the year between the parties. Amounts charged and allocated to us for goods and services provided by our affiliates were $3.6 million in 1999 and $12.7 million for the first nine months of 2000. These goods and services were charged at the lower of fair market value or fully loaded cost in order to comply with Cleco's interaffiliate policy. Amounts charged by us for goods and services provided to our affiliates were $7.8 million in 1999 and $7.8 million for the first nine months of 2000. These goods and services were charged at the higher of fair market value or fully loaded cost in order to comply with Cleco's interaffiliate policy. On July 1, 1999, all of our subsidiaries' stock and our common stock was dividended to Cleco as part of our reorganization into a holding company structure. The book value of the dividend was approximately $30.6 million. Please read Note A to the notes to the audited financial statements included in Annex F to this registration statement for details regarding our reorganization into a holding company structure. ITEM 8. LEGAL PROCEEDINGS. We and SWEPCO, each a 50% owner of Dolet Hills Unit 1, jointly own lignite reserves in the Dolet Hills area of northwestern Louisiana. In 1982, we and SWEPCO entered into a Lignite Mining Agreement (LMA) with DHMV, a partnership for the mining and delivery of lignite from a portion of these reserves (Dolet Hills Mine). The LMA expires in 2011. The price of lignite delivered pursuant to the LMA is a base price per ton, subject to escalation based on certain inflation indices, plus specified "pass-through" costs. Currently, we are receiving annually a minimum delivery of 1,750,000 tons under the LMA. Since the late 1980s, additional spot lignite deliveries have been obtained through competitive bidding from DHMV and another lignite supplier. In 1999, we and SWEPCO received deliveries that approximated 25% of the annual lignite consumption at the Dolet Hills Unit 1 from the other lignite supplier. On April 15, 1997, we and SWEPCO filed suit against DHMV and its partners in the United States District court for the Western District of Louisiana (the Federal Court Suit), seeking to enforce various obligations of DHMV to us and SWEPCO under the LMA, including provisions relating to the quality of the delivered lignite, pricing and mine reclamation practices. On June 15, 1997, DHMV filed an answer denying the allegations in our suit and filed a counterclaim asserting various contract-related claims against us and SWEPCO. We and SWEPCO have denied the allegations in the counterclaims. As a result of the counterclaims filed by DHMV in the Federal Court Suit, on August 13, 1997, we and SWEPCO filed a separate lawsuit against the parent companies of DHMV, namely Jones Capital Corporation and Philipp Holzmann USA, Inc. in the First Judicial District Court for Caddo Parish, Louisiana (State Court Suit). The State Court Suit seeks to enforce a separate 1995 agreement by Jones Capital Corporation and Philipp Holzmann USA, 50 Inc., related to the LMA. Jones Capital Corporation and Philipp Holzmann USA, Inc., have asked the state court to stay that proceeding until the Federal Court Suit is resolved. On March 1, 2000, the court in the Federal Court Suit ruled that DHMV was not in breach of certain financial covenants under the LMA and denied our and SWEPCO's claim to terminate the LMA on that basis. The ruling has no material adverse effect on our operations and does not affect the other claims scheduled for trial. We and SWEPCO have appealed the federal court's ruling to the United States Court of Appeals for the Fifth Circuit. The civil, nonjury trial in the Federal Court Suit was to have commenced on May 22, 2000. However, on April 20, 2000, all parties jointly requested that the court postpone the trial date and grant a 120-day stay of all matters before the trial court to give the parties an opportunity to attempt to reach an amicable resolution of the litigation. A preliminary memorandum of understanding to settle the litigation has been executed among us, SWEPCO, and DHMV. However, the memorandum of understanding is subject to several conditions precedent that are not yet fulfilled, including prior authorization by the LPSC of favorable rate recovery of the settlement by us and SWEPCO. The federal court granted the motion, stayed the action at the trial court and postponed the trial commencement date to October 23, 2000. At a status conference held on July 12, 2000, the court extended the stay of the proceedings and again postponed the trial date to January 16, 2001. Settlement negotiations are ongoing during the pendency of the stay. Should settlement discussions be unsuccessful, we and SWEPCO will continue aggressively to prosecute the claims against DHMV and defend against the counterclaims that DHMV has asserted. We and SWEPCO continue to pay DHMV for lignite delivered pursuant to the LMA. Normal day-to-day operations continue at the Dolet Hills Mine and Dolet Hills Unit 1. Although the ultimate outcome of this litigation or the settlement negotiations cannot be predicted at this time, based on information currently available to us, management does not believe that the outcome of the Federal Court Suit or any settlement in the Federal Court Suit will have a material adverse effect on our financial position or results of operations. ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS There is no market for our common stock. All of our outstanding common stock is owned by our parent, Cleco. Dividends on our common stock will be paid when and if declared by our board of directors. Our current credit agreement contains some restrictions on our ability to pay cash dividends on our common stock. Any future dividends also may be restricted by any credit or loan agreements that we may enter into from time to time. None of our common stock is subject to outstanding options or warrants to purchase common stock. There are no securities convertible into our common stock. None of our common stock currently can be sold under Rule 144 under the Securities Act of 1933. We are not currently publicly offering any of our common stock. We are filing this registration statement with the SEC in order to become a "reporting person" under the Securities Exchange Act of 1934 so that we may file a debt securities shelf registration statement with the SEC. 51 ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES. During the last three years, we have not sold any securities that were not registered under the Securities Act of 1933, as amended. In connection with our reorganization into a holding company structure, Cleco became the owner of all of our outstanding common stock. ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED. This registration statement relates to the registration of our common stock, all of the outstanding shares of which are owned by Cleco. We are filing this registration statement with the SEC in order to become a "reporting person" under the Securities Exchange Act of 1934 so that we may file a debt securities shelf registration statement with the SEC. Under our amended and restated articles of incorporation, we are authorized to issue the following shares: . 1,491,900 shares of preferred stock, par value $100.00 per share; . 3,000,000 shares of preferred stock, par value $25.00 per share; and . 50,000,000 shares of common stock, par value $2.00 per share. As of September 30, 2000, there were 22,531,870 shares of common stock issued and outstanding, all of which were owned by our parent, Cleco. There are no shares of preferred stock issued or outstanding. COMMON STOCK Holders of common stock may receive dividends ratably if and when declared by our board of directors out of funds legally available therefor. The payment of dividends on our common stock may be limited by obligations we may have to holders of any preferred stock. Holders of common stock are entitled to one vote per share on matters submitted to them. Our board of directors is divided into three classes, with the term of office of directors of one class expiring each year. Cumulative voting of shares is prohibited, meaning that the holders of a majority of the voting power of the shares voting for the election of directors can elect all directors to be elected if they choose to do so. The common stock has no preemptive rights and is not convertible, redeemable or assessable, or entitled to the benefits of any sinking fund. If we liquidate or dissolve our business, the holders of common stock will share ratably in all assets available for distribution to stockholders after creditors are paid and preferred stockholders receive their distributions. All issued and outstanding shares of common stock are fully paid and nonassessable. All of our outstanding common stock is owned by our parent, Cleco. PREFERRED STOCK Our board of directors is allowed, without action by stockholders, to issue one or more series of preferred stock. The board of directors can also determine the rights, preferences, 52 privileges and restrictions, including dividend rights, voting rights, conversion rights, terms of redemption and liquidation preferences, of a series of the preferred stock. ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 83 of the Business Corporation Law of the State of Louisiana (LBCL) provides that a corporation may indemnify any person against whom an action, suit or proceeding is brought or threatened, by reason of the fact that he is or was a director, officer, employee or agent of the corporation or was serving at the request of the corporation as a director, officer, employee or agent of another business, corporation, partnership or other enterprise, against expenses, including attorneys' fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with any such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. In the case of actions by or in the right of the corporation, the indemnity is limited to expenses, including attorneys' fees and amounts paid in settlement not exceeding, in the judgment of the board of directors, the estimated expense of litigating the action to conclusion, actually and reasonably incurred in connection with a defense or settlement; provided that no indemnity may be made in respect of any matter in which the person shall have been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable for willful or intentional misconduct in performance of his duty to the corporation unless and only to the extent that the court determines upon application that such person is fairly and reasonably entitled to such indemnity. To the extent a person has been successful on the merits or otherwise in defense of any action, the statute provides that he shall be indemnified against expenses actually and reasonably incurred by him in connection therewith. Section 83 also provides for, among other things, procedures for indemnification; advancement of expenses; nonexclusivity of the provisions of Section 83 with respect to indemnification and advancement of expenses; and insurance, including self-insurance, with respect to liabilities incurred by directors, officers and others. Article IV of our Bylaws provides that we shall indemnify any person who was or is, or is threatened to be made, a party to or otherwise involved in any pending or completed action, suit, arbitration, alternate dispute resolution mechanism, investigation, administrative hearing or other proceeding, whether civil, criminal, administrative or investigative (any such threatened, pending or completed proceeding being hereinafter called a Proceeding) by reason of the fact that he is or was one of our directors, officers, employees or agents or is or was serving at our request as a director, officer, employee or agent of another business, foreign or nonprofit corporation, partnership, joint venture, trust, employee benefit plan or other enterprise (whether the basis of his involvement in such Proceeding is alleged action in an official capacity or in any other capacity while serving as such), to the fullest extent permitted by applicable law, from and against expenses, including attorney's fees, judgments, fines, amounts paid or to be paid in settlement, liability and loss, ERISA excise taxes, actually and reasonably incurred by him or on his behalf or suffered in connection with such Proceeding or any claim, issue or matter therein; provided, however, that, subject to certain exceptions set forth therein, we shall indemnify any such person claiming indemnity in connection with a Proceeding initiated by such person only if such Proceeding was authorized by the board of directors. The Bylaws further provide that: 53 . we will from time to time pay, in advance of final disposition, all Expenses (as defined therein) incurred by or on behalf of any person claiming indemnity thereunder in respect of any Proceeding; . the right to indemnification provided therein is a contract right and no amendment, alteration or repeal of the Bylaws will restrict the indemnification rights granted by the Bylaws as to any person claiming indemnification with respect to acts, events and circumstances that occurred, in whole or in part, before such amendment, alteration or repeal; . any such indemnification may continue as to any person who has ceased to be a director, officer, employee or agent and may inure to the benefit of the heirs, executors and legal representative of such person; and . the rights to indemnification and to receive advancement of Expenses contemplated by Section 1 of Article IV of the Bylaws are not exclusive of any other rights to which any person may at any time be otherwise entitled, provided that such other indemnification may not apply to a person's willful or intentional misconduct. The Bylaws also set forth certain procedural and evidentiary standards applicable to the enforcement of a claim thereunder. The Bylaws also provide that we: . may procure or maintain insurance or other similar arrangement, at our expense, to protect ourselves and any director, officer, employee or agent of ours or any other corporation, partnership, joint venture, trust or other enterprise against any expense, liability or loss asserted against or incurred by such person, whether or not we would have the power to indemnify such person against such expense or liability; and . shall indemnify our officers and directors to the extent they are not covered by the insurance, whether or not such persons would otherwise be entitled to indemnification under the Bylaws, as provided in policies covering liabilities up to $85 million incurred by directors and officers in their capacities as such, and has fiduciary and employee benefit liability insurance policies covering liabilities up to $65 million incurred by our directors, officers and certain other employees in connection with the administration of our employee benefit plans. Section 24(C)(4) of the LBCL provides that a corporation may eliminate or limit the liability of a director or officer to the corporation or its shareholders for monetary damages for breach of fiduciary duty, except for liability: . for any breach of the director's or officer's duty of loyalty to the corporation or its shareholders; . for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law; 54 . under Section 92(D) of the LBCL relating to unlawful dividends and other unlawful distributions, payments or returns of assets; and . for any transaction from which the director or officer derived an improper personal benefit. Our Articles of Incorporation include a provision consistent with Section 24(C)(4) of the LBCL. Such provision further provides that (a) if the LBCL is subsequently amended to authorize action further eliminating or limiting a director's or officer's liability, such liability will be eliminated or limited to the fullest extent permitted by such law, as so amended, and (b) if such provision limiting or eliminating liability is repealed or modified, the right or protection of a director or officer of the Company existing at the time of such repeal or modification will not be affected thereby. ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements attached to this registration statement as Annex F are incorporated by reference herein. ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS. (a) The financial statements filed as a part of this registration statement are listed in Annex F, which is incorporated by reference herein. 55 (b) Except as otherwise indicated below, the following exhibits are filed with this registration statement.
SEC File or Registration Registration Exhibits Number Statement or Report Exhibit Number - ----------------------------------------------------------------------------------------------------------------------------- 2(a) Plan of Reorganization and Share Exchange 333-71643-01 S-4 (6/30/99) C Agreement *3(a) Amended and Restated Articles of Incorporation of the Company, effective July 1, 1999 *3(b) Bylaws of the Company, effective May 1, 2000 4(a)(1) Indenture of Mortgage dated as of July 1, 1950, 1-5663 10-K (1997) 4(a)(1) between the Company and First National Bank of New Orleans, as Trustee 4(a)(2) First Supplemental Indenture dated as of October 1-5663 10-K (1997) 4(a)(2) 1, 1951, to Exhibit 4(a)(1) 4(a)(3) Second Supplemental Indenture dated as of June 1, 1-5663 10-K (1997) 4(a)(3) 1952, to Exhibit 4(a)(1) 4(a)(4) Third Supplemental Indenture dated as of January 1-5663 10-K (1997) 4(a)(4) 1, 1954, to Exhibit 4(a)(1) 4(a)(5) Fourth Supplemental Indenture dated as of 1-5663 10-K (1997) 4(a)(5) November 1, 1954, to Exhibit 4(a)(1) 4(a)(6) Tenth Supplemental Indenture dated as of 1-5663 10-K (1986) 4(a)(11) September 1, 1965, to Exhibit 4(a)(1) 4(a)(7) Eleventh Supplemental Indenture dated as of April 1-5663 10-K (1998) 4(a)(8) 1, 1969, to Exhibit 4(a)(1) 4(a)(8) Eighteenth Supplemental Indenture dated as of 1-5663 10-K (1993) 4(a)(8) December 1, 1982, to Exhibit 4(a)(1) 4(a)(9) Nineteenth Supplemental Indenture dated as of 1-5663 10-K (1993) 4(a)(9) January 1, 1983, to Exhibit 4(a)(1) 4(a)(10) Twenty-Sixth Supplemental Indenture dated as of 1-5663 8-K (3/90) 4(a)(27) March 15, 1990, to Exhibit 4(a)(1) 4(b) Indenture between the Company and Bankers Trust 33-24896 S-3 (10/11/88) 4(b) Company, as Trustee, dated as of October 1, 1988 4(b)(1) Agreement Appointing Successor Trustee dated as 333-02895 S-3 (4/26/96) 4(a)(2) of April 1, 1996 by and among Central Louisiana Electric Company, Inc., Bankers Trust Company and The Bank of New York 4(f) Agreement Under Regulation S-K Item 333-71643-01 10-Q (9/99) 4(c) 601(b)(4)(iii)(A) ***4(g) $100,000,000 364-day credit agreement dated as of June 15, 2000, among the Company, certain Banks parties thereto, and The Bank of New York, as administrative agent
56
SEC File or Registration Registration Exhibits Number Statement or Report Exhibit Number - ----------------------------------------------------------------------------------------------------------------------------- **10(a) 1990 Long-Term Incentive Compensation Plan 1-5663 1990 Proxy A Statement (4/90) **10(b) Participation Agreement, Annual Incentive 1-5663 10-K (1999) 10(c) Compensation Plan **10(c) Deferred Compensation Plan for Directors 1-5663 10-K (1992) 10(n) **10(d)(1) Supplemental Executive Retirement Plan 1-5663 10-K (1992) 10(o)(1) **10(d)(2) Form of Supplemental Executive Retirement Plan 1-5663 10-K (1992) 10(o)(2) Participation Agreement between Cleco and the following officers: Gregory L. Nesbitt, David M. Eppler, Catherine C. Powell, Mark H. Segura, Darrell J. Dubroc and Thomas J. Howlin **10(e) Form of Executive Severance Agreement between 1-5663 10-K (1995) 10(f) Cleco and the following officers: Gregory L. Nesbitt, David M. Eppler, Catherine C. Powell, Mark H. Segura, Darrell J. Dubroc and Thomas J. Howlin 10(f)(1) Term Loan Agreement dated as of April 2, 1991, 1-5663 10-Q (3/91) 4(b) among the 401(k) Savings and Investment Plan ESOP Trust, the Company, as Guarantor, the Banks listed therein and The Bank of New York, as Agent 10(f)(2) Assignment and Assumption Agreement, effective as 1-5663 10-Q (3/91) 4(c) of May 6, 1991, between The Bank of New York and the Canadian Imperial Bank of Commerce, relating to Exhibit 10(f)(1) 10(f)(3) Assignment and Assumption Agreement dated as of 1-5663 10-K (1991) 10(y)(3) July 3, 1991, between The Bank of New York and Rapides Bank and Trust Company in Alexandria, relating to Exhibit 10(f)(1) 10(f)(4) Assignment and Assumption Agreement dated as of 1-5663 10-K (1992) 10(bb)(4) July 6, 1992, between The Bank of New York, CIBC, Inc. and Rapides Bank and Trust Company in Alexandria, as Assignors, the 401(k) Savings and Investment Plan ESOP Trust, as Borrower, and the Company, as Guarantor, relating to Exhibit 10(f)(1) 10(g) Reimbursement Agreement (The Industrial 1-5663 10-K (1997) 10(i) Development Board of the Parish of Rapides, Inc. (Louisiana) Adjustable Tender Pollution Control Revenue Refunding Bonds, Series 1991) dated as of October 15, 1997, among the Company, various financial institutions, and Westdeutsche Landesbank Girozentrale, New York Branch, as Agent
57
SEC File or Registration Registration Exhibits Number Statement or Report Exhibit Number - ----------------------------------------------------------------------------------------------------------------------------- 10(h) Selling Agency Agreement between the Company and 333-02895 S-3 (12/10/96) 1 Salomon Brothers Inc., Merrill Lynch & Co., Smith Barney Inc. and First Chicago Capital Markets, Inc. dated as of December 12, 1996 10(i) 401(k) Savings and Investment Plan ESOP Trust 1-5663 10-K (1997) 10(m) Agreement dated as of August 1, 1997, between UMB Bank, N.A. and the Company 10(i)(1) First Amendment to 401(k) Savings and Investment 1-5663 10-K (1997) 10(m)(1) Plan ESOP Trust Agreement dated as of October 1, 1997, between UMB Bank, N.A. and the Company ***10(j) 2000 Long-Term Incentive Compensation Plan 10(1) Form of Notice and Acceptance of Grant of 333-71643-01 10Q (9/99) 10(c) Nonqualified Stock Options, awarded to Gregory L. Nesbitt *11 Computation of Net Income Per Common Share *12 Computation of Earnings to Fixed Charges ***21 Subsidiaries of the Registrant *27 Financial Data Schedule
The Exhibits designated by an asterisk will be filed by amendment. The Exhibits not so designated have been previously filed with the SEC and are incorporated herein by reference as indicated. The Exhibits designated by two asterisks are management contracts and compensatory plans and arrangements required to be filed as Exhibits to this registration statement and are also incorporated herein by reference as indicated. The Exhibits designated by three asterisks are filed herewith. 58 SIGNATURES Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, on this 15th day of November, 2000. CLECO UTILITY GROUP INC. By: /s/ THOMAS J. HOWLIN ----------------------------- Name: Thomas J. Howlin Title: Chief Financial Officer 59 ANNEX F FINANCIAL STATEMENTS F-1 INDEX TO FINANCIAL STATEMENTS Audited Financial Statements Report of Independent Public Accountants.................................................................... F-3 Balance Sheets as of December 31, 1999 and 1998............................................................. F-4 Statements of Income for the years ended December 31, 1999, 1998 and 1997................................... F-6 Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997............................... F-7 Statements of Changes in Common Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997... F-8 Notes to the Audited Financial Statements................................................................... F-9 Unaudited Financial Statements Balance Sheets as of December 31, 1999, and September 30, 2000.............................................. F-33 Statements of Income for the nine months ended September 30, 2000, and 1999................................. F-35 Statements of Cash Flows for the nine months ended September 30, 2000 and 1999.............................. F-36 Notes to the Unaudited Interim Financial Statements......................................................... F-37
F-2 [PricewaterhouseCoopers letterhead] PricewaterhouseCoopers LLP 639 Loyola Avenue Suite 1800 New Orleans LA 70113 Telephone (504) 529 2700 Facsimile (504) 529 1439 REPORT OF INDEPENDENT ACCOUNTANTS To the Shareholder and Board of Directors of Cleco Utility Group, Inc.: In our opinion, the accompanying balance sheets and the related statements of income, cash flows and changes in common shareholder's equity present fairly, in all material respects, the financial position of Cleco Utility Group, Inc. at December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ PricewaterhouseCoopers LLP New Orleans, Louisiana January 31, 2000 F-3 CLECO UTILITY GROUP INC. BALANCE SHEETS
(IN THOUSANDS) AT DECEMBER 31, 1999 1998 ---------- ---------- ASSETS Utility plant and other property, plant and equipment Property, plant and equipment $1,539,435 $1,555,196 Accumulated depreciation (552,556) (551,705) --------------------------------- Net property, plant and equipment 986,879 1,003,491 Construction work-in-progress 26,919 76,475 Total utility plant, net 1,013,798 1,079,966 --------------------------------- Other assets 2,358 3,500 --------------------------------- Current assets Cash and cash equivalents 547 19,457 Accounts receivable, net Customer accounts receivable (less allowance for doubtful accounts of $838 in 1999 and $812 in 1998) 26,720 27,436 Other accounts receivable 13,728 22,218 Affiliates 22,624 - Notes receivable - 930 Notes receivable - affiliates 2 - Unbilled revenues 17,065 9,712 Fuel inventory, at average cost 10,461 9,725 Material and supplies inventory, at average cost 14,189 12,674 Other current assets 3,202 1,738 --------------------------------- Total current assets 108,538 103,890 --------------------------------- Prepayments 6,428 8,293 Regulatory assets - deferred taxes 70,834 70,932 Other deferred charges 33,839 30,975 Accumulated deferred federal and state income taxes 55,184 52,898 --------------------------------- TOTAL ASSETS $1,290,979 $1,350,454 =================================
(Continued on next page) The accompanying notes are an integral part of the financial statements. F-4 CLECO UTILITY GROUP INC. BALANCE SHEETS
(IN THOUSANDS) AT DECEMBER 31 1999 1998 ---------- ---------- CAPITALIZATION AND LIABILITIES Common shareholder's equity Common stock, $2 par value, authorized 50,000,000 shares, issued 22,531,870 and 22,767,754 shares at December 31, 1999 and 1998, respectively $ 45,064 $ 45,535 Premium on capital stock 127,477 113,871 Retained earnings 234,288 271,019 Treasury stock, at cost, - 0 - and 281,930 shares at December 31, 1999 and 1998, respectively - (5,734) ------------------------------ Total common shareholder's equity 406,829 424,691 Preferred stock Not subject to mandatory redemption - 29,718 Preferred stock subject to mandatory redemption - 5,680 Deferred compensation related to preferred stock held by ESOP - (16,923) Long-term debt, net 360,339 343,042 ------------------------------ Total capitalization 767,168 786,208 ------------------------------ Current liabilities Short-term debt 5,989 68,416 Long-term debt due within one year 25,000 33,330 Accounts payable 56,093 61,786 Accounts payable - Affiliate 9,244 - Customer deposits 20,326 20,120 Taxes accrued 1,321 11,942 Taxes accrued - payable to parent 24,428 - Interest accrued 8,788 7,340 Accumulated deferred fuel 2,638 4,613 Other current liabilities 3,756 3,868 ------------------------------ Total current liabilities 157,583 211,415 ------------------------------ Deferred credits Accumulated deferred federal and state income taxes 263,688 252,520 Accumulated deferred investment tax credits 25,994 27,784 Regulatory liabilities - deferred taxes 27,221 36,627 Other deferred credits 49,325 35,900 ------------------------------ Total deferred credits 366,228 352,831 ------------------------------ TOTAL CAPITALIZATION AND LIABILITIES $1,290,979 $1,350,454 ==============================
The accompanying notes are an integral part of the financial statements. F-5 CLECO UTILITY GROUP INC. STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997 ----------- ----------- ----------- Operating revenue Retail electric operations $ 508,790 $ 487,280 $ 456,245 Energy marketing operations 237,731 32,695 - Affiliate revenues 7,816 - - ---------------------------------------------------- Gross operating revenue 754,337 519,975 456,245 Less retail electric customer credits (2,776) (4,800) - ---------------------------------------------------- Total operating revenue 751,561 515,175 456,245 ---------------------------------------------------- OPERATING EXPENSES Fuel used for electric generation 146,825 142,737 136,009 Power purchased for utility customer 65,303 53,011 44,590 Purchases for energy marketing operations 230,084 27,322 - Other operations 75,856 71,066 64,618 Maintenance 29,369 30,285 23,286 Depreciation 49,285 48,369 45,890 Taxes other than income taxes 35,870 35,420 33,422 Income taxes 27,272 26,666 27,729 Restructuring charges - - 1,891 Affiliate costs 6,397 - - ---------------------------------------------------- Total operating expenses 666,261 434,876 377,435 ---------------------------------------------------- OPERATING INCOME 85,300 80,299 78,810 Interest income 1,238 372 427 Allowance for other funds used during construction 654 812 620 Other income (expense), net (2,095) (322) 1,248 ---------------------------------------------------- INCOME BEFORE INTEREST CHARGES 85,097 81,161 81,105 ---------------------------------------------------- INTEREST CHARGES Interest on debt and other, net of amount capitalized 27,223 27,016 27,549 Allowance for borrowed funds used during construction (91) (904) (169) Amortization of debt discount, premium and expense, net 1,282 1,248 1,206 ---------------------------------------------------- Total interest charges 28,414 27,360 28,586 ---------------------------------------------------- NET INCOME BEFORE PREFERRED DIVIDENDS 56,683 53,801 52,519 Preferred dividend requirements, net 1,047 2,137 2,117 ---------------------------------------------------- NET INCOME APPLICABLE TO COMMON STOCK $ 55,636 $ 51,664 $ 50,402 ==================================================== AVERAGE SHARES OF COMMON STOCK OUTSTANDING Basic 22,524,529 22,480,163 22,459,770 Diluted 23,254,706 23,867,458 23,864,031 EARNINGS PER AVERAGE SHARE Basic $2.47 $2.30 $2.24 Diluted $2.43 $2.24 $2.18 CASH DIVIDENDS PAID PER SHARE OF COMMON STOCK $3.96 $1.61 $1.57
The accompanying notes are an integral part of the financial statements. F-6 CLECO UTILITY GROUP INC. STATEMENTS OF CASH FLOWS
(IN THOUSANDS) FOR THE YEAR ENDED DECEMBER 31, 1999 1998 1997 --------- -------- -------- OPERATING ACTIVITIES Net income $ 56,683 $ 53,801 $ 52,519 Adjustments to reconcile net income to net cash provided by operating activities Depreciation and amortization 50,567 50,852 47,719 Allowance for funds used during construction 745 (1,716) (789) Amortization of investment tax credits (1,790) (1,790) (1,790) Deferred income taxes 8,469 8,703 2,908 Deferred fuel costs (1,975) 1,648 797 Restructuring charge - - 1,285 Gain (loss) on disposition of land sales, net (130) - (224) Changes in assets and liabilities Accounts receivable, net 25,225 (2,231) (4,441) Unbilled revenues (7,353) 1,378 103 Fuel, material and supplies inventories (2,582) 662 3,334 Accounts payable 5,224 4,421 2,058 Customer deposits 206 (52) 411 Taxes accrued 13,789 (269) 6,405 Interest accrued 1,448 (341) 160 Other, net 2,402 (1,682) 7,321 --------- -------- -------- Net cash provided by operating activities 150,928 113,384 117,776 --------- -------- -------- INVESTING ACTIVITIES Additions to property, plant and equipment (51,758) (94,030) (77,525) Allowance for funds used during construction (745) 1,716 789 Sale of utility plant 9,231 408 418 Purchase of investments (200) (480) (222) --------- -------- -------- Net cash used in investing activities (43,472) (92,386) (76,540) --------- -------- -------- FINANCING ACTIVITIES Issuance of common stock 243 100 66 Repurchase of common stock (120) - (16) Redemption of preferred stock (6,518) (522) (252) Issuance of long-term debt 50,000 - 40,000 Retirement of long-term debt (10,639) (30,000) (15,000) Increase (decrease) in short-term debt, net (82,427) 49,197 (30,942) Cash in subsidiaries moved to holding company (17,384) - - Dividends paid on common and preferred stock, net (59,521) (38,331) (37,384) --------- -------- -------- Net cash used in financing activities (126,366) (19,556) (43,528) --------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (18,910) 1,442 (2,292) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 19,457 18,015 20,307 --------- -------- -------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 547 $ 19,457 $ 18,015 ========= ======== ======== Supplementary cash flow information Interest paid (net of amount capitalized) $ 28,423 $ 28,118 $ 28,770 ========= ======== ======== Income taxes paid $ 7,724 $ 20,140 $ 23,752 ========= ======== ========
The accompanying notes are an integral part of the financial statements. F-7 CLECO UTILITY GROUP INC. STATEMENT OF CHANGES IN COMMON SHAREHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999 --------------------------------------------------------------------------- PREMIUM ON COMMON STOCK CAPITAL RETAINED TREASURY STOCK SHARES AMOUNT STOCK EARNINGS SHARES COST ----------- --------- ------------- ---------- --------- -------- (In thousands, except share and per share amounts) BALANCE, JANUARY 1, 1997 22,760,154 $45,520 $113,702 $240,414 307,577 $ 6,242 Redemptions of preferred stock 18 Incentive stock options exercised 2,600 5 38 Issuance of treasury stock 5 (8,528) (172) Incentive shares forfeited 793 16 Dividend requirements, preferred stock, net (2,118) Cash dividends paid, common stock, $1.57 per share (35,266) Net income 52,519 ---------- ------- -------- -------- -------- ------- Balance, December 31, 1997 22,762,754 45,525 113,763 255,549 299,842 6,086 ---------- ------- -------- -------- -------- ------- Redemptions of preferred stock 10 Incentive stock options exercised 5,000 10 74 Issuance of treasury stock 24 (19,755) (401) Incentive shares forfeited 1,987 54 Director's restricted stock award (144) (5) Dividend requirements, preferred stock, net (2,137) Cash dividends paid, common stock, $1.61 per share (36,194) Net income 53,801 ---------- ------- -------- -------- -------- ------- Balance, December 31, 1998 22,767,754 45,535 113,871 271,019 281,930 5,734 ---------- ------- -------- -------- -------- ------- Redemption of preferred stock 18 Repurchase of preferred stock (62) Incentive stock options exercised 10,800 22 217 Issuance of treasury stock 5 (41,060) (831) Director's restricted stock award (86) (3) Treasury shares purchased 5,900 120 Treasury shares cancelled (246,684) (493) (1,316) (3,256) (246,684) (5,020) Dividend requirements, preferred stock, net (1,047) Transfer of non cash items to the Company from Cleco Corporation 1,639 Dividend of interest in subsidiaries and the Company to Cleco Corporation (30,637) Transfer of preferred ESOP shares to Cleco Corporation, net of deferred compensation relating to ESOP 13,105 Cash dividends paid, common stock, $3.96 per share (58,474) Net Income 56,683 ---------- ------- -------- -------- -------- ------- Balance December 31, 1999 22,531,870 $45,064 $127,477 $234,288 0 $ 0 ========== ======= ======== ======== ======== =======
The accompanying notes are an integral part of the financial statements. F-8 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS NOTE A -- HOLDING COMPANY STRUCTURE At the Annual Meeting of Shareholders held on April 9, 1999, a resolution was passed to reorganize the structure of Cleco Corporation into a holding company structure. Effective July 1, 1999, Cleco Corporation changed its name to Cleco Utility Group Inc. (the Company) and reorganized into a holding company structure. This reorganization resulted in the creation of a holding company, Cleco Corporation (Cleco, formerly Cleco Holding Corporation). Under the terms of the reorganization, Cleco became the owner of all of the Company's outstanding common stock, and holders of existing common stock and two series of preferred stock exchanged their stock in the Company for stock in Cleco. Shares of preferred stock in three series that did not approve the reorganization were redeemed for $5.7 million. As a result of the share exchange, the Company became a wholly owned subsidiary of Cleco and all subsidiaries of the Company became subsidiaries of Cleco. As a result of the exchange of stock and the transfer of subsidiaries, the Company issued a non- cash dividend of approximately $30.6 million to Cleco, which represented the book value of the investment in subsidiaries and the common stock of the Company. NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES GENERAL The Company provides electric service to a diversified base of residential, commercial and industrial customers in 23 parishes (counties) of Louisiana. The services consist primarily of generation, transmission, distribution and customer care services. The financial statements include the accounts of the Company and all subsidiaries, which the Company owns directly, or indirectly, through a majority interest, through June 30, 1999. Intercompany balances were eliminated in consolidation. As of July 1, 1999, the Company's interest in its subsidiaries was transferred by dividend to Cleco; therefore, the Company's statements of income and statements of cash flows reflect the results of operations and cash flows for the Company and its subsidiaries on a consolidated basis through June 30, 1999. The transfer was accounted for at the net book value of net assets of its subsidiaries. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATION Certain reclassifications have been made to the 1997 and 1998 financial statements to conform to the presentation used in the 1999 financial statements. These reclassifications had no F-9 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS effect on net income applicable to common stock, total common shareholders' equity or cash flows. REGULATION The Company maintains its accounts in accordance with the Uniform System of Accounts prescribed for electric utilities by the FERC, as adopted by the LPSC. The Company's retail rates for residential, commercial and industrial customers and other retail sales are regulated by the LPSC, and its rates for transmission services and wholesale power sales are regulated by the FERC. The Company follows Statements of Financial Accounting Statement No. 71 (SFAS 71), "Accounting for the Effects of Certain Types of Regulation." This Statement allows utilities to capitalize or defer certain costs based on regulatory approval and management's ongoing assessment that it is probable these items will be recovered through the ratemaking process. During 1999, the LPSC directed its staff to develop a transition to competition plan to be presented on or before January 1, 2001. The plan under development by the LPSC staff may affect the regulatory assets and liabilities recorded in the Company under SFAS 71 if the criteria for the application of SFAS 71 cannot continue to be met. The Company has recorded regulatory assets and liabilities, primarily for the effects of income taxes, as a result of past rate actions of regulators pursuant to SFAS 71. The effects of potential deregulation of the industry or possible future changes in the method of rate regulation of the Company could require the Company to discontinue the application of SFAS 71 in the future, pursuant to SFAS No. 101, "Regulated Enterprises -- Accounting for the Discontinuation of Application of FASB Statement No. 71" (SFAS 101). At December 31, 1999, the Company had recorded $18.7 million of regulatory assets, net of regulatory liabilities, because of the regulatory requirement to flow through the tax benefits of accelerated deductions to current customers and an implied regulatory compact that future customers would fund these amounts when the Company pays the additional taxes. These differences occur over the lives of relatively long-lived assets, up to 30 years or more. Under the current regulatory and competitive environment, the Company believes that these regulatory assets will be fully recoverable. However, if in the future, as a result of regulatory changes or increased competition, the Company's ability to recover these regulatory assets would not be probable, then to the extent that such regulatory assets were determined not to be recoverable, the Company would be required to write-off or write-down such assets. PROPERTY, PLANT AND EQUIPMENT Property, Plant and Equipment primarily consists of LPSC regulated generation assets utilized for retail operations and electric transmission and distribution properties. Electric utility plant is stated at the original cost of construction, which includes certain materials, labor, payroll taxes and benefits, administrative and general costs, and the estimated cost of funds used during construction. The cost of repairs and minor replacements is charged as incurred to the appropriate operating expense and clearing accounts. The cost of improvements is capitalized. Upon retirement or disposition, the recorded cost of depreciable plant and the cost of removal, net of salvage value, are charged to accumulated depreciation. F-10 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS The table below discloses the amounts of plant acquisition adjustments reported in the Company's property, plant and equipment and the associated accumulated amortization reported in accumulated depreciation. The plant acquisition adjustment relates primarily to the acquisition of Teche Electric Cooperative, Inc., in 1997. AT DECEMBER 31, (IN THOUSANDS) 1999 1998 ------------- ------------- Plant acquisition adjustment $5,377 $5,377 Less accumulated amortization (698) (446) ------ ------ Total plant acquisition adjustment $4,679 $4,931 ====== ====== The provision for depreciation is computed using the straight-line method at rates that will amortize the unrecovered cost of depreciable property over its estimated useful life. Annual depreciation provisions expressed as a percentage of average depreciable property were 3.28% for 1999, 3.32% for 1998 and 3.27% for 1997. CASH EQUIVALENTS The Company considers highly liquid, marketable securities and other similar instruments with original maturity dates of three months or less at the time of purchase to be cash equivalents. INCOME TAXES Deferred income taxes are provided at the current enacted income tax rate on all temporary differences between tax and book basis of assets and liabilities. The Company recognizes regulatory assets and liabilities for the tax effect of temporary differences, which, to the extent past ratemaking practices are continued by regulators, will be realized over the accounting lives of the related properties. Cleco consolidated current and deferred taxes are allocated to the Company using the separate taxpayer method as defined in SFAS No. 109, "Accounting for Income Taxes" (SFAS No. 109). INVESTMENT TAX CREDITS Investment tax credits, which were deferred for financial statement purposes, are amortized to income over the estimated service life of the properties that gave rise to the credits. DEBT EXPENSE, PREMIUM AND DISCOUNT Expense, premium and discount applicable to debt securities are amortized to income ratably over the lives of the related issues. Expense and call premium related to refinanced Company debt are deferred and amortized over the remaining life of the original issue. F-11 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS REVENUES AND FUEL COSTS UTILITY REVENUES. Revenues from sales of electricity are recognized based upon the amount of energy delivered. The cost of fuel and purchased power used for retail customers is currently recovered from customers through fuel adjustment clauses, based upon fuel costs incurred in prior months. These adjustments are subject to audit and final determination by regulators. ENERGY MARKETING AND AFFILIATE REVENUES. Revenues are recognized at the time products or services are provided to customers. ALLOWANCE FOR FUNDS USED DURING CONSTRUCTION (AFUDC) The capitalization of AFUDC is a utility accounting practice prescribed by the FERC and the LPSC. AFUDC represents the estimated cost of financing construction work-in-progress. AFUDC does not represent a current source of cash, but under regulatory practices, a return on and recovery of AFUDC is permitted in setting rates charged for utility services. The composite AFUDC rate, including borrowed and other funds on a combined basis, for 1999 was 13.75% on a pretax basis (8.46% net of tax), for 1998 was 13.49% on a pretax basis (8.30% net of tax), and for 1997 was 13.97% on a pre-tax basis (8.59% net of tax). RISK MANAGEMENT The market risk inherent in the Company's market risk-sensitive instruments and positions is the potential change arising from increases or decreases in the short-, medium- and long-term interest rates, the commodity price of electricity traded on the Into Entergy and the Cinergy exchanges and the commodity price of natural gas traded. Generally, the Company's market risk- sensitive instruments and positions are characterized as "other than trading;" however, the Company does have positions that are considered "trading" as defined by Emerging Issues Task Force Consensus No. 98-10 (EITF 98-10). Positions that are considered "trading" under EITF 98-10 are marked-to-market at the end of reporting periods. The mark-to-market gains or losses are reflected in the income statement in the energy marketing revenue line item. The off- setting unrealized gain or loss is recorded on the balance sheet in other current assets or other current liabilities. Positions that are considered "other than trading" under EITF 98-10 are accounted for under the deferral method. Under SFAS No. 80, income or loss in such positions is deferred until the underlying transactions have been realized RECENT ACCOUNTING STANDARDS SFAS No. 133, "Accounting for Derivatives Instruments and Hedging Activities," was to be implemented during the Company's fiscal year ending December 31, 2000. SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," delayed the implementation of SFAS No. 133 until all fiscal years beginning after June 15, 2000. The Company expects to adopt SFAS No. 133 for the fiscal year beginning January 1, 2001. The effect of adopting SFAS No. 133 has not been determined. F-12 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS EARNINGS PER AVERAGE COMMON SHARE Earnings per average common share (EPS) is computed using the weighted average number of shares of common stock outstanding during the year. EPS is reported for the years 1999, 1998 and 1997 to reflect the Company's adoption of SFAS No. 128, "Earnings per Share." The following table is a reconciliation of the components in the calculation of basic and diluted earnings per share.
FOR THE YEAR ENDED DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1997 ---------------------------------------------------------------------------------------------------------------- INCOME SHARES PER SHARE INCOME SHARES PER SHARE INCOME SHARES PER SHARE (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT (NUMERATOR) (DENOMINATOR) AMOUNT ----------- ------------- --------- ----------- ------------- ---------- ----------- ------------- --------- Net income $56,683 $53,801 $52,519 Less: preferred Dividend Requirements, net (1,047) (2,137) (2,117) ------- ------- BASIC EPS Income available for common shareholders 55,636 $2.47 51,664 22,480 $2.30 50,402 22,460 $2.24 ===== ===== ===== EFFECT OF DILUTIVE SECURITIES Stock option grants 0 7 7 Convertible ESOP Preferred stock 856 730 1,707 1,380 1,646 1,397 --- ------- ------ ------- ------ DILUTED EPS Income available to common shareholders + assumed conversions $56,492 730 $2.43 $53,371 23,867 $2.24 $52,048 23,864 $2.18 ======= === ===== ======= ====== ===== ======= ====== =====
NOTE C -- JOINTLY OWNED GENERATING UNITS Two electric generating units operated by the Company are jointly owned with other utilities. The Company's proportionate share of operation and maintenance expenses associated with these two units is reflected in the financial statements. At December 31, 1999 ----------------------------------- Rodemacher Dolet Hills Unit #2 Unit #1 ------------------ -------------- (Dollar amounts in thousands) Percentage of ownership................ 30% 50% Utility plant in service............... $85,372 $274,231 Accumulated depreciation............... $44,519 $111,510 Unit capability (megawatts)............ 523.0 650.0 Share of capability (megawatts)........ 156.9 325.0 F-13 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS NOTE D -- FAIR VALUE OF FINANCIAL INSTRUMENTS The amounts reflected in the financial statements at December 31, 1999 and 1998, for cash and cash equivalents, accounts receivable, accounts payable and short-term debt approximate fair value because of their short-term nature. The fair value of the Company's long-term debt and nonconvertible preferred stock is estimated based upon the quoted market price for the same or similar issues or by a discounted present value analysis of future cash flows using current rates obtainable by the Company for debt and preferred stock with similar maturities. The fair value of convertible preferred stock is estimated assuming its conversion into common stock at the market price per common share at December 31, 1998, with proceeds from the sale of the common stock used to repay the principal balance of the Company's loan to the Employee Stock Ownership Plan (ESOP). The estimated fair value of energy market positions is based upon observed market prices when available and when such market prices are not available, management estimates market value at a discrete point in time based on market conditions and observed volatility. These estimates are subjective in nature and involve uncertainties. Therefore actual results may differ from these estimates.
AT DECEMBER 31, ------------------------------------------------------------------- 1999 1998 ------------------------------- ----------------------------- CARRYING ESTIMATED CARRYING ESTIMATED VALUE FAIR VALUE VALUE FAIR VALUE -------------- -------------- ------------- ------------- (In thousands) Financial instruments not marked-to-market Long-term debt........................................ $386,260 $380,133 $376,698 $400,738 Preferred stock Not subject to mandatory redemption................. - - $ 12,795 $ 28,567 Subject to mandatory redemption..................... - - $ 5,680 $ 5,143 ORIGINAL ESTIMATED CARRYING ESTIMATED VALUE FAIR VALUE VALUE FAIR VALUE -------------- -------------- ------------- ------------- Financial instruments marked-to-market Energy Market Positions............................... Assets.............................................. $ 9,209 $ 8,089 - - Liabilities......................................... $ 4,960 $ 4,266 - -
The financial instruments not marked-to-market are reported on the Company's balance sheet at carrying value. The financial instruments marked-to- market represent off-balance-sheet risk because, to the extent the Company has an open position, it is exposed to the risk that fluctuating market prices may adversely impact its financial position or results of operations upon settlement. Original value represents the fair value of the positions at the time originated. NOTE E -- DEBT The Company has a revolving credit facility totaling $100 million. This facility provides for uncollateralized borrowings at prevailing interest rates and is scheduled to expire on June 15, 2000. This facility also provides for borrowings at interest rates established by competitive bid. Commitment fees are based upon the Company's lowest secured debt ratings F-14 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS and are currently 0.10%. Compensating balances are not maintained in connection with the facility. In addition, the Company has an uncommitted borrowing arrangement with a bank in the amount of $5. million. The bank is not obligated to lend under this uncommitted arrangement, and any borrowings are made at negotiated interest rates and are uncollateralized. No fees are paid on the uncommitted arrangement, nor are compensating balances required. F-15 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS Total indebtedness as of December 31, 1999 and 1998 were as follows:
(IN THOUSANDS) AT DECEMBER 31, ----------------------------------------------- 1999 1998 ---------------------- ---------------------- Commercial paper, net $ 5,989 $ 68,226 Short-term bank loans - 190 -------- -------- Total short-term debt $ 5,989 $ 68,416 ======== ======== First mortgage bonds Series X, 9 1/2%, due 2005 $ 60,000 $ 60,000 Pollution control revenue bonds, variable rate, due 2018 - 61,260 Pollution control revenue bonds, fixed rate of 5.875%, Due 2029, callable after September 1, 2009 61,260 - Long-term bank loans - 10,438 Medium-term notes 7.85%, due 2000 25,000 25,000 7.55%, due 2004, callable at 100%, 2002 15,000 15,000 7.50%, due 2004, callable at 100%, 2002 10,000 10,000 7.00%, due 2003 10,000 10,000 5.90%, due 1999 - 10,000 6.55%, due 2003 15,000 15,000 6.33%, due 2002 25,000 25,000 5.78%, due 2001 10,000 10,000 6.20%, due 2006 15,000 15,000 6.42%, due 2001 15,000 15,000 6.95%, due 2006 10,000 10,000 6.53%, due 2007 10,000 10,000 6.32%, due 2006 15,000 15,000 6.28%, due 2008, putable at 100%, 1999 - 20,000 7.50%, due 2007 15,000 15,000 7.00%, due 2007 25,000 25,000 6.52%, due 2009 50,000 - -------- -------- Total medium-term notes 265,000 245,000 -------- -------- Gross amount of long-term debt 386,260 376,698 Less: Amount due within one year (25,000) (33,330) Unamortized premium and discount, net (921) (326) -------- -------- Total long-term debt, net $360,339 $343,042 ======== ========
(In thousands) 2000 2001 2002 2003 2004 Thereafter ------- ------- ------- ------- ------- --------------- Amounts payable under long- term debt agreements $25,000 $25,000 $25,000 $25,000 $25,000 $261,260 ======= ======= ======= ======= ======= ========
The weighted average interest rate on short-term debt at December 31, 1999, was 6.42% compared to 5.26% at December 31, 1998. F-16 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS The first mortgage bonds are collateralized by the LPSC jurisdictional property, plant and equipment within the Company. In the various parishes that contain such property, a lien is filed with the clerk of court. Before the Company can sell any of this property, it must get a release signed by the trustee. The three issues of the Company's 1991 series pollution control bonds totaling $61.3 million were refinanced on September 2, 1999. Two new series were issued to replace the old bonds, which were retired using the legal defeasance method and removed from the balance sheet as permitted under SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." The new bonds were issued at a fixed rate with a coupon of 5.875% and were discounted and sold at 98.956%, with a final maturity of September 1, 2029, subject to optional redemption by the Company after September 1, 2009. The bonds are insurance-backed, thereby fixing the cost of the credit support for the life of the bonds. In a related transaction, an interest rate lock agreement was entered into for the notional amount of the bonds, effectively locking the rate of the bonds at 5.663% for the 30-year period. The Company received approximately $1.8 million from the interest rate lock counterparty upon settlement, which will be amortized over the life of the bonds. NOTE F -- COMMON STOCK Effective July 1, 1999 Cleco Utility Group Inc. reorganized to a holding company structure. Under the terms of the reorganization, Cleco became the owner of all of Utility Group's outstanding common stock, and the holders of existing common and two series of preferred stock exchanged their stock in Utility Group for stock in Cleco. As of July 1, 1999, the Company's common stock is no longer listed on an exchange. In association with incentive compensation plans in effect during the two-year period ended December 31, 1998, certain officers and key employees of the Company and its subsidiaries were awarded shares of restricted Company common stock. The cost of the restricted stock awards, as measured by the market value of the common stock at the time of the grant, is recorded as compensation expense during the periods in which the restrictions lapse. As of December 31, 1999, the number of shares of restricted stock previously granted for which restrictions had not lapsed was zero due to the reorganization. F-17 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS Changes in incentive shares for the three-year period ended December 31, 1999, were as follows:
Incentive Share ------------------------------------------------------------- Option Price Unexercised Available for per Share Option Shares Future Grants ----------------- ------------------ ------------------ Balance, January 1, 1997................................... 18,400 731,851 ------- -------- Options exercised.......................................... $16.780 (2,600) - Restricted stock granted................................... - (20,904) Restricted stock forfeited................................. - 793 Incentive stock awarded.................................... - (3,701) ------- -------- Balance, December 31, 1997................................. 15,800 708,039 Options exercised.......................................... $16.780 (5,000) - Options granted (directors)................................ $31.875 12,503 (12,503) Restricted stock granted................................... - (21,362) Restricted stock forfeited................................. - 2,543 ------- -------- Balance, December 31, 1998................................. 23,303 676,717 Options exercised.......................................... $16.780 (10,800) - Options moved to holding company........................... (12,503) (676,717) ------- -------- Balance, December 31, 1999................................. - - ======= ========
Had the compensation cost for the Company's stock-based compensation plans been determined consistent with SFAS 123, the Company's net income and net income per common share would approximate the pro forma amounts below:
For the year ended December 31, (In thousands except per share amounts) 1998 1997 -------------------------- ---------------------------- AS Pro AS Pro Reported Forma Reported Forma ------------ ----------- ------------ ------------- SFAS 123 expense $ $ 525 $ $ 382 Estimated reduction in income tax for SFAS 123 expense (173) (126) ------- ------- ------- ------- Net income applicable to Common stock $51,664 $51,312 $50,402 $50,146 ======= ======= ======= ======= Net income per basic common Share $ 2.30 $ 2.28 $ 2.24 $ 2.23 ======= ======= ======= =======
As a result of the holding company structure reorganization, all options on Company stock were exchanged for options on Cleco stock. All options outstanding on the Company common stock were cancelled. F-18 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS The assumptions used to calculate the additional compensation expense are as follows:
For the year ended December 31, ----------------------------------------------------------- 1999 1998 1997 ------------------ ------------------ ----------------- Expected term (in years) 6.31 5.00 N/A Volatility 12.94% 12.29% N/A Expected dividend yield 5.11% 5.05% N/A Risk-free interest rate 5.94% 5.79% N/A Weighted average fair value (Black Scholes value) $ 2.15 $ 3.13 N/A
The effects of applying SFAS 123 in this pro forma disclosure are not necessarily indicative of future amounts. SFAS 123 does not apply to awards prior to 1995. NOTE G -- PREFERRED STOCK All shares of the 4.5% Series 1955, 4.65% Series 1964, and 4.75% Series 1965 of preferred stock of the Company were redeemed at a cost of $5.7 million in June 1999. The shareholders of these series of preferred stock voted "no" on the formation of the holding company in May 1999. As part of the share exchange agreement, preferred shareholders of these series had their shares redeemed. In connection with the establishment of the ESOP, the Company sold 300,000 shares of 8.125% convertible preferred stock to the ESOP. As part of the holding company reorganization, each share of the Company's 8.125% convertible preferred stock was exchanged for one share of Cleco's 8.125% convertible preferred stock. The amount of preferred stock relating to the ESOP was transferred net of deferred compensation relating to the convertible preferred stock held by the ESOP. F-19 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS Information about the components of preferred stock capitalization is as follows:
(In thousands, except share amounts) Balance Balance Balance BALANCE Jan. 1, Dec. 31, Dec. 31, DEC. 31, 1997 Change 1997 Change 1998 Change 1999 ----------- -------- ----------- -------- ----------- ------------ -------- CUMULATIVE PREFERRED STOCK, $100 par value NOT SUBJECT TO MANDATORY REDEMPTION 4.50%.................................. $ 1,029 $ 1,029 $ 1,029 $ (1,029) - Convertible, Series of 1991, Variable rate.......................... 29,251 (178) 29,073 (384) 28,689 (28,689) - ---------- ------- ---------- ------- ---------- ----------- $ 30,280 $ (178) $ 30,102 $ (384) $ 29,718 $ (29,718) - ========== ======= ========== ======= ========== =========== SUBJECT TO MANDATORY REDEMPTION 4.50%, Series of 1955.................... 360 (40) 320 (40) 280 (280) - 4.65%, Series of 1964.................... 3,080 (140) 2,940 (140) 2,800 (2,800) - 4.75%, Series of 1965.................... 2,932 (72) 2,860 (260) 2,600 (2,600) - ---------- ------- ---------- ------- ---------- ----------- $ 6,372 $ (252) $ 6,120 $ (440) $ 5,680 $ (5,680) - ========== ======= ========== ======= ========== =========== Deferred compensation related to convertible preferred stock held by the ESOP.............................. $ (20,751) $ 1,985 $ (18,766) $ 1,843 $ (16,923) $ (16,923) - ========== ======= ========== ======= ========== =========== CUMULATIVE PREFERRED STOCK, $100 par value Number of shares Authorized............................. 1,412,125 (2,125) 1,410,000 (4,000) 1,406,000 (1,406,000) - Issued and outstanding................. 366,519 (4,301) 362,218 (8,240) 353,978 (353,978) - ========== ======= ========== ======= ========== =========== CUMULATIVE PREFERRED STOCK, $25 par value Number of shares authorized (None outstanding)..................... 3,000,000 3,000,000 3,000,000 (3,000,000) - ========== ========== ========== ===========
NOTE H -- PENSION PLAN AND EMPLOYEE BENEFITS Substantially all employees of the Company and employees of its affiliates are covered by a noncontributory, defined benefit pension plan. Benefits under the plan reflect an employee's years of service, age at retirement and highest total average compensation for any consecutive five calendar years during the last ten years of employment with the Company. The Company's policy is to fund contributions to the employee pension plan based upon actuarial computations utilizing the projected unit credit method, subject to the Internal Revenue Service's full funding limitation. No contributions to the pension plan were required during the three-year period ended December 31, 1999. The Company is the plan sponsor of the pension plan. The Company is reimbursed by its affiliates for the service costs incurred by affiliate employees incurred while the employees are in the employ of the affiliates. During 1999, the service costs were immaterial. The Company's retirees and their dependents are eligible to receive health, dental and life insurance benefits (other benefits). The Company recognizes the expected cost of these benefits during the periods in which the benefits are earned. F-20 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS The employee pension plan, other benefits obligation plan assets and funded status as determined by the actuary at December 31, 1999 and 1998 are presented in the following table.
(In thousands) PENSION BENEFITS OTHER BENEFITS 1999 1998 1999 1998 -------------------------------------------------------- Change in benefit obligation Benefit obligation at beginning of year................. $132,721 $123,082 $ 16,602 $ 15,379 Service cost............................................ 4,353 3,734 661 671 Interest cost........................................... 9,198 8,326 1,099 1,062 Plan participants contributions......................... 338 311 Actuarial (gain)/loss................................... (8,728) 4,591 (1,624) 176 Expenses paid........................................... (1,254) (1,100) - - Benefits paid........................................... (6,320) (5,912) (882) (997) -------- -------- -------- -------- Benefit obligation at end of year....................... 129,970 132,721 16,194 16,602 -------- -------- -------- -------- Change in plan assets Fair value of plan assets at beginning of year.......... 181,698 163,574 - - Actual return on plan assets............................ 10,489 25,136 - - Expense paid............................................ (1,254) (1,100) - - Benefits paid........................................... (6,320) (5,912) - - -------- -------- -------- -------- Fair value of plan assets at end of year................ 184,613 181,698 - - -------- -------- -------- -------- Funded status............................................ 54,643 48,977 (16,194) (16,602) Unrecognized net actuarial (gain)....................... (53,369) (48,421) (3,058) (1,434) Unrecognized transition obligation/(asset).............. (5,308) (6,625) 6,673 7,186 Prior service cost...................................... 12,775 13,745 - - -------- -------- -------- -------- Prepaid/(accrued) benefit cost.......................... $ 8,741 $ 7,676 $(12,579) $(10,850) ======== ======== ======== ========
Employee pension plan assets were invested in Cleco's common stock, other publicly traded domestic common stocks, U.S. government, federal agency and corporate obligations, an international equity fund, commercial real estate funds and pooled temporary investments. Effective January 1, 1998, the Company changed the method of calculating fair market value of assets to reflect the difference between actual and projected appreciation for the current year ratably over five years. This change has been reflected in the table above. Effective January 1, 1998, the Company increased the crediting rates for each year of service but limited the maximum number of years of service credited to 35. This change has been reflected in the table above. F-21 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS The components of net periodic pension and other benefits cost (income) for 1999, 1998 and 1997 are as follows, along with assumptions used:
(In thousands) PENSION BENEFITS OTHER BENEFITS -------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 --------- --------- --------- ------- ------- ------- Components of periodic benefit costs Service cost.......................... $ 4,353 $ 3,734 $ 2,984 $ 661 $ 671 $ 601 Interest cost......................... 9,198 8,326 7,288 1,099 1,062 1,034 Expected return on plan assets........ (14,267) (12,797) (10,290) Amortization of transition Obligation(asset)................... (1,317) (1,318) (1,317) 513 513 513 Prior period service cost Amortization........................ 969 969 347 Net (gain)loss........................ (142) (66) (82) -------- -------- -------- ------ ------ ------ Net periodic benefit cost/(income).... $ (1,064) $ (1,228) $ (988) $2,273 $2,180 $2,066 ======== ======== ======== ====== ====== ====== PENSION BENEFITS OTHER BENEFITS -------------------------------------------------------------------------------- 1999 1998 1997 1999 1998 1997 -------------------------------------------------------------------------------- Weighted-average assumptions as of December 31: Discount rate....................... 7.50% 6.75% 7.00% 7.50% 6.75% 7.00% Expected return on plan assets...... 9.50% 9.50% 9.50% N/A N/A N/A Rate of compensation increase....... 5.00% 5.00% 5.00% N/A N/A N/A
The assumed health care cost trend rate used to measure the expected cost of other benefits was 8.5% in 1999 and 9.5% in 1997 and 1998. The initial health care cost trend rate was reduced from 10% in 1996 to 9.5% in 1998 and to 8.5% in 1999, which resulted in an unrecognized gain. Assumed health care cost trend rates have a significant effect on the amount reported for the health care plans. A one-percentage point change in assumed health care cost trends rates would have the following effects on other benefits:
(In thousands) 1-PERCENTAGE POINT --------------------------------------- INCREASE DECREASE --------------- ------------------ Effect on total of service and interest cost components.................. $119 $(121) Effect on postretirement benefit obligation.............................. $912 $(943)
Substantially all employees are eligible to participate in a savings and investment plan (401(k) Plan). The Company makes matching contributions to 401(k) Plan participants by allocating shares of Cleco's convertible preferred stock held by the ESOP. Compensation expense related to the 401(k) Plan is based upon the value of shares of preferred stock allocated to ESOP participants and the amount of interest incurred by the ESOP, less dividends on unallocated shares held by the ESOP. At December 31, 1999 and 1998, the ESOP had allocated to employees 139,086 and 124,984 shares, respectively. F-22 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS The table below contains information about the 401(k) Plan and the ESOP:
FOR THE YEAR ENDED DECEMBER 31, (In thousands) 1999 1998 1997 ------------ ------------ ------------ 401(k) Plan expense.................................................... $1,021 $1,107 $1,453 Dividend requirements to ESOP on convertible preferred stock........... $1,047 $2,341 $2,367 Interest incurred by ESOP on its indebtedness.......................... $1,296 $1,683 $1,604 Company contributions to ESOP.......................................... $ 0 $1,075 $1,235
NOTE I -- INCOME TAX EXPENSE Federal income tax expense is less than the amount computed by applying the statutory federal rate to book income before tax as follows:
FOR THE YEAR ENDED DECEMBER 31, (In thousands, except for %) 1999 1998 1997 ----------------- ----------------- ----------------- AMOUNT % Amount % Amount % -------- ------ -------- ------ -------- ------ Book income before tax...................................... $83,955 100.0 $80,467 100.0 $80,248 100.0 Tax at statutory rate on book income before tax............. 29,384 35.0 28,163 35.0 28,087 35.0 Increase (decrease): Tax effect of AFUDC....................................... (261) (0.3) (601) (0.8) (276) (0.3) Amortization of investment tax credits.................... (1,790) (2.1) (1,790) (2.2) (1,790) (2.2) Tax effect of prior-year tax benefits not deferred........ 1,119 1.3 2,175 2.7 978 1.2 AFUDC gross up - FASB 109................................. (1,548) (1.8) (1,009) (1.3) (1,123) (1.4) Other, net................................................ (2,550) (3.0) (2,443) (3.0) (1,522) (1.9) ------- ------- ------- Total federal income tax expense............................ 24,354 29.0 24,495 30.4 24,354 30.4 Current state income tax expense............................ 2,918 3.5 2,171 2.7 3,375 4.2 ------- ------- Total federal and state income tax expense.................. $27,272 32.5 $26,666 33.1 $27,729 34.6 ======= ======= ----- ------- =====
F-23 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS Information about current and deferred income tax expense is as follows:
(In thousands) 1999 1998 1997 ------------ ------------ ------------ Current federal income tax expense..................... $17,675 $17,582 $23,236 Deferred federal income tax expense.................... 8,469 8,703 2,908 Amortization of accumulated deferred investment tax (1,790) (1,790) (1,790) credits.............................................. ------- ------- ------- Total federal income tax expense....................... 24,354 24,495 24,354 Current state income tax expense....................... 2,918 2,171 3,375 ------- ------- ------- Total federal and state income tax expense............. $27,272 $26,666 $27,729 ======= ======= ======= Deferred federal income tax expense attributable to: Depreciation......................................... $ 8,428 $11,748 $ 2,733 Storm damages........................................ 912 492 (332) Asset basis differences.............................. (2,717) (571) (1,707) Employee benefits.................................... 222 (419) 321 Fuel costs........................................... 660 (612) 790 Reacquired debt...................................... (269) (249) 1,037 Other................................................ 1,233 (1,686) 66 ------- ------- ------- Total deferred federal income tax expense............ $ 8,469 $ 8,703 $ 2,908 ======= ======= =======
The balance of accumulated deferred federal and state income tax assets and liabilities at December 31, 1999 and 1998, was comprised of the tax effect of the following:
(In thousands) 1999 1998 ------------------------- --------------------------- ASSET LIABILITY Asset Liability ----------- ----------- ----------- ------------- Depreciation and property basis differences................. $ 6,653 $152,971 $ 6,584 $143,975 Allowance for funds used during construction................ - 42,974 - 39,270 Investment tax credits...................................... 15,979 - 17,378 - FASB 109 adjustments........................................ 92,417 110,315 62,235 92,513 Postretirement benefits other than pension.................. 4,723 - 3,700 - Other....................................................... 5,345 14,661 7,448 10,861 -------- -------- ------- -------- Accumulated deferred federal and state income taxes......... $125,117 $320,921 $97,345 $286,619 ======== ======== ======= ========
Regulatory assets recorded for deferred taxes at December 31, 1999 and 1998, were $115.9 million and $95.2 million, respectively. Regulatory liabilities recorded for deferred taxes at December 31, 1999 and 1998, were $97.1 million and $81.0 million, respectively. Regulatory assets and liabilities will be realized over the accounting lives of the related properties to the extent past ratemaking practices are continued by regulators. NOTE J -- ACCRUAL OF ESTIMATED CUSTOMER CREDITS The Company's reported earnings in the year ended December 31, 1999, reflect a $2.8 million accrual for estimated customer credits that may be required under terms of an earnings review settlement reached with the LPSC in 1996. The 1996 LPSC settlement, and a subsequent amendment, set the company's rates until the year 2004 and also provided for annual base rate F-24 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS tariff reductions of $3 million in 1997 and $2 million in 1998. As part of the settlement, the Company is allowed to retain all regulated earnings up to a 12.25% return on equity and to share equally with customers as credits on their bills all regulated earnings between 12.25% and 13% return on equity. All regulated earnings above a 13% return on equity are credited to customers. The amount of credits due customers, if any, is determined by the LPSC annually based on 12-month-ending results as of September 30 of each year. The settlement provides for such credits to be made on customers' bills the following summer. Of the $2.8 million, $2.2 million relates to the 12-month-ended September 30, 1998, cycle, and the remaining $0.6 million relates to the estimated refund for the 12-month-ended September 30, 1999, cycle. The adjustment for the prior year's estimate of the refund for the 1998 cycle was due to the LPSC's final report on the 1998 cycle. The $2.8 million was recorded as a reduction in revenue due to the nature of the customer credits. The amount of the credit for the cycle ending September 30, 1999, if any, has not yet been determined by the LPSC. NOTE K -- SIGNIFICANT NON-CASH TRANSACTIONS On July 1, 1999, 246,684 shares of the Company's common stock held as treasury stock, with a cost of approximately $5 million, were cancelled as a part of the holding company restructuring. In 1998, Utility Construction & Technology Solutions LLC (UtiliTech), an affiliate of the Company, entered into a contract with the Company to provide geographic information system (GIS) services required by the Company. In 1998, the GIS assets were transferred to UtiliTech from the Company at net book value at the date of transfer of approximately $1.6 million. During the third quarter of 1999, UtiliTech decided to cease offering GIS services. As shown in the Statement of Changes in Shareholder's Equity, the related GIS assets were transferred back to the Company at net book value. On July 1, 1999, all subsidiaries of the Company and all of the common stock of the Company were dividended to Cleco as a part of reorganizing into a holding company structure. The book value of the membership interest and common stock of subsidiaries and the common stock of the Company dividended was approximately $30.6 million. NOTE L -- AFFILIATE TRANSACTIONS Effective July 1, 1999, the Company entered into service agreements with affiliates, which provide the Company access to professional services and goods. The service and goods are charged to the Company at the lower of fair market value or fully loaded costs in order to comply with Cleco's interaffiliate policy. A summary of charges from each affiliate included in the Statement of Income and Balance Sheet follows: F-25 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS
1999 (In thousands) Statement of Balance Income Sheet ------------ -------- Cleco Other operation $ 70 Other income (expense), net 2 Cleco Marketing & Trading LLC Other operation 1,638 Other income (expense), net 241 Cleco Evangeline LLC Maintenance 86 CLE Intrastate Pipeline Company, Inc. Fuel used for electric generation 1,412 Utility Construction & Technology Solutions LLC Property, plant and equipment $690 Other operations 75 Maintenance 58 ------ Total $3,582 $690 ====== ====
Prior to July 1, 1999, the affiliates were subsidiaries of the Company and their operations were included with those of the Company and reflected in other income/(expenses), net. The Company also entered into agreements to provide goods and services to affiliated companies. The goods and services are charged by the Company at the higher of fully loaded cost or fair market value in order to comply with Cleco's interaffiliate policy. Following is a reconciliation of the Company's intercompany revenues: (In thousands) 1999 --------------------- Cleco $ 19 Cleco Midstream Resources LLC 236 Utility Construction & Technology Solutions LLC 2,494 Cleco Support Group LLC 138 Cleco Evangeline LLC 3,841 Cleco Marketing & Trading LLC 978 CLE Intrastate Pipeline Company, Inc. 110 ------ Total $7,816 ====== F-26 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS The Company has the following affiliate receivable and payable balances associated with the service agreements between the Company and its affiliates:
1999 Accounts Accounts Receivable Payable ---------- -------- Cleco $ 7,525 Utility Construction & Technology Solutions LLC 1,676 CLE Pipeline Company, Inc. $1,352 Cleco Evangeline LLC 11,395 Cleco Midstream Resources LLC 1,405 Cleco Marketing & Trading LLC 7,892 Others 623 ------- ------ $22,624 $9,244 ======= ======
During the period July 1, 1999 to December 31, 1999, the Company paid cash dividends to Cleco of approximately $39.8 million. NOTE M -- DISCLOSURES ABOUT SEGMENTS The Company has determined that its reportable segments are based on the Company's method of internal reporting, which disaggregates its business units by first-tier subsidiary. The Company's reportable segments are Utility Group, Midstream and UtiliTech. Reportable segments were determined by applying SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." Each reportable segment engages in business activities from which it earns revenues and incurs expenses. Segment managers report at least monthly to the Company's CEO (the chief decision maker) with discrete financial information and present quarterly discrete financial information to the Company's Board of Directors. Budgets were prepared by each reportable segment for 2000, which were presented to, and approved by, Company's Board of Directors. The Other segment consists of costs within Cleco prior to the holding company restructuring, start-up costs associated with a retail services subsidiary, and revenue and expenses associated with an investment subsidiary. These subsidiaries operate within Louisiana and Delaware. The financial results of the Company's segments are presented on an accrual basis. Significant differences among the accounting policies of the segments as compared to the Company's financial statements principally involve the classification of revenue and expense between operating and other. Management evaluates the performance of its segments and allocates resources to them based on segment profit/(loss) before income taxes and preferred stock dividends. In years 1997, 1998 and the first six months of 1999, Midstream and UtiliTech reported profit/(loss) as other income (expense) within Utility Group. For purposes of this footnote, gross amounts of revenue and expenses are reported on the appropriate line. The Unallocated Items, Reclassifications & Eliminations column reclassifies the items of revenue and expense recorded under the equity method to other income(expense). Material intersegment transactions occur on a regular basis. F-27 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS The results for Midstream, UtiliTech and other subsidiaries reflect the first six months of activity in 1999. Effective July 1, 1999, Midstream, UtiliTech and the other subsidiaries were dividended to Cleco and ceased to be subsidiaries of the Company.
1999 UNALLOCATED ITEMS, UTILITY RECLASSIFICATIONS & GROUP MIDSTREAM UTILITECH OTHERS ELIMINATIONS TOTAL ----------- ---------- ---------- ------- -------------------- ----------- Revenues Retail electric operations $ 508,790 $ - $ - $ - $ - $ 508,790 Energy marketing operations 237,731 - - - - 237,731 Other operations 2,080 1,326 342 (3,972) 5,757 Intersegment revenues 7,816 1,589 1,425 783 (3,797) 7,816 Customer credits (2,776) - - - - (2,776) ---------- ------- ------ ------- -------- ---------- Total operating revenue 743,745 2,080 1,326 342 (7,769) 751,561 Depreciation expense 49,285 614 133 - (747) 49,285 Interest charges 28,414 756 3 - (759) 28,414 Segment profit (loss) (1) 83,955 (306) (317) 1,095 (28,319) 54,756 Segment assets $1,418,145 - - - - $1,418,145 (1) Reconciliation of segment profit to Company profit: UNALLOCATED ITEMS Income taxes $27,272 Preferred dividends 1,047 ------- $28,319 ======= 1998 Revenues Retail electric operations $ 487,280 - - - - $ 487,280 Energy marketing operations 32,695 $10,118 - - $(10,118) 32,695 Other operations - - $ 214 $ 865 (1,079) - Customer credits (4,800) - - - - (4,800) ---------- ------- ------ ------- -------- ---------- Total operating revenues 515,175 10,118 214 865 (11,197) 515,175 Intersegment revenues - 3,242 297 1,443 (4,982) - Depreciation expense 48,369 831 79 - (910) 48,369 Interest charges 27,360 792 - - (792) 27,360 Segment profit (loss) (1) 79,383 (719) (176) 1,505 (28,329) 51,664 Segment assets $1,383,648 $67,322 $3,483 $27,443 $(52,896) $1,429,000 (1) Reconciliation of segment profit to Company profit: Unallocated items Income taxes $26,666 Preferred dividends 2,137 Other (474) ------- $28,329 =======
F-28 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS 1997 Revenues Retail electric operations $ 456,245 - - - - $ 456,245 Energy marketing operations - - - - - - Other operations - $ 164 - $ 760 $ (924) - Customer credits - - - - - ---------- --- ------- -------- ---------- Total Operating revenues 456,245 164 - 760 (924) 456,245 Intersegment revenues - 1,652 - 440 (2,092) - Depreciation expense 45,890 624 - - (624) 45,890 Interest charges 28,586 440 - - (440) 28,586 Segment profit/(loss) (1) 78,938 129 - 1,158 (29,823) 50,402 Segment assets $1,383,135 $8,642 $80 $19,869 $ (5,682) $1,361,044 (1) Reconciliation of segment profit to Company profit: Unallocated items Income taxes $27,729 Preferred dividends 2,117 Other (23) ------- $29,823 =======
NOTE O -- COMMITMENTS AND CONTINGENCIES In recent years, the Company's construction program has consisted primarily of enhancements to its transmission and distribution systems and improvements at its generating stations. In 1997 the Company acquired the assets of Teche for $22.4 million. The Company's construction expenditures, excluding AFUDC, totaled $51.7 million in 1999 and $53.9 million in 1998, excluding the Teche assets. The Company construction expenditures, excluding AFUDC, for 2000 are estimated to be $54 million and for the five-year period will support line extensions and substation upgrades to accommodate new business and load growth. Some investment will be made to rehabilitate older transmission, distribution and generation assets. The Company will also continue to invest in technology to allow it to operate more efficiently. In 1999, 100% of the Company's construction requirements were funded internally, as compared to 99.8% in 1998 and 100% in 1997. In 2000, 96% of construction requirements are expected to be funded internally. For the five- year period ending 2004, 99% of construction requirements are expected to be funded internally. The Company has entered into various long-term contracts for the procurement of coal and lignite to fuel certain of its generating stations. These contracts contain provisions for price changes, minimum purchase levels and other financial commitments. The Company purchases, as an additional fuel source for generation, natural gas under short-term contracts on the spot market. The Company and another utility filed suit against a joint venture and its partners who mine lignite for one of the Company's jointly owned electric generating units. The joint venture has filed counterclaims. The counterclaims resulted in the filing of another suit by the Company F-29 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS and the other utility against the joint venture's parent company. Management believes the counterclaims, if successful, would not have a significant adverse effect on the Company's financial position or results of operations. Normal day- to-day operations continue at the mining facility and the jointly owned electric generating unit. The coal for one of the Company's jointly owned generating units is transported under a long-term contract with a railroad. The railroad experienced operating problems beginning in 1997 that resulted in reduced volumes delivered to the unit. Throughout 1998 the delivery problems persisted, and the coal inventory fluctuated at or below the Company's desired minimum level. However, in 1999, the deliveries of coal by the railroad were back to the normal schedule. The Company has accrued for liabilities to third parties, environmental claims, employee medical benefits, storm damages and deductibles under insurance policies that it maintains on major properties, primarily generating stations and transmission substations. Consistent with regulatory treatment, annual charges to operating expense to provide a reserve for future storm damages are based upon the average amount of noncapital, uninsured storm damages experienced by the Company during the previous five years. NOTE P -- MISCELLANEOUS FINANCIAL INFORMATION (UNAUDITED) Quarterly information for the Company for 1999 and 1998 is shown in the following table.
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ---------------------------------------------------------- 1999 ---------------------------------------------------------- 1ST 2ND 3RD 4TH QUARTER QUARTER QUARTER QUARTER ------------ ------------ ------------ ------------- Operating revenues............................................ $121,719 $222,474 $275,810 $131,558 Operating income.............................................. $ 19,481 $ 29,519 $ 30,631 $ 5,669 Net income applicable to common stock......................... $ 8,017 $ 13,716 $ 23,537 $ 10,366 Basic net income per average common share..................... $ 0.36 $ 0.61 $ 1.04 $ 0.46 Diluted net income per average common share................... $ 0.35 $ 0.59 $ 1.04 $ 0.46 Dividends paid per common share............................... $ 0.405 $ 0.415 $ 1.817 $ 1.324 Market price per share High........................................................ $ 35.500 $ 33.563 $ N/A $ N/A Low......................................................... $ 28.250 $ 28.438 $ N/A $ N/A
F-30 CLECO UTILITY GROUP INC. NOTES TO FINANCIAL STATEMENTS
(In thousands, except per share amounts) ---------------------------------------------------------- 1998 ---------------------------------------------------------- 1st 2nd 3rd 4th Quarter Quarter Quarter Quarter ------------- ------------ ------------ ------------ Operating revenues........................................... $97,210 $128,298 $172,553 $117,114 Operating income............................................. $13,833 $ 20,946 $ 28,902 $ 16,618 Net income applicable to common stock........................ $ 6,468 $ 14,491 $ 22,320 $ 8,385 Basic net income per average common share.................... $ 0.29 $ 0.64 $ 0.99 $ 0.38 Diluted net income per average common share.................. $ 0.29 $ 0.63 $ 0.95 $ 0.37 Dividends paid per common share.............................. $ 0.395 $ 0.405 $ 0.405 $ 0.405 Market price per share High....................................................... $34.563 $ 34.750 $ 33.875 $ 36.125 Low........................................................ $30.250 $ 29.000 $ 28.625 $ 32.875
F-31 UNAUDITED FINANCIAL STATEMENTS F-32 CLECO UTILITY GROUP INC. INTERIM BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS) AT SEPTEMBER AT DECEMBER 30, 2000 31, 1999 ----------------------- ----------------------- ASSETS Utility property, plant and equipment Utility Property, plant and equipment $1,558,641 $1,539,435 Accumulated depreciation (585,738) (552,556) ----------------------- ----------------------- Net utility property, plant and equipment 972,903 986,879 Construction work-in-progress 34,070 26,919 ----------------------- ----------------------- Total utility property, plant and equipment, net 1,006,973 1,013,798 ----------------------- ----------------------- Other assets - 2,358 Current assets Cash and cash equivalents 3,759 547 Accounts receivable 75,048 40,448 Accounts receivable - affiliate 1,864 22,624 Notes receivable- associated companies 2 2 Unbilled revenues 25,728 17,065 Fuel inventory, at average cost 7,269 10,461 Material and supplies inventory, at average cost 14,503 14,189 Accumulated deferred fuel 10,643 - Other current assets 3,803 3,202 ----------------------- ----------------------- Total current assets 142,619 108,538 ----------------------- ----------------------- Prepayments 8,341 6,428 Regulatory assets - deferred taxes 70,889 70,834 Other deferred charges 33,763 33,839 Accumulated deferred federal and state income taxes 49,104 55,184 ----------------------- ----------------------- TOTAL ASSETS $1,311,689 $1,290,979 ======================= =======================
(Continued on next page) The accompanying notes are an integral part of the interim financial statements. F-33 CLECO UTILITY GROUP INC. INTERIM BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS) AT SEPTEMBER AT DECEMBER 30, 2000 31, 1999 ------------ ----------- CAPITALIZATION AND LIABILITIES Common shareholder's equity Common stock, $2 par value, authorized 50,000,000 shares, 22,531,870 outstanding at September 30, 2000 and December 31, 1999 $ 45,064 $ 45,064 Premium on capital stock 127,312 127,477 Retained earnings 243,999 234,288 -------------------------------- Total common shareholders' equity 416,375 406,829 Long-term debt, net 335,383 360,339 -------------------------------- Total capitalization 751,758 767,168 -------------------------------- Current liabilities Short-term debt 61,766 5,989 Long-term debt due within one year 25,000 25,000 Accounts payable 49,931 56,093 Accounts payable - Affiliate 9,857 9,244 Customer deposits 20,489 20,326 Taxes accrued 20,734 1,321 Taxes accrued - payable to parent 6,299 24,428 Interest accrued 1,633 8,788 Accumulated deferred fuel - 2,638 Other current liabilities 4,596 3,756 -------------------------------- Total current liabilities 200,305 157,583 -------------------------------- Deferred credits Accumulated deferred federal and state income taxes 265,553 263,688 Accumulated deferred investment tax credits 24,688 25,994 Regulatory liabilities - deferred taxes 38,840 27,221 Other deferred credits 30,545 49,325 -------------------------------- Total deferred credits 359,626 366,228 -------------------------------- TOTAL CAPITALIZATION AND LIABILITIES $1,311,689 $1,290,979 ================================
The accompanying notes are an integral part of the interim financial statements. F-34 CLECO UTILITY GROUP INC. INTERIM STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 ------ ------ OPERATING REVENUES Retail electric operations $ 462,168 $ 389,278 Energy marketing operations 13,000 230,418 Affiliate revenues 7,781 4,259 ---------------------------------------- Gross operating revenue 482,949 623,955 Less: retail electric customer credits (1,233) (5,100) ---------------------------------------- Total operating revenue 481,716 618,855 ---------------------------------------- OPERATING EXPENSES Fuel used for electric generation 126,437 104,480 Power purchased for utility customers 94,425 52,966 Purchases for energy marketing operations 9,487 223,225 Other operations 58,192 54,217 Maintenance 24,372 23,320 Depreciation 37,162 37,345 Taxes other than income taxes 27,786 27,425 Federal and state income taxes 25,974 24,794 Affiliate costs 6,420 3,880 ---------------------------------------- Total operating expenses 410,255 551,653 ---------------------------------------- OPERATING INCOME 71,461 67,202 Allowance for other funds used during construction 656 547 Other income (expense), net (1,081) (533) ---------------------------------------- INCOME BEFORE INTEREST CHARGES 71,036 67,216 ---------------------------------------- INTEREST CHARGES Interest charges, including amortization of debt Expenses, premium and discount 21,972 20,791 Allowance for borrowed funds used during construction (226) 108 ---------------------------------------- NET INCOME BEFORE PREFERRED DIVIDENDS 49,290 46,317 Preferred dividend requirements, net - 1,047 ---------------------------------------- NET INCOME APPLICABLE TO COMMON STOCK $ 49,290 $ 45,270 ======================================== AVERAGE SHARES OF COMMON STOCK OUTSTANDING Basic 22,531,870 22,522,327 Diluted 23,531,870 23,471,560 EARNINGS PER AVERAGE SHARE Basic $2.19 $2.01 Diluted $2.19 $1.97 CASH DIVIDENDS PAID PER SHARE OF COMMON STOCK $1.76 $2.63
The accompanying notes are an integral part of the interim financial statements. F-35 CLECO UTILITY GROUP INC. INTERIM STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 1999 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 49,290 $ 46,317 Adjustments to reconcile net income to net cash Provided by operating activities Depreciation and amortization 37,870 38,192 Allowance for funds used during construction 883 (439) Amortization of investment tax credits (1,306) (1,343) Deferred income taxes 7,168 (1,616) Deferred fuel costs (13,281) (5,391) Gain on disposition of utility plant, net - (108) Changes in assets and liabilities Accounts receivable, net (12,439) (34,624) Unbilled revenues (8,663) (5,646) Fuel inventory, materials and supplies 2,878 (8,629) Accounts payable (4,802) 58,177 Customer deposits 163 (6) Other deferred accounts (2,814) 4,045 Taxes accrued 1,284 36,825 Interest accrued (7,155) (5,549) Other, net (4,607) 4,463 -------- -------- Net cash provided by operating activities 44,469 124,668 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES Additions to utility plant (31,664) (37,264) Allowance for funds used during construction (883) 439 Proceeds from sales of utility plant 257 208 Purchase of investments - (200) -------- -------- Net cash used in investing activities (32,290) (36,817) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES Issuance of common stock - 243 Share Exchange Agreement (165) - Issuance of long-term debt - 50,000 Retirement of long-term debt - (10,000) Increase (decrease) in short-term debt, net 30,777 (68,416) Redemption of preferred stock - (6,518) Cost of refinancing debt - (639) Dividends paid on common and preferred stock, net (39,579) (29,676) -------- -------- Net cash used in financing activities (8,967) (65,006) -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 3,212 22,845 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 547 2,073 -------- -------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 3,759 $ 24,918 ======== ======== Supplementary cash flow information Interest paid (net of amount capitalized) $ 25,344 $ 28,378 ======== ======== Income taxes paid $ 23,130 $ 3,402 ======== ========
The accompanying notes are an integral part of the interim financial statements. F-36 CLECO UTILITY GROUP INC. NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED) NOTE A -- PRESENTATION AND RECLASSIFICATION The interim financial statements included herein are unaudited but reflect, in management's opinion, all adjustments, consisting only of normal recurring adjustments, that are necessary for a fair presentation of the Company's financial position and results of operations for the interim periods presented. The interim financial statements included herein should be read in conjunction with the audited financial statements and notes thereto included in this Annex F. Certain prior-period amounts have been reclassified to conform with the presentation shown in the current year's financial statements of the Company. These reclassifications had no effect on net income applicable to common stock or common shareholders' equity. NOTE B -- LEGAL PROCEEDING: FUEL SUPPLY -- LIGNITE The Company and Southwestern Electric Power Company (SWEPCO), each a 50% owner of Dolet Hills Unit 1, jointly own lignite reserves in the Dolet Hills area of northwestern Louisiana. In 1982, the Company and SWEPCO entered into the Lignite Mining Agreement (LMA) with Dolet Hills Mining Venture (DHMV), a partnership for the mining and delivery of lignite from a portion of these reserves (Dolet Hills Mine). The LMA expires in 2011. The price of lignite delivered pursuant to the LMA is a base price per ton, subject to escalation based on certain inflation indices, plus specified "pass-through" costs. Currently, the Company is receiving annually a minimum delivery of 1,750,000 tons under the LMA. Since the late 1980s, additional spot lignite deliveries have been obtained through competitive bidding from DHMV and another lignite supplier. In 1999, the Company and SWEPCO received deliveries which approximated 25% of the annual lignite consumption at the Dolet Hills Unit 1 from the other lignite supplier. On April 15, 1997, the Company and SWEPCO filed suit against DHMV and its partners in the United States District Court for the Western District of Louisiana (Federal Court Suit) seeking to enforce various obligations of DHMV to the Company and SWEPCO under the LMA, including provisions relating to the quality of the delivered lignite, pricing, and mine reclamation practices. On June 15, 1997, DHMV filed an answer denying the allegations in the Federal Court Suit and filed a counterclaim asserting various contract-related claims against the Company and SWEPCO. The Company and SWEPCO have denied the allegations in the counterclaims. As a result of the counterclaims filed by DHMV in the Federal Court Suit, on August 13, 1997, the Company and SWEPCO filed a separate lawsuit against the parent companies of DHMV, namely, Jones Capital Corporation and Philipp Holzmann USA, Inc., in the First Judicial District Court for Caddo Parish, Louisiana (State Court Suit). The State Court Suit seeks to enforce a separate 1995 agreement by Jones Capital Corporation and Philipp Holzmann USA, Inc. related to the LMA. Jones Capital Corporation and Philipp Holzmann F-37 CLECO UTILITY GROUP INC. NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED) USA, Inc. have asked the state court to stay that proceeding until the Federal Court Suit is resolved. On March 1, 2000, the court in the Federal Court Suit ruled that DHMV was not in breach of certain financial covenants under the LMA and denied the Company's and SWEPCO's claim to terminate the LMA on that basis. The ruling has no material adverse effect on the operations of the Company and does not affect the other claims scheduled for trial. The Company and SWEPCO have appealed the federal court's ruling to the United States Court of Appeals for the Fifth Circuit. The civil, non-jury trial in the Federal Court Suit was to have commenced on May 22, 2000. However, on April 20, 2000, all parties jointly requested that the court postpone the trial date and grant a 120-day stay of all matters before the trial court to give the parties an opportunity to attempt to reach an amicable resolution of the litigation. A preliminary memorandum of understanding to settle the litigation has been executed among the Company, SWEPCO and DHMV. The memorandum of understanding, however, is subject to several conditions precedent that are not yet fulfilled, including prior authorization by the Louisiana Public Service Commission (LPSC) of favorable rate recovery of the settlement by the Company and SWEPCO. The federal court granted the motion, stayed the action at the trial court and postponed the trial commencement date to October 23, 2000. At a status conference held on July 12, 2000, the court extended the stay of the proceedings and again postponed the trial date to January 16, 2001. Settlement negotiations are on-going during the pendency of the stay. Should settlement discussions be unsuccessful, the Company and SWEPCO will continue aggressively to prosecute the claims against DHMV and defend against the counterclaims that DHMV has asserted. The Company and SWEPCO continue to pay DHMV for lignite delivered pursuant to the LMA. Normal day-to- day operations continue at the Dolet Hills Mine and Dolet Hills Unit 1. Although the ultimate outcome of this litigation or the settlement negotiations cannot be predicted at this time, based on information currently available to the Company, management does not believe that the outcome of the Federal Court Suit or any settlement in the Federal Court Suit will have a material adverse effect on the Company's financial position or results of operations. NOTE C -- PROCEEDINGS BEFORE THE LPSC Several Louisiana-based contractors providing utility line construction services instituted a proceeding via petition with the LPSC on April 9, 1999, alleging subsidization by the Company of a non-regulated affiliate, Cleco Services LLC, now operating as UtiliTech. The LPSC has assigned Docket No. U- 24064 to the complaint. The complainants, LPSC staff and the Company have conducted discovery, pre-filed testimony has been prepared and depositions taken. On September 6, 2000, the Company and the complainants signed an agreement to settle the dispute. The terms of the settlement did not result in a material impact to the Company's results of operations or financial condition. F-38 CLECO UTILITY GROUP INC. NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED) In connection with this proceeding, the LPSC staff has engaged the services of an outside consultant. The outside consultant has filed testimony on behalf of the LPSC staff identifying several possible ratemaking adjustments to the Company's previous and future Rate Stabilization Plan filings that could affect the Company's customer credits. On October 3, 2000, the Company and the staff of the LPSC signed an agreement resolving all outstanding issues, which was approved by the LPSC on November 2, 2000. The settlement will result in an increase to the Company's customer credits of approximately $500,000, which will be paid to customers in September 2001. NOTE D -- DISCLOSURES ABOUT SEGMENTS The Company has changed the structure of its internal organization, which caused a change in the determination of reportable segments from the reportable segments disclosed in 1999. The reorganization into a holding company structure effective July 1, 1999 entailed the movement of all subsidiaries of the Company to the new holding company, Cleco. The Company is a vertically integrated, regulated electric utility operating within Louisiana and is viewed as one unit by management. Discrete financial reports are prepared only at the company level. NOTE E -- PENSION PLAN The Company is the sponsor of a defined benefit pension plan which covers substantially all employees of the Company and its affiliates. The affiliate companies which adopt the pension plan accrue pension expense and record a pension liability using actuarially determined amounts without the benefit of pension assets presently in the plan. The Company records a pension benefit based on its actuarially determined expense, offset by the earnings of the assets presently in the plan. If the plan required a contribution, each affiliate would be required to contribute to the plan its prorata share of pension liability and would begin to benefit from the earnings of its assets contributed to the plan. During the first nine months of 2000, no contributions were required and no contributions were made to the plan by any participant. NOTE F -- NEW ACCOUNTING STANDARD Periodically, the Financial Accounting Standards Board (FASB) issues Statements of Financial Accounting Standards (SFAS). These statements reflect accounting, reporting and disclosure requirements the Company should follow in the accumulation of financial data and in the presentation of financial statements. The FASB, a nongovernmental organization, is the primary source of generally accepted accounting principles within the United States. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), effective for fiscal years beginning after June 15, 1999. This statement establishes accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. In June 1999, the FASB issued SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133" (SFAS F-39 CLECO UTILITY GROUP INC. NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED) No. 137), which changed the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. In June 2000, the FASB issued SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities" (SFAS No. 138), which modified certain provisions of SFAS No. 133. We will implement the requirements of these accounting standards effective January 1, 2001. In early 2000, we organized a cross-functional project team for the implementation of SFAS No. 133, as amended. The team has completed an inventory of our financial instruments, commodity contracts and other commitments for the purpose of identifying and assessing our derivative- related transactions. We have entered into certain forward and option contracts for the future purchase or sale of electricity and natural gas that meet the derivative criteria of SFAS No. 133, as amended. We currently record changes in the fair value (mark-to-market), due to changes in the underlying commodity prices, for certain of these contracts in current earnings. These changes are influenced by various market factors, including weather and the availability of regional electric generation and transmission capacity. The cross-functional project team has not yet determined the amount of other comprehensive income to be reflected on statements of income and other comprehensive income. The team believes that application of SFAS No. 133, as amended, will cause us to reflect certain transactions in other comprehensive income based on the effectiveness of the hedges. NOTE G -- DEBT A $100 million revolving credit facility expired on June 15, 2000 and a new $100 million, 364-day revolving credit facility was finalized concurrently with the expiration. The $100 million facility supports the issuance of commercial paper and other general corporate purposes of the Company. NOTE H -- AFFILIATE TRANSACTIONS Effective July 1, 1999, the Company entered into service agreements with affiliates, which provide the Company access to professional services and goods. The services and goods are charged to the Company at the lower of fair market value or fully loaded costs in order to comply with Cleco's interaffiliate policy. A summary of charges from each affiliate included in the unaudited interim Statement of Income and Balance Sheet follows: F-40 CLECO UTILITY GROUP INC. NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 2000 STATEMENT OF INCOME BALANCE SHEET ----------------- --------------- (IN THOUSANDS) Cleco Other operation $ (20) Deferred charges $ 895 Cleco Marketing & Trading LLC Other operation 4,218 Accounts receivable* (36) Deferred charges (39) Cleco Evangeline LLC Other operation 2 Maintenance 8 Other Income(expenses), net (77) Property, plant and equipment (16) Deferred charges 26 Liabilities 3 CLE Intrastate Pipeline Company, Inc. Fuel used for electric generation 1,534 Cleco Midstream Resources Other operation 346 Property, plant and equipment 13 Deferred charges 124 Accounts receivable 352 Fuel and materials inventory 755 Cleco Support Group LLC Other operation 19,997 Maintenance 756 Other Income (expenses) 100 Property, plant and equipment 308 Accounts receivable 21 Fuel and materials inventory 8 Deferred charges 4,367 Cleco Generation Services LLC Property, plant and equipment 192 Deferred charges 60 Accounts receivable 7,221 Fuel & materials inventory Utility Construction & Technology Solutions LLC Property, plant and equipment 1,168 Deferred charges 69 Other operations (114) Maintenance 173 Cleco ConnecXus LLC Property, plant and equipment 88 ------- ------- Total $26,923 $15,579 ======= =======
*Amounts billable to our joint owners at Rodemacher Unit 2 and Dolet Hills Unit 1 F-41 CLECO UTILITY GROUP INC. NOTES TO INTERIM FINANCIAL STATEMENTS (UNAUDITED) Prior to July 1, 1999, the affiliates were subsidiaries of the Company and their operations were included with those of the Company and reflected in other income/(expenses), net. The Company also entered into agreements to provide goods and services to affiliated companies. The goods and services are charged by the Company at the higher of fully loaded cost or fair market value in order to comply with Cleco's interaffiliate policy. Following is a reconciliation of the Company's intercompany revenues: FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 ------------------------ (IN THOUSANDS) Cleco Midstream Resources LLC $ 151 Utility Construction & Technology Solutions LLC 1,900 Cleco Support Group LLC 2,194 Cleco Evangeline LLC 1,519 Cleco Generation Services LLC 144 Cleco Marketing & Trading LLC 1,793 Cleco ConnecXus LLC 80 ------ Total $7,781 ====== The Company has the following affiliate receivable and payable balances associated with the service agreements between the Company and its affiliates:
AS OF SEPTEMBER 30, 2000 --------------------------------- ACCOUNTS ACCOUNTS RECEIVABLE PAYABLE --------------- --------------- (IN THOUSANDS) Cleco $ 424 Utility Construction & Technology Solutions LLC 132 Cleco Evangeline LLC 62 Cleco Generation Services LLC $3,003 Cleco Midstream Resources LLC 509 Cleco Marketing & Trading LLC 866 Cleco Energy LLC 1,164 Cleco Support Group LLC 5,181 Cle Resources Inc. 365 Cleco ConnecXus 15 ------ ------ Total $1,864 $9,857 ====== ======
During the period January 1, 2000 to September 30, 2000, the Company paid cash dividends to Cleco of approximately $39.5 million. F-42 EX-4.(G) 2 0002.txt CREDIT AGREEMENT EXHIBIT 4(g) 364-DAY CREDIT AGREEMENT by and among CLECO UTILITY GROUP INC. THE LENDERS PARTY HERETO AND THE BANK OF NEW YORK, as Administrative Agent ---------------- $100,000,000 ---------------- DATED AS OF JUNE 15, 2000 ---------------------------------------- BNY CAPITAL MARKETS, INC., as Lead Arranger and as Book Manager TABLE OF CONTENTS 1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION 1 1.1. Definitions 1 1.2. Principles of Construction 16 2. AMOUNT AND TERMS OF LOANS 17 2.1. Revolving Credit Loans 17 2.2. Notes 17 2.3. Revolving Credit Loans; Procedure 18 2.4. Competitive Bid Loans; Procedure 19 2.5. Voluntary Reduction or Termination of Aggregate Commitments 22 2.6. Prepayments of the Loans 22 2.7. Conversions and Continuations 23 2.8. Interest Rate and Payment Dates 24 2.9. Substituted Interest Rate 26 2.10. Taxes 26 2.11. Illegality 28 2.12. Increased Costs 29 2.13. Indemnification for Loss 31 2.14. Survival of Certain Obligations 32 2.15. Use of Proceeds 32 2.16. Capital Adequacy 32 2.17. Lenders' Records 33 2.18. Extension of Commitment Period 33 2.19. Substitution of Lender 34 3. FEES; PAYMENTS 35 3.1. Facility Fee; Utilization Fee 35 3.2. Other Fees 35 3.3. Pro Rata Treatment and Application of Principal Payments 35 4. REPRESENTATIONS AND WARRANTIES 36 4.1. Subsidiaries; Capitalization 36 4.2. Existence and Power 36 4.3. Authority 36 4.4. Binding Agreement 37 4.5. Litigation and Regulatory Proceedings 37 4.6. Required Consents 37 4.7. No Conflicting Agreements, Compliance with Laws 37 4.8. Governmental Regulations 38 4.9. Federal Reserve Regulations; Use of Loan Proceeds 38 4.10. Plans 38 4.11. Financial Statements 39 4.12. Property 39 4.13. Environmental Matters 39 5. CONDITIONS TO EFFECTIVENESS 40 5.1. Evidence of Action 40 5.2. This Agreement 40 5.3. Notes 41 5.4. Approvals 41 5.5. Certain Agreements 41 5.6. Opinion of Counsel to the Borrower 41 5.7. Terminating Indebtedness 41 5.8. Fees 42 6. CONDITIONS OF LENDING - ALL LOANS 42 6.1. Compliance 42 6.2. Borrowing Request; Competitive Bid Request 42 6.3. Law 42 6.4. Other Documents 42 7. AFFIRMATIVE COVENANTS 43 7.1. Financial Statements 43 7.2. Certificates; Other Information 43 7.3. Legal Existence 44 7.4. Taxes 45 7.5. Insurance 45 7.6. Payment of Indebtedness and Performance of Obligations 45 7.7. Condition of Property 45 7.8. Observance of Legal Requirements 46 7.9. Inspection of Property; Books and Records; Discussions 46 7.10. Licenses, Intellectual Property 46 7.11. Capitalization Ratio 46 7.12. Material/Immaterial Designation of Subsidiaries 46 8. NEGATIVE COVENANTS 47 8.1. Liens 47 8.2. Merger, Consolidation, Purchase or Sale of Assets, Etc. 49 8.3. Loans, Advances, etc. 51 8.4. Amendments, etc. of Certain Agreements 51 9. DEFAULT 52 9.1. Events of Default 52 10. THE ADMINISTRATIVE AGENT 55 10.1. Appointment 55 (ii) 10.2. Delegation of Duties 55 10.3. Exculpatory Provisions 55 10.4. Reliance by Administrative Agent 56 10.5. Notice of Default 56 10.6. Non-Reliance on Administrative Agent and Other Lenders 56 10.7. Indemnification 57 10.8. Administrative Agent in Its Individual Capacity 58 10.9. Successor Administrative Agent 58 11. OTHER PROVISIONS 59 11.1. Amendments and Waivers 59 11.2. Notices 60 11.3. No Waiver; Cumulative Remedies 61 11.4. Survival of Representations and Warranties 61 11.5. Payment of Expenses and Taxes 62 11.6. Lending Offices 62 11.7. Assignments and Participations 63 11.8. Counterparts 64 11.9. Adjustments; Set-off 65 11.10. Construction 66 11.11. Indemnity 66 11.12. Governing Law 67 11.13. Headings Descriptive 67 11.14. Severability 67 11.15. Integration 67 11.16. Consent to Jurisdiction 67 11.17. Service of Process 67 11.18. No Limitation on Service or Suit 68 11.19. WAIVER OF TRIAL BY JURY 68 (iii) SCHEDULES: Schedule 1.1 List of Lending Offices Schedule 4.1 List of Subsidiaries Schedule 4.5 List of Litigation and Regulatory Proceedings Schedule 4.13 List of Environmental Matters Schedule 8.1 List of Existing Liens EXHIBITS: Exhibit A List of Commitments Exhibit B Form of Note Exhibit C Form of Borrowing Request Exhibit D Form of Competitive Bid Request Exhibit E Form of Invitation to Bid Exhibit F Form of Competitive Bid Exhibit G Form of Competitive Bid Accept/Reject Letter Exhibit H Form of Competitive Bid Loan Confirmation Exhibit I Form of Notice of Conversion/Continuation Exhibit J Form of Assignment and Acceptance Agreement Exhibit K Form of Opinion of Counsel to the Borrower (iv) 364-DAY CREDIT AGREEMENT, dated as of June 15, 2000, by and among CLECO UTILITY GROUP INC., a Louisiana corporation (the "Borrower"), the lenders party hereto (together with their respective assigns pursuant to Section 11.7, the "Lenders"; each a "Lender"), and THE BANK OF NEW YORK, as administrative agent for the Lenders hereunder (in such capacity, together with its permitted successors and assigns in such capacity, the "Administrative Agent"). 1. DEFINITIONS AND PRINCIPLES OF CONSTRUCTION 1.1. Definitions As used in this Agreement, terms defined in the preamble have the meanings therein indicated, and the following terms have the following meanings: "ABR Advances": the Revolving Credit Loans (or any portions thereof) at such time as they (or such portions) are made and/or being maintained at a rate of interest based upon the Alternate Base Rate. "Accountants": PricewaterhouseCoopers, L.L.P. (or any successor thereto), or such other firm of certified public accountants of recognized national standing selected by the Borrower and reasonably satisfactory to the Administrative Agent. "Accumulated Funding Deficiency": as defined in Section 302 of ERISA. "Advance": with respect to a Revolving Credit Loan, an ABR Advance or a Eurodollar Advance, as the case may be. "Affected Advance": as defined in Section 2.9. "Affected Principal Amount": in the event that (i) the Borrower shall fail for any reason to borrow, convert or continue after it shall have notified the Administrative Agent of its intent to do so in any instance in which it shall have requested a Eurodollar Advance or shall have accepted one or more offers of Competitive Bid Loans, an amount equal to the principal amount of such Eurodollar Advance or accepted Competitive Bid Loan, (ii) a Eurodollar Advance or a Competitive Bid Loan shall terminate for any reason prior to the last day of the Interest Period applicable thereto, an amount equal to the principal amount of such Eurodollar Advance or Competitive Bid Loan, or (iii) the Borrower shall prepay or repay all or any part of the principal amount of a Eurodollar Advance or a Competitive Bid Loan prior to the last day of the Interest Period applicable thereto, an amount equal to the principal amount of such Eurodollar Advance or Competitive Bid Loan so prepaid or repaid, as the case may be. "Aggregate Commitments": on any date, the sum of all Commitments on such date. "Agreement": this 364-Day Credit Agreement, as the same may be amended, supplemented or otherwise modified from time to time. "Alternate Base Rate": on any date, a rate of interest per annum equal to the higher of (i) the Federal Funds Rate in effect on such date plus 1/2 of 1% or (ii) the BNY Rate in effect on such date. "Applicable Facility Fee Percentage": with respect to the amount of the Aggregate Commitments, at all times during which the applicable Pricing Level set forth below is in effect, the percentage set forth below next to such Pricing Level, subject to the provisos set forth below: Applicable Facility Fee Pricing Level Percentage ------------- ------------ Pricing Level I 0.080% Pricing Level II 0.100% Pricing Level III 0.125% Pricing Level IV 0.150% Pricing Level V 0.200% Pricing Level VI 0.225%. Changes in the Applicable Facility Fee Percentage resulting from a change in the Pricing Level shall become effective on the effective date of any change in the Senior Debt Rating from S&P or Moody's, as the case may be. Notwithstanding anything herein to the contrary, in the event of a split in the Senior Debt Ratings from S&P and Moody's that would otherwise result in the application of more than one Pricing Level (had the provisions regarding the applicability of other Pricing Levels contained in the definitions thereof not been given effect), then the Applicable Facility Fee Percentage shall be determined using, in the case of a split by one rating category, the higher Pricing Level, and in the case of a split by more than one rating category, the Pricing Level that is one level lower than the Pricing Level within which the higher of the two rating categories would otherwise fall. "Applicable Lending Office": in respect of any Lender, (i) in the case of such Lender's ABR Advances and Competitive Bid Loans, its Domestic Lending Office or (ii) in the case of such Lender's Eurodollar Advances, its Eurodollar Lending Office. "Applicable Margin": with respect to the unpaid principal amount of Eurodollar Advances, at all times during which the applicable Pricing Level set forth below is in effect, the percentage set forth below next to such Pricing Level, subject to the provisos set forth below: 2 Pricing Level Applicable Margin ------------- ----------------- Pricing Level I 0.320% Pricing Level II 0.450% Pricing Level III 0.525% Pricing Level IV 0.600% Pricing Level V 0.675% Pricing Level VI 0.775%. Changes in the Applicable Margin resulting from a change in the Pricing Level shall become effective on the effective date of any change in the Senior Debt Rating from S&P or Moody's, as the case may be. Notwithstanding anything herein to the contrary, in the event of a split in the Senior Debt Ratings from S&P and Moody's that would otherwise result in the application of more than one Pricing Level (had the provisions regarding the applicability of other Pricing Levels contained in the definitions thereof not been given effect), then the Applicable Margin shall be determined using, in the case of a split by one rating category, the higher Pricing Level, and in the case of a split by more than one rating category, the Pricing Level that is one level lower than the Pricing Level within which the higher of the two rating categories would otherwise fall. "Applicable Utilization Fee Percentage": with respect to the amount of the Aggregate Commitments, at all times during which the applicable Pricing Level set forth below is in effect, the percentage set forth below next to such Pricing Level, subject to the provisos set forth below: Applicable Pricing Level Utilization Fee Percentage ------------- -------------------------- Pricing Level I 0.050% Pricing Level II 0.100% Pricing Level III 0.100% Pricing Level IV 0.125% Pricing Level V 0.125% Pricing Level VI 0.250%. Changes in the Applicable Utilization Fee Percentage resulting from a change in the Pricing Level shall become effective on the effective date of any change in the Senior Debt Rating from S&P or Moody's, as the case may be. Notwithstanding anything herein to the contrary, in the event of a split in the Senior Debt Ratings from S&P and Moody's that would otherwise result in the application of more than one Pricing Level (had the provisions regarding the applicability of other Pricing Levels contained in the definitions thereof not been given effect), then the Applicable Utilization Fee Percentage shall be determined using, in the case of a split by one rating category, the higher Pricing Level, and in the case of a split by 3 more than one rating category, the Pricing Level that is one level lower than the Pricing Level within which the higher of the two rating categories would otherwise fall. "Asset Sale": any sale, transfer or other disposition by the Borrower or any of the Material Subsidiaries to any Person of any Property (including any Stock or other securities of another Person) of the Borrower or any of the Material Subsidiaries, other than inventory or accounts receivables or other receivables sold, transferred or otherwise disposed of in the ordinary course of business, provided that, notwithstanding anything in this definition to the contrary, for purposes of the Loan Documents, the term "Asset Sale" shall not include the creation or granting of any Lien other than a conditional sale or other title retention arrangement. "Assignment and Acceptance Agreement": an assignment and acceptance agreement executed by a Lender and an assignee (with the consent of any party whose consent is required by Section 11.7), and accepted by the Administrative Agent, substantially in the form of Exhibit J. "Benefited Lender": as defined in Section 11.9. "Bid Rate": as defined in Section 2.4(b). "BNY": The Bank of New York. "BNY Rate": a rate of interest per annum equal to the rate of interest publicly announced in New York City by BNY from time to time as its prime commercial lending rate, such rate to be adjusted automatically (without notice) on the effective date of any change in such publicly announced rate. "Borrowing Date": any Business Day on which the Lenders make Revolving Credit Loans in accordance with a Borrowing Request or one or more Lenders make Competitive Bid Loans pursuant to Competitive Bids which have been accepted by the Borrower. "Borrowing Request": a request for Revolving Credit Loans in the form of Exhibit C. "Business Day": for all purposes other than as set forth in clause (ii) below, (i) any day other than a Saturday, a Sunday or a day on which commercial banks located in New York City are authorized or required by law or other governmental action to close and (ii) with respect to all notices and determinations in connection with, and payments of principal and interest on, Eurodollar Advances, any day which is a Business Day described in clause (i) above and which is also a day on which dealings in foreign currency and exchange and Eurodollar funding between banks may be carried on in London, England. 4 "Capital Lease Obligations": with respect to any Person, obligations of such Person with respect to leases which, in accordance with GAAP, are required to be capitalized on the financial statements of such Person. "CLECO Mortgage": the Indenture of Mortgage, dated as of July 1, 1950, as supplemented and amended through the date hereof, made by the Borrower to Bank One Trust Company, N.A., as Trustee, as the same may be further amended, supplemented or otherwise modified from time to time in accordance with Section 8.4. "Code": the Internal Revenue Code of 1986, as the same may be amended from time to time, or any successor thereto, and the rules and regulations issued thereunder, as from time to time in effect. "Commitment": in respect of any Lender, such Lender's undertaking during the Commitment Period to make Revolving Credit Loans, subject to the terms and conditions hereof, in an aggregate outstanding principal amount not exceeding the amount set forth next to the name of such Lender in Exhibit A under the heading "Commitment", as the same may be reduced pursuant to Section 2.5 and reduced or increased pursuant to assignments by or to such Lender pursuant to Section 11.7. "Commitment Percentage": as of any date and with respect to each Lender, the percentage equal to a fraction (i) the numerator of which is the Commitment of such Lender on such date (or, if there are no Commitments on such date, on the last date upon which one or more Commitments were in effect), and (ii) the denominator of which is the sum of the Commitments of all Lenders on such date (or, if there are no Commitments on such date, on the last date upon which one or more Commitments were in effect). "Commitment Period": the period from the Effective Date until the day before the Maturity Date. "Common Equity": as of any date of determination, an amount equal to the sum of (i) common Stock of the Borrower, (ii) premium on capital Stock of the Borrower (as such term is used in the financial statements) and (iii) retained earnings of the Borrower and its Subsidiaries, determined on a consolidated basis in accordance with GAAP. "Competitive Bid": an offer by a Lender, in the form of Exhibit F, to make a Competitive Bid Loan. "Competitive Bid Accept/Reject Letter": a notification given by the Borrower pursuant to Section 2.4 in the form of Exhibit G. "Competitive Bid Loan": each Loan from a Lender to the Borrower pursuant to Section 2.4. 5 "Competitive Bid Loan Confirmation": a confirmation by the Administrative Agent to a Lender of the acceptance by the Borrower of any Competitive Bid (or Portion thereof) made by such Lender, substantially in the form of Exhibit H. "Competitive Bid Request": a request by the Borrower, substantially in the form of Exhibit D, for Competitive Bids. "Competitive Interest Period": as to any Competitive Bid Loan, the period commencing on the date of such Competitive Bid Loan and ending on the date requested in the Competitive Bid Request with respect to such Competitive Bid Loan, which date shall not be earlier than 7 days after the date of such Competitive Bid Loan or later than 180 days after the date of such Competitive Bid Loan; provided, however, that if any Competitive Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day, unless such next succeeding Business Day would be a date on or after the Maturity Date, in which case such Competitive Interest Period shall end on the next preceding Business Day, and provided further that no Competitive Interest Period shall end after the Maturity Date. Interest shall accrue from and including the first day of a Competitive Interest Period to but excluding the last day of such Competitive Interest Period. "Contingent Obligation": as to any Person, any obligation of such Person guaranteeing or in effect guaranteeing any return on any investment made by another Person or any Indebtedness, lease, dividend or other obligation of any other Person in any manner, whether contingent or whether directly or indirectly, including any obligation in respect of the liabilities of any partnership in which such other Person is a general partner, except to the extent that such liabilities of such partnership are nonrecourse to such other Person and its separate Property. The amount of any Contingent Obligation of a Person shall be deemed to be an amount equal to the stated or determinable amount of the primary obligation in respect of which such Contingent Obligation is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by such Person in good faith, provided that, notwithstanding anything in this definition to the contrary, the amount of any Contingent Obligation of a Person in respect of any agreement by any other Person to purchase electricity or gas from a counterparty shall be deemed to be the maximum reasonably anticipated liability of such other Person, as determined in good faith by such Person, net of any obligation or liability of such counterparty to purchase electricity or gas from such other Person, provided further that the obligations of such other Person to so purchase electricity or gas from such counterparty shall be terminable at the election of such other Person in the event of a default by such counterparty in its obligations to so purchase electricity or gas for such other Person. "Continuing Lenders": as defined in Section 2.18(b). "Control Person": as defined in Section 2.16. "Conversion/Continuation Date": the date on which (i) a Eurodollar Advance is converted to an ABR Advance, (ii) the date on which an ABR Advance is converted to a 6 Eurodollar Advance or (iii) the date on which a Eurodollar Advance is continued as a new Eurodollar Advance. "Corporate Officer": with respect to the Borrower, the chairman of the board, the president, any vice president, the chief executive officer, the chief financial officer, the secretary, the treasurer, or the controller thereof. "Default": any of the events specified in Section 9.1, whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied. "Dollars" and "$": lawful currency of the United States. "Domestic Lending Office": in respect of any Lender, initially, the office or offices of such Lender designated as such on Schedule 1.1; thereafter, such other office of such Lender through which it shall be making or maintaining ABR Advances or Competitive Bid Loans, as reported by such Lender to the Administrative Agent and the Borrower, provided that any Lender may so report different Domestic Lending Offices for all of its ABR Advances and all of its Competitive Bid Loans, whereupon references to the Domestic Lending Office of such Lender shall mean either or both of such offices, as applicable. "Effective Date": June 15, 2000. "Eligible Assignee": any of the following: (i) commercial banks, finance companies, insurance companies and other financial institutions and funds (whether a corporation, partnership or other entity) engaged generally in making, purchasing or otherwise investing in commercial loans in the ordinary course of its business; provided that any such entity shall have combined capital and surplus of at least $250,000,000 and shall be entitled, as of the date such entity becomes a Lender, to receive payments under its Note without deduction or withholding with respect to United States federal income tax, (ii) each of the Lenders and (iii) any affiliate of a Lender. "Employee Benefit Plan": an employee benefit plan within the meaning of Section 3(3) of ERISA maintained, sponsored or contributed to by the Borrower, any of the Material Subsidiaries or any ERISA Affiliate. "Employee Stock Ownership Plan": The Cleco Corporation 401(k) Savings and Investment Plan ESOP Trust, as the same may be amended, supplemented or otherwise modified from time to time in accordance with Section 8.4. "Environmental Laws": any and all federal, state and local laws relating to the use, storage, transporting, manufacturing, handling, discharge, disposal or recycling of Hazardous Substances or pollutants and including (i) the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 USCA (S)9601 et seq., (ii) the Resource Conservation and Recovery Act of 1976, as amended, 42 USCA (S)6901 et seq., (iii) the Toxic Substance Control Act, as amended, 15 USCA (S)2601 et. seq., (iv) the Water 7 Pollution Control Act, as amended, 33 USCA (S)1251 et. seq., (v) the Clean Air Act, as amended, 42 USCA (S)7401 et seq., (vi) the Hazardous Materials Transportation Authorization Act of 1994, as amended, 49 USCA (S)5101 et seq., and (viii) all rules and regulations under any of the foregoing and under any analogous state laws, judgments, decrees and injunctions and any analogous state laws applicable to the Borrower or any of the Material Subsidiaries. "ERISA": the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations issued thereunder, as from time to time in effect. "ERISA Affiliate": when used with respect to an Employee Benefit Plan, ERISA, the PBGC or a provision of the Code pertaining to employee benefit plans, any Person that is a member of any group of organizations within the meaning of Section 414(b), (c), (m) or (o) of the Code of which the Borrower or any of the Material Subsidiaries is a member. "Eurodollar Advances": collectively, the Revolving Credit Loans (or any portions thereof) at such time as they (or such portions) are made and/or being maintained at a rate of interest based upon the Eurodollar Rate. "Eurodollar Interest Period": with respect to any Eurodollar Advance requested by the Borrower, the period commencing on, as the case may be, the Borrowing Date or the Conversion/Continuation Date with respect to such Eurodollar Advance and ending one, two, three or six months thereafter, as selected by the Borrower in its irrevocable Borrowing Request or its irrevocable Notice of Conversion/Continuation, provided, however, that (i) if any Eurodollar Interest Period would otherwise end on a day which is not a Business Day, such Eurodollar Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to carry such Interest Period into another calendar month or beyond the Maturity Date, in which event such Eurodollar Interest Period shall end on the immediately preceding Business Day, (ii) any Eurodollar Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Eurodollar Interest Period) shall end on the last Business Day of a calendar month and (iii) the Borrower shall select Interest Periods so as not to have more than five different Eurodollar Interest Periods outstanding at any one time for all Eurodollar Advances. "Eurodollar Lending Office": in respect of any Lender, initially, the office, branch or affiliate of such Lender designated as such on Schedule 1.1 (or, if no such office branch or affiliate is specified, its Domestic Lending Office); thereafter, such other office, branch or affiliate of such Lender through which it shall be making or maintaining Eurodollar Advances, as reported by such Lender to the Administrative Agent and the Borrower. "Eurodollar Rate": with respect to the Eurodollar Interest Period applicable to any Eurodollar Advance, a rate of interest per annum, as determined by the Administrative Agent and then rounded to the nearest 1/16 of 1% or, if there is no nearest 1/16 of 1%, then to 8 the next higher 1/16 of 1%, equal to the rate, as reported by BNY to the Administrative Agent, quoted by BNY to leading banks in the interbank eurodollar market as the rate at which BNY is offering Dollar deposits in an amount equal approximately to the Eurodollar Advance of BNY to which such Eurodollar Interest Period shall apply for a period equal to such Eurodollar Interest Period, as quoted at approximately 11:00 a.m. two Business Days prior to the first day of such Eurodollar Interest Period. "Event of Default": any of the events specified in Section 9.1, provided that any requirement specified in Section 9.1 for the giving of notice, the lapse of time, or both, or any other condition specified in Section 9.1, has been satisfied. "Extension Request": as defined in Section 2.18(a). "Facility Fee": as defined in Section 3.1(a). "Federal Funds Rate": for any day, a rate per annum (expressed as a decimal, rounded upwards, if necessary, to the next higher 1/100 of 1%), equal to the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day, provided that (i) if the day for which such rate is to be determined is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (ii) if such rate is not so published for any day, the Federal Funds Rate for such day shall be the average of the quotations for such day on such transactions received by BNY as determined by BNY and reported to the Administrative Agent. "FERC": the Federal Energy Regulatory Commission or any Governmental Authority succeeding to the functions thereof. "FERC Order": that certain letter order, dated August 12, 1998, in Docket No. ES98-37-000, issued by FERC, or any renewal or replacement order thereof, together with any supplemental order thereto, in each case authorizing the Borrower to issue notes or drafts maturing not more than one year after the date of issue or renewal thereof or assumption of liability thereon (in each case as described in Section 204(e) of the Federal Power Act, as amended and in effect from time to time) in an aggregate principal amount not less than the sum of the Commitments hereunder plus the aggregate principal amount of any such notes or drafts of the Borrower (other than the Notes) outstanding from time to time. "Financial Statements": as defined in Section 4.11. "GAAP": generally accepted accounting principles set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and in the statements and pronouncements of the Financial Accounting Standards Board or in such other statement by such other entity as may be approved by a 9 significant segment of the accounting profession, which are applicable to the circumstances as of the date of determination, consistently applied. If at any time any change in GAAP would affect the computation of any financial requirement set forth in this Agreement, the Administrative Agent, the Lenders and the Borrower shall negotiate in good faith to amend such requirement to reflect such change in GAAP (subject to the approval of the Required Lenders), provided that, until so amended, (i) such requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrower shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such requirement made before and after giving effect to such change in GAAP. "Governmental Authority": any nation or government, any state or other political subdivision thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any court or arbitrator. "Hazardous Substance": (i) any hazardous or toxic substance, material or waste listed in the United States Department of Transportation Hazardous Materials Table (49 CFR (S)172.101) or by the Environmental Protection Agency as hazardous substances (40 CFR Part 302), and amendments thereto and replacements therefor, and (ii) any substance, pollutant or material defined as, or designated in, any Environmental Law as a "hazardous substance," "toxic substance," "hazardous material," "hazardous waste," "restricted hazardous waste," "pollutant," "toxic pollutant" or words of similar import. "Highest Lawful Rate": as to any Lender, the maximum rate of interest, if any, that at any time or from time to time may be contracted for, taken, charged or received by such Lender on the Note held thereby or which may be owing to such Lender pursuant to this Agreement and the other Loan Documents under the laws applicable to such Lender and this transaction. "Immaterial Subsidiary": any Subsidiary of the Borrower that is not designated as a Material Subsidiary, or that is designated as an Immaterial Subsidiary, in each case in accordance with the terms hereof. "Indebtedness": as to any Person, at a particular time, all items which constitute, without duplication, (i) indebtedness for borrowed money or the deferred purchase price of Property (other than trade payables incurred in the ordinary course of business), (ii) indebtedness evidenced by notes, bonds, debentures or similar instruments, (iii) obligations with respect to any conditional sale or title retention agreement, (iv) indebtedness arising under acceptance facilities and the amount available to be drawn under all letters of credit issued for the account of such Person and, without duplication, all drafts drawn thereunder to the extent such Person shall not have reimbursed the issuer in respect of the issuer's payment of such drafts, (v) all liabilities secured by any Lien on any Property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof (other than carriers', warehousemen's, mechanics', repairmen's or other like non-consensual 10 statutory Liens arising in the ordinary course of business), (vi) liabilities in respect of any obligation (contingent or otherwise) to purchase, redeem, retire, acquire or make any other payment in respect of any shares of equity securities or any option, warrant or other right to acquire any shares of equity securities, (vii) obligations under Capital Lease Obligations, and (viii) Contingent Obligations of such Person in respect of Indebtedness of others. "Indemnified Person": as defined in Section 11.11. "Intellectual Property": all copyrights, trademarks, servicemarks, patents, trade names and service names. "Inter-Affiliate Policies Agreement": the Inter-Affiliate Policies of Cleco Corporation, dated as of February 8, 1999, as the same may be amended, supplemented or otherwise modified from time to time. "Interest Payment Date": (i) as to any ABR Advance, the last day of each March, June, September and December commencing on the first of such days to occur after such ABR Advance is made or any Eurodollar Advance is converted to an ABR Advance, (ii) as to any Eurodollar Advance in respect of which the Borrower has selected a Eurodollar Interest Period of one, two or three months, the last day of such Interest Period, (iii) as to any Eurodollar Advance in respect of which the Borrower has selected a Eurodollar Interest Period of six months, the day which is three months after the first day of such Interest Period and the last day of such Interest Period, (iv) as to any Competitive Bid Loan as to which the Borrower has selected an Interest Period of 90 days or less, the last day of such Competitive Interest Period, and (v) as to any Competitive Bid Loan as to which the Borrower has selected a Competitive Interest Period of more than 90 days, the day which is 90 days after the first day of such Competitive Interest Period and the last day of each subsequent 90- day period thereafter or, if sooner, the last day of such Competitive Interest Period. "Interest Period": a Eurodollar Interest Period or a Competitive Interest Period, as the context may require. "Invitation to Bid": an invitation to make Competitive Bids in the form of Exhibit E. "Lien": any mortgage, pledge, hypothecation, assignment, deposit or preferential arrangement, encumbrance, lien (statutory or other), or other security agreement or security interest of any kind or nature whatsoever, including any conditional sale or other title retention agreement and any capital or financing lease having substantially the same economic effect as any of the foregoing. "Loan Documents": collectively, this Agreement and the Notes. "Loans": the Revolving Credit Loans and/or the Competitive Bid Loans, as the case may be. 11 "LPSC": the Louisiana Public Service Commission or any Governmental Authority succeeding to the functions thereof. "Margin Stock": any "margin stock", as defined in Regulation U of the Board of Governors of the Federal Reserve System, as the same may be amended or supplemented from time to time. "Material Adverse Change": a material adverse change in (i) the financial condition, operations, business, prospects or Property of (a) the Borrower or (b) the Borrower and the Material Subsidiaries, taken as a whole, (ii) the ability of the Borrower to perform its obligations under the Loan Documents or (iii) the ability of the Administrative Agent and the Lenders to enforce their rights and remedies under the Loan Documents. "Material Adverse Effect": a material adverse effect on (i) the financial condition, operations, business, prospects or Property of (a) the Borrower or (b) the Borrower and the Material Subsidiaries, taken as a whole, (ii) the ability of the Borrower to perform its obligations under the Loan Documents or (iii) the ability of the Administrative Agent and the Lenders to enforce their rights and remedies under the Loan Documents. "Material Subsidiary": each of the Subsidiaries of the Borrower designated as such on Schedule 4.1 and any other Subsidiary of the Borrower that has been designated as such in accordance with Section 7.12, in each case unless and until such Subsidiary or other Subsidiary, as the case may be, is designated as an Immaterial Subsidiary pursuant to such Section. "Material Total Assets": as of any date of determination the total assets of the Borrower and the Material Subsidiaries, determined on a consolidated basis in accordance with GAAP. "Maturity Date": the day which is 364 days after the Effective Date (or, if such date is not a Business Day, the Business Day immediately preceding such day), as the same may be extended from time to time in accordance with Section 2.18, or such earlier date on which the Aggregate Commitments shall terminate in accordance with Section 2.5 or 9.1. "Maximum Offer": as defined in Section 2.4(b). "Maximum Request": as defined in Section 2.4(a). "Moody's": Moody's Investors Service, Inc., or any successor thereto. "Multiemployer Plan": a Pension Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Non-Extending Lender": as defined in Section 2.18(b). 12 "Note": with respect to each Lender in respect of such Lender's Revolving Credit Loans and Competitive Bid Loans, a promissory note, substantially in the form of Exhibit B, payable to the order of such Lender; each such promissory note having been made by the Borrower and dated the Effective Date, including all replacements thereof and substitutions therefor. "Notice of Conversion/Continuation": a notice substantially in the form of Exhibit I. "PBGC": the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA, or any Governmental Authority succeeding to the functions thereof. "Pension Plan": at any date of determination, any Employee Benefit Plan (including a Multiemployer Plan), the funding requirements of which (under Section 302 of ERISA or Section 412 of the Code) are, or at any time within the six years immediately preceding such date, were in whole or in part, the responsibility of the Borrower, any of the Material Subsidiaries or any ERISA Affiliate. "Permitted Liens": Liens permitted to exist under Section 8.1. "Person": any individual, firm, partnership, joint venture, corporation, association, business enterprise, limited liability company, joint stock company, unincorporated association, trust, Governmental Authority or any other entity, whether acting in an individual, fiduciary, or other capacity, and for the purpose of the definition of "ERISA Affiliate", a trade or business. "Portion": as defined in Section 2.4(b). "Pricing Level": Pricing Level I, Pricing Level II, Pricing Level III, Pricing Level IV, Pricing Level V, or Pricing Level VI, as the context may require. "Pricing Level I": any time when the Senior Debt Rating is A+ or higher by S&P or A1 or higher by Moody's. "Pricing Level II": any time when the Senior Debt Rating is A- or higher by S&P or A3 or higher by Moody's and Pricing Level I does not apply. "Pricing Level III": any time when the Senior Debt Rating is BBB+ or higher by S&P or Baa1 or higher by Moody's and Pricing Levels I and II do not apply. "Pricing Level IV": any time when the Senior Debt Rating is BBB or higher by S&P or Baa2 or higher by Moody's and Pricing Levels I, II and III do not apply. "Pricing Level V": any time when the Senior Debt Rating is BBB- or higher by S&P or Baa3 or higher by Moody's and Pricing Levels I, II, III and IV do not apply. 13 "Pricing Level VI": any time when the Senior Debt Rating is BB+ or less by S&P or Ba1 or less by Moody's and Pricing Levels I, II, III, IV and V do not apply or, at any time when the Borrower does not have a Senior Debt Rating from S&P or Moody's. "Prohibited Transaction": a transaction that is prohibited under Section 4975 of the Code or Section 406 of ERISA and not exempt under Section 4975 of the Code or Section 408 of ERISA. "Property": all types of real, personal, tangible, intangible or mixed property. "Proposed Bid Rate": as applied to any Remaining Interest Period with respect to a Lender's Competitive Bid Loan, the rate per annum that such Lender in good faith would have quoted to the Borrower had the Borrower requested that such Lender make a Competitive Bid Loan on the first day of such Remaining Interest Period, assuming no Default or Event of Default existed on such day and that the Borrower had the right to borrow hereunder on such day, such rate to be determined by such Lender in good faith in its sole discretion. "Real Property": all real property owned or leased (or previously owned or leased) by the Borrower or any of the Material Subsidiaries (or any of their respective predecessors). "Remaining Interest Period": (i) in the event that the Borrower shall fail for any reason to borrow a Revolving Credit Loan in respect of which it shall have requested a Eurodollar Advance or convert an Advance to, or continue an Advance as, a Eurodollar Advance after it shall have notified the Administrative Agent of its intent to do so, a period equal to the Eurodollar Interest Period that the Borrower elected in respect of such Eurodollar Advance, (ii) in the event that the Borrower shall fail for any reason to borrow a Competitive Bid Loan after it shall have accepted one or more offers of Competitive Bid Loans, a period equal to the Competitive Interest Period that the Borrower elected in respect of such Competitive Bid Loan, (iii) in the event that a Eurodollar Advance or a Competitive Bid Loan shall terminate for any reason prior to the last day of the Interest Period applicable thereto, a period equal to the remaining portion of such Interest Period if such Interest Period had not been so terminated, or (iv) in the event that the Borrower shall prepay or repay all or any part of the principal amount of a Eurodollar Advance or a Competitive Bid Loan prior to the last day of the Interest Period applicable thereto, a period equal to the period from and including the date of such prepayment or repayment to but excluding the last day of such Interest Period, as the case may be. "Reportable Event": with respect to any Pension Plan, (i) any event set forth in Section 4043(b) (other than a Reportable Event as to which the 30 day notice requirement is waived by the PBGC under applicable regulations), 4062(c) or 4063(a) or ERISA or the regulations thereunder, (ii) an event requiring the Borrower, any of the Material Subsidiaries or any ERISA Affiliate to provide security to such Pension Plan under Section 401(a)(29) of the Code, or (iii) any failure to make any payment required by Section 412(m) of the Code. 14 "Required Lenders": Lenders having Commitments equal to at least 51% of the Aggregate Commitments or, if the Aggregate Commitments have been terminated or otherwise no longer exist, Lenders having an unpaid principal balance of Loans equal to at least 51% of the aggregate outstanding Loans. "Revolving Credit Loan" and "Revolving Credit Loans": as defined in Section 2.1. "S&P": Standard & Poor's Ratings Group, a division of The McGraw-Hill Companies, or any successor thereto. "SEC": the Securities and Exchange Commission or any Governmental Authority succeeding to the functions thereof. "Senior Debt Rating": the Borrower's senior unsecured long-term debt ratings designated from time to time by S&P and Moody's. "Special Counsel": Bryan Cave LLP, special counsel to the Administrative Agent. "Stock": any and all shares, rights, interests, participations, warrants or other equivalents (however designated) of corporate stock. "Submission Deadline": as defined in Section 2.4(b). "Subsidiary": as to any Person, any corporation, association, partnership, limited liability company, joint venture or other business entity of which such Person or any Subsidiary of such Person, directly or indirectly, either (i) in respect of a corporation, owns or controls more than 50% of the outstanding Stock having ordinary voting power to elect a majority of the board of directors or similar managing body, irrespective of whether a class or classes shall or might have voting power by reason of the happening of any contingency, or (ii) in respect of an association, partnership, joint venture or other business entity, is entitled to share in more than 50% of the profits and losses, however determined. Unless the context otherwise requires, references to a Subsidiary shall be deemed to be references to a Subsidiary of the Borrower. "Tax": any present or future tax, levy, impost, duty, charge, fee, deduction or withholding of any nature, and whatever called, by a Governmental Authority, on whomsoever and wherever imposed, levied, collected, withheld or assessed. "Tax on the Overall Net Income": as to any Person, a Tax imposed by the jurisdiction in which that Person's principal office (and/or, in the case of a Lender, its Domestic Lending Office) is located, or by any political subdivision or taxing authority thereof, or in which that Person is deemed to be doing business, on all or part of the net income, profits or gains of that Person (whether worldwide, or only insofar as such income, profits or gains are considered to arise in or to relate to a particular jurisdiction, or otherwise). 15 "Terminating Indebtedness": collectively, the Indebtedness (together with all unpaid and accrued interest and fees and other unpaid sums) of the Borrower under the Credit Agreement, dated as of June 15, 1995, by and among the Borrower, the lenders party thereto, and BNY, as agent, and all agreements, instruments and other documents executed or delivered in connection therewith, in each case as amended, supplemented or otherwise modified from time to time. "Termination Event": with respect to any Pension Plan, (i) a Reportable Event, (ii) the termination of such Pension Plan, or the filing of a notice of intent to terminate such Pension Plan, or the treatment of such Pension Plan amendment as a termination under Section 4041(c) of ERISA, (iii) the institution of proceedings to terminate such Pension Plan under Section 4042 of ERISA, or (iv) the appointment of a trustee to administer such Pension Plan under Section 4042 of ERISA. "Total Capitalization": at any time, the difference between (i) the sum of each of the following at such time with respect to the Borrower and the Subsidiaries, determined on a consolidated basis in accordance with GAAP: (a) preferred Stock (less deferred compensation relating to unallocated convertible preferred Stock held by the Employee Stock Ownership Plan), plus (b) common Stock and any premium on capital Stock thereon (as such term is used in the Financial Statements), plus (c) retained earnings, plus (d) Total Indebtedness, and (ii) treasury Stock at such time of the Borrower and the Subsidiaries, determined on a consolidated basis in accordance with GAAP. "Total Indebtedness": at any time, all Indebtedness (net of unamortized premium and discount (as such term is used in the Financial Statements)) at such time of the Borrower and the Subsidiaries, determined on a consolidated basis in accordance with GAAP. "United States": the United States of America. "Utilization Fee": as defined in Section 3.1(b). 1.2. Principles of Construction (a) All terms defined in a Loan Document shall have the meanings given such terms therein when used in the other Loan Documents or any certificate or opinion made or delivered pursuant thereto, unless otherwise defined therein. (b) As used in the Loan Documents and in any certificate or opinion made or delivered pursuant thereto, accounting terms not defined in Section 1.1, and accounting terms partly defined in Section 1.1, to the extent not defined, shall have the respective meanings given to them under GAAP. (c) The words "hereof", "herein", "hereto" and "hereunder" and similar words when used in a Loan Document shall refer to such Loan Document as a whole and not to any particular provision thereof, and Section, schedule and exhibit references contained therein shall refer to Sections thereof or schedules or exhibits thereto, unless otherwise 16 expressly provided therein. (d) The phrase "may not" is prohibitive and not permissive; the word "including" is not limiting; and the word "or" is not exclusive. (e) Unless the context otherwise requires, words in the singular number include the plural, and words in the plural include the singular. (f) Unless specifically provided in a Loan Document to the contrary, references to a time shall refer to New York City time. (g) Unless specifically provided in a Loan Document to the contrary, in the computation of periods of time from a specified date to a later specified date, the word "from" means "from and including" and the words "to" and "until" each means "to but excluding". (h) References in any Loan Document to a fiscal period shall refer to that fiscal period of the Borrower. 2. AMOUNT AND TERMS OF LOANS 2.1. Revolving Credit Loans Subject to the terms and conditions hereof, each Lender severally agrees to make revolving credit loans (each a "Revolving Credit Loan" and, as the context may require, collectively with all other Revolving Credit Loans of such Lender and with the Revolving Credit Loans of all other Lenders, the "Revolving Credit Loans") to the Borrower from time to time during the Commitment Period, provided, however, that immediately after giving effect thereto (i) the outstanding principal balance of such Lender's Revolving Credit Loans would not exceed such Lender's Commitment, and (ii) the aggregate outstanding principal balance of all Lenders' Revolving Credit Loans and Competitive Bid Loans would not exceed the Aggregate Commitments. During the Commitment Period, the Borrower may borrow, prepay in whole or in part and reborrow under the Aggregate Commitments, all in accordance with the terms and conditions of this Agreement. The Borrower hereby unconditionally promises to pay to the Administrative Agent for the account of each Lender the then outstanding principal balance of each Revolving Credit Loan on the Maturity Date. 2.2. Notes The Revolving Credit Loans and Competitive Bid Loans made by a Lender shall be evidenced by a promissory note of the Borrower, substantially in the form of Exhibit B, payable to the order of such Lender and representing the obligation of the Borrower to pay the sum of (i) the aggregate unpaid principal balance of all Revolving Credit Loans made by such Lender plus (ii) the aggregate unpaid principal balance of all Competitive Bid Loans made by such Lender, in each case with interest thereon as prescribed in Section 2.8. Each Note shall (a) be dated the Effective Date, (b) be stated to mature on the Maturity Date and (c) 17 bear interest from the date thereof on the unpaid principal balance thereof at the applicable interest rate or rates per annum determined as provided in Section 2.8, payable as specified in Section 2.8. 2.3. Revolving Credit Loans; Procedure (a) The Borrower may borrow Revolving Credit Loans under the Aggregate Commitments on any Business Day during the Commitment Period, provided, however, that the Borrower shall notify the Administrative Agent (by telephone or facsimile) no later than (i) 11:00 a.m., three Business Days prior to the requested Borrowing Date, in the case of Eurodollar Advances, and (ii) 11:30 a.m., on the requested Borrowing Date, in the case of ABR Advances, in each case specifying: (A) the aggregate principal amount to be borrowed under the Aggregate Commitments, (B) the requested Borrowing Date, (C) whether such borrowing is to consist of one or more Eurodollar Advances, ABR Advances, or a combination thereof, and (D) if the borrowing is to consist of one or more Eurodollar Advances, the length of the Eurodollar Interest Period for each such Eurodollar Advance, provided further, however, that no Eurodollar Interest Period selected in respect of any Revolving Credit Loan shall end after the Maturity Date. If the Borrower fails to give timely notice in connection with a request for a Eurodollar Advance, the Borrower shall be deemed to have elected that such Advance shall be made as an ABR Advance. Each such notice shall be irrevocable and confirmed promptly by delivery to the Administrative Agent of a Borrowing Request. Each ABR Advance shall be in an aggregate principal amount equal to $5,000,000 or an integral multiple of $1,000,000 in excess thereof (or, if the unused amount of the Aggregate Commitments is less than such amount, then such lesser amount of the unused Aggregate Commitments), and each Eurodollar Advance shall be in an aggregate principal amount equal to $5,000,000 or an integral multiple of $1,000,000 in excess thereof. (b) Upon receipt of each notice of borrowing from the Borrower, the Administrative Agent shall promptly notify each Lender thereof. Subject to its receipt of the notice referred to in the preceding sentence, each Lender will make the amount of its Commitment Percentage of each borrowing available to the Administrative Agent for the account of the Borrower at the office of the Administrative Agent provided for in Section 11.2 not later than 2:00 p.m. on the relevant Borrowing Date requested by the Borrower, in funds immediately available to the Administrative Agent at such office. The amounts so made available to the Administrative Agent on such Borrowing Date will then, subject to the satisfaction of the terms and conditions of this Agreement, be made available on such date to the Borrower by the Administrative Agent at the office of the Administrative Agent provided for in Section 11.2 by crediting the account of the Borrower on the books of such office with the aggregate of said amounts received by the Administrative Agent. (c) Unless the Administrative Agent shall have received prior notice from a Lender (by telephone or otherwise, such notice to be promptly confirmed by facsimile or other writing) that such Lender will not make available to the Administrative Agent such Lender's Commitment Percentage of the Revolving Credit Loans requested by the Borrower, the Administrative Agent may assume that such Lender has made such share available to the 18 Administrative Agent on the Borrowing Date in accordance with this Section, provided that such Lender received notice of the proposed borrowing from the Administrative Agent, and the Administrative Agent may, in reliance upon such assumption, make available to the Borrower on the Borrowing Date a corresponding amount. If and to the extent such Lender shall not have so made its Commitment Percentage of such Loans available to the Administrative Agent, such Lender and the Borrower severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount (to the extent not previously paid by the other), together with interest thereon for each day from the date such amount is made available to the Borrower to the date such amount is paid to the Administrative Agent, at a rate per annum equal to, in the case of the Borrower, the applicable interest rate set forth in Section 2.8 for such Loans, and, in the case of such Lender, the Federal Funds Rate in effect on each such day (as determined by the Administrative Agent in accordance with the definition of "Federal Funds Rate" set forth in Section 1.1). Such payment by the Borrower, however, shall be without prejudice to its rights against such Lender. If such Lender shall pay to the Administrative Agent such corresponding amount, such amount so paid shall constitute such Lender's Revolving Credit Loan as part of the Revolving Credit Loans for purposes of this Agreement, which Revolving Credit Loan shall be deemed to have been made by such Lender on the Borrowing Date applicable to such Revolving Credit Loans. The failure of any Lender to make its Commitment Percentage of any requested Revolving Credit Loan available to the Administrative Agent pursuant to this Section shall not relieve any other Lender of such other Lender's obligation to make its own Commitment Percentage of such Revolving Credit Loan available to the Administrative Agent in accordance with this Section, provided, however, that no Lender shall be liable or responsible for the failure by any other Lender to make any Revolving Credit Loans required to be made by such other Lender. (d) If a Lender makes a new Revolving Credit Loan on a Borrowing Date on which the Borrower is to repay a Revolving Credit Loan from such Lender, such Lender shall apply the proceeds of such new Revolving Credit Loan to make such repayment, and only the excess of the proceeds of such new Revolving Credit Loan over the Revolving Credit Loan being repaid need be made available to the Administrative Agent, for the Borrower's account. (e) Without in any way limiting the obligation of the Borrower to confirm in writing any telephonic notice of borrowing given to the Administrative Agent, the Administrative Agent may act without liability upon the basis of telephonic notice of such borrowing believed by the Administrative Agent in good faith to be from an authorized officer of the Borrower prior to receipt of written confirmation. In each such case, the Administrative Agent's records with regard to any such telephone notice shall be presumptively correct, absent manifest error. 2.4. Competitive Bid Loans; Procedure (a) The Borrower may make Competitive Bid Requests by 11:00 a.m. at least two Business Days prior to the proposed Borrowing Date for one or more Competitive 19 Bid Loans. Each Competitive Bid Request given to the Administrative Agent (which shall promptly on the same day give notice thereof to each Lender by facsimile of an Invitation to Bid if the Competitive Bid Request is not rejected pursuant to this Section), shall be by telephone (confirmed by facsimile or other written electronic means promptly on the same day by the delivery of a Competitive Bid Request signed by the Borrower), and shall specify (i) the proposed Borrowing Date, which shall be a Business Day, (ii) the aggregate amount of the requested Competitive Bid Loans (the "Maximum Request"), which amount (A) shall not exceed an amount which, on the proposed Borrowing Date and after giving effect to the requested Competitive Bid Loans, would cause the aggregate outstanding principal balance of all Loans of all Lenders to exceed the Aggregate Commitments and (B) shall be in a principal amount equal to $3,000,000 or an integral multiple of $1,000,000 in excess thereof, (iii) the Competitive Interest Period(s) therefor and the last day of each such Competitive Interest Period, and (iv) if more than one Competitive Interest Period is so specified, the principal amount allocable to each such Competitive Interest Period (which amount shall not be less than $3,000,000 or an integral multiple of $1,000,000 in excess thereof). A Competitive Bid Request that does not conform substantially to the form of Exhibit D shall be rejected, and the Administrative Agent shall promptly notify the Borrower of such rejection. Notwithstanding anything contained herein to the contrary, (1) not more than three Competitive Interest Periods may be requested pursuant to any Competitive Bid Request and (2) not more than five Competitive Bid Loans may be outstanding at any one time. (b) Each Lender in its sole discretion may (but is not obligated to) submit one or more Competitive Bids to the Administrative Agent not later than 10:00 a.m. at least one Business Day prior to the proposed Borrowing Date specified in such Competitive Bid Request (such time being herein called the "Submission Deadline"), by facsimile or other writing, and thereby irrevocably offer to make all or any part (any such part referred to as a "Portion") of any Competitive Bid Loan described in the relevant Competitive Bid Request at a rate of interest per annum (each a "Bid Rate") specified therein in an aggregate principal amount of not less than $3,000,000 or an integral multiple of $1,000,000 in excess thereof, provided that Competitive Bids submitted by the Administrative Agent may only be submitted if the Administrative Agent notifies the Borrower of the terms of its Competitive Bid not later than thirty minutes prior to the Submission Deadline. Multiple Competitive Bids may be delivered to and by the Administrative Agent. The aggregate Portions of Competitive Bid Loans for any or all Competitive Interest Periods offered by each Lender in its Competitive Bid may exceed the Maximum Request contained in the relevant Competitive Bid Request, provided that each Competitive Bid shall set forth the maximum aggregate amount of the Competitive Bid Loans offered thereby which the Borrower may accept (the "Maximum Offer"), which Maximum Offer shall not exceed the Maximum Request. If any Lender shall elect not to make a Competitive Bid, such Lender shall so notify the Administrative Agent by facsimile not later than the Submission Deadline therefor, provided, however, that the failure by any Lender to give any such notice shall not obligate such Lender to make any Competitive Bid Loan. (c) The Administrative Agent shall promptly give notice by telephone (promptly confirmed by facsimile or other writing) to the Borrower of all Competitive Bids 20 received by the Administrative Agent prior to the Submission Deadline which comply in all material respects with this Section. The Borrower shall, in its sole discretion but subject to Section 2.4(d), irrevocably accept or reject any such Competitive Bid (or any Portion thereof) not later than 1:00 p.m. on the day of the Submission Deadline by notice to the Administrative Agent by telephone (confirmed by facsimile or other writing in the form of a Competitive Bid Accept/Reject Letter promptly the same day). Promptly upon receipt by the Administrative Agent of such a Competitive Bid Accept/Reject Letter, the Administrative Agent will give notice to each Lender that submitted a Competitive Bid as to the extent, if any, that such Lender's Competitive Bid shall have been accepted. If the Administrative Agent fails to receive notice from the Borrower of its acceptance or rejection of any Competitive Bids at or prior to 1:00 p.m. on the day of the Submission Deadline, all such Competitive Bids shall be deemed to have been rejected by the Borrower, and the Administrative Agent will give to each Lender that submitted a Competitive Bid notice of such rejection by telephone on such day. In due course following the acceptance of any Competitive Bid, the Administrative Agent shall notify each Lender which submitted a Competitive Bid, in the form of a Competitive Bid Loan Confirmation, of the amount, maturity date and Bid Rate for each Competitive Bid Loan. (d) If the Borrower accepts a Portion of a proposed Competitive Bid Loan for a single Competitive Interest Period at the Bid Rate provided therefor in a Lender's Competitive Bid, such Portion shall be in a principal amount of $3,000,000 or an integral multiple of $1,000,000 in excess thereof (subject to such lesser allocation as may be made pursuant to the provisions of this Section 2.4(d)). The aggregate principal amount of Competitive Bid Loans accepted by the Borrower following Competitive Bids responding to a Competitive Bid Request shall not exceed the Maximum Request. The aggregate principal amount of Competitive Bid Loans accepted by the Borrower pursuant to a Lender's Competitive Bid shall not exceed the Maximum Offer therein contained. If the Borrower accepts any Competitive Bid Loans or Portion offered in any Competitive Bid, the Borrower must accept Competitive Bids (and Competitive Bid Loans and Portions thereby offered) based exclusively upon the successively lowest Bid Rates within each Competitive Interest Period and no other criteria. If two or more Lenders submit Competitive Bids with identical Bid Rates for the same Competitive Interest Period and the Borrower accepts any thereof, the Borrower shall, subject to the first three sentences of this Section 2.4(d), accept all such Competitive Bids as nearly as possible in proportion to the amounts of such Lenders' respective Competitive Bids with identical Bid Rates for such Competitive Interest Period, provided, that if the amount of Competitive Bid Loans to be so allocated is not sufficient to enable each such Lender to make such Competitive Bid Loan (or Portions thereof) in an aggregate principal amount of $3,000,000 or an integral multiple of $1,000,000 in excess thereof, the Borrower shall round the Competitive Bid Loans (or Portions thereof) allocated to such Lender or Lenders as the Borrower shall select as necessary to a minimum of $1,000,000 or an integral multiple of $500,000 in excess thereof. (e) Not later than 2:00 p.m. on the relevant Borrowing Date, each Lender whose Competitive Bid was accepted by the Borrower shall make available to the Administrative Agent at its office provided for in Section 11.2, in immediately available 21 funds, the proceeds of such Lender's Competitive Bid Loan(s). The amounts so made available to the Administrative Agent on such Borrowing Date will then, subject to the satisfaction of the terms and conditions of this Agreement, as determined by the Administrative Agent, be made available on such date to the Borrower by the Administrative Agent at the office of the Administrative Agent provided for in Section 11.2 by crediting the account of the Borrower on the books of such office with the aggregate of said amounts received by the Administrative Agent. (f) All notices required by this Section 2.4 shall be given in accordance with Section 11.2. (g) The Competitive Bid Loans made by each Lender shall be evidenced by a Note referred to in Section 2.2. Each Competitive Bid Loan shall be due and payable on the last day of the Competitive Interest Period applicable thereto. 2.5. Voluntary Reduction or Termination of Aggregate Commitments The Borrower shall have the right, upon at least three Business Days' prior written notice to the Administrative Agent, at any time to terminate the Aggregate Commitments or from time to time to permanently reduce the Aggregate Commitments, provided, however, that (i) any such reduction shall be in the amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof and (ii) the Borrower shall not terminate or reduce the Aggregate Commitments if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.6, the aggregate outstanding principal balance of all Lenders' Revolving Credit Loans and Competitive Bid Loans would exceed the Aggregate Commitments as so reduced. Reductions of the Aggregate Commitments shall be applied pro rata according to the Commitment Percentage of each Lender. 2.6. Prepayments of the Loans (a) Voluntary Prepayments. The Borrower may, at its option, prepay the Revolving Credit Loans without premium or penalty, in full at any time or in part from time to time, by notifying the Administrative Agent in writing no later than 11:30 a.m. on the proposed prepayment date, in the case of ABR Advances, and at least three Business Days prior to the proposed prepayment date, in the case of Eurodollar Advances, specifying the Revolving Credit Loans to be prepaid, the amount to be prepaid and the date of prepayment. The Borrower may not prepay the Competitive Bid Loans. Each such notice of a prepayment under this Section shall be irrevocable and the amount specified in such notice shall be due and payable on the date specified. Upon receipt of such notice, the Administrative Agent shall promptly notify each Lender thereof. Each partial prepayment shall be in an aggregate principal amount of (i) $5,000,000 or an integral multiple of $1,000,000 in excess thereof or (ii) if the outstanding principal balance of the Revolving Credit Loans is less that the minimum amount set forth in clause (a)(i) of this Section, then such lesser outstanding principal balance, as the case may be. After giving effect to any partial prepayment with respect to Eurodollar Advances which were made (whether as the result of a borrowing or a 22 conversion) on the same date and which had the same Interest Period, the outstanding principal amount of such Eurodollar Advances shall exceed (subject to Section 2.7) $5,000,000 or an integral multiple of $1,000,000 in excess thereof. If any prepayment is made in respect of any Eurodollar Advance, in whole or in part, prior to the last day of the applicable Eurodollar Interest Period, the Borrower agrees to indemnify the applicable Lenders in accordance with Section 2.13. (b) Mandatory Prepayments Relating to Reductions or Termination of the Aggregate Commitments. Concurrently with each reduction or termination of the Aggregate Commitments under Section 2.5, the Borrower shall prepay the Revolving Credit Loans by the amount, if any, by which the aggregate unpaid principal balance of all Lenders' Revolving Credit Loans and Competitive Bid Loans exceeds the amount of the Aggregate Commitments after giving effect to such reduction or termination, as the case may be. (c) In General. Any prepayments under this Section shall be applied pro rata according to the Commitment Percentage of each Lender. 2.7. Conversions and Continuations (a) The Borrower may elect from time to time to convert Eurodollar Advances to ABR Advances by giving the Administrative Agent at least one Business Day's prior irrevocable notice of such election (confirmed by the delivery of a Notice of Conversion/Continuation), specifying the amount to be so converted, provided that any such conversion of Eurodollar Advances shall only be made on the last day of the Interest Period applicable thereto. In addition, the Borrower may elect from time to time to (i) convert ABR Advances to Eurodollar Advances and (ii) to continue Eurodollar Advances by selecting a new Eurodollar Interest Period therefor, in each case by giving the Administrative Agent at least three Business Days' prior irrevocable notice of such election (confirmed by the delivery of a Notice of Conversion/Continuation), in the case of a conversion to, or continuation of, Eurodollar Advances, specifying the amount to be so converted and the initial Eurodollar Interest Period relating thereto, provided that any such conversion of ABR Advances to Eurodollar Advances shall only be made on a Business Day and any such continuation of Eurodollar Advances shall only be made on the last day of the Eurodollar Interest Period applicable to the Eurodollar Advances which are to be continued as such new Eurodollar Advances. The Administrative Agent shall promptly provide the Lenders with a copy of each such Notice of Conversion/Continuation. ABR Advances and Eurodollar Advances may be converted or continued pursuant to this Section in whole or in part, provided that conversions of ABR Advances to Eurodollar Advances, or continuations of Eurodollar Advances, shall be in an aggregate principal amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof. If the Borrower fails to deliver a notice of conversion or continuation in accordance with this Section with respect to any Advance prior to the last day of the Interest Period applicable thereto, then, unless such Advance is repaid as provided herein, on the last day of such Interest Period, such Advance shall be converted to, or continued as, an ABR Advance. 23 (b) Notwithstanding anything in this Section to the contrary, no ABR Advance may be converted to a Eurodollar Advance, and no Eurodollar Advance may be continued, if a Default or Event of Default has occurred and is continuing either (i) at the time the Borrower shall notify the Administrative Agent of its election to convert or continue or (ii) on the requested Conversion/Continuation Date. In such event, such ABR Advance shall be automatically continued as an ABR Advance, or such Eurodollar Advance shall be automatically converted to an ABR Advance on the last day of the Eurodollar Interest Period applicable to such Eurodollar Advance. If an Event of Default shall have occurred and be continuing, the Administrative Agent shall, at the request of the Required Lenders, notify the Borrower (by telephone or otherwise) that all, or such lesser amount as the Required Lenders shall designate, of the outstanding Eurodollar Advances shall be automatically converted to ABR Advances, in which event such Eurodollar Advances shall be automatically converted to ABR Advances on the date such notice is given. (c) No Eurodollar Interest Period selected in respect of the conversion or continuation of any Eurodollar Advance shall end after the Maturity Date. (d) Each conversion or continuation shall be effected by each Lender by applying the proceeds of its new ABR Advance or Eurodollar Advance, as the case may be, to its Advances (or portion thereof) being converted (it being understood that such conversion shall not constitute a borrowing for purposes of Sections 4, 5 or 6). (e) Without in any way limiting the obligation of the Borrower to confirm in writing any telephonic notice of borrowing given to the Administrative Agent, the Administrative Agent may act without liability upon the basis of telephonic notice of such borrowing believed by the Administrative Agent in good faith to be from an authorized officer of the Borrower prior to receipt of written confirmation. In each such case, the Administrative Agent's records with regard to any such telephone notice shall be presumptively correct, absent manifest error. 2.8. Interest Rate and Payment Dates (a) Prior to Maturity. Except as otherwise provided in Section 2.8(b), prior to maturity, the Loans shall bear interest on the outstanding principal balance thereof at the applicable interest rate or rates per annum set forth below: 24 ADVANCES RATE -------- --------- Each ABR Advance Alternate Base Rate. Each Eurodollar Advance Eurodollar Rate for the applicable Eurodollar Interest Period plus the Applicable Margin. Each Competitive Bid Loan Bid Rate applicable thereto for the applicable Competitive Interest Period. (b) Late Charges. If all or any portion of the principal balance of or interest payable on any of the Loans or any other amount payable under the Loan Documents shall not be paid when due (whether at the stated maturity thereof, by acceleration or otherwise), such overdue balance or amount shall bear interest at a rate per annum (whether before or after the entry of a judgment thereon) equal to (i) in the case of the principal balance of any Loan, 2% plus the rate which would otherwise be applicable pursuant to Section 2.8(a), or (ii) in the case of any other amount, 2% plus the Alternate Base Rate, in each case from the date of such nonpayment to, but not including, the date such balance or such amount, as the case may be, is paid in full. All such interest shall be payable on demand. (c) In General. Interest on (i) ABR Advances to the extent based on the BNY Rate shall be calculated on the basis of a 365 or 366-day year (as the case may be) and (ii) ABR Advances to the extent based on the Federal Funds Rate, on Eurodollar Advances and on Competitive Bid Loans shall be calculated on the basis of a 360-day year, in each case, for the actual number of days elapsed, including the first day but excluding the last. Except as otherwise provided in Section 2.8(b), interest shall be payable in arrears on each Interest Payment Date and upon each payment (including prepayment) of the Loans (on the amount paid (or prepaid)). Any change in the interest rate on the Loans resulting from a change in the Alternate Base Rate shall become effective as of the opening of business on the day on which such change shall become effective. The Administrative Agent shall, as soon as practicable, notify the Borrower and the Lenders of the effective date and the amount of each such change in the BNY Rate, but any failure to so notify shall not in any manner affect the obligation of the Borrower to pay interest on the Loans in the amounts and on the dates required. Each determination of the Alternate Base Rate or a Eurodollar Rate by the Administrative Agent pursuant to this Agreement shall be conclusive and binding on all parties hereto absent manifest error. At no time shall the interest rate payable on the Loans, together with the Facility Fee, the Utilization Fee and all other amounts payable under the Loan Documents, to the extent the same are construed to constitute interest, exceed the Highest Lawful Rate. If any amount paid hereunder would exceed the maximum amount of interest permitted by the Highest Lawful Rate, then such amount shall automatically be reduced to such maximum permitted amount, and interest for any subsequent period, to the extent less than the maximum amount permitted for such period by the Highest Lawful Rate, shall be increased 25 by the unpaid amount of such reduction. Any interest actually received for any period in excess of such maximum allowable amount for such period shall be deemed to have been applied as a prepayment of the Loans. The Borrower acknowledges that to the extent interest payable on ABR Advances is based on the BNY Rate, such rate is only one of the bases for computing interest on loans made by the Lenders, and by basing interest payable on ABR Advances on the BNY Rate, the Lenders have not committed to charge, and the Borrower has not in any way bargained for, interest based on a lower or the lowest rate at which the Lenders may now or in the future make loans to other borrowers. 2.9. Substituted Interest Rate In the event that (i) the Administrative Agent shall have determined in the exercise of its reasonable discretion (which determination shall be conclusive and binding upon the Borrower) that by reason of circumstances affecting the interbank eurodollar market either reasonable means do not exist for ascertaining the Eurodollar Rate or (ii) the Required Lenders shall have notified the Administrative Agent that they have determined (which determination shall be conclusive and binding on the Borrower) that the applicable Eurodollar Rate will not adequately and fairly reflect the cost to such Lenders of maintaining or funding loans bearing interest based on such Eurodollar Rate, with respect to any portion of the Revolving Credit Loans that the Borrower has requested be made as Eurodollar Advances or Eurodollar Advances that will result from the requested conversion or continuation of any portion of the Advances into or as Eurodollar Advances (each an "Affected Advance"), the Administrative Agent shall promptly notify the Borrower and the Lenders (by telephone or otherwise, to be promptly confirmed in writing) of such determination on or, to the extent practicable, prior to the requested Borrowing Date or Conversion/Continuation Date for such Affected Advances. If the Administrative Agent shall give such notice, (a) any Affected Advances shall be made as ABR Advances, (b) the Advances (or any portion thereof) that were to have been converted to or continued as Affected Advances shall be converted to or continued as ABR Advances and (c) any outstanding Affected Advances shall be converted, on the last day of the then current Interest Period with respect thereto, to ABR Advances. Until any notice under clause (i) or (ii), as the case may be, of this Section has been withdrawn by the Administrative Agent (by notice to the Borrower promptly upon either (1) the Administrative Agent's having determined that such circumstances affecting the interbank eurodollar market no longer exist and that adequate and reasonable means do exist for determining the Eurodollar Rate pursuant to Section 2.8 or (2) the Administrative Agent having been notified by such Required Lenders that circumstances no longer render the Advances (or any portion thereof) to be Affected Advances), no further Eurodollar Advances shall be required to be made by the Lenders, nor shall the Borrower have the right to convert or continue all or any portion of the Loans to Eurodollar Advances. 2.10. Taxes (a) Payments to be Free and Clear. Provided that all documentation, if any, then required to be delivered by any Lender or the Administrative Agent pursuant to Section 2.10(c) has been delivered, all sums payable by the Borrower under the Loan Documents shall 26 be paid free and clear of and (except to the extent required by law) without any deduction or withholding on account of any Tax (other than a Tax on the Overall Net Income of any Lender (for which payment need not be free and clear, but no deduction or withholding shall be made unless then required by applicable law)) imposed, levied, collected, withheld or assessed by or within the United States or any political subdivision in or of the United States or any other jurisdiction from or to which a payment is made by or on behalf of the Borrower or by any federation or organization of which the United States or any such jurisdiction is a member at the time of payment. (b) Grossing-up of Payments. If the Borrower or any other Person is required by law to make any deduction or withholding on account of any such Tax from any sum paid or payable by the Borrower to the Administrative Agent or any Lender under any of the Loan Documents: (i) the Borrower shall notify the Administrative Agent and such Lender of any such requirement or any change in any such requirement as soon as the Borrower becomes aware of it; (ii) the Borrower shall pay any such Tax before the date on which penalties attach thereto, such payment to be made (if the liability to pay is imposed on the Borrower) for its own account or (if that liability is imposed on the Administrative Agent or such Lender, as the case may be) on behalf of and in the name of the Administrative Agent or such Lender, as the case may be; (iii) the sum payable by the Borrower to the Administrative Agent or a Lender in respect of which the relevant deduction, withholding or payment is required shall be increased to the extent necessary to ensure that, after the making of that deduction, withholding or payment, the Administrative Agent or such Lender, as the case may be, receives on the due date therefor a net sum equal to what it would have received had no such deduction, withholding or payment been required or made; and (iv) within 30 days after paying any sum from which it is required by law to make any deduction or withholding, and within 30 days after the due date of payment of any Tax which it is required by clause (ii) above to pay, the Borrower shall deliver to the Administrative Agent and the applicable Lender evidence satisfactory to the other affected parties of such deduction, withholding or payment and of the remittance thereof to the relevant Governmental Authority; provided that no additional amount shall be required to be paid to any Lender under clause (iii) above except to the extent that any change after the date hereof (in the case of each Lender listed on the signature pages hereof) or after the date of the Assignment and Acceptance Agreement pursuant to which such Lender became a Lender (in the case of each other Lender) if any such requirement for a deduction, withholding or payment as is mentioned therein shall result in an increase in the rate of such deduction, withholding or 27 payment from that in effect at the date of this Agreement or at the date of such Assignment and Acceptance Agreement, as the case may be, in respect of payments to such Lender, and provided further that any Lender claiming any additional amounts payable pursuant to this Section 2.10 shall use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to change the jurisdiction of its Applicable Lending Office or take other appropriate action if the making of such a change or the taking of such action, as the case may be, would avoid the need for, or reduce the amount of, any such additional amounts that may thereafter accrue and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. (c) Tax Certificates. Each Lender that is organized under the laws of any jurisdiction other than the United States shall deliver to the Administrative Agent for transmission to the Borrower, on or prior to the Effective Date (in the case of each Lender listed on the signature pages hereof) or on the effective date of the Assignment and Acceptance Agreement pursuant to which it becomes a Lender (in the case of each other Lender), and at such other times as may be necessary in the determination of the Borrower or the Administrative Agent (each in the reasonable exercise of its discretion), including upon the occurrence of any event requiring a change in the most recent counterpart of any form set forth below previously delivered by such Lender to the Borrower, such certificates, documents or other evidence, properly completed and duly executed by such Lender (including Internal Revenue Service Form 1001, Form 4224, Form W-8 or Form W-9, or any successor form, or any other certificate or statement of exemption required by Treasury Regulations Section 1.1441-4(a) or Section 1.1441-6(c) or any successor thereto) to establish that such Lender is not subject to deduction or withholding of United States federal income tax under Section 1441 or 1442 of the Code or otherwise (or under any comparable provisions of any successor statute) with respect to any payments to such Lender of principal, interest, fees or other amounts payable under any of the Loan Documents. The Borrower shall not be required to pay any additional amount to any such Lender under Section 2.10(b)(iii) if such Lender shall have failed to satisfy the requirements of the immediately preceding sentence; provided that if such Lender shall have satisfied such requirements on the Effective Date (in the case of each Lender listed on the signature pages hereof) or on the effective date of the Assignment and Acceptance Agreement pursuant to which it becomes a Lender (in the case of each other Lender), nothing in this Section shall relieve the Borrower of its obligation to pay any additional amounts pursuant to Section 2.10(b)(iii) in the event that, as a result of any change in applicable law, such Lender is no longer properly entitled to deliver certificates, documents or other evidence at a subsequent date establishing the fact that such Lender is not subject to withholding as described in the immediately preceding sentence. 2.11. Illegality Notwithstanding anything herein to the contrary, if any law, regulation, treaty or directive, or any change therein or in the interpretation or application thereof, shall make it unlawful for any Lender to make or maintain its Eurodollar Advances as contemplated by this Agreement, (i) the commitment of such Lender hereunder to make Eurodollar Advances or convert ABR Advances to Eurodollar Advances shall forthwith be suspended and (ii) such 28 Lender's Loans then outstanding as Eurodollar Advances affected hereby, if any, shall be converted automatically to ABR Advances on the last day of the then current Interest Period applicable thereto or on such earlier date if and as required by law, provided that, before making any such suspension or conversion, such Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Eurodollar Lending Office or take other appropriate action if the making of such a designation or the taking of such action, as the case may be, would allow such Lender or its Eurodollar Lending Office to continue to perform its obligations to make Eurodollar Advances or to continue to fund or maintain Eurodollar Advances and would not, in the judgment of such Lender, be otherwise disadvantageous to such Lender. If the commitment of any Lender with respect to Eurodollar Advances is suspended pursuant to this Section and it is thereafter lawful (in the Lender's determination) for such Lender to make or maintain Eurodollar Advances, such Lender's commitment to make or maintain Eurodollar Advances shall be reinstated upon notice to either (a) the Administrative Agent and the Borrower by such Lender or (b) the Administrative Agent and such Lender by the Borrower. 2.12. Increased Costs (a) In the event that any law, regulation, treaty or directive hereafter enacted, promulgated, approved or issued or any change in any presently existing law, regulation, treaty or directive therein or in the interpretation or application thereof (whether or not having the force of law) by any Governmental Authority charged with the administration thereof or compliance by any Lender (or any corporation directly or indirectly owning or controlling such Lender) with any request or directive from any Governmental Authority: (i) does or shall subject any Lender to any Taxes of any kind whatsoever with respect to any Eurodollar Advances or its obligations under this Agreement to make Eurodollar Advances, or change the basis of taxation of payments to any Lender of principal, interest or any other amount payable hereunder in respect of its Eurodollar Advances, including any Taxes required to be withheld from any amounts payable under the Loan Documents (except for imposition of, or change in the rate of, Tax on the Overall Net Income of such Lender or its Applicable Lending Office for any of such Advances by the jurisdiction in which such Lender is incorporated or has its principal office or such Applicable Lending Office, including, in the case of Lenders incorporated in any State of the United States, such tax imposed by the United States); or (ii) does or shall impose, modify or make applicable any reserve, special deposit, compulsory loan, assessment, increased cost or similar requirement against assets held by, or deposits of, or advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of such Lender in respect of its Eurodollar Advances which is not otherwise included in the determination of a Eurodollar Rate; or (iii) otherwise increases the cost to any Lender of making, renewing, 29 converting, continuing or maintaining its Eurodollar Advances or its commitment to make such Eurodollar Advances, or reduces any amount receivable hereunder in respect of its Eurodollar Advances, then, in any such case, the Borrower shall pay such Lender, upon its demand, any additional amounts necessary to compensate such Lender for such additional cost or reduction in such amount receivable which such Lender deems to be material as determined by such Lender; provided, however, that nothing in this Section shall require the Borrower to indemnify the Lenders with respect to withholding Taxes for which the Borrower has no obligation under Section 2.10, and provided further, that before making any such demand, each Lender agrees to use reasonable efforts (consistent with its internal policy and legal and regulatory restrictions) to designate a different Applicable Lending Office or take other appropriate action if the making of such a designation or the taking of such action, as the case may be, would avoid the need for, or reduce the amount of, such increased cost and would not, in the reasonable judgment of such Lender, be otherwise disadvantageous to such Lender. No failure by any Lender to demand compensation for any increased cost during any Interest Period shall constitute a waiver of such Lender's right to demand such compensation at any time, provided, that no Lender shall be entitled to demand such compensation more than 90 days following the last day of the Interest Period in respect of which such demand is made; provided further, however, that the foregoing proviso shall in no way limit the right of any Lender to demand or receive such compensation to the extent that such compensation relates to the retroactive application of any law, regulation, treaty or directive described above if such demand is made within 90 days after the implementation of such retroactive law, interpretation, treaty or directive. A statement setting forth the calculations of any additional amounts payable pursuant to the foregoing submitted by a Lender to the Borrower shall be conclusive absent manifest error. (b) In the event that any Lender shall determine (which determination shall, absent manifest error, be conclusive and binding upon all parties hereto), during any Eurodollar Interest Period during which a Eurodollar Advance of such Lender shall be outstanding, that such Lender shall be required to maintain reserves (i) (including marginal, emergency, supplemental and special reserves) as established by the Board of Governors of the Federal Reserve System or any other banking authority to which such Lender is subject, in respect of eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D of the Board of Governors of the Federal Reserve System) of such Lender or (ii) in respect of any other category of liabilities, including deposits by reference to which the interest rate on such Eurodollar Advance is determined, or any category of extensions of credit or other assets, which includes loans by non-domestic offices of such Lender to United States residents, then such Lender shall promptly notify the Borrower by telephone (confirmed thereafter by facsimile or other writing), specifying the additional amounts required to indemnify such Lender against the cost of maintaining such reserves (such written notice to provide in reasonably sufficient detail the computation of such additional amounts), whereupon the Borrower shall pay to such Lender, on the applicable Interest Payment Dates with respect to the Eurodollar Advances of such Lender, such specified amounts as additional interest with respect to such Lender's Eurodollar Advances outstanding at such time or at any 30 time thereafter (provided that, with respect to any subsequent Eurodollar Advances of such Lender, no further or additional claims need be made by such Lender to the Borrower with respect to such reserve requirements, provided further, however, that such Lender shall promptly notify the Borrower if such reserve requirements cease to exist). In connection with the foregoing, Eurodollar Advances shall be deemed to constitute Eurocurrency liabilities and as such shall be deemed to be subject to such reserve requirements without benefit of credits for proration, exceptions or offsets which may be available from time to time to any Lender under such Regulation D. 2.13. Indemnification for Loss Notwithstanding anything herein to the contrary, if the Borrower shall fail to borrow, convert or continue an Advance after it shall have given notice to do so in which it shall have requested a Eurodollar Advance pursuant to Section 2.3 or 2.7, as the case may be, or if the Borrower shall fail to borrow a Competitive Bid Loan after it shall have accepted one or more offers therefor pursuant to Section 2.4, or if a Eurodollar Advance or a Competitive Bid Loan shall be terminated for any reason prior to the last day of the Interest Period applicable thereto, or if any repayment or prepayment of the principal amount of a Eurodollar Advance or a Competitive Bid Loan is made for any reason on a date which is prior to the last day of the Interest Period applicable thereto, the Borrower agrees to indemnify each Lender against, and to pay on demand directly to such Lender, any loss or expense suffered by such Lender as a result of such failure to borrow, convert or continue, termination, repayment or prepayment, including an amount, if greater than zero, equal to: A x (B-C) x D --- 360 where: "A" equals such Lender's (i) Commitment Percentage of the Affected Principal Amount in the case of Eurodollar Advances or (ii) the Affected Principal Amount in the case of Competitive Bid Loans; "B" equals the Eurodollar Rate (expressed as a decimal) applicable to such Eurodollar Advances or the Bid Rate applicable to such Competitive Bid Loan, as the case may be; "C" equals the applicable Eurodollar Rate or Proposed Bid Rate (in each case expressed as a decimal), as the case may be, in effect on or about the first day of the applicable Remaining Interest Period, based on the applicable rates offered or bid, as the case may be, on or about such date, for deposits (or, in the case of a Proposed Bid Rate, based on the rate such Lender would have quoted) in an amount equal approximately to such Lender's (i) Commitment Percentage of the Affected Principal Amount in the case of Eurodollar Advances or (ii) the Affected Principal Amount in the case of 31 Competitive Bid Loans with an Interest Period equal approximately to the applicable Remaining Interest Period, as determined by such Lender; "D" equals the number of days from and including the first day of the applicable Remaining Interest Period to but excluding the last day of such Remaining Interest Period; and any other out-of-pocket loss or expense (including any internal processing charge customarily charged by such Lender) suffered by such Lender in connection with such Eurodollar Advance or Competitive Bid Loan, as the case may be, including in liquidating or employing deposits acquired to fund or maintain the funding of its Commitment Percentage of the Affected Principal Amount, or redeploying funds prepaid or repaid, in amounts which correspond to its Commitment Percentage of the Affected Principal Amount. Each determination by the Administrative Agent or a Lender pursuant to this Section shall be conclusive and binding on the Borrower absent manifest error. 2.14. Survival of Certain Obligations The obligations of the Borrower under Sections 2.9, 2.10, 2.11, 2.12, 2.13, 2.16, 11.5 and 11.11 shall survive the termination of the Aggregate Commitments and the payment of the Notes and all other amounts payable under the Loan Documents. 2.15. Use of Proceeds The proceeds of the Loans shall be used solely for general corporate purposes not inconsistent with the provisions hereof, including the provisions set forth in Section 4.9. 2.16. Capital Adequacy If the amount of capital required or expected to be maintained by any Lender or any Person directly or indirectly owning or controlling such Lender (each a "Control Person") shall be affected by (i) the introduction or phasing in of any law, rule or regulation after the Effective Date, (ii) any change after the Effective Date in the interpretation of any existing law, rule or regulation by any Governmental Authority charged with the administration thereof, or (iii) compliance by such Lender or such Control Person, as the case may be, with any directive, guideline or request from any Governmental Authority (whether or not having the force of law) promulgated or made after the Effective Date, and such Lender shall have reasonably determined that such introduction, phasing in, change or compliance shall have had or will thereafter have the effect of reducing (A) the rate of return on such Lender's or such Control Person's, as the case may be, capital or (B) the asset value to such Lender or such Control Person, as the case may be, of the Loans made or maintained by such Lender, in either case to a level below that which such Lender or such Control Person, as the case may be, could have achieved or would thereafter be able to achieve but for such introduction, phasing in, change or compliance (after taking into account such Lender's or such Control Person's, as the case may be, policies regarding capital adequacy) by an amount deemed by 32 such Lender to be material to such Lender or Control Person, as the case may be, then, within ten days after demand by such Lender, the Borrower shall pay to such Lender or such Control Person, as the case may be, such additional amount or amounts as shall be sufficient to compensate such Lender or such Control Person, as the case may be, for such reduction, provided that no Lender shall be entitled to demand such compensation more than 120 days following the last day of the fiscal year of such Lender during which such capital requirement was applicable and in respect of which such Lender is seeking compensation; provided further, however, that the foregoing proviso shall in no way limit the right of any Lender to demand or receive such compensation to the extent that such compensation relates to the retroactive application by such Governmental Authority of any law, rule, regulation, interpretation or phasing in described above if such demand is made within 120 days after the implementation of such retroactive law, rule, regulation, interpretation or phasing in. A statement as to such amounts submitted by a Lender to the Borrower and the Administrative Agent shall constitute such demand and shall be conclusive absent manifest error. 2.17. Lenders' Records Each Lender's records regarding the amount of each Loan, each payment by the Borrower of principal and interest on the Loans and other information relating to the Loans shall be presumptively correct absent manifest error. 2.18. Extension of Commitment Period (a) Provided that no Default or Event of Default shall exist, the Borrower may request that the Commitment Period be extended for up to 364 days by giving written notice thereof (each an "Extension Request") to the Administrative Agent at any time during the period which is not more than 45 days nor less than 30 days prior to the then current Maturity Date and, upon receipt of each such notice, the Administrative Agent shall promptly notify each Lender thereof. Each Lender shall endeavor to respond to each Extension Request by no later than 15 days prior to the then current Maturity Date, provided that each Lender which shall have failed so to respond by such time shall be deemed not to have consented thereto. The Administrative Agent shall promptly notify the Borrower as to the name of each Lender that, in accordance with this subsection (a), consented to such extension. In the event that Lenders having Commitments greater than 50% of the Aggregate Commitments shall not have consented in accordance with this subsection (a) to such extension, the then current Maturity Date shall not be extended and shall remain in full force and effect. In the event that all Lenders shall have consented in accordance with this subsection (a), then on the date upon which the last such consent shall have been received by the Administrative Agent, the then existing Maturity Date shall be extended to the day which is 364 days after such date (or, if such date is not a Business Day, the Business Day immediately preceding such day). (b) Notwithstanding any provision in Section 2.18(a) to the contrary, in the event Lenders having Commitments greater than 50% of the Aggregate Commitments consent to an extension of the Maturity Date pursuant to Section 2.18(a) (the "Continuing Lenders"), the Borrower shall have the right, provided no Default or Event of Default shall have occurred 33 and be continuing, to replace or remove each Lender that did not so consent (each a "Non-Extending Lender") by giving the Administrative Agent notice no later than five days prior to the then current Maturity Date of its intent to extend such Maturity Date. On or prior to the then current Maturity Date, the Borrower shall replace each Non-Extending Lender with either an existing Lender willing to assume such Non-Extending Lender's Commitment or with another Eligible Assignee willing to assume such Non- Extending Lender's Commitment. Each Non-Extending Lender agrees, subject to and in accordance with Section 11.7, to assign its rights and obligations under the Loan Documents to an Eligible Assignee selected by the Borrower upon payment by or on behalf of such Eligible Assignee to such Non- Extending Lender of such Non-Extending Lender's Commitment Percentage or other applicable percentage of all outstanding Loans and accrued interest, fees and other sums payable under the Loan Documents. In the event that the Borrower shall have elected to replace or remove each Non-Extending Lender pursuant to this subsection (b), then on the date, if any, upon which all of the Borrower's obligations under this subsection (b) shall have been satisfied, if any, the then existing Maturity Date shall be extended to the day which is 364 days after such date (or, if such date is not a Business Day, the Business Day immediately preceding such day), provided, however, that if the Borrower shall not have satisfied such obligations on or prior to the then existing Maturity Date, such Maturity Date shall not be extended. 2.19. Substitution of Lender In the event that the Borrower becomes obligated to pay additional amounts to any Lender pursuant to Section 2.10, 2.12, 2.13 or 2.16, or if any Lender defaults in its obligation to fund Loans hereunder on three or more occasions, the Borrower may, within 60 days of the demand by such Lender for such additional amounts or the relevant default by such Lender, as the case may be, and subject to and in accordance with the provisions of Section 11.7, designate an Eligible Assignee to purchase the Loans of such Lender and such Lender's rights hereunder, without recourse to or warranty by or expense to, such Lender, for a purchase price equal to the outstanding principal amount of such Lender's Loans plus any accrued but unpaid interest thereon and accrued but unpaid Facility Fees and Utilization Fees in respect of such Lender's Commitment and any other amounts payable to such Lender hereunder, and to assume all the obligations of such Lender hereunder, and, upon such purchase, such Lender shall no longer be a party hereto or have any rights hereunder (except those that survive full repayment hereunder) and shall be relieved from all obligations to the Borrower hereunder, and the Eligible Assignee shall succeed to the rights and obligations of such Lender hereunder. The Borrower shall execute and deliver to such Eligible Assignee a Note. Notwithstanding anything herein to the contrary, in the event that a Lender is replaced pursuant to this Section 2.19 as a result of the Borrower becoming obligated to pay additional amounts to such Lender pursuant to Section 2.10, 2.12, 2.13 or 2.16, such Lender shall be entitled to receive such additional amounts as if it had not been so replaced. 34 3. FEES; PAYMENTS 3.1. Facility Fee; Utilization Fee (a) Facility Fee. The Borrower agrees to pay to the Administrative Agent, for the account of the Lenders in accordance with each Lender's Commitment Percentage, during the period from and including the Effective Date through but excluding the Maturity Date, a fee (the "Facility Fee") equal to the Applicable Facility Fee Percentage per annum of the average daily sum of the Aggregate Commitments, regardless of usage, during such period. The Facility Fee shall be payable (i) quarterly in arrears on the last day of each March, June, September and December during such period, (ii) on the date of any reduction in the Aggregate Commitments (to the extent of such reduction) and (iii) on the Maturity Date. The Facility Fee shall be calculated on the basis of a 360-day year for the actual number of days elapsed. (b) Utilization Fee. The Borrower agrees to pay to the Administrative Agent, for the account of the Lenders in accordance with each Lender's Commitment Percentage, during the period from and including the Effective Date through but excluding the Maturity Date, a fee (the "Utilization Fee") equal to the Applicable Utilization Fee Percentage per annum of the daily amount during such period of the sum of the aggregate outstanding principal balance of all Lenders' Loans, provided that such sum is greater than 25% of the sum of the Aggregate Commitments on such day. The Utilization Fee shall be payable (i) quarterly in arrears on the last day of each March, June, September and December during such period and (ii) on the Maturity Date. The Utilization Fee shall be calculated on the basis of a 360-day year for the actual number of days elapsed. 3.2. Other Fees The Borrower agrees to pay to each of the Administrative Agent and the Lenders, for its own account, such fees as have been agreed to in writing by it and the Borrower. 3.3. Pro Rata Treatment and Application of Principal Payments Each payment, including each prepayment, of principal and interest on the Loans and of the Facility Fee and the Utilization Fee shall be made by the Borrower to the Administrative Agent at its office provided for in Section 11.2 in funds immediately available to the Administrative Agent at such office by 1:00 p.m. on the due date for such payment, and, promptly upon receipt thereof by the Administrative Agent, shall be remitted by the Administrative Agent in like funds as received, to the Lenders according to the Commitment Percentage of each Lender, in the case of the Facility Fee and the Utilization Fee then due to the Lenders, pro rata according to the aggregate outstanding principal balance of the Revolving Credit Loans, in the case of principal and interest then due thereon, and to the applicable Lender in the case of principal and interest then due on a Competitive Bid Loan. The failure of the Borrower to make any such payment by such time shall not constitute a 35 default hereunder, provided that such payment is made on such due date, but any such payment made after 1:00 p.m. on such due date shall be deemed to have been made on the next Business Day for the purpose of calculating interest on amounts outstanding on the Loans. If any payment hereunder or under the Notes shall be due and payable on a day which is not a Business Day, the due date thereof (except as otherwise provided in the definition of Interest Period) shall be extended to the next Business Day and (except with respect to payments in respect of the Facility Fee and the Utilization Fee) interest shall be payable at the applicable rate specified herein during such extension. 4. REPRESENTATIONS AND WARRANTIES In order to induce the Administrative Agent and the Lenders to enter into this Agreement and to make the Loans, the Borrower makes the following representations and warranties to the Administrative Agent and each Lender: 4.1. Subsidiaries; Capitalization As of the Effective Date, the Borrower has only the Subsidiaries set forth on Schedule 4.1, and such Schedule accurately designates as of the Effective Date whether each such Subsidiary is a Material Subsidiary or an Immaterial Subsidiary for purposes of this Agreement. The shares of each corporate Material Subsidiary are duly authorized, validly issued, fully paid and non-assessable and are owned free and clear of any Liens. The interest of the Borrower in each non-corporate Material Subsidiary is owned free and clear of any Liens. 4.2. Existence and Power Each of the Borrower and the Material Subsidiaries is duly organized or formed and validly existing in good standing under the laws of the jurisdiction of its incorporation or formation, has all requisite power and authority to own its Property and to carry on its business as now conducted, and is in good standing and authorized to do business as a foreign corporation or other applicable entity in each jurisdiction in which the nature of the business conducted therein or the Property owned therein makes such qualification necessary, except where such failure to qualify could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 4.3. Authority The Borrower has full legal power and authority to enter into, execute, deliver and perform the terms of the Loan Documents and to make the borrowings contemplated hereby and by the Notes, and to execute, deliver and carry out the terms of the Notes and to incur the obligations provided for herein and therein, all of which have been duly authorized by all proper and necessary corporate or other applicable action and are in full compliance with its charter or by-laws or its other organization documents. 36 4.4. Binding Agreement The Loan Documents (other than the Notes) constitute, and the Notes, when issued and delivered pursuant hereto for value received, will constitute, the valid and legally binding obligations of the Borrower, enforceable in accordance with their respective terms, except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization or other similar laws affecting the enforcement of creditors' rights generally and general principles of equity. 4.5. Litigation and Regulatory Proceedings Except as disclosed in Schedule 4.5, there are no actions, suits or proceedings at law or in equity or by or before any Governmental Authority (whether or not purportedly on behalf of the Borrower or any of the Material Subsidiaries) pending or, to the knowledge of the Borrower, threatened against the Borrower or any of the Material Subsidiaries, which (i) if adversely determined, could individually or in the aggregate reasonably be expected to have a Material Adverse Effect, except that the commencement by the Borrower, any of the Material Subsidiaries or any Governmental Authority of a rate proceeding or earnings review before such Governmental Authority shall not constitute such a pending or threatened action, suit or proceeding unless and until such Governmental Authority has made a final determination thereunder that could reasonably be expected to have a Material Adverse Effect, (ii) call into question the validity or enforceability of any of the Loan Documents, or (iii) could reasonably be expected to result in the rescission, termination or cancellation of any material franchise, right, license, permit or similar authorization held by the Borrower or any of the Material Subsidiaries. 4.6. Required Consents Except for information filings required to be made in the ordinary course of business which are not a condition to the Borrower's performance under the Loan Documents, no consent, authorization or approval of, filing with, notice to, or exemption by, equityholders, any Governmental Authority or any other Person is required to authorize, or is required in connection with the execution, delivery and performance of the Loan Documents or is required as a condition to the validity or enforceability of the Loan Documents, except such as have been obtained or made and are in full force and effect and not subject to any appeals period (including the FERC Order). As of the Effective Date, the FERC Order then in effect expires August 14, 2000. 4.7. No Conflicting Agreements, Compliance with Laws (a) Neither the Borrower nor any of the Material Subsidiaries is in default (i) under any mortgage, indenture, contract or agreement to which it is a party or by which it or any of its Property is bound or (ii) with respect to any judgment, order, writ, injunction, decree or decision of any Governmental Authority, the effect of which default could reasonably be expected to have a Material Adverse Effect. The execution, delivery or carrying 37 out of the terms of the Loan Documents will not constitute a default under, or require the mandatory repayment of, or result in the creation or imposition of, or obligation to create, any Lien upon any Property of the Borrower or any of the Material Subsidiaries pursuant to the terms of, any such mortgage, indenture, contract or agreement. (b) Each of the Borrower and the Material Subsidiaries (i) is complying in all material respects with all statutes, regulations, rules and orders applicable to the Borrower or such Material Subsidiary of all Governmental Authorities, including Environmental Laws and ERISA, a violation of which could individually or in the aggregate reasonably be expected to have a Material Adverse Effect and (ii) has filed or caused to be filed all tax returns required to be filed and has paid, or has made adequate provision for the payment of, all taxes shown to be due and payable on said returns or in any assessments made against it (other than those being contested as permitted under Section 7.4) which would be material to the Borrower or any of the Material Subsidiaries, and no tax Liens have been filed with respect thereto. 4.8. Governmental Regulations Neither the Borrower nor any of the Material Subsidiaries is (i) an "investment company" or a company "controlled" by an "investment company" as defined in, or is otherwise subject to regulation under, the Investment Company Act of 1940, as amended, or (ii) a "holding company", or an "affiliate" or "subsidiary company" of a "holding company", as those terms are defined in the Public Utility Holding Company Act of 1935, as amended, in each case which is subject to registration thereunder. 4.9. Federal Reserve Regulations; Use of Loan Proceeds Neither the Borrower nor any of the Material Subsidiaries is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying any Margin Stock. No part of the proceeds of the Loans will be used, directly or indirectly, for a purpose which violates any law, rule or regulation of any Governmental Authority, including the provisions of Regulations T, U or X of the Board of Governors of the Federal Reserve System, as amended. No part of the proceeds of the Loans will be used, directly or indirectly, to purchase or carry Margin Stock or to extend credit to others for the purpose of purchasing or carrying Margin Stock. 4.10. Plans The only Pension Plan in effect as of the Effective Date is the Cleco Corporation Pension Plan. Each Employee Benefit Plan of the Borrower, the Material Subsidiaries and their respective ERISA Affiliates is in compliance with ERISA and the Code, where applicable, in all material respects. The Borrower, the Material Subsidiaries and/or any ERISA Affiliate have made all contributions or payments to or under each such Pension Plan required by law or the terms of such Pension Plan or any contract or agreement with respect thereto, and none of the Borrower, the Material Subsidiaries or any of their 38 respective ERISA Affiliates has incurred or expects to incur any withdrawal liability or other liability (including any joint and several liability) to the PBGC under ERISA. None of the Borrower, any Material Subsidiary or any ERISA Affiliate are a party to any Multiemployer Plan. 4.11. Financial Statements The Borrower has heretofore delivered to the Administrative Agent and the Lenders copies of its consolidated balance sheet and the related consolidated statements of income, stockholder's equity and cash flows as of and for the fiscal year ended December 31, 1999 and December 31, 1998, reported on by the Accountants (with the applicable related notes and schedules, the "Financial Statements"). The Financial Statements have been prepared in accordance with GAAP and fairly present the consolidated financial condition and results of the operations of the Borrower and the Subsidiaries as of the dates and for the periods indicated therein. Since December 31, 1999, each of the Borrower and the Material Subsidiaries has conducted its business only in the ordinary course and there has been no Material Adverse Change. 4.12. Property Each of the Borrower and the Material Subsidiaries has good and marketable title to all of its Property, title to which is material to the Borrower or such Material Subsidiary, as the case may be, subject to no Liens, except Permitted Liens. 4.13. Environmental Matters (a) To the best knowledge of the Borrower, the Borrower and each of the Material Subsidiaries is in compliance in all material respects with the requirements of all applicable Environmental Laws. (b) To the best knowledge of the Borrower, except as described in Schedule 4.13, (i) no Hazardous Substances have been generated or manufactured on, transported to or from, treated at, stored at or discharged from any Real Property in violation of any Environmental Laws, (ii) no Hazardous Substances have been discharged into subsurface waters under any Real Property in violation of any Environmental Laws, (iii) no Hazardous Substances have been discharged from any Real Property on or into Property or waters (including subsurface waters) adjacent to any Real Property in violation of any Environmental Laws, and (iv) there are not now, nor ever have been, on any Real Property any underground or above ground storage tanks of the Borrower or any of the Material Subsidiaries regulated under any Environmental Laws, which, as to any of the foregoing actions, events or conditions, individually or collectively, could reasonably be expected to have a Material Adverse Effect. (c) Except as described in Schedule 4.13, neither the Borrower nor any of the Material Subsidiaries (i) has received notice directly or otherwise learned indirectly 39 (through a Corporate Officer) of any claim, demand, suit, action, proceeding, event, condition, report, directive, Lien, violation, non- compliance or investigation indicating or concerning any potential or actual material liability (including potential liability for enforcement, investigatory costs, cleanup costs, government response costs, removal costs, remediation costs, natural resources damages, Property damages, personal injuries or penalties) arising in connection with: (A) any material non-compliance with or violation of the requirements of any applicable Environmental Laws or (B) the presence of any Hazardous Substance on any Real Property (or any Real Property previously owned by the Borrower or any of the Material Subsidiaries) or the release or threatened release of any Hazardous Substance into the environment which individually or collectively could reasonably be expected to have a Material Adverse Effect or (ii) has any overtly threatened or actual liability in connection with the presence of any Hazardous Substance on any Real Property (or any Real Property previously owned by the Borrower or any of the Material Subsidiaries) or the release or threatened release of any Hazardous Substance into the environment. 5. CONDITIONS TO EFFECTIVENESS This Agreement shall not become effective until such time as each of the following conditions precedent shall have been satisfied (or waived in accordance with Section 11.1): 5.1. Evidence of Action The Administrative Agent shall have received a certificate, dated the Effective Date, of the Secretary or Assistant Secretary of the Borrower (i) attaching a true and complete copy of the resolutions of its Board of Directors and of all documents evidencing other necessary corporate action (in form and substance satisfactory to the Administrative Agent) taken by it to authorize the Loan Documents and the transactions contemplated thereby, (ii) attaching a true and complete copy of its charter and by-laws, (iii) setting forth the incumbency of its officer or officers who may sign the Loan Documents, including therein a signature specimen of such officer or officers, and (iv) attaching a certificate of good standing of the Secretary of State of the jurisdiction of its incorporation and each other jurisdiction in which the failure to be in good standing could reasonably be expected to have a Material Adverse Effect. 5.2. This Agreement The Administrative Agent (or Special Counsel) shall have received, in respect of each Person listed on the signature pages of this Agreement, either (i) a counterpart signature page hereof signed on behalf of such Person or (ii) written evidence satisfactory to the Administrative Agent (which may include a facsimile transmission of a signed signature page of this Agreement) that a counterpart signature page hereof has been signed on behalf of such Person. 40 5.3. Notes The Administrative Agent (or Special Counsel) shall have received a Note for each Lender, dated the Effective Date, duly executed by a duly authorized officer of the Borrower. 5.4. Approvals The Administrative Agent shall have received a certificate of a duly authorized officer of the Borrower, in form and substance satisfactory to the Administrative Agent, certifying that all approvals and consents of all Persons required to be obtained in connection with the consummation of the transactions contemplated by the Loan Documents have been duly obtained and are in full force and effect and that all required notices have been given and all required waiting periods have expired, attaching thereto true and complete copies of all such required governmental and regulatory authorizations and approvals, including approval of the FERC and the LPSC. 5.5. Certain Agreements The Administrative Agent shall have received a certificate of a duly authorized officer of the Borrower, in form and substance satisfactory to the Administrative Agent, (i) certifying that there have been no amendments or other modifications to either the CLECO Mortgage or the Employee Stock Ownership Plan since August 28, 1998, or, if so, setting forth the same, in which case any such amendment or modification shall be in form and substance satisfactory to the Administrative Agent, and (ii) attaching a true, complete and correct copy of each of (x) the Inter-Affiliate Policies Agreement, which shall be in form and substance satisfactory to the Administrative Agent and (y) Section 1.04 of the CLECO Mortgage together with copies of any defined terms used therein. 5.6. Opinion of Counsel to the Borrower The Administrative Agent shall have received an opinion of Phelps Dunbar, L.L.P., counsel to the Borrower, addressed to the Administrative Agent and the Lenders and dated the Effective Date, substantially in the form of Exhibit K, and covering such additional matters as the Required Lenders may reasonably request. It is understood that such opinion is being delivered to the Administrative Agent and the Lenders upon the direction of the Borrower and that the Administrative Agent and the Lenders may and will rely upon such opinion. 5.7. Terminating Indebtedness The Terminating Indebtedness shall have been fully repaid and all agreements and other documents with respect thereto shall have been canceled or terminated, and the Administrative Agent shall have received reasonably satisfactory evidence thereof. 41 5.8. Fees All fees payable to the Administrative Agent and the Lenders on the Effective Date, and the reasonable fees and expenses of Special Counsel incurred and recorded to date in connection with the preparation, negotiation and closing of the Loan Documents, shall have been paid. 6. CONDITIONS OF LENDING - ALL LOANS The obligation of each Lender to make any Loan (which shall not include a continuation or conversion of a Loan pursuant to and in accordance with Section 2.7) is subject to the satisfaction of the following conditions precedent as of the date of such Loan: 6.1. Compliance On each Borrowing Date and after giving effect to the Loans to be made thereon, (i) there shall exist no Default or Event of Default, (ii) the representations and warranties contained in the Loan Documents shall be true and correct with the same effect as though such representations and warranties had been made on such Borrowing Date, except to the extent such representations and warranties specifically relate to an earlier date, in which case such representations and warranties shall have been true and correct on and as of such earlier date, and (iii) since December 31, 1999, there has been no Material Adverse Change. Each borrowing by the Borrower shall constitute a certification by the Borrower as of such Borrowing Date that each of the foregoing matters is true and correct in all respects. 6.2. Borrowing Request; Competitive Bid Request In the case of the borrowing of Revolving Credit Loans, the Administrative Agent shall have received a Borrowing Request, or in the case of a borrowing of a Competitive Bid Loan, the Administrative Agent shall have received a Competitive Bid Request and such other documents required to be provided by the Borrower pursuant to Section 2.4, in each case duly executed by a duly authorized officer of the Borrower. 6.3. Law Such Loan shall not be prohibited by any applicable law, rule or regulation. 6.4. Other Documents The Administrative Agent shall have received such other documents as the Administrative Agent or the Lenders shall reasonably request. 42 7. AFFIRMATIVE COVENANTS The Borrower agrees that, so long as this Agreement is in effect, any Loan remains outstanding and unpaid, or any other amount is owing under any Loan Document to any Lender or the Administrative Agent, the Borrower shall: 7.1. Financial Statements Maintain a standard system of accounting in accordance with GAAP, and furnish or cause to be furnished to the Administrative Agent and each Lender: (a) within 120 days after the end of each fiscal year, its audited consolidated balance sheet and related consolidated statements of income, stockholder's equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by the Accountants (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, together with a listing of all Material Subsidiaries designated as Immaterial Subsidiaries, and vice versa, during such fiscal year; (b) within 60 days after the end of each of the first three fiscal quarters of each fiscal year, its consolidated balance sheet and related consolidated statements of income, stockholder's equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of the corresponding period in) the previous fiscal year, all certified by one of its duly authorized financial officers as presenting fairly in all material respects the financial condition and results of operations of the Borrower and its Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; (c) within 60 days after the end of each of the first three fiscal quarters (120 days after the end of the last fiscal quarter), a certificate of the chief financial officer of the Borrower (or such other officer as shall be acceptable to the Administrative Agent) as to the Borrower's compliance, as of such fiscal quarter ending date, with Section 7.11, and as to the occurrence or continuance of no Default or Event of Default as of such fiscal quarter ending date and the date of such certificate; and (d) such other information as the Administrative Agent or any Lender may reasonably request from time to time. 7.2. Certificates; Other Information Furnish or cause to be furnished to the Administrative Agent and each Lender: 43 (a) Prompt written notice if: (i) there shall occur and be continuing a Default or an Event of Default or (ii) a Material Adverse Change shall have occurred; (b) Prompt written notice of: (i) any material citation, summons, subpoena, order to show cause or other document naming the Borrower or any of the Material Subsidiaries a party to any proceeding before any Governmental Authority, and include with such notice a copy of such citation, summons, subpoena, order to show cause or other document, or (ii) any lapse or other termination of, or refusal to renew or extend, any material Intellectual Property, license, permit, franchise or other authorization issued to the Borrower or any of the Material Subsidiaries by any Person or Governmental Authority, provided that any of the foregoing set forth in this subsection (b) could, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect or call into question the validity or enforceability of any of the Loan Documents; (c) Promptly upon becoming available, copies of all (i) regular, periodic or special reports, schedules and other material which the Borrower or any of the Material Subsidiaries may be required to file with or deliver to any securities exchange or the SEC, or any other Governmental Authority succeeding to the functions thereof, (ii) material news releases and annual reports relating to the Borrower or any of the Material Subsidiaries, and (iii) upon the written request of the Administrative Agent, reports that the Borrower or any of the Material Subsidiaries sends to or files with FERC, the LPSC or any similar state or local Governmental Authority; (d) Prompt written notice of any order, notice, claim or proceeding received by, or brought against, the Borrower or any of the Material Subsidiaries, or with respect to any of the Real Property, under any Environmental Law, that could reasonably be expected to have a Material Adverse Effect; (e) Prompt written notice of any change by either Moody's or S&P in the Senior Debt Rating; and (f) Such other information as the Administrative Agent or any Lender shall reasonably request from time to time. 7.3. Legal Existence Except as permitted under Section 8.2, maintain its legal existence in good standing in the jurisdiction of its incorporation or formation and in each other jurisdiction in which the failure so to do could reasonably be expected to have a Material Adverse Effect, and cause each of the Material Subsidiaries to maintain its legal existence in good standing in each jurisdiction in which the failure so to do could reasonably be expected to have a Material Adverse Effect. 44 7.4. Taxes Pay and discharge when due, and cause each of the Material Subsidiaries so to do, all Taxes, assessments and governmental charges, license fees and levies upon, or with respect to the Borrower or such Material Subsidiary, as the case may be, and all Taxes upon the income, profits and Property of the Borrower and the Material Subsidiaries, which if unpaid, could individually or collectively reasonably be expected to have a Material Adverse Effect or become a Lien on the Property of the Borrower or such Material Subsidiary, as the case may be (other than a Lien described in Section 8.1(a)), unless and to the extent only that such Taxes, assessments, charges, license fees and levies shall be contested in good faith and by appropriate proceedings diligently conducted by the Borrower or such Material Subsidiary, as the case may be, provided that the Borrower shall give the Administrative Agent prompt notice of such contest and that such reserve or other appropriate provision as shall be required by the Accountants in accordance with GAAP shall have been made therefor. 7.5. Insurance Maintain, and cause each of the Material Subsidiaries to maintain, with financially sound and reputable insurance companies insurance on all its Property in at least such amounts and against at least such risks (but including in any event public liability and business interruption coverage) as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to the Administrative Agent, upon written request of the Administrative Agent or any Lender, full information as to the insurance carried. 7.6. Payment of Indebtedness and Performance of Obligations Pay and discharge when due, and cause each of the Material Subsidiaries to pay and discharge when due, all lawful Indebtedness, obligations and claims for labor, materials and supplies or otherwise which, if unpaid, could individually or collectively reasonably be expected to (i) have a Material Adverse Effect or (ii) become a Lien upon Property of the Borrower or any of the Material Subsidiaries (other than a Permitted Lien), unless and to the extent only that the validity of such Indebtedness, obligation or claim shall be contested in good faith and by appropriate proceedings diligently conducted by it, provided that the Borrower shall give the Administrative Agent prompt notice of any such contest and that such reserve or other appropriate provision as shall be required by the Accountants in accordance with GAAP shall have been made therefor. 7.7. Condition of Property At all times, maintain, protect and keep in good repair, working order and condition (ordinary wear and tear excepted), and cause each of the Material Subsidiaries so to do, all Property necessary to the operation of the Borrower's or such Material Subsidiary's, as the case may be, material businesses. 45 7.8. Observance of Legal Requirements Observe and comply in all respects, and cause each of the Material Subsidiaries so to do, with all laws, ordinances, orders, judgments, rules, regulations, certifications, franchises, permits, licenses, directions and requirements of all Governmental Authorities, which now or at any time hereafter may be applicable to it, including ERISA and all Environmental Laws, a violation of which could individually or collectively reasonably be expected to have a Material Adverse Effect, except such thereof as shall be contested in good faith and by appropriate proceedings diligently conducted by it, provided that the Borrower shall give the Administrative Agent prompt notice of such contest and that such reserve or other appropriate provision as shall be required by the Accountants in accordance with GAAP shall have been made therefor. 7.9. Inspection of Property; Books and Records; Discussions Keep proper books of record and account in which full, true and correct entries in conformity with GAAP and all requirements of law shall be made of all dealings and transactions in relation to its business and activities and permit representatives of the Administrative Agent and any Lender to visit its offices, to inspect any of its Property and examine and make copies or abstracts from any of its books and records at any reasonable time and as often as may reasonably be desired, and to discuss the business, operations, prospects, licenses, Property and financial condition of the Borrower and the Material Subsidiaries with the officers thereof and the Accountants; provided that, so long as no Default or Event of Default exists, none of the Administrative Agent, its agents, its representatives or the Lenders shall be entitled to examine or make copies or abstracts of, or otherwise obtain information with respect to, the Borrower's records relating to pending or threatened litigation if any such disclosure by the Borrower could reasonably be expected (i) to give rise to a waiver of any attorney/client privilege of the Borrower or any of the Material Subsidiaries relating to such information or (ii) to be otherwise materially disadvantageous to the Borrower or any of the Material Subsidiaries in the defense of such litigation. 7.10. Licenses, Intellectual Property Obtain or maintain, as applicable, and cause each of the Subsidiaries to obtain or maintain, as applicable, in full force and effect, all licenses, franchises, Intellectual Property, permits, authorizations and other rights as are necessary for the conduct of its business and the failure of which to obtain or maintain could individually or collectively, reasonably be expected to have a Material Adverse Effect. 7.11. Capitalization Ratio Maintain, as of the last day of each fiscal quarter, Common Equity equal to at least 30% of Total Capitalization. 46 7.12. Material/Immaterial Designation of Subsidiaries Be permitted to designate a Material Subsidiary as an Immaterial Subsidiary and an Immaterial Subsidiary as a Material Subsidiary by giving the Administrative Agent and the Lenders written notice thereof not later than 10 Business Days after such designation, specifying the effective date of such designation and certifying that all of the conditions set forth in this Section shall have been satisfied as of such effective date, provided that: (i) immediately before and after giving effect to such designation, no Default or Event of Default shall exist and (ii) in the case of the designation of an Immaterial Subsidiary as a Material Subsidiary, such notice shall also serve as the certification of the Borrower immediately after giving effect to such designation that, with respect to such Material Subsidiary, the representations and warranties contained in the Loan Documents shall be true and correct (provided further that, together with such notice, the Borrower may submit such revised Schedules to the Loan Documents to make revisions to the existing Schedules thereto with respect to such Material Subsidiary as may be necessary for such representations and warranties to be true and correct with respect to such Material Subsidiary). Notwithstanding anything herein to the contrary, at no time shall the Borrower permit the total assets of all Persons that were designated as Immaterial Subsidiaries pursuant to this Section during the immediately preceding twelve month period, determined on a combined basis in accordance with GAAP and valued at the time of each such designation, but excluding any assets acquired by such Persons pursuant to Section 8.2 or 8.3, to exceed an amount equal to 5% of the total assets of the Borrower and its Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of the first day of such period. 8. NEGATIVE COVENANTS The Borrower agrees that, so long as this Agreement is in effect, any Loan remains outstanding and unpaid, or any other amount is owing under any Loan Document to any Lender or the Administrative Agent, the Borrower shall not, directly or indirectly: 8.1. Liens Create, incur, assume or suffer to exist any Lien upon any of its Property, whether now owned or hereafter acquired, or permit any of the Material Subsidiaries so to do, except: (a) Liens for Taxes, assessments or similar charges incurred in the ordinary course of business which are not delinquent or which are being contested in accordance with Section 7.4, provided that enforcement of such Liens is stayed pending such contest; (b) Liens (i) in connection with workers' compensation, unemployment insurance or other social security obligations (but not ERISA), (ii) in connection with deposits or pledges to secure bids, tenders, contracts (other than contracts for 47 the payment of money), leases, statutory obligations, surety and appeal bonds and other obligations of like nature arising in the ordinary course of business, (iii) in connection with, or otherwise constituting, zoning ordinances, easements, rights of way, minor defects, irregularities, and other similar restrictions affecting real Property which do not materially and adversely affect the value of such real Property or the financial condition of the Borrower or such Material Subsidiary, as the case may be, or materially impair its use for the operation of the business of the Borrower or such Material Subsidiary, as the case may be, (iv) arising by operation of law such as mechanics', materialmen's, carriers', warehousemen's, lessors' and bankers' liens and rights of set-off incurred in the ordinary course of business which are not delinquent or which are being contested in accordance with Section 7.6, provided that enforcement of such Liens is stayed pending such contest, and (v) arising out of judgments or decrees which are being contested in accordance with Section 7.6, provided that enforcement of such Liens is stayed pending such contest; (c) Liens now existing or hereafter arising in favor of the Administrative Agent or the Lenders under the Loan Documents; (d) purchase money Liens on Property of the Borrower or any of the Material Subsidiaries acquired after the date hereof to secure Indebtedness of the Borrower incurred in connection with the acquisition of such Property, provided that each such Lien is limited to such Property so acquired; (e) Liens on Property of the Borrower and the Material Subsidiaries existing on the Effective Date as set forth on Schedule 8.1 as renewed from time to time, but not any increases in the amounts secured thereby or the Property subjected to such Lien thereon (except under the CLECO Mortgage); (f) Liens existing on Property of the Borrower or any of the Material Subsidiaries acquired after the Effective Date provided that such Liens are at all times thereafter limited to the Property so acquired and were not created in contemplation of such acquisition; (g) the Lien evidenced by the CLECO Mortgage; provided, however, that such Lien shall not extend to or over any Property of a character not subject on the date hereof to the Lien granted under the CLECO Mortgage; (h) "permitted liens" as defined under Section 1.04 of the CLECO Mortgage, as in effect on the date hereof, other than "funded liens" described in clause (ix) of said Section 1.04, other Liens not otherwise prohibited by Section 5.05 of the CLECO Mortgage as in effect on the date hereof, and, in the event the CLECO Mortgage is terminated, Liens of the same type and nature as the foregoing Liens referred to in this clause (h), provided that the amounts secured by such Liens shall not exceed the amounts that may be secured by such foregoing Liens as the last day on which the CLECO Mortgage was in effect; (i) Liens created to secure Indebtedness representing, or incurred to 48 finance, the cost of Property acquired, constructed or improved by the Borrower in the ordinary course of business after the date hereof and not subject to (i) the Lien referred to in clause (g) above or (ii) Liens existing on such Property at the time of acquisition thereof; (j) Liens existing on property of any Person at the time that such Person becomes a Subsidiary of the Borrower provided that such Liens were not created to secure the acquisition of such Person; (k) Liens to secure Indebtedness of any Subsidiary of the Borrower to the Borrower or to any of its other Subsidiaries; (l) Liens on Property (including any natural gas, oil or other mineral Property) to secure all or a part of the cost of exploration, drilling or development thereof or to secure Indebtedness incurred to provide funds for any such purpose; (m) Liens and security interests created, incurred or assumed in connection with the purchase, lease, financing or refinancing of pollution control facilities (and which Liens and security interest are limited to such pollution control facilities); (n) Liens (i) created to secure sales or factoring of accounts receivable and other receivables, and (ii) to the extent not covered by clause (i) of this subsection, Liens on accounts receivables and other receivables, to secure Indebtedness of the Borrower or any of the Material Subsidiaries in an aggregate amount not to exceed $20,000,000; (o) Liens on any equity interest owned or otherwise held by or on behalf of the Borrower or any Material Subsidiary created in connection with any project financing; (p) Liens to secure obligations of the Borrower in respect of agreements to purchase electricity, gas or fuel from counterparties, provided that the aggregate amount secured under this clause (p) shall not exceed $15,000,000; and (q) Liens created for the sole purpose of extending, renewing or replacing in whole or in part Indebtedness secured by any lien, mortgage or security interest referred to in the foregoing clauses (a) through (p); provided, however, that the principal amount of Indebtedness secured thereby shall not exceed the principal amount of Indebtedness so secured at the time of such extension, renewal or replacement and that such extension, renewal or replacement, as the case may be, shall be limited to all or a part of the property or indebtedness that secured the lien or mortgage so extended, renewed or replaced (and any improvements on such property). 8.2. Merger, Consolidation, Purchase or Sale of Assets, Etc. Consolidate with, be acquired by, or merge into or with any Person, or convey, sell, lease or otherwise dispose of all or any part of its Property, or enter into any sale- 49 leaseback transaction, or purchase or otherwise acquire (in one or a series of related transactions) any part of the Property (other than purchases or other acquisitions of inventory, materials, equipment and similar Property in the ordinary course of business) of any Person, including acquisitions of the Stock of any Person, or permit any of the Material Subsidiaries so to do, except: (a) Sales or other dispositions of inventory in the ordinary course of business; (b) Sales of accounts receivables and other receivables; (c) Asset Sales, provided that (i) no Default or Event of Default shall exist immediately before or after giving effect thereto and (ii) the amount of such Asset Sale, when added to the total amount of all Asset Sales made by the Borrower and the Material Subsidiaries during the immediately preceding twelve month period, shall not exceed 10% or more of Material Total Assets as of the first day of such twelve month period; (d) any of the Material Subsidiaries may merge or consolidate with or into, or acquire control of, or acquire all or any portion of the assets of any Person, provided that immediately after giving effect thereto, the total consideration to be paid by the Material Subsidiaries to or for the account of any Person (other than the Borrower and the Material Subsidiaries) in connection therewith, when added to the total consideration paid by the Borrower and the Material Subsidiaries to or for the account of any Person (other than the Borrower and the Material Subsidiaries) in connection with all other mergers, consolidations and acquisitions permitted under Sections 8.2(d) and 8.2(e) during the period from the Effective Date through and including the date thereof, and all loans, advances and other arrangements outstanding at such time and permitted under Section 8.3, shall not exceed the greater of (i) $110,000,000 or (ii) 10% of Material Total Assets as of the most recently completed fiscal quarter; and (e) mergers, consolidations or acquisitions of or by the Borrower with, into or of another Person (including acquisitions by the Borrower of all or any portion of the assets of any Person), in each case as to which the following conditions have been satisfied: (i) immediately before and after giving effect thereto, no Default or Event of Default shall exist; (ii) immediately before and after giving effect thereto, all of the representations and warranties contained in the Loan Documents shall be true and correct except as the context thereof otherwise requires and except for those representations and warranties which by their terms or by necessary implication are expressly limited to a state of facts existing at a time prior to such merger, consolidation or acquisition, as the case may be, or such other matters relating thereto as are identified in a writing to the Administrative Agent and the Lenders and are 50 satisfactory to the Administrative Agent and the Lenders; (iii) the Borrower shall be the surviving corporation thereof or such surviving corporation shall be incorporated in a State of the United States with substantially all of its assets and business located and conducted in the United States and shall have expressly assumed the obligations of the Borrower under the Loan Documents pursuant to a writing in form and substance satisfactory to the Administrative Agent, (iv) immediately after giving effect thereto, the total consideration to be paid by the Borrower to or for the account of any Person (other than the Material Subsidiaries of the Borrower) in connection therewith, when added to the total consideration paid by the Borrower and the Material Subsidiaries to or for the account of any Person (other than the Borrower and the Material Subsidiaries) in connection with all mergers, consolidations and acquisitions permitted under Sections 8.2(d) and 8.2(e) during the period from the Effective Date through and including the date thereof, and all loans, advances, investments and other arrangements outstanding at such time and permitted under Section 8.3, shall not exceed the greater of (1) $110,000,000 or (2) 10% of Material Total Assets as of the most recently completed fiscal quarter, and (v) the Administrative Agent and the Lenders shall have received a certificate duly signed by a duly authorized officer of the Borrower identifying the Person to be merged with or into, consolidated with, or acquired by, the Borrower, and certifying as to each of the matters set forth in subclauses (i) through (iv) of this clause (e). 8.3. Loans, Advances, etc. At any time, make any loan or advance to, or enter into any arrangement for the purpose of providing funds or credit to, any Person, or permit any of the Material Subsidiaries so to do, other than loans, advances or arrangements the total outstanding amount of which, when added to the total consideration paid by the Borrower and the Material Subsidiaries in connection with all mergers, consolidations and acquisitions of or by the Borrower and the Material Subsidiaries during the period from the Effective Date through and including the date thereof, shall not exceed the greater of (i) $110,000,000 or (ii) 10% of Material Total Assets as of the most recently completed fiscal quarter. 8.4. Amendments, etc. of Certain Agreements Enter into or agree to any amendment, modification or waiver, or permit any of the Material Subsidiaries so to do, of any term or condition of the CLECO Mortgage or the Employee Stock Ownership Plan (other than amendments and modifications described in the certificate delivered pursuant to Section 5.5 and any adoptive instruments or other agreements providing for the participation in the Employee Stock Ownership Plan by the Borrower's 51 affiliates), which amendment, modification or waiver could, in the reasonable opinion of the Administrative Agent, adversely affect the interests of the Lenders under the Loan Documents. 9. DEFAULT 9.1. Events of Default The following shall each constitute an "Event of Default" hereunder: (a) The failure of the Borrower to pay any installment of principal of any Loan on the date when due and payable; or (b) The failure of the Borrower to pay any interest on any Loan, or any other fees or expenses payable under any Loan Document, on the date when due and payable, and such failure shall continue unremedied for a period of three Business Days; (c) The use of the proceeds of any Loan in a manner inconsistent with or in violation of Section 2.15; or (d) The failure of the Borrower to observe or perform any covenant or agreement contained in Sections 7.3, 7.11 or Section 8; or (e) The failure of the Borrower to observe or perform any other term, covenant, or agreement contained in any Loan Document and such failure or event shall have continued unremedied for a period of 30 days after the Borrower shall have obtained knowledge thereof; or (f) Any representation or warranty made in any Loan Document or deemed made by the Borrower pursuant to Section 6.1, or in any certificate, report (other than an auditor's report), opinion (other than an opinion of counsel), or other document delivered or to be delivered pursuant thereto, shall prove to have been incorrect or misleading (whether because of misstatement or omission) in any material respect when made; or (g) Any obligation of the Borrower or any of the Material Subsidiaries, whether as principal, guarantor, surety or other obligor, for the payment of any Indebtedness (other than Indebtedness under the Loan Documents), operating leases or, in the case of the Borrower only, any other Contingent Obligation, in excess of $10,000,000 in the aggregate for all such Indebtedness, operating leases and other Contingent Obligations: (i) shall become or shall be declared to be due and payable prior to the expressed maturity thereof, (ii) shall not be paid when due or within any grace period (as such grace period may be extended from time to time pursuant to and in accordance with the documentation evidencing such obligation) for the payment thereof, or (iii) any holder of any such obligation shall have the right to declare such obligation due and payable prior to the expressed maturity thereof; or 52 (h) The Borrower or any of the Material Subsidiaries shall (i) suspend or discontinue its business, (ii) make an assignment for the benefit of creditors, (iii) generally not pay its debts as such debts become due, (iv) admit in writing its inability to pay its debts as they become due, (v) file a voluntary petition in bankruptcy, (vi) become insolvent (however such insolvency shall be evidenced), (vii) file any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment of debt, liquidation or dissolution or similar relief under any present or future statute, law or regulation of any jurisdiction, (viii) petition or apply to any tribunal for any receiver, custodian or any trustee for any substantial part of its Property, (ix) be the subject of any such proceeding filed against it which remains undismissed for a period of 45 days, (x) file any answer admitting or not contesting the material allegations of any such petition filed against it or any order, judgment or decree approving such petition in any such proceeding, (xi) seek, approve, consent to, or acquiesce in any such proceeding, or in the appointment of any trustee, receiver, sequestrator, custodian, liquidator, or fiscal agent for it, or any substantial part of its Property, or an order is entered appointing any such trustee, receiver, custodian, liquidator or fiscal agent and such order remains in effect for 45 days, or (xii) take any formal action for the purpose of effecting any of the foregoing or looking to the liquidation or dissolution of the Borrower or such Material Subsidiary, as the case may be; or (i) An order for relief is entered under the United States bankruptcy laws or any other decree or order is entered by a court having jurisdiction (i) adjudging the Borrower or any of the Material Subsidiaries bankrupt or insolvent, (ii) approving as properly filed a petition seeking reorganization, liquidation, arrangement, adjustment or composition of or in respect of the Borrower or any of the Material Subsidiaries under the United States bankruptcy laws or any other applicable Federal or state law, (iii) appointing a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of the Borrower or any of the Material Subsidiaries or of any substantial part of the Property thereof, or (iv) ordering the winding up or liquidation of the affairs of the Borrower or any of the Material Subsidiaries, and any such decree or order continues unstayed and in effect for a period of 45 days; or (j) Judgments or decrees against the Borrower or any of the Material Subsidiaries aggregating in excess of $10,000,000 (which shall not be fully covered by insurance after taking into account any applicable deductibles) shall remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a period of at least 30 days; or (k) Any Loan Document shall cease, for any reason, to be in full force and effect or the Borrower shall so assert in writing or shall disavow any of its obligations thereunder; or (l) (i) Any Termination Event shall occur, (ii) any Accumulated Funding Deficiency, whether waived, shall exist with respect to any Pension Plan, (iii) any Person shall engage in any Prohibited Transaction involving any Employee Benefit Plan, (iv) the Borrower, any of the Material Subsidiaries or any ERISA Affiliate shall fail to pay when due an amount which is payable by it to the PBGC or to a Pension Plan under Title IV of ERISA, 53 or (v) any other event or condition shall occur or exist with respect to an Employee Benefit Plan, provided that the occurrence of any of the foregoing actions or events set forth in clauses (i) through (v) of this clause (l), individually or collectively could reasonably be expected to have a Material Adverse Effect. Upon the occurrence of an Event of Default or at any time thereafter during the continuance thereof, (a) if such event is an Event of Default specified in clause (h) or (i) of this Section 9.1, the Aggregate Commitments shall immediately and automatically terminate and the Loans, all accrued and unpaid interest thereon and all other amounts owing under the Loan Documents shall immediately become due and payable, and the Administrative Agent may, and, upon the direction of the Required Lenders shall, exercise any and all remedies and other rights provided in the Loan Documents, and (b) if such event is any other Event of Default, any or all of the following actions may be taken: (i) with the consent of the Required Lenders, the Administrative Agent may, and upon the direction of the Required Lenders shall, by notice to the Borrower, declare the Aggregate Commitments to be terminated forthwith, whereupon the Aggregate Commitments shall immediately terminate, and (ii) with the consent of the Required Lenders, the Administrative Agent may, and upon the direction of the Required Lenders shall, by notice of default to the Borrower, declare the Loans, all accrued and unpaid interest thereon, and all other amounts owing under the Loan Documents to be due and payable forthwith, whereupon the same shall immediately become due and payable, and the Administrative Agent may, and upon the direction of the Required Lenders shall, exercise any and all remedies and other rights provided pursuant to the Loan Documents. Except as otherwise provided in this Section, presentment, demand, protest and all other notices of any kind are hereby expressly waived. The Borrower hereby further expressly waives and covenants not to assert any appraisement, valuation, stay, extension, redemption or similar laws, now or at any time hereafter in force which might delay, prevent or otherwise impede the performance or enforcement of any Loan Document. In the event that the Aggregate Commitments shall have been terminated or the Loans, accrued and unpaid interest thereon and all other amounts owing under the Loan Documents shall have been declared due and payable pursuant to the provisions of this Section, any funds received by the Administrative Agent and the Lenders from or on behalf of the Borrower shall be applied by the Administrative Agent and the Lenders in liquidation of the Loans and the obligations of the Borrower under the Loan Documents in the following manner and order: (i) first, to the payment of interest on, and then the principal portion of, any Loans which the Administrative Agent may have advanced on behalf of any Lender for which the Administrative Agent has not then been reimbursed by such Lender or the Borrower; (ii) second, to the payment of any fees or expenses due to the Administrative Agent from the Borrower hereunder, (iii) third, to reimburse the Administrative Agent and the Lenders for any expenses (to the extent not paid pursuant to clause (ii) above) due from the Borrower pursuant to the provisions of Section 11.5; (iv) fourth, to the payment of accrued Facility Fees, Utilization Fees and all other fees, expenses and amounts due under the Loan Documents (other than principal of, and interest on, the Loans); (v) fifth, to the payment of interest due on the Loans; (vi) sixth, to the payment of principal outstanding on the Loans, pro rata according 54 to each Lender's aggregate outstanding Loans; and (vii) seventh, to the payment of any other amounts owing to the Administrative Agent and the Lenders under any Loan Document. 10. THE ADMINISTRATIVE AGENT 10.1. Appointment Each Lender hereby irrevocably designates and appoints BNY as the Administrative Agent of such Lender under the Loan Documents and each such Lender hereby irrevocably authorizes BNY, as the Administrative Agent for such Lender, to take such action on its behalf under the provisions of the Loan Documents and to exercise such powers and perform such duties as are expressly delegated to the Administrative Agent by the terms of the Loan Documents, together with such other powers as are reasonably incidental thereto. Notwithstanding any provision to the contrary elsewhere in any Loan Document, the Administrative Agent shall not have any duties or responsibilities other than those expressly set forth therein, or any fiduciary relationship with any Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into the Loan Documents or otherwise exist against the Administrative Agent. 10.2. Delegation of Duties The Administrative Agent may execute any of its duties under the Loan Documents by or through agents or attorneys-in-fact and shall be entitled to rely upon the advice of counsel concerning all matters pertaining to such duties. 10.3. Exculpatory Provisions Neither the Administrative Agent nor any of its officers, directors, employees, agents, attorneys-in-fact or affiliates shall be (i) liable for any action lawfully taken or omitted to be taken by it or such Person under or in connection with the Loan Documents (except the Administrative Agent for its own gross negligence or willful misconduct) or (ii) responsible in any manner to any of the Lenders for any recitals, statements, representations or warranties made by the Borrower or any officer thereof contained in the Loan Documents or in any certificate, report, statement or other document referred to or provided for in, or received by the Administrative Agent under or in connection with, the Loan Documents or for the value, validity, effectiveness, genuineness, perfection, enforceability or sufficiency of any of the Loan Documents or for any failure of the Borrower or any other Person to perform its obligations thereunder. The Administrative Agent shall not be under any obligation to any Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, the Loan Documents, or to inspect the properties, books or records of the Borrower. The Administrative Agent shall not be under any liability or responsibility whatsoever, as Administrative Agent, to the Borrower or any other Person as a consequence of any failure or delay in performance, or any breach, by any Lender of any of its obligations under any of the Loan Documents. 55 10.4. Reliance by Administrative Agent The Administrative Agent shall be entitled to rely, and shall be fully protected in relying, upon any writing, resolution, notice, consent, certificate, affidavit, opinion, letter, cablegram, telegram, facsimile, telex or teletype message, statement, order or other document or conversation believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel (including counsel to the Borrower), independent accountants and other experts selected by the Administrative Agent. The Administrative Agent may treat each Lender, or the Person designated in the last notice filed with it under this Section, as the holder of all of the interests of such Lender in its Loans and in its Notes until written notice of transfer, signed by such Lender (or the Person designated in the last notice filed with the Administrative Agent) and by the Person designated in such written notice of transfer, in form and substance satisfactory to the Administrative Agent, shall have been filed with the Administrative Agent. The Administrative Agent shall not be under any duty to examine or pass upon the validity, effectiveness, enforceability, perfection or genuineness of the Loan Documents or any instrument, document or communication furnished pursuant thereto or in connection therewith, and the Administrative Agent shall be entitled to assume that the same are valid, effective and genuine, have been signed or sent by the proper parties and are what they purport to be. The Administrative Agent shall be fully justified in failing or refusing to take any action under the Loan Documents unless it shall first receive such advice or concurrence of the Required Lenders as it deems appropriate. The Administrative Agent shall in all cases be fully protected in acting, or in refraining from acting, under the Loan Documents in accordance with a request or direction of the Required Lenders, and such request or direction and any action taken or failure to act pursuant thereto shall be binding upon all the Lenders and all future holders of the Notes. 10.5. Notice of Default The Administrative Agent shall not be deemed to have knowledge or notice of the occurrence of any Default or Event of Default unless the Administrative Agent has received written notice thereof from a Lender or the Borrower. In the event that the Administrative Agent receives such a notice, the Administrative Agent shall promptly give notice thereof to the Lenders and the Borrower. The Administrative Agent shall take such action with respect to such Default or Event of Default as shall be directed by the Required Lenders, provided, however, that unless and until the Administrative Agent shall have received such directions, the Administrative Agent may (but shall not be obligated to) take such action, or refrain from taking such action, with respect to such Default or Event of Default as it shall deem to be in the best interests of the Lenders. 10.6. Non-Reliance on Administrative Agent and Other Lenders Each Lender expressly acknowledges that neither the Administrative Agent nor any of its respective officers, directors, employees, agents, attorneys-in-fact or affiliates has made any representations or warranties to it and that no act by the Administrative Agent 56 hereinafter, including any review of the affairs of the Borrower, shall be deemed to constitute any representation or warranty by the Administrative Agent to any Lender. Each Lender represents to the Administrative Agent that it has, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it has deemed appropriate, made its own evaluation of and investigation into the business, operations, Property, financial and other condition and creditworthiness of the Borrower and made its own decision to enter into this Agreement. Each Lender also represents that it will, independently and without reliance upon the Administrative Agent or any other Lender, and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit analysis, evaluations and decisions in taking or not taking action under any Loan Document, and to make such investigation as it deems necessary to inform itself as to the business, operations, Property, financial and other condition and creditworthiness of the Borrower. Except for notices, reports and other documents expressly required to be furnished to the Lenders by the Administrative Agent hereunder, the Administrative Agent shall not have any duty or responsibility to provide any Lender with any credit or other information concerning the business, operations, Property, financial and other condition or creditworthiness of the Borrower which may come into the possession of the Administrative Agent or any of its officers, directors, employees, agents, attorneys-in-fact or affiliates. 10.7. Indemnification Each Lender agrees to indemnify and reimburse the Administrative Agent in its capacity as such (to the extent not promptly reimbursed by the Borrower and without limiting the obligation of the Borrower to do so), pro rata according to the outstanding principal balance of the Revolving Credit Loans (or at any time when no Revolving Credit Loans are outstanding, according to its Commitment Percentage), from and against any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind whatsoever (including any amounts paid to the Lenders (through the Administrative Agent) by the Borrower pursuant to the terms of the Loan Documents that are subsequently rescinded or avoided, or must otherwise be restored or returned) which may at any time (including at any time following the payment of the Notes) be imposed on, incurred by or asserted against the Administrative Agent in any way relating to or arising out of the Loan Documents or any other documents contemplated by or referred to therein or the transactions contemplated thereby or any action taken or omitted to be taken by the Administrative Agent under or in connection with any of the foregoing; provided, however, that no Lender shall be liable for the payment of any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements to the extent resulting solely from the finally adjudicated gross negligence or willful misconduct of the Administrative Agent. Without limitation of the foregoing, each Lender agrees to reimburse the Administrative Agent promptly upon demand for its pro rata share of any unpaid fees owing to the Administrative Agent, and any costs and expenses (including reasonable fees and expenses of counsel) payable by the Borrower under Section 11.5, to the extent that the Administrative Agent has not been paid such fees or has not be reimbursed for such costs and expenses by the Borrower. The failure of any Lender to reimburse the Administrative Agent promptly upon demand for its pro rata share of any amount required to 57 be by the Lenders to the Administrative Agent as provided in this Section shall not relieve any other Lender of its obligation hereunder to reimburse the Administrative Agent for its pro rata share of such amount, but no Lender shall be responsible for the failure of other Lender to reimburse the Administrative Agent for such other Lender's pro rata share of such amount. The agreements in this Section shall survive the termination of the Aggregate Commitments and the payment of the Notes and all other amounts payable under the Loan Documents. 10.8. Administrative Agent in Its Individual Capacity BNY and its respective affiliates may make loans to, accept deposits from, issue letters of credit for the account of, and generally engage in any kind of business with, the Borrower as though BNY were not Administrative Agent hereunder. With respect to the Commitment and Loans made or renewed by BNY and the Note issued to BNY, BNY shall have the same rights and powers under the Loan Documents as any Lender and may exercise the same as though it were not the Administrative Agent, and the terms "Lender" and "Lenders" shall in each case include BNY. 10.9. Successor Administrative Agent If at any time the Administrative Agent deems it advisable, in its sole discretion, it may submit to each of the Lenders a written notice of its resignation as Administrative Agent under the Loan Documents, such resignation to be effective upon the earlier of (i) the written acceptance of the duties of the Administrative Agent under the Loan Documents by a successor Administrative Agent and (ii) on the 30th day after the date of such notice. Upon any such resignation, the Required Lenders shall have the right to appoint from among the Lenders a successor Administrative Agent. If no successor Administrative Agent shall have been so appointed by the Required Lenders and accepted such appointment in writing within 30 days after the retiring Administrative Agent's giving of notice of resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent, which successor Administrative Agent shall be a commercial bank organized under the laws of the United States or any State thereof and having a combined capital, surplus, and undivided profits of at least $100,000,000. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor Administrative Agent, such successor Administrative Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent, and the retiring Administrative Agent's rights, powers, privileges and duties as Administrative Agent under the Loan Documents shall be terminated. The Borrower and the Lenders shall execute such documents as shall be necessary to effect such appointment. After any retiring Administrative Agent's resignation as Administrative Agent, the provisions of the Loan Documents shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Administrative Agent under the Loan Documents. If at any time there shall not be a duly appointed and acting Administrative Agent, the Borrower agrees to make each payment due under the Loan Documents directly to the Lenders entitled thereto during such time. 58 11. OTHER PROVISIONS 11.1. Amendments and Waivers (a) No failure to exercise and no delay in exercising, on the part of any Lender, any right, remedy, power or privilege under any Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege under any Loan Document preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges under the Loan Documents are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. No waiver of any provision of any Loan Document or consent to any departure by the Borrower therefrom shall in any event be effective unless the same shall be permitted by this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan shall not be construed as a waiver of any Default, regardless of whether any Lender may have had notice or knowledge of such Default at the time. (b) Notwithstanding anything to the contrary contained in any Loan Document, with the written consent of the Required Lenders, the Administrative Agent and the Borrower may, from time to time, enter into written amendments, supplements or modifications thereof and, with the consent of the Required Lenders, the Administrative Agent on behalf of the Lenders, may execute and deliver to any such parties a written instrument waiving or consenting to the departure from, on such terms and conditions as the Administrative Agent may specify in such instrument, any of the requirements of the Loan Documents or any Default and its consequences; provided, however, that no such amendment, supplement, modification, waiver or consent shall: (i) increase the Commitment of any Lender, without such Lender's consent; (ii) unless agreed to by each Lender affected thereby, (1) reduce the principal amount of any Loan, or reduce the rate of interest thereon, or reduce any fees or other obligations payable under the Loan Documents or (2) extend any date (including the Maturity Date except as provided in Section 2.18) fixed for the payment of any principal of or interest on any Loan, any fees, or any other obligation payable under the Loan Documents; (iii) unless agreed to by all of the Lenders, (1) increase the Aggregate Commitments, (2) change the definition of "Required Lenders" or any other provision hereof specifying the number or percentage of Lenders required to waive, amend or modify any rights hereunder or make any determination or grant any consent hereunder, (3) change Section 3.3 or any other provision of the Loan Documents in a manner that would alter the pro rata sharing of payments required thereby, or (4) consent to any assignment or delegation by the Borrower of any of its rights or obligations under any Loan Document; and 59 (iv) unless agreed to by the Administrative Agent, amend, modify or otherwise affect the rights or duties of the Administrative Agent under the Loan Documents. Any such amendment, supplement, modification or waiver shall apply equally to each of the Lenders and shall be binding upon the parties to the applicable Loan Documents, the Lenders, the Administrative Agent and all future holders of the Notes. In the case of any waiver, the parties to the applicable Loan Documents, the Lenders and the Administrative Agent shall be restored to their former position and rights hereunder and under the outstanding Notes and other Loan Documents to the extent provided for in such waiver, and any Default or Event of Default waived shall not extend to any subsequent or other Default or Event of Default, or impair any right consequent thereon. The Loan Documents may not be amended orally or by any course of conduct. 11.2. Notices All notices, requests and demands to or upon the respective parties to the Loan Documents to be effective shall be in writing and, unless otherwise expressly provided therein, shall be deemed to have been duly given or made when delivered by hand, or when received, in the case of mail, first-class postage prepaid or commercial overnight courier service, or when sent, in the case of notice by facsimile, addressed as follows, in the case of the Borrower or the Administrative Agent, at the Domestic Lending Office, in the case of each Lender, or to such other addresses as to which the Administrative Agent may be hereafter notified by the respective parties thereto or any future holders of the Notes: The Borrower: CLECO Utility Group Inc. 2030 Donahue Ferry Road Pineville, Louisiana 71360-5226 Attention: Michael Sawrie Telephone: (318) 484-7589 Facsimile: (318) 484-7697 60 The Administrative Agent: The Bank of New York One Wall Street Agency Function Administration 18th Floor New York, New York 10286 Attention: Pina Impeduglia Telephone: (212) 635-4696 Facsimile: (212) 635-6365 or 6366 or 6367; with a copy to: The Bank of New York Energy Industries Division One Wall Street 19th Floor New York, New York 10286 Attention: Steven Kalachman Telephone: (212) 635-7881 Facsimile: (212) 635-7923 or 7924; except that any notice, request or demand by the Borrower to or upon the Administrative Agent or the Lenders pursuant to Sections 2.3, 2.4, 2.5, 2.6 or 2.7 shall not be effective until received. Any party to a Loan Document may rely on signatures of the parties thereto which are transmitted by facsimile or other electronic means as fully as if originally signed. 11.3. No Waiver; Cumulative Remedies No failure to exercise and no delay in exercising, on the part of the Administrative Agent or any Lender, any right, remedy, power or privilege under any Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege under any Loan Document preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The rights, remedies, powers and privileges under the Loan Documents are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law. 11.4. Survival of Representations and Warranties All representations and warranties made under the Loan Documents and in any document, certificate or statement delivered pursuant thereto or in connection therewith shall survive the execution and delivery of the Loan Documents. 61 11.5. Payment of Expenses and Taxes The Borrower agrees, promptly upon presentation of a statement or invoice therefor, and whether any Loan is made (i) to pay or reimburse the Administrative Agent for all its out-of-pocket costs and expenses reasonably incurred in connection with the development, preparation and execution of the Loan Documents and any amendment, supplement or modification thereto (whether or not executed), any documents prepared in connection therewith and the consummation of the transactions contemplated thereby, including the reasonable fees and disbursements of Special Counsel, (ii) to pay or reimburse the Administrative Agent and the Lenders for all of their respective costs and expenses, including reasonable fees and disbursements of counsel, incurred in connection with (a) any Default or Event of Default and any enforcement or collection proceedings resulting therefrom or in connection with the negotiation of any restructuring or "work-out" (whether consummated or not) of the obligations of the Borrower under any of the Loan Documents and (b) the enforcement of this Section, (iii) to pay, indemnify, and hold each Lender and the Administrative Agent harmless from and against, any and all recording and filing fees and any and all liabilities with respect to, or resulting from, any delay in paying, stamp, excise and other similar taxes, if any, which may be payable or determined to be payable in connection with the execution and delivery of, or consummation of any of the transactions contemplated by, or any amendment, supplement or modification of, or any waiver or consent under or in respect of, the Loan Documents and any such other documents, and (iv) to pay, indemnify and hold each Lender and the Administrative Agent and each of their respective officers, directors and employees harmless from and against any and all other liabilities, obligations, claims, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever (including reasonable fees and disbursements of counsel) with respect to the enforcement and performance of the Loan Documents, the use of the proceeds of the Loans and the enforcement and performance of the provisions of any subordination agreement in favor of the Administrative Agent and the Lenders (all the foregoing, collectively, the "indemnified liabilities") and, if and to the extent that the foregoing indemnity may be unenforceable for any reason, the Borrower agrees to make the maximum payment permitted or not prohibited under applicable law; provided, however, that the Borrower shall have no obligation hereunder to pay indemnified liabilities to the Administrative Agent or any Lender arising from the finally adjudicated gross negligence or willful misconduct of the Administrative Agent or such Lender, as the case may be, or claims between one indemnified party and another indemnified party. The agreements in this Section shall survive the termination of the Aggregate Commitments and the payment of the Notes and all other amounts payable under the Loan Documents. 11.6. Lending Offices Each Lender shall have the right at any time and from time to time to transfer its Loans to a different office, provided that such Lender shall promptly notify the Administrative Agent and the Borrower of any such change of office. Such office shall thereupon become such Lender's Domestic Lending Office or Eurodollar Lending Office, as the case may be, provided, however, that no such Lender shall be entitled to receive any 62 greater amount under Section 2.10, 2.12, 2.13 or 2.16 as a result of a transfer of any such Loans to a different office of such Lender than it would be entitled to immediately prior thereto unless such claim would have arisen even if such transfer had not occurred. 11.7. Assignments and Participations (a) The Loan Documents shall be binding upon and inure to the benefit of the Borrower, the Lenders, the Administrative Agent, all future holders of the Notes and their respective successors and assigns, except that, other than as provided in Section 8.2(e), the Borrower may not assign, delegate or transfer any of its rights or obligations under the Loan Documents without the prior written consent of the Administrative Agent and each Lender. (b) Each Lender shall have the right at any time, with the prior written consent of the Borrower and the Administrative Agent (which consents shall not be unreasonably withheld or delayed and, with respect to the Borrower, shall not be required upon the occurrence and during the continuance of an Event of Default), to sell, assign, transfer or negotiate all or any part of such Lender's rights and obligations under the Loan Documents to any Eligible Assignee, provided that: (i) each such assignment shall be of a constant, and not a varying, percentage of all of the assignor Lender's rights and obligations under the Loan Documents; and (ii) the assignor and such assignee shall deliver to the Administrative Agent three copies of an Assignment and Acceptance Agreement executed by each of them, along with an assignment fee in the sum of $3,500 for the account of the Administrative Agent. Upon receipt of such number of executed copies of each such Assignment and Acceptance Agreement, together with the assignment fee therefor and the consents required to such assignment, if required, the Administrative Agent shall record the same and execute not less than two copies of such Assignment and Acceptance Agreement in the appropriate place, deliver one such copy to the assignor and one such copy to the assignee, and deliver one photocopy thereof, as executed, to the Borrower. From and after the effective date specified in, and as defined in, such Assignment and Acceptance Agreement, the assignee thereunder shall, unless already a Lender, become a party hereto and shall, for all purposes of the Loan Documents, be deemed a "Lender" and, to the extent provided in such Assignment and Acceptance Agreement, the assignor Lender thereunder shall be released from its obligations under this Agreement and the other Loan Documents. The Borrower agrees that, if requested, in connection with each such assignment, it shall at its own cost and expense execute and deliver to the Administrative Agent or such assignee a Note, each payable to the order of such assignee and dated the Effective Date. The Administrative Agent shall be entitled to rely upon the representations and warranties made by the assignee under each Assignment and Acceptance Agreement. 63 (c) Each Lender may grant participations in all or any part of its rights under the Loan Documents to one or more banks, insurance companies, financial institutions, pension funds or mutual funds, provided that (i) such Lender's obligations under the Loan Documents shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties to the Loan Documents for the performance of such obligations, (iii) the Borrower, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such Lender in connection with such Lender's rights and obligations under the Loan Documents, and (iv) the voting rights of any holder of any participation shall be limited to decisions that only do any of the following: (1) subject the participant to any additional obligation, (2) reduce the principal of, or interest on, the Loans or any fees or other amounts payable under the Loan Documents, or (3) postpone any date fixed for the payment of principal of, or interest on, the Loans or any fees or other amounts payable under the Loan Documents (except as provided in Section 2.18). The Borrower acknowledges and agrees that any such participant shall for purposes of Sections 2.10, 2.12, 2.13 and 2.16 be deemed to be a "Lender"; provided, however, the Borrower shall not, at any time, be obligated to pay any participant in any interest of any Lender hereunder any sum in excess of the sum which the Borrower would have been obligated to pay to such Lender in respect of such interest had such Lender not sold such participation. (d) If any (i) assignment is made pursuant to subsection (b) above or (ii) any participation is granted pursuant to subsection (c) of this Section shall be made to any Person that is organized under the laws of any jurisdiction other than the United States, the assignee or participant, as the case may be, shall furnish such certificates, documents or other evidence to the Borrower and the Administrative Agent, in the case of clause (i), and to the Borrower and the Lender which sold such participation, in the case of clause (ii), as shall be required by Section 2.10(c). (e) No Lender shall, as between and among the Borrower, the Administrative Agent and such Lender, be relieved of any of its obligations under the Loan Documents as a result of any sale, assignment, transfer or negotiation of, or granting of participations in, all or any part of its rights and obligations under Loan Documents, except that a Lender shall be relieved of its obligations to the extent of any such sale, assignment, transfer, or negotiation of all or any part of its rights and obligations under the Loan Documents pursuant to subsection (b) of this Section. (f) Notwithstanding anything to the contrary contained in this Section, any Lender may at any time or from time to time assign all or any portion of its rights under the Loan Documents to a Federal Reserve Bank, provided that any such assignment shall not release such assignor from its obligations thereunder and provided further that no assignment fee shall be payable to or for the account of the Administrative Agent in connection therewith. 11.8. Counterparts Each Loan Document (other than the Notes) may be executed by one or more of the parties thereto on any number of separate counterparts and all of said counterparts taken 64 together shall be deemed to constitute one and the same document. It shall not be necessary in making proof of any Loan Document to produce or account for more than one counterpart signed by the party to be charged. A counterpart of any Loan Document, or to any document evidencing, and of any an amendment, modification, consent or waiver to or of any Loan Document transmitted by facsimile shall be deemed to be an originally executed counterpart. A set of the copies of the Loan Documents signed by all the parties thereto shall be deposited with each of the Borrower and the Administrative Agent. Any party to a Loan Document may rely upon the signatures of any other party thereto which are transmitted by facsimile or other electronic means to the same extent as if originally signed. 11.9. Adjustments; Set-off (a) If any Lender (a "Benefited Lender") shall at any time receive any payment of all or any part of its Loans, or interest thereon, or receive any collateral in respect thereof (whether voluntarily or involuntarily, by set-off, pursuant to events or proceedings of the nature referred to in Section 9.1(h) or (i), or otherwise) in a greater proportion than any such payment to and collateral received by any other Lender in respect of such other Lender's Loans, or interest thereon (other than payments of principal or interest in respect of Competitive Bid Loans when no Default or Event of Default exists), such Benefited Lender shall purchase for cash from each of the other Lenders such portion of each such other Lender's Loans, and shall provide each of such other Lenders with the benefits of any such collateral, or the proceeds thereof, as shall be necessary to cause such Benefited Lender to share the excess payment or benefits of such collateral or proceeds ratably with each of the Lenders, provided, however, that if all or any portion of such excess payment or benefits is thereafter recovered from such Benefited Lender, such purchase shall be rescinded, and the purchase price and benefits returned, to the extent of such recovery, but without interest. The Borrower agrees that each Lender so purchasing a portion of another Lender's Loans may exercise all rights of payment (including rights of set-off, to the extent not prohibited by law) with respect to such portion as fully as if such Lender were the direct holder of such portion. (b) In addition to any rights and remedies of the Lenders provided by law, upon the occurrence of an Event of Default and the acceleration of the obligations owing in connection with the Loan Documents, or at any time upon the occurrence and during the continuance of an Event of Default under Section 9.1(a), each Lender shall have the right, without prior notice to the Borrower, any such notice being expressly waived by the Borrower to the extent not prohibited by applicable law, to set-off and apply against any indebtedness, whether matured or unmatured, of the Borrower to such Lender, any amount owing from such Lender to the Borrower, at, or at any time after, the happening of any of the above-mentioned events. To the extent not prohibited by applicable law, the aforesaid right of set-off may be exercised by such Lender against the Borrower or against any trustee in bankruptcy, custodian, debtor in possession, assignee for the benefit of creditors, receiver, or execution, judgment or attachment creditor of the Borrower, or against anyone else claiming through or against the Borrower or such trustee in bankruptcy, custodian, debtor in possession, assignee for the benefit of creditors, receiver, or execution, judgment or attachment creditor, notwithstanding the fact that such right of set-off shall not have been exercised by such Lender prior to the 65 making, filing or issuance, or service upon such Lender of, or of notice of, any such petition, assignment for the benefit of creditors, appointment or application for the appointment of a receiver, or issuance of execution, subpoena, order or warrant. Each Lender agrees promptly to notify the Borrower and the Administrative Agent after any such set-off and application made by such Lender, provided that the failure to give such notice shall not affect the validity of such set-off and application. 11.10. Construction The Borrower represents that it has been represented by counsel in connection with the Loan Documents and the transactions contemplated thereby and that the principle that agreements are to be construed against the draftsman shall be inapplicable. 11.11. Indemnity The Borrower agrees to indemnify and hold harmless the Administrative Agent and each Lender and their respective affiliates, directors, officers, employees, attorneys and agents (each an "Indemnified Person") from and against any loss, cost, liability, damage or expense (including the reasonable fees and disbursements of counsel of such Indemnified Person, including all local counsel hired by any such counsel) incurred by such Indemnified Person in investigating, preparing for, defending against, or providing evidence, producing documents or taking any other action in respect of, any commenced or threatened litigation, administrative proceeding or investigation under any federal securities law or any other statute of any jurisdiction, or any regulation, or at common law or otherwise, which is alleged to arise out of or is based upon (i) any untrue statement or alleged untrue statement of any material fact by the Borrower in any document or schedule executed or filed with any Governmental Authority by or on behalf of the Borrower; (ii) any omission or alleged omission by the Borrower to state any material fact required to be stated in such document or schedule, or necessary to make the statements made therein, in light of the circumstances under which made, not misleading; (iii) any acts, practices or omissions or alleged acts, practices or omissions of the Borrower or its agents relating to the use of the proceeds of any or all borrowings made by the Borrower which are alleged to be in violation of Section 2.15, or in violation of any federal securities law or of any other statute, regulation or other law of any jurisdiction applicable thereto; or (iv) any acquisition or proposed acquisition by the Borrower of all or a portion of the Stock, or all or a portion of the assets, of any Person whether such Indemnified Person is a party thereto. The indemnity set forth herein shall be in addition to any other obligations or liabilities of the Borrower to each Indemnified Person under the Loan Documents or at common law or otherwise, and shall survive any termination of the Loan Documents, the expiration of the Aggregate Commitments and the payment of all indebtedness of the Borrower under the Loan Documents, provided that the Borrower shall have no obligation under this Section to an Indemnified Person with respect to any of the foregoing to the extent found in a final judgment of a court having jurisdiction to have resulted primarily out of the gross negligence or willful misconduct of such Indemnified Person or arising solely from claims between one such Indemnified Person and another such Indemnified Person. 66 11.12. Governing Law The Loan Documents and the rights and obligations of the parties thereunder shall be governed by, and construed and interpreted in accordance with, the internal laws of the State of New York, without regard to principles of conflict of laws. 11.13. Headings Descriptive Section headings have been inserted in the Loan Documents for convenience only and shall not be construed to be a part thereof. 11.14. Severability Every provision of the Loan Documents is intended to be severable, and if any term or provision thereof shall be invalid, illegal or unenforceable for any reason, the validity, legality and enforceability of the remaining provisions thereof shall not be affected or impaired thereby, and any invalidity, illegality or unenforceability in any jurisdiction shall not affect the validity, legality or enforceability of any such term or provision in any other jurisdiction. 11.15. Integration All exhibits to a Loan Document shall be deemed to be a part thereof. Except for agreements between or among the Administrative Agent, the Lenders and the Borrower with respect to certain fees, the Loan Documents embody the entire agreement and understanding among the Borrower, the Administrative Agent and the Lenders with respect to the subject matter thereof and supersede all prior agreements and understandings among the Borrower, the Administrative Agent and the Lenders with respect to the subject matter thereof. 11.16. Consent to Jurisdiction The Borrower hereby irrevocably submits to the jurisdiction of any New York State or Federal court sitting in the City of New York over any suit, action or proceeding arising out of or relating to the Loan Documents. The Borrower hereby irrevocably waives, to the fullest extent permitted or not prohibited by law, any objection which it may now or hereafter have to the laying of the venue of any such suit, action or proceeding brought in such a court and any claim that any such suit, action or proceeding brought in such a court has been brought in an inconvenient forum. The Borrower hereby agrees that a final judgment in any such suit, action or proceeding brought in such a court, after all appropriate appeals, shall be conclusive and binding upon it. 11.17. Service of Process The Borrower hereby further irrevocably consents to the service of process in any suit, action or proceeding by sending the same by first class mail, return receipt requested 67 or by overnight courier service, to the address of the Borrower provided for in Section 11.2. The Borrower hereby agrees that any such service (i) shall be deemed in every respect effective service of process upon it in any such suit, action, or proceeding and (ii) shall to the fullest extent enforceable by law, be taken and held to be valid personal service upon and personal delivery to it. 11.18. No Limitation on Service or Suit Nothing in the Loan Documents or any modification, waiver, consent or amendment thereto shall affect the right of the Administrative Agent or any Lender to serve process in any manner permitted by law or limit the right of the Administrative Agent or any Lender to bring proceedings against the Borrower in the courts of any jurisdiction or jurisdictions in which the Borrower may be served. 11.19. WAIVER OF TRIAL BY JURY THE ADMINISTRATIVE AGENT, THE LENDERS AND THE BORROWER HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF, UNDER OR IN CONNECTION WITH THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREIN. FURTHER, THE BORROWER HEREBY CERTIFIES THAT NO REPRESENTATIVE OR AGENT OF THE ADMINISTRATIVE AGENT OR THE LENDERS, OR COUNSEL TO THE ADMINISTRATIVE AGENT OR THE LENDERS, HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE ADMINISTRATIVE AGENT OR THE LENDERS WOULD NOT, IN THE EVENT OF SUCH LITIGATION, SEEK TO ENFORCE THIS WAIVER OF RIGHT TO JURY TRIAL PROVISION. THE BORROWER ACKNOWLEDGES THAT THE ADMINISTRATIVE AGENT AND THE LENDERS HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, INTER ALIA, THE PROVISIONS OF THIS SECTION. 68 IN WITNESS WHEREOF, the parties hereto have caused this 364-Day Credit Agreement to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written. EX-10.(J) 3 0003.txt INCENTIVE COMPENSATION PLAN EXHIBIT 10(j) CLECO CORPORATION 2000 LONG-TERM INCENTIVE COMPENSATION PLAN CLECO CORPORATION 2000 LONG-TERM INCENTIVE COMPENSATION PLAN TABLE OF CONTENTS Page ---- ARTICLE I PURPOSE.............................................. 1 ARTICLE II DEFINITIONS......................................... 1 ARTICLE III ADOPTION; RESERVATION OF SHARES; MAXIMUM AWARDS.... 5 Adoption and Effective Date.................................. 5 Duration..................................................... 5 Number and Type of Shares.................................... 5 Cancellation................................................. 5 Adjustment................................................... 5 Individual Limitations....................................... 5 ARTICLE IV PARTICIPATION....................................... 6 Eligibility.................................................. 6 No Continued Employment...................................... 6 ARTICLE V ADMINISTRATION OF PLAN............................... 6 Composition of Committee..................................... 6 Power and Authority.......................................... 7 ARTICLE VI OPTIONS............................................. 7 Grant of Options............................................. 7 Incentive Stock Options...................................... 7 Manner of Exercise; Issuance of Common Stock................. 8 Rights as Stockholder........................................ 8 Equity Maintenance........................................... 8 Effect of a Severance of Employment.......................... 9 ARTICLE VII STOCK APPRECIATION RIGHTS.......................... 9 General Provisions........................................... 9 Manner of Exercise........................................... 10 Amount of Compensation....................................... 10 Effect of a Severance of Employment.......................... 10 Nature of SARs............................................... 10 ARTICLE VIII RESTRICTED STOCK.................................. 10 General Provisions........................................... 10 Enforcement of Restrictions.................................. 11 Page ---- Lapse of Restrictions........................................ 11 Shareholder Rights........................................... 11 Effect of a Severance of Employment.......................... 11 ARTICLE IX COMMON STOCK EQUIVALENT UNITS....................... 12 Allocation................................................... 12 Ledger Account............................................... 12 Distribution................................................. 12 Not a Stockholder............................................ 12 Effect of a Severance of Employment.......................... 12 ARTICLE X PERFORMANCE OBJECTIVES............................... 13 ARTICLE XI INCENTIVES FOR ELIGIBLE DIRECTORS................... 13 Stock In Lieu of Compensation................................ 13 Restricted Stock Awards...................................... 13 Grant to Eligible Directors.................................. 14 Additional Grants and Awards................................. 14 ARTICLE XII MISCELLANEOUS...................................... 14 Amendment and Termination.................................... 14 Transferability of Incentives................................ 15 Withholding.................................................. 15 Tax Payments................................................. 15 Lapse of Restrictions Upon Change in Control................. 15 Lapse of Restrictions on Account of a Business Transaction... 16 Agreements................................................... 16 Additional Legal Requirements................................ 16 Governing Law................................................ 16 Other Benefits............................................... 16 Deferral..................................................... 17 Compliance with Code Section 162(m).......................... 17 CLECO CORPORATION 2000 LONG-TERM INCENTIVE COMPENSATION PLAN Cleco Corporation, a corporation organized and existing under the laws of the State of Louisiana (the "Company"), hereby establishes the 2000 Long-Term Incentive Compensation Plan (the "Plan"). This Plan is intended to replace the 1990 Long-Term Incentive Compensation Plan maintained by a subsidiary of the Company, Cleco Utility Group Inc. (the "Utility"), except that outstanding grants and awards made under such plan shall remain in effect until exercised or expired in accordance with their terms. ARTICLE I Purpose This Plan is intended to provide flexibility to the Company in connection with its compensation practices and to attract, retain and motivate officers, executives and other key employees through the grant of nonqualified stock options, incentive stock options, restricted stock, common stock equivalent units, stock appreciation rights, and other forms of incentive compensation, all as more fully set forth below. ARTICLE II Definitions 2.1 AFFILIATE: means any corporation or other form of entity of which the Company owns, from time to time, directly or indirectly, 50% or more of the total combined voting power of all classes of stock or other equity interests. 2.2 BOARD OR BOARD OF DIRECTORS: means the Board of Directors of the Company. 2.3 CAUSE: unless otherwise expressly defined in an agreement between the Company (or an Affiliate) and a Participant hereunder, Cause means that a Participant has: a. Committed an intentional act of fraud, embezzlement or theft in the course of his or her employment or otherwise engaged in any intentional misconduct which is materially injurious to the Company's (or an Affiliate's) financial condition or business reputation; b. Committed intentional damage to the property of the Company (or an Affiliate) or committed intentional wrongful disclosure of confidential information which is materially injurious to the Company's (or an Affiliate's) financial condition or business reputation; or c. Intentionally refused to perform the material duties of his or her position. 1 No act or failure to act on the part of the Participant will be deemed "intentional" if it was due primarily to an error in judgment or negligence, but will be deemed "intentional" only if done or omitted to be done by a Participant not in good faith and without reasonable belief that his or her action or omission was in the best interest of the Company (or an Affiliate). The Committee (or its designee) shall determine whether Cause has occurred hereunder. 2.4 CHANGE IN CONTROL: means and shall be deemed to occur if: a. An event involving the Company occurs of a nature that the Company would be required to report in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange Act; b. Any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act), other than the Company or any "person" who on the effective date of this Plan is a director or officer of the Company or an employee stock ownership plan (within the meaning of Code Section 4975(e)(7)) sponsored by the Company or an Affiliate, is or becomes the "beneficial owner" (as determined in Rule 13d-3 promulgated under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; c. During any period of 24 consecutive months after the effective date of this Plan, individuals who at the beginning of such period constitute the Board of Directors cease for any reason to constitute at least a majority thereof, unless the election of each director who was not a director at the beginning of such period shall have been approved in advance by directors representing at least 80% of the directors then in office who were directors at the beginning of such period; d. The Company shall be party to a merger or consolidation with another corporation and, as a result of such transaction, less than 80% of the then outstanding voting securities of the surviving or resulting corporation shall be owned in the aggregate by the former shareholders of the Company other than "affiliates" (as such term is defined in Rule 405 promulgated under the Securities Act of 1933, as amended) of any party to such transaction, as the same shall have existed immediately before such transaction; e. The Company sells, leases, or otherwise disposes of, in one transaction or in a series of related transactions, all or substantially all of its assets; f. The shareholders of the Company approve a plan of dissolution or liquidation; or g. All or substantially all of the assets or the issued and outstanding common stock of the Utility is sold, leased or otherwise disposed of in one or a series of related transactions to a person, other than the Company or another Affiliate. The Board of Directors, in its discretion, shall determine whether a Change in Control has occurred hereunder. 2.5 CODE: means the Internal Revenue Code of 1986, as amended. 2 2.6 COMMITTEE: means the persons appointed in accordance with the provisions of Section 5.1 hereof to administer this Plan. 2.7 COMMON STOCK: means $2.00 par value voting Common Stock issued by the Company. 2.8 COMMON STOCK EQUIVALENT UNIT: means a unit which is valued by reference to the value of a share of Common Stock, as more fully set forth in Article IX hereof. 2.9 COVERED EMPLOYEE: means the chief executive officer and the four highest compensated officers of the Company (other than the chief executive officer), determined in accordance with Code Section 162(m) and the regulations promulgated thereunder. 2.10 DISABLED OR DISABILITY: means that an Employee is actually receiving benefits under the Company's (or an Affiliate's) separate long-term disability plan or that an Eligible Director would be receiving benefits under such plan, if such Director were a participant therein. The Committee shall determine whether a Participant or Eligible Director is or becomes Disabled. 2.11 ELIGIBLE DIRECTOR: means an individual, other than an Employee, who serves as a member of (a) the Board of Directors of the Company, or (b) the board of directors of an Affiliate, provided that such Affiliate is designated by the Committee as a participating Affiliate hereunder. 2.12 EMPLOYEE: means a regular, common law employee of the Company and/or its Affiliates, including officers and directors, determined in accordance with the Company's standard personnel policies and practices, but excluding individuals who are classified by the Company as leased or otherwise employed by a third party, independent contractors or intermittent or temporary employees, even if any such classification is modified by audit, administrative proceeding, litigation or otherwise. 2.13 EXCHANGE ACT: means the Securities Exchange Act of 1934, as amended, including any rule, regulation or interpretation promulgated thereunder. 2.14 FAIR MARKET VALUE: means the average of the high and low closing sales price of a share of Common Stock on the New York Stock Exchange Composite Transactions reporting system on the date as of which such value is being determined or, if no sales occurred on such day, then on the immediately preceding date on which there were such sales. 2.15 INCENTIVE: means a right to purchase or receive shares of Common Stock or cash in accordance with the terms of this Plan. An Incentive may be granted in the form of Common Stock Equivalent Units, Options, Restricted Stock, Stock Appreciation Rights or a combination thereof. 2.16 INCENTIVE STOCK OPTION OR ISO: means an option to purchase shares of Common Stock that meets the requirements of Code Section 422 and is granted in accordance with Section 6.2 hereof. 3 2.17 LEDGER ACCOUNT: means the bookkeeping entry established and maintained by the Company in connection with the allocation of Common Stock Equivalent Units under Section 9.2 hereof. 2.18 NONQUALIFIED STOCK OPTION: means an option to purchase shares of Common Stock granted in accordance with the terms of Section 6.1 hereof. 2.19 OPTION: means an Incentive Stock Option or a Nonqualified Stock Option. 2.20 PARTICIPANT: means an Employee who is granted or awarded an Incentive under this Plan. 2.21 PERFORMANCE OBJECTIVES: means performance criteria designated by the Committee to be achieved during a designated period. Such objectives may relate to the business and affairs of the Company, an Affiliate, a division, department, unit or profit center of the Company or an Affiliate, including, without limitation, the attainment of goals related to the Company's earnings per share, return on equity, return on investment, return on or growth in income (whether gross or net), market share, appreciation in the price of Common Stock or return on assets; such objectives may relate to any Participant or any Employee or group of Participants or Employees and may be determined with respect to the performance of Cleco and/or its affiliates or such performance compared to a designated peer group. 2.22 PLAN: means this 2000 Long-Term Incentive Compensation Plan, as may be amended from time to time. 2.23 RESTRICTED STOCK: means an award of Common Stock to an Employee that is subject to restrictions on transfer and granted in accordance with the provisions of Article VIII hereof or an award of Common Stock to an Eligible Director pursuant to Article XI hereof. 2.24 RETIREMENT OR RETIRE: means the date on which a Participant ceases to be employed by the Company (or an Affiliate) on account of normal, early or deferred retirement as defined in the separate defined benefit plan maintained by the Company or Affiliate under which the Participant is covered, provided the Participant is eligible to receive an immediate benefit thereunder. 2.25 STOCK APPRECIATION RIGHT OR SAR: means a right that is based upon the appreciation of Common Stock and is granted in accordance with Article VII hereof. 2.26 TANDEM STOCK APPRECIATION RIGHT OR TANDEM SAR: means a Stock Appreciation Right granted with respect to shares of Common Stock covered by an Option. 2.27 OTHER DEFINITIONS: The following terms shall have the meanings ascribed below: "Effective Date" is defined in Section 3.1 hereof; "non-employee director," "performance-based compensation" and "outside director" are defined in Section 5.1 hereof; "Performance Cycle" is defined in Article X hereof; "Business Transaction" is defined in Section 12.6 hereof. 4 ARTICLE III Adoption; Reservation of Shares; Maximum Awards 3.1 ADOPTION AND EFFECTIVE DATE. Subject to its approval by the Company's shareholders, this Plan shall be effective as of January 1, 2000 (the "Effective Date"). Prior to the approval of the Plan by the shareholders of the Company, Incentives may be granted hereunder, but if such shareholder approval is not received prior to January 1, 2001, such grants shall be void and of no effect. 3.2 DURATION. This Plan shall commence on its Effective Date and shall remain in effect until (a) all Incentives have been satisfied by the issuance of shares of Common Stock or cash payments or a combination thereof or have been terminated or forfeited, or (b) restrictions or Performance Objectives imposed on shares of Common Stock have lapsed. No Incentive shall be granted hereunder after January 1, 2010. 3.3 NUMBER AND TYPE OF SHARES. Subject to adjustment as provided in Section 3.5 hereof, not more than 800,000 shares of Common Stock shall be issued under the Plan. Except as provided in Section 3.4 hereof, the number of shares available for grant, transfer, issuance or other payment under the Plan shall be reduced by the number of shares actually granted, transferred, issued or paid hereunder. Common Stock issued in connection with the grant or award of an Incentive may be authorized and unissued shares, issued shares held as treasury shares or shares acquired on the open market or through private purchase. 3.4 CANCELLATION. Shares of Common Stock covered by Incentives that are not earned or that are canceled, forfeited, terminated, expired or otherwise lapse for any reason and Incentives that are not exercised or that are exchanged for other forms of Incentives hereunder, shall again be available for grant or issuance under the Plan. 3.5 ADJUSTMENT. In the event of any merger, consolidation or reorganization of the Company with another entity that does not constitute a Change in Control within the meaning of Section 2.4 hereof, there shall be substituted for each of the shares of Common Stock then subject to the Plan the number and kind of shares of stock or other securities to which the holders of Common Stock are entitled in the transaction. In the event of any recapitalization, stock dividend, stock split, combination of shares or other change in the number of shares of Common Stock then outstanding for which the Company does not receive consideration, the number of shares of Common Stock then subject to the Plan shall be adjusted in proportion to the change in outstanding shares of Common Stock. In the event of any such substitution or adjustment, the purchase price of any Option, the Performance Objectives applicable to any Incentive, and the shares of Common Stock issuable pursuant to any Incentive shall be adjusted in the discretion of the Committee to the extent necessary to prevent the dilution or enlargement of any Incentive granted hereunder. 3.6 INDIVIDUAL LIMITATIONS. The maximum aggregate number of shares of Common Stock that may be granted to an individual Participant in the form of Options, SARs, Restricted Stock and Common Stock Equivalent Units during any calendar year shall not exceed 125,000 shares (subject to adjustment as provided in Section 3.5 hereof). The maximum aggregate amount distributable in the form of cash that may be paid to an individual Participant in any 5 calendar year shall not exceed $500,000. The foregoing limitations shall be applied in a manner consistent with the "performance-based compensation" rules imposed under Code Section 162(m). ARTICLE IV Participation 4.1 ELIGIBILITY. Employees of the Company and its Affiliates shall be eligible to receive Incentives under this Plan, when designated by the Committee. Employees may be designated for participation hereunder individually or by groups or categories, in the discretion of the Committee. Eligible Directors of the Company shall participate in this Plan without necessity of further action; Eligible Directors of Affiliates shall participate in this Plan when designated by the Committee. 4.2 NO CONTINUED EMPLOYMENT. No Participant shall have any right to continue in the employ of the Company or an Affiliate for any period of time or any right to continue his or her present or any other rate of compensation on account of the grant or award of an Incentive or the issuance of Common Stock or other form of payment hereunder. ARTICLE V Administration of Plan 5.1 COMPOSITION OF COMMITTEE. This Plan shall be administered by a committee appointed by the Board of Directors consisting of not less than two persons, which shall ordinarily be the Compensation Committee of the Board, provided that: a. To the extent the grant or award of an Incentive is intended to be an exempt transaction under Rule 16b-3 promulgated under the Exchange Act, each acting member of the Committee shall be a "non-employee director" within the meaning of such rule. b. To the extent the grant or award of an Incentive hereunder is intended to constitute "performance-based compensation" within the meaning of Code Section 162(m), each acting member of the Committee shall be an "outside director" within the meaning of such section. c. The Committee, in its discretion, may delegate to one or more executive officers of the Company the authority to make grants or awards of Incentives to Participants hereunder, except that the authority to make grants or awards that are intended to be exempt transactions under Rule 16b-3 promulgated under the Exchange Act or "performance-based compensation" within the meaning of Code Section 162(m) shall not be delegated. 6 Notwithstanding the foregoing, the Board of Directors may act in lieu of the Committee hereunder. 5.2 POWER AND AUTHORITY. The Committee shall have the discretionary power and authority to (a) designate Participants hereunder, (b) award Incentives under the Plan, including the determination of the terms and conditions thereof, (c) construe and interpret the provisions of the Plan and any form or agreement related thereto, (d) establish and adopt rules, regulations, and procedures relating to the Plan and the grant or award of Incentives hereunder, including, without limitation, procedures for the crediting of periods of employment with an Affiliate and/or during any period of part-time employment, (e) interpret, apply and construe such rules, regulations and procedures, and (f) make any other determination which it believes necessary or advisable for the proper administration of the Plan. Decisions, interpretations and actions of the Committee concerning matters related to the Plan shall be final and conclusive on the Company, its Affiliates and Participants and their beneficiaries or heirs. The Committee may make determinations selectively among Participants who receive or are eligible to receive Incentives hereunder, whether or not such Participants are similarly situated. ARTICLE VI Options 6.1 GRANT OF OPTIONS. The Committee may grant Nonqualified Stock Options and Incentive Stock Options to such Participants as it may designate, from time to time, subject to the following: a. The exercise price of an Option granted hereunder shall be not less than 85% of the Fair Market Value of the Common Stock on the date the Option is granted. b. The number of shares of Common Stock subject to an Option shall be designated by the Committee at the time of grant. c. The term of each Option shall be determined by the Committee, but shall not be longer than 10 years, measured from the date of grant. d. The exercise of an Option granted hereunder shall be subject to such Performance Objectives or other conditions as the Committee deems appropriate. e. Each Option shall be exercisable at such time or times during its term as may be determined by the Committee. 6.2 INCENTIVE STOCK OPTIONS. In addition to the provisions of Section 6.1 hereof, Incentive Stock Options shall be subject to the following: a. No ISO shall be granted hereunder if the aggregate Fair Market Value of Common Stock with respect to which ISOs are first exercisable during any calendar year (under this Plan and any other plans of the Company and its Affiliates) exceeds $100,000. 7 b. No ISO shall be granted to any Participant who owns, directly or indirectly, more than 10% of the total combined voting power of all classes of stock of the Company or an Affiliate (determined in accordance with Code Section 424), unless the exercise price of such option is not less than 110% of the Fair Market Value of Common Stock, determined at the time of grant. c. The exercise price of an ISO granted hereunder shall not be less than the Fair Market Value of Common Stock on the date the ISO is granted. d. An ISO granted hereunder shall be subject to such additional terms and conditions as the Committee deems necessary or advisable, consistent with the provisions of Code Section 422 and the regulations promulgated thereunder. e. Any agreement evidencing the grant of an ISO hereunder may provide that such Option may be characterized as a Nonqualified Stock Option to the extent that the requirements imposed under Code Section 422 are not satisfied. 6.3 MANNER OF EXERCISE; ISSUANCE OF COMMON STOCK. An Option shall be exercised, in whole or in part, by providing notice to the Committee, specifying the number of shares of Common Stock to be purchased and accompanied by the full purchase price for such shares. The option price shall be payable in the form of cash (including cash equivalents) or, if permitted under the terms and conditions applicable to a specific grant, by delivery of shares of Common Stock held by the Participant (whether mature or otherwise), a combination thereof or in such other manner as may be authorized, from time to time, by the Committee. Common Stock tendered in payment of the option price shall be valued at Fair Market Value as of the date of exercise. A Participant may exercise Options and contemporaneously sell the shares of Common Stock acquired thereby pursuant to a brokerage or similar arrangement, provided that the proceeds thereof are applied to the payment of the purchase price of the shares. Any such transaction shall be with the consent of the Committee. As soon as practicable after the receipt of written notification or exercise and payment of the option price in full, the Committee shall cause the Company to deliver to the Participant, registered in the Participant's name, certificates representing shares of Common Stock in the appropriate amount. 6.4 RIGHTS AS STOCKHOLDER. Prior to the issuance of shares of Common Stock upon the exercise of an Option, a Participant shall have no rights as a stockholder with respect to the shares subject to such Option. 6.5 EQUITY MAINTENANCE. If a Participant, while an Employee of the Corporation or an Affiliate, pays the option price by delivery of previously owned shares of Common Stock, the Committee, in its discretion, may grant to such Participant an additional option to purchase the number of shares of Common Stock delivered by the Participant to pay the option price. Any such additional option granted hereunder shall be exercisable at Fair Market Value, determined as of the date on which such additional option is granted. 8 6.6 EFFECT OF A SEVERANCE OF EMPLOYMENT. Unless otherwise provided by the Committee, Nonqualified Stock Options granted hereunder shall be exercisable only while a Participant is an Employee of the Company or an Affiliate; thereafter, such Nonqualified Stock Options shall be exercisable, to the extent exercisable as of the Participant's severance of employment: a. During the one-year period following the date of the Participant's death, but by the Participant's estate or heirs; b. During the three-year period following the Participant's Disability or Retirement; or c. During the 30-day period following a termination of employment for any other reason, except Cause. Unless otherwise provided by the Committee, Incentive Stock Options granted hereunder shall be exercisable only while a Participant is an Employee of the Company or an Affiliate and thereafter, to the extent exercisable as of the Participant's severance of employment, during the three-month period following such severance for any reason, except Cause. Unless otherwise provided by the Committee, if a Participant's employment is terminated for Cause, then notwithstanding any provision of this Plan or any related form or agreement to the contrary, Options granted hereunder shall be deemed canceled and forfeited as of the date of such termination. ARTICLE VII Stock Appreciation Rights 7.1 GENERAL PROVISIONS. The Committee may grant Stock Appreciation Rights to such Participants as it may designate, from time to time, subject to the following: a. Each SAR granted hereunder shall relate to the number of shares of Common Stock designated by the Committee. b. Unless otherwise provided by the Committee, if a Tandem SAR is granted (i) the number of shares of Common Stock to which the Tandem SAR relates shall be reduced in the same proportion that the Option related to the Tandem SAR is exercised, or (ii) the Option shall be reduced in the same proportion that the Tandem SAR is exercised. c. The exercise of each SAR granted hereunder shall be subject to such Performance Objectives or other conditions as the Committee deems appropriate, except that the terms and conditions applicable to a Tandem SAR shall be the same as its related Option. 9 d. Each SAR shall be exercisable at such time or times during its term as may be determined by the Committee, except that a Tandem SAR shall not be exercisable after the related Option expires or is forfeited. 7.2 MANNER OF EXERCISE. An SAR may be exercised, in whole or in part, by giving written notice to the Committee, specifying the number of SARs to be exercised. The Committee shall, promptly after receipt of such notice, deliver to the Participant certificates for shares of Common Stock free of or subject to restriction or cash or a combination thereof (determined in the discretion of the Committee) in an amount determined in accordance with Section 7.3 hereof. 7.3 AMOUNT OF COMPENSATION. The amount of compensation payable to a Participant upon the exercise of an SAR shall be determined by multiplying: a. The number of shares of Common Stock with respect to which the SAR is exercised; by b. The excess of the Fair Market Value of a share of Common Stock on the exercise date over (i) in the case of Tandem SAR, the exercise price of the shares of Common Stock subject to the Option, or (ii) in the case of a SAR granted alone, without reference to an Option, an amount equal to the Fair Market Value of a share of Common Stock on the date of grant. 7.4 EFFECT OF A SEVERANCE OF EMPLOYMENT. Unless otherwise specified by the Committee, an SAR granted hereunder shall be exercisable only while a Participant is an Employee of the Company or an Affiliate and thereafter in accordance with the provisions of Section 6.6 hereof applicable to Nonqualified Stock Options. 7.5 NATURE OF SARS. Stock Appreciation Rights granted hereunder shall not be deemed to constitute property or create a trust or fiduciary relationship as between any Participant and the Company, any Affiliate or the Committee. The rights of a Participant with respect to any SAR shall be limited to the right to receive cash or Common Stock upon its exercise. ARTICLE VIII Restricted Stock 8.1 GENERAL PROVISIONS. The Committee may grant shares of Restricted Stock to such Participants as it may designate, from time to time, subject to the following terms and conditions: a. The number of shares of Common Stock to be transferred to a Participant shall be determined in the discretion of the Committee. b. Shares of Restricted Stock granted hereunder shall be subject to such terms, conditions and restrictions for such period or periods as the Committee, in its discretion, may determine (including, without limitation, restrictions on transfer or other disposition, forfeiture provisions, and/or restrictions based upon the achievement of Performance Objectives). 10 8.2 ENFORCEMENT OF RESTRICTIONS. In order to enforce any restrictions imposed by the Committee pursuant to Section 8.1 hereof, a Participant receiving a grant of Restricted Stock hereunder shall enter into an agreement with the Committee setting forth the conditions of the grant. Each certificate issued with respect to a grant of Restricted Stock hereunder shall bear such legends as the Committee, in its sole discretion, shall deem necessary or appropriate. The Committee, in its discretion, may additionally require that shares of Restricted Stock registered in the name of the Participant be deposited, together with a stock power endorsed in blank, with the Company pending the lapse of such restrictions. 8.3 LAPSE OF RESTRICTIONS. The Committee shall notify an affected Participant at the end of any period during which the shares of Restricted Stock are subject to forfeiture and/or other restriction on transfer. Such restrictions shall be deemed lapsed and a certificate representing the number of shares of Common Stock with respect to which the lapse has occurred shall be delivered to the Participant free of restriction. 8.4 SHAREHOLDER RIGHTS. Subject to any restrictions or limitations imposed by the Committee, each Participant receiving a grant of Restricted Stock hereunder shall have the full voting rights of a stockholder with respect to such shares during any period in which the shares are subject to forfeiture or restriction on transfer. During the period of any restriction imposed hereunder, dividends paid in cash or property with respect to the underlying shares of Common Stock shall be paid to the Participant currently, accrued by the Company as a contingent obligation or converted to additional shares of stock, in the discretion of the Committee. 8.5 EFFECT OF A SEVERANCE OF EMPLOYMENT. Unless otherwise provided by the Committee, if an Employee severs his or her employment with the Company and all Affiliates prior to the date on which Performance Objectives or other restrictions imposed on Restricted Stock granted hereunder have lapsed: a. If such severance is on account of Retirement on or after age 65, such restrictions shall lapse and such Performance Objectives shall be deemed satisfied with respect to all shares of Restricted Stock awarded hereunder. b. If such severance is on account of death, Disability or Retirement prior to age 65 or such severance is involuntary, but not on account of Cause, such restrictions shall lapse and such Performance Objectives shall be deemed satisfied as to the number of shares of Restricted Stock determined by multiplying (i) the total number of shares subject to restriction and/or performance Objectives, by (ii) the ratio of the number of days lapsed in the restriction period or Performance Cycle over the total number of days in such period. Unless otherwise provided by the Committee, if a Participant's employment is terminated on account of Cause or the Participant's severance is not otherwise described above, then notwithstanding any provision of this Plan or any related form or agreement to the contrary, Restricted Stock subject to restrictions or Performance Objectives as of the date of such termination shall be deemed canceled and forfeited. 11 ARTICLE IX Common Stock Equivalent Units 9.1 ALLOCATION. The Committee, in its discretion, may allocate Common Stock Equivalent Units to a Participant hereunder, subject to the following: a. The number of units allocated to a Participant shall be determined by the Committee; b. The units shall be subject to such Performance Objectives and/or other restrictions as the Committee deems appropriate; and c. The units may relate to a grant of Restricted Stock hereunder and, in such event, shall be subject to the Performance Objectives and/or additional restrictions applicable to the related grant of Restricted Stock, unless the Committee provides otherwise. 9.2 LEDGER ACCOUNT. Common Stock Equivalent Units allocated to a Participant shall be credited to the Ledger Account established and maintained for such Participant on the books and records of the Company. Such Ledger Account, including units credited thereto, shall be bookkeeping entries only and shall not require the Company or any Affiliate to segregate or otherwise earmark or reserve assets. No shares of Common Stock shall be issued or issuable at the time units are credited to a Ledger Account established hereunder. During any period in which Common Stock Equivalent Units are credited to a Ledger Account, the Committee may provide (a) that an amount equal to the dividends payable with respect to Common Stock represented by units credited to such account shall be credited as of each dividend payment date, and/or (b) that any stock dividend, stock split or other recapitalization shall be reflected in the credits made to such Ledger Account. 9.3 DISTRIBUTION. All Common Stock Equivalent Units allocated to a Participant shall be distributable in accordance with the terms and conditions imposed by the Committee. When any such unit is or becomes distributable, the affected Participant shall be entitled to receive a distribution from the Company in such form (which may include shares of Common Stock, with or without legends, Restricted Stock, cash or a combination thereof) as the Committee shall determine. 9.4 NOT A STOCKHOLDER. The allocation of Common Stock Equivalent Units to a Ledger Account shall not entitle a Participant to exercise the rights of a stockholder of the Company, until the issuance of shares of Common Stock with respect to such allocation. 9.5 EFFECT OF A SEVERANCE OF EMPLOYMENT. Unless otherwise provided by the Committee, if a Participant severs his or her employment with the Company and all Affiliates with Common Stock Equivalent Units credited to his or her Ledger Account, the provisions of Section 8.5 hereof shall apply to determine the number of such units distributable to the Participant, if any. 12 ARTICLE X Performance Objectives The Committee, in its discretion, may impose Performance Objectives as a condition of the grant or award of Incentives hereunder, such objectives to be achieved during the period designated by the Committee (the "Performance Cycle"). The Committee shall establish such Performance Objectives at the time of grant or award or annually during the term of such grant or award. Once established, Performance Objectives may be changed, adjusted or amended during the Performance Cycle, in the discretion of the Committee. The Committee may waive all or any portion of the Performance Objectives during or after the term of the grant or award on account of a change in circumstances. At the conclusion of the term of an affected Incentive or any Performance Cycle, the Committee shall determine the portion of such grant or award that shall be deemed free of restriction on account of the attainment of the applicable Performance Objectives. The Committee shall notify each affected Participant as to whether the Performance Objectives have been achieved, in whole or in part, and the number of shares of Common Stock free of restriction on account of the attainment of such objectives. ARTICLE XI Incentives For Eligible Directors 11.1 STOCK IN LIEU OF COMPENSATION. Each Eligible Director shall be entitled to elect to receive all or a portion of his or her annual compensation in the form of Common Stock, instead of in cash. The number of shares issued to the Eligible Director shall equal the quotient of: a. The amount of compensation that the Eligible Director elects to receive in the form of Common Stock; divided by b. The Fair Market Value of Common Stock, determined as of the first business day following the meeting with respect to which the compensation is paid or payable. Prior to the calendar year in which such shares are issued as compensation, each Eligible Director shall also be entitled to defer the receipt of the Common Stock payable hereunder in accordance with the terms of the Deferred Compensation Plan for Directors or a similar plan providing for the deferral of compensation. 11.2 RESTRICTED STOCK AWARDS. If an Eligible Director, upon his or her election or appointment to the Board, owns less than 1,000 shares of Common Stock, he or she shall receive shares of Restricted Stock equal to that number of shares of Common Stock necessary to increase such Eligible Director's ownership to 1,000 shares. Such award shall be subject to the following: 13 a. Each affected Eligible Director shall be required to remit to the Company the Fair Market Value of Common Stock awarded hereunder, determined as of the date of award. b. Each affected Eligible Director shall apply $6,000 of his or her annual retainer toward acquiring such shares of Common Stock, until the purchase price is paid in full. c. Each affected Eligible Director shall not sell, assign, transfer, pledge, hypothecate or otherwise dispose of shares of Restricted Stock awarded hereunder until the shares have been paid in full. Such shares shall be held in escrow pursuant to an agreement satisfactory to the Committee pending such payment. d. Each affected Eligible Director shall have absolute ownership of the Restricted Stock awarded hereunder, including the right to vote the shares and receive dividends thereon, subject, however, to the limitations set forth in Section 11.2c hereof. e. Prior to receipt of the shares of Common Stock hereunder, each affected Eligible Director may elect to defer receipt of Common Stock under the terms of the Deferred Compensation Plan for Directors or a similar plan providing for the deferral of compensation. 11.3 GRANT TO ELIGIBLE DIRECTORS. Each Eligible Director, upon such Eligible Director's election and, thereafter, upon reelection to the Board, shall be granted an immediately exercisable Nonqualified Stock Option to purchase 2,500 shares of Common Stock; the exercise price of such Options shall be Fair Market Value, determined as of the date of grant. Options granted under this Section 11.3 shall expire and be of no further effect 10 years after the date of grant. If an Eligible Director is elected or appointed to the Board during the term applicable to his or her class of directors, such director shall be granted an immediately exercisable Nonqualified Stock Option to purchase the number of shares of Common Stock determined by multiplying (a) 2,500 shares, by (b) the ratio of the number of whole and fractional years of such director's term over three. 11.4 ADDITIONAL GRANTS AND AWARDS. The Committee may, from time to time, grant or award additional Incentives to one or more Eligible Directors in any year, subject to such terms and conditions as the Committee deems appropriate, except that (a) Incentive Stock Options shall not be granted to Eligible Directors, and (b) in no event shall the number of shares of Common Stock covered by the grant or award any such additional Incentive exceed 2,500 shares determined with respect to each affected Eligible Director. ARTICLE XII Miscellaneous 12.1 AMENDMENT AND TERMINATION. The Board of Directors may amend or terminate this Plan at any time, in its sole discretion; provided, however, that no such amendment or termination shall materially change or impair, without the consent of each affected Participant or 14 Eligible Director, the terms and conditions of an Incentive previously granted or awarded hereunder. 12.2 TRANSFERABILITY OF INCENTIVES. Except as expressly provided in this Section 12.2, no Incentive granted hereunder shall be transferred, pledged, assigned, hypothecated, alienated or otherwise encumbered or sold by the holder thereof, whether by operation of law or otherwise, and whether voluntarily or involuntarily (except in the event of the holder's death by will or the laws of descent and distribution) and neither the Committee nor the Company shall be required to recognize any attempted assignment of such rights by any Participant or Eligible Director. During a Participant's or Eligible Director's lifetime, an Incentive may be exercised only by the Participant or Eligible Director or by the guardian or legal representative of such person. Notwithstanding the foregoing, the Committee, in its sole discretion, may provide that any Incentive awarded hereunder, except an Incentive Stock Option or Tandem SAR related thereto, may be transferred by a Participant or Eligible Director to members of such Participant's or Eligible Director's immediate family, any trust for the benefit of such family members, and/or partnerships whose partners are such family members, but such transferees may not transfer such Incentives to third parties. For purposes of this Section 12.2, the term "immediate family" shall have the meaning ascribed to such term in Rule 16a-1(e) promulgated under the Exchange Act. Each transferee shall be subject to the terms and conditions applicable to the Incentive prior to such transfer and, prior to any transfer hereunder, each such transferee and the related Participant or Eligible Director shall enter into a written agreement with the Committee acknowledging such terms and conditions, including, but not limited to, the conditions with regard to the liability for payment of any and all taxes, as well as any other restriction determined to be reasonably necessary by the Committee. To the extent the Committee determines that any transfer hereunder would result in the loss of the exemption provided under Rule 16b-3 of the Exchange Act or a similar provision, such transfer shall be deemed invalid. 12.3 WITHHOLDING. The Company shall have the right to withhold from any payment made under the Plan or to collect as a condition of any such payment, any taxes required by law to be withheld. To the extent permitted under a specific grant or award of an Incentive hereunder, a Participant may satisfy this obligation, in whole or in part, by directing the Company to withhold from such payment shares of Common Stock having a Fair Market Value equal to the amount required to be withheld, determined for Federal income tax purposes at a rate not in excess of the rates applicable to supplemental wage payments under Code Section 3402. Common Stock withheld hereunder shall be valued at Fair Market Value, determined as of the date that the amount of tax to be withheld shall be determined. Once delivered to the Committee, an election shall be irrevocable. 12.4 TAX PAYMENTS. The Committee, in its discretion, may award a cash payment to a Participant hereunder in an amount sufficient to pay all or a portion of such Participant's tax liability attributable to the vesting, exercise and/or payment of an Incentive hereunder, taking into account the value of such tax payment. 12.5 LAPSE OF RESTRICTIONS UPON CHANGE IN CONTROL. Unless otherwise provided by the Committee at the time of grant or award hereunder or unless otherwise provided in a separate agreement between the Company or an Affiliate and a Participant hereunder, in the event of a Change in Control (a) the restrictions on all shares of Restricted Stock awarded under the Plan 15 shall immediately lapse, (b) all outstanding Options shall become and remain exercisable during the six-month period following such change or such longer period permitted under an individual grant (but in no event shall an Option be exercisable more than 10 years after its date of grant), (c) all Common Stock Equivalent Units credited to Ledger Accounts established hereunder shall be immediately distributable, and (d) all Performance Objectives or other restrictions on Incentives granted hereunder shall be deemed to be satisfied or lapsed and payment made immediately. Unless otherwise provided in a separate agreement between the Company or an Affiliate and a Participant hereunder and notwithstanding any provision of this Plan to the contrary, the aggregate present value of all "parachute payments" to a Participant hereunder shall not exceed 300% of such Participant's "base amount" minus one dollar (all determined in accordance with Code Section 280G). To the extent necessary to comply with such limit, an affected Participant shall be deemed to have forfeited Incentives otherwise accelerated hereunder. 12.6 LAPSE OF RESTRICTIONS ON ACCOUNT OF A BUSINESS TRANSACTION. Unless otherwise provided by the Committee at the time of a grant or award hereunder, upon the occurrence of a Business transaction in which a Participant's employment with the Company and all Affiliates is involuntarily terminated, other than on account of Cause, (a) the restrictions on all shares of Restricted Stock awarded to such Participant shall immediately lapse, (b) all outstanding Options granted to such Participant shall become and remain exercisable during the six-month period following such change or such longer period permitted under an individual grant (but in no event shall an Option be exercisable more than 10 years after its date of grant), (c) all Common Stock Equivalent Units credited to such Participant's Ledger Account shall be immediately distributable, and (d) all Performance Objectives or other restrictions on Incentives granted to such Participant hereunder shall be deemed to be satisfied or lapsed and payment made immediately. For this purpose, the term "Business Transaction" shall mean the sale, lease or other disposition of all or a substantial portion of the assets of Cleco or an Affiliate (in one or a series of related transactions) to an entity other than another Affiliate or the sale or other disposition of all or substantially all of the issued and outstanding stock or other equity interests of an Affiliate to an entity other than another Affiliate, other than a sale, lease or other disposition that constitutes a Change in Control. The Committee shall determine whether any sale, lease or other disposition constitutes a Business Transaction hereunder. 12.7 AGREEMENTS. The terms of each Incentive granted or awarded hereunder shall be evidenced by an agreement between each Participant or Eligible Director and the Committee setting forth the terms and conditions applicable to such Incentive; such agreement shall be made in writing or by such electronic means as the Committee deems appropriate. 12.8 ADDITIONAL LEGAL REQUIREMENTS. The obligation of the Company or any of its Affiliates to deliver Common Stock to any Participant hereunder or to deliver such stock free of restriction shall be subject to all applicable laws, regulations, rules and approvals deemed necessary or appropriate by the Committee. Certificates for shares of Common Stock issued hereunder may be legended as the Committee shall deem appropriate. 12.9 GOVERNING LAW. The Plan and any Incentive granted under the Plan shall be governed by the laws of the State of Louisiana. 16 12.10 OTHER BENEFITS. Incentives granted to a Participant under the terms of the Plan shall not impair or otherwise reduce such Participant's compensation, life insurance or other benefits provided by the Company or its Affiliates; provided, however, that the value of Incentives shall not be treated as compensation for purposes of computing the value or amount of any such benefit. 12.11 DEFERRAL. If permitted by the Committee, a Participant may elect to enter into a written agreement with the Company providing for the deferral of any form of payment hereunder (whether in the form of cash or Common Stock), subject to such terms and conditions as the Committee may deem appropriate. 12.12 COMPLIANCE WITH CODE SECTION 162(M). The Committee, in its discretion, shall determine whether any specific Incentive granted or awarded to a Participant who is a Covered Employee shall be structured to constitute "performance-based compensation" within the meaning of Code Section 162(m). THIS PLAN was approved by the Board of Directors of Cleco Corporation on January 28, 2000, to be effective as of January 1, 2000, subject to the approval of the shareholders of the Company, as more fully described in Section 3.1 hereof. CLECO CORPORATION 17 EX-21 4 0004.txt SUBSIDIARIES EXHIBIT 21 SUBSIDIARIES OF CLECO UTILITY GROUP INC. Cleco Utility Group Inc. does not have any significant subsidiaries as such term is defined in Rule 1-02(w) of Regulation S-X. -----END PRIVACY-ENHANCED MESSAGE-----